I am delighted to speak here today, at the end of the Third Annual CEIOPS Conference, which has always provided a forum for convergence of ideas on current and future initiatives in the insurance sector. A number of important issues have been debated today in the respective panel sessions - the ongoing review of the Lamfalussy process, Solvency II and the implementation of the IORP Directive. Let me refer to these three issues in my closing remarks.
The review of the Lamfalussy process
2007 is the year of a wide-spread review of the Lamfalussy process. Various reports evaluating the performance of the Lamfalussy-based architecture are already on the table, including CEIOPS's contribution. Today it was for the Commission to come forward with its input to this discussion.
The Commission does not suggest major institutional changes to the current set up. These are neither desirable nor politically feasible at this stage. We propose some practical improvements for all Levels of the Lamfalussy structure. Our objective is twofold: to ensure greater consistency and convergence in national implementation and enforcement and to enhance cooperation between national supervisory authorities. Let me briefly outline some of our main ideas.
With a view to improving the legislative process, the Commission will strive for better alignment of the timetables for the adoption and transposition of co-decision and implementing measures. We will endeavour to extend impact assessments to implementing measures. The objective at Level 4 will be to enhance the transparency of national implementing measures. Disclosure mechanisms embedded in the directives, scoreboards, transposition workshops will continue to be applied in order to improve Member States’ performance.
And of course, the Commission will not tolerate any breaches of the acquis and will launch infringement procedures against Member States that are late in implementation or that do not transpose directives adequately.
The Level 3 deserves particular attention. It was indeed at level 3 that the most significant innovations were introduced, with the creation of committees of supervisors responsible for ensuring greater supervisory convergence across the Union. It is also in relation to the level 3 committees that the expectations were the highest. At a time where markets are increasingly integrated and dominated by large pan-European groups, greater supervisory cooperation and convergence is badly needed. Progress in this respect needs to intensify. A stronger political impetus is needed to foster supervisory convergence and cooperation. To this end the Commission suggests a number of improvements. No sweeping changes. Only a few, targeted and practical improvements to which, I hope, everyone will adhere.
First of all, the Level 3 Committees’ accountability towards the European Institutions needs to be enhanced.
We suggest implementing a two-step procedure: firstly, the European Parliament and the ECOFIN Council could jointly adopt, on the basis of a Commission text – and after prior consultation with the Level 3 Committees - a short political statement outlining the main achievements expected from the Level 3 Committees for the period ahead. And secondly, the Level 3 Committees would report to the three EU institutions on their achievements, or alternatively, the reasons which prevented them from meeting the objectives set.
This strategic working mandate should be accompanied by the introduction of a European dimension into the mandates of national supervisory authorities. The requirement to cooperate with other supervisors to enhance European supervisory convergence will enable and encourage the national supervisory authorities to adopt a European view and strive towards EU-wide convergence. Member States were already invited by the ECOFIN Council in October to decide on this issue before the end of 2007.
One of the key questions in this review concerns the legal standing of the Level 3 Committees. Does it need to be modified? The Commission and, as I have been assured, the Level 3 Committees themselves, are willing to explore this issue. Therefore the Commission will examine whether and what changes need to be brought into the current legal framework. In particular it should be possible to refer to CESR, CEBS and CEIOPS in the framework directives.
A first step has already been made in the proposal for the Solvency II directive which explicitly refers to CEIOPS in its operational provisions, conferring to it mediation tasks and one specific decision-making power.
And last, but not least, the Commission believes that the efficiency and effectiveness of the decision-making procedures of the Level 3 Committees need to be strengthened. The Level 3 Committees could introduce in their charters qualified majority voting for all advice to the Commission and any measure aimed at fostering supervisory convergence. Alternatively, if this is not possible, the Commission’s Decisions setting up the Level 3 Committees could be changed.
The review of the Lamfalussy process will remain a priority for most of next year. A first discussion will take place in the ECOFIN Council on 4 December. The Slovenian and French Presidency will then have an important mission to carry the work forward. I would like to stress that I want to implement the much-needed reforms in close collaboration with all supervisors. There cannot be a top down imposition of new working methods. These need to be implemented collectively. But I would urge all supervisors to embrace change. Not to resist it. Europe is moving forward. The supervisory community cannot lag behind.
Solvency II and CEIOPS
Let me now turn to Solvency II, which is a key political priority for the Commission. We see indeed this project as a great opportunity to create a world class regulatory framework for insurance.
Good progress is being made in the Council, thanks to
a very committed
Portuguese Presidency. The first discussion has been constructive. Whilst many
other (and sometimes difficult) discussions lie ahead, I sense a real
willingness on all sides to come to an agreement next year.
I also look
forward to receiving the input from the Parliament, where work is starting under
the leadership of Mr. Skinner. I am sure he will have a very helpful and
constructive contribution to the legislative process.
Solvency II is the first insurance directive to be adopted under the Lamfalussy procedure and, as the responsible Level 3 committee, CEIOPS has played a key role in the design of the project. I expect CEIOPS to continue doing so.
The quality of the work carried-out so far by CEIOPS has been outstanding and I would like to thank all those involved for that. The Quantitative Impact Studies undertaken by CEIOPS have allowed us to test the impact of the proposed new requirements on insurers’ financial resources. The results of QIS 3 are particularly important because they will have an impact on the final text of the proposal during the course of the negotiations. The QIS 3 results will be discussed in the Council on 26 November and in the European Parliament on 18 December.
If we want to deliver the Project on time, we must respect a tight time schedule. We have therefore asked CEIOPS to come forward with the draft specifications for QIS 4 by 20 December. We will then consult on the draft specifications between the end of December and mid-February to ensure that they are as high-quality as possible and that they command broad support from the industry and other stakeholders. We are also planning a public hearing for 28 January 2008 where all stakeholders are invited to come forward with their suggestions on how to ensure that the specifications of QIS 4 clearly reflect the issues which still need to be tested.
It reflects well on CEIOPS and the industry that almost 20% of the industry took part in QIS 3. This has been very valuable. It is vital that participation remains strong so that we receive high quality input. In particular, we need detailed data on the proposed approach for groups and on the simplifications for SMEs. The openness and transparency shown by CEIOPS has helped to encourage greater involvement in the Solvency II Project. In the next phases industry, stakeholders and CEIOPS will need to work together even more closely.
CEIOPS will have a challenging work programme ahead. It is not yet clear in which areas implementing measures will be needed. The final say on this lies with the co-legislators. However, in order for the final advice to be given to the Commission by October 2009, CEIOPS needs to start working now on advice in those areas where it is clear that implementing measures will be required to make the system work. We have therefore agreed a detailed work plan with CEIOPS on further solvency work to be done between now and 2012.
I wish to particularly emphasise the importance of advice on practical
measures to facilitate the effective supervision of groups and the
implementation of the "group support" regime. The Commission is strongly
committed to the approach set out in the Framework Directive and I encourage
industry and stakeholders to provide us with their views on how they see the new
regime operating. This will help the co-legislators to finalise their views on
this issue.
Group supervision is indeed a key aspect of the Solvency II
Project. Supervision needs to take account of the economic reality.
This means that we must adapt our regulatory and supervisory arrangements to an evolving economic environment, which is increasingly shaped by a number of large insurance groups that operate internationally.
CEIOPS will also need to start preparing work on Level 3 supervisory guidance in order for the work to be finalised during the second half of 2010. We know that Solvency II will only truly contribute to an improved internal market for insurance services if there is a high degree of convergence in supervision, not only in theory but also in practice. This will remain an important task for CEIOPS for many years to come.
The implementation of the IORP Directive and its relationship with Solvency II
I would like to finish by saying a few words about the Directive on Institutions for Occupational Retirement Provision (IORP). This Directive has now been implemented by all Member States. A few problems remain and they are subject to infringements procedures which we have launched against the relevant Member States.
The purpose of the IORP Directive is two-fold: first, to promote regulatory convergence between the Member States with regard to the prudential aspects of the IORP business, and secondly, to promote cross-border business of IORPs.
On the first objective, substantial progress has been made by the Member States' supervisors, notably with the adoption of the Budapest Protocol. Progress on the second objective is more difficult to assess. Launching cross-border business remains difficult because of the existence of local social and labour law requirements. It is too early to tell whether the Directive has delivered its full potential in this respect. The Report which CEIOPS is preparing on the implementation of the Directive will be extremely useful and we will look at that in detail during the course of 2008.
Both CEIOPS and the Commission are aware of the challenge which Solvency II will bring not only to the world of insurance, but also to the world of pensions. It was agreed with Member States in 2006, that the issue of a possible extension of some aspects of Solvency II to pension funds would not be tackled directly under the Solvency II Proposal, but be examined in the context of a review of the Directive in 2008. In order to prepare the discussion, we have asked CEIOPS to start already now examining the existing solvency rules for pension funds. It is only after having produced this fact-finding exercise that we will be able to better understand how solvency rules operate in the area of pension funds.
I believe that further work is needed here before we can commit ourselves to any specific regime. I count on CEIOPS to help in this regard and we will send a specific Call for Advice to CEIOPS early next year. In any event, a strong business case will be required if we are to decide on a revision of the IORP directive.
Conclusion
Let me now conclude. The European insurance sector stands to gain a lot from current regulatory and supervisory developments. By allowing insurance supervisors to cooperate more efficiently together, the review of the Lamfalussy process should adapt our supervisory arrangements to the business reality.
The Solvency II directive serves the same purpose: it will base regulatory intervention on actual economic risk. It will also recognise the fact that large groups operate as single economic entities and not as separate legal divisions.
With the review of the Lamfalussy process and the Solvency II directive, we have a golden opportunity to boost the competitiveness of the European insurance sector, improve the soundness of our supervisory framework and offer better and cheaper products to European consumers. But for all this to happen, we must remain bold and ambitious. The Commission is therefore determined to swiftly implement the review of the Lamfalussy process. It is also determined to oppose a watering-down of the most innovative and forward looking proposals made in the Solvency II draft directive.
This directive should remain fit - for - purpose for many years to come. We must therefore get it right - looking to the future, not to the past.
More information: IP/07/1731.
