On 7th July 2020, the European Commission (EC) launched a public consultation on a roadmap in preparation of the re-boost of the Capital Markets Union (CMU) Action Plan later this year.In its reply to the consultation, Insurance Ireland stated the following:
Insurance Ireland is the representative body of the Irish insurance industry. Ireland is the 5thbiggest insurance market in the EU and the 2nd biggest market for reinsurance. Our members serve customers in more than 110 countries including 24 EU Member States. The integration of the EU single market is a key objective of our engagement at European level
We strongly support the CMU initiative. The CMU can have a significant impact on the EU’s economic recovery and the Green Deal. The CMU should aim at improving fair competition, enhancing the competitiveness of EU players at global level and, thereby, increasing product availability and consumer choice.
With regards to its re-boost, we highlight the following aspects:
1.Optimising regulatory and supervisory convergence enhances fair competition, consumer protection and a regulatory level-playing field in the EU. In contrast to banks, with the Single Supervisory Mechanism, a more collaborative approach by National Competent Authorities (NCAs) is appropriate for insurance supervision. Such an approach does not need a single supervisor, but it requires a common interpretation of the single rulebook, consistent supervisory processes and an effective cooperation of NCAs. It is crucial that the European Insurance and Occupational Pensions Authority (EIOPA) has the right tools to steer this process. Improving information exchange and cooperation through digital supervisory platforms would be most important.
2. The freedom of capital and regulatory certainty are crucial aspects for the success of the CMU. Recent policies prohibiting the provision of dividends and similar payments significantly undermine these elements. Solvency II provides for all necessary powers for NCAs to assess and prohibit such payments on a case-by-case basis. Policies urging NCAs to diverge from the regulatory provisions are damaging the reliability of the EU regulatory framework. In cases, where cross-border intra-group transactions were prohibited, the freedom of capital is ultimately harmed. We believe that any political decision which interferes with the fundamental freedoms and the mandate of EU legislation should require a transparent and timely involvement of co-legislators.
3. Capital requirements must be reviewed to ensure the full investment and risk-taking capacity of insurers. The EU regulatory framework for insurers, Solvency II, proved to be robust, particularly during the recent capital market turbulences due to the Covid-19 crisis. But it also proved to be very prudent and inappropriately procyclical. Proposals to review the treatment of investments in equity and private debt are welcome. However, we suggest adjusting capital requirements holistically to avoid procyclicality, ensure insurers’ ability to invest long-term and mitigate risks.
4.We believe that the CMU should aim to enhance digital service provision and capital market governance. The use of technology can significantly enhance market access and ease of interaction/service for consumers. Capital market governance frameworks would benefit significantly from improved access to and exchange of data. For managing new and emerging risks (e.g. cyber) and for compliance purposes (e.g. sustainable finance) creating a European Single Access Point (ESAP) to data would be important for insurers.
5. Retirement savings are a central element for consumer participation in capital markets. Increasing the attractiveness of pension savings and the opportunities the new Pan-European Personal Pension Product (PEPP) can offer should be fully embraced. The efficiency and effectiveness of pension regimes should be strengthened, e.g. through auto-enrolment and basic pension products, like the PEPP.
In addition to the statement on the roadmap, we would urge the EC to avoid misleading attempts to streamline information requirements and conduct provisions across different financial services sectors. While we strongly support improved regulatory and supervisory convergence of consumer protection across the EU, we are sceptical that a one-size-fits-all approach can be appropriately sound and sensitive across the different sectors. The Packaged Retail and Insurance Investment Products Regulation (PRIIPs) is not a success story in this respect. Only recently, EU institutions prolonged an exemption of the inclusion of investment funds from the scope of PRIIPs even though the core purpos of the regulation was to increase comparability of different investment products.
An inconsistent set of rules under PRIIPs are currently exposing consumers and product providers to considerable uncertainty. PRIIPs needs a fundamental review. Quick fixes of subordinated regulation and the inclusion of additional misleading information (e.g. past performance) do not solve the key problem. At the same time PRIIPs should be a warning for the limits of comparability of different products. We are looking forward to the results of an EC study on retail investment products. We hope that the right conclusions are drawn from the results of the study and improvements can be made to the whole conduct regulation package of PRIIPs, the Markets in Financial Instruments Directive/Regulation (MiFID/MiFIR) and the Insurance Distribution Directive. It will only be possible to increase consumer engagement in capital markets if consumer information is sound, comprehensible and digestible for consumers.
Finally, we would like to express our support the joined industry position as expressed by Insurance Europe.