Today 24th September 2020, the European Commission (EC) presented its initiative for “A Capital Markets Union for people and businesses – new action plan” (hereafter: new action plan). The new action plan is an ambitious re-launch of the Capital Markets Union (CMU) project launched under the previous Commission.
In the new action plan, the European Commission sets out its plans for the next steps in the process on the integration of EU capital markets. In addition, the new action plan ties the initiative closely to the two other main EC priorities: the Next Generation EU initiative for an economic recovery and the Green Deal. The economic impact of Covid-19, increased ambitions towards a more sustainable EU and, not least, the expected no-deal Brexit, required the EC to take action.
The Irish insurance industry follows its vision of a more integrated, innovative and sustainable EU single market. The presented new action plan is a big step in the right direction. Nonetheless, its success will depend on how the initiatives are transposed into legislative proposals and, later, put into practice.
For example, with regards to the EC’s ambitions to encourage more long-term and equity financing from institutional investors. The EC actions focus on the calibration of long-term equity under the insurance prudential supervisory regime, Solvency II. This proposal is explicitly supported by the industry. However, we believe that a more holistic approach to insurers’ ability to invest and potential regulatory burdens is necessary. Solvency II is the state-of-the-art insurance supervisory regime. But it also proved to be overly prudent and procyclical. Therefore, instead of focusing on a specific asset class, the EC should assess all potential red tape which the regime creates unnecessarily (e.g. the risk margin). The current Solvency II regime is an opportunity which should not be missed.
The EC announces that it will review the EU financial supervisory architecture in order to promote single rulebooks and enable closer cooperation (or direct supervision where applicable). We strongly support an ambitious approach towards regulatory and supervisory convergence and consistency. In line with the current consultation of the EC on Solvency II, we believe that the further integration should be triggered by the Solvency II review, already. The establishing regulations of the European Supervisory Authorities (ESAs) have been reviewed recently. Further amendments should be targeted and sector based.
We strongly support the EC’s plans to enhance retail investor involvement in EU capital markets. We believe that initiatives to improve financial literacy and financial education are of utmost importance. The EC’s actions should be reflected at national level to empower citizens to identify their own needs and priorities allowing them to make informed decisions. Under the same headline, the EC announces plans to seek greater alignment of product regulation. While we fully understand the aims of greater cooperability and clarity for the consumer, we fear that a “one-size-fits-all” approach does more harm than good in these regards. So far, EU legislators tried to achieve these goals for a subset of investment-based products under the Packaged Retail and Insurance-based Investment Product Regulation (PRIIPs). However, PRIIPs has failed to fulfil its purpose. Even years after its implementation, the vast majority of products in the scope are Insurance-Based Investment Products (IBIPs). For investment funds, which are regulated under the Undertakings of Collective Investments (UCITs) Directive, co-legislators decided that PRIIPs is not fit-for-purpose and extended an existing exemption from the scope. Therefore, we strongly believe that the current approach should be maintained and that the upcoming reviews of the respective regulations should be used to improve the quality and consistency of regulation and supervision.
One of the major vehicles for channelling retail investors savings into capital markets are sound (private) pension policies. Therefore, we appreciate that the EC included initiatives to assess pension policies and additional measures into its new action plan. Particularly policies which ensure more participation and the broader provision of basic pension products, like auto-enrolment are greatly appreciated. In addition, we believe that the Pan-European Pension Product can be a tool to provide basic pension products to EU citizens.
Not only for retail customers, but also for institutional investors, access to information and regulatory certainty are key to improve the capital markets environment in the EU. Therefore, we greatly appreciate the EC’s ambitions to create a European Single Access Point (ESAP) for data and further initiatives to reduce existing burdens on cross-border investments, e.g. on insolvencies and tax.
In addition to the aspects raised by the EC, we believe that a renewed commitment to the freedom of capital and regulatory certainty is crucial for the success of the CMU. Recent policies prohibiting the provision of dividends and similar payments significantly undermine these elements, particularly in cross-border situations. For insurers, Solvency II provides for all necessary powers for national competent authorities (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.
Insurance Ireland and its members are looking forward to engaging with domestic and European stakeholders to support the CMU project and contribute towards the further integration of the EU single market for financial services and insurance.