13 Financial services
| (32459)
5523/11
COM(11) 8
| Draft Directive amending Directives 2003/71/EC and 2009/138/EC in respect of the powers of the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority
|
| Legal base | Articles 50, 53, 62 and 114 TFEU; co-decision; QMV
|
| Document originated | 19 January 2011
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| Deposited in Parliament | 25 January 2011
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| Department | HM Treasury
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| Basis of consideration | EM of 3 February 2011
|
| Previous Committee Report | None
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
13.1 As part of efforts in the last two years to improve the
regulation and supervision of financial services the EU has established
a European Systemic Risk Board and three European Supervisory
Authorities, the European Banking Authority, the European Insurance
and Occupational Pensions Authority and the European Securities
and Markets Authority. In proposing these bodies the Commission
pointed out the need for complementary amendment to a range of
existing financial services legislation.[51]
Following this the Commission published in October 2009 a draft
amending Directive (known as 'Omnibus I'), which proposed the
specific amendments that needed to be made to ten financial services
Directives, to enable the new authorities to fulfil their roles
and tasks.[52] This draft
was adopted as Directive 2010/78/EU in November 2010.
13.2 The extensive range of EU financial services
legislation, much of it adopted during the first decade of the
century under the five-year Financial Services Action Plan, typically
contains a delegation of powers to the Commission to make subordinate
legislation to put in place the more detailed technical rules
— each legislative instrument specifying the scope of the
powers conferred on the Commission. The Lisbon Treaty made significant
changes to the legal base for the conferral of powers on the Commission
in this respect. Prior to the Lisbon Treaty the Commission had
the power to make implementing measures to set out the technical
rules. It was assisted in this task by various committees and
the procedure became known as 'comitology'. Comitology for financial
services became subsumed in the Lamfalussy process.[53]
13.3 The Lisbon Treaty replaced these comitology
arrangements with two different procedures — a distinction
is made between the delegation of powers to the Commission to
adopt acts to supplement or amend non-essential elements of the
parent legislation, under Article 290 TFEU and the conferral of
implementing powers on the Commission (or in limited cases the
Council) under Article 291 TFEU. Articles 290 and 291 are subject
to entirely different legal frameworks — under Article 290
the Council and the European Parliament must not object to the
delegated act in order for it to enter into force, under Article
291 the European Parliament and the Council have a scrutiny role
but no right of veto. The Regulation laying down the rules for
the Commission's implementing powers was adopted by the Council
on 14 February 2011 and is reported at chapter [….] of this
week's Report. The Lamfalussy process has been replaced by these
Treaty changes and in consequence of the legislation related to
establishment of the European Systemic Risk Board and the European
Supervisory Authorities.
The document
13.4 This proposal is a second draft Directive
(known as 'Omnibus II') detailing further specific amendments
to two financial services Directives, the Prospectus Directive
(2003/71/EC) and the Solvency II Directive (2009/138/EC), to enable
two of the European Supervisory Authorities to fulfil their roles
and tasks. The larger part of Omnibus II would amend various articles
in the Solvency II Directive and details proposed powers to be
conferred on the European Insurance and Occupational Pensions
Authority. The draft Directive would amend the Prospectus Directive
(which was also amended by Omnibus I) thereby outlining further
powers to be conferred on the European Securities and Markets
Authority. The draft Directive:
- seeks to ensure a more harmonised
set of financial rules by empowering the two European Supervisory
Authorities to develop draft technical standards (for adoption
by the Commission) and, in the case of the European Insurance
and Occupational Pensions Authority, settle disagreements between
national supervisory authorities through binding mediation agreements
in specified areas;
- would amend the Level 2 empowerments so as to
bring the provisions on implementing measures into line with the
provisions on delegated or implementing acts in the TFEU; and
- would make other general amendments necessary
for the Prospectus and Solvency II Directives to operate in the
context of the European Supervisory Authorities.
13.5 The proposed amendments fall broadly into
five categories:
- definition of the areas in
which the two European Supervisory Authorities 'may' or 'shall'
propose draft regulatory or implementing technical standards to
the Commission in order to contribute to the development of high-quality
common regulatory and supervisory standards and practices;
- incorporation of the possibility for the European
Insurance and Occupational Pensions Authority to settle disagreements
between national supervisory authorities in matters of cross-border
supervision relating to the Solvency II Directive;
- providing the legal basis for transitional measures
to be adopted for certain aspects of the Solvency II Directive,
to ensure minimal market disruption as the new regime comes into
force;
- changing the date of implementation of the Solvency
II Directive; and
- general amendments that are necessary for the
sectoral Directives to operate in the context of the new Authorities.
13.6 Articles 10-15 of the Regulations establishing
the two European Supervisory Authorities, Regulation
(EU) No 1094/2010 and
Regulation (EU)
No 1095/2010, currently
provide that they "may develop draft ... [regulatory or implementing]
... technical standards." The Regulations provide that those
technical standards "shall be technical, shall not imply
strategic decisions or policy choices and their content shall",
in the case of regulatory technical standards, "be delimited
by the legislative acts on which they are based" or, in the
case of implementing technical standards, "be to determine
the conditions of application" of the legislative acts from
which they derive. The areas of the Solvency II Directive in which
it is proposed that, through the draft Directive, the European
Insurance and Occupational Pensions Authority shall or may develop
implementing technical standards include:
- methodologies, assumptions,
principles, techniques, etc related to quantitative calculations
(such as those pertaining to insurers' technical provisions and
capital requirements);
- procedures and criteria for the supervisory approval
of insurers' own funds and their classification into tiers;
- approval and use of internal models that insurers
may use to calculate their capital requirements;
- further details in relation to insurers' governance
arrangements; and
- reporting and disclosure of both (re)insurers
and supervisory authorities.
13.7 Article 19 of the Regulation establishing
the European Insurance and Occupational Pensions Authority provides
that it can settle disagreements between competent authorities
in cross-border situations in order to ensure compliance with
EU law. Omnibus II therefore proposes amendments to the Solvency
II Directive, including in areas where there is already some form
of non-binding mediation process possible, or where there are
time limits for joint decisions to be taken by one or more supervisors,
to enable the authority to carry out binding mediation.
13.8 The draft Directive would make only a small
number of amendments to the Prospectus Directive and does not
propose any text in relation to a binding mediation role for the
European Securities and Markets Authority.
13.9 In order to ensure a smooth shift to the
new Solvency II regime Omnibus II proposes to introduce new vires
into the Solvency II Directive to allow the Commission to introduce,
through delegated acts, transitional measures in certain areas,
with the aim of minimising the market impact of the move to a
new regulatory regime. Key instances where the use of transitional
provisions is considered desirable in the current drafting include:
- treatment of third country
solvency regimes that are unlikely to be deemed 'equivalent' to
Solvency II as of 31 December 2012;
- reporting and disclosure requirements;
- systems of governance;
- calculation of capital requirements and technical
provisions (insurance liabilities);
- valuation of assets and liabilities;
- classification of own fund items; and
- considerations relating to group structures.
In doing so, the draft Directive sets out the maximum
duration of transitional provisions in each area.
13.10 Omnibus II would change the date of implementation
of the Solvency II Directive from 31 October 2012 to 31 December
2012. In accordance with the proposed change of implementation
date, contingent dates, such as those related to supervisory reporting
and public disclosure deadlines, would also be changed to reflect
the two-month alteration.
13.11 General amendments which would be made
by the draft Directive are:
- a number of technical amendments
to allow for the sectoral legislation to operate in the context
of the two European Supervisory Authorities. For example, references
to the current Level 3 Committees, the Committee of European Insurance
and Occupational Pensions Supervisors and the Committee of European
Securities Regulators, would be changed so that reference is made
to the appropriate new authorities;
- amendments to ensure that the two European Supervisory
Authorities can obtain the information they require to fulfil
their tasks; and
- a number of amendments that would enhance the
power of the Commission or the European Insurance and Occupational
Pensions Authority to develop the details of, or ease some of
the restrictions set out in, the Solvency II Directive, including
in areas such as determining the process for approving internal
models and determining the circumstances in which supervisors
may exercise forbearance when firms are given a recovery period
following a breach of their capital requirements — these
amendments go beyond the agreed Level 1 text.
The Government's view
13.12 The Financial Secretary to the Treasury
(Mr Mark Hoban) says, in relation to technical standards, that:
- in line with the June 2009
European Council agreement[54]
the Government supports the European Supervisory Authorities (in
this case, the European Insurance and Occupational Pensions Authority
and the European Securities and Markets Authority) having a strong
technical standard-setting and rulemaking role, to improve the
quality and consistency of EU regulation; but
- this is provided that such roles are consistent
with the Regulations establishing the authorities, do not unnecessarily
re-open previously agreed positions in the sectoral Directives,
an example of a permissible exception being the insertion of transitional
provisions in relation to Solvency II implementation, and where
those powers do not duplicate the power of the Commission to introduce
delegated acts.
13.13 Turning to European Supervisory Authority
binding mediation the Minister says that:
- the Government supports the
European Insurance and Occupational Pensions Authority's role
in helping to settle disagreements between home and host supervisory
authorities in the case of cross-border supervision, subject to
the constraints agreed in Article 19 of the Regulation establishing
the authority and where Solvency II provides for joint decision-making;
- this should improve the consistency of supervision
and enhance financial stability in the EU; and
- the European Insurance and Occupational Pensions
Authority's binding mediation role should not be applied so as
to effect a transfer of competence away from national supervisors
where the Solvency II Directive has already set out a decision-maker
as part of a clearly established process.
13.14 In relation to transitional measures the
Minister comments that the Government supports them in relation
to specific aspects of the Solvency II Directive (for example,
in relation to the eligibility of certain capital instruments
to be used in meeting a firm's capital requirements), as they
will aid a smooth transition and minimise market disruption as
a result of the new regime coming into force. On the general amendments
he says that the Government supports the proposed changed implementation
date for the Solvency II Directive as well as the general amendments
considered necessary for the sectoral Directives to operate in
the context of the European Supervisory Authorities.
13.15 The Minister tells us that the Government
will work to ensure that:
- the amendments proposed in
Omnibus II do not exceed the scope set out in the Commission's
supervision proposals;
- do not re-open debates already settled in previous
Directives (such as Directive 2010/78/EU (Omnibus I) and the Solvency
II Directive);
- do not give the European Insurance and Occupational
Pensions Authority additional powers beyond what was envisaged
in the Solvency II Directive; and
- are compliant with established EU law.
13.16 Finally the Minister, noting that Omnibus
II provides that the European Supervisory Authorities shall draft
the delegated and implementing measures in respect of the Prospectus
Directive but only the implementing measures in respect of the
Solvency II Directive, says that, in the Government's view, this
seems sensible as:
- the comitology negotiations
are already well-advanced under the pre-Lisbon Treaty procedure;
and
- to require the European Insurance and Occupational
Pensions Authority to draft the measures to be adopted would involve
replacing drafts that are now close to agreement by the committees
that operate under the old procedure.
Conclusion
13.17 The changes proposed in the draft Directive,
Omnibus II, consequent on the establishment of the European Insurance
and Occupational Pensions Authority and the European Securities
and Markets Authority, whilst important, seem straightforward.
Thus there are no questions we wish to ask about the document
and so we clear it.
51 (30955) 13656/09: see HC 19-xxviii (2008-09), chapter
6 (21 October 2009), HC 19-xxx (2008-09), chapter 2 (4 November
2009), HC 5-i (2009-10), chapter 2 (19 November 2009) and HC
Deb, 1 December 2009, cols. 989-1030. Back
52
(31088) 15093/09: see HC 5-i (2009-10), chapter 1 (19 November
2009) and HC Deb, 1 December 2009, cols. 989-1030. Back
53
The Lamfalussy process was a four-level approach to regulation
of the EU financial services sector. At Level 1 the Council and
the European Parliament adopted legislation, setting framework
principles and the Commission's implementing powers, on the basis
of Commission proposals, on which it was advised by sector-specific
committees of high-level representatives of Members States chaired
by the Commission. At Level 2 sector- specific committees of national
regulators prepared and advised on implementing measures to be
adopted by the Commission. At this level the committees of high-level
representatives performed a "comitology" role of voting
on the Commission's implementing measures before their adoption.
At Level 3 the committees of national regulators worked on strengthening
coordination of regulation, for instance by establishing common
interpretations of legislation and peer group review of regulatory
practice. At Level 4 the Commission strengthened compliance with
and enforcement of EU rules.
Back
54
See http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/108622.pdf.
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