Insurance Regulatory Update November 2019
This is the November edition of the Arthur Cox Insurance Regulatory Update, the monthly bulletin of the Arthur Cox Insurance Group, focusing on recent developments in insurance regulation, law and practice.
In this issue, topics covered include: the publication of the Central Bank’s Guidance on the Administrative Sanctions Regime; responses by National Competent Authorities to EIOPA’s Brexit Recommendations; EIOPA’s proposal for a harmonised recovery and resolution framework and the Director General of the Central Bank’s speech on proposals for the Senior Executive Accountability Regime.
Domestic News November 2019
Central Bank launches Guidance on Enforcement Actions
The Central Bank has published new Administrative Sanctions Procedure (ASP) Guidance. Readers will be aware that in Section 6.3 of the Outline of the Administrative Sanctions Procedure 2018 (the Outline, available here), the Central Bank sets out the various factors it takes into account when sanctioning firms and individuals under the ASP. The Guidance provides insight as to how the Central Bank interprets sanctioning factors under the four headings as are listed in the Outline: ‘the nature, seriousness and impact of the contravention’; ‘the conduct of the regulated entity after the contravention’; ‘the previous record of the regulated entity’; and ‘other general considerations’. A detailed article on the Guidance prepared by the Arthur Cox team is here.
The Director General of the Central Bank’s speech on Senior Executive Accountability Regime and its expectations of firms
On 31 October 2019, the Director General of the Central Bank, Derville Rowland, addressed IBEC and the National Fraud Prevention Conference on proposals regarding Individual Accountability and the Senior Executive Accountability Regime (SEAR).
Her speech outlined the reasons why the Central Bank has advocated for more individual accountability at senior level, addressed what the Central Bank’s proposals are in this context, and illustrated why the Central Bank feels the proposed regime will play an important part in helping firms drive a ‘positive and consumer focused culture in the future’.
In line with global regulatory moves towards greater individual accountability, the Central Bank proposes:
- the introduction of five clear and enforceable conduct standards to apply to all staff in all regulated firms, (for example, a standard to behave with honesty and integrity), with some additional conduct standards for senior managers;
- the SEAR will be introduced to ensure that senior managers have clear responsibilities within the business, for which they will be held accountable;
- a unified enforcement process, to apply to breaches by firms and individuals of financial services legislation; and
- further enhancements to the current Fitness & Probity Regime regarding firms’ assessment of individuals in senior positions.
The proposed unified enforcement process will allow the Central Bank to pursue individuals directly, rather than only where they are proven to have participated in a firm’s wrongdoing. The Central Bank also expects professional advisers to play their part in driving the cultural transformation, by advising firms ‘to comply not only with the letter of the rules, but also with the spirit’.
The Director General emphasised that while robust enforcement action continues to underpin the Central Bank’s powers, it would ‘far rather that firms focus on preventing wrongdoing in the first place than on punishing them after the fact’. The Central Bank plans to intensify their focus on conduct regulation over the next three years, including expanding their wholesale conduct regulation. Finally, she noted that while the proposed reforms to establish an Individual Accountability Framework were ultimately a matter for the Oireachtas, the Central Bank is actively engaged with the Department of Finance in the development of the proposed Central Bank (Amendment) Bill.
Non-Life Insurance (Provision Of Information) (Renewal of Policy of Insurance) (Amendment) Regulations 2018
These Regulations amend existing rules so as to enhance transparency for consumers. The following new rules are included:
- On renewal, insurers must now provide policyholders with details of the premium paid for private motor insurance in the previous year. This information must feature prominently on the same page as the renewal premium;
- Motor insurers must also provide a quotation for each policy option available to the customer: e.g. comprehensive cover in comparison with third party cover only; and
- The renewal notification period is extended from 15 to 20 working days for motor, health, damage to property and general liability insurance to give policyholders more time to get alternative quotes.
Insurance Ireland welcomes the Regulations: ‘it has always been our belief that these regulations are important in assisting insurance customers in making informed decisions on the cover that is right for their needs’.
Insurance Ireland advises Insurance Customers should shop around regularly
In light of recent media reports that the Central Bank and the CCPC will be conducting a study on dual pricing practices by insurers, Insurance Ireland has issued a statement saying it will seek clarity from the Central Bank on its intended assessment on adherence to the Consumer Protection Code in this regard. It will also engage constructively with the Central Bank on this assessment. Insurance Ireland makes clear it considers pricing to be a commercial matter and the sole responsibility of individual insurers.
A link to the statement is available here.
Insurance Ireland appoints Gerry Hassett as Interim CEO
Insurance Ireland has announced the appointment of Gerry Hassett as interim CEO, with effect from 1 November. He replaces Kevin Thompson who is leaving Insurance Ireland to take up a senior role within the Industry.
Gerry was Managing Director of Irish Life Financial Services for 29 years, and also worked in Canada restructuring and transforming the Individual Customer Division of Great-West Life. He is also a former president of Insurance Ireland. The process for the appointment of Kevin’s permanent successor is ongoing and the Board believes that Gerry will help advance the organisation’s priorities during his time as Interim CEO.
A link to the Insurance Ireland press release is available here.
International News November 2019
National Competent Authorities respond to EIOPA recommendations for the insurance sector in light of the UK withdrawing from the EU
EIOPA has published NCA responses as to whether they comply, intend to comply or do not intend to comply with the recommendations set out in their ‘Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union.’
The recommendations covered the general objective of facilitating the withdrawal of the UK from the EU with minimal policyholder detriment and eight other specific areas: orderly run-off; portfolio transfer; change in the habitual residence or establishment of the policyholder; authorisation of third country branches; lapse of authorisation; cooperation between national competent authorities; communication to policyholders and beneficiaries; and distribution activities.
EIOPA proposes the introduction of a minimum harmonised recovery and resolution framework for insurance across the EU single market
On 15 October 2019, EIOPA published a consultation paper, Opinion on the 2020 review of Solvency II, available here, which includes a proposal to establish a recovery and resolution (R&R) framework for insurance. Certain countries such as France, the Netherlands and Romania have adopted their own R&R framework which has resulted in a fragmented R&R regulatory landscape. Therefore, EIOPA proposes to introduce a minimum harmonised R&R framework across the EU Single Market.
EIOPA is calling for advice to produce an opinion which will respond to the call for advice of the European Commission in February of this year, available here. This consultation covers all areas of the call for advice except insurance guarantee schemes and most topics on reporting and disclosure which have been consulted upon at an earlier stage. The proposal to establish a minimum harmonised and comprehensive recovery and resolution framework for insurance is one of the main specific considerations and proposals of this consultation.
In the advice, EIOPA focuses on the recovery measures including the request for pre-emptive recovery planning and early intervention measures. The advice also covers all relevant aspects around the resolution process, such as the designation of a resolution authority, the resolution objectives, and the need for resolution planning and for a wide range of resolution powers to be exercised in a proportionate way. The last part of the advice is devoted to the triggers for early intervention, entry into recovery and into resolution.
The deadline for submission of feedback is Wednesday, 15 January 2020 and must be sent via email to the following email address: CPfirstname.lastname@example.org, using the provided templates for comments. The EIOPA news article is available here.
Insurance Europe opposes an EU initiative on harmonisation of Insurance Guarantee Schemes
Insurance Europe has responded to EIOPA’s consultation on proposals to harmonise European Insurance Guarantee Schemes (IGS). Insurance Europe is opposed to an EU harmonization of IGS. It believes that while IGS at member state level currently vary significantly across Europe, they generally work well within their local context and laws. Insurance Europe raised a concern that even a minimum level of harmonisation would create significant costs and involve complex challenges for which there may not be acceptable solutions.
A link to the Insurance Europe press release is available here and its response to the EIOPA is available here. This consultation period opened on the 12 July 2019 and ended on the 18 October 2019. EIOPA will be setting out its advice on the harmonisation of national IGS, together with the other matters it will be advising on, in its final Opinion on the 2020 review of Solvency II referred to above.
European Supervisory Authorities (ESAs) seek a consistent application of the Pripps Regulation to bond markets
On 24 October 2019, the ESAs issued a Supervisory Statement in order to promote a consistent application by National Competent Authorities (NCAs) of the scope of the PRIIPS Regulation to bond markets. Uncertainty as to the scope of the PRIIPs Regulation to different bonds has led to negative consequences, both for the functioning of bond markets, and for access to these markets by retail investors.
The Statement seeks to mitigate the risk of divergent application by NCAs of the PRIIPs Regulation as regards determining the type of bonds for which it is necessary to draw up a Key Information Document (KID). The Statement contains guidance for NCAs to determine how to apply the provisions of the PRIIPs Regulation to different types of bond. The ESAs also recommend that NCAs carry out certain steps as part of their risk-based supervision.
Specifically, NCAs should:
- Supervise whether PRIIP manufacturers draw up and publish KIDs on their website for bonds that fall within the scope of the PRIIPs Regulation;
- Monitor whether persons selling bonds that fall within the scope of the PRIIPs Regulation comply with the requirements in Article 13 of the Regulation; and
- Take appropriate measures, including taking administrative steps in accordance with Chapter V of the PRIIPs Regulation, where they discover non-compliance.
IAIS adopts first global frameworks for supervision of interationally active insurance groups (IAIGs)
On 14 November, the IAIS adopted a Common Framework that establishes supervisory standards and guidance focusing on the effective group-wide supervision of IAIGs. It is also working on an Insurance Capital Standard, with the purpose of creating a common language for supervisory discussions of group solvency of IAIGs to enhance global convergence amongst group capital standards.
The IAIS also adopted the Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector, for implementation from the beginning of 2020. This framework consists of an enhanced set of supervisory policy measures and powers of intervention including mechanisms for annual IAIS global monitoring.
In addition, the IAIS published helpful Common Framework FAQ’s. The FAQ’s and media release relating to the new reforms are available here.
EIOPA launches call for research proposals
On 21 October EIOPA launched a call for research proposals which aim to address open questions relating to EU policy on topics which effect the insurance sector, including:
- Investment allocations of insurers and pension funds;
- Liquidity stress testing in the insurance sector;
- Early warning systems in insurance;
- Systemic relevance of the insurance sector and its interlinkages with financial and real sectors; and
- Economic valuation of insurers’ liabilities; best estimate and risk margin.
Both theoretical and empirical research proposals are welcome but only a limited number of the proposals will be selected, as each research project will have to be developed in cooperation with the EIOPA staff. The selection will be quality based and also based on EIOPA’s interest in the topics suggested.
The deadline for the proposals is 15 December. A link to the EIOPA announcement is available here.