Insurance and reinsurance - Solvency II
Opening the third exchange of views rapporteur Peter Skinner (PSE/UK) presented his latest working document and announced that the timetable for the presentation of the draft report has shifted and will now be presented on 1 April instead of 26 February 2008. Karel van Hulle (European Commission) said that the Commission will adopt the revised Solvency II proposal on 26 February.
Due to these delays and the still outstanding results of QIS 4 the timetable might be subject to further delays.
In his opening remarks Mr Skinner made clear that his last working document focuses on group supervision including group support mechanism and on Minimum Capital Requirement (MCR) with the fourth Quantitative Impact Study (QIS 4). In addition, the working document aims to clarify terminology related to own funds and eligible capital as used in the draft Directive as well as market risk modules in the calculations of SCR.
Statements from EPP members:
Karsten Hoppenstedt (EPP/DE) said that he is pleased by the fact that the Skinner document does not mention surplus funds anymore. He also noted that the proposed group supervision does not propose an end to the solo supervisor as they become an integral part. However, some minor amendments should be integrated.
As regards to the MCR he called for “judicial verifiability” which should be added. Other issues to be looked at include the treatment of structured products, and the regular prove of the underlying correlation factor.
Gunnar Hökmark (EPP/SW) asked for more clarification on the treatment of surplus funds. He also warned not to raise barriers with the treatment of 3rd countries.
John Purvis (EPP/UK) noted that the 3rd country issue is “quite up in the air” and called for further clarifications. Agreeing to Mrs Starkeviciutes’ remarks a crises situation abroad he noted that it has to be clarified how capital moves in such situations, and how ‘equivilance’ works under supervisory cooperation.
Jean-Paul Gauzes (EPP/FR) pointed to Pension Funds and MCR and noted that one has to look at it in more detail.
Statements from ALDE members:
Margarita Starkeviciute (ALDE/LIT) warned that evidence from researchers show that the risk based approach is quite dangerous, particularly for smaller countries. She asked what happens in a crises situation abroad, like the subprime crises in the US, and warned that EU countries should – in the end - not finance the failure of companies abroad. She also noted that the transfer of powers should go hand in hand with a transfer of liabilities. Both should be on the same level.
Sharon Bowles (ALDE/UK) also touched upon the supervisory issues and called for more clarification how the concept of home-host country regulators works. She also reminded to the problem of how to deal with holding companies. She finally suggested thinking about a possible third way for the calculation of the MCR.
Statements from PSE members:
Ieke van den Burg (PSE/NL) also pointed to the 3rd country problem and called to assess possible risks. The Committee should also look at the advantages of a linear approach as the modular approach proved to be inappropriate as QIS 3 showed.
There is also a case to go beyond the concept of group supervision which might take away many of the concerns by national supervisors. Finally, she noted that there is a cross-reference between Solvency II and Pension Funds. She therefore asked for a possible “Solvency II like” system for Pension Funds.
Pervence Beres (PES/FR) and Antolin Sanchez (PES/ES) also called for to look for a European model for supervision. With regard to the organisation of group supervision, Mrs Beres also called for a greater role of CEIOPS. She also noted that one has to take a look on Pension Funds and their long-term investments. Mr Sanchez finally also underlined the need to look at group solvency.
Robert Goebbels (PSE/LUX) agreed with Mrs Starkeviciute on the problematic for smaller member states. He called for more transparency and questions what happens to smaller countries in case of takeovers.
Provisional timeline:
1 April - ECON Draft Report
Mid May 2008 - Deadline for Amendments (probably later)
June / July 2008 - Vote in ECON Committee
Working document (21 Feb 08)
Commission document
Hedge funds and private equity
Rapporteur Poul Nyrup Rasmussen (PSE/DA) could not present a working document but started the discussion stating that the new report should reflect on the lessons to learn from the last financial turmoil. He also noted that there is a clear need for a European regulation on alternative investments.
Responding to the statement Piia-Noora Kauppi (EPP/FI) regretted that there is no paper to discuss upon and harshly criticized the rapporteur of political populism. She warned not to mix-up hedge fund and private equity, and not to accuse hedge funds to have caused the sub-prime crises.
Referring to the JURI hearing on transparency of institutional investors she noted that this has shown some hints on transparency issues. The report should also elaborate on existing legislation and should take account of the fact that actors are already regulated in one or the other way.
However, there is a case with regard to the use of ‘codes’. The IOPR directive, for example, mentions the prudent person principle but does not line out which code to follow. Also, for retailers’ access to hedge funds there is the case of consumer protection.
Gay Mitchell (EPP/IRE) agreed to Mrs Kauppi but wants assurance from the industry that the currently existing legislation and regulation is really working. Kurt Joachim Lauk (EPP/DE) asked the rapporteur to provide a list of those areas where regulation is not existing or lacking as a basis for discussion. Thomas Mann (EPP/DE) asked the rapporteur to elaborate the differences between hedge funds and private equity and what regulation can really contribute. John Purvis (EPP/UK) saw the retail market as only area for possible further regulation, in particular with regard to the sellers of those kind of products.
Ieke van den Burg (PES/NL) elaborated further on the working document to be published by saying that this will not be a political pamphlet but is of much more detail. High leverage is one of the central points, she said. Other issues include the role of taxation, corporate governance and self regulation, as well as supervisory aspects.
Peter Skinner (PES/UK) noted that it has to be proved if hedge fund and private equity are working pro- or anti-cyclical.
Wolf Klinz (ALDE/DE) however reminded that the document should focus on hedge funds and private equity, and not on ‘the rest of the world” issues as well. He called for a report free of any ideology.
Closing the debate, Mr Rasmussen acknowledged the need for a serious documentation. He agrees to the fact that banks have caused the latest financial turbulences, but fears about contagion effects to spread to other financial institutions.
Timeline:
March: Draft document
8 April: Discussion
5 May: Vote in ECON Committee
July: Vote in Plenary
Transparency of institutional investors
Draftswoman Sharon Bowles (ALDE/UK) introduced her report underlining that transparency has to be handled with care as unintended effect as to be observed in the US have to be prevented. It therefore has to be differentiated between transparency towards the general public, the investors and the supervisors.
She also noted that an OTC clearing system is attractive in theory but would add to costs, and underlined the positive role of ‘Voluntary Codes’ as it could also spread abroad and can reach companies operating outside Europe.
John Purvis (EPP/UK) agreed to the report but wants to add the issue on retail investors as already mentioned.
Elisa Ferreira (PES/POR) was disappointed by the report as it only states what cannot be done. Ieke van den Burg (PSE/NL) noted that the opinion should not only focus on hedge funds and private equity, but also on the effect on the real economy as planned for the Rasumssen report.
Margarita Starkeviciute (ALDE/LIT) and Olle Schmidt (ALDE/SWE) underlined the role of increased transparency that has to be reflected in the report. Mrs Starkeviciute also calls for more clarification with regard to OTC business, while Mr. Schmidt wants to have a reference to Sovereign Wealth Funds.
Timeline:
8 April: Workshop
14 April: Deadline amendments
5/6 May: Discussion on amendments
19 May: ECON vote (Strasbourg)
Draft Opinion (rule 47)
Green Paper on Retail Financial Services in the Single Market
Competition: Sector inquiry on retail banking
(Both reports were discussed together)
Rapporteur on retail financial services Othmar Karas (EPP/AT) proposes ways forward to enhance the retail financial services market in the EU by dismantling existing barriers for providers, to bring more choice and lower prices to consumers and SMEs. He calls for a proper impact study that must correctly ascertain the market conditions.
The level of harmonisation, be it minimum, part, or full harmonisation has to be clarified. Mr Karas also calls the Commission to put forward a clear definition for a 28th legal framework. Also, effective self-regulation of the financial services industry should be preferred to any legislative regulation.
Rapporteur on the sector inquiry Gianni Pittella (PSE/IT) focused in his report on customers' mobility, transparency, credits registers and intermediaries, cooperation between banks and payments systems. Any obstacle to consumer mobility is damaging competition, he said. As the information to the consumer must be increased he calls on the Commission to work on enforcing obligations for banks to provide a single document summarising details of all costs.
Responding to the reports Antolin Sanchez (PES/ES) noted that a standardisation of products would go much too far but instead called for a higher degree of comparability of products.
Valdis Dombrovskis (ALDE/LAT) called for a higher degree of transparency and a clear definition of financial products. Also, obstacles to mobility are not only resulting from a lack of competition but also from the comparability of products. Finally, there should be the same rules for distance selling in all EU member states.
Margarita Starkeviciute (ALDE/LIT) also underlined the difficulties to compare financial products in different member states and called for a clear definition of retail products. She also asked whether the requirements for advertising retail products should not be subject to supervision.
Winding up the discussion Othmar Karas (EPP/AT) noted that due to the variety of products and markets a single supervisor is unlikely. He also noted that the Commission is already working on the plan to develop a credits register.
Timetable:
13 March: Deadline for amendments
7/8 April: Discussion
6 May: Vote in Committee
Draft report Karas, Commission Green Paper
Draft report Pitella, Commission Sector Inquiry
Vote:
A simplified business environment for companies in the areas of company law, accounting and auditing
Draftswoman: Ieke Van Den Burg (PSE)
Consideration of amendments
Draft Opinion, amendments
Commission document
The report was adopted with a umber of compromise amendments. The final text will be available soon.
© Graham Bishop