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20 March 2012

Insurance Europe: Concerns voiced about conglomerate supervision


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Insurance Europe (formerly the CEA) has provided comments to the Joint Forum of international financial sector supervisors on its proposed update of the principles for the supervision of financial conglomerates. Insurance Europe also co-signed a response by the INIA voicing similar concerns.


Insurance Europe response to Joint Forum on Principles for Supervision of Financial Conglomerates

The European (re)insurance industry recognises the need to revisit the 1999 principles on supervision of Financial Conglomerates in the current regulatory and supervisory environment. Generally speaking, financial services legislation all over the world has undergone an intensive overhaul in recent years, notably in light of the 2007/2008 banking crisis. In particular, the Basel Committee has adopted in 2010 the Basel III Framework, which significantly amends the 2004 Basel II Framework. In insurance, where there is no similar framework at international level, many countries are in the process of modernising the legislation currently in place. In Europe, the (re)insurance industry is preparing to implement Solvency II (2009/138/EC) and already we are seeing proposals being introduced to this package which will address additional concerns arising from financial stability discussions.

Insurance Europe believes that financial conglomerate supervision should be limited to the interconnectedness between sectoral activities. Sectoral legislation is designed to look at the operational activities of groups and financial conglomerates; compliance is assessed by the supervisor who is responsible for granting authorisation. It is important therefore that international principles do not seek to overwrite sectoral legislation upon which individual (re)insurance and banking authorisations are based.

In the case that sectoral legislation is deemed equivalent for financial conglomerate supervisory purposes, it should be possible for supervisors and undertakings to perform these functions once, it would be inefficient for the same task to be performed multiple times. Under a system of enhanced cooperation and information sharing, supervisors will be able to maintain a sufficient level of oversight.

Joint Forum consultative report - Principles for the Supervision of Financial Conglomerates

INIA appreciates the consistency between the proposed Principles and the current ones in setting up the overall architecture of financial conglomerate supervision on the basis of the same essential elements: the detection and correction of multiple uses of capital, appropriate group risk management and the avoidance of regulatory arbitrage.

INIA supports the notion that only those risks that arise from cross-sectoral activities and potential loopholes and gaps in sectoral supervision should be addressed by specific financial conglomerates’ supervision. This also means that principles for the supervision of conglomerates should not lead to duplication and multiple supervisory procedures. The applicability of the Principles should be qualified to properly take into account the capacity of sectoral level supervisors, either for groups or for solo entities, acting in coordination with one another, to establish appropriate and effective conglomerates supervision. Therefore, the Principles should only apply to situations that are not dealt with by sectoral supervision.

INIA also supports the aim to foster efficient and effective supervision of financial conglomerates across the different regions of the world, with particular attention to those active across borders. Moreover, there are provisions that should assist in accomplishing that objective while avoiding duplication, protecting confidentiality and assuring a transparent process.

With respect to the envisaged scope of application of the Principles, INIA has concerns about the proposed supervision of minority interests and holding companies. Specifically, while INIA supports the application of the principle of dominant influence, INIA strongly believes that the inclusion of other types of minority entities should be handled on a contingency basis and not as a rule.

Press release



© InsuranceEurope


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