02 March 2015

Insurance Europe's response to EIOPA consultation on product intervention powers

Insurance Europe has responded to a consultation by the European Insurance and Occupational Pensions Authority (EIOPA) on product intervention powers under the Packaged Retail Investment and Insurance-based Investment Products (PRIIPs). 

The basic idea of European Insurance supervision (ESFS) is that the European Supervisory Authorities (ESAs) ensure a consistent application of common supervisory provisions and coordinate supervisory action while the national competent authorities (NCAs) execute the direct supervision (day-to-day business) over their respective markets. The intervention powers in Art. 16 and Art. 17 PRIIPs Regulation reflect this distribution of roles between the European Insurance and Occupational Pensions Authority (EIOPA) and the NCAs: the European legislator in Art. 16(2) and Art. 16(3) PRIIPs Regulation sets out conditions that are to be read cumulatively and must be met before EIOPA can adopt the specific measures set out in Art. 16(1).

The legal conditions in Art. 16 strictly limit EIOPA’s powers in practice. This particularly applies to legal requirements in Art. 16(2)(a) PRIIPS Regulation (“significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system in the Union)”. Furthermore, recital 25 of the PRIIPs Regulation clarifies that there must be “serious concerns” and that the intervention requires a “public interest”, i.e. a collective effect in order to evidence a “significant investor protection concern”. This said the technical advice should be very clear about the fact that the specific criteria and factors serve only as a tool for assessment (“to be taken into account”).

Moreover, they can neither replace careful examination by EIOPA nor define or replace the legal requirements in Art. 16 (2) PRIIPs Regulation. It should be a common understanding and clarified in the Delegated Acts that even if certain criteria or factors in the delegated acts apply, there is no automatic right for EIOPA to intervene and, in any event, only in exceptional circumstances. The legal threshold to be met before EIOPA can intervene under Art. 16 is, rightly, very high. Supervisors may only intervene under the PRIIPs Regulation in exceptional cases.

The request by the legislator to specify criteria and factors to be taken into account by EIOPA before taking action under Art. 16 must not be understood as a general invitation to anticipate new legislation. There already are legislative acts that refer to specific criteria. Other legislation is currently discussed. For example, the PRIIPs Regulation sets standards for the transparency of cost, risk and reward with its key information document.

It would not be acceptable if EIOPA and the Commission were to establish new standards without regard to the political discussion and its results on Level 1. Product design and pricing should always remain within the responsibility of the manufacturers. The intervention powers should also not anticipate the implementation of the review of the Insurance Mediation Directive (IMD2), which is still under discussion. Areas which the EU legislator deliberately leaves to Member States’ discretion at level 1 must be respected. The criteria should not, therefore, pre-empt or interfere in any way with the way Member States will implement the future IMD 2 provisions.

A number of criteria or factors quoted fail to give evidence justifying a need for a prohibition or restriction of a product. Examples include the criteria falling under the "degree of innovation" or "communication or distribution channels" or “selling practices associated with insurance-based investment products”. It is more a list of areas where intervention could take place than criteria or factors to be taken into account in determining when there is a problem or a threat justifying intervention.

In Insurance Europe’s view, EIOPA should be cautious when adopting regulation developed by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) for the financial sector, as these do not always suit the specificities of insurance-based investment products.

The limits of the intervention powers, which stem from the scope of the PRIIPs Regulation, must be taken into account when determining the criteria. Art. 2(2) PRIIPs Regulation lists products to which the Regulation and, therefore, the intervention powers are not applicable. In particular, the rules currently discussed for pension products should not be prejudged.

Any product intervention by the ESAs or NCAs must not deter investment and innovation and will only cause investor access problems and ultimately reduce choice. It is therefore important that compelling evidence must be available to justify any radical intervention, particularly at pan-EU level.

Finally, there must be clarity as to the process of appeal to be followed by manufacturers where EIOPA has taken a decision to intervene.

Full response

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