02 October 2012

Draft Technical Specifications: QIS of EIOPA's Advice on the Review of the IORP Directive

In April 2011, the European Commission asked EIOPA to provide advice on the review of the IORP Directive. The Commission intends to introduce a risk-based prudential regime for IORPs that attains “a level of harmonisation where EU legislation does not need additional requirements at a national level”. EIOPA was also requested to prepare a quantitative impact study of its advice.

On 15 February 2012, EIOPA published its final response to the Call for Advice.

The quantitative part of EIOPA’s advice puts forward the holistic balance sheet as a possible means to achieve the Commission’s objective of a harmonised prudential regime for IORPs with a uniform confidence level. The holistic balance sheet allows the full range of adjustment and security mechanisms available to IORPs in the different Member States to be explicitly recognised. Moreover, EIOPA recommends that assets and liabilities are valued on a market consistent basis.

EIOPA was unable to carry out a QIS in time to inform the advice to the Commission due to the limited time that EIOPA had to produce its advice in a large number of complex areas. However, the advice recognised the importance of performing a QIS and, in the area of valuation and capital requirements, was made conditional on its outcomes. It was particularly stressed that:

• the adoption of the holistic balance sheet in practice needs to be further investigated with respect to the feasibility of developing a methodology for the quantification of the security and benefit adjustment mechanisms and the effectiveness in terms of costs and benefits of such a methodology;
• further information is needed on the feasibility in practice of a common level of security and its effectiveness in terms of costs and benefits, given the diversity of IORPs in the different Member States. EIOPA will consider whether to offer further views on this matter in light of the results of the QIS.

The QIS also provides the opportunity to compre quantitatively the remaining options in EIOPA’s advice and to collect data to inform the discussion on tiering of assets and own funds and supervisory responses.

The QIS will limit itself to assessing the impact of EIOPA’s advice on valuation and security mechanisms on the financial requirements for IORPs providing schemes which include any guarantees to members and beneficiaries. This implies that:

• the study will not assess the impact of the advice on scope and definitions, role of the supervisor, governance and disclosure to plan members;
• IORPs providing only pure defined contribution schemes (i.e. that do not provide any guarantees to the participants) will not be included in the exercise;
• the QIS will not constitute a broad impact assessment of all costs and benefits of the EIOPA advice and/or the Commission’s objectives for the revision of the IORP Directive. However, the outcomes will feed into the comprehensive impact assessment of the Commission, which will accompany its legislative proposal.

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