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In my view, two important lessons from the QIS can be learned:
I. First, the current IORP Directive with its minimum harmonisation approach has led to large differences in the protection of members and beneficiaries across Europe. This conclusion can be taken from the wide range of impacts: surpluses for IORPs in some Member States and at the same time large shortfalls for IORPs in other countries.
II. Second, pension funds dispose of vulnerabilities in different places:
A future European regulatory regime should be:
Enhancing EIOPA mandate
During the now almost three years of our existence we identified certain “gaps” that don’t allow us to fully perform the mandate assigned to EIOPA by EU law. For example in the pensions area our mandate only covers occupational pensions, the so called 2nd pillar. However, I believe that the implementation of the EU agenda for adequate, safe and sustainable pensions calls for a sufficient level of regulation and supervision of personal pensions, the so called 3rd pillar. Consequently, EIOPA’s mandate should be extended to all 3rd pillar pensions. This is also recommended by EIOPA’s Occupational Pensions Stakeholder Group in their comment to the Commission’s White paper on Pensions...
I think that we should also explore the development of an “EU retirement savings product”. This product could be developed to finance individual or collective DC plans and should clearly differentiate from other types of investment products by being focused on the long-term nature of their objective (retirement savings), avoiding the traps of the short-term horizon. It should be based on a simple framework, allowing for reduced cost structures and be managed using robust and modern risk management tools. It should have access to a European passport allowing for cross-border selling. An EU certification scheme could give to EU citizens certainty in the quality of all marketed “EU retirement savings products”.
So there is a lot to do for EIOPA in order to contribute to the better protection of scheme members and beneficiaries and given that some work has already been started, the relevant amendment of the EU law would bring more clarity to our mandate.
During the public hearings on the review of the European System of Financial Supervision (ESFS) in May this year, I also mentioned the need to have a legal power to ban or restrict financial activities, to introduce a centralised oversight role for EIOPA in the field of internal models and to ensure EIOPA’s access to individual information.
Internal models is an innovation introduced by Solvency II. The supervisors don’t have sufficient experience to deal with them. Our recent peer reviews identified a lot of differences in supervisory practices of pre-application process for internal models.
In May I also mentioned that in the medium term, as part of a step-by-step approach, consideration should be made to assign EIOPA an enhanced supervisory role for the largest important cross-border insurance groups. Again we are not talking about direct supervision. But, EIOPA can certainly contribute to a more consistent approach to the supervision of groups by getting more information about their position and by playing a more active and challenging role in colleges of supervisors.
In order to ensure an adequate and consistent level of supervision, for the benefit of consumer protection and financial stability, it is fundamental to strengthen EIOPA’s independent challenging role towards National Competent Authorities.
We need to:
Conclusion
For the sake of protection of policy-holders and members and beneficiaries, the insurance and pensions regulatory regimes need to face the “economic reality test”. One of the lessons of the crisis is that to use valuations and risk assessments that deny economic reality is not an answer:
See also EIOPA calls for inclusion of ORSA, KID tools in revised IORP Directive © IPE