ESAs (European Supervisory Authorities)

When the EU overhauled its financial system in response to the financial crisis, it introduced an EU Single Rulebook for financial regulation and created the European Supervisory Authorities (the ESAs): the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA). The new EU supervisory system became operational on 1 January 2011. The ESAs' mandate is to contribute to developing the Single Rulebook, solve cross-border problems and promote supervisory convergence.

ESAs’ stakeholder groups

All three authorities have stakeholder groups that represent the industry and consumers in order to facilitate consultation with stakeholders in areas relevant to their tasks. EIOPA has two stakeholder groups, the IRSG (Insurance and Reinsurance Stakeholder Group) and the OPSG (Occupational Pensions Stakeholder Group). BIPAR is represented in these two groups.

BIPAR's responses to ESAs' consultations in 2016 and in 2017

During 2017 and 2018, BIPAR answered many ESAs' consultations on various issues (see below and see articles on IDD, MiFID, PRIIPs).

EIOPA 2017 Consumer Trend Report

EIOPA is mandated by its empowering Regulation to collect, analyse and report on consumer trends. For this purpose, EIOPA publishes, on an annual basis, a Consumer Trends Report. The Report describes the trends that are taking place in the European insurance and pensions markets, as well as possible consumer protection issues that could arise from such trends.

BIPAR was consulted by EIOPA on the drafting of its 2017 Report.The 2017 Report explains, inter alia, that “digital technologies continue to progressively penetrate the European insurance sector; leveraging their cutting-edge data analysis tools and technologies, InsurTech start-ups have proliferated, frequently specialising in developing specific areas of the insurance value chain. Distribution channels have been most targeted to date. Peer-to-peer insurers often follow this pattern, though their business model may not in all cases be very different from that of traditional undertakings, as they can only operate in the EU through a licensed insurance undertaking or through a broker/intermediary in cooperation with a licensed insurance undertaking”.

EIOPA Thematic Review regarding unit-linked life insurance

In April 2017, EIOPA published a “Thematic Review on consumer protection issues in the unit-linked market due to business interlinkages between providers of asset management services and insurance undertakings”. With the review, EIOPA wanted to analyse how remuneration paid by asset managers to insurers could influence their choice of investments and how this choice could impact policyholders.70% of the unit-linked market measured by assets under management participated in this EU-wide thematic review.

The EIOPA review concludes that there are widespread and significant payments from asset managers to insurance undertakings and that poor conflict of interest mitigation can lead to material consumer detriment. In its review, EIOPA added that it would look into the need for regulatory or supervisory actions.

As a follow-up, in December 2017, EIOPA published an Opinion addressed to National Competent Authorities (NCAs). In the Opinion, EIOPA expresses concern that undertakings may choose underlying funds on the basis of those which provide the highest level of monetary incentives and remuneration to insurance undertakings. In this respect, EIOPA encourages NCAs to increase their level of awareness and monitoring of the market with regard to the identified risks of consumer detriment and of mitigating measures implemented by insurance undertakings.

Within six months of the application date of either the IDD, its 2 delegated acts or of the PRIIPs Delegated Regulation on the KID, the NCAs are requested to provide feedback on regulatory or supervisory actions taken on the basis of this Opinion and to report to EIOPA if and how domestic market practices have evolved.

General review of the ESAs in 2017 - EC proposal

Building on contributions to its public consultations in spring 2017 (BIPAR took part in this consultation), the European Commission proposed in September 2017reforms (5 proposals) that, once adopted, aim “to improve the mandates, governance and funding of the ESAs for banking (EBA), for securities and financial markets (ESMA), and for insurance and pensions (EIOPA)”. The reforms also aim “to promote further capital market integration following the UK's departure from the EU. They will also introduce changes to the supervisory relations with non-EU countries so as to ensure proper management of all financial-sector risks.”

Key features of the proposals

  • Stronger coordination of supervision across the EU
  • Extended direct capital markets supervision by ESMA
  • Improved governance and funding of the ESAs
  • Promoting sustainable finance and FinTech

Under the Commission’s legislative proposals:

  • The current model of sector supervision would remain as it is. EIOPA would remain a stand- alone supervisor, in charge of prudential and conduct of business issues for the insurance sector. This is supported by BIPAR.
  • The ESAs’ powers would be amended, for example the Motor Insurance Directive being explicitly within EIOPA’s remit and the Consumer Credit Directive being explicitly added to EBA’s remit.
  • Some changes would be brought to EU texts such as MiFIR /MiFID II and Solvency II.
  • EIOPA would be conferred with new powers in respect of internal models of insurance undertakings. EIOPA would notably be empowered to undertake an independent assessment of the applications to use or change an internal model and to issue an opinion to the competent authorities concerned.
  • Regarding guidelines and recommendations, the ESAs would have to do a cost-benefit analysis and if a majority of the ESAs’ stakeholders group(s) (SG) would be of the opinion that the ESA went beyond its mandate, the SG could issue an opinion to the Commission and the Commission could require the ESA to withdraw the guidelines/ recommendations. This is supported by BIPAR.
  • Regarding governance, the proposal would create independent Executive Boards with fulltime members.
  • Consumer and investor protection would explicitly be added to the remit of the Joint Committee of the ESAs.
  • The ESAs’ budget would now rely on these three sources of financing:
  • Annual contributions paid by financial institutions that are indirectly supervised by the ESAs.
  • Supervisory fees paid by entities that are directly supervised by the ESAs. This is especially relevant for ESMA, as the legislative proposal provides for the transfer of direct supervisory powers from the national competent authorities to ESMA;
  • A balancing contribution from the EU that would not exceed 40% of the overall revenues of each agency.

The proposals have been sent to the European Parliament and to the Council of the EU for discussion, amendment and adoption. BIPAR is actively following the whole EU legislative process.

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