The European System of Financial Supervision (ESFS) was introduced in 2010. It consists of the European Systemic Risk Board (ESRB) and the 3 European supervisory authorities (ESAs), namely: the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Authority (EIOPA).
Revision of the European system of financial supervision
The European Commission adopted a proposal at the end of 2017 to amend five EU legal texts (Solvency II, MiFID II , MiFIR and ESAs’ founding texts) aiming “to improve the powers, governance and funding of the ESAs; for banking (EBA), for securities and financial markets (ESMA), and for insurance and pensions (EIOPA).
In September 2018, the European Commission further proposed to amend its September 2017 proposal in order to strengthen the role of EBA in protecting the financial system from money laundering and terrorist financing risks (AML/CFT).
On 21 March 2019, the two EU co-legislators reached an agreement on the Commission’s proposal amending the three ESAs founding regulations, including money-laundering supervisory powers, and on the Commission’s proposal amending the MiFID II Directive and the Solvency II Directive. BIPAR welcomes this revision in general.
Anti-money laundering powers of EBA
The reform reinforces the role of the EBA as regards risks posed to the financial sector by money laundering and terrorist financing (ML/FT) activities. The powers related to the prevention and mitigation of risks of money laundering will now be centralised for all financial institutions at the EBA.
Other supervisory powers of ESAs with regard to consumer protection
The reform also reviews the powers of each of the three ESAs, which are part of the ESFS.
The reform reviews the ESAs' governance structure. It maintains the principle that decisions have to be taken by the Board of Supervisors and ensures a key role for the national competent authorities within the ESAs governance structure. In parallel, the role and powers of the Chairperson are reinforced. The Chairperson should be selected on the basis of merit, skills and experience of financial supervision and regulation, with the selection procedure respecting the principle of gender balance. The Management Board is preserved.
As regards the ESAs’ funding scheme, the final text preserves the existing system of contributions coming partly from the EU budget and partly from national competent authorities. It further adds the possibility of any voluntary contribution from Member States or observers.
The Regulations will enter into force on the twentieth day following that of their publication in the Official Journal and will be binding in their entirety and directly applicable in the Member States in accordance with the Treaties.
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. BIPAR is represented in EIOPA’s Insurance and Reinsurance Stakeholder Group (IRSG).
BIPAR's responses to ESAs' consultations in 2018 and in 2019
During 2018 and 2019, BIPAR answered many ESAs' consultations on various issues.
EIOPA launched a thematic review in September 2018 to assess potential consumer protection issues in travel insurance. The review focuses on the sources of consumer detriment resulting from product design, the distribution process and sales practices. The aim of the review is to help in the understanding of potential sources of consumer detriment and investigate what would be needed to ensure that consumers are treated fairly.
An EIOPA’s industry questionnaire was distributed to insurers and their responses will be the basis for EIOPA’s final report of the thematic review expected to be published in the summer of 2019. In parallel EIOPA also gathered input on the issue from additional stakeholders including BIPAR.
In its input that will be published in EIOPA’s final report, BIPAR explains inter alia that travel insurance is very often not a simple or uncomplicated product and consumers may need assistance from a professional intermediary when buying it. There may be a concern with travel insurance offered by Price Comparison Websites and with bundled products because in the first instance, there is a tendency for customers to just focus on the headline price of the cover and not to look into what cover they are actually buying. In the second instance, consumers may falsely believe that they have a cover that is appropriate to their needs or risks (e.g. a cruise holiday with ‘standard’ travel insurance being purchased).
In July 2018 EIOPA published a Discussion Paper on resolution funding and national insurance guarantee schemes. EIOPA’s Discussion Paper does not cover the failure of insurance intermediaries.
In its discussion paper EIOPA analysed the need for potential harmonisation of insurance guarantee schemes on the basis of the following three options:
For EIOPA, a minimum degree of harmonisation in the field of policyholder protection in the EU would benefit policyholders, the insurance market and, more broadly, financial stability in the EU. A harmonised approach should however consider the national schemes already in place and should be carefully designed.
In its response to EIOPA’s Discussion Paper submitted in October 2018, BIPAR explained that it is of the opinion that mechanisms with similar or harmonised standards, should be put in place in all EU Member States to protect private policyholders by compensating for their claims in the event an insurance company becomes insolvent, in particular in the framework of cross-border activities. These mechanisms are also important in helping to maintain consumer confidence in the sector. They would act as a means of resolution funding and an additional layer of policyholder protection in the event of insurers’ failure. It should, however, be ensured that the existence of such a mechanism has no effect on the quality of the supervision and rules on solvency.
EIOPA’s 2018 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. BIPAR was consulted by EIOPA on the drafting of its 2018 Report and in particular on issues such as cross-selling, insurance on-demand and cyber insurance. In its 2018 Report, EIOPA states that whereas no major shifts have been observed in 2017, some trends reported in past years have become more noticeable, affecting a growing number of European markets:
On the occasion of the publication, Gabriel Bernardino, Chairman of EIOPA, said: “The major trend continues to be digitalisation, improving the interaction between consumers and providers, but at the same time requiring careful monitoring by supervisors and implementation by providers. Furthermore, supervisors across Europe should pay close attention to the continued growth of cross-selling practices, in particular with regard to add-on insurance products. Business models based on high commissions and structural low claims ratios have created consumer detriment in the past and need appropriate monitoring by supervisors.”