EIOPA-CP-11/006
25 October 2011
Response to Call for Advice
on
the review of Directive 2003/41/EC: second consultation
EIOPA welcomes comments from interested parties on the following response to Call for Advice.
Please send your comments to EIOPA by email () by2.01.2012, indicating the reference "EIOPA-CP-11-006".
Please note that comments submitted after the deadline or not submitted in the provided template format in MS Word cannot be processed.
EIOPA will make all comments available on its website, except where respondents specifically request that their comments remain confidential.
EIOPA – Westhafen Tower, Westhafenplatz 1 - 60327 Frankfurt – Germany - Tel. + 49 69-951119-20;
Fax. + 49 69-951119-19; site: www.eiopa.europa.eu
© EIOPA 2011
Table of contents
1. Details of the consultation 6
1.1. Introduction 6
1.2. Background to the call for advice 6
1.3. Previous consultation 6
1.4. EIOPA’s approach to consultation 7
1.5. Structure of this consultation 7
1.6. Deadline for responses 7
2. Introduction to EIOPA’s advice 8
2.1. Why is the European Commission reviewing the IORP directive? 8
2.2 What advice is the Commission seeking from EIOPA? 8
2.3 What does EIOPA’s advice recommend? 8
2.4 Defined contribution schemes 8
2.5 Technical advice on harmonisation 8
2.6 Consistency across financial sectors 9
2.7 Preliminary impact assessment 10
2.8 Other issues 11
2.9 The process for delivery of the advice 11
3. Scope and definitions 13
4. CfA 1: Scope of the IORP Directive 14
4.1. Extract from the call for advice 14
4.2. Background 14
4.3. Explanatory text 17
4.4. Preliminary impact assessment 25
4.5. EIOPA’s advice 26
4.6. Questions for Stakeholders 27
5. CfA 2: Definition of cross-border activity 28
5.1. Extract from the call for advice 28
5.2. Background 28
5.3. Explanatory text 29
5.4. Preliminary impact assessment 34
5.5. EIOPA’s advice 35
5.6. Questions for Stakeholders 35
6. CfA 3: Ring fencing 36
6.1. Extract from the call for advice 36
6.2. Background 36
6.3. Explanatory text 43
6.4. Preliminary impact assessment 51
6.5. EIOPA advice 53
6.6. Questions for Stakeholders 56
7. CfA 4: Prudential regulation and social and labour law 57
7.1. Extract from the call for advice 57
7.2. Background 57
7.3. Explanatory text 58
7.4. Preliminary impact assessment 60
7.5. EIOPA’s advice 63
7.6. Questions for Stakeholders 64
8. Quantitative requirements 65
8.1. Introduction to CfA 5 and 6 65
8.2. CfA 6 on a similar approach for all types of IORPs 67
8.3. Holistic balance sheet approach 74
8.4. Questions for Stakeholders 85
9. CfA 5: Valuation of assets, liabilities and technical provisions 86
9.1. Extract from the call for advice 86
9.2. Background 86
9.3. Explanatory text 97
9.4. Preliminary impact assessment 146
9.5. EIOPA advice 147
9.6. Questions for Stakeholders 157
10. CfA 6: Security mechanisms 159
10.1. Extract from the call for advice 159
10.2. Background 160
10.3. Explanatory text 199
10.4. Preliminary impact assessment 247
10.5. EIOPA advice 247
10.6. Questions for Stakeholders 253
10.7. Annex: Benefit adjustment mechanisms 254
11. CfA 7: Investment rules 259
11.1. Extract from the call for advice 259
11.2. Background 260
11.3. Explanatory text 265
11.4. Preliminary impact assessment 287
11.5. EIOPA advice 288
11.6. Questions for Stakeholders 293
12. CfA 8: Objectives and pro-cyclicality 294
12.1. Extract from the call for advice 294
12.2. Background 294
12.3. Explanatory text 296
12.4. Preliminary impact assessment 301
12.5. EIOPA advice 301
12.6. Questions for Stakeholders 302
13. Governance and other qualitative requirements 303
14. CfA 9: General principles of supervision, scope and transparency and accountability 304
14.1. Extract from the call for advice 304
14.2. Background 304
14.3. Explanatory text 313
14.4. Preliminary impact assessment 316
14.5. EIOPA advice 318
14.6. Questions for Stakeholders 319
15. CfA 10: General supervisory powers 320
15.1. Extract from the call for advice 320
15.2. Background 320
15.3. Explanatory text 328
15.4. Preliminary impact assessment 332
15.5. EIOPA advice 333
15.6. Questions for Stakeholders 335
16. CfA 11: Supervisory review process and capital add-ons 336
16.1. Extract from the call for advice 336
16.2. Background 336
16.3. Explanatory text 340
16.4. Preliminary impact assessment 341
16.5. EIOPA advice 342
16.6. Questions for Stakeholders 343
17. CfA 12: Supervision of outsourced functions and activities 344
17.1. Extract from the call for advice 344
17.2. Background 344
17.3. Explanatory text 346
17.4. Preliminary impact assessment 350
17.5. EIOPA advice 352
17.6. Questions for Stakeholders 353
18. CfA 13: General governance requirements 354
18.1. Extract from the call for advice 354
18.2. Background 354
18.3. Explanatory text 357
18.4. Preliminary impact assessment 361
18.5. EIOPA advice 363
18.6. Questions for Stakeholders 363
19. CfA 14: Fit and proper 365
19.1. Extract from the call for advice 365
19.2. Background 365
19.3. Explanatory text 368
19.4. Preliminary impact assessment 372
19.5. EIOPA advice 373
19.6. Questions for Stakeholders 374
20. CfA 15: Risk management 375
20.1. Extract from the call for advice 375
20.2. Background 375
20.3. Explanatory text 378
20.4. Preliminary impact assessment 383
20.5. EIOPA advice 384
20.6. Questions for Stakeholders 386
21. CfA 16: Own risk and solvency assessment 387
21.1. Extract from the call for advice 387
21.2. Background 387
21.3. Explanatory text 389
21.4. Preliminary impact assessment 392
21.5. EIOPA advice 393
21.6. Questions for Stakeholders 394
22. CfA 17: Internal control system 396
22.1. Extract from the call for advice 396
22.2. Background 396
22.3. Explanatory text 398
22.4. Preliminary impact assessment 401
22.5. EIOPA advice 403
22.6. Questions for Stakeholders 403
23. CfA 18: Internal audit 404
23.1. Extract from the call for advice 404
23.2. Background 404
23.3. Explanatory text 405
23.4. Preliminary impact assessment 408
23.5. EIOPA advice 409
23.6. Questions for Stakeholders 410
24. CfA 19: Actuarial function 411
24.1. Extract from the call for advice 411
24.2. Background 411
24.3. Explanatory text 413
24.4. Preliminary impact assessment 418
24.5. EIOPA advice 420
24.6. Questions for Stakeholders 421
25. CfA 20: Outsourcing 422
25.1. Extract from the call for advice 422
25.2. Background 422
25.3. Explanatory text 424
25.4. Preliminary impact assessment 427
25.5. EIOPA advice 428
25.6. Questions for Stakeholders 429
26. CfA 21: Custodian / depository 430
26.1. Extract from the call for advice 430
26.2. Background 430
26.3. Explanatory text 444
26.4. Preliminary impact assessment 453
26.5. EIOPA advice 458
26.6. Questions for Stakeholders 462
27. Disclosure requirements 464
28. CfA 22 Information to supervisors 465
28.1. Extract from the call for advice 465
28.2. Background 465
28.3. Explanatory text 469
28.4. Preliminary impact assessment 472
28.5. EIOPA advice 473
28.6. Questions for Stakeholders 474
29. CfA 23: Information to members / beneficiaries 475
29.1. Extract from the Call for Advice 475
29.2. Background 476
29.3. Explanatory text 478
29.4. Preliminary impact assessment 503
29.5. EIOPA advice 504
29.6. Questions for Stakeholders 508
30. Collated questions for stakeholders 509
1. Details of the consultation
1.1. Introduction
1.1.1. This consultation is on EIOPA’s draft advice to the European Commission on the review of Directive 2003/41/EC (the IORP directive). The deadline for responses is Monday 2 January 2012.
1.2. Background to the call for advice
1.2.1. In April 2011 the European Commission asked EIOPA for advice by mid-December 2011 on the EU-wide legislative framework for IORPs. Although the deadline was later extended the timetable meant that this consultation is on a document which is a work in progress. We wanted however to give stakeholders the earliest possible opportunity to consider the entire call for advice.
1.2.2. Advice is sought on the scope of the IORP directive, on certain cross-border aspects and on three other areas. Firstly, what quantitative requirements should apply to IORPs and how should these be measured. Secondly, what should be the qualitative requirements, particularly in respect of the governance of IORPs. Thirdly, what information should be provided in respect of IORPs to members and beneficiaries, and to supervisory authorities.
1.2.3. Advice is sought on the extent to which the legislative framework for IORPs should be similar to that for other financial institutions and products, in particular the Solvency II framework for insurance and also the UCITS IV Key Investor Information Document.
1.3. Previous consultation
1.3.1. EIOPA consulted between 8 July and 15 August 2011 on the scope, cross-border activity, prudential regulation and several governance aspects of the call for advice. 49 responses were received. We are grateful to all those who took the trouble to respond.
1.3.2. Reasoned feedback by EIOPA on the responses to the consultation is being published simultaneously and is available via the EIOPA website. The responses themselves are also being published. In both cases the three respondents who asked for their response to be confidential are excluded. The draft advice reflects as appropriate the responses received. In many cases EIOPA’s reasoned feedback is brief. This is for two principal reasons. Firstly, a substantial part of many responses were on issues which were not part of the consultation on this occasion such as capital requirements. Or the points raised went beyond the technical advice which it is EIOPA’s remit to provide e.g. suggestions that providers of services covered by other directives should come under the IORP directive. Secondly, our judgement was that what really mattered was that all the responses were read and considered before writing the next draft of the advice, even if that meant feedback on responses, in the time available, could only be brief.
1.3.3. This response is on the entire call for advice. As such, EIOPA is re-consulting on the areas covered by the first consultation.
1.4. EIOPA’s approach to consultation
1.4.1. EIOPA will adhere in its consultation to the principles established in EIOPA’s Public Statement of Consultation Practices[1]. One motivation for consulting in two stages was Article 3.2 of the Public Statement, to consult at a sufficiently early stage to enable EIOPA to take the responses into account.
1.4.2. Article 3.3 of the Public Statement says EIOPA will aim at allowing a three month consultation period. However, imposition of an external timetable is given as one reason to shorten the consultation period, which is the case on this occasion. The consultation period has been slightly shortened to ten weeks.
1.5. Structure of this consultation
1.5.1. Each chapter of the call for advice is considered under the following headings:
· Extract from the call for advice
· Background
· Explanatory text
· Preliminary impact assessment
· EIOPA advice
· Questions for stakeholders
1.6. Deadline for responses
1.6.1. The deadline for responses is Monday 2 January 2011. Please note in addition the need for responses to be submitted in MS Word on the template provided. It would be greatly appreciated if respondents could please restrict general comments only to those issues which are not covered in the questions for stakeholders which follow each part of the call for advice and which are repeated, for convenience, at the end of this document.
2. Introduction to EIOPA’s advice
2.1. Why is the European Commission reviewing the IORP directive?
2.1.1 The Commission gave three main reasons for reviewing the IORP directive.
2.1.2 Firstly, in order to propose measures which simplify the setting-up of cross-border pension schemes. According to the CfA there are currently fewer than 80 out of around 140,000 IORPs in the EU operating cross-border; EIOPA’s more recent Market Development Report gave a figure of 84 cross-border IORPs[2]. Secondly, in order to propose measures that would allow IORPs to benefit from risk-mitigation mechanisms. Thirdly, to secure modernisation of prudential regulation for IORPs which operate DC schemes.
2.2 What advice is the Commission seeking from EIOPA?
2.2.1. The Commission is seeking advice from EIOPA on how to improve the IORP Directive. The current directive provides for prudential regulation of IORPs based on minimum harmonisation and mutual recognition.
2.3 What does EIOPA’s advice recommend?
2.3.1. The Commission’s call for advice covered 23 topics. EIOPA has provided technical advice on each of those topics. The advice recommends in summary:
[A summary will be added when the advice is finalised]
2.4 Defined contribution schemes
2.4.1. The Commission stated that “It is important to consider whether the IORP Directive needs to be adjusted to better address the specific needs for the regulation and supervision of DC schemes”.
2.4.2. EIOPA’s aim is that members should have confidence in their DC IORP regardless of where in the EU it is located.
2.4.3. [A summary of what is advised on DC schemes will be added when the advice is finalised].
2.5 Technical advice on harmonisation
2.5.1. The Commission’s aim is “to attain a level of harmonisation where EU legislation does not need additional requirements at the national level”[3]. Elsewhere the Commission states it is seeking increased harmonisation in the calculation of technical provisions, and greater consistency in recovery periods across member states.
2.5.2. EIOPA acknowledges the Commission’s view that the internal market in pensions is underdeveloped in terms of the number of institutions where the employer and the IORP are in different member states. EIOPA shall contribute to improving the functioning of the internal market[4].
2.5.3. EIOPA’s advice implies greater harmonisation of IORP’s regulation in some areas EIOPA’s advice is that greater harmonisation in the IORP directive would be technically possible. EIOPA emphasises that the proposals for greater harmonisation follow from the CfA’s objective of increasing the level of harmonisation. The advice demonstrates which proposals are technically possible without challenging future political decisions in this respect. Increasing harmonisation of occupational pension provision is principally an area which requires a political steer.
2.5.4. The areas where greater harmonisation is recommended on technical grounds are: [the areas will be added when the advice is finalised].
2.6 Consistency across financial sectors
2.6.1. The Commission’s view is that EIOPA’s advice “should endeavour to maintain consistency across financial sectors….the general layout of the supervisory system should, to the extent necessary and possible, be compatible with the approach and rule used for the supervision of life assurance undertakings subject to Directive 2009/138/EC (Solvency II[5])”.