Saturday, 13 April 2013

The PRA's take on EIOPA's Interim Guidelines - far from a 'Tragedy'...

The Prudential Regulatory Authority have celebrated their second week in office by hosting a number of industry briefings regarding EIOPA's Solvency II Preparation Guidelines. One Blogger keenly dripped some of the materials discussed out yesterday, but I've had a look through the briefing materials released today on the PRA's site to see if there are any messages worth amplifying.

Steps - appropriate?
From a calendar perspective, the PRA are planning some technical workshops with "industry representatives" in early May, to be followed by an industry briefing later in that month. The output from the workshops appears to be a major influencer on whether the PRA will "comply" with EIOPA's guidance or "explain" why they won't.

With final versions of EIOPA's guidelines expected by September/October 2013, the national regulators have an additional 2 months from publication to formally confirm their "comply or explain" position.

Reading between the lines this looks (for now at least) as a foregone conclusion however, with this comment from the internal model pre-application slides;
"We expect firms to have regards to the interim guidelines and take appropriate steps to prepare for Solvency II
Three slide sets have been released - anything new, or worth reiterating, below;

Internal Model Pre-Application

  • Model change - to be monitored throughout pre-application.
  • Colleges - Evidently notable divergences in assessment practice across the union which the Guidelines hope to fix, but "no direct implication for firms".
  • IMAP - while EIOPA's guidelines "will be considered as part of IMAP reviews", they don't (in the PRA's mind) touch on anything which wasn't already part of existing L1/Draft L2/pre-application L3, so no surprises on that front. They do however highlight the elements on Expert Judgement and Validation as providing more clarity on supervisory expectations.
  • No PRA expectation of  a full/'live' ORSA or Solvency II-compliant systems of governance by 2014
  • Neither are there any expectations for firms to make changes in investment strategy/capital strategy/outstanding Pillar 1 elements - at least not due to Solvency II in its current form.
  • For System of Governance, the PRA's slides highlight areas where EIOPA's guidelines exceed expectations of the PRA Handbook - these include Board MI; revisions to control functions; revisions to Risk Management Policy; Prudent Person Principle; and calculation of TPs.
  • For ORSA, the slides clearly indicate that dry runs and ORSA process development should be the immediate focus, and it should serve to reaffirm best practices that already "underpin the ICAS".
Submission of information to supervisors
  • Only a subset of the full package recommended by EIOPA in July 2012
  • EIOPA want to see at least one round of annual submissions, and two rounds of quarterly submissions before Solvency II goes live, with 2016 seemingly the preferred year.
  • On that basis, firms will have 20 weeks (26 weeks for groups) after year-end 2014 to submit annual template obligations.
  • They will then have 8 weeks (14 weeks for groups) after quarter end Sept 2015 to submit their quarterly template obligations.
  • As per ORSA, firms which are involved with internal model pre-application will need to perform both standard formula and internal model work in this area.
  • Also as per ORSA, thresholds for participation based on TPs (Life firms)/Premiums (Non-Life).
  • Narrative reporting requirements are "significantly reduced"compared to final requirements - however, there is plenty of crossover between what one might document during ORSA processes and what is expected to appear in RSR/SFCR, so firms shouldn't struggle in this regard.
  • The concept of a "Reporting Policy" document (guideline 33 in the consultation) covering who will be responsible for what in the submission of information to supervisors, is referenced in these slides. This hadn't featured on my radar before as 'compulsory', so documenting this early, even just as process steps/maps, seems like a move that the PRA would appreciate.

1 comment:

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