Wednesday, 26 February 2014

"Implementing Measures" to "Delegated Acts", "RTS" and "ITS" - Unsporting Lisbon...

How to make sense of post-
Lisbon legislative processes
OK, I have finally broken. I think it was a paragraph that had the words "acts" "delegated" "implementing" "regulatory" "measures" and "standards" strewn around like the gin-soaked occupants of a broken carousel that got to me.

The transition of Solvency II-relevant terminology from pre-Lisbon to post-Lisbon, and the lack of clear supporting material to aid the understanding of an idiot prole like me, has led me to have a stab at clarifying it myself, in the lead up to the Omnibus II vote in a couple of weeks.

The fundamentals are easy enough - the 2009 Treaty of Lisbon aimed to put Parliament and Council on an even keel in the decision making process, and get things done quicker. Lisbon was enacted around the same time that the original Solvency II Directive was coming in to land, so naturally any Lisbon-inspired changes in how EU legislation is made and maintained would need to be factored in to the wording of the Solvency II Directive when convenient.

Coupled with this was the European Union's decision (post-credit crunch) to develop a new architecture of financial supervision, which allowed EIOPA to rise in 2010 freshly armed from the embers of CEIOPS with new legislative drafting powers, changing the comfort blanket of the existing 4-level Lamfalussy process into something much trickier to fathom.

There was therefore plenty to factor in when Omnibus II, the tidying-up vehicle, was first envisaged  (covered nicely in this blast from the past from Freshfields), most prominently;
  • EIOPA's ability to draft and recommend "technical" standards which could become law without Parliament and Council having a blocking vote - as CEIOPS, they would have only had an "advisory" capacity.
  • The EU Parliament now being in a position to suggest that certain "technical" matters were actually "political", thus bringing some of the granular mathematics (specifically, Long Term Guarantee-related) back into their sphere of influence during the trilogues - without co-decision making, this would have been much trickier.
To supplement any confusion that might arise in the Lisbonising of the Solvency II Directive, there has been an opportunistic replacement, recycling or bastardisation of terms from pre-Lisbon over to the current day, without an effective mapping (this is by far the best offering I've seen, from Herbert Smith Freehills). Therefore for my own benefit, I have broken it down, and any benefit you can derive you are most welcome to!

Old Term - Implementing Measures (or "Level 2 Text")

New Term (part 1) - Delegated Acts

Why New - Comitology was the process of the Council and Parliament leaving Commission-led "committees" to deal with the development of secondary legislation to sit alongside core legislation (Solvency II Directive in our case). For years, Parliament was largely out of the loop of its drafting, receiving a Yes/No vote on such legislation only as late as 2006.

The post-Lisbon move from implementing measures to Delegated Acts gave Parliament the right to veto and amend drafts of secondary legislation. The European Council have the same powers. The delegated powers can also be revoked if either co-legislator doesn't like the Commission's tone.

The Commission, who remain responsible for developing Delegated Acts, have the drafting powers delegated, via article 290 of the TFEU. They continue to receive assistance from expert committees to create this material, with EGBIP assembled last summer to advise on the Delegated Acts side of things.

What does it really mean - not much on its own, however the new process is proving to be just as opaque and convoluted as it was previously (covered nicely here). It evidently means that influencing the content of Solvency II's Delegated Acts remains in the hands of a chosen few, for example, when Dr Wiedner noted (in AOB) that 'Member States' will get to see draft Delegated Acts before they are finalised in trimester 2 of this year, I think he meant the representatives in the room, not us!

This shadowy future was nicely predicted here back in 2011 - a less efficient process, less formality, less visibility of legislative influencers, and more horsetrading than bank holiday barbeque weekend at Tesco.

Old Term - Implementing Measures ("Level 2 Text")

New Term (part 2) - Implementing Acts

Why new - The concept of "Implementing Measures" has effectively been cut in half, with Implementing Acts very much a sideshow in the context of Solvency II - the Herbert Smith Freehills paper referenced above states that implementing acts are only referenced in one article of the Directive.

These are drafted by the Commission through powers delegated via article 291 of the TFEU, and the distinction between Delegated and Implementing Acts is shown here.

What does it really mean - nothing of consequence it would appear!

Old Term - N/A

New Term (part 3a) - Regulatory Technical Standards/RTS/
"Level 2.5"

Why New - EIOPA were empowered through the 2010 "EIOPA Legislation to draft technical standards on behalf of the Commission which would ensure consistent harmonisation of Solvency II across the Union. These kick in formally as soon as Omnibus II gets through.

A huge step up from their previous guise as CEIOPS, where they were little more than a sparsely staffed lobbying aggregator, Regulatory Technical Standards (RTS) are directly enforcable in Member State law once approved.

RTS may only be for technical matters and "shall not imply strategic decision or policy choices". These are published for public consultation, then submitted to the Commission, who can adopt, reject or amend them.

Both the Council and Parliament receive the draft RTS at the same time as the Commission, and have limited windows in which to object to their content. A specific "sunrise clause" has also been added to Omnibus II which allows the Commission (for a limited period) to circumvent the RTS process entirely and deal directly with certain matters without EIOPA involvement.

What does it really mean - For both RTS and ITS (below), EIOPA, as pen-holders, have had a significant amount of influence placed in their hands with respect to what "uniform conditions" are, and how they should be enforced.

As we have seen in recent consultations, EIOPA do not tend to change their minds, which may perversely make life easier (or at least more certain)!

Ultimately, the reality of "Level 2.5" is that the co-legislators have lost much of their ability to influence or veto acutely technical material, further distancing Solvency II's amendment and approval from Parliament and Council, into the hands of unelected, quasi-autonomous technocrats. Which can only be a good thing...

Old Term - N/A

New Term (part 3b) - Implementing Technical Standards/ITS/"Level 2.5" text

Why New - As with RTS, Implementing Technical Standards (ITS) are directly enforcable in Member State law once approved, and follow the same drafting process. EIOPA's scheduled work in the "Level 2.5" space is of course ITS, not RTS, in the run up to 2016. have tried to cover the distinction between RTS and ITS Standards here (subscription required), but it is not even massively clear from the Regulations which empower EIOPA!

The crucial difference is that ITS, once adopted by the Commission, receive no further scrutiny, unlike RTS, where the co-decision makers can still object after the Commission adopts.

What does it really mean - The reality of the legislative process means that even in the sticky-beaker's paradise of Solvency II, Parliament and Council do not have the time or inclination to argue the toss over this material, so will hopefully leave EIOPA and the Commission to it.

Hard to conclude this post really. For sure we have been unlucky to have bridged the Lisbon divide, as well as the genesis of EIOPA and the realisation midway through proceedings that some of the "technical" matters had immense political significance.

That said, the legislative path we have set Solvency II down for the last few years has made a mockery of the best laid preparation plans within the Union's insurers. Andrew Tyrie MP really hit the nail on the head...


  1. Hello Allan, I am still wondering what is the difference between ITS and RTS, and I mean difference in the terms of content. Could you be so kind and explain it for me in few words?
    Thanks a lot and thank for your blog, really interesting articles...

  2. No difference in terms of content Ondra - both RTS and ITS may only be for technical matters and "shall not imply strategic decision or policy choices". On the face of it, the same content could be labelled RTS or ITS, it is more a question of the fine details of how the authority to draft them is delegated (i.e. via article 290 or 291 of the TFEU).

    The practical difference, for us in Solvency II anyway, is in who drafts them (the Commission have the ability to draft some RTS temporarily), and how much Parliament and Council may interfere if they don't like them (much more for RTS than ITS).

    These are brand new legislative instruments, so there isn't a wealth of examples to help here! The EBA has published some regulatory technical standards recently, which may help for context (just google EBA regulatory technical standards).


    1. Thank you Allan, these changes in EU legislative process are really confusing for me. Previous to actual rules, it was easy I think - directive, implementing measures and guidelines from EIOPA. Now there are no big differences in content, but number of various documents published and soon to be published increased.

  3. Very useful. Thanks!

  4. Hello Allan.
    Consultation papers on Level 2.5 ITS have been published and I am thinking if EIOPA will launch consultation process on Level 2.5 RTS? There is no information about RTS in the EIOPA Solvency II timeline.