Wednesday, 2 April 2014

EIOPA's Implementing Technical Standards on Approval Processes - Cut and Paste?

EIOPA have at last commenced their work on "Level 2.5" regulation in the Solvency II world, and with it being something of a trip into the unknown (only their sister body ESMA world appear to have performed a similar exercise to-date), their consultation papers will no doubt be getting torn apart like a parking ticket by Insurers and NCAs alike.

Open until the end of June with a view to presenting this particular batch to the European Commission for endorsement by the end of October, the ITS cover how the following approvals should be applied for and administered, with definitions and rationale provided in this cover note.
  • Use of Matching Adjustment
  • Use of Internal Model, "Major" changes to that model, and changes to the Model Change Policy (phew!)
  • Use of a Group Internal Model
  • Use of Undertaking-Specific Parameters (USPs)
  • Use of Ancilliary Own Funds for SCR
  • Use of Special Purpose Vehicles for risk transference

For this post, I wanted to concentrate on the Internal Model-themed ITS (emboldened), specifically things which introduce something new to the table (i.e. not already in the thoughts of UK firms/regulators through the Directive, Delegated Acts, Preparatory Guidance or indeed the existing IMAP structure in the UK).

Therefore in the interests of recyclability, UK firms will be delighted by the requirements within this particular ITS - you will recognise the text as part of the Self-Assessment Template "tabs" which you would have been populating as part of IMAP over the last 2 years!

That text was of course co-opted from the Draft Implementing Measures from October 2011 (specifically Article 203 IM1 for the application requirements, IM2-IM8 for the model change and administrative process elements). These articles had disappeared from the latest version of the Delegated Acts, only to find its way into this ITS almost verbatim.

Elements which therefore show noteworthy change from that old text (other than semantics) include

  • The addition of a requirement for a (year-end 2014?) P&L Attribution to be submitted as part of the application.
  • Withdrawal of some of the ceremony around applying for a change to the Model Change Policy, which was a little more elaborate in the October '11 text (AMSB explanation and justification text, 6 month turnaround time for NCAs to make a ruling).
  • The same for an application for a Model Change itself, now seemingly less formal
  • Giving room for terms and conditions and transitional plans to be factored in to an NCA's decision on model approval
  • That more detail should be published on the NCA's website regarding the approval (namely that the scope of the IM should be disclosed, as well as risk categories and business units covered, which feels a touch commercially sensitive to me!)

I'm guessing this isn't the only ITS which is going to use this approach (i.e. ripping text directly out of the Oct 2011 Draft Implementing Measures where it has been seemingly jettisoned), so a bit of cross checking might help you second guess what is going to appear in the rest of the ITS!

Now I'm off to have a look at the others...

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