Solvency II Delegated Acts - Grinched by EU Parliament?

Short and sweet - the expected promenade facile of the Delegated Acts through the EU Parliament and EU Council, which looked certain up to a few days ago (p16 here and here), has apparently come to a shuddering halt due to the intervention of Parliament.

Grinch - coincidentally Green?

This document published on the Parliament's website today appears to have made the timeline-followers worst nightmares come true, namely that an additional 3 months of delay on the Delegated Act sign-off may prevent some of the "...from 1st April 2015" approvals from being written into law by, well, the 1st April 2015!

As yet I have seen or heard nothing on the matter in the mainstream media, but given how annoyed Sven Giegold appeared to be when the Acts were tabled, it shouldn't be too much of a surprise that some flabby parliamentary procedure exists that allows for the (presumably positive) opinion of ECON to be overriden when it came to clearing the document through Parliament's main hall.

Naturally, Herr Giegold's name is on the front cover of the motion, but I can't seem to establish whether an additional 3 month delay is a fait accompli, given my lack of knowledge on Parliamentary procedure. I believe the Greens alone certainly constitute "...a political group or at least 40 Members", so they certainly have enough bulk to put this on the table at next week's Plenary (Wednesday by the looks of it), but I imagine having enough pals to table this resolution is not the same as having enough to pass it!

More to follow I hope, given how sparsely populated my legislative contact book is...

"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.

Risk.net 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...

Solvency II, 2016 and "Quick Fix 2" - Let the music play...

So despite my best baiting at the start of the summer, it has taken until this week for the big news regarding Solvency II to emerge, namely that, via Quick Fix 2, a layer of formality is likely to be given to the year 2016 as the "go-live" date by the European Commission, provided this draft Directive gets safe passage. Apparently, assurances were given by the co-legislators (p3) that this should be enough time to get it done.

Let's have a look at what exactly has been pushed out, and by whom;

Commission - statement from Michel Barnier
- "The Commission [on 2nd Oct] at my request put forward a draft Directive postponing the application date of the Solvency II Directive to 1 January 2016"
- Current trilogues are "progressing well" and an agreement between the co-legislators is "within reach", which seems to tally with Gideon's report from last week - the Council's "state of play" meeting is still scheduled for 15th October, which being prior to that last trilogue meeting, may help all parties.
- Mr Barnier "...has always wanted rapid application of Solvency II", in case anyone thought otherwise.
- EIOPA's LTGA report is an "excellent" one, in case anyone thought otherwise.
- Postponement done "...only after obtaining assurance from the Council and the Parliament that they would not further change this new application date of Solvency II"

Consultancies
- Apparently KPMG reckon that the industry is breathing "...a sigh of relief", while PwC reckon the date set is indicative that Omnibus II will be settled "...ahead of the Parliamentary elections in 2014". Deloitte's finest highlights that the extended transposition period (effectively doubled) will aid NCAs in giving permission to arbitrary things such as day-one model applications, USPs etc.

Lobbyists
- Insurance Europe don't like it! Still seen by them as an "ambitious timetable", which will lead to a "...significant increase in costs for the industry", which makes one think that the "sigh of relief" heard by KPMG was their own relief at securing two more years of advisory cash...

How much scope is there for something to go wrong now, given the benevolence/pragmatism of the Commission in granting this two year kick-on? Chris Finney covers that off here, most pointedly with the fact that a number of the co-legislator top-dogs giving their "assurances" may have gone to pastures new well before 2016.

PS Programme Managers and CFOs - Try not to laugh or cry at point 4 on the draft Directive document - "The proposal has no implication for the EU Budget".

Solvency II, Omnibus II and Trilogue - two steps forward, two steps back?

Headline results from an Economist Intelligence Unit survey have been published this week, apparently suggesting that most global insurers continue to see Solvency II as their biggest regulatory challenge. Despite its prominence in the agendas of insurers' committees, boards and control functions, the legislation appeared to have taken a back seat in the decision-making fora of the European Union since the publication of EIOPA's LTGA in June.

So while the EU Parliamentarians go off for their hard earned 5 weeks in the sun (and by association Omnibus II/Solvency II will temporarily sit untouched like a pair of pink booties in Buckingham Palace), we can try and work out what the crack is with the dossier!

Trilogue
So with the Trilogue process itself necessarily one of closed doors, secret handshakes and unpublished shady deals, at least we formally know that they reconvened before the summer holidays thanks to Sharon Bowles' diary handler! Other than InsuranceERM's piece on a "muted start" to the negotiations (subscription only), the well is pretty dry on comment, suggesting that they got off to an inauspicious (re)start.

Parliament
As far as the latest ITER listings go (p1), ECON will not be considering the dossier again until 18th November 2013. From what I can read of the Parliamentary calendar, that is too close to supply the November Plenary with anything to vote on, and the December one is scheduled early in the month. Fair to say that, as indicated by Burkhard Balz last month, the Parliament won't vote on Omnibus II before 2014?

Council

Bed made - but covers stolen...

So the Lithuanian presidency is in town, and apparently sees the Omnibus II dossier as having "high importance" (p3) within their recently published work programme. ECOFIN have a state of play meeting provisionally scheduled for 15th October 2013.

That said, when pressed for comment when attending ECON before the summer holidays, they seems to have learned from the Paula Abdul school of making progress: for the two steps forward indicated by the Lithuanian Finance Minister's comment that the Presidency is committed to resolving, amongst other dossiers, Omnibus II (p12), he immediately takes two steps back by noting one of the key tactics will be "...focusing on uncontroversial technical issues to facilitate progress" (p13) - might be OK for some of the multitude of delayed dossiers, but not this one!

EIOPA
EIOPA naturally consider their work largely done for Omnibus II, and consider the report a "reliable basis" for making decisions on LTGs, and ultimately Omnibus II itself. Sr. Bernadino did however admit at the ABI conference a week back that, for 2016 to remain a viable "Go Live" date, political agreement on Omnibus II would be needed by the end of this year. Judging by Parliament's position above, I guess 2016 is out then!

European Commission
While Commissioner Barnier had lavished praise on EIOPA's, errr, "very good [LTGA] report", the Commission has lost its Solvency II specialist to retirement during this year, which might lead some observers to believe the Commission will be less effective as a negotiator while the new boy learns the ropes. However, Gideon managed to get some words from Karel van Hulle's replacement a couple of weeks back, and his modus operandi doesn't sound like one which will lead to a swift decision at the expense of one or two angry outliers in any case.

Specifically his comment that "We need to find a solution that works for almost all Member States. That is our ambition. So we don’t like to get the project through, just about ", suggests that anyone at the table with a gripe will get some airtime. With the LTGA outcome causing more gripe than at a constipated nursery, I suspect that the delays caused by the current 5 week vacance soleil will be a mere drop in the ocean...

EIOPA, Parliament, IRSG and LTGs - momentum sustained?

I guess I should start with a Blein Vie Noa to one and all - after a relaxing few weeks in France I am now back on the beautiful Isle of Man sizing up opportunities for 2013 and beyond.

I didn't expect I would be missing much over the festive period and, other than the FSA sacking-off their proposed January IMAP industry briefing in favour of a (yet to be delivered) letter, things did go quiet. Freshfields kindly filled some airtime by pulling together another of their "where are we now" summaries that remain excellent (and free) materials that I would recommend punting on to your non-executive directors.

Luckily the noisemakers got back in the game as soon as school restarted, focused largely on the content of EIOPA's Insurance and Reinsurance Stakeholder Group's minutes. This meeting was held in October, so in terms of new news, it is right up there with "Earth is not flat". That said, we don't all have access to the inside track before publication of such materials, so it was interesting to pick through the doc for steers. I noted the following;

• Continuing problems with terms of reference for the LTG assessment (indeed the LTG sub-group note on p7 that there isn't even a EU-consistent definition for LTG!) - still looking like it will impact on the designated Plenary session for Omnibus II due to a combination of last minute delivery of the technical specifications to the industry itself as well as the output report to the Parliament, who themselves were reported today as being less than impressed with the final TORs. The potential number of scenarios in the assessment also clearly remains a sore point.
• Acknowledgement that "Autumn 2013" is now "best case scenario" for Omnibus II adoption, though, according to van Hulle at the last EIOPC meeting, the Commission and Parliament remain almost diametrically opposed on what should materialise at Level 1 and Level 2 (full minutes from EIOPC here)
• Confirms the ex-ante approach is favoured by Parliament and Commission (significance covered by Gideon here), and that Parliament have no wish to commit to an implementation timescale.
• The Council members are being "heavily lobbied", fostering implementation uncertainty.
• Attending stakeholders supported a definitive 2016 date.
• The IRSG's Governance sub-group flag up consistency issues around Fit and Proper regs as well as the "AMSB" term that I'm sure we have all had practical issues with over the last 2 years!
• Proportionality remains a "main concern" for mutuals, as well as smaller insurers - despite having a designated sub-group, any substantive guidance on applying the proportionality principle looks a distant prospect at best.
• Astonishingly, minutes from May 2012 could not be approved due to EIOPA's "workload" - small instance of an institutional tardiness problem?

Whether or not the industry is losing it's appetite for the Solvency II banquet, when you check out EIOPA's workplans for the next couple of years, at least one body will be filling its face!

Another interesting piece came out in the last week, when InsuranceERM pushed out the findings of a Solvency II roundtable (no sub required), bringing in a few UK-based CROs and the like, ostensibly to chew over the loss of momentum in the project. A few noteworthy bits jumped out;

• Solvency II balance sheet appears to be off the agenda for ICA+, for both regulator and industry
• Perception that, with the transition of regulatory "ownership" to the Bank of England, there is a decreased likelihood that the industry will be able to use Solvency II as a capital release mechanism
• A suggestion that the FSA was more minded towards EIOPA's opinions than the industry's during IMAP 1.0, something which has seemingly reversed with the advent of ICA+

One certainly hopes that the UK industry and regulator can make a decent fist of this indeterminate transition period without having to break the bank...

Solvency II implementation delay - round up

"No news is good news" so goes the old motto, but in the case of this blog, "no news is new news"! After last week's sneaky peek at the options presented during trialogue discussions, the inevitable change of  EU Parliamentary Procedure file for Omnibus II was duly applied, and will now be discussed at the Plenary on March 28-31^st 2013 (honest).

That wouldn't have ruled out either of the options on the table of the Trialogue parties at the moment, but they might struggle to squeeze in an impact study on LTGs and publish the findings between now and March, particularly after it was made publicly clear by one regulator that EIOPA were not going to start that work as scheduled. The EIOPA lads did push out the tech specs for balance sheet valuation today though, which should at least get the frog out of the box.

 

It would have been a push to complete the study and leave enough digestion-time by March-end even without a late kick-off, so our friend Sr Bernadino has happily corroborated the "Big 4" speculators and faceless "sources" promoting 2016 as the new "go-live" date by giving his own counsel to the Wall Street Journal (cited in this non-paywall article). His preference for 2015 is qualified with the probability that 2016 will prevail.

 

While thumbing my nose at the Reuters article above, it does make the link between postponement and the Commission's desire to immediately spur longer-term investment in a stagnating, rioting, semi-employed Eurozone (which is much easier without Solvency II's heavy embrace, particularly the calibration of capital requirements for long duration debt instruments which the document referenced in this post covers all too well).

 

However, for DG Faull to effectively command a recalibration of that element now the going is a bit better makes you wonder how many more cherries we are going to pick - un deux trois, nous irons aux bois...

Omnibus II and the inevitable delay - why it's not so clear cut

Fantastic work over on the Solvency II Wire from Gideon on the meat and potatoes inside the eternally-baking Omnibus II pie, illustrating why the trialogue parties haven't just rolled over and declared 2015 as the new 2014.

While it would appear that the lobbying arms at Insurance Europe, AMICE, GCAE etc haven't piped up on industry preference yet, it looks like we have two deeply unpleasant alternatives to look forward to; hard launching a year late (i.e Omnibus II would only get signed off after the recently requested LTG consultation but 2015 would be the definitive "go-live"), or soft launching with 2 years parallel running (i.e. Omnibus II can go through before the LTG consult is finished, but with the sword of Damocles hanging over its contibution to the regulations until 2016).

My guess would be that there is little appetite in the firms for parallel running Solvency I/Solvency II to 2016 based on the administrative burdens this would currently place on the UK in particular through the current ICA process. A 'hard' 2015 and some more effective leadership in Brussels would be welcome relief to Solvency II Programmes from a planning perspective, though the knock-on effect on the model approval process and other scheduled supervisory work is yet to be seen.

Oddly, the EIOP-ians of the world pushed out the 2013 Work Programme this week which of course skips over any of the practicalities around such a delay - so having "already achieved a great deal" in Solvency II prep, they will "finalise the [53] standards and guidelines" currently required of them, set up an "internal model support expert unit", and "finalise the preparation of the [supervisory] Colleges" - and all of this while Rome burns!

It is a perverse situation when a subject as politically divisive as capital requirements for long term guarantees across the union is not as complex as trying to get three well-briefed parties around a table to agree on an implementation date. At a time when the Commission wants an inflation-busting funding rise (which Parliament have 'ole'd through) and EIOPA have grown in headcount and cost by 50% y-o-y, the alarming regularity with which national self-interest and horse-trading has derailed a project of such significance makes me long for the jingoistic certainty of the Corn Laws - I'm guessing that's not a good thing...

Solvency II - 7 year transitional periods, white noise and Omnibus II on the move

A particularly weird week for Solvency II, with more aimless racket than a drunken tennis player, yet only a slither of substance to it.

Ignoring if I may the robust line being taken by the UK Pensions Minister about occupational pension schemes falling under Solvency II and the Daily Mail's scare piece on annuities becoming potentially more expensive, the big story has of course been Burkhard Balz's alternative for life insurers (presumably on the trialogue table for longer than the last couple of days, but leaked this week to FT Deutschland for the scoop) to transition in the more onerous capital aspects of Solvency II over as many as 7 years.

Bearing in mind the rather blase attitude at the time towards extending the Omnibus II plenary vote to September ('all they are doing over the summer is technical drafting' was the party line), to have something so significant being kicked around the table at this late stage is a truly grim prospect, particularly if it is loaded with national, rather than pan-european considerations.

Of course, conjecture around knock on effects on the legislative timetable is only as good as its source - hence I have linked through to the Omnibus II procedure file, which has been updated to reflect a late October plenary vote (when it was previously Sept 2012, July 2012, April 2012, Jan 2012 and Dec 2011!).

I'll leave it to the experts to work out whether 2014 is realistic given the trialogue curveballs and the phantom plenary...

Omnibus II update - implementation plan shenanighans

The European Council pushed out the July version of the Omnibus II draft at the end of last week (a little late perhaps, but the Europeans do go on holiday for August I guess!).

Changes from the June version include;

• Introductory paragraph added on ensuring that continuity and development of long-term guaranteed business is not impaired when developing this text.
• EIOPA now obliged to produce technical information on the Equity Risk sub-module of standard formula
• Supervisors will be applying laws and regs required to comply with implementation plan requirements from 1^st April 2013 (this was from 30^th June)
• Guidance from EIOPA on what the “implementation plan” requirements are still expected on 31^st March 2013 – must now also contain guidance in the context of proportionality.
• The implementation plan must specify which, if any, transitional measures will be utilised.

Most significant one seems to be the third one – I can’t fathom why they have expressly said that regulators need to be able to police the implementation plans in April 2013, if they are not due to be submitted until June 2013.

It may be that the national regulators have lobbied to be able to check up on companies pre-submission to make sure the implementation plans are compiled to their liking first time round. With little room for latency, I suppose that would make sense.

Solvency II - Official Shift to January 2014

Some guys were pretty quick off the mark in the Tweetosphere - Text out of the Council meetings over the last few days confirms a wish to shift to Jan 1st 2014 - implications will naturally emerge over the next couple of days, but in the meantime, you might want to adjust your calendars by 12 months (unless you are in the UK of course!)