Insurance & Asset Management Update – June
  • Friday, 3 July 2020

Insurance & Asset Management Update – June


EIOPA supports the ESRB’s call on enhanced monitoring of liquidity risks

In response to a letter by the European Systemic Risk Board regarding liquidity risks in the insurance sector, the European Insurance and Occupational Pensions Authority (EIOPA) consulted on tools to assess and monitor liquidity risks. The letter mentions that moratoria on payments decreases investment income.

At the same time insurers allow investors to redeem funds, whose underlying products are structurally invested, on short notice putting the company at risk. The ESRB suggests using the upcoming Solvency II review to improve supervisors’ monitoring capabilities regarding liquidity risks of insurance companies.

ESRB Report Identifies Data Gaps in Measurement of Climate Change Risk

The European Systemic Risk Board (ESRB) published a report that explores the quantitative perspectives of financial stability risks. Among others, it seeks answers to the questions whether financial markets are pricing the prospect of climate risk shocks and which exposures financial institutions face. It is revealed that the valuation of an insurance company is mildly correlated to its environmental disclosures.

The report suggests few indicators to measure an institution’s exposure of which a couple are already included in Solvency II reporting. However, the ESRB mentions the lack of data about reserving practices and reinsurance prices data to determine a potential mismatch between premiums and covered catastrophe events.

EIOPA consults on (re)insurance value chain and new business models arising from digitalisation

In June, the European Insurance and Occupational Pensions Authority (EIOPA) launched a public consultation addressing the upcoming changes to the insurance market landscape through digitalisation. Consumers might benefit from reduced costs, higher quality products and insurers can streamline their processes. However, previous risks, such as operational risks, IT risks and compliance issues might remain but lie outside of the insurers’ value chain. EIOPA launches this consultation to obtain more insights into a possible fragmentation of the value chain and where this could stress the supervisory oversight.

Please contact Lennard Beijering or Nicolas Ziob regarding liquidity risk, regulatory reporting and compliance in the insurance sector.


-Asset Management-

EBA outlines roadmap on implementation of new regulatory framework for investment firms

The European Banking Authority (EBA) published its roadmap for each of the mandates in the
Investment Firms Regulation and Investment Firms Directive (IFR/IFD), including a prioritisation for these mandates. In the short term, the focus of EBA will lie primarily on thresholds and criteria for investment firms subject to the Capital Requirements Regulation, and Capital requirements and composition of investment firms.

The mandates are intended to contribute to the implementation of a regulatory framework for investment firms, which takes the size and nature of firms into account. This is expected to strengthen supervision, as it will rely more directly on the risks faced by the clients and the investment firms themselves.

In addition, EBA started a public consultation on the first regulatory deliverables, on prudential, reporting, disclosures and remuneration requirements. These consultations contain among other Regulatory Technical Standards (RTS) on capital requirements for investment firms and the reclassification of some investment firms as credit institutions.

IOSCO proposes updates on outsourcing principles to ensure control over outsourced activities

The Board of the International Organization of Securities Commissions (IOSCO) consults on its proposed updates to its principles for regulated entities that outsource tasks to service providers. Developments in markets and technology caused an increase in the regulatory attention on outsourcing risk and the need to ensure the operational resilience of regulated entities.

Among others, the proposed updates put more focus on the contract with the service provider, which should be appropriate to the materiality and criticality of the outsourced activities. In addition, the updates require entities to be in control over all data regarding regulated activities, even when these activities are outsourced.

FSB issues public consultation on adequacy assessment of financial resources for CCP resolution

The Financial Stability Board (FSB) published a public consultation report on “Guidance on financial resources to support CCP resolution and on the treatment of CCP equity in resolution”. Since the 2008 financial crisis, increased central clearing has simplified the network of derivatives exposures and reduced counterparty credit risks. However, the critical role of central counterparties (CCPs) in the stability of the financial system means that authorities need to ensure that CCPs themselves do not create systemic risk in the market.

The first part of the guidance proposes an action plan to help authorities in assessing the adequacy of the financial resources of a CCP, used to absorb losses in resolution. The second part provides a framework to assess the exposure of CCP equity to losses in recovery, liquidation and resolution.

AFM issues recommendations for upcoming AIFMD review

Following the AIFMD report published by European Commission, the Dutch Authority for the Financial Markets (AFM) published its recommendations for the upcoming review of the Alternative Investment Fund Managers Directive (AIFMD), which defines regulation for management companies of investment funds (AIFs) in Europe. Among others, the AFM recommends

  • The introduction of a third-country passport, allowing non-EU management companies to offer their services in Europe, which has become even more relevant following the Brexit.
  • The central collection of AIFMD data by an independent third party (while maintaining access for supervisory authorities), which will improve the availability and quality of the data.

Please contact Lennard Beijering or Bas van Oers for more information about these regulatory developments for asset managers.