Not a month goes by now, it seems, without some new major development in EU policy. First came the final reporting guidelines for the Alternative Investment Fund Managers Directive (AIFMD), published by the European Securities and Markets Authority (ESMA) in September.
Then came the IORP II Directive. Just as everything seemed in place for the launch of a legislative proposal based on pillars two and three for the revised directive this month, the European Commission suddenly decided to postpone its plan.
And last but certainly not least, just as the pension industry dared to believe the controversial holistic balance sheet (HBS) approach had died a death – after Michel Barnier, the commissioner for internal market, confirmed that pillar one of the new IORP Directive would be postponed indefinitely – the chair of the European Insurance and Occupational Pensions Authority (EIOPA), Gabriel Bernardino, dashed their hopes. Much to the industry’s dismay, he proclaimed in October that the controversial approach was alive and kicking.
In October, ESMA published an opinion proposing that managers report on the breakdown of alternative investment funds’ investment strategies, the main markets, and instruments in which they trade, the total value of assets under management and turnover of each fund, as well as the principal exposures and the most important portfolio concentration of the funds.
There is more. The authority also proposed to include funds’ risk measures, their liquidity profile and their leverage. Information such as the value-at-risk of the funds, or the number of transactions carried out using high-frequency algorithmic trading techniques, might therefore be included in the reporting process.
According to ESMA, those guidelines clarify AIFMD provisions on required information, in order to help achieve a more comprehensive and consistent oversight of the activities of alternative investment fund managers.
On the IORP II Directive side, the least we can say is that the HBS approach has drawn fierce criticism. Many in the industry have argued that such a mechanism within the new IORP Directive would severely impact pension funds. Barnier himself conceded this in May when he announced that the introduction of pillar one of the revised directive would be postponed as solvency rules should be an “improvement for the pensions sector, rather than a punishment”.
But to the dismay of those who believed this approach had been shelved for good, Bernardino – who spoke at the hearing of the chairmen of the three European Supervisory Authorities in September – said that EIOPA was working to improve methodologies for assessing the HBS within the IORP II. The authority seeks to present further tested technical proposals to the new European Commission next summer.
Meanwhile, sources in Brussels revealed that the Commission is likely to postpone the introduction of its legislative proposal for pillars two and three of the revised IORP Directive – which focus on governance and transparency issues. According to these sources, the Commission changed its plan in September, while the legislative proposal was originally due to be announced in October. The reason would appear to be a lack of data regarding the impact the two pillars might have on European pension funds.
This is precisely where the problem lies. The lack of data has always been the primary reason for delays and reassessments. This was perfectly illustrated by the outcome of the first quantitative impact study, in October last year, to assess the feasibility of the HBS approach.
The question now is, how long will it take the Commission to gather all the data needed for the proper implementation of pillars two and three? Are we talking about weeks, months or even years? There is ample evidence that Barnier might want to speed up the process for the purposes of his political legacy before he leaves the Commission next year. But no sources in Brussels or the Commission – seem able to provide a precise date on when the legislative proposal will be launched.