Cécile Sourbes asks what lessons can be learned from the failure of UMR to create an IORP domiciled in Belgium
“France now needs to stop looking back to better look forward,” Charles Vaquier, CEO of the French €10.2bn pension scheme UMR, told IPE in spring 2012. At the time we quoted Vacquier, UMR was looking to launch its first cross-border pension fund, and he spoke candidly about the reasons that had persuaded the French scheme to move part of its activities away from France and select Belgium as a destination.
After all, France has not yet developed any dedicated framework for establishing IORPs, contrary to its neighbour Belgium.
But as months passed and UMR entered into negotiations with the Belgian Financial Services and Markets Authority (FSMA), the suddenness with which the pension fund put its long-planned move on hold surprised some pension experts.
The reason behind UMR’s inability to fulfil its plans finally became apparent at the beginning of this year. Over the course of 2012, UMR allegedly received a letter from the French insurance and pension funds authority – the Autorité de Contrôle des Assurances et des Mutuelles (ACAM) – “advising” it to keep its activities within the country and to drop its plan to launch an organisation for financing pensions (OFP) in Belgium. IPE has not seen this letter.
Needless to say, this was a setback for the Belgian OFP model. Introduced in 2006, the framework aimed to attract significant EU cross-border pension activity. To date, only 10 foreign institutions have chosen Belgium as a destination for their cross-border pension scheme, mainly attracted by the tax regime and the flexibility in the funding level the framework offers. And the FSMA itself concedes that demand from EU pension providers seeking to implement their activities in the country remain limited. Jim Lannoo, spokesperson of the FSMA, even notes that “there are currently no striking indications to allow the authority to believe in a dramatic increase in demand in the near future”.
But the move by the French regulators could be detrimental to the Institutions for Occupational Retirement Provision (IORP) Directive as a whole.
The Directive, which was adopted in 2003 with the aim of fostering the cross-border pension market in Europe, has seen only 84 pension funds registering cross-border activity under the terms of the legislation so far. On one hand, the failure of cross-border pension development has prompted Brussels to draft a second IORP Directive – which will include capital requirements based on the example of the Solvency II framework for insurers. On the other hand, others argue that a new Directive is unnecessary until such time as each member state complies with the rules already in force. In their view, the French regulator still went one step too far in “advising” UMR to stay in France.
Each side seems to have a fair argument but in any event, neither the Belgian nor the European supervisors openly denounce the move undertaken by their French counterparts.
Both the FSMA in Belgium and the European Insurance and Occupational Pensions Authority (EIOPA) in Frankfurt declined to comment on the UMR case. While the Belgian regulator argued that they were not allowed to comment on individual cases, a spokeswoman at EIOPA stressed that it cannot intervene in the daily business of its members.
Commenting on Belgium’s possible recourse if one of its neighbours were to hinder the cross-border pension market, Lannoo explains that the FSMA cannot give any further details. He nonetheless stresses that in such a case the FSMA favours bilateral co-operation mechanisms, as specifically provided in the Budapest protocol, which was concluded in the context of the IORP Directive.
The Belgian regulator refers to article 21 of the first IORP Directive. The article stipulates that “all member states shall ensure, in an appropriate manner, the uniform application of this Directive through regular exchanges of information and experience with a view to developing best practices in this sphere and closer co-operation, and by so doing, preventing distortions of competition and creating the conditions required for unproblematic cross-border membership”.
Despite this, pension lawyers do not see the move made by French regulators as an immediate breach. According to Hans van Meerten, head of the international pension practice at law firm Clifford Chance in Amsterdam, the IORP Directive does not deal with the transfer of domicile, which remains the principal issue in this situation.
“[The Directive] only stipulates, once you have established an IORP, that you are free to operate all these schemes from different member states,” he says. “In this particular case, however, we are not even at the stage where the scheme has already delocalised its activities to Belgium since regulators have prevented UMR Corem to even launch an IORP.”
Article 21 of the Directive goes even further, saying that “each member state shall inform the Commission of any major difficulties to which the application of this Directive gives rise. The Commission and the competent authorities of the member states concerned shall examine such difficulties as quickly as possible in order to find an appropriate solution”.
It is not clear whether ACAM – which declined to comment on the case for the same reason as the Belgian FSMA – made the Commission aware of the issues behind the UMR case.
And yet again, the alleged letter written by the French regulator does not seem to constitute a breach of the Directive for one simple reason. Contrary to Vaquier’s comments regarding the imminent move of the scheme’s second pillar activities to Belgium, the Belgian regulator argues it only had “informal” contact with UMR over the last year regarding the intention to carry out cross-border activity. “But to date no definitive steps have been taken in this regard,” Lennoo continues.
“There is no reason to think that the delocalisation undertaken by UMR was a formal process and there are even fewer reasons to believe that this process was well advanced,” Lannoo insists. “For the sake of clarity, a pension scheme does not need the approval of its home country authority when a foreign pension fund takes over the activity on a cross-border basis. Under the existing IORP Directive, once the host country in which the pension scheme wishes to establish its activities has given its green light, the authorities from the home country provide the necessary information to enable the establishment.”
So in light of these requirements, what could justify the move allegedly made by the French regulators? For Laurent Cruciani, a partner focusing on pension issues at the law firm Capstan Avocats in Lille, the problem with the delocalisation of UMR’s second-pillar activities relates to tax, more specifically, to capital-gains tax.
Under the Belgian OFP framework, cross-border pension funds benefit from zero-taxation on capital gains, while in France the income from shares distributed to pension funds is taxed at a flat rate of 15%.
“The French government believes that its general tax code goes far beyond the relevant EU provisions in force and that the French tax rules would not conform with the Community rules since it would specifically restrain the freedom of establishment in another member state,” Cruciani explains.
“But, again, the French authorities do not have any power to oblige UMR to keep its activities within the country. The letter sent is advice and not an interdiction.”
Indeed, if Brussels were to find a breach in the European regulation, France would have no other option but to amend its tax treaty in order to comply with EU rules. Needless to say, several months might elapse before such a decision became reality.
However, other lawyers in Europe see in the French regulator’s move some protectionist goals. If this were proved true, Van Meerten argues that UMR could have a “strong case”.
According to him, the French regulator has a duty to comply with EU law and more especially with the principle of loyal co-operation established within the treaty. “The principles are laid down in articles 49 and 56, which relate to the freedom of establishment and the freedom to provide services, respectively,” he says. “The treaty clearly stipulates that, in principle, these freedoms should not be hindered in any way.”
If an infringement were established, UMR could file a lawsuit against the French authorities, either with a national court, with the European Commission or even directly with the European Court of Justice.
Another option could see the Commission intervene directly in the case. Jung-Duk Lichtenberger, a member of the EC’s insurance and pensions unit, affirms that Brussels is aware of the alleged letter sent to UMR “advising” it to keep its activities within the country and is currently investigating whether any EU laws have been breached.
In the meantime, UMR has no other option but to wait and see. As a number of sources close to the situation tell IPE, ignoring the “advice” allegedly sent by the regulators would be “unwise”, in light of the activities the pension fund plans to keep in France.
But at a time when the UK is questioning the substance of the EU treaty, revising national laws in accordance with those of the EU is an essential first step towards the fulfilment of the goals of the single market.