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EIOPA's growing powers: Why it matters

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  • EIOPA's growing powers: Why it matters

Cécile Sourbès looks into the ramifications of a stronger EIOPA for European pension funds.

When Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), called last week for an enhanced mandate and greater independence vis-à-vis national regulators, the pension industry did not pay much attention. After all, EIOPA already took a significant step further in 2011. But the call does matter, particularly at this time. Let's see why.

Launched in 2003, the Frankfurt-based organisation, then known as the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), only had a consultative role on insurance and pension reforms. The entire dynamic changed when Brussels decided to enhance the supervision of macro and micro prudential rules in 2011.

Three authorities were then created as part of the new European financial supervision framework. Alongside the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA), EIOPA came to light, replacing CEIOPS. That was the first step towards greater independence and enhanced powers.

Since its creation, EIOPA's core objective has been to support the stability of the financial system and transparency of markets and financial products, as well as protect insurance policyholders, pension scheme members and beneficiaries. So, keeping in mind the first step forward taken by EIOPA, this new call seems to be a natural and logical second step.

Of course, everybody was expecting the move. After all, Bernardino already made a similar call at EIOPA's conference in Frankfurt last year. At the time, he welcomed "the role EU political institutions were willing to attribute to EIOPA on the assessment of the long-term guarantee package". He also expressed the wish for the authority to receive "a clear mandate" from Brussels. He concluded his speech by a reference to The Times They Are a-Changin' song by Bob Dylan, which clearly highlighted a need of freedom.

So yes, the announcement last week was not breaking news. But it is clear Bernardino's speech came at the perfect time, just one day after Michel Barnier, the commissioner for internal market and services, announced a further delay in the introduction of pillar one of the revised IORP Directive and a focus on governance and disclosure requirements. Clearly, EIOPA could play an important role in those domains.

More important, Bernardino's call is simply logical. During his speech last week, he put a particular emphasis on the need to ensure an "adequate and consistent level of supervision, for the benefit of consumer protection and financial stability". To that aim, he argued it was "fundamental" to strengthen EIOPA's independent, challenging role towards national authorities. And at a time when Brussels is seeking greater harmonisation and consistency across pension systems in Europe, EIOPA's strengthening powers could fit perfectly with the Commission's goals.  

However, the question remains whether pension fund representatives really want to work more closely with EIOPA. Some in the industry might think national regulators' diminished responsibilities might not always be in their best interests. They might also miss the level of interaction or communication they used to have with their national regulators.

This could be particularly relevant in the field of internal models if we take into account EIOPA's call for a centralised oversight role. The main issue there would be the potential "inflexible view" the authority could take over the interpretation of Own Risk Solvency Assessment (ORSA) models, which is currently used by insurance companies under Solvency II and could be implemented for pension funds.

While the approval of such internal models is currently left to each national regulator, a move towards a more centralised regulatory oversight could potentially impact pension schemes' flexibility to negotiate the use of their own risk-assessment tools.

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