Low-yield business model impact among EIOPA priorities for NCAs

The European insurance and occupational pensions supervisor has identified business model sustainability as one of two EU-wide strategic supervisory priorities relevant for supervisors in member states, known as national competent authorities (NCAs).

In a statement today, EIOPA said that NCAs will focus their supervisory activities on monitoring the impact of the prolonged low-yield environment and the COVID-19 crisis on the business model sustainability and development of pension funds and insurers.

The other EU-wide strategic supervisory priority EIOPA has set for NCAs, also with a link to the coronavirus crisis, is “adequate product design”.

The priorities are something EIOPA has to set under revised regulations governing the European supervisory authorities. It is supposed to set up to two at least every three years, with the priorities supposed to reflect future developments and trends.

The national supervisors are supposed to take the priorities into account when drawing up their work programmes, and “notify EIOPA accordingly”. NCAs can continue to consider national circumstances and characteristics.

EIOPA Frankfurt

Gabriel Bernardino, who steps down next month as EIOPA chair, said: “The new powers that EIOPA got with the revised regulation represent an important part of the new supervisory convergence toolkit to address risks that require specific attention and concerted supervisory action in the European Union.

“The selection of the analysis of business model sustainability and adequate product design in the context of the COVID-19 crisis and the prolonged low-yield environment, will ensure that risks and supervisory concerns in these two areas are addressed simultaneously by NCAs across the European Union and thereby ensuring greater protection for all policyholders and beneficiaries as well as and the orderly functioning of the insurance and occupational pensions markets.”

For EIOPA: ESG, multi-employer IORP providers

EIOPA this week also disclosed its supervisory convergence priorities for 2021, with new areas said to include supervisory convergence in the pension sector, and the identification, management and supervision of environmental, social and governance (ESG) risks.

With regard to ESG, it said that specifically with respect to pensions, a prudent personal rule chapter in the IORPs’ supervisory handbook would include “some good practices on the supervision of IORPs incorporating ESG factors in their investment policy”.

More generally, it would be taking “step-by-step measures for integrating the assessment and management of ESG risks into prudential and conduct supervision”.

“Whilst multi-employer IORP providers have an important role to play, they also bring new supervisory questions in respect of the governance and risk management”

EIOPA

EIOPA also revealed that, after the completion of the handbook prudent person rule chapter, it would turn its attention to multi-employer IORP providers, that is pension funds established by service providers – as distinct from non-commercial pension funds set up by a single sponsor or multiple sponsors of the same sector.

“Whilst multi-employer IORP providers have an important role to play to foster market consolidation and provide efficient, low-cost solutions in member states seeking to develop occupational pensions, they also bring new supervisory questions in respect of the governance (e.g. conflicts of interest, sponsor involvement) and risk management (e.g. operational DC liabilities, service continuity in case of business insolvency),” said EIOPA.

“This work will include fieldwork to better understand providers’ different business models and NCAs’ supervisory practices in respect of these IORPs and will take into consideration the proportionality principle.”