The European Insurance and Occupational Pensions Authority (EIOPA) found “no clear evidence of undue short-termism” in insurance companies and pension funds, the supervisory authority said in feedback to the European Commission.
EIOPA and the other two European supervisory authorities last month delivered their reports in response to a European Commission request for them to investigate whether parts of the financial sector put companies under “undue” short-term pressures on companies, with short-termism defined as “prioritising near-term shareholder interests over long-term growth of the firm”.
EIOPA said the Commission’s request had not given a concrete definition of what excessive short-termism meant in practice, and that the lack of an appropriate framework and commonly accepted definition meant it was challenging to find “clear evidence from which to draw conclusions”.
Although it had not found any clear evidence of undue short-termism in insurance and IORPs, EIOPA said the entities’ adaptation to macroeconomic circumstances, such as the persistent low interest rate environment, “may imply a shift in their role as long-term investors and insurance and pension providers to their clients”.
The supervisor made two main recommendations.
One is for a “cross-sectoral” framework to be developed, which should be the base for developing concrete definitions and good practices to identify unjustified short-term behaviour, and for identifying measures to promote long-term investment and sustainable economic growth.
There should be defined objectives and concrete targets, but the framework should respect the principle of investment freedom and not prescribe specific or mandatory holding periods or turnover ratios.
EIOPA also called for the development and publication of long-term performance benchmarks, saying the “availability of transparent and commonly understandable long-term benchmarks should benefit both providers and customers”.
It is up to the European Commission to decide whether to take up any of the supervisory authorities’ recommendations.