The proposed European Capital Markets Union (CMU) has been hit by revisions to IORP II, according to Clifford Chance, as the legislation undergoes second negotiations in the European Council.
The latest revisions to the IORP II Directive showed EU member states clawing back regulatory power from the European Insurance and Occupational Pensions Authority (EIOPA), after wording amendments in the Directive.
Significantly, Articles 29 and 30, which provide details on scheme risk evaluation, have been amended, giving power to national regulators after previously being seen as a risk for the implementation of solvency requirements through secondary EIOPA regulation.
However, Hans van Meerten, a pensions lawyer at Clifford Chance in the Netherlands, said this was at odds with greater plans for the CMU.
Incoming financial services commissioner Jonathan Hill has the remit to create a foundation for a CMU, which he aims to complete by 2019.
In statements prior to his approval by the European Parliament, Hill said underdeveloped occupational pensions were a barrier to the creation of the CMU, a key policy of the incoming Commission.
Van Meerten said Hill appeared to be a “huge fan” of greater integration and questioned how that would work in conjunction with the latest IORP II Directive.
“All the powers are back to the member states,” he said. “This would work badly with the CMU, as pensions are an important part of this union, particularly cross-border pensions, which have also been made more difficult.”
The latest draft also sees wording allowing members to veto any move for a scheme to become cross-border.
“I don’t see the compatibility of IORP II and the developing the CMU,” Van Meerten added.
But Tim Smith, senior associate at UK law firm Eversheds, said the move to national regulator level was a positive step – although he warned this did not mean it would be kept in before the Directive was ratified by the Parliament and finally approved by the Commission.
“We are very much in support of the changes in the document,” he said.
According to Clifford Chance, the latest IORP II draft removes all mentions of second-level regulation, which Van Meerten said meant IORP II would require every single detail of regulation.
“Article 290 on the functioning of the EU has been deleted, which leaves no room for delegated acts,” he said.
“Some say this is positive, but I wonder. Even the most detailed of provisions has to be included in the Directive – otherwise, we would get objections that EIOPA was interfering with the IORP II powers.”
He added: “Discussions could take years. If you have to negotiate on every single point, we would see the Directive in 2100.”
Eversheds’ Smith agreed such a level of detail would be unworkable but said it would require an ideal balance.
“I can see how that would cause significant delays, but it is about striking the right balance between nailing down significant areas such as risk-evaluation,” he said.
“I would have no problems with other areas being implemented using delegated acts.”
Before the proposals were made to shift power back to member states, the measures for risk-evaluation for pensions alluded to the use of solvency requirements to manage risk.
It was expected this would come under the form of EIOPA’s flagship holistic balance sheet, on which it is currently consulting.