The European Parliament’s latest draft of the IORP Directive calling for limitations on the EU regulator will be largely welcomed by the industry, Towers Watson has said.

In a draft published earlier this week, Irish MEP Brian Hayes, IORP rapporteur for the Parliament’s Economic and Monetary Affairs Committee (ECON), said the controversial holistic balance sheet (HBS) accounting approach was “not realistic in practical terms”.

He also suggested other European Insurance and Occupation Pensions Authority (EIOPA) projects should be pegged back, and argued that neither the European Commission nor the regulator had the power to draft additional technical standards.

Mark Dowsey, senior consultant at Towers Watson, said the latest draft – likely to enter trialogue by the end of the year – sent a clear message to EIOPA.

“The message to stop the development of the HBS will be welcomed by those who saw it as an expensive distraction and largely pointless,” he said.

“It is a fairly clear steer from the Parliament that EIOPA needs to put the breaks on anything that could cause IORPs additional work.”

He welcomed Hayes’s approach, as well as the MEP’s observing Council of the EU recommendations to simplify the Directive.

Dowsey said the rapporteur had been true to his word in trying to mend the funding issue for cross-border pension funds, which cannot be underfunded.

However, the current wording on funding has caused the consultancy some concerns.

Similarly, James Walsh, EU policy lead at the UK’s National Association of Pension Funds, said the current wording in relaxing the full-funding requirements could have unintended consequences.

The new version states that a fund’s technical provisions should be fully funded “from the moment when the institution starts operating a new or additional scheme”.

The text, however, fails to specify what constitutes a “fund launch”.

Dowsey said: “Hayes clearly wants to do something about the [fully-funded cross-border situation], but the amendment he has made is open to conjecture.

“The sentiment is welcome, but, as drafted, it is potentially less helpful … the intention is to facilitate cross-border schemes without making it more onerous than the domestic situation.”

Dowsey also highlighted that, in Article 13/3, the IORP II Directive suggests that bulk transfers between IORPs will require most of their members’ approval, regardless of geography.

However, Ireland and the UK have special regulations in place to allow transfers without consent, subject to protections from members and independent actuarial approval.

“As drafted,” Dowsey said, “[the regulations] could prevent bulk transfers and potentially frustrate M&A activity.”