17 December 2014
As the end of the year approaches it is interesting to look back and consider what was promised and what we saw delivered in 2014. The G20 Summit promised a lot, but did not deliver on the key issue of how the sector can contribute to jobs and growth. The EU and the ESAs continued with the flow of material for the banking, insurance, and funds sectors with the constant risk of inconsistencies creeping in due to timing and resource constraints.
We now see pressure, led by the new Commission in Brussels, to re-visit the extent of the new regulation in Europe. Proportionality is the new test. At the same time, we are all hoping that the Capital Markets Union is focused on the actual economy and not another excuse for more regulation. The Financial Transaction Tax is staggering on and we will see if it survives. We all share the hope that 2014 saw the bottom of the barrel in terms of the big scandals and that 2015 sees fewer bad news stories and the start of a rebuilding of trust.
The results of the European Central Bank’s (ECB) Asset Quality Review (AQR) which scrutinized with unprecedented rigour the balance sheets and capital position of banks were landed with credibility. The ECB is now getting into its stride and it will be interesting to see how the new style of supervision starts to challenge strategy, business and operating models.
We have commented previously on the increasing activity of IOSCO and our perception that it is aligning itself with the Basel Committee. They have published a steady stream of reports and principles for regulators. These are increasingly more substantial, aimed directly at regulated firms and not only at supervisory authorities. The IAIS is also focusing on its decision making process. It will be interesting to see how the FSB continues to develop and marshal the BCBS, IOSCO, and IAIS.
2015 will hopefully finally be the year of implementation, rather than lots more policy initiatives.
I hope you find the articles below interesting. If you would like further information on any topic or have any questions, please do not hesitate to contact me or your usual KPMG contact.
Head of FS Markets
Unpicking the insurance stress test results – a concern or not?
The headlines following the release of the latest European insurance stress test results on 30 November made depressing reading. However, the actual position is somewhat more positive.
The exercise addressed both adverse market and insurance industry scenarios. A separate exercise was also conducted, looking at the impact on life insurers who are most affected by the low interest rate environment of either an elongated period of low, or of a sudden reversal in, interest rates.
Resolution funds – the funding model emerges
The European Commission has finalised (subject to Council and Parliament non-objection) a Delegated Act setting out how credit institutions will pay into national resolution funds (and the banking union area single resolution fund) under the Bank Resolution and Recovery Directive and the Single Resolution Mechanism.
The ESAs consult on the Key Information Document for banking, insurance products and funds
The Joint Committee of the three European Supervisory Authorities has published a Discussion Paper¹ on the Key Information Document for Packaged Retail Investment and Insurance-based Products, the PRIIP KID. It is the first step in the preparation of Regulatory Technical Standards that will prescribe the detailed content, style and review and delivery mechanisms of the KID. This is an important opportunity for product manufacturers to feed in their views and to begin to plan for a resource-intensive implementation in 2016. Before then, the European Commission is to conduct extensive consumer testing, there will be a further technical discussion paper in the spring of 2015 and a consultation on the draft rules in the autumn.
Post comprehensive assessment - what we can expect from the ECB?
It has only been a few weeks since the ECB took over supervisory responsibility for banks in the euro area and, while the conclusion of the ECB’s comprehensive assessment “paves the way for tough, fair and independent supervision”¹ it will take some time before we can objectively assess the impact of this new single supervisory mechanism can be assessed.
Reporting likely to be the biggest challenge from the latest Solvency II requirements
European Insurance and Occupational Pensions Authority (EIOPA) released for consultation the second wave of both technical standards (which will be binding on both insurers and supervisors) and guidelines related to Solvency II. National competent authorities (NCA) must make every effort to comply with the guidelines, so insurers need to also assume that these will apply. The package of papers comprises 10 technical standard papers (equity dampener to follow) and 8 guideline papers containing nearly 180 individual guidelines.
EIOPA strategic priorities
Following the five strategic goals set out in its 2015 work programme, EIOPA’s strategic priorities were set out in a speech by Gabriel Bernadino at the European Insurance and Occupational Pensions Authority (EIOPA) Conference in November. Unsurprisingly, Solvency II was the first thing mentioned, but there was also a strong theme of consumer protection.
Political agreement reached on the Regulation for European Long-Term Investment Funds (ELTIFs)
At a trialogue meeting on 26 November, chaired by the Economic and Monetary Affairs Committee (known as ECON) chair Roberto Gualtieri and with the Commission represented by Commissioner Hill, political agreement was reached on a new brand of European closed-ended investment funds – commonly referred to as ELTIFs. The compromise text resolved the issues of contention between the Commission, the Parliament and the Council - eligible assets, access by retail investors and the ability for investors partly to redeem their investments. Generally, more flexible approaches were secured, but access by retail investors is restricted to those with investible portfolios of at least €100,000 and they can invest no more than 10% of their portfolio into ELTIFs. The text must now proceed through the final formal stages to adoption and may be published in the Official Journal by late April.
UCITS: Management Companies and Depositaries in the same group will have to evidence independence
ESMA’s final advice to the Commission on two aspects of “UCITS V” drops the proposal for the manager and depositary to be in different groups, but bank-owned fund managers will have to undertake a thorough review of their governance structures and justify using the group’s depository and its fee. Most of the Level 2 measures will be a copy-out of the relevant articles in the AIFMD Level 2 Regulation. Therefore, they will not be new to firms that are AIFMs, but UCITS-only managers and depositaries will need to review their policies and processes.
Brisbane G20 summit – what did it really achieve?
The Brisbane G20 summit did not achieve anything significant on financial regulation, apart from ending a number of FSB papers.
In our pre-summit publication, Brisbane G20 Summit – A new agenda for financial services, we asked two key questions. The first was how can the industry maximise the contribution of the financial sector to jobs and growth? It is disappointing that the summit did not even remit this issue to the FSB for further consideration, so at best only a piecemeal approach should be expected to fine-tuning the regulatory regime to encourage and facilitate the financing of growth by banks, insurers, funds and capital markets.
On the radar
- ESMA MiFID II level 2 consultation expected – 19 Dec
- ESMA prospectus consultation deadline – 19 Dec
- EBA consultation deadline on resolution triggers – 22 Dec
- EBA consultation deadline for proposed bank resolution guidelines – 22 Dec
- EBA deadline for consultation on bail-in liabilities – 3 Jan
- ESMA Call for evidence on the AIFMD passport and third country AIFMS – 8 Jan
- EBA hearing on bail-in treatment of shareholders, creditors – 12 Jan
- EIOPA pension-solvency consultation deadline – 13 Jan
- EBA deadline for comments on simple securitization – 14 Jan
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