News Update Financial Regulatory
12 September 2022
In this News Update, we discuss the consultation on the amended Policy Rule on Fitness 2012, three EBA documents on remuneration-related topics, EIOPA's peer review on outsourcing, and EIOPA's staff paper on the proposal for an Insurance Recovery and Resolution Directive. We further highlight some other financial regulatory publications issued since our last News Update. As we did not publish a News Update in August, this overview is a little longer than usual.
AFM and DNB | Consultation on amended Policy Rule on Fitness 2012Just before the summer, the Dutch Authority for the Financial Markets ("AFM") and the Dutch Central Bank (De Nederlandsche Bank, "DNB") surveyed relevant changes in national and European legislation and drafted amendments to the Policy Rule on Fitness 2012 (Beleidsregel geschiktheid 2012). On 15 July 2022, the AFM and DNB launched the consultation process, concerning:
- the Draft Decision 2022 (only in Dutch) to amend the Policy Rule on Fitness 2012, giving an overview and an explanation of the proposed amendments to the policy rule; and
- the draft amended text of the policy rule, including explanatory notes (only in Dutch).
The deadline for submitting responses is 15 September 2022. The AFM and DNB will adjust the policy rule and the explanatory notes in light of the responses, where necessary. They expect the final version to be published in the Dutch Government Gazette (Staatscourant) at the end of 2022 and take effect from that date.
EBA | Final Guidelines and report on remuneration-related topicsThe European Banking Authority ("EBA") has recently published three documents on remuneration-related topics:
- On 30 June 2022, EBA published its final updated Guidelines on the data collection exercise regarding high earners, which were originally released in 2012 and revised in 2014. The update of the data collection exercises reflects the amended remuneration framework laid down in the Capital Requirements Directive ("CRD"), including the introduction of derogations to pay out a part of the variable remuneration in instruments and under deferral arrangements. The need to update these Guidelines follows from the specific remuneration regime that has been introduced for investment firms and is laid down in the Investment Firms Directive ("IFD") and Investment Firms Regulation ("IFR").
- On 30 June 2022, EBA also published its final Guidelines on the remuneration benchmarking exercise under the CRD, which were originally published in 2012 and updated in 2014. The update was necessary to consider the additional requirements introduced by CRD V regarding the application of derogations and the benchmarking of the gender pay gap. EBA also added guidance to harmonise the benchmarking of approvals granted by shareholders to use higher ratios than 100% between the variable and fixed remuneration. Separate Guidelines on the remuneration and gender pay gap benchmarking exercises are provided for investment firms under the IFD.
- On 21 July 2022, EBA published its Report on the benchmarking of remuneration practices in EU banks for the financial years 2019 and 2020 and high earners' data for 2020. The number of high earners decreased. While the bonus level for high earners remained relatively stable, a visible reduction could be observed for risk takers (identified staff).
EIOPA | Peer review on outsourcingOn 19 July 2022, the European Insurance and Occupational Pensions Authority ("EIOPA") published its report of the peer review on outsourcing. This peer review assessed the overall maturity of the national frameworks to supervise the outsourced activities of insurance undertakings and reinsurance undertakings. The findings show that European undertakings increasingly use outsourcing, mainly in the field of technology, and that the level of outsourcing varies greatly. Most national supervisors focus their assessment of outsourcing-related risks at notification, that is, before undertakings outsource certain functions, whereas others have opted for a lighter notification process combined with more intensive ongoing supervision. A few supervisors have implemented a robust notification assessment together with intensive ongoing supervision. An analysis of the tools used by supervisors reveals that even though on-site inspections are intensive in terms of time and effort, they are the most effective tool to verify the overall governance structure around outsourcing. On-site inspections also confirm whether undertakings comply with Solvency II requirements regarding outsourced activities.
The peer review found that segments of the outsourcing framework and certain supervisory practices need improvement. To address these, EIOPA has recommended actions to national supervisors. These include aspects of the outsourcing framework, the structure of the notification process and supervision of the notification content, information management, and supervisory procedures for off-site and on-site inspections.
EIOPA has also identified areas where higher supervisory convergence and/or more clarity regarding supervisory expectations could be achieved. EIOPA will consider conducting further analysis in three domains:
- The outsourcing of delegated authority (where an insurance intermediary who is not an employee of the undertaking is granted authority to underwrite business or settle claims for the undertaking).
- The definition of ‘material development’ and the meaning of ‘timely notification’ according to Article 49(3) of Solvency II.
- The supervision of undertakings that make such an extensive use of outsourcing that it impacts their corporate substance ("empty shells").
As a follow-up to this peer review, EIOPA announced that it would be monitoring and assessing national supervisors' compliance with the recommended actions.
EIOPA | Staff paper on the proposal for an Insurance Recovery and Resolution DirectiveOn 6 July 2022, EIOPA published a staff paper that provides an overview of the proposal for an Insurance Recovery and Resolution Directive ("IRRD") put forward by the European Commission in September 2021. EIOPA welcomes the proposal, which it believes addresses all relevant building blocks of a recovery and resolution framework and focuses on cooperation and coordination amongst authorities. The paper outlines how the IRRD is a comprehensive framework that considers insurance-specific features. The main benefits of the proposed IRRD are, according to EIOPA:
- one single framework across the EU, which seeks to minimise the potential impact on policyholders and the stability of the system as a whole in the event of insurance failure;
- preventive planning as a fundamental element, with the underlying idea that crisis prevention is less expensive and more effective than crisis management;
- appointment of resolution authorities with specialised knowledge of the insurance undertaking and the resolution process;
- clear conditions for resolution and adequate safeguards in line with international standards;
- a broad range of proposed resolution tools providing authorities with the flexibility to reach an optimal solution in any situation; and
- resolution colleges addressing the need for cooperation and coordination among authorities, which is key to ensuring a successful resolution process, particularly in cross-border cases.
EIOPA is of the view that the main elements of the proposal should remain as they are during the negotiation process.
Other financial regulatory publicationsWe have highlighted a selection of other publications by legislatures and regulators for the financial markets and financial supervision since our July 2022 News Update.
Ministry of Finance
- Consultation on the Financial Markets Amendment Decree 2022 (Wijzigingsbesluit financiële markten 2022, only in Dutch);
- Consultation on the Decree on the implementation of the Investment Firm Recovery Package Directive (Besluit implementatie richtlijn herstelpakket beleggingsondernemingen, only in Dutch);
- Consultation on the Decree on the comparison chart for financial service providers (Besluit vergelijkingskaart financiële dienstverleners, only in Dutch);
- Bill Implementing the Investment Firm Recovery Package Directive (Wetsvoorstel Implementatiewet richtlijn herstelpakket beleggingsondernemingen, only in Dutch);
- Act to amend the Trust Offices Supervision Act 2018 in connection with an emergency measure to prohibit the provision of trust services to clients in the Russian Federation or the Republic of Belarus (Wet tot wijziging van de Wet toezicht trustkantoren 2018 in verband met een spoedmaatregel om trustdienstverlening aan cliënten in de Russische Federatie of de Republiek Belarus te verbieden, only in Dutch), entered into force on 16 July 2022;
- Omnibus Directive and Regulation ESFS Review Implementation Act (Implementatiewet omnibusrichtlijn en -verordening ESFS-review, only in Dutch), entered into force on 3 September 2022;
- Regulation on indexation exemption limits Solvency II Basic (Regeling indexatie vrijstellingsgrenzen Solvency II Basic, only in Dutch), entering into force on 19 October 2022;
- Financial Markets Amendment Act 2022 (Wijzigingswet financiële markten 2022, only in Dutch), entering into force on 1 January 2023.
- Results of AFM survey on expected returns and risks (Resultaten AFM-onderzoek verwachte rendementen en risico's, only in Dutch);
- Sector letter to mortgage providers on mortgage acceptance policy (Sectorbrief hypotheekaanbieders inzake hypotheekacceptatiebeleid, only in Dutch);
- Supplement to the Advisory and Asset Management Services Guideline (Aanvulling Leidraad advies- en vermogensbeheerdienstverlening, only in Dutch);
- Investigation into management measures for compliance with EU sanctions against Russia (Onderzoek naar beheersmaatregelen voor naleving EU-sancties tegen Rusland, only in Dutch).
- Consultation paper on the third round of amendments to the bank DGS regulation (Consultatiedocument derde wijzigingsronde Regelgeving DGS voor banken, only in Dutch);
- Consultation on Q&A Retention fees (Q&A Retentievergoedingen, only in Dutch);
- [Closed] Consultation on amended reporting requirements for insurers (only in Dutch);
- [Closed] Consultation on Regulation on the extension of the risk weighting of mortgage loans 2022 (Regeling verlenging risicoweging hypothecaire leningen 2022, only in Dutch);
- Q&A on assessing the use of leverage in the acquisition of a qualifying holding in insurers (Q&A over beoordeling van het gebruik van leverage bij verwerving van een gekwalificeerde deelneming in verzekeraars, only in Dutch).
European Central Bank
- 2022 climate risk stress test
European Supervisory Authorities ("ESAs")
- Joint ESAs’ Report on the extent of voluntary disclosure of principal adverse impact under the Sustainable Finance Disclosure Regulation ("SFDR").
- Consultation Paper on draft Regulatory Technical Standards ("RTS") on the homogeneity of the underlying exposures in simple, transparent and standardised ("STS") securitisation;
- Consultation Paper on the supervisory handbook on the validation of internal ratings based systems;
- Consultation Paper on draft revised guidelines on methods for calculating contributions to deposit guarantee schemes;
- Consultation Paper on draft RTS on the determination by originator institutions of the exposure value of synthetic excess spread in securitisations;
- Final Draft RTS on Pillar 2 add-ons for investment firms;
- Final Guidelines on the criteria for the exemption of small and non-interconnected investment firms from the liquidity requirements in accordance with the IFR;
- Final Guidelines on common procedures and methodologies for the supervisory review and evaluation process for investment firms;
- Responses to the consultations of the International Sustainability Standards Board ("ISSB") and the European Financial Reporting Advisory Group ("EFRAG") on sustainability-related disclosure standards;
- Report on the functioning of anti-money laundering and counter-terrorist financing colleges in 2021.
- Consultation Paper on the supervisory statement on differential pricing practices;
- Consultation Paper on the supervisory statement on the use of governance arrangements in third countries to perform functions or activities;
- Guidance on the integration of sustainability preferences in the suitability assessment under the Insurance Distribution Directive;
- Application guidance on running climate change materiality assessment and using climate change scenarios in the ORSA.
European Securities and Markets Authority
- Consultation Paper on the review of the Guidelines on MiFID II product governance requirements;
- Comments on first set of draft European Sustainability Reporting Standards;
- Q&As on MiFIR data reporting, on MiFID II and MiFIR market structures topics, and on SFTR data reporting;
- Peer review report of the scrutiny and approval procedures of prospectuses by competent authorities.
Single Resolution Board
European Systemic Risk Board
- EU Non-bank Financial Intermediation Risk Monitor 2022
Basel Committee on Banking Supervision
- Second consultation on the prudential treatment of crypto asset exposures
If you have any financial regulatory questions, please do not hesitate to contact Berry van Wijk and Roel Theissen. For questions related to Investment Management, you can also contact our colleagues Oscar van Angeren and Marthe Bollen.