EIOPA Examines National Compliance with Prudent Person Rule in EU

In this report, EIOPA identified six best practices in relation to the supervisory assessment processes adopted by some national competent authorities and to the manner in which the national competent authorities interpret the Prudent Person Rule. The review found that supervisory approaches are largely determined by the manner in which the Prudent Person Rule is embedded in national legislation. Supervisory approaches also vary according to the type of scheme (defined benefit or defined contribution) and the maturity of the pension industry. National competent authorities that have adopted a risk-based approach or a prudent person plus approach—that is a risk-based approach complemented with quantitative limits—use more sophisticated tools and perform their supervisory activities in a risk-based and forward-looking manner. 

The report highlights that the national competent authorities using a compliance-based approach can enhance their supervision by including risk-based and forward-looking tools in their supervisory practices. EIOPA proposed several recommended actions, which concern:

• The frequency and granularity of the data collected
• The manner in which national competent authorities conduct their supervisory assessment
• The regular application of the look-through approach
• The appropriate consideration of interest rate risks for defined benefit schemes
• Supervisory practices of national competent authorities with regard to the governance of IORPs
• The frequency of on-site inspections

The peer review considered the basis for the interpretation of the Prudent Person Rule, legal and regulatory frameworks, information gathered for assessment, assessment methods, and supervisory actions taken. The review was conducted among 27 national competent authorities from 24 European Economic Area countries.

Related Links

• Press Release
• Report (PDF)
• Peer Review Methodology (PDF)

Keywords: Europe, EU, Insurance, Pension Funds, Peer Review, Supervisory Practices, Prudent Person Rule, IORP, EIOPA