ESAs Publish Annual Report; EIOPA Finalizes Guidelines SII-Related

Annual Report of ESAs. The report highlights the main areas of cross-sectoral focus such as the joint risk assessment, enhancement of consumer protection, development of the regulatory and supervisory frameworks for sustainable finance and securitization, monitoring and contributing to the development in digital finance, and supporting scale up of fintech through innovation hubs and sandboxes and cyber security. The key work undertaken in 2021 were as follows:

• Joint Risk Assessment—The Joint Committee issued two joint risk assessment reports on risks and vulnerabilities in the European Union financial system. The reports warned of the continued risk of possible asset quality deterioration, potential disorderly increases in yields and sudden reversals of risk premia. In addition, the joint risk report also highlighted the increased exposure of the financial sector to cyber risk and information and communication technology related vulnerabilities.
• Consumer Protection and Financial Protection—The main focus of the Joint Committee work in this area in 2021 was the preparation of a joint high‐level conference on financial education and the development of a Joint ESAs repository of national education initiatives focused on fraud, scams and cybersecurity.
• Sustainability-Related Disclosures—The Joint Committee developed two sets of draft regulatory technical standards: one, in February 2021, on the content, methodologies, and presentation of disclosures under the Sustainable Finance Disclosure Regulation (SFDR) and the other, in October 2021 on the investments of financial products in environmentally sustainable activities. The  European Commission  informed  the  European  Parliament  and  Council  in  November  2021 that due to the technical complexity of the regulatory technical standards and the timing of the submission, the bundled February and October standards would become applicable by January 01, 2023.
  would become applicable by 1 January 2023.  Securitization—The Joint Committee assessed the implementation and the functioning of the Securitization Regulation and highlighted specific issues related to transparency and due diligence requirements, criteria for simple, transparent and standardized (STS) securitization and requirements related to supervision of securitization. In addition, the committee provided further guidance on the application of the Securitization Regulation through Q&As. In addition, the Joint Committee has initiated work on a call for advice from European Commission, to provide assistance in assessing the recent performance of the rules on capital requirements (for banks, and insurance and reinsurance undertakings) and liquidity requirements (for banks) relative to the framework’s original objective of contributing to the sound revival of the EU securitization market on a prudent basis. The report is due for submission by September 01, 2022.
• Digital Finance—The Joint Committee stepped up its digital finance‐related work, including in the context of the European Commission’s Digital Finance Strategy, with extensive technical discussions on topics such as crypto‐assets and digital operational resilience. The committee have been actively involved in the discussions on the legislative proposals for a regulation on markets in crypto‐assets and the regulation on digital operational resilience for the financial sector (DORA).

Revised Guidelines from EIOPA. During the 2020 review of Solvency II, EIOPA identified several divergent practices regarding contract boundaries assessment and the valuation of best estimate. Following that, EIOPA has revised the guidelines on contract boundaries and the guidelines on the valuation of technical provisions. The revisions incorporate guidance on how insurance and reinsurance undertakings should apply the requirements of Solvency II Directive and the Commission Delegated Regulation (No 2015/35), on the boundaries of insurance and reinsurance contracts and on best estimate valuation. The guidelines were revised and various amendments were made on topics including modeling biometric factors, the apportionment of expenses, changes in expenses, assumptions used to calculate expected profits in future premiums and the unbundling of contracts. The revised and amended guidelines will be applicable from January 01, 2023, unless otherwise decided by the national competent authorities, which, in line with Article 16 of EIOPA Regulation, shall make every effort to comply with the revised or amended guidelines.

Related Links

• Press Release
• Annual Report (PDF)
• Press Release on EIOPA Guidelines
• Guidelines on Contract Boundaries (PDF)
• Guidelines on Valuation of Technical Provisions (PDF)

Keywords: Europe, EU, Banking, Insurance, Securities, Annual Report, SFDR, Sustainable Finance, Fintech, Cyber Risk, Regulatory Technical Standards, Digital Finance Strategy, Crypto-Assets, Operational Resilience, DORA, Securitization Regulation, ESG, Regtech, Basel, Disclosures, EIOPA, ESAs