EIOPA published four opinions to assist national competent authorities in the implementation of the Institutions for Occupational Retirement Provisions (IORP) II Directive. The topics addressed in the opinions are the use of governance and risk assessment documents in the supervision of IORPs, the practical implementation of the common framework for risk assessment and transparency for IORPs, and the supervision of the management of operational risks as well as the environmental, social, and governance (ESG) risks faced by IORPs. Two years after the publication of these opinions, EIOPA will look into the supervisory practices of the competent authorities with a view to evaluate supervisory convergence.
The opinion on the use of governance and risk assessment documents in the supervision of IORPs sets out expectations of EIOPA on minimum information content to describe how pension funds conduct their own-risk assessment and present results from their own-risk assessment. National competent authorities should review and ensure that the own-risk assessment is forward-looking, considering internal and external emerging developments likely to affect the future risk profile of pension funds. Annex 1 to this opinion provides guidance for competent authorities on the use of relevant governance documents in the supervision of IORPs’ investment policy. Annex 2 provides guidance for the competent authorities on IORPs’ own-risk assessment. Annex 3 provides an overview of the risk management rules within the system of governance in the IORP II Directive. Annex 4 provides an illustrative template for the voluntary use by competent authorities and IORPs.
The opinion on the practical implementation of the common framework for risk assessment and transparency for IORPs encourages national competent authorities to make IORPs aware of the availability of the common framework as a tool for risk assessment and to stand ready to support pension funds in the application of the tool. Annex 1 contains principles and technical specifications for IORPs to value the common framework’s balance sheet and perform the standardized risk assessment (SRA) calculations. The opinion is also accompanied by a calculation spreadsheet to assist IORPs in calculating, including through the provided simplifications, and aggregating the SRA (sub-)modules.
The opinion on the supervision of the management of operational risks faced by IORPs stresses the importance of forward-looking supervision. With the shift away from defined benefit pensions and the emergence of multi-sponsor IORP providers, national competent authorities should increasingly pay attention to pension funds' future viability and operational liabilities of defined contribution schemes. Although new market and regulatory developments should generally improve occupational pensions, they may also lead to greater complexity in retaining supervisory oversight of the full range of activities performed by pension funds or outsourced to service providers. Furthermore, the rapid evolution and transmissibility of cyber threats necessitate a forward-looking and cross-sectoral approach to the supervision of cyber risk faced by pension funds.
The opinion on the supervision of the management of ESG risks faced by IORPs provides an illustrative mapping of how ESG risks may arise in traditional prudential risks. As institutions tasked with a social purpose of providing retirement benefits, European pension funds should be exemplary leaders of responsible ownership. Thus, national competent authorities should encourage pension funds to consider the impact of their long-term investment decisions and activities on ESG factors through their stewardship role, as well as having regard to the impact of sustainability risks on pension fund liabilities.
- Press Release
- Opinion on Governance and Risk Assessment Documents (PDF)
- Opinion on Risk Assessment Framework (PDF)
- Opinion on Operational Risks Supervision (PDF)
- Opinion on ESG Risk Supervision (PDF)
Keywords: Europe, EU, Insurance, IORP II Directive, IORPs, Opinion, Governance, Risk Assessment, Operational Risk, ESG, Own-Risk Assessment, EIOPA
Previous ArticleEBA Welcomes ECA Recommendations for Improving Stress Tests in EU
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA published the annual report on asset encumbrance of banks in EU.
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
ECB published a letter from Andrea Enria, the Chair of the Supervisory Board of ECB, answering questions raised by the President of the Bundestag (the German federal parliament) on how ECB assesses the financial stability of the euro area in the context of the significant level of nonperforming loans.