EIOPA published a peer review report assessing how national competent authorities supervise and determine whether an insurer's setting of key functions fulfills the legal requirements of Solvency II, with an emphasis on proportionality. The report includes findings from a comparative analysis of the key functions, identifies best practices and, presents an overview of recommended actions addressed to the national competent authorities and EIOPA.
The peer review examines the practices regarding the following:
- Combining key functions under one holder
- Combining key functions with administrative, management, or supervisory body (AMSB) membership or with carrying out operational tasks
- Subordination of one key function under another key function
- Split of one key function among several holders
- Assessment of the fitness of key function holders
- Outsourcing of key functions
The review finds that the national competent authorities have adopted similar approaches in assessing how insurers manage key functions and applied the principle of proportionality in their assessment. Four best practices have been identified, providing guidance to the national competent authorities for a more systematic approach on the principle of proportionality and ensuring consistent and effective supervisory approaches. Additionally, the report identifies certain weaknesses and presents the resulting recommendations for the national competent authorities. It was found that certain national competent authorities had not yet assessed key functions according to the Solvency II requirements. Other national competent authorities had weaknesses regarding the depth assessment and mitigating measures demanded from insurers—for example, in cases where combinations exist.
The areas of recommended actions have been linked with the supervisory approach of national competent authorities, the different combinations of key function holders including the internal audit function and AMSB membership, and the fitness of the key function holders and outsourcing. Consequent to this peer review, many national competent authorities have already undertaken actions to improve supervisory practices. These improvements will be taken into consideration in the follow-up to this review. The period examined under the scope of this peer review was 2016 but also covered supervisory practices executed before 2016 in the preparatory stage of Solvency II. The peer review was conducted among national competent authorities from the European Economic Area on the basis of the EIOPA Methodology for conducting Peer Reviews.
Keywords: Europe, EU, Insurance, Solvency II, Peer Review, Supervisory Practices, Proportionality, EIOPA
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