EIOPA Seeks Feedback on Approach to Blockchain and Smart Contracts
EIOPA published a discussion paper on uses cases of, and the European approach to, blockchain and smart contracts in the insurance sector. EIOPA seeks stakeholder feedback, by July 29, 2021, to all parts of the discussion paper, covering blockchain, smart contracts, and crypto assets use cases in insurance, related risks and benefits, regulatory barriers, and a possible European approach to blockchain and smart contracts in insurance. The paper also offers an overview of findings of the feedback received from national competent authorities, through the survey on blockchain and smart contracts in insurance in the second quarter of 2020. EIOPA will assess the feedback received to better understand and address blockchain-related challenges and developments in the insurance sector.
In the discussion paper, EIOPA notes that blockchain could provide opportunities for both prudential and conduct supervisors (suptech) as well as facilitate regtech solutions. The combination of smart contracts and blockchain could help to automate regulatory reporting and make it more efficient and transparent, improve consistency and data quality across firms, and allow regulators to get data on new areas of interest or to gain real-time access to signed contracts and the information they contain (real-time regulatory monitoring). As blockchain technology is still evolving, several challenges are emerging, such as the complexity of the technology, data protection and privacy, cyber risk, integration with legacy infrastructures, or interoperability and standardization between different blockchains.
The paper notes that potential risks posed by blockchain also include lack of knowledge on blockchain as well as governance challenges, especially due to potentially high dependency on external platforms and IT suppliers. In addition, insurance undertakings could face compliance risks, namely with the prudent person principle included under Article 132 Solvency II, since it can be challenging for insurance undertakings to properly identify, measure, manage, and control the risks of several types of crypto assets. Additionally, the accounting treatment of different types of crypto assets may require further clarification, considering that diverse accounting practices could give rise to different capital requirements under Solvency II. Based on blockchain types and platforms chosen, performance scalability challenges could arise as well. Concerns about the legal status of smart contracts also have been aired.
Although the current regulatory and supervisory framework can be considered mostly effective to address emerging risks, specific issues should be considered, based on the evolution of the technology and its uses in business processes. It is also important to ensure appropriate understanding by insurance undertakings and supervisors as well as proportionate governance policies and processes, to guarantee that all relevant risks are identified and properly managed. Given the wide range of applications and the early stage of adoption of blockchain in the insurance industry, most jurisdictions are still exploring policy and supervisory responses. This can cause legal uncertainty and act as barrier to the use of blockchain and smart contracts in insurance and could also lead to divergent regulatory and supervisory practices and different levels of consumer protection across EU. Hence, a general European harmonized approach to blockchain could promote and facilitate the sound scaling of blockchain and smart contracts, including in the insurance context.
To this end, EIOPA will assess the feedback to this discussion paper to better understand blockchain developments in the insurance sector as well as the risks and benefits related to them. This could also help to provide informed input for the upcoming legislative initiatives foreseen in the EC Digital Finance Strategy. It could also supplement the overall work of EIOPA on digitalization, including in areas such as insurance and reinsurance value chain and new business models arising from digitalization, insurance platforms, and ecosystems, open insurance, digital ethics, and regtech/suptech.
Related Links
Comment Due Date: July 29, 2021
Keywords: Europe, EU, Insurance, Blockchain, Suptech, Regtech, KYC, Artificial Intelligence, Smart Contracts, Crypto Assets, Solvency II, Regulatory Capital, EIOPA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Trevor Howes
IFRS 17 technical advisor; AXIS actuarial modeling system expert; extensive experience in life insurance and life reinsurance, with focus on modeling, valuation, and financial reporting
Related Articles
EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
EP Reaches Agreement on Corporate Sustainability Reporting Directive
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
PRA Consults on Model Risk Management Principles for Banks
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
EC Regulation Amends Standards for Calculating Credit Risk Adjustments
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
BIS Hub Updates Work Program for 2022, Announces New Projects
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
EIOPA Consults on Review of Securitization Framework in Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
UK Authorities Issue Regulatory and Reporting Updates for Banks
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
BCBS Issues Climate Risk Principles while HKMA Expresses Its Support
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.