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    EIOPA Seeks Feedback on Approach to Blockchain and Smart Contracts

    April 29, 2021

    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.


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    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

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