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    EIOPA and ESMA Set Out Findings of Their Studies, EC Amends ESEF Rule

    March 10, 2022

    The European Commission (EC) amended a rule on the European Single Electronic Format (ESEF), the European Insurance and Occupational Pensions Authority (EIOPA) published the results of its annual study on the modeling of market and credit risk in internal models, and the European Securities and Markets Authority (ESMA) issued peer review on the supervision of cross-border activities of investment firms.

    Below are the key details of the aforementioned publications:

    • The European Commission published a Delegated Regulation (2022/352), which amends the Regulation 2019/815 regarding the 2021 update of the taxonomy laid down in the regulatory technical standards on the single electronic reporting format. This amended regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. It shall apply from January 01, 2022 to the annual financial reports containing financial statements for financial years beginning on or after January 01, 2022.
    • The results of EIOPA study on the modeling of market and credit risk in internal models revealed moderate to significant dispersion in some model outputs. For the combined market and credit risk charge, results show sizable variation between undertakings, a part of which is attributable to different risk management preferences. The study also examined credit risk charges for sovereign bonds, equity risk, property risk, sustainability considerations, dependency structures and inflation modelling in their modeling approach. 
    • The peer review report from ESMA found shortcomings in the supervision of cross-border investment activities. The exercise was focused on the AFM (Netherlands), BaFin (Germany), CNB (Czech Republic), CSSF (Luxembourg), CySEC (Cyprus), and MFSA (Malta). The national competent authorities covered by the peer review did not specifically, adequately, and structurally consider firms’ cross-border activities in their supervision. Out of the six jurisdictions covered in the peer review, Cyprus had the highest level of outgoing cross-border activities and by far the highest number of complaints relating to firms’ cross-border activities and of requests from other competent authorities relating to Cypriot firms’ cross-border activities. Thus, ESMA issued Article 16 recommendations to the Cyprus Securities and Exchange Commission (CySEC); this is the first time ESMA has issued such recommendations to a national competent authority. Following the Article 16 recommendations, CySEC has two months to inform ESMA whether it complies/intends to comply with the recommendations.

     

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    Keywords: Europe, EU, Insurance, Market Risk, Credit Risk, Solvency II, Internal Models, Solvency Capital Requirement, EIOPA, Banking, Investment Firms, Cross-Border Activities, AFM, BaFin, CNB, CSSF, CySEC, MFSA, ESMA, Taxonomy, Reporting, ESEF Regulation, EC

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