The next steps in the Solvency II review – still a lot of work ahead
The Economic and Monetary Affairs Committee of the European Parliament agreed on 18 July 2023 the Ferber reports on the Solvency II review. The Ferber reports took nearly two years of gestation, but were finally adopted, with a larger majority for the Solvency II amendments than for the proposal for an Insurance Recovery and Resolution directive (IRRD). The report on the Solvency II amendments was adopted with 55 in favour, 3 against and 1 abstention, the report on IRRD was adopted with 44 in favour, 7 against and 8 abstentions. The reports are now tabled in the next European Parliament’s plenary for announcement on the ECON vote and on the mandate to enter into interinstitutional negotiations. Thereafter, the Spanish presidency, the Commission and the European Parliament can start the trilogue. Will this go smoothly? It depends.
The Council, under the French presidency, in its general approach of 14 June 2022, noted that there are close links between the Solvency II framework directive and its Delegated Regulation (EU) 2015/35. A balanced and consistent updated prudential framework needs to be established in a timely fashion and such complete framework must also include forthcoming amendments to the SII Delegated Regulation, the Council continued. With other words, the amendments to the SII Delegated Regulation should be completed before the trilogue can conclude. Or the discussions should at least be advanced to such a level that the Council can have “a comprehensive understanding of the detailed framework of rules under consideration and ensure that the outcome of the legislative process will not result in increased capital charges compared with the current situation at both Member State and EU levels”. Also, “amendments to both acts will be needed to reach the objectives of a balanced and consistent review”. Discussions with Member States on the SII delegated act have already taken place but have they been conclusive enough? According to the website of the Commission, the last meeting of the Expert group with Member States on the Solvency II dossier took place in November 2022 and focused on long-term equities. However, at the end of that meeting, the Commission acknowledged that further reflection on the way forward is needed. No further meetings of the Expert group regarding the SII review have yet been announced but will certainly be needed.
Note that the IRRD and the SII amendments dossier are linked as the Commission proposed them as a package. Will there be an agreement in the trilogue under the Spanish presidency on both files before the end of the year?
In any case, also the IRRD proposal requires implementing measures, meaning that the Commission, according to its proposal, will have to draft a new delegated act to specify: (a) the information to be contained in the pre-emptive recovery plans; (b) the content of resolution plans and the content of group resolution plans; (c) the matters and criteria for the assessment for resolvability; (d) different elements on valuation, including the methodology for calculating the buffer for additional losses to be included in provisional valuations and the methodology for carrying out the valuation of difference in treatment; (e) the contents of the contractual term to be included in financial contract governed by third-country law; (f) the operational functioning of resolution colleges. According to the website of the Commission, not one single Expert group meeting with Member States has taken place on the IRRD delegated act. And EIOPA has not yet been asked for technical advice either.
The Commission will also have to consult on both draft delegated acts in line with Article 19 of the Better Law-making agreement of 2016. If there is a trilogue agreement under the Spanish presidency, at least the SII delegated act consultation will highly probably take place in 2024. For the IRRD delegated act consultation, the timing looks more uncertain.
If, however, the trilogue does not conclude by year end, the dossier will roll over to 2024 to the next presidency, which is Belgium.
Surely, the final trilogue version of both texts will inform the Commission’s delegated act proposals. Regarding the SII amendments, provisions, not yet discussed in previous Expert group meetings on SII, may have to be included in the text agreed in trilogue (e.g., on market risk of crypto-assets). Regarding the IRRD delegated act, more preparatory work is needed.
Lieve Lowet
