EU finance ministers will put the idea of group supervision of the insurance sector on ice at today’s (2 December) monthly meeting in Brussels, despite many commitments to improve the financial control of multinationals.
The French EU Presidency decided to “put aside” the issue of group supervision from the draft Solvency II Directive after failing to reach a compromise in the Council. “With 14-15 delegations against, we had to take into account this political reality,” explained a French diplomat ahead of today’s Ecofin meeting.
Currently, supervision of insurance and reinsurance groups is carried out at national level, even when the company is active in different EU member states and is headquartered in another country. This leads to increased red tape for companies and poor results in supervising their operations, as witnessed by the financial crisis. Indeed, national supervisors realised the scope of the inadequacy of the system only when the crisis dramatically hit Europe.
To tackle the situation, the Commission proposed so-called ‘group support’ supervision in the insurance sector. Under such a system, ad hoc teams of national supervisors would control cross-border groups, such as Generali or Axa. The supervisory authority of the multinational company’s country of origin (Italy for Generali or France for Axa) would have a clear mandate above other national supervisors, thereby guaranteeing a clear decision-making process.
This is regarded by many as a cumbersome process in comparison with a single EU supervisor, but it would guarantee better coordination than at present. However, it seems that the Council is moving towards opposing the concept of group support supervision, instead favouring the minimalistic approach of setting up a college of supervisors, in which national supervisory authorities would be required to cooperate but would have the last word in disputes.
According to experts, this choice will not much change the present situation of poor and fragmented EU financial supervision, but will take into account the position of many small member states, which are worried about losing control of the balance sheets of their biggest banks.
MEPs have already shown that they are in favour of the Commission proposal on group support supervision (see Background). “Now an agreement at first reading seems less likely,” a Parliament spokesperson told EURACTIV. The vote is expected in February. Unless the scenario changes, the positions of the EU’s legislative institutions is that a new reading will be necessary after the first vote, possibly after the end of the current Parliament’s mandate.
Hopes are now converging on the work of the De Larosiere high-level group on financial supervision, which is set to give its first advice to the spring European Council in March 2009 (see Background).
Internal Market Commissioner Charlie McCreevy has made clear ion several occasions that "our ambitious proposals for a streamlined system for the supervision of insurance and reinsurance groups are at the very heart of the intensive ongoing negotiations".
Socialist MEP Peter Skinner, rapporteur of the European Parliament on Solvency II, echoed this position, underlying the "key importance of an agreement on group support supervision" and the need to adopt global standards "to allow European companies to compete at global level".
In a letter sent to the European institutions, the insurance industry underlined the importance of group support supervision: "The group support regime will lead to a much improved oversight of the total risk of the group compared to the current situation and will increase the likelihood that group supervisors and the relevant local supervisors will have the competences in order to be able to react to issues early," reads the document.
However, after reading the first draft of the Council conclusions, CEA (the European insurance and reinsurance federation) was "disappointed that the text of the draft Solvency II Framework Directive has removed all mention of the group support regime, which allows for the supervision of insurance groups in line with their economic reality".
A CEPS (Centre for European Policy Studies) report issued yesterday (1 December) stresses that "placing trust in colleges of supervisors is a provisional solution for the present, not a sustainable one for the long-term. Colleges strengthen the bilateral spaghetti model of European supervision, at the expense of a truly integrated and consolidated oversight".
Instead, "the creation of a European System of Financial Supervisors is the way to overcome these weaknesses. Under an ESFS, EU supervisors would work under a single umbrella, a single institutional structure, on the basis of harmonised principles and statutes, but with full application of the subsidiarity principle," reads the document, penned by CEPS CEO Karel Lannoo.
The financial crisis has emphasised the need for increased supervision and regulation of European financial institutions, which elude national controls as they boost their cross-border activities.
The issue mainly concerns the banking and insurance industry. The options on policymakers' tables are threefold: college supervision, group support supervision or a common supervisor. The first represents no more than the status quo, while the latter would be a leap forward.
EU leaders loudly called for better and more coordinated supervision at global level ahead of the G20 meeting in Washington on 15 November. The idea of an EU common supervisor hovered around in the most critical days of the financial crisis. To explore this option, in October the European Commission established an ad hoc high-level group chaired by former IMF managing director Jacques de Larosiere (EURACTIV 23/10/08).
However, the boldest proposals from the Commission only involved group supervision, exclusively for the insurance sector. The issue is included in the Solvency II draft directive.
Last October, the European Parliament's financial affairs committee gave its green light to the proposal, including group support supervision (EURACTIV 08/10/08). Due to conflicts with the Council, the plenary vote has been postponed several times and now is expected for February 2009.
- Feb. 2009: Possible first reading of the European Parliament plenary of Solvency II.
- Mar. 2009: Presentation to the European Council of the first advice from De Larosiere's high-level group on financial supervision.
- European Commission:Proposal for Solvency II(26 February 2008)
- European Parliament:Economic and financial affairs committee's vote on Solvency II(7 October 2008)
Business & Industry
- CEA:Response to foreseen Ecofin conclusions on Solvency II(20 November 2008)
Think tanks & Academia
- CEPS:The EU's policy response to crisis(1 December 2008)