crisis, the European Union has embarked on a wide-ranging reform of
financial services legislation. Jeremy Woolfe
reports from Brussels on a major objective, one fraught with
difficulty, to create legislative harmony among the 27 EU member
Pressures arising from the financial crisis are driving
unprecedented urgency into plans embracing financial services
legislation in the European Union (EU). The usual batch of
incremental advances for the year is now over-shadowed by a drive
to tackle underlying weaknesses, mainly due to the go-it-alone
mindset of the 27 national finance ministries.
How to get the governments to work in harmony will no doubt be
tackled in the forthcoming report from a high-level group of
experts, set up by the European Commission (EC) in November 2008
and chaired by Jacques de Larosière, a former MD of the
International Monetary Fund.
The group’s initial recommendations are due later this month, in
time for European input into the next Group of 20 discussions in
April. Following that, the EC is due to publish a comprehensive
white paper detailing policy initiatives.
The failure of Brussels’ previous efforts to converge EU
legislation can be put down to the EC having to move on tip-toe,
that is, proceed with the utmost caution. Sadly, it had to, to
avoid rousing dissent from the member states.
The present Brussels spirit is well expressed by internal market
commissioner, Charlie McCreevy. He refers to “a good deal of
hypocrisy and double-speak” from national governments. In one of a
series of recent speeches he complained bitterly that while they
may be “pretty well unanimous” when they get together to address
key issues, when it comes to action “the consensus breaks
However, McCreevy continued, “never again will the political
climate be so favourable for making a meaningful step forward”.
This sums up the current scramble to seize the legislative
Much attention is focused on the governance issue to upgrade
oversight, as covered by the three financial services advisory
committees, the so-called ‘Level 3 Committees’. For insurance,
there is the Committee of European Insurance and Occupational
Pensions Supervisors (CEIOPS), based in Frankfurt. The other two,
in Paris and London, cover securities and banking.
So far, the three can do little more than advise. Now, the dream
is to build a common supervisory culture, by turning them into a
kind of super-regulatory body for Europe, having a common
Giving the committees teeth could result in the establishment of
a European version of the US’s Securities and Exchange Commission.
That would certainly be a significant step. But, warns one
representative bystander, Nicholas Véron of the Bruegel think-tank
in Brussels, any decision to go ahead is not one “[national]
policymakers can take lightly”.
A positive development
Happily, at least one positive move is taking place. This is an
EC announcement it is asking the council of the EU and the European
Parliament to agree to direct funding from the community budget to
the three advisory committees and other bodies influential on
standards setting. The grants proposed would total €36.2 million
($47 million), cover the period from January 2010 for three years,
and be available for specific projects only.
Also, during 2009 the EC also plans a “cross-sectoral
stock-taking exercise” to look at “the coherence, equivalence and
actual use of sanctioning powers among member states”. It will
investigate the “variance of sanctioning regimes”.
When it comes down to issues particularly relevant to insurance,
work will continue as usual on Solvency II, with a view to
implementation by the end of 2012. There will also be attention
given to revise the capital requirements directive (CRD).
Here McCreevy has somewhat wryly expressed hope that the final
format for the CRD will be “robust, and not amended to a point
where it is riddled with loopholes and get-out clauses, or rendered
so complicated or multi-faceted via amendments such that the key
measures and disciplines contained in the original proposal can be
too easily gamed or circumvented”.
Last summer, the EC passed on its anti-discrimination directive
proposal to the European Parliament and to the council. The
parliament, which has a consultative role, will vote in March 2009,
while discussions in council will continue through the year. A
unanimous vote is necessary for adoption.
Brussels-based insurance and reinsurance body the Comité
Européen des Assurances (CEA) points a finger at wording that
recognises, in Article 2 (7), that insurers may use age or
disability as relevant factors in the assessment of risk. It will
be seeking to clear up doubts over the inclusion of medical
experience and actuarial principles in the information sources for
the risk assessment. It will continue to argue that risk
differentiation does not constitute unfair discrimination.
Also on the Brussels agenda is the insurance guarantee schemes,
under which the EC is considering the possible elements for
harmonisation at EU level of national guarantee schemes for
policyholders where an insurance undertaking is wound up.
The CEA’s basic position here is that it does not agree with the
EC’s description of the status quo as adopting a caveat emptor
(buyer beware) approach. It states that insurers are subject to
stringent supervisory requirements to ensure consumers are able to
claim on their insurer contracts. Life and non-life insurance
companies, stresses the CEA, already have to hold sufficient own
funds and maintain solvency margins as a buffer against unforeseen
Another issue for insurers in the 2009 Brussels programme
concerns block exemptions. The system at present allows insurance
undertakings to continue to gather and share market data with each
other, but this concession is due to expire in 2010. During 2009,
the CEA plans to continue to argue for continuation. The EC is due
to publish its report during March.
A number of other significant issues are on the EC’s 2009
agenda. Among these is it intention undertake a plan for the
regulation of credit rating agencies, revise deposit guarantee
schemes, as well as initiatives on executive pay, and credit
derivatives. The EC is also reviewing the existing regulatory
framework surrounding hedge funds and private equity.