OPINION OF THE EUROPEAN CENTRAL BANK on a proposal for a directive of the European Parliament and of the Council amending Directives 2003/71/EC and 2009/138/EC in respect of the powers of the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (CON/2011/42)

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COUNCIL OFBrussels, 17 May 2011 THE EUROPEAN UNION

9928/11

Interinstitutional File: 2009/0143 (COD)

68 ECOFIN 254 SURE

9 CODEC 782 COVER NOTE

from:

Mr Jean-Claude Trichet, President of the European Central Bank date of receipt: 11 May 2011

to: Mr Pierre de BOISSIEU, Secretary-General of the Council of the European Union

Subject: OPINION OF THE EUROPEAN CENTRAL BANK on a proposal for a directive of the European Parliament and of the Council amending Directives 2003/71/EC and 2009/138/EC in respect of the powers of the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (CON/2011/42)

Delegations will find attached ECB Opinion CON/2011/42 of 4 May 2011.

________________________

Encl.: CON/2011/42

EN ECB-P

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OPINION OF THE EUROPEAN CENTRAL BANK

of 4 May 2011

on a proposal for a directive of the European Parliament and of the Council amending Directives

2003/71/EC and 2009/138/EC in respect of the powers of the European Insurance and Occupational

Pensions Authority and the European Securities and Markets Authority

(CON/2011/42)

Introduction and legal basis

On 2 March 2011 the European Central Bank (ECB) received a request from the Council for an opinion

on a proposal for a directive of the European Parliament and of the Council amending Directives

2003/71/EC and 2009/138/EC in respect of the powers of the European Insurance and Occupational

Pensions Authority and the European Securities and Markets Authority

(hereinafter the `proposed

directive').

The ECB's competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the

Functioning of the European Union since the proposed directive contains provisions affecting the

contribution by the European System of Central Banks (ESCB) to the smooth conduct of policies relating

to the prudential supervision of credit institutions and the stability of the financial system, as referred to in

Article 127(5) of the Treaty. In accordance with the first sentence of Article 17.5 of the Rules of

Procedure of the European Central Bank, the Governing Council has adopted this opinion.

General observations

1.

In order for the recently established European System of Financial Supervision to work effectively,

changes to Union legislation in the field of operation of the three European Supervisory Authorities

(ESAs)

and of the European Systemic Risk Board (ESRB)

are necessary. In this respect, the

1 COM(2011) 8 final.

2 Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12); Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, p. 48); Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, p. 84) (hereafter jointly referred to as `the ESAs regulations').

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proposed directive amending legislation in the insurance and securities sectors essentially

Directive 2009/138/EC

and to a more limited extent Directive 2003/71/EC

complements the

legal framework already adopted by Directive 2010/78/EU

. This opinion should therefore be read

in conjunction with ECB Opinion CON/2010/23

2.

The opinion assesses the proposed directive from a financial stability perspective. The observations

and drafting proposals contained in this opinion focus on aspects relevant to supervisory

architecture reform, the involvement of the ECB, ESCB and of the ESRB and cooperation and

information-sharing arrangements with the ESAs and national competent authorities. It also pays

particular attention to the need to ensure where relevant consistent approaches across financial

services sectors with a view to ensuring a level playing field and as a tool for supervisory

convergence.

Specific observations

European Single Rulebook in the financial sector

3.

The development of a European single rulebook for all financial institutions in the single market

which the ECB fully supports

, requires (i) an appropriate identification of the relevant areas for

delegated and implementing acts, (ii) an adequate involvement of ESAs in the preparation of these

acts taking into account their technical nature and the need to rely on the highly specialised

3 See Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (OJ L 331, 15.12.2010, p. 1) and Council Regulation (EU) No 1096/2010 of 17 November 2010 conferring specific tasks upon the European Central Bank concerning the functioning of the European Systemic Risk Board (OJ L 331, 15.12.2010, p. 162).

4 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) (recast) (OJ L 335, 17.12.2009, p. 1).

5 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (OJ L 345, 31.12.2003, p. 64).

6 Directive 2010/78/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 98/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC and 2009/65/EC in respect of the powers of the European Supervisory Authority (European Banking Authority), the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority) (OJ L 331, 15.12.2010, p. 20).

7 Opinion CON/2010/23 of 18 March 2010 on a proposal for a Directive of the European Parliament and of the Council amending Directives 1998/26/EC, 2002/87/EC, 2003/6/EC, 2003/41/EC, 2003/71/EC, 2004/39/EC, 2004/109/EC, 2005/60/EC, 2006/48/EC, 2006/49/EC, and 2009/65/EC in respect of the powers of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (OJ C 87, 1.4.2010, p. 1).

8 See, for instance, recital 22 of Regulation (EU) No 1093/2010 and recital 14 of Directive 2010/78/EU.

9 See, for instance, paragraph 2 of Opinion CON/2009/17 of 5 March 2009 at the request of the Council of the European Union on a proposal for a Directive of the European Parliament and of the Council amending Directives 2006/48/EC and 2006/49/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management (OJ C 93, 22.4.2009, p. 3), paragraph 2 of Opinion CON/2010/5 of 8 January 2010 on three proposals for regulations of the European Parliament and of the Council establishing a European Banking Authority, a European Insurance and Occupational Pensions Authority and a European Securities and Markets Authority (OJ C 13, 20.1.2010, p. 1) and paragraph 1.3.1 of Opinion CON/2010/23.

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expertise of supervisory authorities; and (iii) a consistent and coordinated approach across sectors

in adopting these implementing measures.

ECB's advisory role regarding draft delegated and implementing acts

4.

Having regard to the importance of the function to be played by delegated and implementing acts

adopted under Articles 290 and 291 of the Treaty

as a substantial component of the single

rulebook, the ECB makes the following observations with regard to the exercise of its own advisory

role under Article 127(4) and Article 282(5) of the Treaty.

First, Commission draft delegated or implementing acts qualify as `proposed Union acts' within the

meaning of the first indent of Articles 127(4) and 282(5) of the Treaty

. Both delegated and

implementing acts constitute legal acts of the Union

. Significantly, the majority of the language

versions of Article 282(5) of the Treaty refers to `draft' Union legal acts on which the ECB is

required to be consulted

. Therefore, the scope of the duty to consult the ECB cannot be confined

only to those draft acts based on a Commission proposal.

Second, in the OLAF judgment

, the Court of Justice clarified that the obligation to consult the

ECB is intended `essentially to ensure that the legislature adopts the act only when the body has

been heard, which, by virtue of the specific functions that it exercises in the Community framework

in the area concerned and by virtue of the high degree of expertise that it enjoys, is particularly well

placed to play a useful role in the legislative process envisaged'.

Against this backdrop, in order to deploy the full benefits of the exercise by the ECB of its advisory

role, the ECB should be consulted in due time on any draft Union acts, including draft delegated

and implementing acts, falling within its fields of competence. The ECB will exercise its advisory

role taking into utmost account the timelines for adopting these acts.

Information-sharing arrangements

5.

In the context of the general amendments common to most sectoral legislation and necessary for

the new authorities to operate, the ECB stresses the importance of ensuring that appropriate

gateways for the exchange of information are included in the relevant legislation applicable to the

10 Articles 290 and 291 of the Treaty belong to Part Six , Chapter 2, Section 1 entitled `The legal acts of the Union'.

11 The first indent of Article 127(4) of the Treaty provides that the ECB shall be consulted `on any proposed Union act in its fields of competence (...)'. Article 282(5) of the Treaty provides that: `Within the areas falling within its responsibilities, the European Central Bank shall be consulted on all proposed Union acts (...)'.

12 Articles 290 and 291 of the Treaty belong to Part Six , Chapter 2, Section 1 entitled `The legal acts of the Union'.

13 Article 282(5) of the Treaty refers to draft Union acts in the following language versions: Bulgarian (` '); Spanish (`proyecto de acto de la Unión'); Danish (`udkast'); German (`Entwurf für Rechtsakte der Union');

Estonian (`ettepanekute'); Greek (`µ '); French (`projet d'acte de l'Union'); Italian (`progetto di atto dell'Unione'); Latvian (`projektiem'); Lithuanian (`Sjungos akt projekt'); Dutch (`ontwerp van een handeling van de Unie'); Portuguese (`projectos de acto da União'); Romanian (`proiect de act al Uniunii'); Slovak (`navrhovaných aktoch Únie'); Slovenian (`osnutki aktov Unije'); Finnish (`esityksistä'); Swedish (`utkast'). The Irish version reads `gniomh Aontais arna bheartu', which corresponds to the concept of `planned' Union acts.

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financial sector. The ECB suggests therefore amending Directive 2009/138/EC consistently with

the corresponding provisions of Directive 2006/48/EC

according to which competent authorities

and EIOPA are not prevented from transmitting information to central banks of the ESCB,

including the ECB, where appropriate, to other national authorities responsible for overseeing

payment systems and to the ESRB when this information is relevant to their respective tasks

Appropriate information sharing arrangements should also be established for emergency situations.

Convergence across financial services sectors

6.

While acknowledging the limited objectives of the proposed directive, the ECB is of the view that

the Union legislative framework should be consistent, where appropriate, across the financial

services sectors, namely to avoid regulatory arbitrage. For instance, the ECB suggests promoting

cross-sectoral convergence in the following:

6.1 Treatment of financial holdings in the calculation of own funds: when determining own funds, the

ECB is of the view that coherence in the treatment of `participations' in the same sector and across

financial services sectors could be increased in order to prevent any regulatory arbitrage between

legal entities and/or between entities within a financial conglomerate

. The ECB recommends in

particular further aligning the definition of participation in insurance undertakings and credit

institutions in Directive 2006/48/EC

and Directive 2009/138/EC

and the methods to be used at

the group level to deal with the double gearing stemming from cross-sector participations

. The

Sub-Committee on Financial Conglomerates established by the ESAs regulations

could play a

meaningful role in fostering cross-sectoral convergence.

6.2 Addressing financial stability: any pro-cyclicality effects stemming from the implementation of the

Solvency II regulatory framework, and, where relevant, the contribution of countercyclical

mechanisms to financial stability, including with regard to the illiquidity premium, referred to in

the proposed directive, could be further assessed.

6.3 Remuneration policies and schemes: in accordance with the objectives of the Commission

recommendation

, the ECB generally welcomes the on-going work on remuneration policies and

15 See Article 49 and Article 130(1) of Directive 2006/48/EC.

16 See, for instance, paragraphs 13 to 15 of Opinion CON/2009/17 and paragraph 2.2 of Opinion CON/2010/23.

17 Directive 2002/87/EC of the European Council and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council (OJ L 35, 11.2.2003, p. 1).

18 Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (OJ L177, 30.6.2006, p. 1). In particular Article 4(10) and Article 57.

19 See Article 92 and the third subparagraph of Article 212(2), as amended by the proposed directive.

20 I.e., for instance, the differences in the definitions of `durable link', `significant influence' with regard to the concept of `participation' or concerning the thresholds for deduction which vary from 20% in the insurance legislation to 10% in banking legislation.

21 See Article 57(1) of the ESAs regulations.

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schemes in the context of the Solvency II implementation measures

; the internationally agreed

high-level principles of remuneration policies developed for banks and corresponding

implementation standards

should apply to the insurance sector

, also taking into account its

specificities, where relevant.

6.4 Credit assessments: under the proposed directive, EIOPA will be entrusted with certain tasks

relating to the (i) assessment of the eligibility of external credit assessment institutions (ECAIs) and

(ii) the allocation of their credit assessments to an objective scale of credit quality steps

, in respect

of which the Commission will have to adopt detailed criteria under the form of delegated acts

While the ECB in principle supports these new tasks entrusted to EIOPA and acknowledges the

specificities of each of the financial services sectors, the ECB also notes that the eligibility of

ECAIs is already addressed in the context of Directive 2006/48/EC

and Regulation (EC) No

1060/2009

. Against this backdrop and in view of the cross-sectoral nature of these issues, the

ECB suggests therefore, prior to any legislative action, an assessment involving the three ESAs

with a view to ensuring consistency and synergies between the relevant Union sectoral legislation,

including also possible implementing measures.

6.5 Determination of `exceptional fall in financial markets': in case of non-compliance with the

Solvency Capital Requirement, an insurance or reinsurance undertaking is requested by the

supervisory authority to take the necessary measures within a maximum period of nine months

. In

the event of exceptional fall in financial markets, the supervisory authority may extend this period

by an appropriate period of time `taking into account all relevant factors'

. Under the proposed

directive, EIOPA would identify and declare the existence of an event of exceptional fall in

financial markets, in respect of which the Commission would adopt delegated acts specifying the

procedures to be followed by EIOPA for the determination of the existence of such events and `the

factors' to be taken into account, including the maximum `appropriate period of time'

. The ECB

supports the proposed role conferred upon EIOPA to ensure the consistency of approaches across

23 See Commission working document (DG Internal Market and Services), Consultation paper on the UCITS depositary function and on the UCITS managers' remuneration, 14.12.2010, p. 26 (available at:

http://ec.europa.eu/internal_market/consultations/docs/2010/ucits/consultation_paper_en.pdf).

24 See in particular Article 22 of and Annex V to Directive 2006/48/EC and CEBS Guidelines on Remuneration Policies and Practices, 10 December 2010, available at:

http://eba.europa.eu/cebs/media/Publications/Standards%20and%20Guidelines/2010/Remuneration/Guidelines.pdf.

25 See CEIOPS' Advice for Level 2 Implementing Measures on Solvency II: Remuneration Issues, CEIOPS-DOC-51/09,

https://eiopa.europa.eu/fileadmin/tx_dam/files/consultations/consultationpapers/CP59/CEIOPS-DOC-51-09%20L2- Advice-Remuneration-Issues.pdf.

26 See Article 2(20) of the proposed directive - new proposed Article 109a(1)(a) of Directive 2009/138/EC.

27 See recital 18 and Article 2(21) of the proposed directive - new proposed subparagraph (n) of Article 111(1) of Directive 2009/138/EC.

28 See Articles 81 to 83 of Directive 2006/48/EC as well as its Annex VI, Part 2.

29 Regulation (EC) No 1060/2009 of 16 September 2009 of the European Parliament and of the Council on credit rating agencies (OJ L 302, 17.11.2009, p. 1).

30 Article 138 of Directive 2009/138/EC.

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Member States. For the same reason, consulting the ESRB and introducing qualitative and

quantitative criteria, methods and requirements to determine such events might also be appropriate.

Further clarification should be provided of the interplay between the declarations by EIOPA of

events of exceptional fall in financial markets, declarations by the Council of emergency situations

within the meaning of the ESAs regulations

and also measures taken by supervisory authorities in

exceptional circumstances in case of further deterioration of the financial situation of the

undertaking concerned

Transitional provisions

7.

While the ECB understands the needs for transitional requirements

, it might be appropriate to

reduce substantially in some instances the 10 year maximum periods foreseen for the adoption of

certain transitional provisions to provide the appropriate incentives for timely application of the

Solvency II reform

. As an example and in view of the importance of a consistent approach to

ensure quality reporting, the application of the methods and assumptions to be used in the valuation

of assets and liabilities should take place within a reasonable timeframe.

Where the ECB recommends that the proposed directive is amended, specific drafting proposals are set

out in the Annex accompanied by explanatory text to this effect.

Done at Frankfurt am Main, 4 May 2011.

The President of the ECB

Jean-Claude TRICHET

33 Article 18 of the ESAs regulations.

34 Article 138(5) of Directive 2009/138/EC.

35 Under the proposed directive, the maximum periods for the transitional provisions are set out in Directive 2009/138/EC. However, the actual time periods selected in any delegated act may be shorter (see also recital 30 of the proposed directive).

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Annex Drafting proposals

Text proposed by the Commission Amendments proposed by the ECB

Amendment 1

Article 2 of the proposed directive

Amendment to Directive 2009/138/EC, Article 70

Article 70 Article 70

Transmission of information to central Transmission of information to central banks, and

banks and monetary authorities monetary authorities, payment systems overseers

`Without prejudice

to this Section,

a and the European Systemic Risk Board

supervisory authority may transmit information `Without prejudice to this Section, a supervisory

intended for the performance of their tasks to authority may transmit information intended for

the following: the performance of their tasks to the following:

(1) central banks and other bodies with a (1) central banks of the European System of

similar function in their capacity as Central Banks and other bodies with a

monetary authorities; similar function in their capacity as monetary

(2) where appropriate, other public authorities where this information is

authorities responsible for overseeing relevant to their respective statutory tasks,

payment systems. including the conduct of monetary policy

and related liquidity provision, oversight of Such authorities

or bodies may also payments, clearing and securities communicate to the supervisory authorities settlement systems and safeguarding the such information as they may need for the stability of the financial system;

purposes of Article 67. Information received in

this context shall be subject to the provisions on (2) where appropriate, other national public

professional secrecy laid down in this Section.' authorities responsible for overseeing

payment systems.; and

(3) the European Systemic Risk Board

(ESRB), where that information is relevant

to its tasks.

Such authorities or bodies may also communicate

to the supervisory authorities such information as

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Text proposed by the Commission Amendments proposed by the ECB

they may need for the purposes of Article 67.

Information received in this context shall be

subject to the provisions on professional secrecy

laid down in this Section.

In an emergency situation, including a situation

as defined in Article 18 of Regulation (EU) No

1094/2010, Member States shall allow the

competent authorities to communicate, without

delay, information to the national central

banks of the European System of Central

Banks where that information is relevant to

their statutory tasks including the conduct of

monetary policy and related liquidity

provision, oversight of payments, clearing and

securities settlement systems and safeguarding

the stability of the financial system, and to the

ESRB, where such information is relevant to its

tasks.'

Explanation

The amendment aims at aligning the above provisions on exchange of information with the

terminology used in the other financial sector directives, also in an emergency situation, and

ensuring the ESRB's access to information from supervisory authorities (see also paragraph 5 of the

opinion).

Amendment 2

Article 2(30)(a) of the proposed directive

Amendment to Article 138(4) of Directive 2009/138/EC

`In the event of an exceptional fall in financial `In the event of an exceptional fall in financial

markets, as determined by EIOPA in markets, as determined by EIOPA in consultation

accordance with this paragraph, the supervisory with the ESRB in accordance with this paragraph,

authority may extend the period set out in the the supervisory authority may extend the period

second sub-paragraph of paragraph 3 by an set out in the second sub-paragraph of paragraph 3

appropriate period of time taking into account by an appropriate period of time taking into

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Text proposed by the Commission Amendments proposed by the ECB

Explanation

In view of the possible cross-sectoral systemic implications of such an event, the ESRB should be

consulted where appropriate on the determination of the existence of an exceptional fall in financial

markets (see paragraph 11 of the opinion).

Amendment 3

Article 2(31) of the proposed directive

Amendment to Article 143 of Directive 2009/138/EC

`1. The Commission shall adopt delegated acts, `1. The Commission shall adopt delegated acts, in

in accordance with Article 301a and subject accordance with Article 301a and subject to

to the conditions of Article 301b and 301c, the conditions of Article 301b and 301c,

specifying the procedures to be followed by specifying the procedures to be followed by

EIOPA when determining the existence of EIOPA when determining the existence of an

an exceptional fall in financial markets, and exceptional fall in financial markets, and the

the factors to be taken into account for the factors to be taken into account for the

purpose of the application of Article 138(4) purpose of the application of Article 138(4)

including the maximum appropriate period including the methods, qualitative and

of time, expressed in total number of quantitative criteria and requirements, the

months, which shall be the same for all maximum appropriate period of time,

insurance and reinsurance undertakings as expressed in total number of months, which

referred to in the first subparagraph of shall be the same for all insurance and

Article 138(4)'. reinsurance undertakings as referred to in the

first subparagraph of Article 138(4)'.

Explanation

The purpose of the amendment is to ensure an objective assessment of the determination of the

existence of an exceptional fall in financial markets (see paragraph 10 of the opinion).

Amendment 4

Article 2(61) of the proposed directive

Amendment to Article 259 of Directive 2009/138/EC (new paragraph 4)

The following paragraph 4 is added:

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Text proposed by the Commission Amendments proposed by the ECB

following [XXX] a report assessing any

pro-cyclicality effects stemming from the

implementation

of the Solvency

regulatory framework, and, where

relevant, the contribution

countercyclical mechanisms to financial

stability, including with regard to the

illiquidity premium referred to in Article

77a'.

Explanation

See paragraph 7 of the opinion.

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