In January, the European Insurance and Occupational Pensions Authority officially replaced the Committee of European Insurance and Occupational Pensions Supervisors. Acting secretary general Carlos Montalvo Rebuelta tells Raquel Pichardo-Allison EIOPA's enhanced powers should provide clarity, not trepidation
Raquel Pichardo-Allison: What powers will EIOPA have and how do they compare to CEIOPS?
Carlos Montalvo Rebuelta: We have enhanced tasks as compared to CEIOPS. I would say that uncertainty among market participants is not around what the powers are, but how, when and why they will be used.
The powers include the possibility of drafting binding technical rules, which is already an enhancement, as opposed to only giving technical advice that is by nature, non-binding. So there is a regulatory role that you didn’t have before.
There will be powers that – in my opinion this is the most ambitious outcome of the financial sector reform – (will allow the industry) to work from a single rule-book. Those powers have to do with peer reviews, mediation and in particular binding mediation in the cases where two or more of your members have diverging views on a particular issue.
The third element has to do with what happens during an emergency situation or during a crisis – what measures can and cannot be taken. There can be certain circumstances where EIOPA will take direct action towards a national supervisory authority or towards insurance or occupational pensions bodies.
Raquel Pichardo-Allison: When would you need to take direct action?
Carlos Montalvo Rebuelta: Let’s say that given rules should be implemented by members because they are one of our binding technical standards and they have not been implemented. On that basis we would ask the national supervisory authority to take remedial action. They could say no. In that case, the new regulations give you the possibility to say, “OK, you are not taking this individual action. I challenge you on this, for this, this and this reason.” Then I’m going to take the steps needed to ensure that the effects of such measures take place. In particular that means that I could go and take a measure directly against company X.
You can go first to the regulator, and if they don’t act, you can go to the individual entity.
Raquel Pichardo-Allison: There’s a lot of concern about just this. Some may see this as a loss of control to Europe. How do you balance the need for control among individual member states versus European interests?
Carlos Montalvo Rebuelta: There are three elements here. The first one has to do with the fact that we are talking about a framework. The framework then has to be implemented and has to work in practice. Working in practice means that in normal situations – 99.8% of the time – these types of measures will not need to be taken.
There are exceptions. And by nature, exceptional measures are only taken in exceptional circumstances. Ideally, when you do things right, they are not needed. It means securing the sufficient level of harmonisation at the European level and at the national level.
But if these situations do occur, why would it bring uncertainty? On the contrary, it shows and clearly indicates to individual companies that a decision is going to be made on the basis of existing legislation. It brings certainty in regards to the process and in regards to the fact that if on the national level these measures are not taken, it can be taken at the European level.
You talk about more tasks and more power, that comes with extremely enhanced expectations. Expectations are huge compared to what we had in the past.
Raquel Pichardo-Allison: How difficult will harmonisation be to achieve?
Carlos Montalvo Rebuelta: This is the most challenging area because we have to reach harmonisation within a framework that fully respects and acknowledges the principle of subsidiary in the pensions area. There is a reason for the principal of subsidiary within pensions, which means that at the end it will be the final responsibility of the member states to design the structure of their schemes.
What we need to ensure is a... framework that creates incentives to give steps towards a sufficient level of harmonisation, that people acknowledge the advantage of harmonisation and progress in that direction. It is more challenging than anything else.
Raquel Pichardo-Allison: Pan-European pensions are something CEIOPS had encouraged but hasn’t quite taken off. How does EIOPA plan to address that?
Carlos Montalvo Rebuelta: There are two elements here. There is the issue of cross-border activity which is something we have been monitoring and analysing and an area that could use improvement. There are less than 100 cases across Europe.
Then we have to take a step back and say, “Why is it the case that it’s only 90 or 100?” These are the things we should be looking at.
The second issue is does it make sense to have a pan-European scheme? I would say absolutely yes. We have a single market in Europe, and this is part of a single market. We have freedom of capital, freedom to provide services, freedom of movement of the labour forces. You need to create a framework that not only reflects, but encourages that idea.
Raquel Pichardo-Allison: Why has there been such little take-up of pan-European pensions?
Carlos Montalvo Rebuelta: Probably because of the differences in terms of the legal frameworks. Secondly because of a lack of sufficient incentives and because the pensions area is an area in which steps towards progress are taken slowly and steadily and where progress, and the way it’s shown, takes more time.
This is something we are working on. We are setting up some recommendations. There is uncertainty around definitions... and I’m sure that with the work we are doing and the coordination we are receiving year over year, we will have some good pieces of advice to take to the European Commission around cross boarder and pan-European pensions.
Raquel Pichardo-Allison: Solvency II for pensions has become quite a contentious issue, particularly in the UK.
Carlos Montalvo Rebuelta: In the same way I wouldn’t want to hear about a cut and paste of CRD (Capital Requirement Directive) for insurance, I wouldn’t like to see such an approach of cut and paste of Solvency II for pensions. We have a regime now and we are looking for ways to enhance risk management. On that basis... what we are doing as EIOPA is indicating to all political masses...that we stand ready to undertake the work needed to move and ensure that whatever decision is taken at the political level, there will be sufficient technical background to make the right decisions towards sustainability of pensions.
Raquel Pichardo-Allison: How would you respond to some critics who say this could contribute to legislating DB out of existence?
Carlos Montalvo Rebuelta: Why? We need to have a good balance between DB and DC, but we need to be sure that in the end pensions are sustainable over time. This is the challenge we are facing. Do we need a risk-based system to ensure sustainability or not? Well, let’s look at the pros, let’s look at the cons, and decide accordingly.
Sustainability means working in various areas... impact assessments and technical work to see what the implications of certain decisions would be. So please don’t call it Solvency II because cut and paste is never a good solution. The idea to be discussed is whether a more risk-based approach towards pensions makes sense or not.
Raquel Pichardo-Allison: What are the top two or three changes policy makers can make to change pensions for the better?
Carlos Montalvo Rebuelta: Better risk management in terms of (asset liability management). You have clear defined liabilities and you need to look at your assets bearing those in mind. I think better information to members about the risks they are assuming, the horizon on which they will be contributing, what they should be expecting in terms of retirement. What is paramount is a little bit of education.
Are these sufficient? We need a clear commitment of all involved parties that we indeed need to all be on the same boat to ensure the future sustainability of pensions.
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