Q&A: Ceiops' secretary-general supports EC reforms

On May 28, the European Commission outlined a comprehensive reform package for financial supervision, including a new European System of Financial Supervisors. Under the proposal, the current system of committees of supervisors (comprised of the Committee of European Banking Supervisors (Cebs), Committee of European Securities Regulators (Cesr) and Ceiops) will be replaced with three new supervisory authorities: the European Banking Authority, European Securities Authority and European Insurance and Occupational Pensions Authority (Eiopa).

If the EC gets its way (the European Council of Ministers gave its backing on June 9), the regulatory overhaul will be introduced in 2010. And it won’t just be the names of the supervisory bodies that change. Each will have enhanced powers, including the legal authority to act as the final mediator of jurisdictional disputes between supervisors, as well as membership on the new European Systemic Risk Board.

Rebuelta outlined his thoughts on the EC's plans, as well as Ceiops' plans to stress test Europe's 30 largest insurers and the viability of a risk-based framework for the pensions sector in an interview recently.

Risk: What are your thoughts on the EC plans to overhaul the regulatory system, including the creation of Eiopa? Is that going to be an expanded Ceiops or something else?

Carlos Montalvo Rebuelta (CMR): That is a good question; it seems, for good reasons, as if Eiopa will be built out of the existing Ceiops, which is a step in the right direction as it is consistent with the idea of evolution rather than revolution. Hence, we expect a transformation process from today’s structure to a new legal form. At the same time, this will be a reinforced body with enhanced, binding powers that, as things stand, are clearly outside our current scope.

Risk: Will the creation of Eiopa take away too much power from national regulators?

CMR: I don’t think so. The message has been spread clearly from the European Commission that the supervisory decisions at a national level will be taken by the local regulator. This is linked to an issue that is still unsolved, and that is – who pays the bill? It is taxpayers. During the review process of the new regulatory framework, we put forward the view that the evolutionary approach is sensible. It is good that we are expanding and taking on more and more tasks, but right now, we are at full capacity, and reinforcements are needed. I would express concern over what price reinforcements come with – if they cause a reduction in, or endanger, our independence, obviously supervisors would be opposed to that.

Risk: What are your primary concerns surrounding independence?

CMR: Supervisors have an important role in the financial sector, and we need to be strong enough to be able to take the right decision at the right time. Sometimes those decisions are not popular; to take them you need the powers to do so and no interference. It is extremely important, and stated in the general principles of banking, insurance and accounting, that supervisory authorities are independent.

Risk: One of the additional powers of Eiopa is that it will be the final arbiter of disputes between national regulators. Is that something you agree with?

CMR: Currently, our responsibilities in dispute resolution are non-binding – you could see our role as being a consultant. At the same time, we have not ended up in a situation where we have had to use these non-binding powers. But if it is the case that we become involved, especially on cases where some member states are in favour and some against, it should be as a last resort. There are various avenues to go down before we reach that point. I wouldn’t necessarily give the green light to having binding powers for mediation – but if others decide to go down that route, it should only be as a last resort.

Risk: Another proposal is the creation of a European Systemic Risk Council. Is there a need for greater co-operation and co-ordination between regulatory groups across different sectors?

CMR: There are two issues here: co-ordination at the micro and micro level, and I share the view this needs to be enhanced, and cross-sector co-operation. On that last point, there has been a lot of work within the three Level 3 committees of European financial supervisors [Cesr, Ceiops and Cebs]. Right now, Ceiops is the co-ordinating committee of this. And there is plenty of evidence to show co-ordination is happening at the micro level. For example, if Cesr is discussing retail investment products, it invites Ceiops to make sure we are aware of the discussions it is having because it affects our industry. But at the macro level, we do need a balanced systemic risk council in which supervisors, as opposed to central bankers, are heard.

Risk: What’s the thinking on solvency rules for pension funds? Is that under consideration?

CMR: It depends on the European Commission. Recently, it held a hearing in Brussels to which Ceiops was invited, and the message we sent was that if the Commission wants us to work on this, we stand ready and willing to do so. If it decides this is not the right moment, we are not going to invent the wheel ourselves. But there are benefits in moving towards a risk-based system, for example in terms of transparency and disclosure (Pillar III) and qualitative measures (Pillar II). Right now we are working on risk management for pension funds within Ceiops. When it comes to Pillar I and quantification it is a lot more complicated. If a decision is made to move towards a risk-based system, we need to take into account the eccentricities of pensions. Furthermore, we cannot make the mistake of taking the Solvency II framework and just cutting and pasting it to pensions. It would be just like taking the Capital Requirements Directive or Basel capital-based approach and implanting it for insurance: both a mistake and a lost opportunity.

Risk: Ceiops is about to conduct stress tests for the 30 largest insurance companies – what is the thinking behind this?

CMR: At the national level, supervisors and individual firms are already carrying out these types of exercises. What we are doing at Ceiops is essentially a mapping exercise of what the supervisors are doing; looking at what they have changed in light of the crisis and sharing it with each other. This fits in with one of our roles to promote harmonisation and convergence.

At the same time, we have looked at what has happened in the banking sector and want to be forward-looking. Once the mapping exercise is complete, and we understand the benefits of different approaches, we will start working on our own stress-testing programme. At the end of the day, that will be much more complex than what you have in banking because it will need to factor in assets and liabilities. But it also makes sense to start with a limited test on market risks, which will be hugely beneficial in helping identify systemic risks.

Risk: Solvency II is looming ever closer: are there any areas within the directive you are still looking to make modifications to?

CMR: It is not up to us to make modifications, but within Solvency II we have a Level I directive. It is time to work on the implementing measures that will be adopted by the European Commission on the basis of Ceiops' advice, which will be legally binding. Right now we are in the consultation process for three phases of advice – we finished the first phase in June and a second one will begin this month. We have published a news alert in which we listed what consultation papers will be discussed and the third phase of consultation will begin in December. The aim is to provide the European Commission with enough information so it can adopt the relevant measures at the Level 2.

See also: Learning from Basel's mistakes

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here