The guidelines are to work on a ‘comply or explain’ basis and by nature they are preparatory for the implementation of Solvency II. We have been quite clear in our communication when we launched the consultation: we understand that compliance with guidelines will be different in different countries depending on what has already been done. It depends on their legal framework because some countries will easily incorporate the guidelines into their regulatory framework as supervisors are able to do that and they will change their supervisory rules or guidelines. Other countries will probably need to have some legislative change to do this. We are quite aware of that but what we want is to have this preparatory phase as a phasing-in.
We are not expecting to have all the guidelines being complied with by all the national authorities on January 1, 2014. What we expect is that national authorities will start on January 1, 2014 to implement in their own national framework these guidelines and then we will see an evolution. That is why we included very clearly a progress report that national supervisors will need to send to EIOPA on an annual basis to analyse how these preparations are being made in the different countries. These guidelines focus on preparation and we know that the timings will be different timings in different countries.
The aim is to have the same level of preparedness from supervisors and the industry at the end of this exercise when Solvency II is implemented to have a much bigger level of preparedness from supervisors and the industry. This process is decided by the national supervisors in the Board of Supervisors, so I expect national supervisors will make all efforts to comply with the guidelines. We understand the preparatory nature of the guidelines and that
different countries have different powers to introduce these guidelines, so we also know that the pace of phasing-in guidelines will be different at national level. But there is a clear wish from national authorities to use these guidelines
as the basis for their preparations for Solvency II. As it is in the regulations, the guidelines work on a ‘comply or explain’ basis and we will have communications from NSAs if they comply or intend to comply and then there will be the progress report on an annual basis...
When a supervisory regime is changed, especially on the information side, [the quality] will not be 100 per cent in the first submission, you will need to have a quality check and a dialogue and that's what we want to provide before the full implementation. That's why we want to have at least one annual report before the start of Solvency II and also to start to get some quarterly information two quarters before the implementation of Solvency II. That's why we say that it is not because of these guidelines that there will be enforcement, it is for supervisors and companies to increase the level of preparedness. It is about helping all the preparation to be made and, thus, to contribute to Solvency II implementation.
It is not just for undertakings but for supervisors. We expect national supervisors will also start to analyse and review the information they receive from companies so that they are better prepared when Solvency II starts.
We could end up with inconsistencies between different Member States, with some a lot further ahead in implementation and others a lot further behind?
We are in a situation now where we are seeing evolution and developments in Member States, so this situation is already there. The guidelines will bring more consistency and more convergence. But let me be frank and clear, it is not just because a European authority issues guidelines or technical standards that implementation will be 100 per cent equal in all the countries. That is where supervision enters; that is the biggest challenge. If you believe that the biggest challenge is to have a single rulebook then think again as the biggest challenge is to have a consistent supervisory approach on how to implement this single rulebook. I don’t have the expectation that by having guidelines, everyone will behave in the same way. That is not reality so that is why we have a number of elements in terms of monitoring. We will not only receive an indication from authorities if they want to comply but we will also have a progress report on an annual basis where we will get information about what the progress towards the implementation of the guidelines and that is the tool we will use for checking consistency.
We have other tools in terms of implementation of consistent supervisory approach, for example, EIOPA is starting to develop a supervisory handbook where we will develop a number of good practices in different areas of Solvency II; how to approach the implementation of the new regime; how to assess the risks. This is long-term work. If people think that you will have immediate consistency in all the supervisory practices then that is wishful thinking; it is going to be tough, it's going to take some years. But we are starting on the right track so that everything we can do, we are doing and I am quite optimistic that we will implement Solvency II in a way which is consistent. It will not be always 100 per cent completely equal in all the countries because we have different markets, products and cultures at a supervisory level. You cannot change the culture in one or two years, this will take time; but there is a clear vision and objective from EIOPA as to where we want to be in three, four, five years’ and I think we
are going to get there.
There is a risk of a stable Pillar 1 not being achieved by the end of the year. How will that affect the guidelines?
We all need to work with assumptions. Our assumption is that in order to have this submission of information in 2015, we will need to have a stable Pillar 1 at the end of this year or the beginning of next year. That is our assumption. If the world evolves in a different direction, then we will revise this deadline. But it is our duty right now to be transparent and have a clear communication with our industry and to say that the expectation from supervisors and the current timings is that in 2015 we could have the first submission of information. But if, at the political level, there are different decisions, then we will change this. But I think it is a question of transparency.
If there are further delays, could these guidelines become the de facto Solvency II regime?
That is not our intention and that it is not on our table right now. These guidelines are of a preparatory nature and are due to be there during the preparatory phase. When this phase is finished, we will publish the technical standards and the proper guidelines for the Solvency II regime. What we wanted is not to first do something and then in a couple of years to do something completely different. It is important that during the preparatory phase people know with sufficient detail and proper transparency, what the expectations of supervisors are as it will help them be better prepared.
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