22 April 2008

Treasury and FSA consult on group supervision under Solvency II

The discussion paper provides a brief summary of possible enhancements that might be included in the Directive proposal. Key focuses of the Discussion Paper are proposals for the creation of colleges of supervisors, and how the group support regime might work in practice. The paper also seeks to address some of the concerns that have been prompted by the Commission’s proposals and includes some suggestions as to how the Directive proposal might be amended to provide reassurance in response to those concerns.

The institutional arrangements for group supervision are a particular focus; especially, the proposal for a college of supervisors as central to the practical implementation of group supervision. This is one application of a proposal for the development of colleges of supervisors as the fulcrum of the supervision of cross-border financial groups operating in the EU, whether in the insurance, banking or securities sectors.

The UK proposal for the establishment of colleges for all cross-border financial institutions is outlined in a letter from the Chancellor to the President of the Council and ECOFIN colleagues on 3 March 2008.

Under these proposals EU regulators would work more closely through supervisory colleges, improving the effectiveness and efficiency of their supervision of cross-border insurance and re-insurance groups. The UK Government has proposed that these colleges would operate for all significant EU cross-border financial institutions, irrespective of legal form, providing a structure for the sharing of information and the co-operation of supervisory authorities in the EU.

Summary of possible enhancements to the Directive proposal on the group support regime

• A reference in the Directive to the mandatory role of colleges of supervisors, in line with the proposals made in the Chancellor of the Exchequer’s letter to the President of the Council;

• An Amendment to the derogation from Article 136 so that subsidiaries within the group support regime must notify their supervisor in the event of SCR breach

• A provision for Early Warning Indicators for emerging risks in a subsidiary in the group support regime

• A requirement to provide information on the main sources of group-level diversification effects

• Application of the Prudent Person principle to holding companies operating under the group support regime

• Direct application of Title III of the Directive to holding companies operating the group support regime

Press release

Enhancing group supervision under Solvency II: A discussion paper

Chancellor´s 3 March letter to Ecofin colleagues covering ongoing supervision, crisis management, and resolution

© Graham Bishop