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The review examines practices regarding:
Key functions (risk management, actuarial, compliance and internal audit) are an essential part of a good system of governance under Solvency II, and, are expected to be operationally independent to ensure effective internal control. Given that the implementation of the governance requirements should reflect the natural scale of complexity of the risks run by the insurers, NCAs should apply the principle of proportionality in relation to the compliance with key function holder requirements.
The report includes findings from a comparative analysis of the key functions, identifies best practices and presents an overview of recommended actions addressed to the NCAs and EIOPA.
Overall, NCAs have adopted similar approaches in assessing how insurers manage key functions and applied the principle of proportionality in their assessment. Four best practices have been identified, providing guidance to NCAs for a more systematic approach regarding the principle of proportionality as well as for ensuring consistent and effective supervisory approaches.
The report also identifies some weaknesses, resulting in a number of recommended actions issued to NCAs. Some NCAs had not yet assessed key functions according to the Solvency II requirements. Other NCAs had weaknesses, in particular regarding the depth assessment and mitigating measures demanded from insurers for example in cases where combinations exist. The areas of recommended actions are linked with the supervisory approach of NCAs, the different combinations of key function holders including the internal audit function and AMSB membership as well as the fitness of the key function holders and outsourcing.