Brief analysis/assessment of the recommendation and requests made in it:
The Recommendation calls, in paragraph 2, on the Commission, the Council and the Member States to ensure that the conclusions and recommendations of the inquiry are acted upon, in accordance with Rule 175(10) of Parliament's Rules of Procedure and the obligations arising from Decision 95/167/EC (on the detailed provisions governing the exercise of the European Parliament's right of inquiry). Paragraph 4 requires the Commission to ensure that the conclusions and recommendations on implementation matters are swiftly acted upon and to report back to the competent committees of Parliament.
Criticism of the Commission in the report of the Committee of Inquiry is relatively muted and the recommendations are constructive. The report finds that the Commission did not monitor the application of the EU insurance legislation effectively but accepts that its monitoring work in this case was in line with the prevailing practice at that time (1994-95). In future, it is proposed, the Commission should be more pro-active on this front, for which purpose it would need more resources. Some conclusions are drawn in terms of the further development of financial services harmonisation at EU level including principles-based regulation alongside increased investor protection and consumer rights.
The main criticisms of the report are directed firmly at the UK. The UK's technique of implementing legislation into a number of pieces of existing legislation is criticised. Above all the UK regulators (FSA, Treasury, DTI) are severely criticised for their excessive leniency towards Equitable Life's solvency requirements. This is attributed to the UK's "light touch" regulatory policy. Another factor was the regulators' "undue awe" or "deference" towards the Society (the world's oldest or second oldest mutual insurer). The fact that the appointed actuary (whose role was to defend policyholders' interests) was also allowed for several years to hold the post of chief executive represented, according to the report, an unacceptable conflict of interests.
The Irish and German regulators are criticised as being fairly passive.
The report concludes that the UK should assume responsibility and set up a compensation scheme for policyholders.
There are 47 recommendations in the Report, divided up as follows:
- transposition and regulatory system: 9 recommendations;
- remedies: 18 recommendations;
- role of the Commission: 17 recommendations;
- role of committees of enquiry: 3 recommendations.
Response to the recommendations and overview of action taken, or intended to be taken, by the Commission:
A. Recommendations of Parts II and III relating to transposition and the regulatory system
This first set of recommendations relates to insurance supervision and regulation and makes a number of references to the Solvency II project. The Commission is confident that many of the concerns and wishes of Parliament relating to improved insurance regulation can be met via the new prudential and supervisory regime to be adopted on the basis of the Commission’s July 2007 Solvency II proposal (COM(2007)361 final). The Commission has drafted its proposal with these concerns in mind and is confident that the new regime can ensure many of the improvements in insurance regulation sought by Parliament. This applies, for example, to proper reserving for liabilities (Recommendation 1), preventive early-warning of problems (Recommendation 2), a risk-sensitive approach to prudential regulation (Recommendation 3) and the role of the national insurance supervisors working together in CEIOPS (the Committee of European Insurance and Occupational Pensions Supervisors) (Recommendations 4, 5, 6 and 9). The Commission’s Solvency II proposal is for a framework Directive under the Lamfalussy comitology regime. The framework Directive (Level 1) will be adopted under co-decision and will have to be supplemented by a number of implementing measures. These Level 2 measures will be adopted by the Commission with the assistance of the European Insurance and Occupational Pensions Committee on the basis of advice from CEIOPS (Level 3) and under the scrutiny of the European Parliament pursuant to the new comitology arrangements introduced by Council Decision 2006/512/EC amending the comitology Decision (1999/468/EC).
CEIOPS has already played a major role in providing the Commission with advice to help it with the formulation of its Solvency II proposal and will continue to play a crucial role in the further development of the system. Member States will have to ensure that their supervisory authorities are properly equipped to play this enhanced role (Recommendation 7) and CEIOPS itself is working on training initiatives and exchange of personnel to this end.
The new Solvency II regime will not be a zero-failure regime but should make a crisis such as that which befell Equitable Life much more unlikely. Solvency problems should be picked up by the supervisors at a much earlier stage so that appropriate remedial action can be taken.
The Commission agrees with Parliament on the importance of consumer protection issues as regards insurance in general and pension products in particular (Recommendation 8). The consumer is at the heart of the consultation exercise launched by the Commission via its Green Paper on Retail Financial Services (COM(2007)226 final). The Commission will carefully assess the input received during the consultation, will publish a summary of the results of the consultation in early September 2007 and is organising a public hearing on 19 September 2007 to draw conclusions from the consultation and discuss with all stakeholders which initiatives are needed to improve the market for retail financial services. The Commission will continue to work with CEIOPS and the Member States on the question of the proper handling of consumer complaints in the cross-border context (Recommendation 5) and will monitor closely the CEIOPS work on the review of the Siena Protocol.
B. Recommendations, Part IV – Remedies
A number of these recommendations are directed to the UK Government or the Member States.
As regards alternative dispute resolution (ADR) schemes, the Commission agrees fully with Parliament on the desirability of strengthening and further developing the FIN-NET scheme (Recommendations 13-16). At the present time FIN-NET operates on an informal basis without any legislative underpinning. The Commission will discuss with the Member States on an individual basis or in the FIN-NET Committee, which the Commission chairs, how the current arrangements can be extended to cover all the Member States and can be further improved. The Commission will be happy to report back to the European Parliament in due course on the outcome of these discussions.
The question of collective redress and European cross-border collective actions referred to in Recommendations 18 to 20 raises very complex legal issues. Recommendation 20 notes and welcomes the fact that the Commission has launched a study on collective redress. The findings of this study will be made available to Parliament in due course.
The Commission accepts that more work needs to be done to clarify the respective competences of the home and host State authorities with respect to insurance conduct of business regulation and the ‘general good’ concept (Recommendation 21). The Commission has already raised this matter with the Member States and intends to pursue this work with the Member States in the EIOPC and CEIOPS to make sure that cross-border insurance consumers are properly protected without excessive obstacles being placed in the way of insurance undertakings wishing to engage in cross-border business. At the same time, the Commission would not wish to call into question the sole responsibility of the home Member State for the financial supervision of insurance undertakings.
With regard to insurance guarantee schemes (Recommendation 25), the Commission will decide in 2008, on the basis of the results of a study that is currently in progress, whether it would be appropriate to propose legislation in this area. In line with its better regulation agenda, a detailed impact assessment and cost-benefit analysis would have to be carried out in advance of any legislative initiative. With respect to Recommendation 26 and past infringements, the Commission can only note that the current Treaty provisions do not allow it to pursue infringement proceedings before the Court for past infringements that have since been resolved. Any change in this area would thus require a Treaty amendment and the support of all the Member States.
In Recommendation 27, Parliament calls on the Community institutions when legislating in the financial services area to produce clear legislation that give consumers clearly defined rights. The Commission fully supports the need for clear legislative texts. However, it would note that since most financial services legislation is based on the Treaty articles relating to the freedom of establishment and provision of services, this legislation will not normally give consumers specific rights that meet the criteria laid down by the Court of Justice and which can thus be relied upon before national courts in actions to seek redress.
C. Recommendations, Part V – Role of the European Commission
The Commission can generally support Parliament’s recommendations to ensure better quality legislation and improved evaluation of its proper implementation. The Commission plans to adopt after the Summer a Communication on the implementation of Community law, which is likely to take up some of the issues covered by recommendations from this part of the Report.
In general, the Commission favours and believes that it is already demonstrating a more pro-active attitude towards implementation (Recommendation 29).
The Commission welcomes Parliament’s support for package meetings and transposition workshops (Recommendation 30). These being essentially administrative meetings of a technical character covering specific implementation or management issues, their purpose can best be achieved through the free exchange of views between administrators from the Commission and Member State authorities.
Regarding executive or citizens summaries of legislation, the Commission would note that its proposals already contain in the explanatory memorandum and in the impact assessment a summary of the intended purpose and anticipated result of the proposals. In Recommendation 32 Parliament is advocating a brief summary of the final text adopted by the co-legislators. That text might well differ substantially from the initial summary and description of the Commission proposal given the changes that often intervene in the legislative process. The Commission is ready to see what practical steps can be taken in the context of its work on implementation of Community law and awareness raising with the public.
The Commission agrees fully with Parliament on the often undesirable gold-plating of Community legislative texts when implemented into national law (Recommendation 33). Similarly, the Commission can only concur with Parliament that the checking of implementation is much easier when the implementing texts are not spread across numerous different legal acts (Recommendation 37).
Parliament’s strong support for the provision by Member States of correlation tables (Recommendations 33-36) is greatly welcomed by the Commission. Such tables greatly assist the Commission in checking implementation.
D. Recommendations, Part VI – Role of Committees of Inquiry
These three recommendations are not directed at the Commission and do not call for a Commission response.
