Nathalie BERGER
Head of Unit Insurance and Pensions Directorate General for Financial Stability
Financial Services and Capital Markets Union (FISMA)
European Commission

XPRIMM: What are the main obstacles still remaining from creating a single market for financial services in Europe?
Nathalie BERGER:
Despite significant progress in recent decades to develop a single market for capital, there are still many long-standing and deep-rooted obstacles that stand in the way of cross-border investments, which deter investors from diversifying their portfolios geographically. These obstacles have their origins in national law - insolvency, collateral and securities law, as well as market infrastructure and tax barriers.

There is evidence that tax barriers continue to hinder cross-border investment. Withholding tax procedures are considered as a major barrier to cross-border investment. Double taxation agreements concluded between states should normally allow investors directly or indirectly investing (among others) through investment funds to avoid double taxation, either by getting relief at source or by benefiting from full or partial refund. Total cost of withholding tax refund processes is estimated at € 8.4 billion per year.

Divergences in supervisory outcomes lead to cross-border spill-overs and unjustified differences in the supervision of the same risk. Deeper financial integration will need to be accompanied by increased convergence of supervisory outcomes across the EU and necessary adjustments to strengthen the supervisory framework in order to ensure that the capacity to supervise and manage risks keeps pace, in particular in cross-border and critical areas.

XPRIMM: EU Member States are currently in the process of transposition of the Insurance Distribution Directive. How is this process developing? What feedback have you received so far?
All Member States are currently proceeding with the transposition of the directive into national law. We are assisting them in this endeavour and have organised two transposition workshops to this effect. We are confident that the vast majority of Member States will be able to meet the transposition deadline of 23 February 2018.

XPRIMM: What benefits and what challenges brings the Insurance Distribution Directive in terms of product information and conflict of interest management?
The Insurance Distribution Directive (IDD) improves the standards for product information to be given to consumers before they sign an insurance contract. The newly created Insurance Product Information Document (IPID) will provide consumers with basic information on the main features of proposed non-life insurance contracts, allowing them to easier understand and compare the products on offer. For life insurance products and insurance-based investment products, insurance distributors are already obliged under the PRIIPs Regulation and the Solvency II Directive to provide comparable information documents.

As for conflict of interest management, IDD provides specific rules for identifying, preventing and managing conflicts of interest in the distribution of insurance-based investment products. These new rules are largely aligned to the standards applicable to the sale of regular investment products under MiFID II, ensuring a level playing field for sellers and guaranteeing consumer the same high standard of protection in all sales of investment products. In addition, the Directives provides rules requiring insurance distributors to make disclosures about their remuneration, on which basis advice is given (in particular whether they are limited to selling products from one specific provider) and on possible influences from companies belonging to the same group. Insurance distributors are also obliged to avoid conflicts of interest in the remuneration or incentivisation of their employees.

XPRIMM: The General Data Protection Regulation is due to come into force in May 2018 but already there are many discussions relating to the costs of its implementation. What is your comment on that and, also, could you please elaborate on the main benefits for European consumers that the GDPR is offering?
The data protection reform package helps the Digital Single Market realise the potential through (for instance): One continent, one law: a single, pan-European law for data protection, replacing the current inconsistent patchwork of national laws. Companies will deal with one law, not 28. The benefits are estimated at €2.3 billion per year; One-stop-shop: a 'one-stop-shop' for businesses: companies will only have to deal with one single supervisory authority, not 28, making it simpler and cheaper for companies to do business in the EU.

For businesses, this reform provides clarity and consistency of the rules to be applied, and restores trust of the consumer, thus allowing undertakings to seize fully the opportunities in the Digital Single Market. In the case of citizens, the reform provides tools for gaining control of one's personal data, the protection of which is a fundamental right in the European Union. The data protection reform will strengthen citizens' rights and build trust.

XPRIMM: The European Commission has launched a Public consultation on the operations of the European Supervisory Authorities. What is the purpose of this exercise? Are we about to see changes in the financial supervision framework in Europe?
The consultation is an opportunity for all stakeholders to provide their views on what possible changes may be needed to the current rules governing the ESAs so that they can operate more effectively and deliver on their tasks and objectives in full.

Our aim now is to identify areas where the effectiveness and efficiency of the ESAs can be strengthened and improved. A general review of the ESAs was foreseen for this year, and mandated by their founding Regulations.

The consultation focuses on these key areas such as (1) tasks and powers; (2) governance;(3) supervisory architecture; and (4) funding. We are focusing on optimising ESAs' powers in the following 8 areas, as follows: work on supervisory convergence; non-binding measures such as guidelines and Q&As; work on consumer and investor protection; enforcement powers; international aspects of ESAs work; access to data; powers in relation to reporting and financial reporting.

In terms of future steps to be taken, we will have to wait for the feedback to the public consultation before proceeding but we will have to do an evaluation before we decide on the next steps.

XPRIMM: One of the main risks for the insurance industry is the very low interest rates environment. How are you dealing with this at EU level?
Low interest rates are currently of highest concerns for (re)insurers. The perception of the interest rate related risks worsened from the beginning of 2016. EIOPA conducted a stress test in last year to assess the insurance sector's vulnerabilities to a combination of market risk adverse scenarios. It was based on a sample of solo insurance undertakings most vulnerable in a persistent low interest rate environment and a double hit scenario where, in addition to the low interest rates, the assets prices are also stressed. ​​

In fact, stress tests represent one of the regular supervisory tools that help to assess the resilience of the insurance sector to potential adverse market developments and to extract valid conclusions to support the stability of the financial system.

In order to ensure coordinated supervisory actions, following the 2016 stress test, EIOPA issued recommendations to national supervisors, inter alia: - to ensure that undertakings align their internal risk management processes to the external risks faced; - to review the clauses of the guarantees, their typologies, and the optionalities they carry to assess if the valuation of the technical provisions can be considered proportionate and prudent; and - to request a reduction in the maximum guarantees or in unsustainable profit participations offered in new business etc.

XPRIMM: What will be the benefits of the Pan-European Personal Pensions product project for EU citizens?
The forthcoming PEPP initiative will contribute to further develop EU capital markets towards sufficiently deep, liquid and efficient markets, benefitting investment and growth in the EU. A well-functioning internal market for personal pensions could contribute significantly to provide consumers with adequate choice of personal pension products with minimum EU quality standards protecting consumers and to provide them with adequate market access across the European Union.

Consumers, all over the EU, will benefit from the specific advantages of a PEPP, including when exercising their mobility (single market with standardisation, cross-border and CMU completion, and enhanced features for consumer protection). Also, a larger market provides more and better opportunities for consumers to save for retirement, with better returns and better products. It also means more and better opportunities to save for retirement across borders for mobile consumers and allows for additional opportunities to save for retirement for employees usually not covered by the regular state or occupational pension provision.

XPRIMM: There are public discussions regarding the role that Solvency II Directive played in connection with the Mergers & Acquisitions market for insurance undertakings. Also, there are local insurers that complained about the impact of this regulatory framework. Could you please comment on that?
We have no reliable information on the effect of Solvency II on M&A activity. As already announced, we will review the Solvency II Directive in 2020.

XPRIMM: Can you comment upon the Romanian Government decision regarding the MTPL tariffs cap?
In November 2016, the Romanian Government introduced a premium cap for MTPL insurance. This cap is in principle valid for 6 months (until 18 May 2017), but can theoretically be extended by the Government for subsequent periods of 3 months. We consider that this premium cap has a negative impact on the free competition in the Romanian motor insurance sector and puts significant pressure on the business activity of insurance undertakings concerned.

It may also have a negative impact on the quality of insurance services provided to consumers. This price regulation in the MTPL insurance sector raises serious concerns for us as to its compatibility with the Solvency II Directive (especially Articles 21 and 181), as well as with the case-law of the EU Court of Justice (in particular the decision in case C-59/01).

Solvency II prohibits a prior approval or a notification obligation of premiums and, following the court's interpretation, also direct price regulation, unless a general price-control system exists in a Member State. As a general price-control system is not in place in Romania - we expect that the premium cap not be extended upon the expiry of the current measures on 18 May 2017. We will monitor the developments closely and take the necessary decisions, in order to ensure full compliance with EU law.

XPRIMM: What consequences will Brexit have on the European Insurance market, in your opinion?
We very much regret the UK's decision to withdraw from the European Union. And, as soon as the UK is ready, we shall start negotiating in a constructive manner. Given that both sides have less than two years to close a deal, we are advising firms to prepare for the UK's withdrawal from the EU as of now.

XPRIMM: Thank you!

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