Solvency ii News November 2012

Solvency ii Association
1200 G Street NW Suite 800 Washington, DC 20005-6705 USA
Tel: 202-449-9750 www.solvency-ii-association.com

Dear member,

Today we will start from the work
programme of the European Commission.

Commission Work Programme 2013

Today's absolute imperative is to tackle the economic crisis and put the
EU back on the road to sustainable growth.

This is the number one task for
this generation of Europeans.

It calls for a Europe able to
compete in the global economy,
reshaped to seize the
opportunities of the future.

It requires the stable macroeconomic environment which true economic
and monetary union can bring.

It needs a step change in the economy, to release the many strengths
Europe can bring to bear in tomorrow's economy of high innovation and
high skills.

This demands changes to the business environment in the Single
Market; it requires that the huge potential of Europe's networks and of
the IT revolution is fully exploited; it calls for new skills and help so that
those shut out of the labour market today can make their contribution;
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www.solvency-ii-association.com

and it must be shaped by the needs and opportunities of resource
efficiency.

These are long-term challenges calling for a concerted effort from all
sections of society – but in all cases, the EU contribution is a
precondition for success.

This is why, in the State of the Union address, President Barroso called
for new thinking for Europe – to draw the consequences of the
challenges we are now facing and that are fundamentally changing our
world.

There can be no growth without reform and no way of confronting our
challenges unless we do it together.

The State of the Union speech launched ambitious ideas for the long
term framing of the EU – a deep and genuine economic union, based on
a political union.

This vision must be translated into practice through concrete steps, if it
is to address the lingering crisis that continues to engulf Europe, and the
Euro Area in particular.

This 2013 Work Programme sets out the long term vision of what the EU
might look like in key policy areas, summarises what is missing today
and explains how the Commission will tackle these challenges.

By prioritising the right kind of initiatives, the EU can contribute to
growth and job creation and can step by step move closer to its longer
term vision.

The Commission has already tabled a wide range of growth enhancing
proposals which are now being negotiated by the co-legislators.

Timely adoption and full implementation of these measures would send
a crucial signal of confidence to citizens and to investors, helping to

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reinvigorate economic activity and stimulating much needed job
creation.

It would add up to a major record of EU action before the June 2014
European Parliament elections.

In 2013 the Commission will devote much effort to implementation as an
immediate way of delivering on the benefits of EU action.

Following the decisions to be taken on the multi-annual financial
framework by the end of 2012, during 2013 the Commission will focus on
finalizing arrangements for rapid implementation, including through the
use of country-specific negotiation mandates to ensure that the priorities
supported through EU-funded investment are clearly targeted on growth
and jobs.

Targeted investment supported by a modern, proreform EU budget can
make a decisive contribution to growth, jobs and competitiveness.

The proposals in this work programme will be tabled during 2013 and in
the first part of 2014, bearing in mind the end of the current legislature.

In the following sections some of the key action is highlighted to show
how the Commission will contribute to filling in the gaps between the
EU's objectives and the current situation.

Getting the foundations right: towards genuine Economic and
Monetary Union

The objective

Europe's strength lies in the interconnection of our economies.

The single market and the common currency have driven this forward,
and the integrated economic policy making at the European level

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through the European semester is now drawing our economies together
as never before.

However, the crisis has shown that the single market for financial
services can only deliver financial stability, economic growth and jobs if
it is matched with a strong single regulatory and supervisory authority at
EU level.

The next step must be to deepen economic and monetary union with a
fully-functioning banking and fiscal union.

What is missing today?

A genuine EMU needs a comprehensive approach to tackle the vicious
circle of excessive private sector indebtedness, unsustainable sovereign
debt and banking sector weakness.

The EU lacks a global framework which fills in the gaps in a fully
integrated financial services policy, with a single supervisory mechanism
for banks and a single rule book to govern all financial institutions.
It also needs to complete and implement the more effective mechanisms
put forward to prevent and correct unsustainable fiscal policies and
economic imbalances.

Better coordination of tax policies will also be crucial.

The progress made through the European semester has also not yet
reached its potential in terms of carrying through recommendations into
structural reforms in the EU.

While not yet complete, our economic governance has already been
thoroughly reinforced through the Europe 2020 Strategy, the European
Semester, and the implementation of the Six-Pack legislation.

Agreement on the Two-Pack legislation is urgent in order to complete
further the economic governance.

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In 2013 the Commission will:

- Launch the fourth European Semester through the Annual Growth
Survey;

- Follow up on the blueprint for a comprehensive and genuine EMU
which it will publish before the end of 2012;

- Propose additional legislation to further enhance stability,
transparency and consumer protection in the financial sector (for
example, on the systemic risks related to nonbanks and shadow
banking).

The legislation already in place and now being considered adds up to a
fundamental reshaping of the EU's financial system.

Agreement on banking supervision will put the European financial
system on far more secure foundations and act as a springboard for
confidence.

2013 will see the implementation of many of the detailed rules of this
package.

The same is true for cohesion policy, where the key priorities for growth-
enhancing measures and structural reforms brought out in the European
semester will be put at the core of new national and regional
programmes and where the focus will be on the finalisation of the
country-specific mandates for the next generation of structural funds.

The Commission will also take action to fight tax fraud and evasion,
including an initiative on tax havens, bringing the EU dimension to bear
on national efforts to consolidate public finances.

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Boosting competitiveness through the Single Market and
industrial policy

The objective

Sustainable growth and job creation need to combine a stable macro-
economic environment with the ability to compete in the global
economy.

Europe has strengths which can give it a competitive edge through a
modernised social market economy and can help it to take the lead
in the new industrial revolution.

The Single Market and fair competition can come together with targeted
investment and the right approach to entrepreneurship to exploit the
opportunities for growth through new technologies and innovation.


The Single Market needs to continue to adapt to reach the potential for
businesses and consumers in a borderless Europe.

Technological change offers huge possibilities, but it needs to be
accompanied by new approaches in areas like procurement, standards,
and intellectual property.

The EU needs a long-term framework for energy and climate policies so
that investment and policy target competitiveness and tackle climate
change.

Europe falls short on innovation, with obstacles to building new markets
and investing in the technologies that will change the way we live, as
well as wider issues of attitudes to entrepreneurship and business failure.

It also needs the right legal framework to move Galileo towards
commercial operations.
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This is exacerbated by the problems faced by companies, in particular
SMEs, in accessing finance in the wake of the crisis, as well as the
unnecessary costs of administrative burdens and the impact of some
outdated public administrations.

Shortcomings in implementation also hold back the full benefits.

The recent Single Market Act-II set out 12 new concrete priority actions,
to reenergise the Single Market around four main drivers: networks,
mobility, the digital economy and cohesion.

Following up on its 2012 Communication on a new industrial policy, the
Commission will take a fresh look at the single market for products,
which makes up 75% of intra-EU trade.

These actions follow on the priority actions under the first phase of the
Single Market Act, which now need to be agreed quickly.

The Commission will work hard with the co-legislators in 2013 to bring
these proposals to fruition and full and effective implementation.

Key proposals will include:

- Initiatives to align rules and cut the costs of VAT compliance
through a single declaration;

- A legislative proposal to make e-invoicing mandatory for public
procurement will facilitate business-to-government interaction,
reduce costs and serve as a pilot for other sectors;

- Initiatives to update and simplify the rules for the circulation of
products in the single market, and identify gaps still blocking free
circulation, as well as intensified work on standards, certification and
labels;

- As part of Horizon 2020, 2013 will see proposals to launch and
develop a range of major public-private partnerships to bring private
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and public investment together with the EU budget to drive a
common approach to key strategic sectors like pharmaceuticals, air
traffic management and nanotechnology, leveraging some €9-10
billion in new investment;

- Initiative on energy technologies and innovation to deliver a
sustainable, secure and competitive energy system;

- Proposing a series of major reforms to modernise state aid;

- Modernise our approach to intellectual property rights to ensure that
it is effective and consumer-friendly in the digital world.

Energy efficiency is a key area for competitiveness.

The Commission will reinforce its cooperation with Member States on
the implementation of the energy efficiency directive, the energy
labelling and ecodesign legislation.

Implementing the strategy for Key Enabling Technologies will also be a
key lever of competitiveness.

The Commission will deepen its work to help SMEs facing the challenge
of financing and implement the Action Plan for entrepreneurship.

Support from the European Regional Development Fund and the
COSME programme will be ready to roll out when the new financing
period starts in 2014.

New programming of the European Social Fund will also include a
particular focus on the provision of skills necessary for successful
transition from school to work and for increasing employability of the
workforce.

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Connect to Compete: Building tomorrow's networks today

The objective

A fully integrated and interconnected European Single Market covering
telecoms, energy and transport is a prerequisite for competitiveness, jobs
and growth.

Achieving this requires affordable, accessible, efficient and secure
network infrastructure.

Accelerating the roll out of the digital economy will bring benefits across
all sectors, through enhanced productivity, efficiency and innovation.

Europe must have state-of-the-art digital networks to retain and build its
global competitive position, to be able to handle the explosion in
internet use and exchange of data and to fully exploit the efficiency gains
and innovative services allowed by major online developments.

In energy, significant investments in electricity grids and other energy
networks will help make energy supplies more secure, sustainable and
competitive.

On transport, a fully integrated single market and more efficient
networks allowing to switch easily between different modes, would bring
huge benefits to citizens and companies, including in urban areas.


National approaches and a variety of barriers hold back competitiveness
and prevent the exploitation of networks on a European scale.

Investment is not sufficiently galvanised to support projects which will
be the bedrock of Europe's future prosperity and is held back by
shortcomings in the regulatory environment.

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This also holds back the potential for innovation in areas like smart grids
and meters, and intelligent transport.

A lack of interoperability increases costs and holds back the level playing
field.

Gaps in the regulatory framework hold back business investment and
consumer confidence in key areas like payments.

Gaps in infrastructure create extra costs and inefficiencies for energy
consumers, delay modernization of logistics, and prevent the full
exploitation of broadband.

In order to continue to fill in the missing links in 2013/14, the
Commission will make proposals to:

- Modernise Europe's transport and logistics to help companies save
time and energy, as well as reduce emissions, through proposals on
rail and freight transport, goods traffic between EU ports, and the
Single European Sky;

- Tackle the obstacles to electronic payments;

- Support investment in high speed networks;

- Boost the coverage and capacity of broadband by reducing the cost
of its deployment and freeing up band width for wireless broadband.

Alongside cohesion policy, the Connecting Europe Facility5 will be one
of the EU's most obvious contributions to cutting through these
obstacles by stimulating infrastructure.

2013 should see the facility up and running and key choices made on
targeting.

It should also see project bonds being rolled out to help harness private
sector investment.
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This will go hand in hand with consolidating regulation.

More needs to be done to achieve a true European transport area with
European rules: proposals on connecting up in the rail sector and on
accelerating the implementation of the Single European Sky should be
taken forward as priorities.

In the field of energy, the latest phase of liberalisation towards the
completion of the internal energy market by 2014 must be driven through
to make Europe's future energy supply sustainable, competitive and
secure.

A new framework for national interventions in the energy sector will be a
core element to ensure that adequate investments are made and that
market interventions are necessary and proportionate.

Growth for jobs: Inclusion and excellence

The objective

Through its capacity to combine growth and inclusiveness, our social
market economy is one of Europe's greatest assets.

But today its economy and its society face the threat that the grave
problems of high unemployment, increased poverty and social exclusion
risk becoming structural.

The EU dimension must be harnessed to assist Member States to find
every opportunity to help people looking for work and to address the
mismatch between labour supply and demand.

This starts with an active employment policy to help them to have the
right skills to be employed and which uses the potential of mobility to
the full.

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The goal should be to find innovative ways to increase educational
attainment and labour market participation.

Adequate and sustainable social policies and more accessible social
services are needed to promote social inclusion and entry into the labour
market.

The job creation potential of key growth sectors, such as the green
economy, ICT and health and social care sectors needs to be fully
tapped.

To maintain its workforce in the longer term perspective of
an ageing society, European labour markets need to be inclusive,
mobilising employees of all ages and at all level of qualifications.


Public employment services and employers face a major challenge with
the scale of unemployment in Europe, in particular among young
persons.

To boost the employability levels is key to re-launch growth, taking also
into consideration vulnerable groups.

The potential for job creation in sectors such as the green economy, ICT,
health and is not fully exploited.

Education and training systems are not keeping up with changing
labour market needs – resulting in shortages in key areas like science,
mathematics and e-skills.

Higher education is not sufficiently connected to research and
innovation activities and is slow to build capacity in areas like ICT –
which both reflects and contributes to a lack of internationalisation.

Life-long learning is still developing, and public policy and business

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practices do not reflect the need for older workers to extend their
working careers.

Undeclared work creates an extra challenge.

Social protection and social investment should be more effective.

Vulnerable groups find it particularly difficult to get into or to return to
the labour market.

And the potential for labour mobility to fill gaps is held back by
problems in the recognition of qualifications, documentation and skills
across Member States.

Supporting Member States' policies on employment and job creation is
one of the highest priorities of the European semester.

The Commission will continue in 2013 to work actively with Member
States and social partners, in particular on the basis of the youth
guarantee and traineeship initiatives to be set out later this autumn.

In order to continue to fill in the missing links in 2013/14, the

- Help improve the performance of public employment services and
networking between national employment agencies;

- Harness social investment for inclusive growth, through guidance for
policy reforms identified in the framework of European semester,
supported by the EU funds such as the European Social Fund;

- Furthering the internationalisation efforts of higher education, to
prepare Europeans for an increasingly global, open and competitive
labour market;

- Put in place the right framework for the institutions handling
occupational pensions.
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Obstacles to mobility remain one of the main lost opportunities of the
Single Market.

Adoption and implementation of the revision of the Professional
Qualifications Directive will be an important step to open up professions.

Work should continue to examine and reduce unnecessary restrictions
for regulated professions limiting the ability of professionals to work in
another Member State.

Preparing the new generation of programmes under the European Social
Fund will be a major goal for 2013, to ensure that this brings the quickest
and most effective support to the modernisation of labour market
policies and social inclusion policies, strengthening of education and
lifelong learning systems, to ensure that groups like young and long-
term unemployed have the right skills for the jobs of the future.

A wide range of EU programmes will contribute to these goals,
including the European Regional Development Fund, Horizon 2020 and
Erasmus for all.

Using Europe's resources to compete better

The objective

Competitiveness today must be geared to competitiveness tomorrow.

There is untapped potential for the EU economy to be more innovative,
productive and competitive whilst using fewer resources and reducing
environmental damage.

Less waste should be produced and more re-used and recycled in line
with the practice of the best performing Member States.

Greater resource efficiency would contribute to growth, jobs and
enhanced competitiveness, with reduced costs for business as well as
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significant benefits for health and the environment, lower greenhouse
gas emissions, contained energy bills and new opportunities created for
innovation and investment.

The EU is particularly well-placed to give policy the long-term
dimension required.


European society and the European economy do not yet exploit the full
potential for resource efficiency.

Much recyclable waste is either exported or sent to landfill.

A lack of long-term frameworks holds back planning and investment,
most obviously on a climate and energy framework beyond 2020, but also
on long term sustainable use of key resources such as air, soil, energy,
water, fish and biomass.

At the same time, such frameworks can help to galvanise the innovation
needed to exploit the potential of the transition to a low-carbon
economy in areas like transport, energy and agriculture.

In order to continue to fill in the missing links in 2013/14 the

- Provide a long-term perspective on how the EU will move ahead
from its 2020 targets to continue the trajectory towards a low-carbon
economy through a comprehensive framework for the period to 2030;

- Frame a new strategy on adaptation to climate change to make
Europe more resilient;

- Review the waste legislation, to look at how new markets and better
recycling can contribute to growth;

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- Adapt the EU policy framework for air quality.

At the same time, the finalisation of the new generation of agriculture
and fisheries policies and regional and rural development programmes
will maximise the opportunity to bring together innovation and job
creation with a focus on sustainability.

The promotion of a resource efficient "blue economy" will help to
release the potential of Europe's maritime areas to contribute to growth.

2013 will also bring the start of the 3rd phase of the EU Emission
Trading System (2013-2020).

Building a safe and secure Europe

The objective

The EU needs to protect its citizens and their rights from threats and
challenges and further remove obstacles to circulation of citizens in
Europe.

This includes fighting crime and corruption, controlling our external
borders and ensuring the respect of the rule of law and of
fundamental rights, with the right balance between security and mobility.

It also needs a well functioning and efficient justice system to support
growth, entrepreneurship and attract investors.

Equally, the EU works to proactively reduce risks to health, food and
product safety, critical infrastructures and disasters.

Safe and sustainable use of nuclear energy is a key element.

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Threats to safety and security evolve, and the EU's response needs to
reflect this by using technology to tackle safety in food or nuclear energy,
by working for the swiftest and most effective disaster response and by
deepening cooperation in tackling the increasing cross border dimension
of crime.

Areas like terrorist financing and the cross border traffic in weapons
need particular attention.

The EU has a particular responsibility to protect its own financial
interests against fraud and corruption, but lacks the full institutional
framework required.

Mutual trust in areas of safety, security and justice needs to be earned,
and the networks and exchanges needed to build this are not always
present.

Vigilance is also needed to ensure that the fundamental rights of citizens
in the EU are protected in full.

If people and businesses are to take full advantage of their rights, they
need easy access to justice, on equal terms in all countries in cases of
cross-border litigation.

The Commission will make proposals to continue to fill in the missing
links:

- Establish a European Public Prosecutor's Office to fight against
crimes affecting the EU budget and protect its financial interests;

- Fight traffic in firearms;

- Improve judicial cooperation in both criminal and civil matters;

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- Revise legislation on nuclear safety and propose new legislation on
nuclear insurance and liability;

- With 2013 marked as the European Year of Citizens, the Citizenship
Report will review progress in ensuring that EU citizens can readily
exercise their rights and identify future action.

The Commission will also implement a variety of important initiatives to
promote a virtuous circle of cooperation between national
administrations and judicial systems.

The ongoing work of the Consumer Protection Cooperation network of
enforcement authorities is a core tool for practical enforcement.

The first anti-corruption report and the first judicial scoreboard will both
offer new tools to encourage best practice to be identified and pursued.

Agreement on new arrangements for Schengen governance would also
give Member States an important new tool to consolidate mutual
confidence in common control of borders.

Efforts to reinforce application of existing solidarity mechanisms in
immigration will be continued.

Pulling our weight: Europe as a global actor

The objective

The EU's interests and commitment to values of democracy, the rule of
law and human rights depend heavily on what happens beyond its
borders.

Promoting our values in our immediate neighbourhood and beyond is a
priority, by building partnerships with third countries and promoting
multilateral solutions to common problems.

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Collectively, the EU is the largest donor of funds for development
cooperation, climate finance and humanitarian aid in the world.

We are also the world's largest trading partner.

When we can deploy the Union's and Member States' resources in an
effective and consistent way beyond our borders, and bring together the
wide range of instruments available, the EU can have greater impact and
influence on the world around us.

This helps to deliver the goals of growth, stability and democracy and to
meet the goals of policies like tackling poverty and boosting peace and
security, as well as pursuing policies like addressing climate change, the
environment, transport and energy, and optimising the opportunities for
international cooperation in areas such as science and technology.

In the year of Croatia's accession, the enlargement process and the
neighbourhood strategy continue to provide key tools to support
positive change in partners on the EU's doorstep.


On the global stage the EU is a key actor; but more can be done to
develop a truly unified approach using different strands of policy and
different instruments to reinforce each other.

The EU should also ensure closer monitoring of the implementation of
its commitments, notably as part of the support provided to countries in
transition in its neighbourhood.

The external dimension is integral to promoting growth and
competitiveness in 2013 and beyond.

The EU is pursuing a bilateral trade and investment agenda of
unprecedented ambition to complement its efforts at the multilateral
level.

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Negotiations are close to conclusion with such important partners as
Canada, Singapore and India, and will hopefully soon be launched with
Japan.

The final recommendations of the EU-US High Level Group on Jobs
and Growth may also pave the way for negotiations on an ambitious and
comprehensive transatlantic partnership.

Japan and the United States are such key partners that successful
agreements with these two countries could add 1-1½% to EU GDP and
create almost a million jobs.

Such agreements would support multilateral liberalisation and regulatory
dialogue, and open new markets for European products and services.
Scoping exercises with other partners are currently being conducted.

2013 will see a particular focus on consolidating the rule of law firmly at
the centre of enlargement policy, consolidating economic and financial
stability and promoting good neighbourly relations and closer regional
cooperation in areas like trade, energy and transport.

Neighbourhood policy will continue to centre on an incentive driven
approach, where EU support for reforms follows a clear progress in
building democracy and the respect of human rights.

Priorities in 2013 will be the 'Deep and Comprehensive Free Trade
Areas', mobility partnerships and visa facilitation.

The EU has responded to the rapid change in our neighbourhood
through the framework of the revised European Neighbourhood Policy,
consolidating the Eastern partnership and launching a partnership for
shared democracy and prosperity with the Southern neighbours.

Our focus in 2013 with our Southern neighbours will be on
implementation and delivery, using innovative ways to mobilise political
and economic resources to mutual benefit.

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As the Millennium Development Goals (MDG) Summit approaches in
2015, the EU is working to fulfil its commitments on development
assistance, as well as pursuing specific goals of sustainable growth and
resilience in the face of crisis.

It also continues to pursue key negotiations such as reaching a new
international climate agreement by 2015.

At the same time, as the new generation of external action instruments is
finalised, 2013 will be a key year for ensuring that the EU's new
development policy orientation – the Agenda for Change – is
mainstreamed throughout our relationship with our partners, with a new
focus on good governance, inclusive and sustainable growth and
stimulating investment in developing countries.

It will also see further steps in ensuring an effective and swift crisis
response capacity and developing a comprehensive response to crisis
prevention, management and resolution.

In order to continue to fill in the missing links in 2013/14 the

- Assuming success in ongoing scoping exercises and in current
preliminary discussions, propose negotiating directives for
comprehensive trade and investment agreements with relevant
partners;

- Put forward coherent EU positions bringing together the Millennium
Development Goals, the post-2015 development agenda and Rio+20.

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Guidelines on Complaints-Handling
by Insurance Undertakings

EIOPA Guidelines on Complaints-
Handling by Insurance Undertakings
translated into all the official EU
languages

EIOPA has published the translation of Guidelines on Complaints -
Handling by Insurance Undertakings into all official languages of the
European Union.

The Guidelines, which are addressed to national competent authorities
(NCAs), aim to provide guidance on appropriate internal systems and
control for complaints-handling by insurers (such as having a complaints
management policy and complaints management function in place),
render them more effective and provide guidance on the provision of
information and procedures for responding to complaints, thereby
ensuring the adequate protection of policyholders and beneficiaries.

By having translated the Guidelines into all the official languages of the
EU, today’s publication triggers a transitional period of two months until
15 January 2013, within which national supervisors have to declare
whether they intend to comply with the Guidelines or otherwise explain
the reasons for non-compliance, which may be made public by EIOPA
on a case-by-case basis.

According to Article 16(3) of the Regulation establishing EIOPA,
national supervisors have to make every effort to comply with the
Guidelines.

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1. Guidelines
Introduction

1. According to Article 16 of the EIOPA Regulation and taking into
account Recital 16 and Articles 41, 46, 183 and 185 of Directive
2009/138/EC of the European Parliament and the Council of 25
November 2009 on the taking-up and pursuit of the business of
Insurance and Reinsurance (“Solvency II”), which provide for the
following:

- “The main objective of insurance and reinsurance regulation and
supervision is the adequate protection of policyholders and
beneficiaries…..”.

- “Member States shall require all insurance and reinsurance
undertakings to have in place an effective system of governance
which provides for sound and prudent management of the business”.

- “Insurance and reinsurance undertakings shall have in place an
effective internal control system.

That system shall at least include administrative and accounting
procedures, an internal control framework, appropriate reporting
arrangements at all levels of the undertaking and a compliance
function”.

- In the case of non-life insurance, a duty for the insurance
undertaking to “inform the policyholder of the arrangements for
handling complaints of policyholders concerning contracts
including, where appropriate, the existence of a complaints body,
without prejudice to the right of the policy holder to take legal
proceedings”.

- In the case of life insurance, the duty for the insurance undertaking
to communicate to the policyholder, in relation to the commitment,
“the arrangements for handling complaints concerning contracts by

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policyholders, lives assured or beneficiaries under contracts
including, where appropriate, the existence of a complaints body,
without prejudice to the right to take legal proceedings”.

2. To ensure the adequate protection of policyholders, the arrangements
of insurance undertakings for handling all complaints that they receive
should be subject to a minimum level of supervisory convergence.

3. These Guidelines shall apply from their final date of publication.

4. These Guidelines are issued by EIOPA under the powers set out in
Article 16 of the EIOPA Regulation.

5. These Guidelines apply to authorities competent for supervising
complaints-handling by insurance undertakings in their jurisdiction.

This includes circumstances where the competent authority supervises
complaints-handling under EU and national law, by insurance
undertakings doing business in their jurisdiction under freedom of
services or freedom of establishment.

6. Competent authorities must make every effort to comply with these
Guidelines in accordance with Article 16(3) in relation to the
arrangements of insurance undertakings for handling all complaints that
they receive.

7. For the purpose of the Guidelines below, the following indicative
definitions, which do not override equivalent definitions in national law,
have been developed:

Complaint means:

A statement of dissatisfaction addressed to an insurance undertaking by
a person relating to the insurance contract or service he/she has been
provided with.

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Complaints-handling should be differentiated from claims-handling as
well as from simple requests for execution of the contract, information or
clarification.

Complainant means:

A person who is presumed to be eligible to have a complaint considered
by an insurance undertaking and has already lodged a complaint e.g. a
policyholder, insured person, beneficiary and in some jurisdictions,
injured third party.

8. Furthermore, where an insurance undertaking receives a complaint
about:

(i) Activities other than those regulated by the “competent authorities”
pursuant to Article 4(2), EIOPA Regulation; or

(ii) The activities of another financial institution for which that insurance
undertaking has no legal or regulatory responsibility (and where those
activities form the substance of the complaint), these Guidelines do not
apply.

However, that insurance undertaking should respond, where possible,
explaining the insurance undertaking's position on the complaint
and/or, where appropriate, giving details of the insurance undertaking
or other financial institution responsible for handling the complaint.

9. Please note that more detailed provisions on insurance undertakings’
internal controls when handling complaints are contained in the “Best
Practices Report on Complaints-Handling by Insurance Undertakings”
(EIOPA-BoS-12/070).

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Guideline 1 - Complaints management policy

10. Competent authorities should ensure that:

a) A “complaints management policy” is put in place by insurance
undertakings.

This policy should be defined and endorsed by the insurance
undertaking’s senior management, who should also be responsible for its
implementation and for monitoring compliance with it.

b) This “complaints management policy” is set out in a (written)
document e.g. as part of a “general (fair) treatment policy” (applicable to
actual or potential policyholders, insured persons, injured third parties
and beneficiaries etc.).

c) The “complaints management policy” is made available to all relevant
staff of the insurance undertaking through an adequate internal channel.

Guideline 2 - Complaints management function

11. Competent authorities should ensure that insurance undertakings have
a complaints management function which enables complaints to be
investigated fairly and possible conflicts of interest to be identified and
mitigated.

Guideline 3 – Registration

12. Competent authorities should ensure that insurance undertakings
register, internally, complaints in accordance with national timing
requirements in an appropriate manner (for example, through a secure
electronic register).

Guideline 4 - Reporting

_________________________________________

provide information on complaints and complaints-handling to the
competent national authorities or ombudsman.

This data should cover the number of complaints received, differentiated
according to their national criteria or own criteria, where relevant.

2. Compliance and Reporting Rules

17. This document contains Guidelines issued under Article 16, EIOPA
Regulation.

In accordance with Article 16(3) of the EIOPA Regulation, Competent
Authorities and financial institutions must make every effort to comply
with guidelines and recommendations.

18. Competent authorities that comply or intend to comply with these
Guidelines should incorporate them into their regulatory or supervisory
framework in an appropriate manner.

19. Competent authorities shall confirm to EIOPA whether they comply or
intend to comply with these Guidelines, with reasons for non-compliance,
by 15.01.2013.

20. In the absence of a response by this deadline, competent authorities
will be considered as non-compliant with the reporting and reported as
such.

3. Final Provision on Review

21. These Guidelines shall be subject to a review by EIOPA.

Guideline 5 - Internal follow-up of complaints-handling

analyse, on an on-going basis, complaints-handling data, to ensure that
they identify and address any recurring or systemic problems, and
_________________________________________

potential legal and operational risks, for example, by:

(i) Analysing the causes of individual complaints so as to identify root
causes common to types of complaint;

(ii) Considering whether such root causes may also affect other processes
or products, including those not directly complained of; and

(iii) Correcting, where reasonable to do so, such root causes.

Guideline 6 – Provision of information

15. Competent authorities should ensure that insurance undertakings:

a) On request or when acknowledging receipt of a complaint, provide
written information regarding their complaints-handling process.
b) Publish details of their complaints-handling process in an easily
accessible manner, for example, in brochures, pamphlets, contractual
documents or via the insurance undertaking’s website.

c) Provide clear, accurate and up-to-date information about the
complaints-handling process, which includes:

(i) Details of how to complain (e.g. the type of information to be provided
by the complainant, the identity and contact details of the person or
department to whom the complaint should be directed);

(ii) The process that will be followed when handling a complaint (e.g.
when the complaint will be acknowledged, indicative handling timelines,
the availability of a competent authority, an ombudsman or alternative
dispute resolution (ADR) mechanism, etc.).

d) Keep the complainant informed about further handling of the
complaint.

_________________________________________

Guideline 7 - Procedures for responding to complaints

16. Competent authorities should ensure that insurance undertakings:

a) Seek to gather and investigate all relevant evidence and information
regarding the complaint.

b) Communicate in plain language, which is clearly understood.

c) Provide a response without any unnecessary delay or at least within the
time limits set at national level.

When an answer cannot be provided within the expected time limits, the
insurance undertaking should inform the complainant about the causes of
the delay and indicate when the insurance undertaking’s investigation is
likely to be completed.

d) When providing a final decision that does not fully satisfy the
complainant’s demand (or any final decision, where national rules require
it), include a thorough explanation of the insurance undertaking’s position
on the complaint and set out the complainant’s option to maintain the
complaint e.g. the availability of an ombudsman, ADR mechanism,
national competent authorities, etc.

Such decision should be provided in writing where national rules require
it.

_________________________________________

Kiyohiko G Nishimura: Ageing, finance and
regulations

Keynote address by Mr Kiyohiko G Nishimura,
Deputy Governor of the Bank of Japan, at the
Joint Forum Meeting, Tokyo, 14 November 2012.

Introduction:
Population ageing, economy and finance

It is my great pleasure to have the opportunity to speak at the Joint
Forum Meeting in Tokyo.

The Joint Forum has for many years been at the forefront of dealing with
various cross-industry issues related to banking, securities and
insurance.

The Forum has thereby contributed greatly to the evolution of successful
regulatory and supervisory frameworks.

However, many challenges remain.

For example, as economic globalization and information technology
advance, “cross-border” and “cross-industry” risks have become
increasingly important in financial services, and failure to regulate and
supervise them effectively may result in profound economic
consequences.

“Structured” securitized products and monoline insurances are
examples of such risks, as we have learned to our cost in the recent
crisis.

Today, I would like to consider another significant challenge, which I
think is increasingly important worldwide, though not yet widely
recognized as crucially important.

_________________________________________

This is the issue of population ageing and how to regulate and supervise
financial products and services to cope with problems arising from it.
Indeed, these issues are deeply related to the fundamental nature of
financial services, including all financial sectors such as banking,
securities and insurance.

In fact, I have warned of the unpleasant and in some cases grave
consequences of ignoring demographic factors in our economic thinking
in a series of recent speeches and papers, especially with respect to asset
price bubbles, money demand and inflation.

In particular, I have pointed out that asset price bubbles are most likely
to occur at the final stage of the “demographic bonus” in which a
country enjoys the benefits of an increase in the size of the working
population.

In contrast, a decline in growth potential due to “demographic onus” is
likely to result in prolonged economic stagnation once the bubble bursts.

These phenomena have been observed not only in Japan, but also in
other countries such as the United States and peripheral euro area
countries.

What underlies the recent distress in the euro area is in fact deeply
rooted in the structural changes resulting from demographic transition
or population ageing.

Figure 1 shows the relation between changes in the working age
population curve and the timing of bubble bursts.

These coincided in Japan around March 1991, in the United States in
December 2005, in Ireland in September 2006, and in Spain in September
2007.

And this is not simply a problem affecting advanced economies: the
problem is just around the corner for some emerging economies like
Korea, China, and Brazil.
_________________________________________

Population ageing is likely to have a significant impact on financial
services, and requires a new policy response.

Here I would like to raise two issues: one is the necessity of cross-
industry and even cross-border coordination, and the other is the
question of how to deal with the fundamental uncertainty surrounding
population ageing.

Necessity of cross-industry and cross-border coordination

Let me first consider the necessity of cross-industry and cross-border
coordination.

_________________________________________

As a society begins to age, its older citizens become the dominant
holders of financial assets.

However, with the coming of age, many people are likely to become risk-
averse in managing their financial assets, for natural reasons.

Thus, a mature economy, with its lower growth potential due to ageing,
faces the serious problem of how to provide risk money to promising
sectors of the economy so as to encourage entrepreneurs’ sound risk-
taking and enhance value production.

To be more specific, financial products and services should enable older
citizens to maintain their quality of life and help foster an environment
where longevity is seen as a gift, rather than a risk.

These products, in addition to retirement savings, are expected to play
diverse roles.

Given the improved average health of senior citizens in many countries,
it is increasingly important that these financial products and services
help the older population stay active and contributing to the community
to the best of their abilities, while mitigating age-related risks such as
illness.

To provide such products, financial institutions must cooperate with
other industries to take full advantage of their advanced technologies
and expertise.

At the same time, financial institutions should utilize their own expertise
to measure, distribute, and manage the various risks as intermediates
between asset-rich older citizens and prospective entrepreneurs.

These attempts inevitably involve “cross-industry” elements.

Furthermore, with the transition from a growing economy to a mature
economy, it is natural for people in an ageing economy to pursue higher
returns by investing their savings in growing overseas economies.
_________________________________________

Thus, it is also important for a mature economy to make full use of the
benefits of cross-border transactions while managing the accompanying
risks.

This upcoming trend of cross-industry and cross-border expansion of
financial products and services will pose a serious challenge to the
current regulatory and supervisory frameworks.

It will certainly call for a comprehensive approach.

Regulation and supervision focusing only on a specific sector will likely
result in a “waterbed effect”: problems will be simply shifted to other
sectors rather than being dealt with effectively.

Fundamental uncertainty regarding life expectancy and fertility

The second issue is the fundamental uncertainty surrounding the pace of
population ageing.

I first note the two kinds of risk involved: the first relates to life
expectancy or longevity, and the second to birth rates or fertility.

I then discuss the fundamental uncertainty in measuring these risks in
the economy as a whole, and the possible consequences of this for
regulation and supervision.

Among the various risks we face in the real world, the longevity risk is
the most fundamental one.

No one can tell exactly how long he or she will actually live.

While economic textbooks impersonally state that efficient allocation of
resources can be achieved more easily if there is no uncertainty, very few
people would prefer to know the exact date on which they are going to
pass away.

_________________________________________

As human beings we need to accept such unavoidable uncertainties, and
financial services have a critical role to play in helping us manage the
risks associated with such inherent uncertainties while enabling us to
enjoy a life full of surprises.

As the population ages, the social need increases for financial products
and services to respond to the longevity risk.

To provide the tools necessary to respond to the longevity risk, providers
need to be able to manage the accompanying risks in the economy as a
whole.

To this end, financial service providers such as insurers have
traditionally utilized “the law of large numbers,” a rule assuming that as
the number of samples increases, the average figure of these samples,
such as average life expectancy, becomes more predictable.

The same is considered to be true for fertility.

Although the exact number of children for a given couple is not known
for sure, the average rate of birth per couple becomes largely predictable.

The popular perception that demographic change is in general
predictable is based on this law of large numbers.

Unfortunately, this perception is not always true, or to put it bluntly, not
true in many instances.

Take Japan for example.

Between the 1970s and early 2000s, the total fertility rate forecasts
regularly turned out to be wrong and were consistently revised down.

The government repeatedly published its forecast in which the decline in
the fertility rate was declared to be only temporary and the birth rate
expected to rise again soon (Figure 2.)

_________________________________________

Similarly, life expectancy forecasts have shown that the actual figures
consistently exceeded the forecasts (Figure 3).

_________________________________________

These forecast errors show the fundamental uncertainty surrounding the
pace of population ageing.

And if the actual outcome deviates from the estimated life expectancy
and longevity of the entire population in an economy, all service
providers will be affected.

For example, in the case of longevity risk products, even a slight
deviation could significantly increase the exposures of service providers.

_________________________________________

Avoiding patchwork and “spaghetti code” problems

Regulatory and supervisory reform is often called for once such deviation
causes an unexpected accumulation of losses.

However, this kind of loss-induced regulatory and supervisory reform
often leads to patchwork plumbing, which in turn results in a vicious
circle of further losses and more patchwork.

The repetition of such ad-hoc adjustments to the framework can cause
what computer programmers refer to as “spaghetti code” problems, in
which the framework becomes too complex and entangled, like
spaghetti, so that no one knows how to fix the problem.

Thus, we must be careful not to make over-optimistic forecasts,
especially when these forecasts underlie the overall framework and any
forecast error might bring about irrevocable losses.

It is also important to have in advance a clear strategy on appropriate
policy responses when a forecast error is observed, especially in dealing
with “spaghetti code” risks.

The performance of the framework should be subject to continuous
review, and necessary measures should be readily available at all times.

With these measures in place, it should be possible to prevent a mere
forecast error from turning into an “irreversible” disorder of the whole
system.

In this sense, it is better to address the challenges of population ageing
by incorporating a second best “fail-safe” mechanism into our overall
institutional framework, rather than by chasing the first best solution
while pretending our forecasts are always rational and unbiased.

_________________________________________

Concluding remarks

The recent financial crisis has completely changed the landscape of
financial services, both for financial institutions and for supervisors.

Before the Lehman crisis, people tended to see only the “bright side” of
new financial products, such as securitized products, derivatives, and
cross-border transactions, believing them to be backed by advanced and
innovative risk-management and investment tools.
However, since the crisis revealed the risks and problems associated
with them, people have come to see mostly the “dark side” of these
services.

Nonetheless, there is still an essential need for financial products and
services that can help individuals and firms manage their risks, since
sustainable economic development can only be achieved through sound
risk taking by private entities.

Moreover, financial institutions will be expected to play an even more
active role as more countries face the problems arising from population
ageing.

This is especially relevant to satisfying the need for longevity risk
management and in coping with the problems of declining fertility, since
financial institutions’ full use of their technologies and resources is the
key to solving these problems.

Thus, financial service providers should be able to contribute to the
economic society by providing people with the tools to address the risks
and harsh uncertainties of life, while enabling them to enjoy its thrills
and happy surprises.

In this respect, I believe that regulators and supervisors should bear the
following two things in mind:

_________________________________________

First, regulators and supervisors should always have a cross-industry and
in some cases cross-border perspective, and they should also have a
grand design as to how the economy can spread the risks necessary for
sustainable growth, especially under population ageing.

Second, regulators and supervisors should be aware that a desirable
regulatory framework will continuously evolve, partly due to population
ageing and the consequent structural changes in the economy and
financial services.

The current structure and regulatory framework will not last forever, and
neither will sectoral classifications such as “banking,” “insurance,” and
“securities”.

For example, increased demand for longevity risk management could
perhaps foster new cross-industry innovation between medical and
financial services.

From its unique vantage point, the Joint Forum is able to observe the
signs of structural changes in financial services and to identify the need
for regulatory and supervisory evolution.

I sincerely hope that the Forum will continue to be attentive to new
developments in financial services and lead the global debate on
regulation and supervision.

Now I come to the final words of my speech about ageing.

Just as we mortal individuals mature and come of age, so too do
institutions.

Here is the Bank of Japan (Figure 4) more than a hundred years ago, in
its youthful, burgeoning days.

_________________________________________

And here is the Bank of Japan as it is today (Figure 5), surrounded by
new architectural additions to the city skyline and still the focal point of
the landscape.

_________________________________________

The building itself has indeed matured, and in its maturity has come to
fit itself perfectly to the new age.

I believe the same can surely be said of the Joint Forum.

Thank you for your kind attention.

_________________________________________

Feedback on
comments received
from stakeholders to
the EBA, EIOPA and ESMA’s Joint Consultation Paper
on its proposed response to the European Commission’s Call for Advice
on the Fundamental Review of the Financial Conglomerates Directive

_________________________________________

_________________________________________

Dear Member,

Year after year, new laws and regulations require firms to undertake a
forward-looking self-assessment of risks, corresponding capital
requirements, and adequacy of capital resources.

Year after year, it becomes critical to look into the future, to understand
what is next. Which is the new law, regulation or development? Which
are the challenges and the opportunities for firms and organizations?
How will these changes affect the competitive position of existing and
new capital warriors in the markets?

There is a great window to look into the future: The excellent forward-
looking papers of the Group of Thirty.

The Group of Thirty

The Group of Thirty is a private, nonprofit, international body composed
of very senior representatives of the private and public sectors and
academia.

The Group aims to deepen understanding of international economic and
financial issues, to explore the international repercussions of decisions
taken in the public and private sectors, and to examine the choices
available to market practitioners and policymakers.
Members

_________________________________________

Emeritus Members

_________________________________________

Toward Effective
Governance of Financial
Institutions
Important Parts

Weak and ineffective governance of systemically important financial
institutions (SIFIs) has been widely cited as an important contributory
factor in the massive failure of financial sector decision making that led
to the global financial crisis.

In the wake of the crisis, financial institution (FI) governance was too
often revealed as a set of arrangements that approved risky strategies
(which often produced unprecedented short-term profits and
remuneration), was blind to the looming dangers on the balance sheet
and in the global economy, and therefore failed to safeguard the FI, its
customers and shareholders, and society at large.

Management teams, boards of directors, regulators and supervisors, and
shareholders all failed, in their respective roles, to prudently govern and
oversee.

On the subject of governance as it applies to FIs, much has been written
and said in the past few years.

Notable among these statements are the 2009 Walker report (A Review
of Corporate Governance in UK Banks and other Financial Industry
Entities) and the Basel Committee’s Principles for Enhancing Corporate
Governance (2010).

Many domestic regulators and stock exchanges have also weighed in
with new requirements and guidelines for governance.

The Group of Thirty (G30) applauds these prior initiatives and supports
not only the spirit of their conclusions but also many of the detailed
recommendations they contain.

_________________________________________

The combination of these reports, self scrutiny by the firms themselves,
and pressure from regulatory overseers has already yielded substantial
changes in governance practice across the financial services industry and
around the globe.

Why would the G30 wish to add its own voice to the body of work
already available, in light of progress being made?

First, no one should presume that FI governance is now fixed.

It is true that boards are working harder; supervisors are asking tough
questions and preparing for more intensive oversight; management
has become much more attuned to risk management and to supporting
the oversight responsibilities of the board; and shareholders, to some
degree, are taking a deeper look into their role in promoting effective
governance.

Nevertheless, as this report highlights, highly functional governance
systems take significant time and sustained effort to establish and hone,
and the G30’s input can help with that effort.

Second, in a modern economy, business leadership represents a large
concentration of power.

The social externalities associated with the business of significant
financial institutions give that power a major additional dimension and
underscore the critical importance of good corporate governance of such
entities.

Third, we note that the prior reports and guidance almost always come
from a national or regional perspective (the Basel Committee report
being a notable exception), which is understandable as a practical
matter, but curious given the distinctly global nature of the SIFIs, which
are appropriately the focus of attention.

Accordingly, in late spring of 2011, the G30 launched a project on the
governance of major financial institutions.
_________________________________________

The project was led by a Steering Committee chaired by Roger W.
Ferguson, Jr., with John G. Heimann, William R. Rhodes, and Sir David
Walker as its vice-chairmen.

They were supported by 11 other G30 members, who participated in an
informal working group.

Requests for interviews went out from the G30 to the chairs of 41 of the
world’s largest, most complex financial institutions— banks, insurance
companies, and securities firms.

In an extraordinary response, especially in light of the pressures on each
of these companies, 36 institutions shared their perspectives and
experiences through detailed discussions with board leaders, CEOs, and
selected senior management leaders.

In addition, the project team held discussions with a global cross section
of FI regulators and supervisors.

The majority of these interviews were conducted in person, all under the
Chatham House Rule,which encourages candor.

The report is the responsibility of the G30 Steering Committee and
Working Group and reflects broad areas of agreement among the
participating G30 members, who took part in their individual capacities.

All G30 members (aside from those with current national official
responsibilities) have had the opportunity to review and discuss
preliminary drafts.

The report does not reflect the official views of those in policy-making
positions or leadership roles in the private sector.

The report is wide-ranging in its coverage of the composition and
functioning of FI boards and the roles of regulators, supervisors, and
shareholders.

_________________________________________

The focus is on potentially universal core themes but acknowledges
differences in customs and practice in different parts of the world.

As regards approaches to total compensation, we do not address this
subject in detail in this report; the G30 commends the Financial Stability
Board’s Principles for Sound Compensation Practices and fully supports
their implementation.

The G30 undertook its initiative on effective FI governance in the hope
and expectation that FI board and senior management leaders could
share actionable wisdom on the essence of effective governance and
what it takes to build and nurture governance systems that work.

We hope this report provides a measure of insight and sustenance to
those with policymaking and operational responsibilities for effective
governance in the world’s great financial institutions.

_________________________________________

Executive Summary

What is meant by “governance” in the context of a financial institution
(FI)?

Corporate governance is traditionally defined as the system by which
companies are directed and controlled.

The OECD Principles of Corporate Governance (2004) defines corporate
governance as involving “a set of relationships between a company’s
management, its board, its shareholders and other stakeholders.

Corporate governance also provides the structure through which the
objectives of the company are set, and the means of attaining those
objectives and monitoring performance are determined.”

In the case of financial institutions, chief among the other stakeholders
are supervisors and regulators charged with ensuring safety, soundness,
and ethical operation of the financial system for the public good.

They have a major stake in, and can make an important contribution to,
effective governance.

Good corporate governance requires checks and balances on the power
and rights accorded to shareholders, stakeholders, and society overall.

Without checks, we see the behaviors that lead to disaster.

But governance is not a fixed set of guidelines and procedures; rather, it
is an ongoing process by which the choices and decisions of FIs are
scrutinized, management and oversight are strengthened and
streamlined, appropriate cultures are established and reinforced, and FI
leaders are supported and assessed.

_________________________________________

Why governance matters

The global economic crisis, with the financial services sector at its
center, wreaked economic chaos and imposed enormous costs on
society.
The depth, breadth, speed, and impact of the crisis caught many FI
management teams and boards of directors by surprise and stunned
central banks, FI regulators, supervisors, and shareholders.

[Note: We attempt throughout the report to distinguish the regulatory
function from the supervisory function.

The regulator sets the rules and regulations within which FIs are obliged
to operate, while the supervisor oversees the actions of the board and
management to ensure compliance with those rules and regulations.

Confusion arises because both functions are often performed within the
same institution (for example, the U.S. Federal Reserve and the UK
Financial Services Authority).]

Enormous thought and debate has gone into discovering what caused
the global financial crisis and how to avoid another.

In his much-quoted 2009 report on the causes of the crisis, Lord Adair
Turner, chair of the UK’s Financial Services Authority (FSA), cited seven
proximate causes:

(1) Large, global macroeconomic imbalances;

(2) An increase in commercial banks’ involvement in risky trading
activities;

(3) Growth in securitized credit;

(4) Increased leverage;

_________________________________________

(5) Failure of banks to manage financial risks;

(6) Inadequate capital buffers; and

(7) A misplaced reliance on complex math and credit ratings in
assessing risk.

A critical subtext to these seven causes is a pervasive failure of
governance at all levels.

More generally, most observers have agreed that a combination of “light
touch” supervision, which relied too heavily on self-governance in
financial firms, and weak corporate governance and risk management at
many systemically important financial institutions (SIFIs) contributed to
the 2008 meltdown in the United States.

In several key markets, deregulation and market-based supervision were
the political order of the day as countries vied for global capital flows,
corporate headquarters, and exchange listings.

Regulators also missed the potential systemic impact of entire classes of
financial products, such as subprime mortgages, and in general failed to
spot the large systemic risks that had been growing during the previous
two decades.

In this context, boards of directors failed to grasp the risks their
institutions had taken on.

They did not understand their vulnerability to major shocks, or they
failed to act with appropriate prudence.

Management, whose decisions and actions determine the organization’s
risk status, clearly failed to understand and control risks.

In many cases, spurred on by shareholders, both management and the
board focused on performance to the detriment of prudence.

_________________________________________

Effective governance is a necessary complement to rules-based
regulation.

The system needs both.

Carefully crafted rules-based regulations concerning capital, liquidity,
permitted business activities, and so forth are essential safeguards for
the financial system, while effective governance shapes, monitors, and
controls what actually happens in FIs.

Ineffective governance at financial institutions was not the sole
contributor to the global financial crisis, but it was often an accomplice
in the context of massive macroeconomic vulnerability.

Effective governance can make a significant positive difference by
helping to prevent future crises or by mitigating their deleterious impact.

In other words, the rewards for investment in effective governance are
great.

A call to action

Each of the four participants in the governance system—boards of
directors, management, supervisors, and (to an extent) long-term
shareholders— needs to reassess their approach to FI governance
and take meaningful steps to make governance stronger.

This report offers a comprehensive set of concrete insights and
recommendations for what each participant needs to do to make FI
governance function more effectively.

The G30 is acutely aware that the agendas of FI boards and supervisors
are crowded, yet we urge them to continue to give effective governance
one of their highest priorities.

_________________________________________

‹. The financial sector needs better methods of assessing governance and
of cultivating the behaviors and approaches that make governance
systems work well.

Board self-evaluation, especially when facilitated or led by an outside
expert, can yield important insight, but it is sobering to consider that in
2007, most boards would likely have given themselves passing grades.

‹. Supervisors now aspire to understand governance effectiveness and
vulnerabilities, but admit to having much to learn.
‹. Governance experts often describe what good governance looks like,
but give little thought to how to measure or achieve high-performance
results.

Given the role that inadequate governance played in the massive failure
of financial sector decision making that led to the global financial crisis,
it is
natural that supervisors and stock exchanges are now paying great
attention to governance arrangements.

This attention, as a practical matter, often focuses on explicit rules,
structures, and processes—best practices—that governance experts
often believe are indicative of effective governance.

Consequently, compliance with best practice guidelines has become very
important to boards and to overseers charged with monitoring and
encouraging good governance.

The G30 hopes this report will contribute meaningfully to the body of
knowledge on governance and will be a useful tool for those tasked with
shaping governance systems.

The board

Boards of directors play the pivotal role in FI governance through their
control of the three factors that ultimately determine the success of the

_________________________________________

FI: the choice of strategy; the assessment of risk taking; and the
assurance that the necessary talent is in place, starting with the CEO, to
implement the agreed strategy.

The 2008–2009 financial crisis revealed that management at certain FIs,
with the knowledge and approval of their boards, took decisions and
actions that led to terrible outcomes for employees, customers,
shareholders, and the wider economy.

What should the boards have done differently?

To answer that question, it is helpful to consider the mandate of boards.

Boards control the three key factors that ultimately determine the
success of an FI:

1. The choice of business model (strategy)
2. The risk profile, and
3. The choice of CEO—and by extension the quality of the top-
management team.

Boards that permit their time and attention to be diverted
disproportionately into compliance and advisory activities at the expense
of strategy, risk, and talent issues are making a critical mistake.

Above all else, boards must take every step possible to protect against
potentially fatal risks.

FI boards in every country must take a long-term view that encourages
long-term value creation in the shareholders’ interests, elevates prudence
without diminishing the importance of innovation, reduces short-term
self-interest as a motivator, brings into the foreground the firm’s
dependence on its pool of talent, and demands the firm play a palpably
positive role in society.

The importance of mature, open leadership by a skillful board chair
cannot be overemphasized.
_________________________________________

Effective chairs capitalize on the wisdom and advice of board members
and management leaders and on the board’s interactions with
supervisors and shareholders, individually and collectively.

Good chairs respect each of these vital constituents, preside, encourage
debate, and do not manage toward a predetermined outcome.

Risk governance

Those accountable for key risk policies in FIs, on the board and within
management, have to be sufficiently empowered to put the brakes on the
firm’s risk taking, but they also play a critical role in enabling the firm to
conduct well-measured, profitable risk-taking activities that support the
firm’s long-term sustainable success.

In the financial services sector more than in other industries, risk
governance is of paramount importance to the stability and profitability
of the enterprise.

Without an ability to properly understand, measure, manage, price, and
mitigate risk, FIs are destined to underperform or fail.

Effective risk governance requires a dedicated set of risk leaders in the
boardroom and executive suite, as well as robust and appropriate risk
frameworks, systems, and processes.

The history of financial crises, including the 2008–2009 crisis, is littered
with firms that collapsed or were taken to the brink by a failure of risk
governance.

The most recent financial crisis demonstrated the inability of many FIs
to accurately gauge, understand, and manage their risks.

Firms greatly understated their inherent risks, particularly correlations
across their businesses, and were woefully unprepared for the exogenous
risks that unfolded during the crisis and afterward.

_________________________________________

Management

Management needs to play a continuous proactive role in the overall
governance process, upward to the board and downward through the
organization.

The vast majority of governance and control processes are embedded in
the organizational fabric, which is woven and maintained by
management.

The board is dependent on management for information and for
translating sometimes highly technical information into issues and
choices requiring business judgment.

Governance cannot be effective without major continuing input from
management in identifying the big issues and presenting them for
discussion with the board.

Management needs to strengthen the fabric of checks and balances in
the organization.

It must deepen its respect for the vital roles of the board and supervisors
and help them to do their jobs well.

It must reinforce the values that drive good behavior through the
organization and build a culture that respects risk while encouraging
innovation.

Supervisors

Supervisors that more fully comprehend FI strategies, risk appetite and
profile, culture, and governance effectiveness will be better able to make
the key judgments their mandate requires.

Supervisors have legally defined responsibilities relating to risk control;
fraud control; and conformance to laws, regulations, and standards of
_________________________________________

conduct.

Supervisors now seek a deeper and more nuanced understanding of how
the board works, how key decisions are reached, and the nature of the
debate around them, all of which reveal much about the firm’s
governance.

Most FI boards applaud this expansion in the supervisors’ focus from
control process details to include a broader grasp of issues and context.

To be effective, however, this expansion requires regular interaction
among senior people in supervisory agencies and boards and board
members.

Supervisors need to broaden their perspectives to include FI strategy,
people, and culture.

They should focus their discussions with senior management and
the board on the real issues—through both formal and informal
communications.

But they must also maintain their independence and accept that they
will at best have an incomplete picture.

Similarly, supervisors must not try to do the board’s job or so overwhelm
the board and management that they cannot guide the FI.

Supervisors have a unique perspective on emerging systemic,
macroprudential risks and can compare and contrast one FI with others.

This is vital information to develop and share.

Unfortunately, in the policy-making debate, the qualitative aspect of
supervision is sometimes overshadowed by quantitative, rules-based
regulatory requirements.

_________________________________________

Clearly, new capital, liquidity, and related standards are essential to a
more stable global financial architecture, but enhanced oversight of the
performance and decision-making processes of major FIs is also
essential.

_________________________________________

Bermuda’s Insurance Solvency
Framework
The Roadmap to Regulatory
Equivalence

Planned 2012/2013 Developments

• Full implementation of the groups rules for Class 4 and Class 3B
groups, including group solvency and financial reporting requirements,
effective 1st January 2013

• Continued phased implementation of Bermuda Solvency Capital
Requirement (BSCR - standard capital model) for the Long-Term sector,
i.e. Class E insurers, and also refined BSCR for small commercial
insurers, i.e. Class 3A, for year-end 2011 filings

• Extending the optional use of approved internal capital models to
Long-Term insurers; preparation for group ICM reviews for the Long-
Term sector

• Revised eligible capital rules effective 1st January 2013

• Complete (Long-Term Prudential Standard Rules), effective 1st January
2013 for Class C and Class D insurers

• Review of Commercial Insurers Solvency Self-Assessment submissions
in 2012 for year-end 2011 filings from Class 4, 3B, 3A and Class E firms

• Introduction of the Quarterly Financial Return for Class 4 and Class 3B
insurers, which will comprise unaudited financial statements, intra-
group transactions and risk concentrations and will be filed in May,
August and November 2012

_________________________________________

Completed Framework Developments

• Substantially completed the policy and legislative infrastructure for
group supervision, which included issuing the Insurance (Group
Supervision) Rules 2011 as well as the Insurance (Prudential Standards)
(Insurance Groups Solvency Requirement) Rules 2011.

Also identified over 20 insurance groups for which the BMA will be the
Group-Wide Supervisor (GWS)

• Completed pilots and pre-application procedures with selected insurers
for the internal capital models (ICM) evaluation process

• Established the Commercial Insurers’ Solvency Self-Assessment
(CISSA) requirement, our Bermuda-specific ORSA (Own Risk and
Solvency Assessment)

• Advanced work to establish an Economic Balance Sheet policy and
framework

• Developed a refined Bermuda Solvency Capital Requirement standard
capital adequacy model as a core element of our enhanced supervisory
framework for the Long-Term (life) insurance sector

• Implemented evaluations of an enhanced Schedule of Risk
Management and new Catastrophe Return submissions by insurers as
part of solvency assessments

• Extended our disclosure and transparency requirements to Class 3A
and Class E Long-Term insurers by requiring submission of GAAP
financial statements that the Authority will make publicly available.

_________________________________________

Progress note on the Global LEI
Initiative

This is the third of a series of notes on
the implementation of the legal entity identifier (LEI) initiative.

Following endorsement of the FSB report and recommendations by the
G-20, the FSB LEI Implementation Group (IG) has been tasked with
taking forward the planning and development work to launch the global
LEI system by March 2013.

The IG is collaborating closely with private sector experts through a
Private Sector Preparatory Group (PSPG) of some 300 members from 25
jurisdictions across the globe.

Charter for the Regulatory Oversight Committee (ROC):
The IG has prepared a draft Charter for the Regulatory Oversight
Committee for review and endorsement by the FSB and G20.

The draft was supported by the FSB at its recent meeting in Tokyo for
submission to the early November G20 Finance Ministers and Central
Bank Governors meeting for final endorsement.

Approval of the Charter will initiate the process for the ROC to be
formed.

ROC membership will be open to public authorities from across the
globe that assent to the Charter.

Authorities will also be able to apply for Observer status.

The objective is to launch the ROC as the permanent governance body
for the global LEI system in January 2013.

_________________________________________

Location and legal form of the global LEI foundation:

Formation of the ROC is a necessary step for the creation of the global
LEI foundation which is the legal form for the Central Operating Unit.

The location and exact legal form of the global LEI foundation will have
a bearing on the overall governance framework for the Global LEI
System.

The IG and PSPG have analysed potential locations for the foundation
and have now initiated a detailed assessment of a narrow set of potential
candidates.

The results of the assessment will facilitate the drafting of the necessary
legal documentation to establish the foundation and will be presented at
the first meeting of the ROC.

Board of Directors of the LEI foundation:
One of the first tasks for the ROC will be the appointment of the initial
Board of Directors.

PSPG members are working closely with the IG to develop criteria for
fitness, experience, regional and sectoral balance, term of office etcetera
that will support the process for nomination and selection of the first
Board and deliver a governance framework for the global LEI foundation
to help sustain the public good nature of the system.

The PSPG presented a number of initial recommendations and options
related to these criteria for the Board of Directors on 16 October; the
proposals are currently being reviewed by the IG and the final version of
the recommendations will be presented at the first meeting of the ROC.

_________________________________________

Operational Solutions Demonstration Day:
The FSB hosted a Global LEI System Operational Solution
Demonstration Day in Basel on 15 October.

Thirteen presentations from across the globe were made that contained
proposals and solutions covering all or part of the proposed global LEI
system as set out in the FSB report.

Business Processes and Use Cases:
PSPG members presented an initial set of deliverables containing
business processes and use cases for the operational elements of the
global LEI system at the joint PSPG and IG meeting on 16 October.

PSPG members have already undertaken detailed work in some areas
and will expand on a strong base.

The next phase of the operational work is to build on these specification
documents, focusing on how the system can best address a number of
key issues in relation to areas such as data quality, addressing local
languages, as well as how to draw most effectively on local infrastructure
to deliver a truly global federated LEI system.

The PSPG are requested to prepare clear proposals and
recommendations by the end of the year, in order to support a successful
and speedy launch of the global LEI system.

Number allocation scheme for the global LEI system:

On 12 September, the IG requested an ‘engineering study’ from PSPG
experts to determine which scheme for the management of the issue of
identifiers best serves the purposes of the global LEI system.

Following receipt of response and discussion with private sector experts
at the 16 October PSPG meeting, the IG prepared a recommendation for

_________________________________________

the technical specification of the LEI code structure which has been
endorsed by the FSB Plenary.

Annex sets out the FSB decision to adopt a ‘structured’ approach to the
number allocation scheme, whereby LOUs are assigned a unique prefix.

The FSB decision is provided now to deliver clarity and certainty to the
private sector on the approach to be taken by potential pre-LEI systems
that will facilitate the integration of such local precursor solutions into
the global LEI system.

Ownership and hierarchy data:

Addition of information on ownership and corporate hierarchies is
essential to support effective risk aggregation, which is a key objective
for the global LEI system.

The IG is developing proposals for additional reference data on the
direct and ultimate parent(s) of legal entities and on relationship
(including ownership) data more generally and will prepare initial
recommendations by the end of 2012.

The IG is working closely with the PSPG to develop the proposals.

Annex: Number Allocation Scheme for the Global LEI System -
implications for local pre-LEI Issuers and other early movers
In response to requests for early clarity and guidance on the
determination of the number allocation scheme for the management of
identifiers for the Global LEI System, the FSB Implementation Group
requested an ‘engineering study’ from the FSB LEI Private Sector
Preparatory Group (PSPG) experts to explore the advantages and
disadvantages of different schemes.

The FSB is very grateful for all of the responses and for the contributions
of members of the PSPG.

_________________________________________

While there are a range of different schemes to manage the issue of
identifiers that fit the characteristics of the 20 digit code (including two
check digits) approach outlined in the ISO 17442 standard, for simplicity
those schemes can be categorised into two general groups:

- An unstructured numbering system – one where an 18 character
unique identifier fills the whole numbering spectrum;

- A structured numbering system – one where subsets of the spectrum
of possible codes are partitioned for efficient allocation according to
a structural guideline; for instance, an N digit prefix could be
assigned to each Local Operating Unit (LOU) for its exclusive use.

On the basis of the arguments presented, the FSB has concluded that a
structured number offers the best approach for the Global LEI System.

The following method is to be used:

- Characters 1-4: A four character prefix allocated uniquely to each
LOU.

- Characters 5-6: Two reserved characters set to zero.

- Characters 7-18: Entity-specific part of the code generated and
assigned by LOUs according to transparent, sound and robust
allocation policies.

- Characters 19-20: Two check digits as described in the ISO 17442
standard.

Public authorities wishing to sponsor local pre-LEI issuance that would
transition to the LEI system should ensure that new numbers are
allocated according to the above guideline.

Pre-LEI solutions wishing to transition into the Global LEI System upon
its launch shall be required to adopt the numbering scheme outlined
above no later than 30 November 2012.
_________________________________________

This approach does not affect ISO 17442 compliant numbers issued prior
to that date.

Once the global LEI system is in place, pre-LEI codes issued according
to the ISO 17442 standard (and if issued after November 30, complying
with the above guideline and thus embodying an appropriate 4 digit
prefix) will be transitioned into LEIs, subject to meeting the agreed
global LEI standards, including survival rules adopted by the ROC or
the COU in the exceptional cases where entities have multiple ISO 17442
compliant pre-LEI identifiers.

The LEI will be portable within the global LEI system, implying that the
LEI code may be transferred from one LOU to another.

Each LOU should immediately transfer an LEI to a different LOU
following the request of the LEI registrant or an LOU acting on its
behalf without any financial or operational hindrance.

Each LOU must consequently have the capability to take over
responsibility for LEIs issued by other LOUs.

Given the importance to the system of ensuring high data quality,
recommendation 18 of the FSB LEI report highlighted that the LEI
system should promote the provision of accurate LEI reference data at
the local level from LEI registrants, and that self-registration should be
encouraged as a best practice for the global LEI system.

To provide force to this recommendation, the FSB has agreed that pre-
LEI services should henceforth be based on self-registration.

From November 9, all pre-LEI systems will allow self-registration only.

Authorities sponsoring pre-LEI issuers are expected to sign the ROC
Charter once it is approved by the G20.

_________________________________________

Solvency ii News November 2012

Solvency ii News November 2012

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