A number of recent changes to the Solvency II Level 2 text were discussed informally at a recent meeting of European Finance Ministers and are yet to be integrated into the final draft, according to Sven Giegold, MEP.
In an update posted on his website (18/9/2014) the MEP for the Greens and member of ECON committee said, “The implementing measures are basically ready to be decided. Some last changes discussed during the recent informal EcoFin [meeting] in Milan have still to be integrated.” The update states that the Commission has completed its interservices consultation and the text is expected to be presented to the Parliament and Council by the end of September.
Mr Giegold said he will request a meeting of the European Parliament negotiating team to discuss the latest version of the text. “The European Parliament has the right to veto delegated acts such as these implementing measures, which is why the European Commission should have an interest to coordinate important changes with the elected lawmakers.”
Fiddling with risk assessment
The update, ‘Solvency II: Backroom deals in Bruxelles shall boost securitization on the back of customers and tax payers‘, criticises the easing of capital charges for securitisation in the latest draft of the Solvency II Delegated Acts. Solvency II Wire revealed that an updated draft of the text was circulated to stakeholders on 28 July.
In a section titled ‘Fiddling with risk assessment’ Mr Giegold states, “The changes to the risk factors for securitised loans shows that law makers believe that they know better than the rating agencies how to assess risk. The criteria for the definition of high quality securitisation are able to define credit securitisations which were less likely to fail before the crisis. But it is doubtful that this would also hold true in the future. In any case even for high quality securitisation this can empirically only justify the lowering of the risk factor to the level of January 2014. All further reductions are not prudent and against the very logic of Solvency II that capital requirements should be proportional to risk.”
In January 2014 EIOPA published a Technical Report on Standard Formula Design and Calibration for Certain LongTerm Investments in which it defined two types of securitisation and proposed updated capital charges for each. The charges have been eroded progressively in subsequent drafts of the Delegated Acts.
Growth at the expense of consumer protection
Mr Giegold called for striking a better balance between economic growth and consumer protection. “Obviously it is desirable that insurance companies take risk and help finance long-term investments. But this honourable objective of economic policy cannot justify the arbitrary manipulation of solvency capital requirements.”
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