UK
FCA publishes PS14/17: retirement reforms and the guidance guarantee, including feedback on CP14/11
In consultation paper CP14/11, published in July 2014, the Financial Conduct Authority (FCA) consulted on the standards for the bodies (initially The Pensions Advisory Service and Citizens Advice) delivering the guidance guarantee, and changes to the FCA Handbook resulting from the wider pension reforms that were announced by Government in the 2014 Budget. On 27 November 2014, the FCA published a policy statement, PS14/7, which reports on the main issues arising out of CP14/11 and contains near final standards and rules. The policy statement and the near final instruments have been prepared on the basis that the Pension Schemes Bill, currently before Parliament, will be passed by Parliament and given Royal Assent in its current form. The FCA proposes to make these instruments as soon as possible after the Bill receives Royal Assent, which it says is expected in the first quarter of 2015. The policy statement also contains further information on the monitoring role of the FCA in relation to the standards and about further work it intends to undertake as a result of the wider pension reforms. The FCA expects to collect a separate levy from designated guidance providers to fund FCA monitoring of compliance with the standards. The FCA says that the majority of respondents to CP14/11 broadly agreed with the proposed standards and rules. The standards that received the most specific comments were "professional standards" and "content of the session" where respondents asked for more detail and prescription. The FCA has made changes and provided clarification in some areas but, overall, the policy intention remains broadly the same. A table in paragraph 1.33 of the policy statement sets out the expected sequence of events over the next few months. This shows that in the first half of 2015, the FCA plans: a consultation on its policy for making recommendations to designated guidance providers and HM Treasury as part of its monitoring approach; development of its monitoring approach in liaison with HM Treasury and designated guidance providers; a wider review of FCA rules in the pensions and retirement area. In the second half of 2015, the FCA is planning a full review of designated guidance providers' compliance with the standards. FCA publishes CP14/25: Changes to the approved persons regime for Solvency II firms On 26 November 2014, the FCA published a consultation paper, CP14/25, on changes to the approved persons regime for Solvency II firms. In summary, the FCA is proposing to: amend its current approved persons assessments to reflect the Solvency II framework, supplementing the information it requests in line with the, currently draft, European Insurance and Occupational Pensions Authority (EIOPA) guidelines. The FCA plans to consult in a later consultation paper on particular changes to the form that firms must submit to it in order to apply for pre-approval for significant influence functions (SIFs) (Form A) to give effect to this; make those executive and certain other controlled functions which the Prudential Regulation Authority (PRA) is proposing not to maintain FCA SIFs and therefore subject to its pre-- 3 - Hogan Lovells approval. This will ensure that individuals who can significantly impact the FCA’s objectives remain in-scope of conduct regulation; defer consideration of whether to include non-executive directors (NEDs) within the amended approved persons regime for Solvency II firms, while the FCA consider responses to its parallel consultation on banks. The FCA will consult separately on this point; apply to FCA and PRA approved persons new FCA conduct rules mirroring those that the FCA has proposed for individuals in relevant authorised persons (RAPs). These rules build on existing Statements of Principle and Code of Practice for Approved persons (APER) principles, and in addition emphasise the importance of treating customers fairly, and of responsible delegation by holders of SIFs. Annex 1 contains tables showing changes to controlled functions under the reformed approved persons regime. Comments are requested by 2 February 2015. The FCA will make available more details on the timetable for implementing the proposals in the consultation paper later this year. The FCA says that a further technical consultation paper will follow this one in due course. This will cover changes to forms, consequential changes, and details of transitional arrangements. The FCA also plans to consult on the position of NEDs, and may also consult on broader consequential changes to the governance provisions in the FCA handbook in light of PRA proposals transposing Solvency II requirements, Level 2 Regulations and EIOPA Guidelines. The FCA will consider the application of conduct rules to individuals in all other Financial Services and Markets Act 2000-authorised persons that are neither RAPs nor Solvency II firms in due course. In the interim, the existing approved persons regime will continue to apply in its current form. The PRA has published a related consultation paper which should be read in conjunction with this consultation paper. PRA publishes CP26/14: Senior insurance managers regime - a new regulatory framework for individuals On 26 November 2014, the PRA published a consultation paper, CP26/14, which follows on from CP16/14 (Transposition of Solvency II, part 3), and sets out some further proposed changes to the PRA’s rules to implement the “fit and proper” requirement provisions of the Solvency II Directive, and to introduce a new senior insurance managers regime (SIMR). The consultation paper sets out the PRA’s proposals in relation to the: scope of the PRA’s proposed new SIMR for insurers; allocation of responsibilities to senior insurance managers; application of conduct standards to individuals performing key functions; and assessment of fitness and propriety of those individuals. The PRA says that it should be noted that the SIMR for insurers will reflect the particularities of insurers’ business models and the relevant legislation, and will not be the same as the senior managers regime (SMR) that was proposed for banks in CP14/14. Specifically, none of the potential criminal sanctions, nor the “presumption of responsibility” in the banking regime, will apply to any of the individuals in “senior insurance management functions”. The SIMR will apply to senior managers who are running insurers, or who have responsibility for key functions. As such, the PRA proposes a more focused range of individuals within insurance firms who will be subject to regulatory pre-approval. These are individuals who would be held responsible and accountable for ensuring the ongoing safety and soundness of their firm and the appropriate protection of policyholders.- 4 - Hogan Lovells The regime will apply to: the Chief Executive Officer; the Chief Finance Officer; the Chief Risk Officer; the Head of Internal Audit; the Chief Actuary; the With-Profits Actuary (for life insurers writing with-profits business); the Chief Underwriting Officer (for general insurance and reinsurance firms, and managing agents at the Society of Lloyd’s); the Underwriting Risk Oversight Function (for the Society of Lloyd’s). Firms will have to allocate certain responsibilities, including specific responsibility for developing and embedding the culture of the firm, to one or more of these individuals. Comments are requested by 2 February 2015. The PRA expects to publish a further consultation paper on the role of non-executive directors (NEDs) in the SIMR in early 2015, taking into account the context of both the insurance and banking regimes. This further consultation paper will include in relation to NEDs for insurers the scope of the proposed SIMR pre-approval regime, the allocation of certain prescribed responsibilities, and the application of conduct standards. The PRA will publish a further technical consultation paper early in 2015. This will cover forms, consequential changes, and the detailed rules on the transitional arrangements from the current approved persons regime to the proposed new SIMR for insurers. The PRA is required to transpose the Solvency II Directive by Tuesday 31 March 2015, and the first tranche of rules needed to ensure that there is an operationally effective regime that will enable Solvency II implementation on 1 January 2016 will be commenced from that date. Details of these proposed changes are detailed in paragraphs 2.42 to 2.44 of CP26/14. The PRA will set out its planned timetable later this year for the implementation of the remaining rules that are proposed in CP26/14. The Financial Conduct Authority has published a related consultation paper which should be read in conjunction with this consultation paper. PRA publishes CP25/14: The PRA Rulebook Part 2 On 24 November 2014, the PRA published a consultation paper, CP25/14, which sets out proposals to redraft certain modules of the PRA Handbook. It is the second in a planned series of consultations aimed at reshaping Handbook material inherited from the FSA to create a Rulebook, containing only PRA rules. The PRA Rulebook will appear in a new online website in mid-2015 and, until then, will appear on the existing Handbook site in PDF format. Detailed proposals for the presentation of the online Rulebook were outlined in chapter 10 of CP8/13. CP25/14 seeks views on: draft rules that will be incorporated into the PRA Rulebook covering status disclosure, controllers, close links, notifications and systems and controls (links to all of these are given on this PRA webpage under the heading Appendix 1: draft instruments); four draft supervisory statements which set out the PRA’s expectations of firms in relation to the aggregation of holdings for the purpose of the prudential assessment of controllers, the internal governance of firms, the exercise of certain functions of building societies under the Building Societies Act 1986, and the treasury and lending activities of building societies (links to all of these are given on this PRA webpage under the heading Appendix 2: draft statements); and- 5 - Hogan Lovells a statement of policy that sets out the PRA’s approach to insurance business transfers. Appendix 3 to the consultation paper contains a table which maps across provisions from the PRA Handbook with the draft rules contained in this consultation paper. Comments are requested by 23 January 2015. The PRA will publish a policy statement, addressing any feedback received to the consultation, along with final rules, supervisory statements and a statement of policy following the close of the consultation. FCA publishes TR14/17: update on managing bribery and corruption risk in commercial insurance broking On 14 November 2014, the FCA published a report which sets out the findings of its thematic review into how small wholesale insurance intermediaries manage their bribery and corruption risks. The purpose of the review was to assess how the sector had responded to the specific issues identified in the FSA’s 2010 report on anti-bribery and corruption (ABC) in commercial insurance broking and the FCA’s subsequent work, and consider whether intermediaries were adequately addressing bribery and corruption risk across their business. The FCA visited ten intermediaries between October 2013 and June 2014. Five of these intermediaries had been part of the FSA’s review and five were selected from the remaining population of intermediaries. The review looked at intermediaries’ bribery and corruption risk assessments and considered how this risk was controlled through intermediaries’ governance, due diligence and ongoing monitoring of individual relationships, payment controls, recruitment and remuneration, training and awareness, incident reporting and whistleblowing. Overall, the FCA found that most intermediaries in its sample did not yet adequately manage the risk that they might become involved in bribery or corruption. More than half of the intermediaries in the sample had taken some steps to assess and manage bribery and corruption risk, but for the majority of these intermediaries, this work was still in progress and more had to be done before their ABC systems and controls would be effective. A summary of the FCA’s specific findings is given in chapter 2 of the report and chapter 3 gives examples of good practice. The FCA provided individual feedback to the intermediaries in its sample, two of which voluntarily agreed to limit their business with certain third party introducers and clients until they had addressed to the FCA’s satisfaction the weaknesses it identified. Both intermediaries were required to attest formally to the FCA that they had completed their remedial work. The FCA says that the review is not only relevant to wholesale insurance intermediaries. All firms subject to its financial crime rules in SYSC 3.2.6R or SYSC 6.1.1R may find this useful. Although the sample of firms were primarily Lloyd’s intermediaries dealing with international wholesale business, the FCA expects all commercial insurance intermediaries (particularly those who act on a wholesale basis and/or deal with overseas parties) to consider the findings of the review and assess what steps they can take to improve their overall ABC systems and controls. The FCA says that given the ongoing problems it has found during this review, it is also updating its “Financial crime: a guide for firms” to share more examples of the good practice it has seen.- 6 - Hogan Lovells INTERNATIONAL IADI core principles revised On 21 November 2014, the International Association of Deposit Insurers (IADI) published a revised version of its core principles for effective deposit insurance systems, which it has submitted to the Financial Stability Board (FSB) for inclusion in the FSB's compendium of key international standards of financial stability. The original core principles were published in June 2009 and are currently used by the International Monetary Fund and World Bank in the context of the financial sector assessment programme, as well as by individual jurisdictions to assess the effectiveness of their deposit insurance systems and practices. The revised core principles strengthen the deposit insurance standards in several areas, including reimbursement speed, coverage, funding and governance. They also include more guidance on the deposit insurer's role in crisis preparedness and management, and reflect the greater role played by many deposit insurers in resolution regimes. Council of the European Union invites COREPER to approve the European Parliament’s position on PRIIPS KID Regulation On 4 November 2014, the Council of the European Union published an "I/A" item note relating to the proposal for a Regulation on key information documents (KIDs) for packaged retail and insurancebased investment products (PRIIPs). In the note, which is dated 30 October 2014, the General Secretariat of the Council asks the Permanent Representatives Committee (COREPER) to confirm its agreement to the European Parliament’s position and to suggest that the Council approve the Parliament's position. If the Council approves the Parliament's position, the legislative act will be adopted. PRIIPs: Joint Committee of ESAs discussion paper on KIDs On 17 November 2014, the Joint Committee of the European Supervisory Authorities (ESAs) (the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) published a discussion paper on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The PRIIPs Regulation mandates the three ESAs to prepare draft regulatory technical standards (RTS) in specific areas. The discussion paper is a preparatory step in the preparation of the RTS, setting out the ESAs' early thinking. The RTS will contain detailed rules on the contents and presentation of KIDs, including calculation methodologies and presentation templates necessary for a summary risk indicator, performance scenarios and cost disclosures. They will also address measures on the revision, review and republication of the KID, and on the timing of the KID's delivery to the retail investor. The discussion paper focuses on the different sections of the KID that need to be covered in the RTS. Many of the issues raised at this stage are covered in chapters 3 and 4 of the discussion paper, which relate to two sections of the KID that the ESAs have identified as raising particular challenges. These sections are entitled "What are the risks and what could I get in return" and "What are the costs". The ESAs outline the challenges relating to these sections and then explore some different approaches. Chapter 5 examines each of the other sections of the KID, outlining provisional ideas, possible options, and challenges related to each section. Chapter 6 relates to a special case (PRIIPs that offer many options). Chapters 7 and 8 cover the two specific RTS in Articles 10 and 13. Chapter 9 addresses some horizontal issues that might impact all KIDs.- 7 - Hogan Lovells Comments are requested by 17 February 2015. The ESAs will use the feedback from stakeholders on the discussion paper in preparing the draft RTS. A consultation on the draft RTS, setting out the ESAs conclusions, will follow in the autumn of 2015. Prior to this there will be a consumer testing exercise organised by the European Commission, to aid the ESAs in developing the draft RTS. The ESAs also plan a more technical discussion paper in the spring of 2015. The ESAs are expected to submit the RTS to the Commission at the start of 2016 and firms will start using the new KIDs at the end of 2016. PRIIPs: ESAs launch call for expressions of interest to support work On 18 November 2014, the Joint Committee of the ESAs launched a call for expressions of interest with the aim of identifying members of a consultative expert group (CEG), who will advise and provide technical input to the Joint Committee's sub-group on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs). The sub-group on PRIIPs considers that, in view of the very specific technical nature of some of the tasks to be undertaken in preparing draft regulatory technical standards under the PRIIPs Regulation, additional specialised expert input would be useful. This is particularly important in relation to disclosures of risks and rewards and of costs. Applications must be submitted by 15 December 2014. A list of candidates who meet the criteria set out will be drawn up and the final selection of the members will be done in consultation with the executive directors of the three ESAs. IMD2: Council of European Union agrees general approach On 5 November 2014, the Council of the European Union announced that its Permanent Representatives Committee (COREPER) had agreed, on behalf of the Council, its position on the proposed Directive amending the Insurance Mediation Directive (IMD) (known as IMD2). This agreement enables negotiations with the European Parliament to start, with the aim of adopting the Directive at first reading. Under the Council's general approach, Member States would have two years to transpose the Directive into national laws and regulations. On 4 November 2014, the Council had published a note from the Presidency of the Council to COREPER regarding its general approach on the proposed Directive. Among other things, the note, which is dated 3 November 2014, set out the state of play on the proposed Directive and said that, following deliberations in its working party on financial services on 21 October 2014, the Presidency had revised its latest compromise text with a view to reaching an agreement on a general approach. The Presidency published this compromise proposal on 29 October 2014. IMD2: Council of the European Union publishes notes on general approach On 7 November 2014, the Council of the European Union published three notes, all dated 7 November 2014, relating to the general approach on the proposed Directive amending the Insurance Mediation Directive (IMD) (known as IMD2). These are as follows: a note from the Presidency to the Permanent Representatives Committee (COREPER) containing the text of declarations made by France, Hungary, Luxembourg and the UK. The UK supports alignment of IMD2 and the MiFID II Directive so that a level playing field exists and there is consistent protection of consumers buying investment products. The UK is concerned that the IMD2 provision on inducements is not consistent with MiFID II and says that this will cause difficulties for Member States when they try to implement these two- 8 - Hogan Lovells Directives together. The UK considers that this issue will need to be further considered at the trilogue stage; a note from the Presidency to Delegations, referring to the COREPER 2 meeting on 5 November 2014. The note attaches an updated version of the Presidency's sixth IMD2 compromise proposal. With respect to the 5th Presidency compromise, the new text is marked in underlined bold and deletions are indicated in strikethrough; an "A" item note from the General Secretariat of the Council to the Council. Among other things, this note refers to the provisional agreement that COREPER reached on the general approach on IMD2 on 5 November 2014, which was reported in last week’s FIG Bulletin, and suggests that at a meeting on 10 November 2014, the Council should confirm the agreement on the general approach as set out in the note from the Presidency to the Delegations and invite the Presidency to start negotiations with the European Parliament on the basis of the general approach with a view to reaching an agreement at first reading. FSB publishes list of G-SIIs for 2014 In November 2011 the Financial Stability Board (FSB) published an integrated set of policy measures to address the systemic and moral hazard risks associated with systemically important financial institutions (SIFIs). In July 2013, the FSB, in consultation with the International Association of Insurance Supervisors (IAIS) and national authorities, identified an initial list of nine global systemically important insurers (G-SIIs), using an assessment methodology developed by the IAIS, and the policy measures that apply to them. The July 2013 report noted that the group of G-SIIs would be updated annually based on new data and published by the FSB each November, starting from November 2014. The report also indicated that in 2014 a decision would be made on the G-SII status of, and appropriate risk mitigating measures for, major reinsurers. On 6 November 2014, the FSB published the 2014 updated list of GSIIs. It has also decided to postpone a decision on the G-SII status of reinsurers, pending further development of the methodology. By November 2015, the IAIS will further develop the G-SII assessment methodology as needed to ensure, among other things, that it appropriately addresses all types of insurance and reinsurance, and other financial activities of global insurers. The revised G-SII assessment methodology will be applied from 2016. The IAIS continues its work to develop policy measures to be applied to G-SIIs, including the development by end-2015 of higher loss absorbency requirements, to be applied starting from January 2019 to those G-SIIs identified in November 2017 based on the methodology as further developed and on the most current available data. IAIS publishes guidance on liquidity management and planning On 18 July 2013, the International Association of Insurance Supervisors (IAIS) published its policy measures for global systemically important insurers (G-SIIs). This states that group-wide supervisors should require G-SIIs to have adequate arrangements in place to plan for and manage liquidity risk for the whole group. On 5 November 2014, the IAIS published guidance on liquidity management and planning to provide guidance to group-wide supervisors in the application of these requirements to G-SIIs. The guidance, which was drafted by the IAIS Financial Stability Committee and approved by the IAIS Executive Committee, is principles-based and outlines the key supervisory features that would be expected in the liquidity management planning of a G-SII. These plans should complement any existing liquidity arrangements.- 9 - Hogan Lovells The current guidance addresses the following components which are deemed as the core elements of an effective liquidity management and planning: a statement of policy containing the liquidity risk tolerance of the insurer; a description of the corporate governance and management that will establish the risk tolerance, manage the level of liquidity risk given that threshold, and monitor the effectiveness of that management; a means of assessing the insurer’s liquidity adequacy across various suitable time horizons and under current and plausible stress scenarios; reporting by the G-SIIs on these activities. The IAIS says that the cross-border activities of G-SIIs make the guidance on liquidity management and planning also relevant for host jurisdictions/supervisors. Jurisdictions that are group-wide supervisors of G-SIIs are requested to provide copies of the guidance to those G-SIIs. SOLVENCY II PRA consults on further measures for implementation of Solvency II: CP24/14 On 21 November 2014, the PRA published a consultation paper, CP24/14, containing further proposals for the implementation of the Solvency II Directive. The consultation paper consists of three elements: two sets of proposed rules on the appointment of actuaries and schemes of operations to align the PRA Rulebook with the Solvency II Directive (see chapters 2 and 3); two national specific templates (NSTs) and accompanying minor consequential changes proposed to the rules in the Reporting Part of the draft PRA Rulebook as consulted on in CP16/14 which are relevant to the Society of Lloyd’s. NSTs address those areas which stem from specific national requirements which are not addressed in the set of Solvency II harmonised templates (see chapter 4 and these related documents); and five draft supervisory statements on regulatory reporting exemptions, regulatory reporting for internal model outputs, own risk and solvency assessment and the ultimate time horizon for non-life firms, quality of capital instruments and treatment of pension scheme risk (see appendices 4, 5 ,6, 7 and 8). The PRA says that this consultation paper should be read alongside the relevant European legislation and previous consultations on Solvency II and relevant parts of the PRA Rulebook. Comments are requested by 30 January 2015. The PRA plans to publish a policy statement with feedback, including the finalised rules and the final supervisory statements, in the first quarter of 2015. The PRA says that as the final Solvency II delegated acts and the implementing technical standards have not yet been adopted, the guidance proposed in the consultation paper is based on the draft versions and will be subject to change, depending on the final versions. The PRA will communicate any changes as appropriate. It also anticipates further changes to its Rulebook and the issue of further supervisory statements in order to implement Solvency II. The PRA is required to transpose the Directive by Tuesday 31 March 2015 and the Solvency II regime will apply to all affected firms from 1 January 2016.- 10 - Hogan Lovells PRA publishes insurance directors’ update letter On 21 November 2014, the PRA published an update letter from Andrew Bulley, PRA Director of Life Insurance, and Chris Moulder, PRA Director of General Insurance. Among other things, this gives details of CP24/14. The letter also says that following the information provided in CP23/14 and Paul Fisher’s letter on matching adjustment, the PRA has published on its other Solvency II approvals webpage further information which should be considered by all firms intending to submit a pre-application for matching adjustment. This includes: a checklist which the PRA recommends is submitted with each application; and information and an accompanying spreadsheet setting out three qualitative tests which the PRA recommends firms submit alongside all pre-applications. The letter also says that during the third quarter of 2015, the PRA intends to send a questionnaire to general insurance firms asking for some information on stress testing. Further details will be provided in the first half of 2015. PRA publishes list of other approvals There are a number of Solvency II approvals that firms will need to apply for to the PRA, other than the approval for internal models, these can be relevant to both life and non-life firms using either the standard formula or full or partial internal model. The PRA says that firms should be considering the Solvency II approvals and whether they are relevant to their business, referring to the Solvency II Directive, the implementing technical standards, and the Delegated Acts. Firms should also refer to any PRA communications on various aspects of other Solvency II approvals. On 25 November 2014, the PRA published a table containing a list of these other Solvency II approvals and their related Solvency II Directive references. Council of the European Union recommends non-objection to European Commission Delegated Regulation On 21 November 2014, the Council of the European Union published an “I/A” item note from the Presidency to the Permanent Representatives Committee (COREPER) (Part 2)/Council relating to the European Commission Delegated Regulation supplementing the Solvency II Directive. In the note, which is dated 20 November 2014, the Presidency says that the deadline for raising objections to the Delegated Regulation is 10 January 2015 and that no objections were raised by delegations during the silence procedure, which expired on 14 November 2014, although Hungary requested an extension of the three-month deadline for objections. As a result, the Presidency suggests that COREPER should recommend that: the Council confirms that it has no intention to object to the Delegated Regulation; and that the Commission and the European Parliament are informed of this decision. The note says that this implies that, unless the Parliament objects to it, the Delegated Regulation shall be published and enter into force in accordance with Solvency II. EIOPA submits ITS on supervisory approval processes to the European Commission On 31 October 2014, the European Insurance and Occupational Pensions Authority (EIOPA) submitted the first set of draft Solvency II implementing technical standards (ITS) to the European Commission for endorsement. The ITS are addressed both to undertakings and national supervisors.- 11 - Hogan Lovells Their purpose is to guarantee that (re)insurers present all information that is necessary for supervisors to give a legally certain and prudentially sound approval of key elements of Solvency II. The draft ITS are: draft ITS on the approval of an internal model; draft ITS on the application to use a group internal model; draft ITS on the approval procedure to use undertaking-specific parameters; draft ITS on the approval of the application of a matching adjustment; draft ITS on the approval for the use of ancillary own-fund items; draft ITS on the approval to establish special purpose vehicles. EIOPA has also published final reports on each of its April 2014 consultations on the draft ITS, together with the feedback it had received. The Commission has to endorse the ITS within three months. Following endorsement, the ITS will be translated into all official EU languages and will become legally binding. EIOPA final report on guidelines on the operational functioning of colleges On 31 October 2014, the European Insurance and Occupational Pensions Authority (EIOPA) published its final report on guidelines on the operational functioning of colleges. Article 248(6) of the Solvency II Directive requires EIOPA to develop guidelines for the operational functioning of colleges of supervisors to assess the level of convergence between them. EIOPA consulted on the guidelines in April 2014 and the final report contains a feedback statement on the consultation. The guidelines specify responsibilities of members and participants within supervisory colleges in order to implement the cooperation and information-sharing between supervisors for cross-border groups in a convergent manner. EIOPA intends to issue the guidelines in all of the official EU languages in the first quarter of 2015. They will become applicable on 1 April 2015 with the exception of guidelines 17 to 18 which will apply from1 January 2016. EIOPA consults on the calculation process for relevant risk free interest rate On 2 November 2014, the European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on a technical document regarding the risk free interest rate term structure under Solvency II. The technical document describes the methodology, assumptions and identification of the data for the calculation of the relevant risk free interest rate term structures, which in turn are used for the calculation of technical provisions. EIOPA says that the aim of the technical document is to ensure full transparency of the calculation process. EIOPA has published it at the earliest possible stage in order to provide a key input for the risk management and assessment of the financial and solvency position of (re)insurance undertakings under the impending Solvency II regime. EIOPA has also published illustrative examples of the calculations for the risk free interest rates term structures and an illustrative example of the extrapolation method (both Excel documents). EIOPA plans to publish the risk free interest rate monthly from February 2015. It says that this will enable undertakings to have a common basis for calculating the value of the financial information they are required to report to their supervisor on a quarterly and annual basis. Comments are requested by 21 November 2014.- 12 - Hogan Lovells On 11 November 2014, EIOPA updated its consultation papers webpage to give details of a number of errors in the consultation paper. As a result of the errors, which are in Annex 16, (headed "Annex of Subsection 6.D. Rationale for the UFR calibration"), figure 1 (on page 100), paragraph 314 (on page 101), figure 2 with its asterisk (page 101), and footnotes 33 and 34 have now been deleted. As a result of these deletions paragraph 315 has become paragraph 314. EIOPA has also published an updated version of the consultation paper, dated 5 November 2014.- 13 - Hogan Lovells www.hoganlovells.com Hogan Lovells has offices in: Alicante Amsterdam Baltimore Beijing Brussels Budapest* Caracas Colorado Springs Denver Dubai Dusseldorf Frankfurt Hamburg Hanoi Ho Chi Minh City Hong Kong Houston Jakarta* Jeddah* Johannesburg London Los Angeles Luxembourg Madrid Mexico City Miami Milan Moscow Munich New York Northern Virginia Paris Philadelphia Prague Rio de Janeiro Riyadh* Rome San Francisco São Paulo Shanghai Silicon Valley Singapore Tokyo Ulaanbaatar Warsaw Washington DC Zagreb* "Hogan Lovells" or the "firm" is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. 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