1. EIOPA’s Application guidance on climate change materiality assessments and climate change scenarios in ORSA
On 2 August 2022, the European Insurance and Occupational Pensions Authority (“EIOPA”) published an opinion setting out supervisory expectations on the integration of the use of climate change scenarios by insurance undertakings in their Own Risk and Solvency Assessment (ORSA), as a follow-up from EIOPA’s opinion on the supervision of the use of climate change risk scenarios in ORSA published in April 2021 (the “Opinion”).
Following the respondents’ comments and suggestions during the public consultation of the Opinion, EIOPA decided to elaborate a guidance.
Such guidance focuses on the advantages of developing and providing optional guidance for materiality assessment in the context of climate change, and climate change scenario design and specifications using concrete case studies.
The application guidance is available at the following link: https://www.eiopa.europa.eu/sites/default/files/publications/other_documents/application_guidance_on_runni ng_climate_change_materiality_assessment_and_using_climate_change_scenarios_in_the_orsa_0.pdf
2. IVASS, Bank of Italy and CONSOB adopt the TIBER-IT National Guidance for advanced cybersecurity tests for the Italian financial sector
On 2 August 2022, the Italian Insurance Supervisory Authority (“IVASS”), the Bank of Italy and the Italian Authority for financial markets (“CONSOB”) have announced that, in view of the increasing sophistication and pervasiveness of cyber threats in the financial sector, have adopted, jointly, the TIBER-IT National Guidance (“Guidance”) as a reference method for individual financial entities to conduct advanced cybersecurity tests on a voluntary basis. Such Guidance transposes to Italy the Threat Intelligence Based Ethical Red teaming framework (TIBER-EU), issued by the ECB, a reference model for conducting cybersecurity tests harmonised at the European level.
The Guidance is primarily addressed to the major operators and critical infrastructures of the financial system to ensure the continuity of key economic functions and services, as well as their security and reliability, in line with the digital development of the economy and society
In particular, the Guidance identifies the methodology and operating model for the execution of TLPT tests by Italian financial entities according to the TIBER-EU framework, outlines the different phases of the testing process, and defines the roles, responsibilities and activities of the various stakeholders as regards the tested entity, external providers and the Authorities.
Further information are available at the Bank of Italy website (https://www.bancaditalia.it/compiti/sispagamercati/tiber-it/index.html?com.dotmarketing.htmlpage.language=102).
3. CONSOB’s Resolution no. 22430 modifying CONSOB Intermediaries’ Regulation with regard to sustainability
On 28 July 2022, CONSOB has published Resolution no. 22430 modifying CONSOB Regulation no. 20307/2018 (“Intermediaries’ Regulation”) with regard to sustainability. The Resolution has modified several articles concerning the distribution of insurance based investment products (“IBIPs”) by the intermediaries which are supervised by CONSOB (i.e. banks and similar institutions).
The Resolution has introduced, among others, in article 2, para 1 the definition of sustainability factors, as per art. 2, point 24 of Regulation (EU) 2019/2088 (i.e. environmental, social and employee matters, respect for human rights, anti‐corruption and anti‐bribery matters)
With particular regard to IBIPs, the Intermediaries’ Regulation has been modified as follows:
- article 131 (“Definitions”) has introduced the definition of “sustainability preferences” as per art. 2, point 4 of Regulation (EU) 2017/2359 (i.e. “sustainability preferences means a customer’s or potential customer’s choice as to whether and, if so, to what extent, one or more of the following financial products should be integrated into his or her investment: (a) an insurance-based investment product for which the customer or potential customer determines that a minimum proportion shall be invested in environmentally sustainable investments as defined in Article 2, point (1), of Regulation (EU) 2020/852 of the European Parliament and of the Council; (b) an insurance-based investment product for which the customer or potential customer determines that a minimum proportion shall be invested in sustainable investments as defined in Article 2, point (17), of Regulation (EU) 2019/2088 of the European Parliament and of the Council; (c) an insurance-based investment product that considers principal adverse impacts on sustainability factors where qualitative or quantitative elements demonstrating that consideration are determined by the customer or potential customer”);
- article 135 (“General principles”):
(a) para. 2: requires that distributors, when giving an advice on IBIPs, recommend clients IBIPs that are adequate to the client’s needs, based also on her/his sustainability preferences;
(b) para 6, lett. a) provides that, when providing advice on IBIPs, distributors shall establish appropriate policies and procedures to ensure that they are able to understand the nature and characteristics, including costs and risks, of the IBIPs selected for the clients, also based on potential sustainability factors;
- art. 135-quinquiesdecies (“Actual target market”):
(a) para. 1: requires that distributors shall adopt appropriate measures and procedures to ensure that the IBIPs they intend to distribute are compatible with the requirements, characteristics, and objectives, including potential sustainability objectives, of the actual target market and that the planned distribution strategy is consistent with this market;
(b) para. 3: provides that distributors shall identify the actual target market with whose needs, characteristics and objectives the product is not compatible; however, with reference only to the sustainability factors, the distributors are not required to identify such target market for IBISs which take into consideration sustainability factors;
(c) para. 8: provides that distributors of IBIPs manufactured by insurance companies whose registered office is established in a Member State other than Italy shall take all necessary measures to ensure that the products are distributed in accordance with the Intermediaries’ Regulation, that comply with EU and Italian legislation and fulfill the needs, characteristics and objectives, including potential sustainability objectives, of the identified actual target market;
- article 135-sexiesdecies, para 6 (“Role of the corporate governing bodies, of business control functions and of personnel”) is substituted by the following: “Authorized insurance distributors ensure that the personnel is in possess of the skills necessary to understand the characteristics and the risks, including potential sustainability objectives, of insurance based investment products they wish to distribute, as well as of the of the needs, characteristics and objectives, including potential sustainability objectives, of the target market);
- article 135-octiesdecies, para 3 (“Review”) provides that distributors shall assess at least whether the IBIP remains consistent with the requirements, characteristics and objectives, including potential sustainability objectives, of the actual reference market and whether the planned distribution strategy continues to be appropriate.
The Resolution enters into force 10 days after its publication in the Italian Official Gazette. However, modifications concerning the abovementioned articles enter into force on 22 November 2022, without prejudice to the application date of Regulation (EU) 2021/1257 (2 August 2022).
4. Decree of the Ministry of Economic Development no. 88/2022 on the requirements and eligibility criteria of corporate officers and individuals who carry out key functions of (re)insurance companies
On 11 July 2022 the Decree of the Ministry of Economic Development no. 88/2022 (the “Decree”) on the requirements and eligibility criteria of corporate officers and individuals who carry out key functions was published in the Italian Official Gazette, which repeals, starting from 1 November 2022, the Decree of the Ministry of Economic Development no. 220/2011.
The Decree applies to all representatives with executive functions (i.e. directors who are members of the executive committee or can delegate/execute activities of business management, directors who hold managerial positions in the company, the general director, etc.) and to those who hold a position in the board of directors, supervisory board, board of statutory auditors and equivalent positions for foreign companies based on the law applicable to them of insurance and reinsurance Italian companies and to the last controlling Italian companies. If such companies are controlled by a foreign company, the Decree applies if IVASS supervises their national sub-group.
Moreover, the Decree also applies to those who hold key functions (compliance, risk management and internal audit), to those who carry out key functions (art. 19) and to the general representative or to any person who manages the branch of a company having their legal seat in a EU State or in a foreign State.
The Decree provides for the following:
1. Good repute requirements and fairness criteria (articles 3, 4, 5 and 6)
It has been increased, compared to the regulations currently in force, the number of crimes for which the abovementioned individuals shall have not been sentenced to imprisonment, and it has been introduced, in addition to good repute requirements, fairness criteria in regard to personal and professional conducts (i.e. criminal convictions for corporate, bankruptcy, insurance, banking and financial crimes, money laundering, sanctions for violation of insurance, corporate and banking law, etc.);
While the lack of good repute requirements prevents the conferral of the mandate to such individuals, the occurrence of one or more of the cases that are taken into consideration for the fairness evaluation does not prevent the conferral of the mandate but the competent body of the (re)insurance company shall evaluate such fairness.
2. Professional requirements and competence criteria (articles 7-11)
a. Professional requirements
Professional requirements are now distinguished for individuals with executive and non-executive positions.
The executives are the directors who are members of the executive committee or who have delegation powers, the directors who also hold executive positions in the company, the directors who hold similar positions in any company of the group, the general director or any other individual holding an equivalent position.
The executives shall possess traditional requirements (having been a director or a statutory auditor in the insurance or similar sector or of listed companies, etc.), while non-executives, in addition to such requirements, shall carry out a relevant, complex and continuous professional activity, shall teach in universities or shall hold management positions in public bodies or administrations. “Relevant” activities or entities mean those pertaining to insurance, credit, financial, securities or in any case functional to the office they shall hold.
Furthermore, CEOs and general directors shall possess other specific requirements, such as 5 years of expertise. It is also required that the president of the board of directors shall be a non-executive individual with at least 5 years of expertise.
For “minor companies”, such requirements are not this strict.
Specific requirements are requested also to statutory auditors and other members of the relevant bodies of the companies.
b. Competence criteria
New competence criteria have been introduced with the Decree, which now requires the abovementioned individuals to possess theoretical and practical knowledge of the matters regarding the position they shall hold. Such criteria shall be evaluated by the competent body of the company.
3. Independence requirements (articles 12-14)
The non-executive members of the board of directors and statutory auditors shall possess specific independence requirements.
In particular, the Decree introduces the definition of “independent judgment”, which provides that all individuals must communicate to the competent body some information (i.e. he/she is married or is the partner/relative of the president of the board of directors or other bodies, holds a share of the company or has been an employee of the company, etc), explaining, where such situations occur, why they do not influence their independent judgment in carrying out the activities relating to the position they may hold. The competent body is required then to evaluate such situation.
4. Time availability and accumulation of offices (articles 15-16)
It is important that the abovementioned individuals have the time to carry out their office, and therefore the Decree has introduced an obligation for such individuals to communicate whether they hold any other office that may affect the time necessary to carry out the activities required by the office.
Furthermore, the Decree has limited the accumulation of offices (which concerns only complex and big companies having the so-called “enhanced” corporate governance), and each individual cannot hold more than one executive and two non-executive offices or more than four non-executive offices. However, the Decree provides also for exemptions to the accumulation of offices.
5. Holders of key functions (art. 19)
There is a difference between:
a. Holders of key functions: they shall possess good repute requirements, fairness and competence criteria;
b. Individuals who carry out key functions: for them, the company shall define which provision applies to them based on the suitability policy as required by IVASS Regulation no. 38/2018 on corporate governance.
6. Suitability evaluation and termination decision (articles 23 and 24)
Generally, the suitability of the representatives and holders of key functions, the adequacy of the composition of the bodies and the compliance with the accumulation of offices shall be carried out upon appointment and subsequently if particular events occur that might affect the original evaluation. However, such evaluation may occur in other moments, depending on several factors.
The Decree provides also for procedures concerning the termination of offices.
The Decree applies to appointments occurring after 1 November 2022.
5. EIOPA’s Peer Review on outsourcing
On 19 July 2022, EIOPA published a report of the peer review on outsourcing.
In the peer review it was assessed the overall maturity of the framework implemented by national supervisory authorities (“NSAs”) in the supervision of the activities that (re)insurance companies outsource. The peer review aims at identifying gaps, areas of improvements and best practices to promote consistent and effective supervision on outsourcing.
The results of the peer review show that the EU (re)insurance undertakings make an increasing use of outsourcing, in particular in the technology field.
The majority of NSAs, however, focused their supervision of outsourcing-related risks at notification, while few of them implemented both a notification assessment with intensive ongoing supervision.
In general, the peer review showed that, even if not frequently used by NSAs, the on-site inspections are the most effective tool to verify the overall governance structure of outsourcing and compliance with Solvency II requirements.
EIOPA has identified both areas in which NSAs should act differently or in compliance with its recommendations (i.e. aspects of the outsourcing framework, the structure of the notification process as well as NSAs’ supervision of the notification content, information management and supervisory procedures for both off-site and on-site inspections) and areas where better supervisory convergence and/or more clarity regarding supervisory expectations could be achieved.
EIOPA will monitor NSAs compliance with the recommended actions in the following months.
The peer review is available at the following link: https://www.eiopa.europa.eu/document-library/peerreview/peer-review-outsourcing_en