Context
This public consultation, relating to a draft supervisory statement on the use of governance arrangements in third countries, is aimed at (although not exclusively) UK firms that set up another firm in the EU and then set up a branch in the UK of that EU firm that does all or the bulk of the work, known as “reverse branching”. The aim of the supervisory statement is to ensure appropriate supervision and monitoring of the compliance of insurance undertakings and intermediaries with the requirements of the relevant EU legislation in relation to their governance arrangements in third countries.
Key points to note
EIOPA is concerned that these entities in the EU are “empty shell companies” and wants them to “…demonstrate an appropriate level of corporate substance, including the presence of key decision-makers, function holders and staff to an extent proportionate to the nature, scale and complexity of the entity’s business in the European Economic Area (EEA). Specifically, governance arrangements raise concerns when they are used to conduct certain regulated functions and activities for undertakings and intermediaries that ultimately serve policyholders in EEA. This has the potential to impair risk management and effective decision making and impact the ability of supervisory authorities to conduct proper supervision”.
The consultation paper is recommending a principles-based supervisory statement (as opposed to a detailed statement or to do nothing). This then gives flexibility to individual local EU regulators to interpret the principles, however this is probably better than EIOPA being prescriptive and there is unlikely to be a “one size that fits all” solution. The consultation is open until 31st October 2022 firms that are affected should keep up to date with developments.
Next actions
None – for information and awareness.