The Public Hearing on EIOPA's Consultation Paper on draft technical advice on possible delegated acts concerning the Insurance Distribution Directive (IDD), took place on 23 September 2016 in Frankfurt.
More than 160 representatives of the financial services industry, consumers, academia, EU and national institutions as well as supervisory authorities, attended. The event was also webstreamed live – see below media section.
In her welcoming speech, Katja Wuertz, Head of EIOPA's Cross-Sectoral and Consumer Protection Unit, stressed that the purpose of the event, during the current public consultation phase, was for EIOPA to explain the rationale behind its technical advice and to listen to the views of stakeholders. She set the scene for EIOPA's work on the IDD in the context of EIOPA's own strategic priorities (particularly, as regards consumer protection) and its supervisory expectations, in ensuring a cultural shift in the insurance industry, which takes consumers' interests fully into account.
In a subsequent speech, Ludwig Pfleger, Chair of EIOPA's Committee on Consumer Protection and Financial Innovation, provided an overview of the role of national competent authorities in EIOPA's work on the IDD and the governance process for EIOPA's work, as well an indication of some of the key overarching policy issues in EIOPA's work, such as proportionality and the level of consistency with MiFID II.
Nico Spiegel, Legal Officer from the European Commission's Insurance and Pensions Unit presented (see slides here) the empowerments and timetable for the delegated acts under the IDD and the key elements of the Commission's Request for Technical Advice to EIOPA. He also set out the Commission's technical requirements and political expectations. He also fielded questions from the audience on the Commission's proposed timetable and the need for consistency with the MiFID II Delegated Acts.
Subsequently, there were three panel discussions covering: (i) Product Oversight and Governance arrangements: (ii) Appropriateness, Suitability and Reporting to customers and (iii) Conflicts of Interest and Inducements. Each session was preceded by a short presentation (see slides here) of the draft technical advice by the moderator, David Cowan, followed by a Q&A session.
Session 1: Product Oversight & Governance Arrangements
In the first panel in the morning, the key issue of "Product Oversight and Governance arrangements" were discussed. Central to this topic, was ensuring that interests of the consumer are taken into account throughout the product lifecycle and that the product continuously meets the needs of the target market for which the product was designed.
There was much discussion around the question of when an insurance intermediary is acting as a manufacturer and the definition of the "target market", in particular when sales could be carried outside the target market and the consequences of defining a "negative target market". EIOPA heard views about the importance of applying a proportionate approach and differentiating between the life and non-life markets and taking into account, group insurance contracts as well.
EIOPA received constructive input on drawing the borderline on when an insurance intermediary was acting as a "manufacturer" and the elements which were useful for determining the level of granularity of the target market, and will take these comments into consideration for the next phase of its work.
Session 2: Suitability & Appropriateness and Reporting to Customers
In the second panel, there was a valuable discussion on the suitability and appropriateness assessments for the sale of insurance-based investment products (or IBIPs), execution-only sales and record-keeping and reporting requirements.
Comments and questions were raised from the audience about the classification of complex/non-complex products not leading to an overly restrictive regime for execution-only sales, the importance of the relationship between the "demands and needs" test and the suitability and appropriateness assessments and the reporting and record-keeping processes not being turned into a legalistic exercise of firms, using lots of paperwork to address liability concerns. It was also important to take into account the general trend towards digitalisation of financial services and automation of financial advice and to consider mandatory advice regimes.
EIOPA took on board comments about not creating additional regulatory burden and red tape. At the same time, it was recognised there was still a need for adequate due diligence and record-keeping to be carried out when complicated life insurance products are sold, in case consumer detriment subsequently arises.
Session 3: Conflicts of Interest & Inducements
In the final panel of the day, the highly thought-provoking topic of conflicts of interest & inducements was discussed. As regards conflicts of interest, it was stressed that the purpose was to ensure that conflicts of interest do not lead to situations which were damaging to the best interests of customers. Much of the draft technical advice had been based on previous advice submitted to the Commission in February 2015 under the amendments made to the IMD by MiFID II.
Questions from the audience included whether, by referring to a legal assumption of certain situations creating a conflict of interest, such as receipt/payment of commissions, EIOPA was essentially prohibiting firms from accepting business from customers. EIOPA explained that this approach was to enable firms to automatically identify conflicts of interest, but this did not mean that firms could not then appropriately manage those conflicts of interest to avoid any harm to the customer's interests.
As regards inducements (or third party payments), EIOPA explained that it had put together, based on a Commission request, a list of what it considered to be a list of practices leading to a high risk of a detrimental impact on the relevant service to the customer. It was not EIOPA's intention thereby to create any form of "blacklist" or de facto prohibition on the receipt/payment of inducements, but to provide guidance to the market and generate a debate on the issue.
Questions and comments were raised by the audience around some of the drafting and terminology used to support the list of high risk practices and the need to adopt a holistic approach to the treatment of inducements by taking into account also risk-reducing practices, and ensure legal certainty for firms.
In his closing remarks, Fausto Parente, Executive Director of EIOPA, summed up the day's discussions, thanking the audience and speakers for their participation and the fruitful and constructive discussions. He stressed that EIOPA had been given much "food for thought" for the next phase of its work and encouraged stakeholders to provide their written input to the public consultation which ends on 3 October 2016.
Programme is available
here. Please see also our booklet here for more information about the speakers and moderators.