03 Feb 2023
The European Insurance and Occupational Pensions Authority (EIOPA) has published today a Supervisory Statement to strengthen the supervision and monitoring of insurance undertakings’ and intermediaries’ activities when using governance arrangements in third countries.
EIOPA has previously emphasised that EU-based undertakings or intermediaries should not resemble empty-shell companies that do not have an appropriate level of corporate substance within the EU. This can arise from situations where undertakings or intermediaries use third country branches to disproportionately perform essential functions or activities. Given that such governance arrangements may lead to poor risk management, ineffective decision-making and pose operational, reputational, and financial risks – also to policyholders – EIOPA has decided to clarify its supervisory expectations.
To improve supervisory oversight and to ensure that similar risks are treated in a similar way regardless of the legal form of the governance arrangements, the supervisory expectations laid out in the statement follow the principle of substance over form.
In particular, EIOPA and National Competent Authorities expect that:
- undertakings and intermediaries using third country branches retain an appropriate level of corporate substance within the European Economic Area (EEA), proportionate to the nature, scale and complexity of their business in the bloc;
- third country branches serve primarily the markets in which they are established and that third country branches with the sole objective of supporting EU-based undertakings and intermediaries should be avoided;
- undertakings and intermediaries should not be disproportionately dependent on their third-country arrangements for activities in the EEA;
- undertakings appropriately oversee regulated functions and are in a position to take full responsibility for effective decision making and risk management;
- regulated functions and activities are not structured or conducted in a way that impairs the ability of supervisors to monitor compliance; and that
- undertakings and intermediaries considering or operating such third-country arrangements demonstrate to supervisors that the structuring of their activities can safeguard the ability of the supervisory authority to undertake proper supervision.
EIOPA and National Competent Authorities will closely monitor market developments regarding the use of third country governance arrangements following the publication of the Supervisory Statement.
Petra Hielkema, Chair of EIOPA said: “For us supervisors, it is important that third country branches of EU insurers do what they are meant to do: primarily serve the people and businesses of the country in which they are established. What we want to avoid is situations where overseas branches are more than outposts while the EU entities to which they are linked - together with their decision-making and risk management capacities - become empty shells."