IORP II: What could still change?

The so-called trialogue negotiations between the European institutions have just started following the general approach reached by the member states in December 2014, and the adoption of Irish MEP Brian Hayes’ report in the European Parliament’s Economic and Monetary Affairs Committee last month. 

While the outcome of these negotiations is still unclear, it is a good time to look at some of the outstanding key elements of the proposal that will be of importance in deciding whether the revised framework will be considered a success and fit for purpose to achieve the initial objectives. 

Cross-border activities and transfers

When comparing the parliament and the Council of the European Union texts on the provisions related to cross-border activities and cross-border transfers, a number of significant divergences can be identified.

Any future considerations around solvency requirements for IORPs need to be kept in mind, which in any case is still the elephant in the room

For example, the council has inserted a requirement for a reasoned declaration of sponsoring undertakings when notifying cross-border activities.

In relation to cross-border transfers, the council explicitly provides for authorisation by the competent authorities of the home member state of the transferring institution in the case of a cross-border transfer, while the parliament text does not.

Also, the parliament proposes to make a cross-border transfer subject to prior approval by a majority of members, beneficiaries or representatives, while the council text also provides for an exemption if national law provides otherwise. 

Funding, risk management, depositary

In contrast to the original proposal and the council text, the European Parliament proposes the deletion of the fully funded requirement in the case of cross-border activities and instead introduces a requirement to be fully protected, as well as non-binding mediation by the European Insurance and Occupational Pensions Authority for settling disagreements between competent authorities on decisions regarding the funding of technical provisions. 

In relation to risk management and evaluation, there are several notable differences between the council and the parliament. Among others, the council suggests that institutions should report risk management internally, while the parliament requires institutions to report to competent authorities. 

In its initial proposal, the European Commission introduced the requirement for defined contribution schemes to appoint a single depositary for safekeeping of assets and oversight duties.

Member states in their text introduce an exemption to the general requirement if a similar level of protection is afforded.

The parliament in contrast proposes to convert this requirement to a member state option when national rules do not provide protection for safekeeping assets and where a depositary has not already been appointed.

Outcome will be decisive

These are just some of the key areas where agreement between European Commission, parliament and member states is still outstanding.

The outcome will be decisive for whether more IORPs will engage in cross-border activity and whether a more pan-European pension landscape can be developed.

Also, the European Commission’s Capital Markets Union flagship initiative, with the aim of unlocking pension savings as a source of funding for the real economy, needs to be kept in mind when considering these issues – and of course any future considerations around solvency requirements for IORPs, which in any case is still the elephant in the room.

Oliver Berger is ‎head of asset owner solutions and strategic market initiatives, sector solutions EMEA, at State Street