Solvency II News November 2012

_________________________________________ Solvency ii Association

www.solvency-ii-association.com

Solvency ii Association 1200 G Street NW Suite 800 Washington, DC 20005-6705 USA

Tel: 202-449-9750 www.solvency-ii-association.com

Dear member,

Today we will start from the work programme of the European Commission.

Commission Work Programme 2013 Today's absolute imperative is to tackle the economic crisis and put the EU back on the road to sustainable growth. This is the number one task for this generation of Europeans. It calls for a Europe able to compete in the global economy, reshaped to seize the opportunities of the future. It requires the stable macroeconomic environment which true economic and monetary union can bring. It needs a step change in the economy, to release the many strengths Europe can bring to bear in tomorrow's economy of high innovation and high skills. This demands changes to the business environment in the Single Market; it requires that the huge potential of Europe's networks and of the IT revolution is fully exploited; it calls for new skills and help so that those shut out of the labour market today can make their contribution;

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and it must be shaped by the needs and opportunities of resource efficiency. These are long-term challenges calling for a concerted effort from all sections of society – but in all cases, the EU contribution is a precondition for success. This is why, in the State of the Union address, President Barroso called for new thinking for Europe – to draw the consequences of the challenges we are now facing and that are fundamentally changing our world. There can be no growth without reform and no way of confronting our challenges unless we do it together. The State of the Union speech launched ambitious ideas for the long term framing of the EU – a deep and genuine economic union, based on a political union. This vision must be translated into practice through concrete steps, if it is to address the lingering crisis that continues to engulf Europe, and the Euro Area in particular. This 2013 Work Programme sets out the long term vision of what the EU might look like in key policy areas, summarises what is missing today and explains how the Commission will tackle these challenges. By prioritising the right kind of initiatives, the EU can contribute to growth and job creation and can step by step move closer to its longer term vision. The Commission has already tabled a wide range of growth enhancing proposals which are now being negotiated by the co-legislators. Timely adoption and full implementation of these measures would send a crucial signal of confidence to citizens and to investors, helping to



reinvigorate economic activity and stimulating much needed job creation. It would add up to a major record of EU action before the June 2014 European Parliament elections. In 2013 the Commission will devote much effort to implementation as an immediate way of delivering on the benefits of EU action. Following the decisions to be taken on the multi-annual financial framework by the end of 2012, during 2013 the Commission will focus on finalizing arrangements for rapid implementation, including through the use of country-specific negotiation mandates to ensure that the priorities supported through EU-funded investment are clearly targeted on growth and jobs. Targeted investment supported by a modern, proreform EU budget can make a decisive contribution to growth, jobs and competitiveness. The proposals in this work programme will be tabled during 2013 and in the first part of 2014, bearing in mind the end of the current legislature. In the following sections some of the key action is highlighted to show how the Commission will contribute to filling in the gaps between the EU's objectives and the current situation.

Getting the foundations right: towards genuine Economic and Monetary Union The objective Europe's strength lies in the interconnection of our economies. The single market and the common currency have driven this forward, and the integrated economic policy making at the European level



through the European semester is now drawing our economies together as never before. However, the crisis has shown that the single market for financial services can only deliver financial stability, economic growth and jobs if it is matched with a strong single regulatory and supervisory authority at EU level. The next step must be to deepen economic and monetary union with a fully-functioning banking and fiscal union.

What is missing today? A genuine EMU needs a comprehensive approach to tackle the vicious circle of excessive private sector indebtedness, unsustainable sovereign debt and banking sector weakness. The EU lacks a global framework which fills in the gaps in a fully integrated financial services policy, with a single supervisory mechanism for banks and a single rule book to govern all financial institutions. It also needs to complete and implement the more effective mechanisms put forward to prevent and correct unsustainable fiscal policies and economic imbalances. Better coordination of tax policies will also be crucial. The progress made through the European semester has also not yet reached its potential in terms of carrying through recommendations into structural reforms in the EU. While not yet complete, our economic governance has already been thoroughly reinforced through the Europe 2020 Strategy, the European Semester, and the implementation of the Six-Pack legislation. Agreement on the Two-Pack legislation is urgent in order to complete further the economic governance.



In 2013 the Commission will: - Launch the fourth European Semester through the Annual Growth

Survey; - Follow up on the blueprint for a comprehensive and genuine EMU

which it will publish before the end of 2012; - Propose additional legislation to further enhance stability,

transparency and consumer protection in the financial sector (for example, on the systemic risks related to nonbanks and shadow banking).

The legislation already in place and now being considered adds up to a fundamental reshaping of the EU's financial system. Agreement on banking supervision will put the European financial system on far more secure foundations and act as a springboard for confidence. 2013 will see the implementation of many of the detailed rules of this package. The same is true for cohesion policy, where the key priorities for growth-enhancing measures and structural reforms brought out in the European semester will be put at the core of new national and regional programmes and where the focus will be on the finalisation of the country-specific mandates for the next generation of structural funds. The Commission will also take action to fight tax fraud and evasion, including an initiative on tax havens, bringing the EU dimension to bear on national efforts to consolidate public finances.



Boosting competitiveness through the Single Market and industrial policy The objective Sustainable growth and job creation need to combine a stable macro-economic environment with the ability to compete in the global economy. Europe has strengths which can give it a competitive edge through a modernised social market economy and can help it to take the lead in the new industrial revolution. The Single Market and fair competition can come together with targeted investment and the right approach to entrepreneurship to exploit the opportunities for growth through new technologies and innovation.

What is missing today? The Single Market needs to continue to adapt to reach the potential for businesses and consumers in a borderless Europe. Technological change offers huge possibilities, but it needs to be accompanied by new approaches in areas like procurement, standards, and intellectual property. The EU needs a long-term framework for energy and climate policies so that investment and policy target competitiveness and tackle climate change. Europe falls short on innovation, with obstacles to building new markets and investing in the technologies that will change the way we live, as well as wider issues of attitudes to entrepreneurship and business failure. It also needs the right legal framework to move Galileo towards commercial operations.



This is exacerbated by the problems faced by companies, in particular SMEs, in accessing finance in the wake of the crisis, as well as the unnecessary costs of administrative burdens and the impact of some outdated public administrations. Shortcomings in implementation also hold back the full benefits. The recent Single Market Act-II set out 12 new concrete priority actions, to reenergise the Single Market around four main drivers: networks, mobility, the digital economy and cohesion. Following up on its 2012 Communication on a new industrial policy, the Commission will take a fresh look at the single market for products, which makes up 75% of intra-EU trade. These actions follow on the priority actions under the first phase of the Single Market Act, which now need to be agreed quickly. The Commission will work hard with the co-legislators in 2013 to bring these proposals to fruition and full and effective implementation. Key proposals will include: - Initiatives to align rules and cut the costs of VAT compliance

through a single declaration; - A legislative proposal to make e-invoicing mandatory for public

procurement will facilitate business-to-government interaction, reduce costs and serve as a pilot for other sectors;

- Initiatives to update and simplify the rules for the circulation of

products in the single market, and identify gaps still blocking free circulation, as well as intensified work on standards, certification and labels;

- As part of Horizon 2020, 2013 will see proposals to launch and

develop a range of major public-private partnerships to bring private



and public investment together with the EU budget to drive a common approach to key strategic sectors like pharmaceuticals, air traffic management and nanotechnology, leveraging some €9-10 billion in new investment;

- Initiative on energy technologies and innovation to deliver a

sustainable, secure and competitive energy system; - Proposing a series of major reforms to modernise state aid;

- Modernise our approach to intellectual property rights to ensure that

it is effective and consumer-friendly in the digital world. Energy efficiency is a key area for competitiveness. The Commission will reinforce its cooperation with Member States on the implementation of the energy efficiency directive, the energy labelling and ecodesign legislation. Implementing the strategy for Key Enabling Technologies will also be a key lever of competitiveness. The Commission will deepen its work to help SMEs facing the challenge of financing and implement the Action Plan for entrepreneurship. Support from the European Regional Development Fund and the COSME programme will be ready to roll out when the new financing period starts in 2014. New programming of the European Social Fund will also include a particular focus on the provision of skills necessary for successful transition from school to work and for increasing employability of the workforce.



Connect to Compete: Building tomorrow's networks today The objective A fully integrated and interconnected European Single Market covering telecoms, energy and transport is a prerequisite for competitiveness, jobs and growth. Achieving this requires affordable, accessible, efficient and secure network infrastructure. Accelerating the roll out of the digital economy will bring benefits across all sectors, through enhanced productivity, efficiency and innovation. Europe must have state-of-the-art digital networks to retain and build its global competitive position, to be able to handle the explosion in internet use and exchange of data and to fully exploit the efficiency gains and innovative services allowed by major online developments. In energy, significant investments in electricity grids and other energy networks will help make energy supplies more secure, sustainable and competitive. On transport, a fully integrated single market and more efficient networks allowing to switch easily between different modes, would bring huge benefits to citizens and companies, including in urban areas.

What is missing today? National approaches and a variety of barriers hold back competitiveness and prevent the exploitation of networks on a European scale. Investment is not sufficiently galvanised to support projects which will be the bedrock of Europe's future prosperity and is held back by shortcomings in the regulatory environment.



This also holds back the potential for innovation in areas like smart grids and meters, and intelligent transport.

A lack of interoperability increases costs and holds back the level playing field.

Gaps in the regulatory framework hold back business investment and consumer confidence in key areas like payments. Gaps in infrastructure create extra costs and inefficiencies for energy consumers, delay modernization of logistics, and prevent the full exploitation of broadband. In order to continue to fill in the missing links in 2013/14, the Commission will make proposals to: - Modernise Europe's transport and logistics to help companies save

time and energy, as well as reduce emissions, through proposals on rail and freight transport, goods traffic between EU ports, and the Single European Sky;

- Tackle the obstacles to electronic payments;

- Support investment in high speed networks;

- Boost the coverage and capacity of broadband by reducing the cost

of its deployment and freeing up band width for wireless broadband. Alongside cohesion policy, the Connecting Europe Facility5 will be one of the EU's most obvious contributions to cutting through these obstacles by stimulating infrastructure. 2013 should see the facility up and running and key choices made on targeting. It should also see project bonds being rolled out to help harness private sector investment.



This will go hand in hand with consolidating regulation. More needs to be done to achieve a true European transport area with European rules: proposals on connecting up in the rail sector and on accelerating the implementation of the Single European Sky should be taken forward as priorities. In the field of energy, the latest phase of liberalisation towards the completion of the internal energy market by 2014 must be driven through to make Europe's future energy supply sustainable, competitive and secure. A new framework for national interventions in the energy sector will be a core element to ensure that adequate investments are made and that market interventions are necessary and proportionate.

Growth for jobs: Inclusion and excellence The objective Through its capacity to combine growth and inclusiveness, our social market economy is one of Europe's greatest assets. But today its economy and its society face the threat that the grave problems of high unemployment, increased poverty and social exclusion risk becoming structural. The EU dimension must be harnessed to assist Member States to find every opportunity to help people looking for work and to address the mismatch between labour supply and demand. This starts with an active employment policy to help them to have the right skills to be employed and which uses the potential of mobility to the full.



The goal should be to find innovative ways to increase educational attainment and labour market participation. Adequate and sustainable social policies and more accessible social services are needed to promote social inclusion and entry into the labour market. The job creation potential of key growth sectors, such as the green economy, ICT and health and social care sectors needs to be fully tapped. To maintain its workforce in the longer term perspective of an ageing society, European labour markets need to be inclusive, mobilising employees of all ages and at all level of qualifications.

What is missing today? Public employment services and employers face a major challenge with the scale of unemployment in Europe, in particular among young persons. To boost the employability levels is key to re-launch growth, taking also into consideration vulnerable groups. The potential for job creation in sectors such as the green economy, ICT, health and is not fully exploited. Education and training systems are not keeping up with changing labour market needs – resulting in shortages in key areas like science, mathematics and e-skills. Higher education is not sufficiently connected to research and innovation activities and is slow to build capacity in areas like ICT – which both reflects and contributes to a lack of internationalisation. Life-long learning is still developing, and public policy and business



practices do not reflect the need for older workers to extend their working careers. Undeclared work creates an extra challenge. Social protection and social investment should be more effective. Vulnerable groups find it particularly difficult to get into or to return to the labour market. And the potential for labour mobility to fill gaps is held back by problems in the recognition of qualifications, documentation and skills across Member States. Supporting Member States' policies on employment and job creation is one of the highest priorities of the European semester. The Commission will continue in 2013 to work actively with Member States and social partners, in particular on the basis of the youth guarantee and traineeship initiatives to be set out later this autumn. In order to continue to fill in the missing links in 2013/14, the Commission will make proposals to: - Help improve the performance of public employment services and

networking between national employment agencies; - Harness social investment for inclusive growth, through guidance for

policy reforms identified in the framework of European semester, supported by the EU funds such as the European Social Fund;

- Furthering the internationalisation efforts of higher education, to

prepare Europeans for an increasingly global, open and competitive labour market;

- Put in place the right framework for the institutions handling

occupational pensions.



Obstacles to mobility remain one of the main lost opportunities of the Single Market. Adoption and implementation of the revision of the Professional Qualifications Directive will be an important step to open up professions. Work should continue to examine and reduce unnecessary restrictions for regulated professions limiting the ability of professionals to work in another Member State. Preparing the new generation of programmes under the European Social Fund will be a major goal for 2013, to ensure that this brings the quickest and most effective support to the modernisation of labour market policies and social inclusion policies, strengthening of education and lifelong learning systems, to ensure that groups like young and long-term unemployed have the right skills for the jobs of the future. A wide range of EU programmes will contribute to these goals, including the European Regional Development Fund, Horizon 2020 and Erasmus for all.

Using Europe's resources to compete better The objective Competitiveness today must be geared to competitiveness tomorrow. There is untapped potential for the EU economy to be more innovative, productive and competitive whilst using fewer resources and reducing environmental damage. Less waste should be produced and more re-used and recycled in line with the practice of the best performing Member States. Greater resource efficiency would contribute to growth, jobs and enhanced competitiveness, with reduced costs for business as well as



significant benefits for health and the environment, lower greenhouse gas emissions, contained energy bills and new opportunities created for innovation and investment. The EU is particularly well-placed to give policy the long-term dimension required.

What is missing today? European society and the European economy do not yet exploit the full potential for resource efficiency. Much recyclable waste is either exported or sent to landfill. A lack of long-term frameworks holds back planning and investment, most obviously on a climate and energy framework beyond 2020, but also on long term sustainable use of key resources such as air, soil, energy, water, fish and biomass. At the same time, such frameworks can help to galvanise the innovation needed to exploit the potential of the transition to a low-carbon economy in areas like transport, energy and agriculture. In order to continue to fill in the missing links in 2013/14 the Commission will make proposals to: - Provide a long-term perspective on how the EU will move ahead

from its 2020 targets to continue the trajectory towards a low-carbon economy through a comprehensive framework for the period to 2030;

- Frame a new strategy on adaptation to climate change to make

Europe more resilient; - Review the waste legislation, to look at how new markets and better

recycling can contribute to growth;



- Adapt the EU policy framework for air quality.

At the same time, the finalisation of the new generation of agriculture and fisheries policies and regional and rural development programmes will maximise the opportunity to bring together innovation and job creation with a focus on sustainability. The promotion of a resource efficient "blue economy" will help to release the potential of Europe's maritime areas to contribute to growth. 2013 will also bring the start of the 3rd phase of the EU Emission Trading System (2013-2020).

Building a safe and secure Europe The objective The EU needs to protect its citizens and their rights from threats and challenges and further remove obstacles to circulation of citizens in Europe. This includes fighting crime and corruption, controlling our external borders and ensuring the respect of the rule of law and of fundamental rights, with the right balance between security and mobility. It also needs a well functioning and efficient justice system to support growth, entrepreneurship and attract investors. Equally, the EU works to proactively reduce risks to health, food and product safety, critical infrastructures and disasters. Safe and sustainable use of nuclear energy is a key element.



What is missing today? Threats to safety and security evolve, and the EU's response needs to reflect this by using technology to tackle safety in food or nuclear energy, by working for the swiftest and most effective disaster response and by deepening cooperation in tackling the increasing cross border dimension of crime. Areas like terrorist financing and the cross border traffic in weapons need particular attention. The EU has a particular responsibility to protect its own financial interests against fraud and corruption, but lacks the full institutional framework required. Mutual trust in areas of safety, security and justice needs to be earned, and the networks and exchanges needed to build this are not always present. Vigilance is also needed to ensure that the fundamental rights of citizens in the EU are protected in full. If people and businesses are to take full advantage of their rights, they need easy access to justice, on equal terms in all countries in cases of cross-border litigation. The Commission will make proposals to continue to fill in the missing links: - Establish a European Public Prosecutor's Office to fight against

crimes affecting the EU budget and protect its financial interests; - Fight traffic in firearms;

- Improve judicial cooperation in both criminal and civil matters;



- Revise legislation on nuclear safety and propose new legislation on nuclear insurance and liability;

- With 2013 marked as the European Year of Citizens, the Citizenship

Report will review progress in ensuring that EU citizens can readily exercise their rights and identify future action.

The Commission will also implement a variety of important initiatives to promote a virtuous circle of cooperation between national administrations and judicial systems. The ongoing work of the Consumer Protection Cooperation network of enforcement authorities is a core tool for practical enforcement. The first anti-corruption report and the first judicial scoreboard will both offer new tools to encourage best practice to be identified and pursued. Agreement on new arrangements for Schengen governance would also give Member States an important new tool to consolidate mutual confidence in common control of borders. Efforts to reinforce application of existing solidarity mechanisms in immigration will be continued.

Pulling our weight: Europe as a global actor The objective The EU's interests and commitment to values of democracy, the rule of law and human rights depend heavily on what happens beyond its borders. Promoting our values in our immediate neighbourhood and beyond is a priority, by building partnerships with third countries and promoting multilateral solutions to common problems.



Collectively, the EU is the largest donor of funds for development cooperation, climate finance and humanitarian aid in the world. We are also the world's largest trading partner. When we can deploy the Union's and Member States' resources in an effective and consistent way beyond our borders, and bring together the wide range of instruments available, the EU can have greater impact and influence on the world around us. This helps to deliver the goals of growth, stability and democracy and to meet the goals of policies like tackling poverty and boosting peace and security, as well as pursuing policies like addressing climate change, the environment, transport and energy, and optimising the opportunities for international cooperation in areas such as science and technology. In the year of Croatia's accession, the enlargement process and the neighbourhood strategy continue to provide key tools to support positive change in partners on the EU's doorstep.

What is missing today? On the global stage the EU is a key actor; but more can be done to develop a truly unified approach using different strands of policy and different instruments to reinforce each other. The EU should also ensure closer monitoring of the implementation of its commitments, notably as part of the support provided to countries in transition in its neighbourhood. The external dimension is integral to promoting growth and competitiveness in 2013 and beyond. The EU is pursuing a bilateral trade and investment agenda of unprecedented ambition to complement its efforts at the multilateral level.



Negotiations are close to conclusion with such important partners as Canada, Singapore and India, and will hopefully soon be launched with Japan. The final recommendations of the EU-US High Level Group on Jobs and Growth may also pave the way for negotiations on an ambitious and comprehensive transatlantic partnership. Japan and the United States are such key partners that successful agreements with these two countries could add 1-1½% to EU GDP and create almost a million jobs. Such agreements would support multilateral liberalisation and regulatory dialogue, and open new markets for European products and services. Scoping exercises with other partners are currently being conducted. 2013 will see a particular focus on consolidating the rule of law firmly at the centre of enlargement policy, consolidating economic and financial stability and promoting good neighbourly relations and closer regional cooperation in areas like trade, energy and transport. Neighbourhood policy will continue to centre on an incentive driven approach, where EU support for reforms follows a clear progress in building democracy and the respect of human rights. Priorities in 2013 will be the 'Deep and Comprehensive Free Trade Areas', mobility partnerships and visa facilitation. The EU has responded to the rapid change in our neighbourhood through the framework of the revised European Neighbourhood Policy, consolidating the Eastern partnership and launching a partnership for shared democracy and prosperity with the Southern neighbours. Our focus in 2013 with our Southern neighbours will be on implementation and delivery, using innovative ways to mobilise political and economic resources to mutual benefit.



As the Millennium Development Goals (MDG) Summit approaches in 2015, the EU is working to fulfil its commitments on development assistance, as well as pursuing specific goals of sustainable growth and resilience in the face of crisis. It also continues to pursue key negotiations such as reaching a new international climate agreement by 2015. At the same time, as the new generation of external action instruments is finalised, 2013 will be a key year for ensuring that the EU's new development policy orientation – the Agenda for Change – is mainstreamed throughout our relationship with our partners, with a new focus on good governance, inclusive and sustainable growth and stimulating investment in developing countries. It will also see further steps in ensuring an effective and swift crisis response capacity and developing a comprehensive response to crisis prevention, management and resolution. In order to continue to fill in the missing links in 2013/14 the Commission will make proposals to: - Assuming success in ongoing scoping exercises and in current

preliminary discussions, propose negotiating directives for comprehensive trade and investment agreements with relevant partners;

- Put forward coherent EU positions bringing together the Millennium

Development Goals, the post-2015 development agenda and Rio+20.



Guidelines on Complaints-Handling by Insurance Undertakings EIOPA Guidelines on Complaints-Handling by Insurance Undertakings translated into all the official EU languages EIOPA has published the translation of Guidelines on Complaints - Handling by Insurance Undertakings into all official languages of the European Union. The Guidelines, which are addressed to national competent authorities (NCAs), aim to provide guidance on appropriate internal systems and control for complaints-handling by insurers (such as having a complaints management policy and complaints management function in place), render them more effective and provide guidance on the provision of information and procedures for responding to complaints, thereby ensuring the adequate protection of policyholders and beneficiaries. By having translated the Guidelines into all the official languages of the EU, today’s publication triggers a transitional period of two months until 15 January 2013, within which national supervisors have to declare whether they intend to comply with the Guidelines or otherwise explain the reasons for non-compliance, which may be made public by EIOPA on a case-by-case basis. According to Article 16(3) of the Regulation establishing EIOPA, national supervisors have to make every effort to comply with the Guidelines.



1. Guidelines Introduction 1. According to Article 16 of the EIOPA Regulation and taking into account Recital 16 and Articles 41, 46, 183 and 185 of Directive 2009/138/EC of the European Parliament and the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (“Solvency II”), which provide for the following:

- “The main objective of insurance and reinsurance regulation and supervision is the adequate protection of policyholders and beneficiaries…..”.

- “Member States shall require all insurance and reinsurance undertakings to have in place an effective system of governance which provides for sound and prudent management of the business”.

- “Insurance and reinsurance undertakings shall have in place an

effective internal control system.

That system shall at least include administrative and accounting procedures, an internal control framework, appropriate reporting arrangements at all levels of the undertaking and a compliance function”.

- In the case of non-life insurance, a duty for the insurance

undertaking to “inform the policyholder of the arrangements for handling complaints of policyholders concerning contracts including, where appropriate, the existence of a complaints body, without prejudice to the right of the policy holder to take legal proceedings”.

- In the case of life insurance, the duty for the insurance undertaking

to communicate to the policyholder, in relation to the commitment, “the arrangements for handling complaints concerning contracts by



policyholders, lives assured or beneficiaries under contracts including, where appropriate, the existence of a complaints body, without prejudice to the right to take legal proceedings”.

2. To ensure the adequate protection of policyholders, the arrangements of insurance undertakings for handling all complaints that they receive should be subject to a minimum level of supervisory convergence.

3. These Guidelines shall apply from their final date of publication.

4. These Guidelines are issued by EIOPA under the powers set out in Article 16 of the EIOPA Regulation.

5. These Guidelines apply to authorities competent for supervising complaints-handling by insurance undertakings in their jurisdiction.

This includes circumstances where the competent authority supervises complaints-handling under EU and national law, by insurance undertakings doing business in their jurisdiction under freedom of services or freedom of establishment.

6. Competent authorities must make every effort to comply with these Guidelines in accordance with Article 16(3) in relation to the arrangements of insurance undertakings for handling all complaints that they receive.

7. For the purpose of the Guidelines below, the following indicative definitions, which do not override equivalent definitions in national law, have been developed:

Complaint means:

A statement of dissatisfaction addressed to an insurance undertaking by a person relating to the insurance contract or service he/she has been provided with.



Complaints-handling should be differentiated from claims-handling as well as from simple requests for execution of the contract, information or clarification.

Complainant means:

A person who is presumed to be eligible to have a complaint considered by an insurance undertaking and has already lodged a complaint e.g. a policyholder, insured person, beneficiary and in some jurisdictions, injured third party.

8. Furthermore, where an insurance undertaking receives a complaint about:

(i) Activities other than those regulated by the “competent authorities” pursuant to Article 4(2), EIOPA Regulation; or

(ii) The activities of another financial institution for which that insurance undertaking has no legal or regulatory responsibility (and where those activities form the substance of the complaint), these Guidelines do not apply.

However, that insurance undertaking should respond, where possible, explaining the insurance undertaking's position on the complaint and/or, where appropriate, giving details of the insurance undertaking or other financial institution responsible for handling the complaint.

9. Please note that more detailed provisions on insurance undertakings’ internal controls when handling complaints are contained in the “Best Practices Report on Complaints-Handling by Insurance Undertakings” (EIOPA-BoS-12/070).



Guideline 1 - Complaints management policy 10. Competent authorities should ensure that: a) A “complaints management policy” is put in place by insurance undertakings. This policy should be defined and endorsed by the insurance undertaking’s senior management, who should also be responsible for its implementation and for monitoring compliance with it. b) This “complaints management policy” is set out in a (written) document e.g. as part of a “general (fair) treatment policy” (applicable to actual or potential policyholders, insured persons, injured third parties and beneficiaries etc.). c) The “complaints management policy” is made available to all relevant staff of the insurance undertaking through an adequate internal channel. Guideline 2 - Complaints management function 11. Competent authorities should ensure that insurance undertakings have a complaints management function which enables complaints to be investigated fairly and possible conflicts of interest to be identified and mitigated.

Guideline 3 – Registration 12. Competent authorities should ensure that insurance undertakings register, internally, complaints in accordance with national timing requirements in an appropriate manner (for example, through a secure electronic register).

Guideline 4 - Reporting 13. Competent authorities should ensure that insurance undertakings



provide information on complaints and complaints-handling to the competent national authorities or ombudsman. This data should cover the number of complaints received, differentiated according to their national criteria or own criteria, where relevant. 2. Compliance and Reporting Rules 17. This document contains Guidelines issued under Article 16, EIOPA Regulation. In accordance with Article 16(3) of the EIOPA Regulation, Competent Authorities and financial institutions must make every effort to comply with guidelines and recommendations. 18. Competent authorities that comply or intend to comply with these Guidelines should incorporate them into their regulatory or supervisory framework in an appropriate manner. 19. Competent authorities shall confirm to EIOPA whether they comply or intend to comply with these Guidelines, with reasons for non-compliance, by 15.01.2013. 20. In the absence of a response by this deadline, competent authorities will be considered as non-compliant with the reporting and reported as such.

3. Final Provision on Review 21. These Guidelines shall be subject to a review by EIOPA.

Guideline 5 - Internal follow-up of complaints-handling 14. Competent authorities should ensure that insurance undertakings analyse, on an on-going basis, complaints-handling data, to ensure that they identify and address any recurring or systemic problems, and



potential legal and operational risks, for example, by: (i) Analysing the causes of individual complaints so as to identify root causes common to types of complaint; (ii) Considering whether such root causes may also affect other processes or products, including those not directly complained of; and (iii) Correcting, where reasonable to do so, such root causes.

Guideline 6 – Provision of information 15. Competent authorities should ensure that insurance undertakings: a) On request or when acknowledging receipt of a complaint, provide written information regarding their complaints-handling process. b) Publish details of their complaints-handling process in an easily accessible manner, for example, in brochures, pamphlets, contractual documents or via the insurance undertaking’s website. c) Provide clear, accurate and up-to-date information about the complaints-handling process, which includes: (i) Details of how to complain (e.g. the type of information to be provided by the complainant, the identity and contact details of the person or department to whom the complaint should be directed); (ii) The process that will be followed when handling a complaint (e.g. when the complaint will be acknowledged, indicative handling timelines, the availability of a competent authority, an ombudsman or alternative dispute resolution (ADR) mechanism, etc.). d) Keep the complainant informed about further handling of the complaint.



Guideline 7 - Procedures for responding to complaints 16. Competent authorities should ensure that insurance undertakings: a) Seek to gather and investigate all relevant evidence and information regarding the complaint. b) Communicate in plain language, which is clearly understood. c) Provide a response without any unnecessary delay or at least within the time limits set at national level. When an answer cannot be provided within the expected time limits, the insurance undertaking should inform the complainant about the causes of the delay and indicate when the insurance undertaking’s investigation is likely to be completed. d) When providing a final decision that does not fully satisfy the complainant’s demand (or any final decision, where national rules require it), include a thorough explanation of the insurance undertaking’s position on the complaint and set out the complainant’s option to maintain the complaint e.g. the availability of an ombudsman, ADR mechanism, national competent authorities, etc. Such decision should be provided in writing where national rules require it.



Kiyohiko G Nishimura: Ageing, finance and regulations Keynote address by Mr Kiyohiko G Nishimura, Deputy Governor of the Bank of Japan, at the Joint Forum Meeting, Tokyo, 14 November 2012.

Introduction: Population ageing, economy and finance It is my great pleasure to have the opportunity to speak at the Joint Forum Meeting in Tokyo. The Joint Forum has for many years been at the forefront of dealing with various cross-industry issues related to banking, securities and insurance. The Forum has thereby contributed greatly to the evolution of successful regulatory and supervisory frameworks. However, many challenges remain. For example, as economic globalization and information technology advance, “cross-border” and “cross-industry” risks have become increasingly important in financial services, and failure to regulate and supervise them effectively may result in profound economic consequences. “Structured” securitized products and monoline insurances are examples of such risks, as we have learned to our cost in the recent crisis. Today, I would like to consider another significant challenge, which I think is increasingly important worldwide, though not yet widely recognized as crucially important.



This is the issue of population ageing and how to regulate and supervise financial products and services to cope with problems arising from it. Indeed, these issues are deeply related to the fundamental nature of financial services, including all financial sectors such as banking, securities and insurance. In fact, I have warned of the unpleasant and in some cases grave consequences of ignoring demographic factors in our economic thinking in a series of recent speeches and papers, especially with respect to asset price bubbles, money demand and inflation. In particular, I have pointed out that asset price bubbles are most likely to occur at the final stage of the “demographic bonus” in which a country enjoys the benefits of an increase in the size of the working population. In contrast, a decline in growth potential due to “demographic onus” is likely to result in prolonged economic stagnation once the bubble bursts. These phenomena have been observed not only in Japan, but also in other countries such as the United States and peripheral euro area countries. What underlies the recent distress in the euro area is in fact deeply rooted in the structural changes resulting from demographic transition or population ageing. Figure 1 shows the relation between changes in the working age population curve and the timing of bubble bursts. These coincided in Japan around March 1991, in the United States in December 2005, in Ireland in September 2006, and in Spain in September 2007. And this is not simply a problem affecting advanced economies: the problem is just around the corner for some emerging economies like Korea, China, and Brazil.



Population ageing is likely to have a significant impact on financial services, and requires a new policy response.

Here I would like to raise two issues: one is the necessity of cross-industry and even cross-border coordination, and the other is the question of how to deal with the fundamental uncertainty surrounding population ageing.

Necessity of cross-industry and cross-border coordination Let me first consider the necessity of cross-industry and cross-border coordination.



As a society begins to age, its older citizens become the dominant holders of financial assets. However, with the coming of age, many people are likely to become risk-averse in managing their financial assets, for natural reasons. Thus, a mature economy, with its lower growth potential due to ageing, faces the serious problem of how to provide risk money to promising sectors of the economy so as to encourage entrepreneurs’ sound risk-taking and enhance value production. To be more specific, financial products and services should enable older citizens to maintain their quality of life and help foster an environment where longevity is seen as a gift, rather than a risk. These products, in addition to retirement savings, are expected to play diverse roles. Given the improved average health of senior citizens in many countries, it is increasingly important that these financial products and services help the older population stay active and contributing to the community to the best of their abilities, while mitigating age-related risks such as illness. To provide such products, financial institutions must cooperate with other industries to take full advantage of their advanced technologies and expertise. At the same time, financial institutions should utilize their own expertise to measure, distribute, and manage the various risks as intermediates between asset-rich older citizens and prospective entrepreneurs. These attempts inevitably involve “cross-industry” elements. Furthermore, with the transition from a growing economy to a mature economy, it is natural for people in an ageing economy to pursue higher returns by investing their savings in growing overseas economies.



Thus, it is also important for a mature economy to make full use of the benefits of cross-border transactions while managing the accompanying risks. This upcoming trend of cross-industry and cross-border expansion of financial products and services will pose a serious challenge to the current regulatory and supervisory frameworks. It will certainly call for a comprehensive approach. Regulation and supervision focusing only on a specific sector will likely result in a “waterbed effect”: problems will be simply shifted to other sectors rather than being dealt with effectively.

Fundamental uncertainty regarding life expectancy and fertility The second issue is the fundamental uncertainty surrounding the pace of population ageing. I first note the two kinds of risk involved: the first relates to life expectancy or longevity, and the second to birth rates or fertility. I then discuss the fundamental uncertainty in measuring these risks in the economy as a whole, and the possible consequences of this for regulation and supervision. Among the various risks we face in the real world, the longevity risk is the most fundamental one. No one can tell exactly how long he or she will actually live. While economic textbooks impersonally state that efficient allocation of resources can be achieved more easily if there is no uncertainty, very few people would prefer to know the exact date on which they are going to pass away.



As human beings we need to accept such unavoidable uncertainties, and financial services have a critical role to play in helping us manage the risks associated with such inherent uncertainties while enabling us to enjoy a life full of surprises. As the population ages, the social need increases for financial products and services to respond to the longevity risk. To provide the tools necessary to respond to the longevity risk, providers need to be able to manage the accompanying risks in the economy as a whole. To this end, financial service providers such as insurers have traditionally utilized “the law of large numbers,” a rule assuming that as the number of samples increases, the average figure of these samples, such as average life expectancy, becomes more predictable. The same is considered to be true for fertility. Although the exact number of children for a given couple is not known for sure, the average rate of birth per couple becomes largely predictable. The popular perception that demographic change is in general predictable is based on this law of large numbers. Unfortunately, this perception is not always true, or to put it bluntly, not true in many instances. Take Japan for example. Between the 1970s and early 2000s, the total fertility rate forecasts regularly turned out to be wrong and were consistently revised down. The government repeatedly published its forecast in which the decline in the fertility rate was declared to be only temporary and the birth rate expected to rise again soon (Figure 2.)



Similarly, life expectancy forecasts have shown that the actual figures consistently exceeded the forecasts (Figure 3).



These forecast errors show the fundamental uncertainty surrounding the pace of population ageing. And if the actual outcome deviates from the estimated life expectancy and longevity of the entire population in an economy, all service providers will be affected. For example, in the case of longevity risk products, even a slight deviation could significantly increase the exposures of service providers.



Avoiding patchwork and “spaghetti code” problems Regulatory and supervisory reform is often called for once such deviation causes an unexpected accumulation of losses. However, this kind of loss-induced regulatory and supervisory reform often leads to patchwork plumbing, which in turn results in a vicious circle of further losses and more patchwork. The repetition of such ad-hoc adjustments to the framework can cause what computer programmers refer to as “spaghetti code” problems, in which the framework becomes too complex and entangled, like spaghetti, so that no one knows how to fix the problem. Thus, we must be careful not to make over-optimistic forecasts, especially when these forecasts underlie the overall framework and any forecast error might bring about irrevocable losses. It is also important to have in advance a clear strategy on appropriate policy responses when a forecast error is observed, especially in dealing with “spaghetti code” risks. The performance of the framework should be subject to continuous review, and necessary measures should be readily available at all times. With these measures in place, it should be possible to prevent a mere forecast error from turning into an “irreversible” disorder of the whole system. In this sense, it is better to address the challenges of population ageing by incorporating a second best “fail-safe” mechanism into our overall institutional framework, rather than by chasing the first best solution while pretending our forecasts are always rational and unbiased.



Concluding remarks The recent financial crisis has completely changed the landscape of financial services, both for financial institutions and for supervisors. Before the Lehman crisis, people tended to see only the “bright side” of new financial products, such as securitized products, derivatives, and cross-border transactions, believing them to be backed by advanced and innovative risk-management and investment tools. However, since the crisis revealed the risks and problems associated with them, people have come to see mostly the “dark side” of these services. Nonetheless, there is still an essential need for financial products and services that can help individuals and firms manage their risks, since sustainable economic development can only be achieved through sound risk taking by private entities. Moreover, financial institutions will be expected to play an even more active role as more countries face the problems arising from population ageing. This is especially relevant to satisfying the need for longevity risk management and in coping with the problems of declining fertility, since financial institutions’ full use of their technologies and resources is the key to solving these problems. Thus, financial service providers should be able to contribute to the economic society by providing people with the tools to address the risks and harsh uncertainties of life, while enabling them to enjoy its thrills and happy surprises. In this respect, I believe that regulators and supervisors should bear the following two things in mind:



First, regulators and supervisors should always have a cross-industry and in some cases cross-border perspective, and they should also have a grand design as to how the economy can spread the risks necessary for sustainable growth, especially under population ageing. Second, regulators and supervisors should be aware that a desirable regulatory framework will continuously evolve, partly due to population ageing and the consequent structural changes in the economy and financial services. The current structure and regulatory framework will not last forever, and neither will sectoral classifications such as “banking,” “insurance,” and “securities”. For example, increased demand for longevity risk management could perhaps foster new cross-industry innovation between medical and financial services. From its unique vantage point, the Joint Forum is able to observe the signs of structural changes in financial services and to identify the need for regulatory and supervisory evolution. I sincerely hope that the Forum will continue to be attentive to new developments in financial services and lead the global debate on regulation and supervision. Now I come to the final words of my speech about ageing. Just as we mortal individuals mature and come of age, so too do institutions. Here is the Bank of Japan (Figure 4) more than a hundred years ago, in its youthful, burgeoning days.



And here is the Bank of Japan as it is today (Figure 5), surrounded by new architectural additions to the city skyline and still the focal point of the landscape.



The building itself has indeed matured, and in its maturity has come to fit itself perfectly to the new age. I believe the same can surely be said of the Joint Forum. Thank you for your kind attention.



Feedback on comments received from stakeholders to the EBA, EIOPA and ESMA’s Joint Consultation Paper on its proposed response to the European Commission’s Call for Advice on the Fundamental Review of the Financial Conglomerates Directive



Dear Member, Year after year, new laws and regulations require firms to undertake a forward-looking self-assessment of risks, corresponding capital requirements, and adequacy of capital resources. Year after year, it becomes critical to look into the future, to understand what is next. Which is the new law, regulation or development? Which are the challenges and the opportunities for firms and organizations? How will these changes affect the competitive position of existing and new capital warriors in the markets? There is a great window to look into the future: The excellent forward-looking papers of the Group of Thirty.

The Group of Thirty The Group of Thirty is a private, nonprofit, international body composed of very senior representatives of the private and public sectors and academia. The Group aims to deepen understanding of international economic and financial issues, to explore the international repercussions of decisions taken in the public and private sectors, and to examine the choices available to market practitioners and policymakers. Members



Emeritus Members



Toward Effective Governance of Financial Institutions Important Parts Weak and ineffective governance of systemically important financial institutions (SIFIs) has been widely cited as an important contributory factor in the massive failure of financial sector decision making that led to the global financial crisis. In the wake of the crisis, financial institution (FI) governance was too often revealed as a set of arrangements that approved risky strategies (which often produced unprecedented short-term profits and remuneration), was blind to the looming dangers on the balance sheet and in the global economy, and therefore failed to safeguard the FI, its customers and shareholders, and society at large. Management teams, boards of directors, regulators and supervisors, and shareholders all failed, in their respective roles, to prudently govern and oversee. On the subject of governance as it applies to FIs, much has been written and said in the past few years. Notable among these statements are the 2009 Walker report (A Review of Corporate Governance in UK Banks and other Financial Industry Entities) and the Basel Committee’s Principles for Enhancing Corporate Governance (2010). Many domestic regulators and stock exchanges have also weighed in with new requirements and guidelines for governance. The Group of Thirty (G30) applauds these prior initiatives and supports not only the spirit of their conclusions but also many of the detailed recommendations they contain.



The combination of these reports, self scrutiny by the firms themselves, and pressure from regulatory overseers has already yielded substantial changes in governance practice across the financial services industry and around the globe. Why would the G30 wish to add its own voice to the body of work already available, in light of progress being made? First, no one should presume that FI governance is now fixed. It is true that boards are working harder; supervisors are asking tough questions and preparing for more intensive oversight; management has become much more attuned to risk management and to supporting the oversight responsibilities of the board; and shareholders, to some degree, are taking a deeper look into their role in promoting effective governance. Nevertheless, as this report highlights, highly functional governance systems take significant time and sustained effort to establish and hone, and the G30’s input can help with that effort. Second, in a modern economy, business leadership represents a large concentration of power. The social externalities associated with the business of significant financial institutions give that power a major additional dimension and underscore the critical importance of good corporate governance of such entities. Third, we note that the prior reports and guidance almost always come from a national or regional perspective (the Basel Committee report being a notable exception), which is understandable as a practical matter, but curious given the distinctly global nature of the SIFIs, which are appropriately the focus of attention. Accordingly, in late spring of 2011, the G30 launched a project on the governance of major financial institutions.



The project was led by a Steering Committee chaired by Roger W. Ferguson, Jr., with John G. Heimann, William R. Rhodes, and Sir David Walker as its vice-chairmen. They were supported by 11 other G30 members, who participated in an informal working group. Requests for interviews went out from the G30 to the chairs of 41 of the world’s largest, most complex financial institutions— banks, insurance companies, and securities firms. In an extraordinary response, especially in light of the pressures on each of these companies, 36 institutions shared their perspectives and experiences through detailed discussions with board leaders, CEOs, and selected senior management leaders. In addition, the project team held discussions with a global cross section of FI regulators and supervisors. The majority of these interviews were conducted in person, all under the Chatham House Rule,which encourages candor. The report is the responsibility of the G30 Steering Committee and Working Group and reflects broad areas of agreement among the participating G30 members, who took part in their individual capacities. All G30 members (aside from those with current national official responsibilities) have had the opportunity to review and discuss preliminary drafts. The report does not reflect the official views of those in policy-making positions or leadership roles in the private sector. The report is wide-ranging in its coverage of the composition and functioning of FI boards and the roles of regulators, supervisors, and shareholders.



The focus is on potentially universal core themes but acknowledges differences in customs and practice in different parts of the world. As regards approaches to total compensation, we do not address this subject in detail in this report; the G30 commends the Financial Stability Board’s Principles for Sound Compensation Practices and fully supports their implementation. The G30 undertook its initiative on effective FI governance in the hope and expectation that FI board and senior management leaders could share actionable wisdom on the essence of effective governance and what it takes to build and nurture governance systems that work. We hope this report provides a measure of insight and sustenance to those with policymaking and operational responsibilities for effective governance in the world’s great financial institutions.



Executive Summary What is meant by “governance” in the context of a financial institution (FI)? Corporate governance is traditionally defined as the system by which companies are directed and controlled. The OECD Principles of Corporate Governance (2004) defines corporate governance as involving “a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.” In the case of financial institutions, chief among the other stakeholders are supervisors and regulators charged with ensuring safety, soundness, and ethical operation of the financial system for the public good. They have a major stake in, and can make an important contribution to, effective governance. Good corporate governance requires checks and balances on the power and rights accorded to shareholders, stakeholders, and society overall. Without checks, we see the behaviors that lead to disaster. But governance is not a fixed set of guidelines and procedures; rather, it is an ongoing process by which the choices and decisions of FIs are scrutinized, management and oversight are strengthened and streamlined, appropriate cultures are established and reinforced, and FI leaders are supported and assessed.



Why governance matters The global economic crisis, with the financial services sector at its center, wreaked economic chaos and imposed enormous costs on society. The depth, breadth, speed, and impact of the crisis caught many FI management teams and boards of directors by surprise and stunned central banks, FI regulators, supervisors, and shareholders. [Note: We attempt throughout the report to distinguish the regulatory function from the supervisory function. The regulator sets the rules and regulations within which FIs are obliged to operate, while the supervisor oversees the actions of the board and management to ensure compliance with those rules and regulations. Confusion arises because both functions are often performed within the same institution (for example, the U.S. Federal Reserve and the UK Financial Services Authority).] Enormous thought and debate has gone into discovering what caused the global financial crisis and how to avoid another. In his much-quoted 2009 report on the causes of the crisis, Lord Adair Turner, chair of the UK’s Financial Services Authority (FSA), cited seven proximate causes: (1) Large, global macroeconomic imbalances; (2) An increase in commercial banks’ involvement in risky trading activities; (3) Growth in securitized credit; (4) Increased leverage;



(5) Failure of banks to manage financial risks; (6) Inadequate capital buffers; and (7) A misplaced reliance on complex math and credit ratings in assessing risk. A critical subtext to these seven causes is a pervasive failure of governance at all levels. More generally, most observers have agreed that a combination of “light touch” supervision, which relied too heavily on self-governance in financial firms, and weak corporate governance and risk management at many systemically important financial institutions (SIFIs) contributed to the 2008 meltdown in the United States. In several key markets, deregulation and market-based supervision were the political order of the day as countries vied for global capital flows, corporate headquarters, and exchange listings. Regulators also missed the potential systemic impact of entire classes of financial products, such as subprime mortgages, and in general failed to spot the large systemic risks that had been growing during the previous two decades. In this context, boards of directors failed to grasp the risks their institutions had taken on. They did not understand their vulnerability to major shocks, or they failed to act with appropriate prudence. Management, whose decisions and actions determine the organization’s risk status, clearly failed to understand and control risks. In many cases, spurred on by shareholders, both management and the board focused on performance to the detriment of prudence.



Effective governance is a necessary complement to rules-based regulation. The system needs both. Carefully crafted rules-based regulations concerning capital, liquidity, permitted business activities, and so forth are essential safeguards for the financial system, while effective governance shapes, monitors, and controls what actually happens in FIs. Ineffective governance at financial institutions was not the sole contributor to the global financial crisis, but it was often an accomplice in the context of massive macroeconomic vulnerability. Effective governance can make a significant positive difference by helping to prevent future crises or by mitigating their deleterious impact. In other words, the rewards for investment in effective governance are great.

A call to action Each of the four participants in the governance system—boards of directors, management, supervisors, and (to an extent) long-term shareholders— needs to reassess their approach to FI governance and take meaningful steps to make governance stronger. This report offers a comprehensive set of concrete insights and recommendations for what each participant needs to do to make FI governance function more effectively. The G30 is acutely aware that the agendas of FI boards and supervisors are crowded, yet we urge them to continue to give effective governance one of their highest priorities.



‹. The financial sector needs better methods of assessing governance and of cultivating the behaviors and approaches that make governance systems work well. Board self-evaluation, especially when facilitated or led by an outside expert, can yield important insight, but it is sobering to consider that in 2007, most boards would likely have given themselves passing grades. ‹. Supervisors now aspire to understand governance effectiveness and vulnerabilities, but admit to having much to learn. ‹. Governance experts often describe what good governance looks like, but give little thought to how to measure or achieve high-performance results. Given the role that inadequate governance played in the massive failure of financial sector decision making that led to the global financial crisis, it is natural that supervisors and stock exchanges are now paying great attention to governance arrangements. This attention, as a practical matter, often focuses on explicit rules, structures, and processes—best practices—that governance experts often believe are indicative of effective governance. Consequently, compliance with best practice guidelines has become very important to boards and to overseers charged with monitoring and encouraging good governance. The G30 hopes this report will contribute meaningfully to the body of knowledge on governance and will be a useful tool for those tasked with shaping governance systems.

The board Boards of directors play the pivotal role in FI governance through their control of the three factors that ultimately determine the success of the



FI: the choice of strategy; the assessment of risk taking; and the assurance that the necessary talent is in place, starting with the CEO, to implement the agreed strategy. The 2008–2009 financial crisis revealed that management at certain FIs, with the knowledge and approval of their boards, took decisions and actions that led to terrible outcomes for employees, customers, shareholders, and the wider economy. What should the boards have done differently? To answer that question, it is helpful to consider the mandate of boards. Boards control the three key factors that ultimately determine the success of an FI: 1. The choice of business model (strategy) 2. The risk profile, and 3. The choice of CEO—and by extension the quality of the top-management team. Boards that permit their time and attention to be diverted disproportionately into compliance and advisory activities at the expense of strategy, risk, and talent issues are making a critical mistake. Above all else, boards must take every step possible to protect against potentially fatal risks. FI boards in every country must take a long-term view that encourages long-term value creation in the shareholders’ interests, elevates prudence without diminishing the importance of innovation, reduces short-term self-interest as a motivator, brings into the foreground the firm’s dependence on its pool of talent, and demands the firm play a palpably positive role in society. The importance of mature, open leadership by a skillful board chair cannot be overemphasized.



Effective chairs capitalize on the wisdom and advice of board members and management leaders and on the board’s interactions with supervisors and shareholders, individually and collectively. Good chairs respect each of these vital constituents, preside, encourage debate, and do not manage toward a predetermined outcome.

Risk governance Those accountable for key risk policies in FIs, on the board and within management, have to be sufficiently empowered to put the brakes on the firm’s risk taking, but they also play a critical role in enabling the firm to conduct well-measured, profitable risk-taking activities that support the firm’s long-term sustainable success. In the financial services sector more than in other industries, risk governance is of paramount importance to the stability and profitability of the enterprise. Without an ability to properly understand, measure, manage, price, and mitigate risk, FIs are destined to underperform or fail. Effective risk governance requires a dedicated set of risk leaders in the boardroom and executive suite, as well as robust and appropriate risk frameworks, systems, and processes. The history of financial crises, including the 2008–2009 crisis, is littered with firms that collapsed or were taken to the brink by a failure of risk governance. The most recent financial crisis demonstrated the inability of many FIs to accurately gauge, understand, and manage their risks. Firms greatly understated their inherent risks, particularly correlations across their businesses, and were woefully unprepared for the exogenous risks that unfolded during the crisis and afterward.



Management Management needs to play a continuous proactive role in the overall governance process, upward to the board and downward through the organization. The vast majority of governance and control processes are embedded in the organizational fabric, which is woven and maintained by management. The board is dependent on management for information and for translating sometimes highly technical information into issues and choices requiring business judgment. Governance cannot be effective without major continuing input from management in identifying the big issues and presenting them for discussion with the board. Management needs to strengthen the fabric of checks and balances in the organization. It must deepen its respect for the vital roles of the board and supervisors and help them to do their jobs well. It must reinforce the values that drive good behavior through the organization and build a culture that respects risk while encouraging innovation.

Supervisors Supervisors that more fully comprehend FI strategies, risk appetite and profile, culture, and governance effectiveness will be better able to make the key judgments their mandate requires. Supervisors have legally defined responsibilities relating to risk control; fraud control; and conformance to laws, regulations, and standards of



conduct. Supervisors now seek a deeper and more nuanced understanding of how the board works, how key decisions are reached, and the nature of the debate around them, all of which reveal much about the firm’s governance. Most FI boards applaud this expansion in the supervisors’ focus from control process details to include a broader grasp of issues and context. To be effective, however, this expansion requires regular interaction among senior people in supervisory agencies and boards and board members. Supervisors need to broaden their perspectives to include FI strategy, people, and culture. They should focus their discussions with senior management and the board on the real issues—through both formal and informal communications. But they must also maintain their independence and accept that they will at best have an incomplete picture. Similarly, supervisors must not try to do the board’s job or so overwhelm the board and management that they cannot guide the FI. Supervisors have a unique perspective on emerging systemic, macroprudential risks and can compare and contrast one FI with others. This is vital information to develop and share. Unfortunately, in the policy-making debate, the qualitative aspect of supervision is sometimes overshadowed by quantitative, rules-based regulatory requirements.



Clearly, new capital, liquidity, and related standards are essential to a more stable global financial architecture, but enhanced oversight of the performance and decision-making processes of major FIs is also essential.



Bermuda’s Insurance Solvency Framework The Roadmap to Regulatory Equivalence Planned 2012/2013 Developments • Full implementation of the groups rules for Class 4 and Class 3B groups, including group solvency and financial reporting requirements, effective 1st January 2013 • Continued phased implementation of Bermuda Solvency Capital Requirement (BSCR - standard capital model) for the Long-Term sector, i.e. Class E insurers, and also refined BSCR for small commercial insurers, i.e. Class 3A, for year-end 2011 filings • Extending the optional use of approved internal capital models to Long-Term insurers; preparation for group ICM reviews for the Long-Term sector • Revised eligible capital rules effective 1st January 2013 • Complete (Long-Term Prudential Standard Rules), effective 1st January 2013 for Class C and Class D insurers • Review of Commercial Insurers Solvency Self-Assessment submissions in 2012 for year-end 2011 filings from Class 4, 3B, 3A and Class E firms • Introduction of the Quarterly Financial Return for Class 4 and Class 3B insurers, which will comprise unaudited financial statements, intra-group transactions and risk concentrations and will be filed in May, August and November 2012



Completed Framework Developments • Substantially completed the policy and legislative infrastructure for group supervision, which included issuing the Insurance (Group Supervision) Rules 2011 as well as the Insurance (Prudential Standards) (Insurance Groups Solvency Requirement) Rules 2011.

Also identified over 20 insurance groups for which the BMA will be the Group-Wide Supervisor (GWS)

• Completed pilots and pre-application procedures with selected insurers for the internal capital models (ICM) evaluation process

• Established the Commercial Insurers’ Solvency Self-Assessment (CISSA) requirement, our Bermuda-specific ORSA (Own Risk and Solvency Assessment)

• Advanced work to establish an Economic Balance Sheet policy and framework

• Developed a refined Bermuda Solvency Capital Requirement standard capital adequacy model as a core element of our enhanced supervisory framework for the Long-Term (life) insurance sector

• Implemented evaluations of an enhanced Schedule of Risk Management and new Catastrophe Return submissions by insurers as part of solvency assessments

• Extended our disclosure and transparency requirements to Class 3A and Class E Long-Term insurers by requiring submission of GAAP financial statements that the Authority will make publicly available.



Progress note on the Global LEI Initiative This is the third of a series of notes on the implementation of the legal entity identifier (LEI) initiative. Following endorsement of the FSB report and recommendations by the G-20, the FSB LEI Implementation Group (IG) has been tasked with taking forward the planning and development work to launch the global LEI system by March 2013. The IG is collaborating closely with private sector experts through a Private Sector Preparatory Group (PSPG) of some 300 members from 25 jurisdictions across the globe.

Charter for the Regulatory Oversight Committee (ROC):

The IG has prepared a draft Charter for the Regulatory Oversight Committee for review and endorsement by the FSB and G20. The draft was supported by the FSB at its recent meeting in Tokyo for submission to the early November G20 Finance Ministers and Central Bank Governors meeting for final endorsement. Approval of the Charter will initiate the process for the ROC to be formed. ROC membership will be open to public authorities from across the globe that assent to the Charter. Authorities will also be able to apply for Observer status. The objective is to launch the ROC as the permanent governance body for the global LEI system in January 2013.



Location and legal form of the global LEI foundation: Formation of the ROC is a necessary step for the creation of the global LEI foundation which is the legal form for the Central Operating Unit. The location and exact legal form of the global LEI foundation will have a bearing on the overall governance framework for the Global LEI System. The IG and PSPG have analysed potential locations for the foundation and have now initiated a detailed assessment of a narrow set of potential candidates. The results of the assessment will facilitate the drafting of the necessary legal documentation to establish the foundation and will be presented at the first meeting of the ROC.

Board of Directors of the LEI foundation:

One of the first tasks for the ROC will be the appointment of the initial Board of Directors. PSPG members are working closely with the IG to develop criteria for fitness, experience, regional and sectoral balance, term of office etcetera that will support the process for nomination and selection of the first Board and deliver a governance framework for the global LEI foundation to help sustain the public good nature of the system. The PSPG presented a number of initial recommendations and options related to these criteria for the Board of Directors on 16 October; the proposals are currently being reviewed by the IG and the final version of the recommendations will be presented at the first meeting of the ROC.



Operational Solutions Demonstration Day:

The FSB hosted a Global LEI System Operational Solution Demonstration Day in Basel on 15 October. Thirteen presentations from across the globe were made that contained proposals and solutions covering all or part of the proposed global LEI system as set out in the FSB report.

Business Processes and Use Cases:

PSPG members presented an initial set of deliverables containing business processes and use cases for the operational elements of the global LEI system at the joint PSPG and IG meeting on 16 October. PSPG members have already undertaken detailed work in some areas and will expand on a strong base. The next phase of the operational work is to build on these specification documents, focusing on how the system can best address a number of key issues in relation to areas such as data quality, addressing local languages, as well as how to draw most effectively on local infrastructure to deliver a truly global federated LEI system. The PSPG are requested to prepare clear proposals and recommendations by the end of the year, in order to support a successful and speedy launch of the global LEI system.

Number allocation scheme for the global LEI system: On 12 September, the IG requested an ‘engineering study’ from PSPG experts to determine which scheme for the management of the issue of identifiers best serves the purposes of the global LEI system. Following receipt of response and discussion with private sector experts at the 16 October PSPG meeting, the IG prepared a recommendation for



the technical specification of the LEI code structure which has been endorsed by the FSB Plenary. Annex sets out the FSB decision to adopt a ‘structured’ approach to the number allocation scheme, whereby LOUs are assigned a unique prefix. The FSB decision is provided now to deliver clarity and certainty to the private sector on the approach to be taken by potential pre-LEI systems that will facilitate the integration of such local precursor solutions into the global LEI system.

Ownership and hierarchy data: Addition of information on ownership and corporate hierarchies is essential to support effective risk aggregation, which is a key objective for the global LEI system. The IG is developing proposals for additional reference data on the direct and ultimate parent(s) of legal entities and on relationship (including ownership) data more generally and will prepare initial recommendations by the end of 2012. The IG is working closely with the PSPG to develop the proposals.

Annex: Number Allocation Scheme for the Global LEI System - implications for local pre-LEI Issuers and other early movers

In response to requests for early clarity and guidance on the determination of the number allocation scheme for the management of identifiers for the Global LEI System, the FSB Implementation Group requested an ‘engineering study’ from the FSB LEI Private Sector Preparatory Group (PSPG) experts to explore the advantages and disadvantages of different schemes. The FSB is very grateful for all of the responses and for the contributions of members of the PSPG.



While there are a range of different schemes to manage the issue of identifiers that fit the characteristics of the 20 digit code (including two check digits) approach outlined in the ISO 17442 standard, for simplicity those schemes can be categorised into two general groups: - An unstructured numbering system – one where an 18 character

unique identifier fills the whole numbering spectrum; - A structured numbering system – one where subsets of the spectrum

of possible codes are partitioned for efficient allocation according to a structural guideline; for instance, an N digit prefix could be assigned to each Local Operating Unit (LOU) for its exclusive use.

On the basis of the arguments presented, the FSB has concluded that a structured number offers the best approach for the Global LEI System. The following method is to be used: - Characters 1-4: A four character prefix allocated uniquely to each

LOU. - Characters 5-6: Two reserved characters set to zero.

- Characters 7-18: Entity-specific part of the code generated and

assigned by LOUs according to transparent, sound and robust allocation policies.

- Characters 19-20: Two check digits as described in the ISO 17442

standard. Public authorities wishing to sponsor local pre-LEI issuance that would transition to the LEI system should ensure that new numbers are allocated according to the above guideline. Pre-LEI solutions wishing to transition into the Global LEI System upon its launch shall be required to adopt the numbering scheme outlined above no later than 30 November 2012.



This approach does not affect ISO 17442 compliant numbers issued prior to that date. Once the global LEI system is in place, pre-LEI codes issued according to the ISO 17442 standard (and if issued after November 30, complying with the above guideline and thus embodying an appropriate 4 digit prefix) will be transitioned into LEIs, subject to meeting the agreed global LEI standards, including survival rules adopted by the ROC or the COU in the exceptional cases where entities have multiple ISO 17442 compliant pre-LEI identifiers. The LEI will be portable within the global LEI system, implying that the LEI code may be transferred from one LOU to another. Each LOU should immediately transfer an LEI to a different LOU following the request of the LEI registrant or an LOU acting on its behalf without any financial or operational hindrance. Each LOU must consequently have the capability to take over responsibility for LEIs issued by other LOUs. Given the importance to the system of ensuring high data quality, recommendation 18 of the FSB LEI report highlighted that the LEI system should promote the provision of accurate LEI reference data at the local level from LEI registrants, and that self-registration should be encouraged as a best practice for the global LEI system. To provide force to this recommendation, the FSB has agreed that pre-LEI services should henceforth be based on self-registration. From November 9, all pre-LEI systems will allow self-registration only. Authorities sponsoring pre-LEI issuers are expected to sign the ROC Charter once it is approved by the G20.



The following is a full version of the Group of 20 communique:

1. We, the G20 Finance Ministers and Central Bank Governors, met to assess progress on the fulfillment of the mandates given to us by our Leaders, to promote robust growth and job creation and to address ongoing economic and financial challenges. 2. We will do everything necessary to strengthen the overall health and growth of the global economy. Our main focus in the period ahead will be to rebuild confidence and to reduce risks and volatility in international financial markets; contribute to a faster pace of economic recovery and job creation, and promote the foundations for strong, sustainable, and balanced growth. We are firmly committed to open trade and investment, expanding markets and resisting protectionism in all its forms. 3. We have made significant progress in implementing the commitments established in the Los Cabos Growth and Jobs Action Plan. Substantive measures have been adopted in Europe, including the launch of the European Stability Mechanism, the decision of the ECB on Outright Monetary Transactions, the agreement by European leaders to establish a single supervisory mechanism for banks, the adoption and ongoing implementation of the Compact for Growth and Jobs, and the reforms and fiscal consolidation carried out by a number of European countries. Other countries with policy space have implemented actions to support aggregate demand. Major central banks have taken further unconventional measures in line with their respective mandates which are welcomed.



4. Global growth remains modest and downside risks are still elevated, including due to possible delays in the complex implementation of recent policy announcements in Europe, a potential sharp fiscal tightening in the United States, securing funding for this year's budget in Japan, weaker growth in some emerging markets and additional supply shocks in some commodity markets. The reduction of global imbalances has not been sufficient, and in many countries the process of necessary deleveraging by the private and public sectors is ongoing and unemployment remains high. Complete and timely implementation of all of our policy commitments is critical in order to continue to reduce risks and secure a durable and strong recovery. 5. We are committed to build on the policy measures taken in recent months. Current reform momentum in the EU on structural, fiscal and financial fields needs to be continued with the view to improving competitiveness and promoting financial stability. In this respect, we welcome the recent decision by European leaders to agree on a legislative framework by January 1st 2013 on a single supervisory mechanism. We look forward to the operational implementation of the single supervisory mechanism in the course of 2013 and to the completion of the technical discussions on the future of the ESM direct bank recapitalization instrument, within a broader strategy of completing the architecture of the EMU. 6. We will ensure our public finances are on sustainable paths, in line with the medium-term Toronto commitments in the case of advanced economies.



In light of the weak pace of global growth, they will ensure that the pace of fiscal consolidation is appropriate to support the recovery. Countries which have fiscal space will let the automatic fiscal stabilizers operate as appropriate. Those with sufficient space stand ready to support demand as needed in the shortrun should economic conditions deteriorate. The United States will carefully calibrate the pace of fiscal tightening to ensure that public finances are placed on a sustainable long-run path while avoiding a sharp fiscal contraction in 2013. In Japan further progress in medium-term fiscal consolidation is needed. By the next Summit, advanced economies agree to identify credible and ambitious country-specific targets for the debt-to-GDP ratio beyond 2016, where these do not currently exist, accompanied by clear strategies and timetables to achieve them. 7. The weak pace of global growth also reflects limited progress towards sustaining and rebalancing global demand. We commit to achieving external and internal adjustment in a way that supports and sustains growth and leads to global rebalancing. In this regard, we reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies; to boost domestic sources of growth in surplus economies, and boost national savings in deficit economies. We reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.



We commit to the implementation of ambitious structural reforms aimed at promoting output and employment. We have also made progress in strengthening our Accountability Assessment framework by agreeing on a set of measures to inform our analysis of our fiscal, monetary and exchange rate policies. We will consider a range of indicators and approaches to assess spillover effects, progress towards commitments on structural reforms, and our collective achievement of strong, sustainable and balanced growth. 8. We welcome the continuation of the process to strengthen IMF resources to safeguard global financial stability and enhance the IMF's role in crisis prevention and resolution. Since the Los Cabos Summit, additional pledges have been received from more members, and total commitments add up to US$461 billion. Furthermore, we welcome the formalization of the first set of bilateral borrowing agreements under the agreed modalities comprising US$286bn, which represent more than half of the Los Cabos' 2012 pledge. We call for the finalization of the remaining bilateral agreements. 9. We welcome IMF´s Executive Board decision on the use of US$2.7bn of additional resources from the windfall gold sales profits for the Fund´s Poverty Reduction and Growth Trust and call on the membership to provide the assurances needed for this to take place. This effort reinforces the international community´s will to reduce poverty by boosting financial assistance to low income country members. 10. We remain committed to the full implementation of the 2010 Quota and Governance Reform.



Although significant progress has been achieved, as of October 2012 the conditions for the entry into force of the 2010 Quota and Governance Reform have not been fully met. We reaffirm the urgency of making these important reforms effective and call on members who have yet to complete the process to do so as soon as possible. The process of IMF reform will enhance its legitimacy, relevance and effectiveness. 11. We are committed to completing the comprehensive review of the quota formula, to address deficiencies and weaknesses in the current quota formula, by January 2013 and to complete the next general review of quotas by January 2014. We agree that the formula should be simple and transparent, consistent with the multiple roles of quotas, result in calculated shares that are broadly acceptable to the membership, and be feasible to implement based on a timely, high quality and widely available data. We reaffirm that the distribution of quotas based on the formula should better reflect the relative weights of IMF members in the world economy, which have changed substantially in the view of a strong GDP growth in dynamic emerging markets and developing countries. We reaffirm the importance of continuing to protect the voice and representation of the poorest members of the IMF. We call on the IMF membership to develop the consensus needed to complete the review by January 2013. 12. We welcome the strengthening of the IMF's surveillance framework through the adoption of the new Integrated Surveillance Decision, and we welcome the introduction of the Pilot External Sector Report to strengthen multilateral analysis and enhance the transparency of surveillance.



A transparent and evenhanded framework of surveillance is key to achieve ownership and traction of policy recommendations by the IMF, thus making surveillance more effective. 13. We note the World Bank and other International Organizations' (IOs) progress report on implementation of the G20 action plan to support the development of local currency bond markets. We look forward to full implementation of the action plan in 2013 to ensure a broad ownership of the diagnostic tool among potential users, and further reporting on progress by the World Bank. We welcome ongoing regional initiatives to promote local currency bond markets. We will deepen work on these issues under Russia´s Presidency. 14. We acknowledge the importance of long term financing, particularly for infrastructure investment, recognizing that work on this subject will foster an environment more conducive to long-term investment, effectively helping to boost jobs and growth. We ask that the World Bank, IMF, OECD, FSB, UN and relevant IOs undertake further diagnostic work to assess factors affecting long-term investment financing including its availability. We look forward to receiving this work in early 2013 to provide a sound basis for any future G20 work. 15. We remain committed to the full, timely and consistent implementation of the financial regulation agenda, and discussed the latest FSB reports on the progress in implementation of agreed reforms. We endorse the conclusions and recommendations of the fourth progress report on the implementation of the G20 commitments to OTC derivatives reforms and the BCBS report on implementation of Basel III.



We agree to put in place the legislation and regulation for OTC derivatives reforms promptly and act by end-2012 to identify and address conflicts, inconsistencies and gaps in our respective national frameworks, including in the cross-border application of rules. We agree to take the measures needed to ensure full, timely and effective implementation of Basel II, 2.5 and III and its consistency with the internationally agreed standards. We look forward to receiving for our April meeting the BCBS report on the consistency of measurement of risk-weighted assets. We endorse the Charter for the Regulatory Oversight Committee which will act as the governance body for the global Legal Entity Identifier system to be launched in March 2013. 16. We acknowledge progress made in the design and implementation of policy measures to strengthen the resilience of the financial system and reduce systemic risks. In particular, we welcome the publication by the FSB of an updated list of global systemically important banks, the BCBS framework for dealing with domestic systemically important banks, and the International Association of Insurance Supervisors (IAIS) consultation paper on policy measures for global systemically important insurance companies. We commit to make the necessary changes to resolution regimes to enable authorities to resolve SIFIs. We welcome the initial integrated set of policy recommendations to strengthen the oversight and regulation of shadow banking together with expanded data monitoring. We call for finalized policy measures by the St. Petersburg Summit for oversight and regulation for shadow banking that can be peer-reviewed.



17. We also welcome the recommendations to increase the intensity and effectiveness of SIFI supervision, and the FSB's roadmap to accelerate implementation of the FSB Principles for Reducing Reliance on Credit Rating Agency Ratings. We encourage further work to enhance transparency of and competition among credit rating agencies and ask IOSCO to provide a report on ongoing work at our meeting in April. We support measures to strengthen the transparency of financial institutions and recognize the contribution of the Enhanced Disclosure Task Force. Recognizing the need for adequate statistical resources, we endorse the progress report of the FSB and the IMF on closing information gaps, and in particular look forward to the implementation of the data reporting templates for global systemically important financial institutions. We are concerned about the slow progress achieved toward a single set of high quality accounting standards. We encourage the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) to complete work promptly, and report to our next meeting. In relation to LIBOR, EURIBOR and other financial benchmarks, we welcome actions taken and ongoing reviews to identify measures to address weaknesses and restore confidence in benchmark and index setting practices and welcome the coordinator role of the FSB as agreed. We ask IOSCO to provide by our April meeting a report on the next steps on the functioning of credit default swaps markets. We expect the FSB to continue monitoring, analyzing and reporting on the unintended consequences of regulatory reforms on EMDEs.



18. We welcome the FSB's progress in implementing the measures endorsed at Los Cabos to strengthen its capacity, resources and governance. We look forward to its establishment as a legal entity by our next meeting and its full implementation by September 2013. We call on the FSB to report back on how it intends to keep under review the structure of its representation. 19. We welcome the observed increase in jurisdictions' adherence to international regulatory and supervisory cooperation and information exchange standards, as stated in the FSB status report, and call for further progress. 20. We remain committed and encourage the FATF to continue to pursue all its objectives, and notably to continue to identify and monitor high-risk jurisdictions with strategic Anti-Money Laundering /Counter-Terrorist Financing (AML/CFT) deficiencies. We look forward to the completion in 2013 of the revision of the FATF assessment process. We encourage all countries to adapt their legal framework with a view to complying with the revised FATF's Recommendations, in particular the necessity to identify the beneficial owner of corporate vehicles, and we look forward to the assessment of the effectiveness of the measures countries take and their compliance with the global standards in the next round of Mutual Evaluations. 21. We commend the signings of the Multilateral Convention in Cape Town and further progress made towards transparency as reported by the Global Forum whose membership has increased. We look forward to a progress report by the Global Forum on the effectiveness of information exchange practices by April 2013.



We welcome and endorse the improved OECD standard with respect to information requests on a group of taxpayers and encourage all countries to adopt it when appropriate. We will continue to implement practices of automatic exchange of information and call on the OECD to analyze the safeguards, mechanisms and milestones necessary to increase its use and efficient implementation in a multilateral context. We also welcome the work that the OECD is undertaking into the problem of base erosion and profit shifting and look forward to a report about progress of the work at our next meeting. 22. We welcome the work stated in the final 2012 Global Partnership for Financial Inclusion (GPFI) progress report on implementing the five recommendations set out in 2011 and the progress on implementing the G20 Principles for Innovative Financial Inclusion, including through concrete actions by developing and emerging countries to meet their commitments to the Maya Declaration. We commend the additional commitments to the Maya Declaration made in Cape Town in 2012, and encourage countries to measure progress through national data collection efforts. We welcome the decision to establish the Alliance for Financial Inclusion (AFI) as a permanent network for knowledge creation, exchange and policy dialogue. 23. We welcome the first GPFI Conference on Standard-Setting Bodies and Financial Inclusion as a substantial demonstration of growing commitment among Standard Setting Bodies (SSBs) to provide guidance and to engage with the GPFI to explore the linkages among financial inclusion, financial stability, financial integrity and financial consumer protection. We also commend the work done to continue improving SMEs financing and their environment.



24. Together with the implementing partners, we look forward to updates on the G20 Financial Inclusion Peer Learning Program and encourage the commitment to other initiatives that promote Financial Inclusion. 25. For advancing the financial consumer protection agenda, we acknowledge the work done by the International Financial Consumer Protection Network (FinCoNet) to support the exchange of best practices and look forward for a progress report by the G20 Summit in St. Petersburg in 2013. We also welcome the implementation of the action plan by the G20 OECD Task Force on Financial Consumer Protection and progress achieved in Cartagena, including in the field of national strategies and financial education for women, by the OECD International Network on Financial Education (INFE). 26. We welcome the number of proposals received in response to the 2012 Mexico Financial Inclusion Challenge: Innovative Solutions for Unlocking Access. We congratulate the finalists and the winner. 27. In Los Cabos, Leaders recognized that excessive commodity price volatility has significant implications for countries, increasing uncertainty in the economy, and endorsed the conclusions of a report on the macroeconomic impacts of excessive commodity price volatility on growth. Ahead of the 2013 Summit, we will report progress on the G20's contribution to facilitate better functioning of commodity markets, considering possible areas for further work outlined in the report. 28. We reaffirm our commitment to improve transparency and functioning of commodity markets.



We welcome the progress made in the implementation of the Agricultural Market Information System (AMIS) which will provide more transparency on physical markets for agricultural commodities. We welcome the IEF's recommendations to improve the reliability of the JODI-Oil database. We welcome the report prepared by the IEA, the IEF and the OPEC on increasing transparency in international gas and coal markets and ask these organizations to propose practical steps by mid-2013 that G20 countries could take to implement them. We welcome progress on the JODI-Gas database and look forward to working with it in 2013. We welcome the report on recommendations to improve the functioning and oversight of oil Price Reporting Agencies, and ask IOSCO to liaise with the IEA, IEF and OPEC to assess the impact of the principles on physical markets and report back. We also ask IOSCO to report progress on the implementation of the principles in 2013. We reaffirm our commitment to enhance transparency and appropriate regulation in financial commodity markets, and thus we welcome IOSCO's report on the implementation of its Principles for the Regulation and Supervision of Commodities Derivatives Markets. 29. In Los Cabos, Leaders highlighted that green growth and sustainable development policies have strong potential to stimulate long term prosperity. We will voluntarily self-report again in 2013 on our efforts to incorporate green growth and sustainable development policies into structural reform agendas, taking into account the outcome of the UN Conference on Sustainable Development (Rio+20).



We will report back to our leaders on the progress made to rationalize and phase-out over the medium-term inefficient fossil fuel subsidies that encourage wasteful consumption, while providing targeted support for the poorest. We will develop a voluntary peer review process on such fossil fuel subsidies and present a report on the outcomes to our Leaders in 2013. We welcome the OECD report on pension funds financing green initiatives. 30. Recognizing that the UNFCCC is the forum for climate change negotiations and decisionmaking at the international level, we acknowledge that climate finance is a relevant issue to be discussed amongst G20 Finance Ministers and Central Bank Governors. We welcome the progress report by the G20 Climate Finance Study Group on ways to effectively mobilize resources for climate finance. We will continue working towards building a better understanding of the underlying issues among G20 members taking into account the objectives, provisions and principles of the UNFCCC, and report back to our Leaders in 2013. 31. We recognize that disaster risk financing policies are necessary for an overall Disaster Risk Management (DRM) strategy. We appreciate and welcome the combined efforts made by the World Bank and the OECD, with the support of the United Nations, to broaden the participation in the discussion on DRM by highlighting the central role that financial policymakers play to support other areas of Government and civil society in dealing with disasters. We welcome the G20/OECD voluntary framework for disaster risk assessment and risk financing which provides a detailed guideline that aims to facilitate the implementation of more effective DRM strategies.



We encourage further efforts by the World Bank and OECD in cooperation with other relevant international organizations to leverage the voluntary framework in order to address remaining challenges. 32. We commend Mexico for chairing the G20 in 2012 and look forward to Russia's presidency in 2013.

The Finance Track

The Finance Track in the G20 focuses on financial and economic issues; these include providing solutions to the current economic problems, economic stabilization and structural reforms, increasing international coordination for crisis prevention, correction of external, fiscal and financial imbalances, providing resources to increase global liquidity, and strengthening the international financial system.

The Finance Track is composed of all G20 Finance Ministers and Central bank Governors who meet regularly during the year to discuss the current economic global problems and take coordinated actions towards their solutions; these meetings are attended also by International Organizations such as the IMF, World Bank, OECD or the Financial Stability Board.

Organizationally, the track operates with working groups formally established within the G20 but also through close cooperation with international financial entities.

Currently the Finance Track of the G20 is organized in the following major areas:

I. Framework for Strong, Sustainable and Balanced Growth Working Group (Co-chaired by Canada and India)

II. Financial Regulation

III. Financial Inclusion, Financial Education and Consumer Protection

IV. International Financial Architecture Working Group (Co-chaired by Australia and Turkey)



V. Energy and Commodities Markets Working Group (Co-chaired by Indonesia and United Kingdom)

a. Commodities Markets Subgroup (Co-chaired by Brazil and United Kingdom)

b. Energy and Growth Subgroup (Co-chaired by Korea and United States)

VI. Disaster Risk Management

VII. Climate Finance Study Group (Co-chaired by France and South Africa)

The G20 has been a very effective forum of international coordination and cooperation for crisis mitigation and to foster economic growth and strengthen financial regulation.

It has also increased its scope to other relevant economic issues such as financial inclusion and education, disaster risk management, green growth or climate finance. Under the Mexican presidency, the Finance track launched the 2012 G20 Agenda on December 13-14th 2011 with a seminar in Mexico City. In preparation to the Leaders Summit in Los Cabos in June, Finance Ministers and Central Bank Governors have met on February and April to discuss current relevant economic problems and have taken coordinated actions for their solution.



Solvency II Speakers Bureau The Solvency II Association has established the Solvency II Speakers Bureau for firms and organizations that want to access the expertise of Certified Solvency ii Professionals (CSiiPs) and Certified Solvency ii Equivalence Professionals (CSiiEPs). The Solvency II Association will be the liaison between our certified professionals and these organizations, at no cost. We strongly believe that this can be a great opportunity for both, our certified professionals and the organizers. To learn more: www.solvency-ii-association.com/Solvency_II_Speakers_Bureau.html

http://www.solvency-ii-association.com/Solvency_II_Speakers_Bureau.html



Course Title Certified Solvency ii Professional (CSiiP):

Preparing for the Solvency ii Directive of the EU (3 days) Objectives: This course has been designed to provide with the knowledge and skills needed to understand and support compliance with the Solvency ii Directive of the European Union. Target Audience: This course is intended for decision makers, managers, professionals and consultants that: A. Work in Insurance or Reinsurance firms of EEA countries. B. Work in Groups - Financial Conglomerates (FC), Financial Holding Companies (FHC), Mixed Financial Holding Companies (MFHC), Insurance Holding Companies (IHC) - providing insurance and/or reinsurance services in the EEA, whose parent is located in a country of the EEA. C. Want to understand the challenges and the opportunities after the Solvency ii Directive. This course is highly recommended for supervisors of EEA countries that want to understand how countries see Solvency II as a Competitive Advantage. This course is also recommended for all decision makers, managers, professionals and consultants of insurance and/or reinsurance firms involved in risk and compliance management.



About the Course INTRODUCTION

The European Union’s Legislative Process

Directives and Regulations

The Financial Services Action Plan (FSAP) of the EU

Extraterritorial Application of European Law

Extraterritorial Application of the Solvency II Directive

Solvency ii and the Lamfalussy Process

Level 1: Framework Principles

Level 2: Detailed Technical MeasuresLevel 3: Strengthening Cooperation Among Regulators

Level 4: Enforcement

Weaknesses of Solvency I

From Solvency I to Solvency II

Solvency ii Players

Solvency ii Objectives THE SOLVENCY II DIRECTIVE

A Unified Legislative Basis for Prudential Regulation of Insurers and Reinsurers

Risk-Based Capital Allocation

Scope of the Application

Important Definitions

Value-at-Risk in Solvency II

Authorisation

Corporate Governance

Governance Functions

Risk Management

Corporate Governance and Risk Management - Level 2

Fit and proper requirements for persons who effectively run the undertaking or have other key functions

Internal Controls



Internal Audit

Actuarial Function

Outsourcing

Board of Directors: Role and Solvency ii Responsibilities

12 Principles – System of Governance (Level 2) PILLAR 2

Supervisory Review Process (SRP)

Focus on Risk Management and Operational Risk

Own Risk and Solvency Assessment (ORSA)

ORSA - The Internal Assessment Process

ORSA - The Supervisory Tool

ORSA - Not a Third Solvency Capital Requirement

Capital add-on PILLAR 3

Disclosure Requirements

The Solvency and Financial Condition Report (SFC) PILLAR I

Valuation Of Assets And Liabilities Technical Provisions

The Solvency Capital Requirement (SCR)

The Value-at-Risk Measure Calibrated to a 99.5% Confidence Level over a 1-year Time Horizon

The Standard Approach

The Internal Models

The Collection of Additional Historical Data

External Data

The Minimum Capital Requirement (MCR)

Non-Compliance with the Minimum Capital Requirement

Non-Compliance with the Solvency Capital Requirement

Own Funds

Investment Rules



INTERNAL MODEL APPROVAL

CEIOPS Level 2 - Tests and Standards for Internal Model Approval

CEIOPS Level 2 - The procedure to be followed for the approval of an internal model

Internal Models Governance

Group internal models

Statistical quality standards

Calibration and validation standards

Documentation standards SOLVENCY II, GROUP SUPERVISION AND THIRD COUNTRIES

Solvency I: Solo Plus Approach

Group Supervision under Solvency II

Rights and duties of the group supervisor

Group Solvency - Methods of calculation

Method 1 (Default method): Accounting consolidation-based method

Method 2 (Alternative method): Deduction and aggregation method

Parent Undertakings Outside the Community - Verification of Equivalence

Parent Undertakings Outside the Community - Absence of Equivalence

The head of the group is in the EEA and the third country regime is not equivalent

The head of the group is in the EEA and the third country regime is equivalent

The head of the group is outside the EEA and the third country is not equivalent

The head of the group is outside the EEA and the third country regime is equivalent

Small and Medium-Sized Insurers: The Proportionality Principle

Captives and Solvency II



EQUIVALENCE WITH SOLVENCY II AROUND THE WORLD

Solvency ii and Countries outside the European Economic Area

The International Association of Insurance Supervisors (IAIS)

The Swiss Solvency Test (SST) and Solvency ii:

Solvency ii and the Offshore Financial Centers (OFCs)

Solvency ii and the USA

Solvency ii and the US National Association of Insurance Commissioners (NAIC) - The Federal Insurance Office created under the Dodd-Frank Wall Street Reform and Consumer Protection Act in the USA, and the ORSA in the USA

FROM THE REINSURANCE DIRECTIVE TO THE SOLVENCY II DIRECTIVE

Directive 2005/68/EC of 16 November 2005 on Reinsurance - The Reinsurance Directive (RID)

CLOSING

The Impact of Solvency ii Outside the EEA

Providing Insurance Services to the European Client

Competing with Banks

Learning from the Basel ii Framework

Regulatory Arbitrage: A Major Risk for Countries that see Compliance as an Obligation, not an Opportunity

Basel II, Basel III, Solvency II and Regulatory Arbitrage

Challenges and Opportunities: What is next

Regulatory Shopping after Solvency II To learn more about the course: www.solvency-ii-association.com/Certified_Solvency_ii_Training.htm

http://www.solvency-ii-association.com/Certified_Solvency_ii_Training.htm



http://www.solvency-ii-association.com/New_Member_Orientation_Newsletters.html

Solvency II News November 2012

Documents

Transcript of Solvency II News November 2012