Twin Peaks for Europe: State-of-the-Art Financial Supervisory Consolidation : Rethinking the Group Support Regime Under Solvency II

The Book Addresses The Truly Interdisciplinary And Highly Controversial Subject Of International Financial Regulation And Supervision, Which Has Been At The Center Of Academic, Political, And Public Attention Since The Start Of The Current Economic And Financial Crisis. Drawing On International Financial Regulatory And Supervisory Experience And In Line With The European Monetary Union’s Gradual Transformation Into A Genuine Economic And Monetary Union, It Proposes The Transformation Of The European Financial Supervisory Framework Into A Hybrid Twin-peaks Model To Create The Previously Missing Necessary Legal Foundation For The Adoption Of The So-called Group Support Regime (gsr). The Latter Is A Relatively Simple And Transparent Capital Management Tool For (re)insurance Groups Operating In A Parent-subsidiary Structure Proposed By The European Commission Under The New Solvency Ii Insurance Supervisory Framework, Which Despite Lengthy Consideration Was Eventually Rejected By Member States. 1 Introduction -- 2 Milestones Of European Insurance Regulation -- 3 European Financial Services Legislation -- 4 Insurance Groups And Their Supervision -- 5 The Group Support Regime -- 6 Towards A Genuine Economic And Monetary Union -- 7 Reform Considerations For The European Financial Stability Framework -- 8 Conclusion. Olivia Johanna Erdelyi. Originally Presented As The Author's Thesis (doctoral - Heinrich-heine-universität, Düsseldorf, 2015). Includes Bibliographical References. Acknowledgments 6 Contents 8 Abbreviations 12 List of Figures 16 List of Tables 18 1 Introduction 19 References 25 Other Sources 25 2 Milestones of European Insurance Regulation 26 2.1 Three Generations of Insurance Directives 27 2.1.1 First Generation Insurance Directives 27 2.1.2 Second Generation Insurance Directives 28 2.1.3 Third Generation Insurance Directives 28 2.2 Solvency I 29 2.2.1 The Main Features of Solvency I 30 2.2.2 Shortcomings of Solvency I 31 2.2.3 Need for Modernization 33 2.3 Solvency II 34 2.3.1 Principal Stakeholders in the Solvency II Process 34 2.3.2 The Phases of the Solvency II Process 38 Learning Phase 39 Framework Directive Phase 41 Implementing Phase 43 Enforcement Phase 43 2.4 Legal Basis and Structure of the Solvency II Directive 44 2.4.1 Pillar 1 44 2.4.2 Pillar 2 46 2.4.3 Pillar 3 47 2.4.4 Roof 48 References 48 Case Law 49 Legislation 49 Other Sources 51 3 European Financial Services Legislation 55 3.1 Background 56 3.2 The Pre-Lisbon Lamfalussy Framework 59 3.2.1 Level 1: Framework Principles 60 3.2.2 Level 2: Implementing Measures 61 3.2.3 Level 3: Uniform Implementation 66 3.2.4 Level 4: Enforcement 66 3.2.5 Review of the Lamfalussy Process 68 3.3 Changes Brought by the Lisbon Treaty 68 3.3.1 Co-Decision Procedure Becomes Ordinary Legislative Procedure 69 3.3.2 Comitology Reform 69 New Legal Framework for Delegation of Powers 71 3.4 The de Larosière Reform 74 3.4.1 Flaws in the European Financial Supervisory Framework 77 3.4.2 The European System of Financial Supervision 78 The European Systemic Risk Board 78 The European Supervisory Authorities 80 3.5 The Post-Lisbon Lamfalussy Framework 81 3.5.1 Level 1: Framework Legislative Acts 83 3.5.2 Level 2: Non-Legislative Acts 83 3.5.3 Level 3: Uniform Implementation 86 3.5.4 Level 4: Enforcement 87 References 87 Case Law 87 Legislation 87 Other Sources 89 4 Insurance Groups and Their Supervision 92 4.1 Characteristics of Insurance Groups 94 4.1.1 Definition 94 4.1.2 Organizational Forms 98 Centralized Model 100 Decentralized Model 103 4.2 Group Supervision Under the Insurance Groups Directive 107 4.3 Group Supervision Under Solvency II 111 4.3.1 Pillar 1 Requirements 113 Valuation of Assets and Liabilities 113 Technical Provisions 114 Own Funds 115 Solo Solvency Capital Requirement 116 Minimum Capital Requirement 117 Investment Rules 118 Diversification 118 Group Solvency Capital Requirement 123 Risk Concentration and Intra-Group Transactions 124 4.3.2 Pillar 2 Requirements 127 Supervisory Authorities and General Rules 127 Responsibility of the Administrative, Management or Supervisory Body 129 System of Governance 130 Measures to Facilitate Group Supervision 132 4.3.3 Pillar 3 Requirements 135 References 135 Legislation 136 Other Sources 137 5 The Group Support Regime 140 5.1 Background 141 5.2 Introduction of the Rules 144 5.3 The Group Support Regime's Operation in Practice 160 5.3.1 Scenario 1: Breach of One Solo SCR 161 Case 1: Group Not Regulated Under the GSR 161 Case 2: Group Regulated Under the GSR 163 5.3.2 Scenario 2: Breach of One Solo MCR 164 Case 1: Group Not Regulated Under the GSR 164 Case 2: Group Regulated Under the GSR 166 5.3.3 Scenario 3: Breach of Consolidated Group SCR 168 Case 1: Group Not Regulated Under the GSR 168 Case 2: Group Regulated Under the GSR 170 5.3.4 Scenario 4: Breach of Minimum Consolidated Group SCR 172 Case 1: Group Not Regulated Under the GSR 172 Case 2: Group Regulated Under the GSR 174 5.4 Compromise Instead of Group Support Regime 175 5.5 The Way Forward 179 References 182 Legislation 182 Other Sources 183 6 Towards a Genuine Economic and Monetary Union 184 6.1 The Case for a Full Economic and Monetary Union 185 6.1.1 About Successful Monetary Unions 186 6.1.2 The Flaws of the Maastricht Architecture 191 6.2 Genuine Economic and Monetary Union 199 6.2.1 Integrated Financial Framework: Banking Union 200 6.2.2 Integrated Budgetary Framework: Fiscal Union 207 6.2.3 Integrated Economic Policy Framework: Economic Union 209 6.2.4 Democratic Legitimacy and Accountability: Political Union 210 References 211 Case Law 211 Legislation 211 Other Sources 213 7 Reform of the EU Financial Stability Framework 215 7.1 Financial Stability Frameworks Across the Globe 217 7.1.1 The Rationale for Financial Regulation 218 7.1.2 The Four Financial Supervisory Approaches 219 7.1.3 The Role of Central Banks in Financial Stability Frameworks 224 7.1.4 How Much Does Supervisory Structure Really Matter? 232 7.1.5 Integral Features of Successful Financial Stability Frameworks 234 7.2 The Current European Financial Stability Framework 236 7.3 Twin Peaks for Europe? 240 7.3.1 Reform Objectives, Policy Options, and Methodology 241 7.3.2 Analysis and Comparison of Policy Options 247 Objective 1: Establishment of a European Insurance and Securities Supervisor 247 Objective 2: Establishment of a European Insurance and Securities Resolution Authority 257 Objective 3: Establishment of a European Safety Net in the Insurance and Securities Sectors 263 7.3.3 Concluding Remarks on the Overall Design of the New Financial Stability Framework 268 References 269 Legislation 270 Other Sources 271 8 Conclusion 273 Front Matter....Pages i-xvii Introduction....Pages 1-7 Milestones of European Insurance Regulation....Pages 9-37 European Financial Services Legislation....Pages 39-75 Insurance Groups and Their Supervision....Pages 77-124 The Group Support Regime....Pages 125-168 Towards a Genuine Economic and Monetary Union....Pages 169-199 Reform of the EU Financial Stability Framework....Pages 201-258 Conclusion....Pages 259-262