Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority, kicked off the Association of International Life Offices’ all-day seminar by setting out some of the main challenges facing the cross-border industry in the EU.
These, he noted, include a “patchwork” of rules and regulations at the national level in many EU countries, which increasingly exist alongside a growing EU regulatory framework.
For those in the cross-border life industry, the regulatory patchwork includes such pan-European regulatory packages as the Insurance Mediation Directive – now being revised, as IMD 2 – the also-being-revised Markets in Financial Instruments Directive (MiFID 2), and the Packaged Retail Investment Products [PRIPs] regulations.
“At EIOPA, we believe that regulation can foster a true single market for insurance,” he told the approximately 70 delegates who attended the AILO conference, held in the castle-like, red-brick former Prudential headquarters in High Holborn.
“[But] it can also constitute a barrier, so there is always a tricky balance to strike.”
Increasingly, the attention of EU regulators is shifting into areas beyond their traditional focus of trying to bring convergence in disclosure and sales rules and standards, to “ensure conduct and consumer risks are fully taken into account”, Bernardino said. They are doing this by concentrating on such new areas of concern as “product governance, product suitability and appropriate selling practices”, he noted.
“Without strong consumer protection, trust will vanish and markets will wither,” he said.
With respect to the controversial subject of commissions, and whether they should be banned, Bernardino went on, “to put it frankly: the work on conflicts of interest underlines how often problems with commissions can lead to problems for consumers. So you see that a ban on commissions across the board, from a regulatory persoective, is attractive.”
This was not what was agreed upon during the recent MiFID 2 negotiations, though, “which opted against an outright ban, sticking instead to a ban for advice labelled as independent, [while] allowing member states to go further where they wanted".
"From a single market perspective, you can see that this is not ideal," Bernardino said. "The European markets threaten to get more complicated, more fragment, not less. We will have to see how this evolves.
“But we should not be complacent: in my view, commissions do create conflicts of interest, and while banning [them] is not be a panacea, in my humble opinion, thinking that we can carry on as before is not acceptable either.”
Thoresen: consumer focus
Like the EIOPA’s Bernardino, Otto Thoresen, director-general of the Association of British Insurers, spoke of the importance of considering the consumer’s needs, though he focussed on what he said was a “neglected area in the market” that he said was one which life companies are well-placed to address: the pressing need of European consumers to have a “reasonable income in retirement", in order to pay for "health care and long-term care, and protection against incapacity and the inability to work”.
"Across Europe, broadly, populations are ageing," he said, after making clear that he was speaking in a personal capacity. "So there is a need for more financial independence and resilience, for most European populations. And the state can't afford to keep taking the strain."
Michael Lodhi, chief executive of the Spectrum IFA Group, which operates in a number of European markets including France, Italy, Spain, Switzerland, Luxembourg and the Netherlands, also called for greater focus on consumers, including an awareness of their needs and limitations. With respect to Key Information Documents, for example, as called for under the new PRIPs legislation, "Six pages, double-sided" would be too much for them, he warned.
"They're good for one page, anything more than that and you're going to lose them," he said.
He also challenged the idea of banning commissions, noting that "people don't buy investment products, they are sold them".
Banning commissions, Lodhi said, will lead to investment advice being able only to those who can afford it, rather than those who need it most.
Lodhi – who was one of the founders of the Federation of European Independent Financial Advisers. and who remains a vice chairman of it – gave an example of the difficulties facing advisers and providers of products who are attempting to work across Europe's borders. A British national who is living in Belgium but who plans to retire to France in eight years' time could not, Lodhi said, given the current regulatory structure, be sold a French investment product that would represent good financial planning advice, but only a Belgian-compliant one. Anti-money-laundering rules, meanwhile, stipulated that this individual would have to have a French address to get a French product, even though he could have provided a valid Belgian address. Finally, it was also not clear that a Belgian product would be accepted by the French tax authorities as qualifying, when the time came, to take his benefits in France.
"There's a common sense issue here," Lodhi said.
Breaking down the barriers
A recurring theme during the AILO conference was the difficulty insurance intermediaries, including financial advisers, have in being able to operate freely across Europe's borders. Bernardino noted that the IMD directive had "sought to break down the barriers…but, let's be frank, more needs to be done".
"That's why we fully support the review of IMD (IMD 2), and the [European] Commission's objective of making retail insurance markets work better and promoting a more level playing field by, for example, extending the scope of the directive to include direct sales," he said.
Other speakers at the conference included John Bruton, president of Ireland's International Financial Services Centre and a former Taoiseach, or prime minister; Paul Carty, chairman of BIPAR, or European Federation of Insurance Intermediaries; Philip Woolfson, a Brussels-based partner of Steptoe & Johnson; Mary Trussell, partner, KPMG, UK; and AILO chairman and managing director of SEB Life International.
The conference took place a little more than a month before European Parliamentary elections that some say could result in shifts in the way EU lawmakers carry forward legislation that is on the drawing board but has not yet been approved in its final form.