IVASS launches public consultation to adapt its regulations to EU rules on sustainable finance | Hogan Lovells

On October 24, 2022, the Italian Insurance Supervisory Authority (“IVASS”) launched a public consultation on a document making changes and integrations to the following IVASS regulations:

  • IVASS Regulation No. 24 of 6 June 2016 laying down provisions on investments and assets covering technical provisions, resulting from the national implementation of the EIOPA guidelines on the corporate governance system, with particular reference to the principle prudence in investingRegulation 24”);
  • IVASS Regulation No. 38 of 3 July 2018 laying down provisions relating to the corporate governance system, resulting from the national implementation of the EIOPA guidelines on the corporate governance system (“Regulation 38”);
  • IVASS Regulation No. 40 of August 2, 2018 laying down provisions relating to the distribution of insurance and reinsurance (“Regulation 40”);
  • IVASS Regulation No. 45 of August 4, 2020, laying down provisions relating to the supervision of insurance products and governance requirements (“Regulation 45”).

The proposed modifications and integrations aim to facilitate compliance with the directly applicable European provisions adopted in the field of sustainable finance, in particular those relating to the insurance sector, by intervening in the IVASS regulatory provisions concerned by the new European legislation. More specifically, this intervention mainly concerns the IVASS regulatory provisions impacted by the modifications and integrations made at European level to the Solvency II framework (Delegated Regulation (EU) 2015/35, “Delegated acts”) and delegated acts under the Insurance Distribution Directive (“IDD”) (Delegated Regulation 2017/2358 on product oversight and governance requirements for insurance undertakings and insurance distributors “POG rules“, and Delegated Regulation 2017/2359 on information requirements and rules of conduct applicable to the distribution of insurance investment products “IBIP regulations”) and which are applicable from 2 August 2022.

The general EU regulatory framework on sustainable finance

The European legislator has introduced specific safeguards relating to the publication of information on the sustainability of financial products, with the aim of improving and standardizing the requirements for the publication of information relating to sustainable investment by the actors of the financial markets and financial advisers and to make the publications comparable for end investors.

In addition, the so-called taxonomic regulation (Regulation (EU) 2020/852) defines the criteria for determining whether an economic activity can be considered environmentally sustainable.

EU provisions on sustainable finance related to the insurance sector

The adoption of the new European legislation on sustainable finance specifically linked to the insurance sector has involved an alignment, among other things, of the European provisions contained in the Solvency II framework and those on insurance distribution within the framework of the DDA.

In this respect, on August 2, 2021, the following regulations were published, which apply from August 2, 2022: (i) Commission Delegated Regulation (EU) 2021/1256 of April 21, 2021 amending delegated acts with regard to the integration of sustainable development risks in the governance of insurance and reinsurance companies and (ii) Commission Delegated Regulation (EU) 2021/1257 of 21 April 2021 amending the POG Regulation and Regulation IBIPs with regard to the integration of sustainability factors, risks and preferences in product oversight and governance requirements for insurance undertakings and insurance distributors and in investment conduct and advice rules for insurance-based investment products.

Amendments to the IVASS regulations

The alignment of the IVASS regulations concerned by the aforementioned European provisions in the field of sustainable finance relevant to the insurance sector aims to promote consistency of application between the national regulations in force to date and the new regulatory framework. European Union, in order to facilitate their implementation by market operators.

The main changes and integrations are as follows:

Amendments to Regulation 24

Regulation 24 would be amended to align it with the amendments and integrations made by Delegated Regulation (EU) 2021/1256 to delegated acts, including the following:

  • Introduction of definitions of “sustainability factors”, “sustainability preferences” and “sustainability risks» in accordance with the European legislation mentioned above;
  • Insurance companies, to determine their investment policy, also consider sustainability risks when identifying, measuring, monitoring and managing the risks associated with each type of asset. The investment policy also takes into account the potential long-term impact on sustainability factors and, where relevant, the sustainability preferences of the company’s customers which have been assessed as part of the investment process. product approval;
  • Insurance companies, before carrying out any occasional investment activityassesses, among other things, the impact of the investment on sustainability factors.
Amendments to Regulation 38

Regulation 38 would be amended to align it with the amendments and integrations made by Delegated Regulation (EU) 2021/1256 to delegated acts, including the following:

  • The risk management system includes the strategies, processes and procedures necessary to continuously identify, measure, assess, monitor, manage and represent the current and expected risks to which the business is or may be exposed, including sustainability risks; in addition, underwriting, provisioning, reinsurance and other risk mitigation policies must also consider sustainability risks;
  • As part of the definition of the risk management policy and the choice of the associated criteria and methodologies for measuring the risks, to which the risk management function contributes, sustainability risks, if any, should be included;
  • The actuarial functionthe company’s opinion on the overall underwriting policy must also include, where applicable, the opinion on the potential impact of sustainable development risks among the external risk factors likely to affect the profitability of the activity for the next fiscal year;
  • Remuneration policies contain information on how they take into account the integration of sustainability risks into the risk management system;
  • As part of the compensation policies for insurance and reinsurance intermediaries, companies ensure that compensation and incentives are also consistent with the integration of sustainability risks into the risk management system.

Amendments to Rule 40

Regulation 40 would be amended to align it with the amendments and integrations made by Delegated Regulation (EU) 2021/1257 to the IBIPs Regulation, including the following:

  • Introduction of definitions of “sustainability factors”, “sustainability preferences” and “sustainability risks» in accordance with the European legislation mentioned above;
  • As it concerns conflicts of interestit is expected that distributors – who operate with the aim of obtaining the best possible result in relation to policyholders’ insurance objectives – also take into account their sustainability preferences, where applicable;
  • As it concerns pre-contractual informationthe description of the risks associated with the product provided by the insurance intermediary and the insurance company that distributes the IBIP to the policyholder includes, where applicable, the sustainability risks;
  • With reference to the aptitude assessment relating to the sale of IBIPs, information on the investment objectives that insurance intermediaries and undertakings obtain from the policyholder or potential policyholder – before concluding an insurance proposal or contract – also includes, where appropriate , sustainability preferences. When intermediaries and insurance companies provide tips as part of the distribution, they must adopt policies and procedures to ensure their understanding, in addition to the nature and characteristics of the IBIP they intend to distribute, also of any sustainability factors;
  • The declaration of aptitude provided by the intermediary and the insurance company in the event of advice must also indicate whether the IBIP meets the preferences of the policyholder in terms of sustainability, if applicable; when no IBIP meets the sustainability preferences of the policyholder or potential policyholder and the policyholder voluntarily decides to adjust his sustainability preferences for the conclusion of the contract, the declaration of suitability must disclose this fit and the reasons behind it. Conversely, when the policyholder or potential policyholder has not adapted their sustainability preferences, insurance intermediaries and advisory firms explain to them the reasons why the statement of adequacy can be provided and retain relevant documentation.
Amendments to Regulation 45

Regulation 45 would be amended to align it with the changes and integrations made by Delegated Regulation (EU) 2021/1257 to the POG Regulation, including:

  • When defining the target market, manufacturers must also take into account, among other things, the sustainability objectives of customers, where applicable. Manufacturers are not required to carry out the negative target market definition in relation to products taking into account sustainability factors;
  • Manufacturers, when evaluating the costs and charges to be applied to the insurance productalso consider that their amount is also compatible with the objectives of the target market related to sustainability, if applicable;
  • Insurance intermediaries who distribute products marketed in Italy by EU insurance companies operating under the right of establishment or the freedom to provide servicesadopts the safeguards necessary to ensure that insurance products are also distributed in accordance with any sustainability-related objectives of the actual target market identified.

Next steps

The public consultation will be open until December 23, 2022. After the public consultation phase, the comments received and the resulting IVASS resolutions will be made public on the IVASS website.

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