EIOPA aims to strengthen oversight of third country governance arrangements with supervisory statement

The European Insurance and Occupational Pensions Authority (EIOPA) published a Supervisory Statement to strengthen the supervision and monitoring of insurance undertakings’ and intermediaries’ activities when using governance arrangements in third countries.
EIOPA has previously emphasized that enterprises or intermediaries with a base in the EU shouldn’t resemble shell companies that don’t have the necessary amount of corporate substance there, using branches in third countries to conduct crucial tasks or activities disproportionately. To enhance supervisory oversight and comparability of risk-handling, EIOPA has chosen to make its supervisory standards clear because such governance arrangements could result in bad risk management, ineffective decision-making, and operational, reputational, and financial risks, including risks to policyholders.
EIOPA and National Competent Authorities (NCA) expect that:
+ undertakings and intermediaries using third country branches retain an appropriate level of corporate substance within the European Economic Area (EEA), proportionate to the nature, scale and complexity of their business in the bloc;
+ third country branches serve primarily the markets in which they are established and that third country branches with the sole objective of supporting EU-based undertakings and intermediaries should be avoided;
+ undertakings and intermediaries should not be disproportionately dependent on their third-country arrangements for activities in the EEA;
+ undertakings appropriately oversee regulated functions and are in a position to take full responsibility for effective decision making and risk management;
+ regulated functions and activities are not structured or conducted in a way that impairs the ability of supervisors to monitor compliance; and that
+ undertakings and intermediaries considering or operating such third-country arrangements demonstrate to supervisors that the structuring of their activities can safeguard the ability of the supervisory authority to undertake proper supervision.
Following the release of the Supervisory Statement, EIOPA and NCAs will closely monitor market developments regarding the use of third-country governance arrangements in order to prevent EU companies connected to overseas branches from becoming defunct shells.
In addition, the EIOPA has published a Feedback Statement from comments received on the Supervisory Statement (EIOPA-22/362).