Solvency II infrastructure charges reduction at risk

01 December 2015

EU regulators' eleventh hour push to reduce the Solvency II capital charges on infrastructure investments is at risk, as the European Parliament drags its feet.

The Parliament negotiating team has filed a request to extend the three-month period for deciding on whether or not to reject the European Commission's proposed amendment of the regulatory framework.

As a consequence of that, the legislative change will not come into force until the end of March 2016 at best, three months after Solvency II comes into force.

The decision of the Parliament negotiating team came as a surprise, given that MEPs had expressed strong support for easing the capital rules for insurers investing in infrastructure.

However, the closed policy-making process of the Commission has infuriated members of the Economic and Monetary Affairs Committee.

In a committee session on 1 December, Burkhard Balz, member of the conservative group, accused the Commission of shutting out MEPs from the legislative process and keeping them in the dark about future amendments being planned in the context of the capital markets union project.

"The capital markets union is not a blank cheque. If inter-institutional commitments are not respective, there is a risk that a stop sign will be shown to the Commission," he said.

Sven Giegold, representative of the Green party, repeated the threat to veto the delegated act adopted by the Commission, but focused on the inclusion of non-infrastructure related amendments to the legislative text, instead.

Other than a 30% reduction of the charges for investment-grade infrastructure debt in the standard formula, the delegated act adopted on 30 September by the EU executive includes provisions about European Long-Term Investment Funds and extends the scope of a seven-year transitional measure for equity investments to unlisted equities.

It was the last point, which is intended to ease the pressure on insurers to divest from that asset class from January 2016, that Giegold took issue with. The German MEP claimed that the change was made at the request of France and Italy, even though it was opposed by other member states in the European Council. 

"From a procedural perspective, this is simply not what we wanted. The Commission would act responsibly if it took that out of its proposal, in order not to endanger the large consensus there is [about the scope of the proposal]," he added.

Nathalie Berger, the head of the European Commission's insurance unit, insisted that the change was made in the context of the capital markets union project, adding requests from member states were left to be addressed in the standard formula review planned for 2018.

She argued that the Commission seized the last opportunity to refine Solvency II before its application. "The efficiency of this change comes in part from its timely adoption and would be warranted by a timely entry into force."

Commission representatives are poised to meet with MEPs in the next few days in a desperate attempt to avoid delays in the amending legislation. The delegated acts can be approved or rejected by the Parliament, but can no longer be amended.