Comply or explain procedure

Whenever the European Supervisory Authorities EIOPA, EBA or ESMA publish guidelines or recommendations, the supervisory authorities of the Member States have to inform them within two months of publication if they comply or intend to comply with these. If this is not the case, the national supervisory authorities must inform the respective European supervisory authority accordingly, indicating the reasons. This process is known as "comply or explain".

BaFin: "Fully comply" with only a few exceptions

BaFin has indicated that, principally, it will apply all EIOPA Guidelines on Solvency II published so far. BaFin therefore expects the undertakings to comply with the requirements under Solvency II in a manner that is consistent with the interpretations of such requirements provided by the Guidelines.

There are only a few Guidelines which, although acceptable in BaFin's view in terms of content, BaFin will not be able to fully apply due to legal impediments or because the Guidelines would interfere with full application of the proportionality principle. BaFin explained those reasons to EIOPA. Full application of Guideline 12 on the classification of own funds would, for example, conflict with the requirements of German stock corporation law. In total, nine Guidelines on seven different subject areas are affected by such impediments or conflicts.

In most cases, however, only a part of the respective Guideline is affected. In the above-mentioned Guideline 12 on the subject area of "classification of own funds", for example, impediments exist with respect to its application to share capital, but not regarding subordinated liabilities. BaFin will apply these Guidelines in part, i.e. to the extent that there are no impediments. Undertakings should therefore also pay attention to those Guidelines. BaFin has published on its website additional information on the Guidelines it will not or not entirely apply.

Consistent application of Solvency II

The second package of EIOPA Guidelines on Solvency II describes more precisely the requirements of the three pillars of Solvency II. It includes, for instance, the Guidelines on reporting and public disclosure, the Guidelines on the system of governance and the Guidelines on the own risk and solvency assessment (ORSA). The new package complements the first package of EIOPA Guidelines on the new supervisory regime published at the beginning of February 2015. The first package dealt in particular with quantitative requirements and application procedures under Solvency II.

All in all, EIOPA has published 606 Guidelines for the start of Solvency II, covering 27 subject areas. The Guidelines are intended to ensure that the requirements of the Solvency II Directive, the corresponding Delegated Regulation and the implementing technical standards are applied in a harmonised and coherent manner throughout the EU. The aim is to establish coherent, efficient and effective supervisory practices within the European System of Financial Supervision (ESFS). BaFin supports this aim and was actively involved in preparing the Guidelines. One particular concern of BaFin was that the Guidelines do not impede application of the proportionality principle, especially with regard to small and medium-sized undertakings.

Other EIOPA Guidelines

On 23 October 2015, EIOPA published the English version of the Guidelines on the supervision of branches of third-country insurance undertakings, which also belong to the second package of Solvency II Guidelines. Due to a delay in the completion of these Guidelines, however, the other language versions will only be published in the first quarter of 2016.

On 14 September 2015, EIOPA published Guidelines on reporting for financial stability purposes. They define reporting requirements for large insurance groups, insurance undertakings and third-country branches which fulfil certain criteria. In the comply or explain procedure, BaFin informed EIOPA that it intends to fully apply the Guidelines.