In May 2001, the European Commission launched the first review of Solvency II. At the end of a process that lasted nearly 15 years, the Solvency II Directive came into force on 1 January this year. Obviously Solvency II will radically transform the insurance sector, but it will also change its relationship with the asset management industry.
In addition to the strict regulatory framework which has been spelt out in recent weeks, several changes are set to occur in the ecosystem which brings together the various stakeholders.
Firstly, the data exchange template initiated by the Club Ampère, renamed the Tripartite Template across the Channel and elsewhere in Europe, is continuing its remarkable progress: following its adoption by the IA in the UK and the BVI in Germany, the exchange standard for fund inventories between asset managers and insurers is progressively being rolled out to other countries such as Italy, Luxembourg and the Netherlands. Version 3 was published in mid-October and the Ampère template, which is much needed by insurance companies in the interests of promoting asset transparency, is beginning to interest other financial institutions (pension schemes, banks and pension funds in particular).
Although the Ampère standard governs the technical aspect of inventory reporting to insurers, other aspects are still under discussion, including distribution time and the data disclosed.
In France, the AMF published an update of the 2004-7 position on market timing and late trading at the beginning of November, defining the options for reporting the inventories of management companies or their agents to institutional investors subject to Solvency II. In practice, the prohibition on disclosing portfolios in real time still exists, but it has been adjusted for the purposes of Solvency II. However, the framework remains strict, with an obligation on the management company to check that the data is used solely by the investor to comply with its regulatory obligations, and a requirement to mention the introduction of this distribution mechanism in the fund prospectus.
Lastly, the data provided in the Ampère reports is still the subject of intensive discussions with the data providers, in particular concerning the possibilities of its redistribution to institutional investors. Data on ratings for example, even aggregated via an anonymous credit unit (the CQS or Credit Quality Step) might require a contract to be concluded between the insurer and the rating agencies. In general, the legal context and financial conditions governing the gathering and processing of market data must be regularly reviewed in the interests of our clients.
The Directive has indeed come into force, but it will probably take several months to stabilise the framework within which the management industry will meet the requirements of institutional investors subject to Solvency II.