Brussels, 18/09/2014 (Agence Europe) -MEP Sven Giegold has warned the European Commission against the excessive reduction, and one not based on empirical data, of the risk weighting of certain securitised products being acquired by the insurance sector to boost recovery.
“One of the most important changes” to the initial drafts of the delegated act designed to execute the Solvency II directive concern the weighting of risks represented by certain secured financial products, explained the German Green, who is the rapporteur of the European Parliament on this legislation. A document he submitted to the press reports a reduction from 20% to 5% of the risk weighting represented by the lower-risk BBB category of products and from 7% to 2.1% for the lower-risk category of secured products with an AAA rating between the drafts from 2011 and those in circulation since July.
Giegold is not opposed to reducing the risk weighting for certain secured products, as long as this is done on the basis of empirical data, as the European Insurance and Occupational Pensions Authority (EIOPA) did in January 2014 when, the MEP explains, it reduced the risk weightings of the lower-risk categories of secured products with an AAA and BBB rating, to 17% and 4.3% respectively.
We are opposed to any “arbitrary” reduction of the risk weighting on these products, he added, criticising the pressure brought to bear by “the Netherlands and the United Kingdom” and the “Economic Affairs services of the Commission” in order to boost the market for the securitisation of products seen as lower-risk (see EUROPE 11155). This pressure runs counter to the spirit of the Solvency II directive, the purpose of which is to impose risk-based capital requirements on the insurance sector, Giegold stresses.
By the end of September, the Commission is to present its draft delegated act. The Council and the EP will then have three months to reject or adopt the text as a whole, for its entry into force alongside the directive in 2016 (see EUROPE 11155). In the absence of empirical evidence, Giegold will fight to increase the level of the risk weight of these asset-backed securities (e.g. consumer credit).
The MEP went on to criticise the intention of the legislator to consider European secured products as less risky, by definition, than those issued in the United States. (MB)