Wednesday, 4 June 2014

Questions (31, 33)

Terence Flanagan


31. Deputy Terence Flanagan asked the Minister for Finance his views on financial service providers being regulated in one EU country while only trading in another EU country through the process known as passporting; if EU rules in such cases militate against the protection of consumers, which should be based on a model of assertive risk-based supervision; his views on whether it is correct for regulators to make decisions for passporting on the basis of the operation of the business locally; if the Central Bank of Ireland, or any EU member state's central bank, has authority to refuse a passporting application; and if he will make a statement on the matter. [23707/14]

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Michael McCarthy


33. Deputy Michael McCarthy asked the Minister for Finance the position regarding the 75,000 Setanta Insurance policyholders, most of whom are small to medium-sized enterprises; the steps taken to assist these policyholders; the role of the Financial Regulator in this matter; if he will address the weakness in the regulatory system which has allowed this company to avail of EU rules, essentially allowing it to be regulated in another EU jurisdiction while operating solely in this jurisdiction; and if he will make a statement on the matter. [23747/14]

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Written answers (Question to Finance)

I propose to take Questions Nos. 31 and 33 together.

At the outset, I would like to say that both I, as Minister for Finance, and the Government are concerned over the situation that arose with regard to the Irish policyholders of Setanta Insurance Company Limited (Setanta).  My Department and the Central Bank will be reviewing the circumstances relating to Setanta and will be reporting to me on what lessons can be learnt and how the framework can be strengthened. The European Commission has indicated that it will also review whether any issues raised relating to the regulatory framework require action.

Setanta is a Maltese incorporated company which was both authorised and prudentially supervised by the Malta Financial Services Authority (MFSA). While its financial position is not supervised by the Central Bank of Ireland, the firm is supervised by the Central Bank for conduct of business rules, i.e. consumer protection obligations.  The Central Bank is in contact with the MFSA in relation to Setanta Insurance Company Limited, the impact on policyholders and the provision for relevant and appropriate information.

Setanta was regulated at EU regulatory level in accordance with a directive known as Solvency I which currently places requirements on the amount of regulatory capital European insurance companies must hold against unforeseen events. I understand that Setanta met its EU regulatory obligations and under EU law is, therefore, entitled to trade across EU borders.  Following negotiations that were completed at European level in November, 2013, a new regime known as Solvency II will commence on 1 January 2016, which will further strengthen the EU regulatory framework. The Solvency II EU Directive sets out new, stronger EU-wide requirements on capital adequacy and risk management for insurers with the key aim of increasing policyholder protection.  The new regime will also ensure greater cooperation between supervisors.

Under EU legislation the Central Bank of Ireland is not responsible for the prudential supervision of Irish branches of credit institutions authorised in other EEA Member States and operating under a passporting arrangement in Ireland.  The Central Bank does however have responsibility for the supervision of such entities in the following areas:

in co-operation with the home state regulator, assessment of their compliance with liquidity requirements;

consumer protection issues; and

compliance with Anti-Money Laundering regulations.

Further information is available on the Central Bank's website on passporting for Credit Institutions.  A current extract from the website is at the Appendix to the PQ response.

The current legal and regulatory framework for the provision of insurance in the EEA, and the supervision of that activity, is prescribed by European Union Law in the Life and Non-Life Insurance Directives. The provision of insurance throughout the EEA on a freedom of services basis and a freedom of establishment basis (i.e. a branch) within this framework is predicated upon the absence of internal market frontiers and the mutual recognition of the authorisation of insurance undertakings by Member States.

The Insurance Directives specify particular roles for both the home Member State supervisory authority (i.e. the supervisory authority that grants an authorisation) and the host Member State supervisory authority (i.e. the supervisory authority of a Member State where an insurance undertaking conducts business of a freedom of services or freedom of establishment basis) of an insurance undertaking. Insurance undertakings authorised under the Insurance Directives are subject to solvency and financial reserving requirements, the supervision of these requirements is the sole responsibility of the home Member State supervisory authority. The primary objective of these requirements is to ensure that claims made in respect of policies issued will be adequately provided for by an insurance undertaking.

Under EU law which governs non-life insurance, an insurer is required to inform the regulator in its home Member State (its home regulator) that it intends to pursue business in another Member State. The home regulator must then provide the host regulator with a certificate attesting that the insurer covers the EU Solvency Capital Requirement, as well as the nature of the business which the insurer intends to undertake. The insurer may start to pursue business from the date that the certificate is communicated to the host regulator, in this case the Central Bank of Ireland.

Under Article 20 of the Third Non-Life Directive the Home Regulator is also required to notify the Host Regulator if the solvency margin of an undertaking falls below the statutory requirement. In such instances the Home Regulator should inform the Host Regulator of the measures it has taken to address the solvency deficit.

EEA insurance regulators are also members of EIOPA (European Insurance & Occupational Pension Authority) and are required to comply with the General Protocol relating to the collaboration of the insurance supervisory authorities of the Member States of the European Union.   This general protocol statement was issued in 2008 and is currently under review by EIOPA.

With regard to the position of Setanta policyholders, my officials have been in discussions with the Central Bank of Ireland, with the Setanta Liquidator, the Accountant of the High Court and with the insurance industry representative bodies and I have asked them to convey my wish that every effort is made to facilitate Setanta policyholders in obtaining new motor insurance policies and in understanding their overall position.  We are endeavouring to obtain legal certainty on a number of matters relating to policyholders' claims for compensation and this will be made publicly available in due course.  At this time, I propose to set out the position as it currently stands.

Setanta was formally placed into liquidation by the MFSA on the 30 April 2014 and a liquidator was appointed. Officials from my Department together with officials from the Central Bank met with the Liquidator and his representatives in Ireland on 7 May 2014 and the Central Bank is in ongoing contact with him regarding the position of Setanta policyholders. All Setanta policies have now been cancelled in line with the terms of the policies.

In the circumstances, I continue to strongly advise policyholders to make alternative insurance arrangements without delay and that they should contact their insurance broker or an insurer directly to seek alternative cover.  This is also the advice of the Central Bank.

The Liquidator made arrangements for policyholders to obtain their "no claims bonuses" certificates from Setanta. Insurance Ireland have informed me that these certificates are being honoured by other insurers and we are aware that many insurers are being flexible surrounding requirements for documents.  In addition, the Insurance Ireland 'Declined Cases Agreement' is available to policyholders of Setanta.  I am informed that under the agreement, the insurance market will not refuse to provide insurance to an individual seeking insurance, if he/she has approached at least three insurers and has not been able to obtain cover from them.  I understand that Insurance Ireland is also making information available to those who have queries, complaints or difficulties in relation to this matter through their service at (01) 676 1914 or by email at

With regard to Setanta premiums and claims, the position on each policy is for the liquidator to decide in due course.  My officials and the Central Bank will remain in close contact with the Liquidator and I have asked that public statements are provided to clarify matters for policyholders and claimants.

The Motor Insurance Bureau of Ireland (MIBI) is a non-profit-making organisation registered in Ireland.  All insurance companies underwriting motor insurance in this county must, by law, be members of MIBI and contribute to the funding of claims in proportion to their market share.  The principal role of MIBI is to compensate innocent victims of accidents caused by uninsured and unidentified vehicles. This is regulated under the terms of an Agreement between the MIBI and the Minister for Transport, Tourism and Sport.  We are endeavouring to clarify the position on a number of matters relating to policyholders' claims for compensation, including the role of MIBI in this regard.  However, if, for legal reasons, MIBI is not in a position to accept a claim, these third party claims will be eligible to proceed for consideration by the High Court for compensation from the Insurance Compensation Fund (ICF).

Claims on personal insurance policies will be payable from the ICF.  All ICF payments are subject to the limit of 65% of the amount due or €825,000, whichever is the lesser. Under Section 3.6 of the Insurance Amendment Act 1964 (as amended) first party claims by a body corporate or unincorporated body are not covered by the ICF.

The refund of premiums for either commercial or personal insurance policies is not covered by the ICF or MIBI. However, unpaid premium would fall to be claimed from the Setanta Liquidator in due course.


Passporting for Credit Institutions 

Under European Union (EU) passporting rules a credit institution authorised in one EEA Member State can establish as a branch in another Member State and/or provide services in another EEA Member State without establishing a physical presence there.  The supervisory responsibilities of financial regulators in relation to credit institutions operating in more than one EEA member state have been set out by the EU in a number of Directives and cover both home and host state regulators.

Notification Process

- A credit institution authorised in Ireland must notify the Central Bank of Ireland if they wish to operate under a passporting arrangement in another EEA Member State.

- Credit institutions authorised in another EEA Member State must notify their home state regulator if they wish to operate under a passporting arrangement in Ireland.

Role as Home State Regulator

When the Central Bank of Ireland authorises a credit institution it is responsible, as home state regulator, for regulating their activities in other EEA Member States.

Role as Host State Regulator

As host state regulator the Central Bank of Ireland is not responsible for the prudential supervision of Irish branches of credit institutions authorised in other EEA Member States and operating under a passporting arrangement in Ireland except, in co-operation with the home state regulator, for their compliance with liquidity criteria.  The Central Bank of Ireland is responsible for consumer protection issues and compliance with Anti-Money Laundering regulations for the services provided by these entities in Ireland.

Download our Requirements for the Management of Liquidity Risk

Section 149 of the Consumer Credit Act, 1995 (as amended) ('the Act')

Credit institutions operating in Ireland on a branch basis and passporting their services into Ireland must comply with Section 149 of the Act, which provides that you shall not impose or increase a charge for a service provided to a customer or a group of customers, without the prior approval of the Central Bank of Ireland (the 'Central Bank').

Read further details of this requirement in Information on Bank Charges Approval Process.