adrian trif – supervision officer department iv – integrated supervision

Adrian Trif – Supervision Officer

Department IV – Integrated Supervision

Division IV/4 - Combat against Unauthorised Business

Financial Market Authority

European Commission

Technical Assistance Information Exchange Instrument

Workshop on Corporate Governance

Chisinau, 14-15 May 2012

Corporate Governance for Financial Institutions (EU and Austrian legislation)

Corporate Governance for Insurance Companies (EU and Austrian legislation)

Corporate Governance in Austria

Adrian Trif, FMA Chisinau, 15 May 2012 2

Agenda

1. General remarks

2. European financial markets regulation

3. Current developments (response to the financial crisis)

4. Sound corporate governance (credit institutions)

1. BCBS principles

2. EBA guidelines

3. CRD III

4. CRD IV

5. Overview Austrian supervisory system

6. CG developments for insurance companies – Solvency II

7. CG in Austria – overview legal framework

8. CG in Austria – corporate governance codex


Corporate Governance for Financial Institutions

1. General remarks

principal (investor) agent (management)

corporate (business, company, corporation, enterprise)

governance (management, leadership, administration, control)

system/framework of rules/principles for the management/control of a company

“Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return

on their investment.” (Shleifer and Visny)

“Corporate governance is about promoting corporate fairness, transparency and accountability.” (J. Wolfenshohn)

origin: US/UK

basic idea: soft law, self-regulation, self-executing rules, comply or explain

compliance as part of corporate governance

(external) corporate governance: transparency, ratings, external audit, M & A

markets

OECD - Principles of Corporate Governance (2004)



1. Cui bono?

macro level

stakeholders - (re)-establishing trust/confidence in the financial system

micro level

investor - enhancing return on investment

management – reducing/mitigating liability risks

company – reducing cost of capital



1. General Remarks - Market Discipline

ability of third-party claimants (eg debt and equity holders, potential investors) to identify risks in

financial institutions and to act in a way that signals those risks (to other market participants) or

changes the behaviour of a financial institution

well-informed shareholders/stakeholders may put pressure on the financial institution’s

management

act in the shareholders’/stakeholders’ best interests

financial institutions encouraged to anticipate and adjust risk-taking policies, with a view to

maintain/reduce their cost of capital

market discipline as a form of self regulation

timely and useful information required for market discipline to work in practice

in principle disclosure is to be driven by the market (participants)

supervisors to facilitate/ensure that adequate disclosure is provided by financial institutions

supervisors see market discipline through risk disclosures and transparency of financial

institutions in general as a supplementary tool in the supervision process

market discipline reinforces prudential tools and supervisory efforts by rewarding banks that

manage risk effectively and penalizing those with a less stringent risk management behaviour



1. General Remarks – Corporate Governance Players

Organisation for Economic Co-operation and Development (OECD), Financial Stability Board

(FSB), G 8, G 20

Basel Committee on Banking Supervision (BCBS), International Association of Insurance

Supervisors (IAIS), International Accounting Standards Board (IASB)

European Commission (EC), European Corporate Governance Forum (ECGF), European

Council, European Parliament

European System of Financial Supervision

European Banking Authority (EBA)

European Insurance and Occupational Pensions Authority (EIOPA)

European Securities and Markets Authority (ESMA)

Governments, Parliaments in Member States

Financial Markets Regulators in Member States

Austrian Working Group for Corporate Governance

Industry (credit institutions, insurance companies, listed companies, investment firms, etc)



1. General Remarks – Corporate Governance Players

Useful link (ECGF)

http://ec.europa.eu/internal_market/company/ecgforum/index_en.htm





1. International Supervisory Architecture



2. European Financial Markets Regulation

types of rules:

rules regarding the markets and certain market activities

- e.g. how to issue securities to the public, how to provide regular reports and

ad hoc releases to the public

rules regarding financial institutions

- e.g. “fit and proper test”, licensing requirements

rules regarding the activities of financial institutions

- e.g. collecting deposits, concluding insurance contracts, giving investment

advice




levels of regulation (as rules):

supranational level

e.g. EU regulations, EU directives, Basel recommendations

national level

e.g. acts/laws of parliament, regulations/ordinances by government

and/or ministry, laws/regulations/ordinances/recommendations by

national supervisor




EU level

Treaty on European Union (consolidated version OJ 30 March 2010, C

83/13) (TEU)

Treaty on the Functioning of the European Union (consolidated version OJ

30 March 2010, C 83/47) (TFEU)

regulations, directives




levels of regulation/supervision (as regulatory authorities):

supranational level

- European regulators:

– European Banking Authority (London) (EBA)

– European Insurance and Occupational Pensions Authority (Frankfurt) (EIOPA)

– European Securities and Markets Authority (Paris) (ESMA)

– European Systemic Risk Board (Frankfurt) (ESRB)

national level

- national supervisory authorities

– independent entity and/or the Ministry of Finance and/or the Central Bank




Lámfalussy process (four-level approach for European legislation in the field of financial services)

Level 1:

- high level objectives

- framework

- directive or regulation

Level 2:

- technical details

- set out by the European Commission

Level 3:

- common standard and guidelines

- to ensure uniform implementation

- CEBS (Committee of European Banking Supervisors), CEIOPS (Committee of European

Insurance and Occupational Pensions Supervisors, CESR (Committee of European Securities

Regulators)

Level 4:

- enforcement of the high-level objectives

- Member States’ reporting obligations




response to the financial crisis

de Larosière Report (Report of the High-Level Group on Financial

Supervision in the EU published on 25 February 2009): “There is a Single

Market, and financial institutions operate across borders, but supervision

remains mostly at national level, uneven and often uncoordinated.”

result: new European supervisory architecture (“institutionalisation” of

CEBS, EIOPA, CESR)

aiming at coherent cross-border supervision




Latest developments – new European supervisory architecture

European System of Financial Supervision – microprudential (Directive

2010/78/EU of 24 November 2010 – “Omnibus-I-Directive”)

ESMA (Regulation (EU) No 1095/2010)

EBA (Regulation (EU) No 1093/2010)

EIOPA (Regulation (EU) No 1094/2010)

European Systemic Risk Board – macroprudential (Regulation (EU) No

1092/2010)




New European Supervisory Architecture - since 1 January 2011




Updated legislation process



3. Are financial institutions different?

key role of financial intermediaries in every economy

basic principles

Banks must not go bankrupt.

(Insurance) companies shall (be able to) fulfil their obligations.

financial crisis

collapse of financial markets in autumn 2008

credit crunch



3. Financial Crisis

de Larosière Report

multiple, often inter-related, factors at both macro- and micro-economic levels

in particular accumulation of excessive risk in the financial system

excessive accumulation of risk in part due to the weaknesses in corporate governance of

financial institutions, especially in banks

BCBS: "a number of corporate governance failures and lapses”

OECD

Corporate Governance Lessons from the Financial Crisis (11 February 2009)

Corporate Governance and the Financial Crisis: Key Findings and Main Messages (29

May 2009)

Corporate Governance and the Financial Crisis – Conclusions and Emerging Good

Practices to Enhance Implementation of the Principles (17 February 2010)



3. European Commission’s work on corporate governance

strengthening corporate governance as priority for the EC, especially in the context of

its financial markets reform and crisis prevention program

Green Paper – Corporate governance in financial institutions and remuneration policies

(COM (2010) 284 final of 2 June 2010)

CRD III - remuneration policies (Directive 2010/76/EU of the European Parliament and of

the Council of 24 November 2010 amending Directives 2006/48/EC and 2006/49/EC as

regards capital requirements for the trading book and for re-securitisations, and the

supervisory review of remuneration policies)

CRD IV proposal (COM(2011) 453 final of 20 July 2011 - Proposal for a Directive of the

European Parliament and of the Council on the access to the activity of credit institutions

and the prudential supervision of credit institutions and investment firms and amending

Directive 2002/87/EC of the European Parliament and of the Council on the supplementary

supervision of credit institutions, insurance undertakings and investment firms in a financial

conglomerate)



3. European Commission’s work on corporate governance

Green Paper on the EU corporate governance framework (general paper)

Online consultation on EU company law

Review of the Takeover Bids Directive

Transparency – Modification of the Transparency Directive



4. Sound corporate governance (credit institutions)

BCBS Principals for Enhancing Corporate Governance (BCBS

October 2010)

EBA Guidelines on Internal Governance (27 September 2011)

CRD III – remuneration (24 November 2010)

CRD IV Proposal (20 July 2011)



4.1 BCBS Principals for Enhancing Corporate Governance

Principle 1 - The board has overall responsibility for the bank, including approving and overseeing the

implementation of the bank’s strategic objectives, risk strategy, corporate governance and corporate

values. The board is also responsible for providing oversight of senior management.

Principle 2 - Board members should be and remain qualified, including through training, for their

positions. They should have a clear understanding of their role in corporate governance and be able

to exercise sound and objective judgment about the affairs of the bank.

Principle 3 - The board should define appropriate governance practices for its own work and have in

place the means to ensure that such practices are followed and periodically reviewed for ongoing

improvement.

Principle 4 - In a group structure, the board of the parent company has the overall responsibility for

adequate corporate governance across the group and ensuring that there are governance policies

and mechanisms appropriate to the structure, business and risks of the group and its entities.

Principle 5 - Under the direction of the board, senior management should ensure that the bank’s

activities are consistent with the business strategy, risk tolerance/appetite and policies approved by

the board.




Principle 6 - Banks should have an effective internal controls system and a risk management function

(including a chief risk officer or equivalent) with sufficient authority, stature, independence, resources

and access to the board.

Principle 7 - Risks should be identified and monitored on an ongoing firm-wide and individual entity

basis, and the sophistication of the bank’s risk management and internal control infrastructures

should keep pace with any changes to the bank’s risk profile (including its growth), and to the external

risk landscape.

Principle 8 - Effective risk management requires robust internal communication within the bank about

risk, both across the organisation and through reporting to the board and senior management.

Principle 9 - The board and senior management should effectively utilise the work conducted by

internal audit functions, external auditors and internal control functions.

Principle 10 - The board should actively oversee the compensation system’s design and operation,

and should monitor and review the compensation system to ensure that it operates as intended.




Principle 11 - An employee’s compensation should be effectively aligned with prudent risk

taking: compensation should be adjusted for all types of risk; compensation outcomes should

be symmetric with risk outcomes; compensation payout schedules should be sensitive to the

time horizon of risks; and the mix of cash, equity and other forms of compensation should be

consistent with risk alignment.

Principle 12 - The board and senior management should know and understand the bank’s

operational structure and the risks that it poses (ie “know-your-structure”).

Principle 13 - Where a bank operates through special-purpose or related structures or in

jurisdictions that impede transparency or do not meet international banking standards, its board

and senior management should understand the purpose, structure and unique risks of these

operations. They should also seek to mitigate the risks identified (ie “understand-your-

structure”).

Principle 14 - The governance of the bank should be adequately transparent to its shareholders,

depositors, other relevant stakeholders and market participants.



4.1 BCBS Principals for Enhancing Corporate Governance – the Role of

Supervisors

1. Supervisors should provide guidance to banks on expectations for sound corporate governance.

2. Supervisors should regularly perform a comprehensive evaluation of a bank’s overall corporate

governance policies and practices and evaluate the bank’s implementation of the principles.

3. Supervisors should supplement their regular evaluation of a bank’s corporate governance policies

and practices by monitoring a combination of internal reports and prudential reports, including, as

appropriate, reports from third parties such as external auditors.

4. Supervisors should require effective and timely remedial action by a bank to address material

deficiencies in its corporate governance policies and practices, and should have the appropriate tools

for this.

5. Supervisors should cooperate with other relevant supervisors in other jurisdictions regarding the

supervision of corporate governance policies and practices. The tools for cooperation can include

memorandum of understanding, supervisory colleges and periodic meetings among supervisors.



4.2 EBA Guidelines on Internal Governance

legal basis – Article 22 of Directive 2006/48/EC of the European Parliament and of

the Council of 14 June 2006 relating to the taking up and pursuit of the business of

credit institutions as amended by Directive 2010/76/EU (CRD III)

requires „that every credit institution has robust governance arrangements, which

include a clear organisational structure with well defined, transparent and consistent

lines of responsibility, effective processes to identify, manage, monitor and report the

risks it is or might be exposed to, adequate internal control mechanisms, including

sound administrative and accounting procedures, and remuneration policies and

practices that are consistent with and promote sound and effective risk

management.‟

Article 73(3) of Directive 2006/48/EC requires that Article 22 also applies to parent

undertakings and subsidiaries on a consolidated or sub-consolidated basis.




first chapter on „Corporate Structure and Organisation‟

concept of checks and balances in group structures

„Know-your-structure‟ principle in order to remedy weaknesses of complex structures

which have not been understood and counterbalanced sufficiently

limit opaque activities using non supervised structures

second chapter on „Management Body‟

guidelines on the composition, appointment, succession and qualifications of the

management body

focus more on the use of committees and the identification and management of conflicts of

interest

lack of oversight - one of the most significant weaknesses identified in the financial crisis

ensure that members of the management body (especially in its supervisory function)

devote sufficient time to their functions

responsibilities of the management body regarding outsourcing and setting the

remuneration policy

references to still applicable separate CEBS guidelines




third chapter on „Risk Management‟

Inclusion of large parts of the High Level Principles on Risk Management

- high level principles on „governance and risk culture‟

- „risk models and integration of risk management areas‟

- „new product approval policy and process‟

- parts of the former high level principles on „risk appetite and risk tolerance‟ assigned to the new

guidelines on the risk management framework

fourth chapter on „Internal Control‟

role of Chief Risk Officer

risk management function

ensuring the proper staffing of the control function

one weakness was that the control functions were not given sufficient resources to fulfil

their duties

issue of unapproved exposures

implementing adequate processes for monitoring the set limits and taking appropriate

actions where necessary




fifth chapter on „Systems and Continuity‟

new guidelines on information and communication systems and business continuity

management

Reference to generally accepted standards as regards IT systems

business continuity consistent with the BCBS „High Level Principles for Business

Continuity‟

sixth chapter on „Transparency‟

“Public Disclosure and Transparency‟ from the former CEBS Internal Governance

Guidelines

only limited amendments as the CEBS survey did not identify major weaknesses in this

area



4.3 CRD III – remuneration policies

major legal consequence of the financial crisis

wrong/inappropriate financial incentives for board members/senior

management/certain employees as reason for (huge) accumulation of risks

recommendations/self-regulation/market discipline did not work

need for legal framework - Directive 2010/76/EUmain purpose: establishment of risk-based remuneration policies and practices, aligned

with the long-term interests of the bank in order to avoid excessive risk-taking

CEBS Guidelines on Remuneration Policies and Practices (10 December

2010)



4.4 EC CRD IV Proposal

Overarching goals

ensure that the effectiveness of risk governance in European credit institutions

and investment firms is strengthened

help avoid excessive risk-taking by individual credit institutions and ultimately the

accumulation of excessive risk in the financial system

Operational objectives

increasing the effectiveness of risk oversight by Boards

improving the status of the risk management function

ensuring effective monitoring by supervisors of risk governance




Recital 43: “Weaknesses in corporate governance in a number of institutions have contributed to

excessive and imprudent risk-taking in the banking sector which led to the failure of individual

institutions and systemic problems in Member States and globally. The very general provisions on

governance of institutions and the non-binding nature of a substantial part of the corporate

governance framework, based essentially on voluntary codes of conduct, did not facilitate the

effective implementation of sound corporate governance practices by institutions. The absence of

effective checks and balances within institutions resulted in a lack of effective oversight of

management decision-making, which exacerbated short-term and excessively risky management

strategies. The unclear role of the competent authorities in overseeing corporate governance systems

in institutions did not allow for sufficient supervision of the effectiveness of the internal governance

processes.”

Recital 44: “In order to address the potentially detrimental effect of poorly designed corporate

governance arrangements on the sound management of risk, Member States should introduce

principles and standards to ensure effective oversight by the management body, promote a sound

risk culture at all levels of credit institutions and investment firms and enable competent authorities to

monitor the adequacy of internal governance arrangements. These principles and standards should

apply taking into account the nature, scale and complexity of institutions' activities.”




Article 73 – Procedures and internal control mechanisms (same wording as Article 22

of Directive 2006/48/EC)

What’s new?

delegation of legislative power to the EC

EBA to develop draft regulatory technical standards

more detailed rules in sub-section 3 (Governance)

- Article 86 – governance arrangements

- Article 87 – management body

- Article 88 – remuneration policies

- Article 89 – institutions that benefit from government intervention

- Article 90 – variable elements of remuneration

- Article 91 – remuneration committee

even more detailed rules to be implemented by technical standards



5. Supervision of financial intermediaries in Austria

In Austria, the job of supervising the financial markets is carried out by three institutions. In

outline form, the tasks are as follows:The Federal Ministry of Finance (BMF) develops and defines the legislative framework, which is then adopted by the

Austrian parliament (legislative process).

The Oesterreichische Nationalbank (OeNB) monitors the stability of the financial market at a macro level. It is

responsible for the supervision of payment systems, and is also involved in the supervision of banks.

The Financial Market Authority (FMA) monitors and checks the individual financial institutions and participants in the

markets (micro level).

As an integrated supervisory institution, the FMA, which was founded in 2002, brings together

responsibility for supervising all significant providers and functions under one roof. The authority

supervises banks, insurance undertakings, pension fund companies, corporate provision funds,

investment firms and investment service providers, investment funds, financial conglomerates

and exchange operating companies.




FMA organisation chart




Banking supervision



5. Levels of supervision/responsibility (Austrian bank)


Corporate Governance for Insurance Companies

6. Solvency II - Reasons

various analyses

Müller Report (1997)

KPMG Study (2002)

Sharma Report (2002) – Conference of the Insurance Supervisory Services of

the Member States of the European Union

reasons for most (financial) difficulties of insurance companies

not insufficient own funds, but

management mistakes and insufficient/bad risk management

Paul Sharma (former FSA): “We concluded that supervision will be most

effective where we have the tools to tackle the full causal chain.”



6. Risk Map – Sharma Report 2002

r



6. Solvency II

Directive 2009/138/EC of the European Parliament and of the Council of 25

November 2009 on the taking-up and pursuit of the business of Insurance and

Reinsurance (Solvency II)

Recital 29: “Some risks may only be properly addressed through governance

requirements rather than through the quantitative requirements reflected in the

Solvency Capital Requirement. An effective system of governance is therefore

essential for the adequate management of the insurance undertaking and for the

regulatory system.”

Recital 30: “The system of governance includes the risk-management function, the

compliance function, the internal audit function and the actuarial function.”

Recital 33: “The functions included in the system of governance are considered to be

key functions and consequently also important and critical functions.”



6. Solvency II



6. Solvency II

Section 2 - System of governance

Article 41 - General governance requirements

Article 42 - Fit and proper requirements for persons who effectively run the

undertaking or have other key functions

Article 43 - Proof of good repute

Article 44 - Risk management

Article 45 - Own risk and solvency assessment

Article 46 - Internal control

Article 47 – Internal audit

Article 48 - Actuarial function

Article 49 - Outsourcing

Article 50 - Implementing measures



6. Solvency II

Article 41 (General governance requirements):

„1. Member States shall require all insurance and reinsurance undertakings to have in place an

effective system of governance which provides for sound and prudent management of the

business. That system shall at least include an adequate transparent organisational structure

with a clear allocation and appropriate segregation of responsibilities and an effective system

for ensuring the transmission of information. It shall include compliance with the requirements

laid down in Articles 42 to 49. The system of governance shall be subject to regular internal

review.

2. The system of governance shall be proportionate to the nature, scale and complexity of the

operations of the insurance or reinsurance undertaking.

3. Insurance and reinsurance undertakings shall have written policies in relation to at least risk

management, internal control, internal audit and, where relevant, outsourcing. They shall

ensure that those policies are implemented. Those written policies shall be reviewed at least

annually. They shall be subject to prior approval by the administrative, management or

supervisory body and be adapted in view of any significant change in the system or area

concerned.



6. Solvency II

Article 41 (General governance requirements) continued:

4. Insurance and reinsurance undertakings shall take reasonable steps to ensure continuity and

regularity in the performance of their activities, including the development of contingency plans.

To that end, the undertaking shall employ appropriate and proportionate systems, resources

and procedures.

5. The supervisory authorities shall have appropriate means, methods and powers for verifying the

system of governance of the insurance and reinsurance undertakings and for evaluating

emerging risks identified by those undertakings which may affect their financial soundness.

The Member States shall ensure that the supervisory authorities have the powers necessary to

require that the system of governance be improved and strengthened to ensure compliance

with the requirements set out in Articles 42 to 49.”



6. Solvency II

Article 44 (Risk management)

„1. Insurance and reinsurance undertakings shall have in place an effective risk-management

system comprising strategies, processes and reporting procedures necessary to identify,

measure, monitor, manage and report, on a continuous basis the risks, at an individual and at

an aggregated level, to which they are or could be exposed, and their interdependencies. That

risk-management system shall be effective and well integrated into the organisational structure

and in the decision-making processes of the insurance or reinsurance undertaking with proper

consideration of the persons who effectively run the undertaking or have other key functions.

2. The risk-management system shall cover the risks to be included in the calculation of the

Solvency Capital Requirement as set out in Article 101(4) as well as the risks which are not or

not fully included in the calculation thereof.



6. Solvency II

Article 44 (Risk management) – continued:

The risk-management system shall cover at least the following areas:

(a) underwriting and reserving;

(b) asset–liability management;

(c) investment, in particular derivatives and similar commitments;

(d) liquidity and concentration risk management;

(e) operational risk management;

(f) reinsurance and other risk-mitigation techniques.

…”



6. Solvency II

Article 45 (Own risk and solvency assessment):

“1. As part of its risk-management system every insurance undertaking and reinsurance undertaking

shall conduct its own risk and solvency assessment.

That assessment shall include at least the following:

(a) the overall solvency needs taking into account the specific risk profile, approved risk tolerance

limits and the business strategy of the undertaking;

(b) the compliance, on a continuous basis, with the capital requirements, as laid down in Chapter VI,

Sections 4 and 5 and with the requirements regarding technical provisions, as laid down in

Chapter VI, Section 2;

(c) the significance with which the risk profile of the undertaking concerned deviates from the

assumptions underlying the Solvency Capital Requirement as laid down in Article 101(3),

calculated with the standard formula in accordance with Chapter VI, Section 4, Subsection 2 or

with its partial or full internal model in accordance with Chapter VI, Section 4, Subsection 3.



6. Solvency IIArticle 45 (Own risk and solvency assessment) - continued:

2. For the purposes of paragraph 1(a), the undertaking concerned shall have in place processes

which are proportionate to the nature, scale and complexity of the risks inherent in its business

and which enable it to properly identify and assess the risks it faces in the short and long term

and to which it is or could be exposed. The undertaking shall demonstrate the methods used in

that assessment.

3. In the case referred to in paragraph 1(c), when an internal model is used, the assessment shall

be performed together with the recalibration that transforms the internal risk numbers into the

Solvency Capital Requirement risk measure and calibration.

4. The own-risk and solvency assessment shall be an integral part of the business strategy and

shall be taken into account on an ongoing basis in the strategic decisions of the undertaking.

5. Insurance and reinsurance undertakings shall perform the assessment referred to in paragraph 1

regularly and without any delay following any significant change in their risk profile.

6. The insurance and reinsurance undertakings shall inform the supervisory authorities of the results

of each own-risk and solvency assessment as part of the information reported under Article 35.

7. The own-risk and solvency assessment shall not serve to calculate a capital requirement. The

Solvency Capital Requirement shall be adjusted only in accordance with Articles 37, 231 to 233

and 238.”



6. Solvency II

Article 46 (Internal control)

„1. Insurance and reinsurance undertakings shall have in place an effective internal control system.

That system shall at least include administrative and accounting procedures, an internal control

framework, appropriate reporting arrangements at all levels of the undertaking and a

compliance function.

2. The compliance function shall include advising the administrative, management or supervisory

body on compliance with the laws, regulations and administrative provisions adopted pursuant

to this Directive. It shall also include an assessment of the possible impact of any changes in

the legal environment on the operations of the undertaking concerned and the identification and

assessment of compliance risk.”



6. Solvency II

Article 47 (Internal audit)

„1. Insurance and reinsurance undertakings shall provide for an effective internal audit function. The

internal audit function shall include an evaluation of the adequacy and effectiveness of the

internal control system and other elements of the system of governance.

2. The internal audit function shall be objective and independent from the operational functions.

3. Any findings and recommendations of the internal audit shall be reported to the administrative,

management or supervisory body which shall determine what actions are to be taken with

respect to each of the internal audit findings and recommendations and shall ensure that those

actions are carried out.”



6. Solvency IIArticle 48 (Actuarial function)

„1. Insurance and reinsurance undertakings shall provide for an effective actuarial function to:

(a) coordinate the calculation of technical provisions;

(b) ensure the appropriateness of the methodologies and underlying models used as well as the

assumptions made in the calculation of technical provisions;

(c) assess the sufficiency and quality of the data used in the calculation of technical provisions;

(d) compare best estimates against experience;

(e) inform the administrative, management or supervisory body of the reliability and adequacy of the

calculation of technical provisions;

(f) oversee the calculation of technical provisions in the cases set out in Article 82;

(g) express an opinion on the overall underwriting policy;

(h) express an opinion on the adequacy of reinsurance arrangements; and

(i) contribute to the effective implementation of the risk-management system referred to in Article 44,

in particular with respect to the risk modelling underlying the calculation of the capital

requirements set out in Chapter VI, Sections 4 and 5, and to the assessment referred to in

Article 45.”



6. Solvency IIArticle 48 (Actuarial function) – continued:

2. The actuarial function shall be carried out by persons who have knowledge of actuarial and

financial mathematics, commensurate with the nature, scale and complexity of the risks

inherent in the business of the insurance or reinsurance undertaking, and who are able to

demonstrate their relevant experience with applicable professional and other standards.”



6. Solvency II – Major Challenges for Insurance Companies

inclusion of all relevant risks in the corporate management

ongoing monitoring/control of risks which are not (entirely) part of Solvency

Capital Requirement

European law compliant interpretation of indeterminate legal terms

individual implementation of abstract worded targets

difficult to exactly foresee regulatory interventions



6. Solvency II – proportionality principle

Recital 19: “This Directive should not be too burdensome for small and medium-sized

insurance undertakings. One of the tools by which to achieve that objective is the

proper application of the proportionality principle. That principle should apply both to

the requirements imposed on the insurance and reinsurance undertakings and to the

exercise of supervisory powers.”

Article 29 para 3: „Member States shall ensure that the requirements laid down in this

Directive are applied in a manner which is proportionate to the nature, scale and

complexity of the risks inherent in the business of an insurance or reinsurance

undertaking.”

insurance companies to assess which obligations are proportionate with regard to

their risk structure

two sides of the proportionality principle: less requirements for insurance companies with a lower risk profile

stricter requirements for insurance companies with a higher risk profile



6. Governance System

general governance requirements

internal control system compliance function

function internal audit


fit & proper outsourcing

ORSAactuarial funktion


supervisory board

executive board

external auditor

shareholders‘ meetingresponsible actuary

Treuhänder

AML/CFT officer

compliance

regular controls by regular controls by executive boardexecutive board

6. Supervision/control system (Austrian insurance company)

general governance requirements

internal control system compliance function

function internal audit


fit & proper outsourcing

ORSAactuarial funktion



OECD Guidelines on Insurer Governance (2011)



7. Legal Framework

specific corporate structure, internal organisation, duties and liabilities of the

management and supervisory boards and their directors, accounting, corporate

restructuring

Stock Corporation Act

Limited Liability Company Act

European Company Directive and European Company Act

Commercial Code

general provisions regarding liability

General Civil Code

specific provisions for listed companies, financial intermediaries

Stock Exchange Act, Takeover Act, Issuer Compliance Regulation, Capital Market Act,

Banking Act, Securities Supervision Act, Insurance Supervision Act, etc

Code of Corporate Governance



Österreichischer Arbeitskreis für Corporate Governance

(Austrian Working Group for Corporate Governance)

http://www.corporate-governance.at/





8. Austrian Code of Corporate Governance (Code)

published in October 2002, latest amendment in January 2012 (subject to

annual review)

provides Austrian corporations with a framework for the management and

control of enterprises

covers the standard of good corporate management common in international

business practice as well as the most important provisions of Austrian corporate

law of relevance in this context

addressed primarily to Austrian exchange-listed companies including exchange-

listed European companies (Societas Europaea) registered in Austria

based on the provisions of Austrian corporation law, securities law and capital

markets law, the EU recommendations on the tasks of supervisory board

members and on the remuneration of directors as well as on the principles set

out in the OECD Principles of Corporate Governance



8. Austrian Code of Corporate Governance

Legal requirement (L): This rule refers to mandatory legal

requirements.

Comply or explain (C): This rule is to be followed; any

deviation must be explained and the

reasons stated in order to be in

compliance with the Code.

Recommendation (R): The nature of this rule is a

recommendation; non-compliance

with this rule requires neither

disclosure nor explanation.




I. Preamble

II. Shareholders and the General Meeting

equal treatment

takeover bids

convening general meetings, publications in connection with general meetings

resolution for share buy back

III. Cooperation between the Supervisory Board and the Management Board

obligation to provide Supervisory Board with comprehensive information (regular and ad

hoc information)

cooperation as regards strategy, overall direction of the company




IV. Management Board

overall responsibility

fundamental decisions to be reached by whole Management Board

conflicts of interest and self-dealing

Compensation

V. Supervisory Board

responsible for oversight of Management Board

appoints members of Management Board

approval of certain business transactions

committees, mandatory audit committee

conflicts of interest and self-dealing

qualifications

compensation




VI. Transparency and Auditing

corporate governance report

financial reporting and disclosure

investor relations and the internet

Annex 1

Guidelines for Independence

Annex 2

mandatory information disclosures in the corporate governance report

information on the composition and working procedures of the management board and of

the supervisory board as well as of its committees

disclosure remuneration management board and supervisory board

report on external evaluation if available




Annex 3

recommendations addressed to foreign companies listed in Austria

- no subscription to own shares

- no repayment of paid-in amounts

- profit distribution to shareholders

- changes to the articles of association

- exclusion of subscription rights

- acquisition of own shares

Annex 4

brief overview of the Austrian Stock Corporation Act

the organisation of a stock corporation under Austrian law

shareholders and the general meeting, the supervisory board, the management board

capital increases, share buybacks

capital markets rules

groups and company transformations


Many thanks for your attention!

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0043-(0)1-24959-4408

mailto:[email protected]

adrian trif – supervision officer department iv – integrated supervision

Documents

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corporate governancechisinau

corporate fairness

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financial institutions

market participantssupervisors

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