EFRAG Draft Endorsement Advice on IFRS 17 Insurance Contracts

BRUSSELS 1 February 2021 – ESBG issued today a letter commenting on EFRAG's Draft Endorsement Advice on IFRS 17 Insurance Contracts.

ESBG represents the locally focused European banking sector, helping savings and retail banks in 21 European countries strengthen their unique approach that focuses on providing service to local communities and boosting SMEs. ESBG unites at EU level around 900 banks that provide retail banking services, including for certain banks the provision of insurance coverage and related services to their clients. This letter represents the consensus view of ESBG, including the financial conglomerates that are represented. ​

ESBG supports a high-quality standard for insurance contracts accounting; however, continues to believe that IFRS 17 as amended in June 2020 does not correctly reflect certain contracts issued by ESBG members that represent long-term life-saving products managed under cash flow matching and, to a certain extent, participating contracts, through its measurement nor its presentation requirements.

ESBG previously shared the main accounting deficiencies that IFRS 17 has in its view and acknowledges that the requirement of annual cohorts is the most transversal issue, that creates inconsistencies for almost all entities that issue insurance contracts with how these contracts are managed. However, at this current stage ESBG cannot neglect that the accounting deficiencies not addressed by the IASB in the final standard altogether will lead to negative consequences in the prudential field for financial conglomerates.

More particularly, what worries ESBG financial conglomerates most is the consequences that endorsing IFRS 17 will have on their solvency ratios for the banking groups. This is a significant issue that certain ESBG members – i.e. the financial conglomerates affected by this issue – already highlighted to EFRAG and the European Commission within its letter of 23 July 2020. A copy of this document is provided in Appendix 1 to this letter​

ESBG supports the endorsement of IFRS 17 provided that there is (i) an appropriate prudential solution that addresses the volatility arising in OCI for financial conglomerates and (ii) an accounting solution for the annual cohorts issue. Both issues must be resolved as part of the endorsement process, addressing the first issue as a change in the Capital Requirements Regulation (CRR), and both should not impact the 1 January 2023 effective date of IFRS 17.

Regarding the volatility in OCI, given it is an issue arising from the application of IFRS 17 that affects prudential requirements for financial conglomerates, ESBG requests that EFRAG recommend the European Commission to consider specific changes in the CRR made in conjunction with the IFRS 17 endorsement process.



ESBG responds to ECB public consultation on digital euro

BRUSSELS, 13 January 2021 – ESBG submitted its response to the European Central Bank (ECB) public consultation on a digital euro.

The association representing some 900 savings and retail banks welcomed the opportunity to provide its views on the possible future issuance of a digital euro but at the same time highlighted the need for further information on key aspects of the project, such as the main purpose of a digital euro, its technical implementation and functionalities, the role for savings and retail banks and other Payment Service Providers, who would perform compliance checks, as well as the interplay with SCT Inst, just to name a few. The current ‘one-size-fits-all’ approach cannot be successful in the long run. In this respect, in its response, ESBG invited the ECB to publish a second report that could provide more concrete information on how a digital euro would work, and to run a second public consultation before deciding to proceed with an implementing phase.

The ESBG response to the consultation addresses the following key themes:

Impact on financial stability

Any new form of currency brings about fundamental challenges and the introduction of a digital euro could have severe impact on the entire functioning of the EU economy. Going forward, decisions need to be taken carefully and with a clear view on the main objectives. A digital euro could jeopardize financial and prudential balances of banks, by weighing on their solvency and profitability, and by increasing their risks and fostering more severe bank runs. In times of financial distress, the demand for a digital euro could increase dramatically, since it would constitute a risk-free asset. This could spur the crisis and even incentivise central bank runs. All these elements may threaten financial stability, to the detriment of customers and citizens. It follows that a digital euro must be designed as a means of payment only, thus avoiding its use as an investment tool. To do so, ESBG and its members recommend the use of limits to holding and a no remuneration policy.

Customer and data protection

A digital euro should not only be easy to use, but also easy to understand. Proper safeguards should be in place to ensure all players are protected. For instance, if offline transactions are implemented, there is the risk of loss of only locally stored digital euro in case the device used for storage is lost or damaged. Most importantly, ESBG stressed that under no circumstances a digital euro should undermine the trust in existing means of payments. Privacy should be safeguarded in any case, and some restrictions or enhanced consent requirements may be necessary to protect consumers from certain business models that may use data on transactions to target ads or offers.

Building on the existing payments infrastructures

Europe is at the forefront of innovation for retail payments, and especially banks and payments institutions, together with the Eurosystem and National Central Banks (NCBs), provide European citizens with the most efficient payments systems available, including via digital means. ESBG believes that allowing banks to maintain their role of intermediaries and distributors of money to the public – as this is currently the case with cash – by building on existing infrastructure will ensure a high level of consumer protection, user experience and trust, as well as financial stability. At the same time, this will ensure the efficiency of the retail payment system and transformation mechanism are preserved. Instead of building a brand-new payment system, the association recommends a digital euro be integrated in the current payment system. Finally, to ensure a level playing field, it is crucial to ensure the principle “same functionalities, same liabilities, same rules”.

ESBG and its member banks stand ready to further engage with the ECB on these strategic issues in the weeks and months to come.