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Scale2Save learning paper: Making micro-insurance work

Scale2Save Campaign

Micro savings, maximum impact.

Based on Scale2Save partners' case studies, this learning paper explores the challenges for micro-insurance uptake for low-income customers, and presents solutions and opportunities.

BRUSSELS, 28 April 2021 – Today the Scale2Save programme launches a new learning paper. It forms part of the learning series featuring the experience of partners when developing financial products and services designed for low-income customers. It was written by Scale2Save Local Technical Specialist Agnès Fall with support from the Savings Learning Lab at Itad.

This paper aims to support learning on microinsurance in Africa by giving an overview of the sector and presenting examples on how to successfully overcome challenges related to the uptake of microinsurance while also taking into account future hurdles related to Covid-19 and its impact.

Microinsurance encompasses insurance products that protect against shocks faced by under-served, low-income populations in developing countries. These products are provided in exchange for regular premium payments proportionate to their incomes, which take into account irregular income flows.

Microinsurers increasingly tailor their products, policies and delivery channels to the needs of the poor. Policies are often written in simple terms to include a variety of options such as licensed insurers, health care providers, community-based organisations, microfinance institutions and NGOs. In addition, mobile insurance has become increasingly important to reach remote customers.

While we observe growing demand and access to formal financial services such as bank accounts, mobile money and credit, the demand for formal insurance remains low despite the ‘micro-insurance revolution’ in the past decade.

One of the questions that Scale2Save tries to answer is to what extent savings contribute to financial resilience and what would be there right mix of products that adds value to people’s lives.

The households that Scale2Save partners are serving often experience challenges to manage cash flows, cope with risks, and raise money to meet large, unplanned expenses. These households can benefit from using a combination of financial tools to meet their needs. That is why this learning paper explores the mechanisms that might trigger the uptake of savings-linked health, life or funeral insurance.

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ESBG responds to EC consultation on CMDI

BRUSSELS, 21 April – ESBG submitted its response to the European Commission public consultation on the review of the bank crisis management and deposit insurance (CMDI) framework. ESBG and its members stressed that the CMDI framework should go for an evolution, not a revolution, and that it must take into account the principle of subsidiarity and proportionality.

While the proposed regulations for the restructuring and resolution of banks have proven their worth, ESBG highlights the need of a holistic and not a “silo-thinking” approach. Cooperation and coordination between authorities are essential to avoid the risk of duplication, double reporting, unclear requirements and additional administrative burdens. ESBG also sees potential for regulatory cost reduction and simplification.

A clear distinction between resolution and liquidation should be made on Level 1 text

At present, it does not seem clear which banks fall under which regime. Both the resolution and deposit insurance regimes are currently building up funds. It should become clear in which cases which funds may be used. There should be a level-playing field and “gold plating” should be prevented.

More level playing field is needed in the context of the application of the EU resolution framework

The goal of a level playing field was only partially achieved. It should be noted that not all member states seem to be willing to consistently implement the rules for the resolution of banks agreed at European level in practice. Instead, the impression arises that (unchanged) national special solutions are being sought.

Harmonisation of insolvency proceedings at EU level should not damage well-functioning national insolvency proceedings

Should insolvency proceedings for banks show weaknesses in individual countries, this can hardly justify the damage to functioning insolvency proceedings in other countries through uniform requirements. Differences in consumer protection and rights to appeal of insolvency administrators can have an impact on DGSs and payments to DGSs in insolvency proceedings. It should be considered how to address these differences for bank insolvency procedures.

Preventive measures are essential to the CMDI framework

Preventive measures, in particular through institutional protection schemes, are cost-efficient and successful private instruments (see detailed answer to Question 9).

For IPS recognized as DGS and for measures according to Article 11(3) DGSD, no further clarification is needed

From the perspective of an Institutional Protection Scheme (IPS) successfully executing for decades preventive measures as defined in Art. 11(3) DGSD, there is no need of any clarification of these measures. If questions are raised about the assessment of the cost of such kind of DGS intervention, this is neither caused by IPSs nor should the current conditions be amended for​ IPSs.​

A solution for liquidity in resolution would help to ensure that banks meant to be resolved are resolved smoothly

The crisis management framework foresees a bail-in of shareholders and creditors and has led to the build-up of loss absorption buffers. For a crisis at individual bank level, this should minimize the recourse to public financial and taxpayer’s money. Nevertheless, a public backstop to liquidity for banks in resolution and for banks coming out of resolution .is still necessary also to ensure market confidence and to bring a bank resolution to a successful conclusion.

The State Aid regime (2013 Banking Communication) and the resolution framework need to be aligned

It must also be ensured that not only idiosyncratic crises can be effectively handled. Considering that, in a systemic crisis, recourse to state aid may still be necessary, it should be ensured that the EU state aid rules (2013 Banking Communication) for the banking sector are brought in line with the crisis management framework. The 2013 Banking Communication and the crisis management framework are based on different rationales and the experience shows inconsistencies in the interpretation of financial stability and public interest by the EU Commission and by the SRB. Misalignments between the state aid regime and the BRRD/SRMR on public intervention have increased legal uncertainty and can lead to inefficient and ineffective solutions.

A targeted harmonisation of national bank insolvency law could help

The coexistence of the EU resolution framework with a plurality of national regimes could generate dysfunctionalities and may give rise to inefficient, costly and heterogeneous outcomes. A change in the legal framework is therefore needed. This could lead to a targeted harmonisation focused on bank insolvency law.

Simplified requirements are appropriate in the scope of the bank crisis management framework

It should be noted that the resolution requirements apply already to all institutions. However, simplified requirements are relevant for certain institutions. Even if simplified requirements are applied, the power of the SRB/NRAs to take resolution measures is not affected, see Art. 11 (5) SRMR. The gradation expressed in the simplified requirements is also objectively justified and legally required in terms of the different risks faced by institutions and their systemic relevance.

The CMDI framework should go for an evolution, not a revolution. An EU orderly liquidation tool for medium-sized banks does not seem appropriate

No need for a fundamental reorientation of the CMDI is seen. We also see no need for new instruments such as the unspecified – Orderly Liquidation Tool for small and medium-sized banks. Before the introduction of new instruments, the existing framework should be applied fully and coherently. New instruments may only be introduced if the objectives pursued with them cannot be achieved by optimizing the CMDI and the national insolvency rules, given the small number of institutes that would fall under the tool.​

Recovery planning needs to be improved and small banks should not be obliged to submit recovery plans

Besides, in reviewing the CMDI framework, it should not be overlooked that the “first line of defence” is recovery planning. It is a little bit surprising that this issue is not the subject of the consultation. However, there is also a need for improvement in this area. Small banks should not be obliged to submit recovery plans. There is little added value for both banks and supervisors. Instead, the supervisory authority should be given the possibility to oblige small banks to carry out recovery plans in individual cases.

Criteria linked to the Public Interest Assessment (PIA) should be more transparent and predictable​

This would limit national crisis management cases that effectively involve public intervention to circumvent the founding principle of the resolution, (the bail in) maintaining alive zombie banks crippling the potential for economic growth and jeopardizing financial stability.

The solution to access to funding is not to increase the size of resolution funds (including DGSs), but to allocate resources more efficiently

Recent experiences seem to signal a need for appropriate funding in case of liquidation. Most banks that have failed the PIA assessment received public funds in their liquidation procedures. It is important to note that contributions from institutions to DGSs and SRF are already very substantial. Any attempt to improve access to funding in case of a banking crisis should come from a more efficient allocations of resources and not from increasing contributions from banks. This should be a clear red line in the review process or the CMDI.

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​DORA should not increase operational and financial burden for ESBG members and their clients

BRUSSELS, 9 April 2021​​ – Banks have been among the first companies to install computers and create large data centres. This has contributed to the efficiency of their role of financing the economic activity and intermediating between savers and borrowers. 

As IT architecture has become essential for economic activity, the risk of disruption of this architecture and its consequences for the banks and their clients are of paramount importance. Consider for example the damage done by data breaches, ransomware or service outage of cloud service providers.

The European Savings and Retail Banking Group (ESBG) is aligned with the goal pursued by the Digital Operational Resilience Act (DORA) to create a comprehensive framework for the digital operational resilience of the financial sector in the EU. We welcome the initiative to bring together ICT risks in finance in this legislative proposal that advocates for a level playing field approach. Since the implementation of this framework implies a lot of policy work for the European Supervisory Authorities, we suggest however that the entry into force would be 30 months after the publication of the act.

As for the content of the act, ESBG thinks rules should be adjustable to the different business models in our membership. Smaller financial institutions should be excluded from the framework. We believe that the direct supervision of critical ICT service providers by the ESAs should cover only large, internationally active service providers. Predominantly nationally active critical ICT service providers should be supervised at the national level to avoid incompatibilities with national security laws. We advocate for the creation of a reporting hub at the national level and that the reporting at the EU level is done by the National Competent Authorities. We do not oppose to the creation of an EU hub receiving all reporting but if it is finally set up, it must replace all pre-existing reporting and risks should be properly assessed to ensure the highest levels of cybersecurity.

Finally, the cost of supervising the ICT-providers should not be on the banks or even less on the bank customers’ shoulders. Just as banks rightfully support the cost of financial supervision, ICT providers should bear the cost of their supervision.

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Euribor reforms: a path towards longevity Update on the Eonia to €STR transition

Discussion with Petra De Deyne, Advisor for Strategic Developments at the European Money Markets Institute

ESBG Spotlight invites you to join us on 20 April to discuss the Benchmark reforms (EURIBOR®, EONIA®, €STR) and the EU Benchmarks Regulation (BMR). The session will focus on the EURIBOR® hybrid methodology as well as the smooth transition from EONIA® to €STR, and will host Petra De Deyne, working at the European Money Markets Institute (EMMI), the administrator of these critical interest rate benchmarks.

This online event is free of charge and will be held in English. Once you have registered, you will receive a confirmation containing the meeting link and instructions for joining the webinar.

Speakers

Petra De Deyne began her career in the Generale Bank in 1988 as a salesperson in Money Markets and Forex and then moved to the trading side where she spent almost 20 years trading in the money markets, foreign exchange and fixed income instruments, both in European and emerging markets.

In 2009 and 2010 Petra served as Group Treasurer of Fortis Lease. She was a Senior Manager in Regulatory Affairs for CIB in BNP Paribas from 2010 till 2016.

She joined the European Money Markets Institute (EMMI) in 2016 to take the position of Manager of the Benchmark Unit. Since July 2019 she has been EMMI’s Advisor for Strategic Developments.

Petra holds a Master Degree in English and German, as well as post-graduate degrees in Finance and Business Communication. ​

Programme

15:00 Welcome and introduction
15:05 Presentation by Petra De Deyne, Advisor for Strategic Developments at the EMMI​​
15:30 Q&A session moderated by Sebastian Stodulka, Head of Regulatory Affairs, WSBI-ESBG​​
15:45 End of the webinar