Asset managers face new challenges under Solvency II directive, EFAMA warns

The asset management industry needs to proactively work with European insurance companies to respond to the strategic changes caused by the Solvency II Directive, according to a report published today by KPMG for the European fund and asset management association (EFAMA).

Solvency II overhauls the capital and risk management regulatory framework for European insurers, and should not be viewed as an ‘insurance-only issue’ as data provided to insurers from third parties including asset managers will be held to the same quality standards, KPMG warned.

According to the paper ‘Solvency II: Data impacts on asset management’, in light of the new regulation asset managers will be faced with challenges related to data management, data delivery and look-through data.

Under Solvency II, asset managers will need to be able to demonstrate that their data management processes are at least equivalent to their insurance clients’.

“The required level of granularity in data reporting is heavy and the need to provide data for each asset on a security-by-security basis will present a major challenge for insurers, particularly where they hold large, diverse investment pools across multiple service providers,” KPMG said.

Asset managers will also be required to supply insurers with complete data reports on a monthly basis. According to the paper, meeting these tight timelines will have a considerable impact on the operating models of asset managers and their third party administrators, as the information currently available at this date may not meet the rigorous granularity and quality standards demanded under Solvency II.

Finally, insurers will have to be able to ‘look through’ fund of fund and other investment structures to identify the ultimate asset, which will require a dramatic increase in data exchanges between asset managers within a given asset hierarchy and will demand an increased level of disclosure between asset managers.

The implementation of the Solvency II Directive will open the way for a new relationship between insurers and asset managers, warned Peter De Proft, director general of EFAMA.

“One of EFAMA’s primary goals is to put investors at the heart of its strategy and with insurance companies accounting for 42% of total assets under management for institutional investors, asset managers can considerably boost their significance, attractiveness and credibility by working closely with insurance businesses on this Directive. As the buy-side players of the financial industry, we hope to strengthen long-term trust among our customers in the insurance business and encourage policymakers to support the development of long-term investment,” he said.

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