Proportionality principle in EU legislation An introduction to

An introduction to concept and initial views as to its
use in the Review of the IORP Directive
OPSG meeting - 15 October 2014
Proportionality - core principle in EU law
 Treaty on European Union (TEU)
 Art. 5.1 and 5.4.
 Definition : “Under the principle of proportionality, the
content and form of Union action shall not exceed what is
necessary to achieve the objectives of the Treaties”.
 Protocol n° 2 on the application of the principles of
subsidiarity and proportionality to the TEU and the TFEU
 requires “constant respect” for the principle of proportionality
 before proposing legislative acts, EU COM shall “consult
widely” while taking into account the regional and local
dimension of the action envisaged
EU Law - Lamfalussy to Lisbon
Level 1 - Framework Directive
Level 2 - Delegated Acts: Regulation (Commission)
Level 3 - RTS and ITS developed by EIOPA and endorsed by EU COM
Level 4 - Guidelines and Recommendations developed by EIOPA
Applying proportionality
The principle applies to all levels of EU Legislation and
 Across the Directive,
not only to those articles with explicit or implicit reference to
 Delegated Acts from Commission
 Technical Standards, Guidelines and Recommendations
from EIOPA and EU COM
 Implementing legislation at Member State level
 Exercising supervisory powers
both EU level (EIOPA) and national one (Competent Authorities)
Objectives of Proportionality
Ensure that EU legislation and quasi-legislation:
 is not too burdensome i.e. it takes account of
the nature, scale and complexity of the
 takes account of the particular nature of
specific institutions/industries, e.g.
corporate IORPs, DC schemes, DB schemes
Proportionality applied to IORP II (1)
 Small institutions (art. 5)
 Option for MS as to application of Directive to entities with
less than 100 members
 essential keeping this rule since there are around 125.000
IORPs in the EU, the majority of which is small
 Effective governance (art. 22.2 & 22.5)
 IORPs are required to have in place an effective system of
governance that is proportionate to the nature, scale and
complexity of the activities of the IORPso “as to ensure that
the governance requirements will not be too
burdensome for example for small institutions”
 Size = a critical criterion
Proportionality applied to IORP II (2)
 Remuneration policy (art. 24.1, 23.4a & rec.37)
 takes account of size , nature, scope and complexity for
persons who effectively run the institution
key functions or any other activities, including outsourced and
subsequently re-outsourced key functions
 Risk management (art. 26)
Effective risk-management system and a risk management
function that is “appropriate to their size” or preferably
“proportionate to their size”
 Risk evaluation of pensions (art.29)
Proportionate to the size, internal organisation and the
nature, scope and complexity of the IORPs’ activities
Proportionality applied to IORP II (3)
 Depositary (art. 35)
 Only for IORPs operating schemes where members and
beneficiaries bear all the risks => application of the principle
by COM
 General principles of prudential supervision (art. 63)
 “Supervisory powers shall be applied in a timely and
proportionate manner.
 Additional points of attention:
 Two heads for effective management
 Propriety requirements
 Pensions benefit statement (PBS)
Proportionality and IORP II - Conclusions
 The over-arching principle of proportionality offers
opportunities to make upcoming legislation and quasilegislation adapted to specificities of institutions as to
size, nature, scope and complexity.
 The concept is vague yet potentially powerful especially
given new COM agenda:
 “Respect for the principles of subsidiarity, proportionality
and better regulation will be at the core of the work of the
new Commission. We will concentrate our efforts on those
areas where only joint action at European level can deliver
the desired results. When we act, we will always look for
the most efficient and least burdensome approach. (C.
J. Junker mission letters)

similar documents