BETTER FINANCE has reviewed the European Insurance and Occupational Pensions Authority (EIOPA) Consultation Paper on the Draft Opinion on the Supervision of Liquidity Risk Management of IORPs (Institutions for Occupational Retirement Provision). In this response, we outline our perspective on several key issues, with an emphasis on the need for a comprehensive and proportionate approach to managing liquidity risks within IORPs.
BETTER FINANCE generally agrees with the scope of the consultation, which addresses a broad range of liquidity risks rather than focusing solely on margin and collateral calls. However, we suggest further clarification in the definition of "material liquidity risk" to ensure a common understanding among stakeholders.
In relation to the two-step approach proposed for liquidity risk management, BETTER FINANCE endorses the importance of assessing liquidity risk exposure and integrating it into governance systems. Even for IORPs with less material risk, we recommend they establish policies to manage these exposures and, as such, ensure they remain under control.
Regarding stress tests and scenario analysis, BETTER FINANCE supports the requirement for IORPs to regularly assess severe liquidity stresses but stresses that the tests should align with the specific risks an IORP is exposed to, avoiding unnecessary compliance burdens. Furthermore, we advocate for the maintenance of a liquid asset buffer to ensure that IORPs can meet payment commitments to scheme members, particularly during market stress conditions.
In addition, BETTER FINANCE agrees with the expectation that IORPs with material liquidity risks should establish contingency plans, conduct periodic tests of their readiness, and ensure that outsourced investment funds hold sufficient buffers for margin calls during market crises.
We also emphasize that the expectations outlined in the draft opinion reflect a proportionate approach to liquidity risk management. Given the critical role of IORPs in managing lifelong savings for EU workers, these measures are essential for safeguarding both the stability of the IORP sector and the financial well-being of scheme members.
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