BVCA responds to EIOPA

This week the BVCA submitted its response to the European Insurance and Pensions Authority (EIOPA) on the proposed reform of the European pension fund system by applying Solvency II standards to EU pension funds via the Institutions for Occupational Retirement Provision (IORP) Directive.

Mark Florman, Chief Executive of the BVCA, said:

"Imposing Solvency II standards to EU pension funds are not only unnecessary but a hindrance to economic growth at the worst possible time.

In the wake of the financial crisis we understand the need to pass certain regulations in the name of restoring stability to our financial system, yet these provisions are wholly inappropriate. Rather than shoring up the stability and functionality of the European economy, these aims could actually be placed in jeopardy.

It is imperative that we avoid creating pro-cyclicality with respect to pension fund investments. The long-term nature of pension liabilities means that IORPs are able to focus on long-term investment rather than short-term liquidity, making them less vulnerable to market volatility. The regime being proposed by the European Commission will have the reverse effect, forcing them to focus on the short-term despite this being unnecessary to cover their liabilities.

Pension funds are vital contributors to the European economy. They own 20% of UK equities and are key investors in private equity. In fact, pension funds represent our most significant investors. If they decided that solvency requirements were too great and pulled back from private equity, the economic consequences would be extremely damaging to the European economy. As a global centre for private equity, UK funds raise money internationally but invariably invest it regionally and locally. According to BVCA research, 43% of all money raised in 2010 was invested across the rest of Europe.

The fundraising climate is already difficult, and if we consider venture capital the picture is bleaker still. The BVCA and its European partners are currently working with politicians and regulators on ways to encourage institutional investors to look again at venture capital. This will likely prove impossible if Solvency II standards are imposed on pension funds, and mean the recently proposed 'venture passport' by the Commission would be dead on arrival."

Notes to editor