Opinion of the European Central Bank of 18 July 2008 at the request of the Austrian Federal Ministry of Finance on the provisions introducing investment-oriented life assurance (CON/2008/30)

OPINION OF THE EUROPEAN CENTRAL BANK of 18 July 2008 at the request of the Austrian Federal Ministry of Finance on the provisions introducing investment-oriented life assurance (CON/2008/30) Introduction and legal basis

On 9 June 2008 the European Central Bank (ECB) received a request from the Austrian Federal Ministry of Finance for an opinion on a draft law implementing Directive 2007/44/EC amending the Law on banking, the Law on securities supervision, the Law on the stock exchange, the Law on savings banks, the Law on federal finance, the Law on insurance supervision, the Law on company pensions and the Law on financial conglomerates (hereinafter the ‘draft law’), and at the same time introducing a new investment instrument, namely investment-oriented life assurance. The ECB’s competence to deliver an opinion is based on the sixth indent of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law and scope of the opinion

1.1 According to the explanatory memorandum to the draft law, the proposed investment-oriented life assurance would allow proceeds from the premiums paid out under a specific life assurance contract to be invested in line with the pre-defined investment strategy specified in the contract. Proceeds gained from such specified investments will be attributed to the individual contract, whereas in unit-linked life assurance or index-linked life assurance, the investment is attached to an external fund or index. This differs also from classic life assurance, where all interest yields are equally distributed to the respective contracts. According to the explanatory memorandum, the

insurance company will hence be in a position to provide insurance products tailored to the client’s individual risk preferences with a guaranteed interest rate . 1.2 Under the draft law, insurance companies will also have to comply with conduct of business rules for transactions in unit-linked life assurance, and in investment-oriented life assurance without guarantee. It also empowers the Financial Market Authority, which supervises insurance companies, to exercise regulatory powers in that respect. 1.3 This opinion does not consider the measures intended to transpose Directive 2007/44/EC and only focuses on the above summarised provisions introducing investment-oriented life assurance and conduct of business rules for insurance companies.

2. The central bank’s financial stability role and exchange of information

2.1 In previous opinions, the ECB has recognised that the nature and scope of risk in the financial sector is widening, due to closer links between credit institutions, insurance companies, investment firms and pension funds, as demonstrated by the emergence of hybrid financial products, the increased use of risk transfer instruments and the growing role of financial conglomerates . 2.2 Further, in keeping with the position taken by the ECB in previous opinions on draft national legislation, including its opinions on the 2001 reform of the Austrian financial supervision 5 6 framework and the reform of the banking supervision framework in Austria , the ECB considers that central banks are in general best placed to take on responsibility for financial stability, given their insight into money and financial market developments and their involvement in payment systems and monetary policy operations. This applies both to the normal conduct of business and in crisis situations. 2.3 Given the hybrid nature of the proposed investment-oriented life assurance, the Oesterreichische National Bank (OeNB) must have adequate access to information and data in relation to this product. The ECB understands that Article 44b(1) of the Law on the OeNB provides an adequate legal basis in this respect .

3. Specific issues

3.1 The ECB welcomes the introduction of conduct of business rules in relation to the abovementioned assurance products as they will enhance consumer protection. This opinion will be published on the ECB’s website.

Done at Frankfurt am Main, 18 July 2008. [signed]

The President of the ECB

Jean-Claude TRICHET