Additional obligations should not be introduced in relation to the supervision of liquidity risk management (LRM) of Institutions for Occupational Retirement Provision (IORPs), the Association of Paritarian Institutions (AEIP) has argued.

Its comments were made in response to the European Insurance and Occupational Pensions Authority’s (EIOPA) consultation on the draft opinion on the supervision of LRM of IORPs.

AEIP supports EIOPA’s stance that it is “prudent and necessary” that IORPs have in place the necessary risk management functions but it believes that the current legislation already addresses this requirement.

Under Article 25 of the IORP II Directive, pension funds are mandated to implement effective risk management functions to address liquidity and concentration risks.

In its response, AEIP emphasises the need for a “comprehensive yet proportionate supervisory approach that adheres to the principle of minimum harmonisation”.

“We believe that additional obligations should not be introduced beyond the existing rules, which are already effective in managing liquidity risk,” AEIP argued.

“For instance, IORPs should retain flexibility to determine how to document and report their risk exposures. Some IORPs may prefer to report all risk exposures under the Own Risk Assessment (ORA) because they are not significantly exposed to margin and collateral calls on derivative positions.

“Others may opt to distinguish between risk categories and report them separately because they are more likely to face material derivative calls, as it is already done in the Netherlands.”

The association believes the flexibility is “critical” due to the “inherently diverse nature of IORPs across Europe”. For example, it highlighted how pension funds face different sources of risk. It also said varying supervisory practices of LRM differ widely among member states in terms of frequency and conditions.

“Therefore, it should be determined at national level which additional requirements are necessary,” AEIP argued.

“EIOPA’s consultation paper highlights that only a small number of pension funds make significant use of derivatives or engage in other activities that carry substantial liquidity risks. Based on the findings of the consultation paper, we conclude that material risks are relevant only for IORPs that engage in the use of derivatives,” it stated.

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