7. Definition and Holders of Key Functions

See sec. 15, para. 1, sent. 7, no. 2 of the InhKontrollVO [Holder Control Regulation]: “as well as disclosure of material changes with respect to internal audit and the compliance function, and any change to members of senior management in key functions”. The term “key position” is also widespread in the German legislation. On this point see, for example, sec. 2, para. 3, no. 5 of the MaKonV [Market Manipulation Definition Ordinance].

RegE eines Zehnten Gesetzes zur Änderung des VAG [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] of 15 Feb. 2012, BT-Drucks. [Document of the German Bundestag] 17/9342; also, BT-Drucks. [Document of the German Bundestag] 90/12 (hereafter: VAG-RegE).

Any mention of insurance undertakings in this chapter includes reinsurance undertakings.

Dreher, “Die aufsichtsbehördliche Kontrolle der Inhaber von Schlüsselfunktionen nach Solvency II und künftigem VAG 2012” [in English: Review by Supervisory Authorities of the Key Function Holders under Solvency II and the Future German Insurance Supervision Act 2012], VersR (2012), 1061 (Chap. 8, below).

See, however, on the improper conflation of independence and independence of procedure, below, 7.3.5.3.

Directive 2009/138/EU of the European Parliament and of the Council of 25 Nov. 2009, OJEU L 335, p. 1, of 17 Dec. 2009.

A different form of “key function” is assigned under Recital 104 of the Solvency II Directive, but only “to a group supervisor” in a regulatory sense.

See, e.g., Riesenhuber, in: Riesenhuber (ed.), Europäische Methodenlehre [in English: European Methodology] (2nd ed. 2010), sec. 11 ref. 15 ff.; Neuner, in: Riesenhuber (ed.), Europäische Methodenlehre [in English: European Methodology] (2nd ed. 2010), sec. 13 ref. 17.

The abbreviation DVO when used here and after in reference to the Level 2 DVO signifies the EU Commission draft known as Draft Implementing Measures Solvency II, 31 Oct. 2011.

Hereafter: Governance Guidelines.

VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id. n. 2 above, at Statement of Reasons for sec. 25 VAG [German Insurance Supervision Act] at 272. Against the use of the term “key task”, Bundesrat [German Federal Council], Response to the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], BR-Drucks. [Document of the German Bundesrat] 90/12 sent. 4.

See above, at 7.2.2.1.

See above, at 7.2.1.

See list above, at 7.1.

VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id. n. 2 above, at Statement of Reasons for sec. 25 VAG [German Insurance Supervision Act] at 272.

See above, at 7.2.2.2.

In the German version: “Personen, die das Unternehmen tatsächlich leiten oder andere Schlüsselfunktionen innehaben”.

See in detail on this point below, at 7.3.2.

Governance Guidelines ref. 1.10.

See Explanation 3.57 (c) of the Governance Guidelines.

See Dreher/Lange, “Die Vollharmonisierung der Versicherungsaufsicht durch Solvency II” [in English: Full Harmonization of Insurance Supervision under Solvency II] VersR (2011), 825 (829) (Chap. 1, above, at 1.​3.​2) with further references.

See Governance Guidelines, 1 with further references.

Governance Guidelines, id., n. 12 above, at ref. 2.5.

See on this point Dreher/Lange, VersR (2011), 825 (831 f.) (Chap. 1, above, at 1.​4.​2); Bürkle, “Die Zukunft der materiellen Versicherungsaufsicht in Deutschland” [in English: The Future of Substantive Insurance Supervision in Germany], VersR (2011), 1469 (1472 ff.); Bürkle/Grote, “Die aufsichtsbehördlichen Eingriffsbefugnisse nach Solvency II” [in English: Supervisory Intervention Powers under Solvency II] in: Dreher/Wandt, eds., Solvency II in der Rechtsanwendung [in English: Solvency II in Legal Application] (2009), 191 ff. and 225 ff.

See the use of the term “at least” or “not less than” in the Solvency II Directive.

In detail Dreher/Lange, VersR (2011), 825 (Chap. 1, above); Bürkle, VersR 2011, 1469 (1472 f.); Wandt/Sehrbrock, “Regelungsziele der Solvency II-Rahmenrichtlinie” [in English: Regulatory Objectives of the Solvency II Framework Directive], ZVersWiss 2011, 193 (200). On an unclear basis – “The Directive does not prescribe full harmonization in all areas” – and inconsistent with continuing the VAG’s [German Insurance Supervision Act’s] existing law in RegE eines Zehnten Gesetzes zur Änderung des VAG [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act] of 15 Feb. 2012, BT-Drucks. [Document of the German Bundestag] 17/9342, p. 255. Contra, based on the principle of full harmonization, BR-Drucks. [Document of the German Bundesrat] 90/12 at 2 f. in substance and at 13 explicitly. Also in support of full harmonization – even in confusing the terms full harmonization and maximum harmonization – staff member of the Austrian Federal Ministry of Finance Wagner, “Solvabilität II und VAG neu: Was bleibt, was ändert sich?” [in English: Solvency II and the New German Insurance Supervision Act: What is Unchanged? What is Changed?], VersRdsch 9/2010, 23 (24, 26).

The opposite can apply when such a person is properly assigned the leadership of a key function in addition.

Although art. 258 SG6 of the DVO refers only to “functions” and not “key functions”, the rules apply to the key functions because they have a legal basis that exclusively refers to key functions in art. 50, para. 1 b of the Solvency II Directive.

See in detail Dreher “Die Solvenzanforderungen in der Versicherungsaufsicht nach Solvency II und VAG-RegE” [in English: Solvency Requirements in Insurance Supervision under Solvency II and VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act]], ZVersWiss (2012), 381 (Chap. 4, above).

See sec. 25, para. 2, sent. 2 of the VAG 2012 [German Insurance Supervision Act 2012].

See above, 7.2.3.

See above, 7.2.3.

See on this point Dreher, “Das senior management der Versicherungsunternehmen und das künftige Versicherungsaufsichtsrecht” [in English: Senior Management of Insurance Undertakings and the Future Insurance Supervisory Regime], VersR 2013, 35 (Chap. 9, below).

See Schaaf, “Risikomanagement und Compliance in Versicherungsunternehmen – aufsichtsrechtliche Anforderungen und Organverantwortung”, [in English: Risk Management and Compliance in Insurance Undertakings – Supervisory Requirements and Institutional Responsibility] (2010), 242 f.; refuting, A. Hasse, “Informations- und Offenlegungspflichten der Versicherungsunternehmen nach Solvency II” [in English: Information and Disclosure Obligations for Insurance Undertakings under Solvency II] in: Dreher/Wandt, eds., Solvency II in der Rechtsanwendung [in English: Solvency II in Legal Application] (2009), 61 (80 ff.).

See CEIOPS, Issue Paper “New risk management and other corporate issues” (17 Jul. 2007) under 2.2; CEIOPS, Issue Paper “Implementing measures on systems of governance” (3 Nov. 2008) under 5.

See in detail Dreher/Lange, “Die Qualifikation der Aufsichtsratsmitglieder von Versicherungsunternehmen nach VAG und Solvency II” [in English: Qualifications of Supervisory Board Members of Insurance Undertakings under the German Insurance Supervision Act and Solvency II], ZVersWiss (2011), 211 (220 ff.) (Chap. 6, above, at 6.​3.​3.​1).

See legal basis in art. 50 para. 1 c of the Solvency II Directive.

VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id. n. 2 above, at Statement of Reasons for sec. 25 VAG [German Insurance Supervision Act] at 272.

See above, at 7.2.1.

See, e.g., the German, English, Spanish, and Italian language versions of the Solvency II Directive.

See Governance Guidelines, id., n. 12 above, at ref. 1.11, sent. 2 and 3.57.

See above, at 7.3.1.

See below, 7.3.5.3 through 7.3.5.5.

See in more detail below section “Subordinate Staff Members of a Function Director as Key Function Holders”.

See above, at 7.3.2.1.

In the implementation rule, however, there is a shift in that it is not based on the undertaking but rather on the activity, a posture that deviates from the Directive. The Statement of Reasons for the rule for business organization in the VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id., n. 2, sent. 271, includes even “small and medium-size businesses”.

VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id. n. 2 above, at Statement of Reasons at 271.

This will be reserved for examination in its own right.

VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id. n. 2 above, at Statement of Reasons for sec. 27 VAG [German Insurance Supervision Act] at 273.

VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id., n. 2, ibid.

VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id. n. 2 above, at Statement of Reasons at 271.

To the same effect, VAG-RegE [Government’s Draft of a Tenth Act Amending the German Insurance Supervision Act], id., n. 2 above, Statement of Reasons for sec. 29 at 275, though with unpersuasive provenance from the definition of “function” in art. 13, no. 29 of the Solvency II Directive rather than from the majority of persons upon whom the recitals and corresponding articles concerning the key functions of the Solvency II Directive are based. Also found in the Statement of Reasons for the duty of notice under sec. 44, no. 1 of the VAG 2012 [German Insurance Supervision Act 2012], is the following contradictory statement: “if a key task is performed by two or more persons, only the ‘holder of the management role’ is relevant for most tasks”.

See above, at 7.3.2.

See on this point above, at 7.3.2.2 and 7.3.2.3.

See above, at 7.3.5.2.

The VAG 2012 [German Insurance Supervision Act 2012] provides no implementation rule on this point. Rather, it simply refers to the applicability of general provisions, particularly sec. 76, para. 1 of the AktG [German Stock Corporation Act].

See above, 7.3.5.2.

Note that the VAG 2012 [German Insurance Supervision Act 2012], with its obligation for only selective reporting, contradicts art. 258 SG6, para. 4 of the DVO, for example, which requires an immediate report about any major problem to the managing board as a management body. The same applies in the relationship concerning the minimum annual reporting duty under art. 262 SG10, para. 8 of the DVO.

See Bürkle, “Die rechtliche Dimension von Solvency II” [in English: The Legal Dimension of Solvency II], VersR (2007), 1595 (1599 f.); id., n. 26 above, at ref. 99; Dreher, “Das Risikomanagement nach sec. 64 a VAG und Solvency II” [in English: Risk Management under Sec. 64a German Insurance Supervision Act and Solvency II], VersR (2008), 998 (1004).

Assuming the directorship of a function in this case would be incompatible with the “full independence” required under art. 47, para. 2 of the Solvency II Directive and art. 258 SG6, para. 1 sent. 1, para. 2 of the DVO [Draft Implementing Measures Solvency II].

See also Recital 32 of the Solvency II Directive.

On exceptions for small and medium-size insurance undertakings, see Recital 32 of the Solvency II Directive and art. 258 SG6, para. 2 of the DVO.

See Dreher according to discussion report by Thomas, ZGR (2010), 591 (594) in the context of the principle of the independence of procedure of the functions stipulated by MaRisk VA [Minimum Requirements for Risk Management (Insurance Supervision)].

See above, 7.3.5.3.

See above section “The Deputy Director of a Function as Key Function Holder”.

See above section “Subordinate Staff Members of a Function Director as Key Function Holders”.