Preliminary assessment of the second payment request of Romania

Romania carried out commitments related to milestone 213 of the NRRPs relating to making investment by private pension funds more flexible” (hereinafter referred to as “the final explanatory note from the Financial Supervisory Authority”); vii) Explanatory note developed by the Financial Supervisory Authority titled “Reply of the Financial Supervisory Authority to the request made by the representatives of the European Commission at the meeting on 8.11.2022 to negotiate with the Commission on milestone 213 NRRP” (hereinafter referred to as “the explanatory note developed by the Financial Supervisory Authority”) and its annex; viii) Explanatory annex titled “Milestone 213 – Entry into force of amendments to the regulatory framework to ensure the sustainability of Pillar 2 pensions”; ix) Copy of Financial Supervisory Authority rule No. 4/2023 of 3 February 2023, amending and supplementing Rule No. 11/2011 on the investment and valuation of assets private pension funds, approved by Judgment Private Pension System Supervisory Commission No. 22/2011, published in the Official Journal No. 142 on 20 February 2023. x) Copy of Financial Supervisory Authority rule No. 2/2021 of 29 January 2021, amending and 36  supplementing Rule No. 11/2011 on the investment and valuation of assets private pension funds, approved by Judgment Private Pension System Supervisory Commission No. 22/2011, published in the Official Journal No. 130 on 8 February 2021; xi) Copy of Financial Supervisory Authority rule No. 11/2011 of 15 December 2011, on the investment and valuation of assets private pension funds, and its amendments, as published in the Official Journal No. 8 on 5 January 2012; xii) Copy of Financial Supervisory Authority rule No.13/2021 of 24 June 2021, amending the Authority’s rule Financial Supervision No 1/2015 on accession and records of participants in managed pension funds private, published in the Official Journal No. 711 on 19 July 2021; xiii) Copy of Financial Supervisory Authority rule No.16/2021 of 24 June 2021, amending Financial Supervisory Authority Rule No. 26/2014 on the transfer of participants between privately managed pension fund, published in the Official Journal No. 695 on 14 July 2021; xiv) Copy of Financial Supervisory Authority rule No.18/2021 of 24 June 2021, amending and supplementing Rule No. 3/2013 on the marketing of the privately managed pension fund, approved by Decision of the Board of Supervisors of the Private Pension Scheme No. 5/2013, published in the Official Journal No. 730 on 26 July 2021; xv) Copy of Financial Supervisory Authority rule No. 19/2021 of 29 July 2021, on reporting obligations; and transparency in the private pension system, published in the Official Journal No. 880 on 14 September 2021; xvi) Copy of Financial Supervisory Authority rule No.44/2020 of 18 December 2020, supplementing Annex 1 to Rule of the Financial Supervisory Authority No. 1/2015 on the membership and record of participants in the Funds of privately managed pensions, published in the Official Journal No. 1332 on 31 December 2020. The authorities also provided: xvii) Copy of Financial Supervisory Authority rule No. 12/2021 of 24 June 2021, amending and supplementing Financial Supervisory Authority Rule No. 28/2017 on the use of the net personal assets of the participant in a voluntary pension fund, published in the Official Journal No. 721 on 22 July 2021; xviii) Copy of Financial Supervisory Authority rule No.15/2021 of 24 June 2021, amending and supplementing Rule No 14/2006 on the transfer of participants between voluntary pension funds, approved by the judgment Private Pension System Supervisory Commission No. 26/2006, published in the Official Journal No. 695 on 14 July 2021; xix) Copy of Financial Supervisory Authority rule No.17/2021 of 24 June 2021, amending and supplementing Financial Supervisory Authority Rule No. 16/2013 on the marketing activity of the pension fund optional, approved by Decision of the Board of the Authority financial Supervision No. 64/2013, published in the Official Journal No. 697 on 14 July 2021; xx) Copy of Financial Supervisory Authority rule No. 1/2015 of 8 January 2015, on membership and registration of privately managed pension fund participants, and its amendments, as republished in the Official Journal No. 31 on 14 January 2015; xxi) Financial Supervisory Authority simulation scenario to eliminate the fee from gross contributions; xxii) Letter from the President of the Financial Supervisory Authority to the Minister of Labour 37  and Social Solidarity; xxiii) Financial Supervisory Authority response to COM requests on the legal provisions in force concerning the investment limits of privately managed pension funds; xxiv) Minutes of the Social Dialogue Committee organised on the Webex platform at the Ministry of Labour and Social Solidarity on 25 August 2022. Analysis: The justification and substantiating evidence provided by Romanian authorities covers all constitutive elements of the milestone. The new legislative framework shall - ensure the fiscal sustainability of Pillar II through an increase in contributions in line with the provisions of the budgetary fiscal strategy. The sole Article of Government Emergency Ordinance No. 23/2022 of 16 March 2022, supplementing Article 43 of Law No. 411/2004 on privately managed pension funds, published in the Official Journal No. 259 on 16 March 2022, approved by Law No. 238/2022, establishes the increase in contributions to Pillar II by one percentage point, from 3.75% to 4.75%, starting from 1 January 2024. The same Government Emergency Ordinance states that the share of Pillar II contributions is in line with the provisions of the fiscal strategy. - Digitalise the functioning of the private pension system. The following Financial Supervisory Authority rules have been adopted to digitalise the functioning of the private pension system:  Financial Supervisory Authority rule No. 44/2020 of 18 December 2020, supplementing Annex 1 to Rule of the Financial Supervisory Authority No. 1/2015 on the membership and record of participants in the Funds of privately managed pensions, published in the Official Journal No. 1332 on 31 December 2020, introduces the possibility for members of privately managed pension funds to decide to receive information by electronic means (Art. I);  Financial Supervisory Authority rule No. 13/2021 of 24 June 2021, amending the Authority’s rule Financial Supervision No. 1/2015 on accession and records of participants in privately managed pension funds, published in the Official Journal No. 711 on 19 July 2021, allows to sign acts of membership to private pension funds by means of qualified electronic signature (Art. 8) and to send reports in electronic form for participants who have selected this option (Art. 12);  Financial Supervisory Authority rule No. 16/2021 of 24 June 2021, amending Financial Supervisory Authority Rule No. 26/2014 on the transfer of participants between privately managed pension fund, published in the Official Journal No. 695 on 14 July 2021, allows private pension funds’ participants to transfer from one fund to another by electronic communication (Art. 2 and 3);  Financial Supervisory Authority rule No. 18/2021 of 24 June 2021, amending and supplementing Rule No. 3/2013 on the marketing of the privately managed pension fund, approved by Decision of the Board of Supervisors of the Private Pension Scheme No. 5/2013, published in the Official Journal No. 730 on 26 July 2021, allows the electronic submission of documents related to the marketing activities of private pension funds (Art. 4, 11, 14, 15, 20, 23, 24, 26);  Financial Supervisory Authority rule No. 19/2021 of 29 July 2021, on reporting obligations; and transparency in the private pension system, published in the Official Journal No. 880 on 14 September 2021, provides for the possibility for pension fund administrators to send to 38  participants information on the status of their assets electronically, if participants have opted for it (Section 4, Art. 12(1)). - Diversify Pillar II pension investments. Financial Supervisory Authority rule No. 2/2021 of 29 January 2021, amending and supplementing Rule No. 11/2011 on the investment and valuation of assets private pension funds, approved by Judgment Private Pension System Supervisory Commission No. 22/2011, published in the Official Journal No. 130 on 8 February 2021, allows investments in unrated corporate bonds and corporate bonds with a non-investment grade rating of Romanian issuers, but with grade no lower than BB-, BB-, and Ba3 (Article I(4)), therefore expanding opportunities for diversification of Pillar II pension investments as compared to the previous situation. - Regarding the Pillar II pension investments, the government shall: - explore the possibility of making the regulatory regime applicable to privately managed pension funds’ investments more flexible by reducing quantitative investment restrictions and reducing risk budgetary restrictions applicable to privately managed pension funds. The explanatory note developed by the Financial Supervisory Authority titled “Analysis of how Romania carried out commitments related to milestone 213 of the NRRPs relating to making investment by private pension funds more flexible” (hereinafter referred to as “the final explanatory note from the Financial Supervisory Authority”) lays out on pages 2-5 the state of play on the regulatory regime applicable to privately managed pension funds’ investments at the time when the Council Implementing Decision and its Annex were adopted by the Council. According to its mandate, as outlined in the Cover Note and in Art. 2(1) of Law No. 113/2013 of 23 April 2013, for the approval of the Government Emergency Ordinance No. 93/2012 on the establishment, organisation and functioning of the Financial Supervisory Authority, published in the Official Journal No. 234/2013 on 23 April 2013, the Financial Supervisory Authority exerts authorisation, regulation, supervision and control powers over the private pension system. In addition, the sole Article of Law 104/2023 of 13 April 2023 approving Government Emergency Ordinance No. 174/2022, published in the Official Journal No. 319 on 13 April 2023, specifies that the Financial Supervisory Authority shall regularly examine the possibility of drawing up regulations on the investment of assets of privately managed pension funds to help make the investment framework more flexible, with a view to encouraging appropriate diversification of pension fund assets in order to achieve fair risk-adjusted investment returns. Following the adoption of the Council Implementing Decision, the Financial Supervisory Authority explored in early 2022 the possibility to further enhance diversification of the regulatory regime applicable to privately managed pension funds’ investments. As explained in the Cover Note and the final explanatory note from the Financial Supervisory Authority, the Financial Supervisory Authority started this exploration with a detailed risk assessment (page 5 of the final explanatory note from the Financial Supervisory Authority). As stated on pages 6-7 of the final explanatory note from the Financial Supervisory Authority, the risk assessment points to an unfavourable economic outlook and concerns about vulnerabilities in the financial system, including private pensions, and therefore, at this stage, a cautious approach to potential changes to the legislative framework regulating private pension funds’ investment should be adopted. The Financial Supervisory Authority will take into consideration future changes to further encourage diversification, in line with its mandate and the legislative framework outlined in the sole Article of Law 104/2023 of 13 April 2023 approving Government Emergency Ordinance No. 174/2022, published in the Official Journal No. 319 on 13 April 2023. 39  - Preserve the independence of pension managers in determining their investment strategy Law 411/2004 of 18 October 2004, on privately managed pension funds, as republished in the Official Journal No. 482 of 18 July 2007, preserves the independence of pension managers in determining their investment strategy by requiring the administrator/manager of private pension funds to draw up an investment policy statement including the investment strategy (Chapter IV, Article 24). A different person, the investment manager, is responsible for deciding the investments of the pension fund’s assets within the limits of the powers and in accordance with the asset investment strategy established by the private pension fund manager (Chapter IV, Article 23). Therefore, Law No. 411/2004 ensures that private pension funds administrators/managers are independent in establishing the investment strategy. Regulate future adjustments to the private pension fund investment regime that contribute to a flexible set-up that encourages pension managers to properly diversify their portfolios in order to achieve fair risk-adjusted investment returns. The sole Article of Law 104/2023 of 13 April 2023, approving Government Emergency Order No. 174/2022 amending certain legislative acts in the field of private pensions, published in the Official Journal No. 319 on 13 April 2023, specifies that the Financial Supervisory Authority shall regularly examine the possibility of drawing up regulations on the investment of assets of privately managed pension funds to help make the investment framework more flexible, with a view to encouraging appropriate diversification of pension fund assets in order to achieve fair risk-adjusted investment returns. Increase companies’ access to the capital market, to facilitate the listing of new issuers and to make greater use of private sources of funding, including pension fund assets. This would lead to a better investment ecosystem for pension managers and increased opportunities for a proper diversification of pension fund portfolios. By allowing investments in unrated corporate bonds and corporate bonds with a non-investment grade rating only if these are admitted to trading, Article I(4) of Financial Supervisory Authority rule No. 2/2021 of 29 January 2021, amending and supplementing Rule No. 11/2011 on the investment and valuation of assets private pension funds, approved by Judgment Private Pension System Supervisory Commission No. 22/2011, published in the Official Journal No. 130 of 8 February 2021, encourages the listing of Romanian companies in capital markets in order to benefit from private pension funds’ investments and facilitates the listing of new issuers, since corporate bonds of new issuers are typically unrated. This provision also allows companies to make greater use of private sources of funding, by increasing the number of companies accessing private pension funds investment. Commission Preliminary Assessment: Satisfactorily fulfilled Related Measure: Increased capacity to undertake investments in health Number: 355 infrastructure Name of the Milestone: Entry into force of the legislative framework establishing the National Agency for Infrastructure Development in Health (ANDIS) Qualitative Indicator: Entry into force of the legislative framework Time: Q2 2022 establishing the National Agency for Infrastructure Development in Health 40 (ANDIS) Context: The measure aims at increasing Romania’s capacity to execute projects in health infrastructure through the operation of the National Agency for Development of Health Infrastructure (ANDIS) as a public institution with legal personality and subordinated to the Ministry of Health. Milestone #355 requires the entry into force of the legislative framework, which establishes ANDIS, defines its functions and responsibilities, while providing it with the necessary resources like a headquarter and staff to ensure that the agency can function. The milestone also requires that ANDIS should work as a management agency for major health infrastructure investments. This milestone is the only milestone or target of this reform. Evidence provided: In line with the verification mechanism set out in the Operational Arrangements, the following evidence was provided: i) A cover note duly justifying how the milestone was satisfactorily fulfilled; ii) Copy of the Government Emergency Ordinance No. 76 of 2 June 2022 on the establishment, organisation and functioning of the National Agency for the Development of Health Infrastructure, published in the Official Journal No. 547 on 3 June 2022, which entered into force on the date of its publication. The authorities also provided: iii) Substantiation Note for Government Emergency Ordinance No. 76 of 2 June 2022; iv) Copy of Government Decision No. 857 of 6 July 2022 on the org