The European Insurance and Occupational Pensions Authority (EIOPA) has called for urgent action from European institutions to provide it with more funding and resources so that it is able to implement the Solvency II directive.
EIOPA said it required 10 full time staff members and more than 2m (£1.4m) in order to fulfil its duties for the Solvency II implementation. Earlier this year the authority announced its budget for 2015 was reduced to 19.9m (£14.3m).
According to its report, which provided the European Parliament, the Council and the Commission with an assessment of its staffing and resource needs, EIOPA said it needed the extra funding to undertake tasks such as risk-free interest rate calculation, completing its annual report on long-term guarantees and implementing EIOPA's information and IT infrastructure.
The authority warned if the gap was not addressed it could leave "unintended negative consequences" for the insurance sector, as EIOPA would not be able to perform certain tasks.
For example, the authority said the shortfall in its budget could lead to delays in the review of the Solvency II standard formula calibrations and an inability to declare the existence of exceptional adverse situations, a pre-condition to extend the recovery period for companies to restore their financial situation. EIOPA also said it would not be in a position deal with unplanned equivalence assessments.
The report said: "The outcome of the assessment underlines the material demands, both in terms of expertise and financial resources, required for an appropriate fulfilment of the described duties and powers.
"It calls for urgent action from European institutions to provide EIOPA with such resources; in particular considering the impact and potential disruptions to the insurance sector shall EIOPA not be in a position to deliver."