Shayne Halfpenny-Ray examines the post-Brexit regulatory landscape for insurers
The regulatory environment is often transitioning – regulators deploy strategic visions, legislatures make or amend law, and standards adapt to new frameworks as well as the direction of society itself.
So, we find ourselves in an interesting time; the UK has formally left the European Union (EU) with a trade agreement (not on financial services); there are consultations on the Future Regulatory Framework (FRF) and Solvency II; we await updated guidance from the Financial Conduct Authority (FCA) on vulnerable customers; and the government will launch its National Disability Strategy in March.
The UK has officially left the EU, but what that means for insurance and wider financial services remains opaque at best. Services were barely touched upon in the Trade and Cooperation Agreement (TCA), so now the priority will be for the UK and the EU to agree to a new relationship that goes beyond what the TCA set out.
Towards that end, the government is working on a memorandum of understanding (MoU) with the EU in March. This MoU is hoped to provide the framework for future regulatory cooperation.
We have been engaging with industry bodies through the Insurance & Financial Services All-Party Parliamentary Group on post-Brexit priorities, both for the MoU and beyond. Equivalence, resolving the need for green cards and the current consultations on the UK regulatory space (FRF and Solvency II) are the most discussed by the market.
Equivalence, for Solvency II (and other areas if possible), remains a key concern of course. It is important to point out that Solvency II has no equivalence regime that facilitates market access for direct insurance.
Balancing concerns
The Treasury’s reviews of both the FRF for financial services and Solvency II are opportune. As we look ahead to how financial services are regulated post-Brexit, it’s important to balance the concerns of UK businesses that work with the EU and attract inward investment, with how we want to shape the UK internal market for the
next generation.
There is certainly some excitement with the idea of regulators being mandated to promote international competitiveness, yet I should disclose that the FCA and Prudential Regulation Authority are less than happy with this suggestion. Perhaps we should take that as a sign of it being a credible idea?
The Solvency II review offers a once-in-a-generation chance of ensuring prudential regulation works for the UK market. The opportunity lies in considering how much more appropriate the requirements on capital, reporting and the overall approach to risk management could be made, to better fit the future insurance market. However, this must also balance the need to protect policyholders and the safety and soundness of firms, with the desire to create a more innovative and competitive market that can further promote long-term investment of capital by firms. One area being advocated for is a more streamlined approach to reporting, which would
be of help to smaller firms particularly but also a boon for everyone.
Firms around the country have spent vast sums complying with Solvency II and will not want to tear up the rulebook and start again. So, reform allowing insurers to better deploy capital to new emerging markets, and supporting the government’s desire for a green technology boom, could come without the cost associated of a complete overhaul. It would certainly make cross-border work with the EU a less fractious relationship for the market.
What else is new?
The timing of the Lloyd’s report turned out to be even more interesting as, in late January, the UK government decided not to block a new coalmine in Cumbria – the Woodhouse mine, as examined in detail in our Building Back Better article of page 16 of this edition of The Journal.
Keith Richards, chief membership officer of the CII, responded to Lloyd’s’ ambitions by saying: “The challenges of achieving the ambitions of the Paris Agreement and the more recent Net Zero by 2050 target by the UK government, are fundamental to the future of our whole society, and insurance will play a huge role in the success of these goals, all around the world.
“Following the recent release of the government’s 10-point plan on net zero, its energy whitepaper and the Committee on Climate Change’s sixth carbon budget, this report is a welcome response to a changing landscape from the Lloyd’s market, and highlights the leadership our profession can take during this global transition.”
He adds: “At the heart of this is the concept of building a brighter future – a philosophy that the CII has long shared – and we are delighted to support the launch of these detailed plans for a more environmentally conscious marketplace.”
Capability gap
Elsewhere, we expect new guidance to be published imminently. But what does this mean for professionals?
A lot of what is expected of insurers, brokers and advisers is already apparent and we have produced reams of guidance to support members. But perhaps we can look at the Covid-19 guidance during the last year for a better sense of what more the regulator will be expecting from firms.
During the pandemic, the FCA has stressed the need to consider the situation people are in now more than ever and be proactive in engaging with customers. Proactivity has been something charities and consumer groups have wanted the insurance profession to deploy often, so the FCA could encourage this permanently.
It would be remiss not to mention the National Disability Strategy, expected in March. This will give employers guidance on what the government expects of them when employing disabled workers, as well as how to improve access to careers, products and services. Already, the government has established a network of ministerial ambassadors to reach out to businesses and discuss how they are improving access to jobs and services in their sector.
The CII will continue to work with external stakeholders, the government, and regulators on these matters, and will keep members informed of all changes as matters progress.
Shayne Halfpenny-Ray is policy and public affairs adviser of the CII
