Compliance News - 17 June 2011
INDUSTRY NEWS FLASH WEEK ENDED 17 JUNE 2011
The Bank of England (the Bank) and the Financial Services Authority (FSA) have published a joint paper "The Bank of England, Prudential Regulation Authority – Our approach to insurance supervision" setting out the current thinking on how the future Prudential Regulation Authority (PRA) will approach the supervision of insurers.
Recognising that the risks posed by insurers are different from the other firms it will supervise, the PRA will have a specific insurance objective and a distinct approach to supervising insurers.
The PRA will be responsible for the prudential supervision of over 2,000 firms, of which around half will be insurers, with the remainder deposit-takers and certain investment firms. The PRA will supervise companies specialising in life insurance, general insurance and wholesale insurance (including reinsurance), and companies that undertake a composite of these activities.
On current data, it will regulate 636 general insurers, around 300 of which operate in the UK under a passport from other EEA countries, 123 life insurers (of which 70 will be EEA authorised), 133 friendly societies and around 132 insurers which are involved in the London Market.
On current data, it will regulate 636 general insurers, around 300 of which operate in the UK under a passport from other EEA countries, 123 life insurers (of which 70 will be EEA authorised), 133 friendly societies and around 132 insurers which are involved in the London Market.
Hector Sants, FSA chief executive and PRA chief executive designate, said:
“The PRA will be a focused prudential regulator for insurers. In setting out the PRA’s approach to insurance supervision, we have looked closely at the lessons arising from previous episodes of insurance company distress. Reflecting the uncertain nature of insurers’ liabilities, prudential insurance regulation will be forward-looking and judgement-based. Much of the PRA’s proposed approach will be achieved in practice through the application of Solvency II, the new European framework for insurance supervision.”
The paper outlines:
- the principles underlying the PRA’s approach;
- the scope of the PRA;
- the PRA’s risk assessment framework;
- the PRA’s forward looking, judgement-based approach to supervision;
- the approach to policy-making that will support the judgement-led model; and
- the approach to authorising firms and approving individuals.
A companion paper was published in May 2011 to cover the PRA’s approach to supervising deposit-takers.
Source: Financial Services Authority
The FSA has published a document which contains a near-final draft of Handbook rules and guidance to implement those provisions of the revised UCITS Directive (2009/65/EC) for which the FSA is responsible. These proposals were consulted on in the joint HM Treasury / FSA paper ‘Transposition of UCITS IV: consultation document’, published in December 2010, and in Chapter 9 (paragraphs 16 to 18) of the FSA’s Quarterly Consultation Paper No. 28 (CP11/07), published in April 2011.
The FSA Board will be invited to make the final version of these rules and guidance once the FSA has been granted the necessary statutory powers under the proposed Undertakings for Collective Investment in Transferable Securities Regulations 2011, which were laid in Parliament on 13 June 2011.
In the meantime, the FSA is providing this near-final draft in the meantime to assist firms and other stakeholders who need to prepare for the implementation of the revised Directive in the UK. FSA does not expect the final version to differ in any significant way from the version published here.
In the meantime, the FSA is providing this near-final draft in the meantime to assist firms and other stakeholders who need to prepare for the implementation of the revised Directive in the UK. FSA does not expect the final version to differ in any significant way from the version published here.
Once the rules have been made, FSA will publish a Policy Statement summarising the feedback to the Consultation Papers and explaining the changes made as a result. The final version of the Instrument will appear as an annex to the Policy Statement. To help firms identify significant changes in the present draft compared to the version published for consultation, a summary table has been provided.
Source: Financial Services Authority
Sheila Nicoll addressed the Chartered Institute for Securities and Investment annual conference 2011 and covered the following topics within her brief to speak as “the vision of your institute of professional excellence, integrity and high levels of competence”.
She covered the following topics:
She covered the following topics:
- Wealth Management CEO letter (covered in lour last News Flash)
- RDR
- European developments
- Exchange traded products
- Compensation
- Regulatory reform.
The speech went beyond the publications on these topics, particularly the comments on the Dear CEO letter, and is worth reading in detail through the link below.
Source: Financial Services Authority
Hector Sants gave the keynote speech at the PRA Insurance Conference. Noting that the UK insurance industry was the third largest in the world and the largest in Europe, he commented that it was vitally important that supervision was of the highest quality.
The topics he covered included:
- What is insurance?
- The PRA’s insurance objective
- Lessons from the past
- Supervisory approach
- Challenges to delivering the supervisory approach
- Other key issues such as
- the need to effectively coordinate with other regulatory bodies, notably the Financial Conduct Authority;
- the need for effective accountability; and
- the need to influence the international regulatory agenda.
Source: Financial Services Authority
Hot on the heels of Hector, Julian Adams, Director, Insurance Division at FSA gave a detailed speech setting out in more detail what the PRA’s supervisory approach will be for insurance. In a very lengthy and detailed speech, his main topics covered
- Judgement-based supervision
- Supervisory interventions
- Delivery of supervision
- PRA policy making
- Co-ordination with other authorities
He concluded by saying “a more clearly defined objective will lead to much sharper execution, and to my mind this is the main benefit of the new regulatory regime. We know that we do not have all of the answers that you might like to hear, but part of the process to arrive at those answers is engagement with you as regulated firms, and I urge you to participate at all available opportunities.”
Source: Financial Services Authority
The BBA said:
"The programme of regulatory reform in the UK is now well underway. The white paper is an enormously significant milestone.
"Regulatory change carries with it real consequences for consumers and businesses. This is not an abstract set of rules for an industry. It is fundamental to financial stability and economic recovery: it ensures standards of discipline in the financial markets and safeguards the international reputation of the City as the world's financial centre - and one of the biggest contributors to the UK economy.
"It is therefore essential to everyone in the UK that this process results in the creation of the right regulatory institutions with the right powers - and crucially with the right communications in place to ensure that future problems are identified, anticipated and acted upon quickly.
"The UK's banks will now consider this significant document closely and will respond in detail."
Source: British Bankers Association
Brian Mairs of the BBA has written an interesting article on this topic. He said:
“Forbearance – the principle of taking a more lenient approach to people in debt to help them out of their troubles – should be considered by everybody uncontroversially as a good thing. But – as with everything in the economy – there is disagreement even here. There is growing concern among regulators that the true scale of the distressed assets being held by the UK’s banks is being masked by the banks’ lenient approach to the people who owe them money through mortgages and loans.
Nobody could deny the benefits that forbearance has brought to distressed families since the advent of the global financial crisis. Coupled with the historically low interest rates, the banks’ actions may have helped thousands of families to stay in their homes.
But the Financial Services Authority’s concern is that the banks are actually doing a lot more than is immediately apparent to help these customers. The FSA believes some initiatives which help distressed homeowners are not being fully disclosed by the banks. As a result their balance sheets may appear stronger than they actually are.
The FSA has therefore proposed some guidance on how banks report their forbearance activities and the provisions they make for recording customers who are falling behind with their payments. The scope for unintended consequences is considerable, and the risks of getting it wrong are evident, particularly for international banks which need to meet the differing standards of other jurisdictions.
Some of the issues the FSA has identified reflect the recent unprecedented growth of forbearance, as the banks’ internal controls work to accommodate the increasing numbers of families who face falling into arrears. Crucially the FSA wants to be assured that the advice provided to the customer, and the action taken, reflects the customer’s best interests.
Overall on this issue there are more areas of agreement between the banks and their regulators than there are differences. There is always more that can be done to help families in distress. That means banks and regulators alike need to ensure that there is sufficient flexibility in the system to act quickly to help customers.
Source: British Bankers Association
Tony Boorman, Principal Ombudsman, has made a speech entitled “PPI, mass detriment, root causes and next steps”. The speech goes far wider than PPI and makes important announcements particularly in relation to establishing and acting on mass detriment not just for those who complain but for those who do not realise they have been disadvantaged, and changes to the DISP rules to strengthen the need to establish (and act upon) root causes.
Source: Financial Ombudsman Service
