London too golden to join regulatory race to the bottom; policyholders trump competitiveness: HM Treasury
The UK insurance market is too much the global gold standard to allow regulators to put growth and market competitiveness on an equal footing with policyholder protection in the regulatory framework, the UK’s Economic Secretary to the Treasury, John Glen (pictured), told a Lords committee hearing.
Comments worked to douse hopes by the industry that competitiveness be enshrined as a so-called primary policy objective to help London recapture market spaces increasingly taken by more free-wheeling jurisdictions.
“I don't agree that it should be a primary objective because I think that would undermine the integrity and the reputation of the PRA as a high-standard regulator and the systemic stability we have seen int the market over a long period of time,” Glen told Lords.
“If growth and competitiveness is the primary driver, it means you can throw caution to the wind,” Glen said.
As a subordinated secondary objective, a growth and competitiveness remit might force the PRA “to look at what is happening in the global marketplace and challenge themselves on how aligned they are to that broader competitive landscape and whether they are getting that right.”
Smaller and more aggressive jurisdictions, Bermuda in particular, constitute no example for London, Glen said to rebuff calls to model on faster-growing locales.
“The scale is different,” Glen said. “We are a financial services center globally and we have to do things on scale.” The UK may take individual lessons from upstart jurisdictions, be it how to engage with smaller entities or how to improve regulator responsiveness, but “you don’t want to lose your integrity.”
It’s the scale of the regulated entities, not of the regulator or the jurisdiction that counts. The scale of London-based insurers renders “quite a sophisticated relationship” between regulators and firms that frequently bear “significant” risks to the economy and financial system.
“That can’t be done light touch and nimbly,” Glen said. “We should not be looking to be nimble at all costs.” The challenge is better defined as “remaining effective in the evolving world.”
Glen hopes to put legislation to the next sitting of Parliament to launch his planned ‘Future Regulatory Framework’ under which the UK will successively amend elements of the insurance regulatory framework inherited from the EU.
Questions of accountability will be ensconced in a system of checks and balances which Glen hopes to write into the legislation. His slam dunk guarantee: oversight of supervisors will be more direct for the UK Parliament than under the EU regime of Commissioners and delegated authorities.
Work on promised adjustments to the Solvency II framework should next proceed to a consultation phase after the Easter break, Glen indicated. “I am doing that as quickly as I can,” Glen said, “but it is also something that we need to get right.”
