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LMG calls for competitiveness objective to be given “teeth”

26.05.22

Forthcoming Financial Services Bill has potential to unlock inward investment, develop new insurance markets and open up opportunities post Brexit, but the opportunities must be grasped

26th May 2022: The LMG announced the publication of two documents today: both focussing on what it is that Government and the regulators need to do to safeguard the London Market’s leading position in the years to come. The LMG has been campaigning over the last year for five concrete changes that will allow the market to seize new global market and trade opportunities.  The most important of these is a competitiveness objective for the regulators, and that is now set to be included within the upcoming Financial Services and Markets Bill.

The House of Lords Industry and Regulators Committee  inquiry  on the regulation of commercial insurance and reinsurance raised concerns about the lack of regulatory proportionality which they found was holding back the market.  As such, regulatory reform will play a critical role in ensuring that the UK remains a competitive jurisdiction, attracting investment and capital.  The LMG and its members have developed proposals about how both the Bill and the current Solvency II Review could help to facilitate a real boost in UK competitiveness and inward investment.

Caroline Wagstaff, CEO of the London Market Group, commented: ‘We are delighted that the Government is proposing to include a competitiveness objective in the new Financial Services and Markets Bill, but words are not enough. If there is any chance of the reforms succeeding, they must ensure that the regulators can be held accountable for delivering on these new duties. For this bill to change the way the regulators operate it needs “teeth”.”

“Our concern at the moment is that this might be treated as a tick box exercise rather than something which can seriously support UK competitiveness. For us, the success of this development hinges on establishing an approach to regulation that genuinely focuses on risk and sets the right rules for the right firms in the right way. It also rests on measuring change. So, our second document offers some practical suggestions by which this competitiveness agenda can start to be established and measured.”

“These suggestions include getting the basics of operational effectiveness right to give a platform to build on, however, it should also involve setting the tone for future ‘activity-specific’ regulation by increasingly considering proportionality in current and ongoing activity. A focus on proportionality will help lay the groundwork for the growth of new entrants, new business models and the wealth of new investment opportunities that exist.”

LMG_Regulation-–-Metrics-for-success.pdf

LMG_5-point-plan.pdf

ENDS

For more information please contact:

Victoria Sisson, Luther Pendragon  |  Tel: 07941 294872

Appendix: The five points of the five-point plan, and notes on progress made against each in the past year

1) Recognise the nature of the large complex risks we cover and the sophisticated corporate buyers we serve, through a more proportionate approach to regulation.

LATEST STATUS: In April 2022, the House of Lords Industry and Regulators Committee concluded its inquiry and in recommendations to the City Minister called on the Government to introduce a greater focus on proportionality in the UK’s regulatory framework.

Following the LMG’s campaign the PRA has said it will move to authorise more quickly and proportionately without necessarily having all capital and executives in place.

 

2) Ensure that the London Market remains the most attractive home for large risks through an international competitiveness duty for UK regulators.

LATEST STATUS:  In November 2021 the Government adopted the LMG’s proposal for a competitiveness and growth duty for both regulators, recognising that “the financial services sector is not just an industry in its own right but an engine of growth for the wider economy.”

The Industry and Regulators Committee similarly backed our calls for a competitiveness objective and went further by backing the LMG’s call for a “clear criteria and appropriate performance measures” alongside it to ensure accountability.

 

3) Make London a natural home for foreign (re)insurance companies by reforming the Solvency II regime.

LATEST STATUS: HM Treasury is progressing its review of the Solvency II regime and has proposed a number of amendments, including the removal of some reporting requirements.

At the end of 2021 the Prudential Regulation Authority (PRA) created a Solvency II Reporting Requirements Working Group, with LMG members represented, to consider what reporting requirements can be removed or amended.

HM Treasury has also announced proposals to remove the requirements for UK branches of foreign insurers to calculate branch capital requirements and to hold local assets to cover them. This reform should benefit around 160 branches immediately, as well as any other branches that establish in the UK in the future.

The PRA is considering a “green lane” for ILS applications to speed up approvals with more detail to follow.

 

4) Increase the choice of buyers and growing the market by developing and promoting a UK captives

LATEST STATUS: The LMG has presented its proposals to HMT and the PRA, and a dialogue is underway to take this work forward through a joint working group.

 

5) Gaining access to emerging markets around the world, to help them build resilience against natural disasters and climate change events through trade negotiations, regulatory dialogues and market promotion.

LATEST STATUS: Both the UK-Australia and UK-New Zealand Free Trade Agreements (FTA) include commitments on the provision of “large risk” business.

This was the first time such provisions have been included in UK FTAs, establishing an important precedent for the UK’s trading relationships with other nations in the future.

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