UK announces plans to ‘tailor’ Solvency II and brings forward review

The UK government has announced plans to tailor Solvency II rules to better suit its insurers once the Brexit transition period ends and has brought forward a review of the capital adequacy regime. In a written statement to the UK parliament on the future of financial services regulation, chancellor Rishi Sunak said his government will bring forward a review of “certain” Solvency II features to ensure the regulation is “properly tailored to take account of the structural features of the UK insurance sector”. He said the review will consider areas that have been the subject of longstanding “discussion” while the UK was an EU member state. This may include issues that will also form part of the EU’s intended 2020 Solvency II review, added Mr Sunak. “These will include, but are not limited to, the risk margin, the matching adjustment, the operation of internal models and reporting requirements for insurers,” he explained. The UK government expects to publish a call for evidence to support the review this autumn. Mr Sunak’s statement to parliament sets out how the UK government plans to approach several reviews of financial services regulation to ensure it remains “appropriate” once the transition period with the EU is over. It also addresses a range of regulatory reforms that are in the process of being implemented at international and European level that the UK needs to address before the end of the transition period currently set for 31 December 2020. Within this, Mr Sunak gave more hints at the UK’s thinking on regulation post-transition. “An enduring future relationship with the EU would help complement the UK’s leading global role in financial services. The government continues to believe that comprehensive mutual findings of equivalence between the UK and the EU are in the best interests of both parties and we remain open and committed to continuing dialogue with the EU about its intentions in this respect,” he said. But there is clearly a plan to diverge, if possible, to suit UK financial services firms, including insurers through the Solvency II review. “The UK played a pivotal role in the design of EU financial services regulation. The government remains committed to maintaining prudential soundness and other important regulatory outcomes such as consumer protection and proportionality. However, rules designed as a compromise for 28 countries cannot be expected in every respect to be the right approach for a large and complex international financial sector such as the UK,” said Mr Sunak. “Now that the UK has left the EU, the EU is naturally already making decisions on amending its current rules without regard for the UK’s interests. We will therefore also tailor our approach to implementation to ensure that it better suits the UK market outside the EU,” he added. The UK Treasury launched a Financial Services Future Regulatory Framework Review last year to best decide how its regulatory framework needs to adapt in the future, particularly once it is fully out of the EU. Mr Sunak said the next phase of this review will look at how financial services policy and regulation are made in the UK, including the role of parliament, HM Treasury and financial services regulators. It will also consider how stakeholders are best involved in the process. HM Treasury will consult on its approach to the next phase of the review in the second half of this year, said Mr Sunak. He also flagged that the UK government intends to bring forward a Financial Services Bill to deliver a number of existing government commitments and ensure that the UK maintains its “world-leading regulatory standards and remains open to international markets”.

UK announces plans to ‘tailor’ Solvency II and brings forward review

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