UK Solvency II reform needs performance targets to avoid tickbox exercise, say insurance bodies

Leading London and UK insurance market representative groups have reacted to the publication of the draft post-Brexit Financial Services and Markets Bill by calling for revisions to make the regulator bound by performance criteria that ensures it makes UK financial services more competitive. On Wednesday, Chancellor of the Exchequer Nadhim Zahawi tabled the bill, which is aimed at boosting the post-Brexit competitiveness of the UK’s financial services industry, while still maintaining internationally respected standards. The basic aim is to reduce perceived EU red tape while maintaining equivalence with key EU rules such as Solvency II. If the UK gets things right, it should be able to mirror other non-EU financial centres such as Bermuda and Switzerland that ‘enjoy’ the ability to amend their rules as they see fit but retain the ability to operate in the EU without significant barriers because their rules are deemed equivalent. Caroline Wagstaff, chief executive of the London Market Group, said such goals will only be achieved if the Financial Services and Markets Bill contains transparent performance criteria and does not end up being a tickbox exercise. “The London Market Group has been asking for a growth and competitiveness objective for the regulators for a number of years, so it is good to see that this is a key element of the reforms. There remain questions about what the regulators need to be doing to show that they are fully considering our competitive position,” said Wagstaff. “The bill gives them a great deal more power but on our initial reading, it appears they also have the power to set and mark their own homework. We need to see more detail on the accountability measures that government and parliament will have to ensure that we get the culture change we need. We want the new objective to make a real difference but, without the necessary performance criteria in the bill, our fear is that it could be treated as a tickbox exercise rather than something which can seriously support UK competitiveness,” she added. Also responding to the bill’s publication, Christopher Croft, CEO of the London and International Insurance Brokers Association, added: “The London market is the leading global centre for commercial risk and reinsurance, but other international centres are snapping at our heels and doing business in the UK is increasingly seen as having a greater burden of regulatory costs. “Government legislation for a regulators’ competitiveness objective is welcome but will only work if matched by a strong culture, capacity and capability in the regulator. We would like to see the legislation include a requirement for metrics to be set and reported on by the regulators, to incentivise and track concrete action on competitiveness,” he continued. Graeme Trudgill, executive director of the British Insurance Brokers’ Association (BIBA), also welcomed the inclusion of the international competitiveness and growth objective for regulators in the bill. “BIBA has campaigned on this for the last four years and it should make the regulator more balanced and more accountable. It is important that going forward, the FCA tests itself against this objective when it proposes new policy or requirements, and we expect to see them reporting on this,” he said. But BIBA is also concerned about how much scrutiny this competitive focus will be given and has called for assurances it will be taken seriously. David Sparkes, head of compliance at the association, said: “We are concerned that setting this new growth and international competitiveness objective below the FCA’s operational objectives, which themselves sit below its statutory objective, has the effect of making it a tertiary objective rather than a secondary one. This does raise questions around the degree of importance with which it will be held. It is important that the FCA evidences it consideration of its new objective, in its activities.”

UK Solvency II reform needs performance targets to avoid tickbox exercise, say insurance bodies

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