UK regulation overhaul must go further to support international competitiveness: LMG

The London Market Group (LMG) has welcomed the government’s overhaul of the financial services sector but said more could be done to promote international competitiveness.

Today the UK chancellor of the Exchequer, Jeremy Hunt, unveiled a major regulatory shake-up in a bid to boost the City of London.

The package of more than 30 reforms and measures, announced in Edinburgh, includes some of relevance to the UK re/insurance industry.

Among the reforms is a review of the senior managers regime will be reviewed.

A call for evidence will begin in the first quarter of the year to garner views on the regime’s “effectiveness, scope and proportionality”, and to seek views on potential improvements and reforms, the chancellor said.

In addition, the chancellor will lay before parliament new remit letters for the Financial Conduct Authority and Prudential Regulation Authority to support plans to introduce a new secondary objective for UK regulators to promote growth.

These letters will set “clear, targeted recommendations” for how the regulators should have regard to the government’s economic policy.

LMG chief executive, Caroline Wagstaff, said the group was “encouraged” by the announcement of new remit letters but said more could be done to ensure the objective is not a “box-ticking exercise”.

“It’s crucial the regulators have clear performance metrics so we can all understand whether they are delivering on the objective and we think the government can and must go further,” Wagstaff told Insurance Day.

“The Financial Services and Markets Bill could be used to make sure these measures have the necessary ‘teeth’ to hold the regulators to account. Without them, we fear the objective could become a mere box-ticking exercise.”

The LMG will continue to call for these measures to be included within the bill as it moves to the Lords in January, Wagstaff added.

The so-called Edinburgh Reforms build on other reforms that area already under way.

The Financial Services and Markets Bill, which is expected to be passed into law in 2023, establishes a new regulatory framework under which the UK regulators will have considerably more rule-making powers.

The government has also announced a final policy statement on reforming Solvency II at the autumn statement. These proposals include plans to reduce the risk margin for both long-term life insurers and general insurers, broaden the asset and liability eligibility criteria of the matching adjustment, and reduce the reporting and administrative burden on firms.

Today’s reforms include a commitment to make “substantial legislative progress” on repealing and replacing the Solvency II Directive next year.

The reforms will be seen as important step forward for the UK in adapting to its position outside the EU and tailoring financial services regulation to UK markets.

“The LMG wholeheartedly supports the government’s work to ensure the UK remains an attractive place to do business,” Wagstaff said.

“With competitor jurisdictions like Singapore and Switzerland nipping at the heels of the London market and seeking to supplant its world-leading reputation, the chancellor’s package of reforms could not come at a more crucial moment.”

Unveiling the reforms, Hunt said: “We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services hubs in the world. The Edinburgh Reforms seize on our Brexit freedoms to deliver an agile and home-grown regulatory regime that works in the interest of British people and our businesses.”