Regulation could be set for another big shake-up if, as expected, Liz Truss emerges from the Conservative Party’s endless leadership contest as the winner and thus our next Prime Minister.
Since floating the idea of sweeping up Prudential Regulation Authority, the Financial Conduct Authority and the Payment Systems Regulator into a single new mega-regulator, Truss has done nothing to discourage speculation that this is a serious proposition. It sits alongside her apparent determination to change the overall mandate of the Bank of England and subject it to closer political scrutiny.
Regulators are never popular with those they regulate. Indeed, there would probably be something wrong if they were loved and cherished. Some industry critics have almost found themselves welcoming the prospect of the FCA and PRA being swept away in the hope that their long list of gripes with them will be addressed at the same time.
As well as being rather naïve, this is a classic case of be careful what you wish for.
Just why would a single regulator working alongside a Bank of England, constantly looking over its shoulder to see what Westminster thinks, be better than the current arrangement, itself only a decade old? Would the needs and concerns of insurers, brokers, the London Market and the industry’s customers be any better addressed in a huge single regulator?
Of course, we have been here before. Not once, but many times as it seems the life span of a financial services regulator is little more than a decade.
It was only in 2013 that the present set-up was finally up and running after the global financial crisis and the decision to the break-up the Financial Services Authority – a single regulator. The FSA itself was only born in 1997. Before that there was the Securities & Investments Board, the Personal Investment Authority and a plethora of other regulatory bodies, including the clumsily named Financial Intermediaries, Managers and Brokers Regulating Association (FIMBRA).
Has the insurance industry ever been happy with its regulatory lot while on this endless merry-go-round of changes? The honest answer is No and there is no reason why another change will be any different.
Those tempted to back such a radical change need to stop and ask what it is they are hoping to achieve and whether this is the best way of going about it.
Top of the political concerns about the current regime is the slow progress on reform of Solvency II. This is all about the legacy of Brexit. The detail of Solvency II is fiendishly complex but, at its heart, lies the objective of ensuring the stability of insurance companies and protecting consumers from the consequences of insurer failure. It has done those jobs successfully, especially when compared to previous regimes, so maybe we should be pleased that the PRA and Bank of England have set a high bar for justification of a relaxing of Solvency II.
When regulatory reform goes wrong it is not be the politicians that take the brunt of the blame. The lasting reputational damage is inflicted on the industry.
If Truss gets the chance to pursue her plans, the industry will find itself groaning under the weight of consultative papers, draft legislation, Parliamentary debates and new rule books. Compliance lawyers will love it but the rest of us will end up fondly recalling the days of the PRA and FCA when we were dealing with a devil we knew.
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