Solvency II pilot scheme raises competition issues
The Financial Services Authority (FSA) has been working with a group of insurers on a pilot scheme aimed at developing internal models that can be used by UK insurers under the proposed new European capital rules, known as Solvency II.
According to a report in The Financial Times, the models are needed for companies to establish a proper risk-based assessment of how much capital they need to hold once the new regime comes into force, and have to be approved by the FSA.
News of the pilot scheme has raised concerns for a partner at international law firm, Eversheds, who believes it presents the FSA with a dilemma.
According to Michael Wainwright, the regulator needs help from the industry to understand and evaluate the practical impact of the new regime.
However, he explains: “In working in private with a select group it confers a considerable competitive advantage on the participants in the process, which inevitably include some of the largest players.”
Mr Wainwright continues: “This involuntary favouritism to large players is one of the factors that ultimately lead to the evolution of financial institutions that are too big to fail.”
Solvency II is due to be introduced in 2012.
Category: Financial Services Authority News, Insurance News
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