PRA to adopt “less intensive” supervisory approach for insurers
In its consultation document on the new regulatory regime published yesterday, the Government has confirmed that the general principle underpinning its model of dual regulation will apply to the insurance industry.
That is to say, the conduct of business and consumer protection issues are the preserve of the Financial Conduct Authority (FCA), while the Prudential Regulation Authority (PRA) will focus on “soundness of firms and stability of the system”.
However, the paper differentiates between the insurance and banking sectors, stating: “In fulfilling these responsibilities, the PRA will act in a way that recognises that insurance business models are different to those of banks, especially in terms of liquidity risk and the fact that insurance firm failure is generally less likely to be of systemic importance.
“This means that effective supervision of insurance firms for soundness and stability by the PRA may be achievable through a less intensive supervisory approach than would need to be the case for a bank.”
The document continues: “At the same time, the PRA and FCA will also need to consider how their supervisory approaches should reconcile conflicting issues of policyholder protection and expectation of future return, and balance sheet soundness – particularly in relation to ‘with profits’ business.
“These, and potentially other, characteristics specific to insurance firms will need to be reflected in the detailed approach that the PRA will take to supervising insurance firms for soundness and stability purposes.”
According to the paper: “The Government, the Bank of England and the FSA will continue to consider how the characteristics of insurance firms should be recognised appropriately within the regulatory framework.”
Category: Financial Services Authority News, Insurance News
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