House of Lords Industry and Regulators Committee has written to the Economic Secretary to the Treasury calling on a greater emphasis on competitiveness in insurance regulation.
The Lords’ letter follows its inquiry into commercial insurance and reinsurance regulation, which heard from Glenn of the need to review the regulatory environment to encourage new types of business such as captives and insurance linked securities.
In a letter to the minister, the committee noted that while the London Market was thriving, some were concerned that “inflexible” application of regulation acted as a barrier to future success.
“In particular, we heard that the industry is concerned that the regulator takes a one-size-fits-all approach to commercial insurance and reinsurance, requiring London Market firms with sophisticated clients to comply with unnecessary consumer protection requirements that are aimed at the retail insurance sector,” the Lords wrote.
The committee approved the Government’s proposal for a secondary competitiveness and growth objective for the financial regulators, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), to sit alongside their primary focus on the safety and soundness of firms. However, it agreed with critics that this alone might be “insufficient to bring about the necessary cultural and operational change”.
“It is vital that the concerns regarding the inflexible and sometimes unnecessarily complex processes require a broader reassessment of regulatory culture. There is a need for current rules to be applied more proportionately and efficiently and objective setting for staff at all levels to support this,” the letter reads.
While not endorsing calls for competitiveness to be made a primary objective, the Lords recommend the FCA and PRA regularly review their rulebooks focusing on the scope for “more efficient and proportionate as well as less cumbersome and mechanistic engagement between regulators and industry”.
“The PRA and FCA should consider formalising such reviews on a regular basis,” the letter adds.
It concludes: “Consequently, we recommend that alongside introducing a competitiveness objective for the PRA and FCA, it will be essential to establish clear criteria and appropriate performance measures.”
Copies of the letter have also been sent to the heads of the PRA and FCA.
House of Lords, Regulation, competitiveness