UK life and pensions firms are hoping for a reduction in
costs and administrative workloads from the European-wide
Solvency II Directive, after the UKs
Prudential Regulatory Authority (PRA) conceded there may be
scope to ease requirements.
It comes after the UK governments
Treasury Select Committee published a letter it received
from the chief executive of the regulator, which acknowledged
adjustments could be made to the UKs
interpretation of the European rulebook, which came into force
at the start of 2016.
The admission follows a length period of lobbying from the
insurance and investment industries which claim some reporting
requirements are unnecessary and increase costs for companies
and their clients.
Steven Findlay, assistant director for prudential regulation
at the ABI, explains that for UK plc to remain
attractive to investors, it is important that a regulatory
regime strikes the right balance. That balance, he tells II,
isnt pursuing the financial stability of the
graveyard. It is allowing companies to innovate, make a fair
profit, and ensuring a high level of protection.
Many of the concerns which we had with Solvency II
here in the UK are home grown. It is the result of the
PRAs interpretation of the EU requirements. When you
start to add together each of those interpretations, the
cumulative impact make us question how level the playing field
is across the EU.
Findlay says the UKs vote to leave the European Union
makes the potential changes more important than ever, if the UK
is to retain its reputation as a world center for
In a letter released to the media, PRA chief executive Sam
Woods outlined five areas where he saw the potential for a
rethink, including a requirement for firms to hire an external
auditor to scrutinize their solvency financial condition
The SFCR is a lengthy public
report designed to show a financial institution is in good
health, but critics say the cost of employing an external
auditor to analyse the report could be better spent in other
areas such as product innovation, research, or customer
Although the fundamental regime is sound, there are
nevertheless adjustments that need to be made to address issues
in important areas, Woods wrote in the letter to the
House of Commons Treasury Committee chairman.
Other areas where Woods has conceded that change is possible
include the reporting requirements relating to firms
longevity transfer and hedging arrangements. He also suggested
that the reporting burden could be reduced for firms making
changes to their internal model a predictive chart
designed to show that the company will remain solvent, even in
periods of volatility.
The ABI has said the reporting requirement for firms under
Solvency II could be up to eight times greater than under the
previous regulatory regime.
The Prudential Regulatory Authority did not respond to a
request for additional comment at the time of publication.