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Established 1996
Tuesday 17 July 2018


New regulatory regime begins

Written by staff reporter

The Financial Services Authority was today replaced by two new supervisors, the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA).

The PRA works alongside the FCA creating a “twin peaks” regulatory structure in the UK. The FCA is responsible for promoting effective competition, ensuring that relevant markets function well, and for the conduct regulation of all financial services firms.

This includes acting to prevent market abuse and ensuring that consumers get a fair deal from financial firms. The FCA operates the prudential regulation of those financial services firms not supervised by the PRA, such as asset managers and independent financial advisers.

The PRA is now responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms – in total around 1,700 financial firms.

The PRA’s role is defined in terms of two statutory objectives to promote the safety and soundness of these firms and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders. In promoting safety and soundness, the PRA focuses primarily on the harm that firms can cause to the stability of the UK financial system. A stable financial system is one in which firms continue to provide critical financial services – a precondition for a healthy and successful economy.

While it welcomes the launch of the new regulatory regime for the insurance industry, the International Underwriting Association also took the opportunity to warn against over-intervention in the commercial market.

The IUA has published for its members a series of guides to the new organisations outlining areas of responsibility and issues of concern.

As the main supervisor for insurance companies, the PRA will be regulating solvency and governance. Its principal objective is the stability of the financial system as a whole, which means it will place great importance on the stability of reinsurance companies.

Nick Lowe, the IUA’s Director of Government Affairs, comments: “Our members are all in favour of an open competitive market that puts the client first. Poor customer care and practices are bad for business. They damage the reputation of the market and affect the returns of the responsible insurers.

“We approve of the risk- and judgement- based approach the new regulators will adopt. This will enable effective use of resources and a reasoned approach to problems. However, we do have some concerns. There is a danger that the FCA will seek to intrude too much into the commercial sphere at the expense of efficiency and innovation. Moreover, there are risks that it will be too subjective in enforcement, but also too dogmatic in the application of abstract market theory to its analysis of market behaviour.

“We are also concerned that the need for liaison between the FCA and the PRA in processes such as approvals and authorisations will cause delays and blockages which will impair efficiency in the companies concerned. Nevertheless, the high calibre and genuine commitment of the senior management will get the authority off to a good start.”

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