The UK Industry and Regulators Committee has written to the Economic Secretary to the Treasury to express concerns about a “lack of proportionality” in the regulation of the London Market.
In a letter, the Committee charges that the “one-size-fits-all” approach to the regulation insurers and reinsurers by the Financial Conduct Authority and the Prudential Regulation Authority has proved overly demanding and burdensome.
Specially, it charges that the inflexible culture within the regulators may have inhibited the development of new forms of business within the UK commercial insurance and reinsurance industry, such as insurance-linked securities and captives.
The Committee emphasised the need for the Government’s proposal to introduce a secondary competitiveness and growth objective for the financial regulators to be reinforced with clear criteria and appropriate performance measures for the regulators to report on.
“While the Committee welcomes the continued success of the London Market, we are concerned that the UK may lose out on new and fast growing areas of business because of an overly inflexible and bureaucratic regulatory framework,” said Lord Hollick, Chair of the Industry and Regulators Committee.
“There is a need for regulators to consider whether current rules could be applied more proportionately and regulators should ensure that their rulebooks are achieving their objectives in the most efficient way possible,” he continued.
“The Committee agrees that there are strong arguments in favour of the Government’s proposal of a secondary competitiveness and growth objective for the financial regulators, enabling them to consider to a greater extent their impact on the industry in addition to their impact on the safety and soundness of firms.”
“However, to ensure that regulators’ behaviour is genuinely responsive to the secondary objective the Government and regulators must formulate clear performance measures that will be reported on annually, ensuring that this Committee and others can hold the regulators to account for their performance.”
The London Market Group (LMG) also endorsed the calls for regulatory reform made by the Committee, and argued that it is “possible to have a properly functioning competitiveness duty without compromising safety and soundness.”
“This inquiry was an opportunity for the industry to show Parliament its value to the UK economy, but also the challenges it faces. We are delighted that the Committee agrees with us on the impacts that regulation can and does have on the future success of the market,” said Caroline Wagstaff, CEO of the LMG.
“In June last year, we launched our five-point plan to set out the regulatory and legislative changes we believe are necessary to enhance the market’s competitive position. It is excellent news for the London Market that so many of the recommendations in the Committee’s letter address the points that we raised. Central to any set of effective reforms will be the implementation of a fully functioning competitiveness duty, which this inquiry has shown is not only possible, but advantageous for the U.K.
“Growing global competition means that the London Market’s place as a jewel in the U.K. financial services sector is under threat, and it is vital to take action by producing a regulatory framework that makes us fit for the future. These recommendations are a step towards a regulatory system which boosts our competitiveness, brings in new investment and allows our market to fully contribute to the UK’s recovery and future prosperity.”
