Britain’s financial regulators should have a formal objective to keep London’s banking and insurance sectors globally competitive after Brexit, a senior lawmaker said on Thursday.
The now defunct Financial Services Authority had a requirement to pay heed to competitiveness – which led to criticism that “lite touch” regulation fomented the 2007-09 financial crisis.
This remit was not included in objectives of its two successor bodies, the Financial Conduct Authority, and the Prudential Regulation Authority (PRA) at the Bank of England.
“I strongly argue that now is the time to re-elevate that objective, that there is now a statutory international competitiveness duty alongside prudential supervision,” Stephen Hammond, a member of parliament’s Treasury Select Committee (TSC) told a City & Financial conference.
“It’s important that we don’t dilute standards beyond the internationally accepted, but tests of appropriateness, proportionality and international equivalence are key,” he said.
“It won’t make the UK a pariah, but it will make the UK competitive in an international arena.”
Last October the Committee slammed the PRA for being heavy handed in applying EU insurance rules known as Solvency II, saying the watchdog should make changes to benefit the competitive standing of financial services after Brexit.
The PRA has said it does not want a competitiveness objective.
The TSC will publish a follow-up report on insurance by the end of June.
“It is key that within a market, the relative levels of supervision clearly affect cost of operators in that market and therefore internationally that would affect the competitiveness of that market,” Hammond said.
“We intend to engage further.”
A House of Lords committee said in a report in January that a competitiveness objective for regulators would help London stay a top global financial center after Brexit.
Hammond was speaking to an audience that included David Rule, head of the PRA’s insurance division and who said Solvency II has not had a negative impact on policyholders, or the profitability and share prices of insurers.
“We don’t think the actual regulation has been a major seachange for UK insurers in terms of resources they have to hold against the risks they are taking,” Rule said.
Julian Adams, group regulatory and government relations director at insurer Prudential (PRU.L) said Brexit makes the need to find the right trade-off between regulatory toughness and competitiveness more important.
“Unless we follow everything that Europe does, UK regulators become even more powerful,” said Adams, a former head of insurance regulation at the BoE.
The PRA said on Wednesday it could not comply with a request from the TSC to ease the risk margin rule in Solvency II, blamed for sending business overseas to avoid capital charges.
The PRA said uncertainty over Britain’s future trading relations with the EU in financial services meant it could not change the rule for now.