RegulationOct 17 2014

Insurance firm failure is in line with objectives: PRA

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Orderly failure of life insurance firms that do not meet regulatory standards is “very much consistent with our objectives being met”, according to the head of the Prudential Regulation Authority.

Addressing the Lord Mayor’s City Banquet last night (16 October), Andrew Bailey, deputy governor for prudential regulation and PRA chief executive, stated that while no firm has yet failed, this eventuality is consistent with the regulator’s objectives.

“That is what should happen in my view, namely the prudential position should be sufficiently safe and sound to accommodate changes in other areas of public policy,” he stated.

“It is not easy in our world to point to indications of when our objectives are met, a point made to us quite rightly by the National Audit Office; I would offer this as one such indicator.”

Noting the government’s changes on annuities, which he deemed sensible and in need of change, he asked what is next in the life insurance sector.

“While the original announcement came as a shock to some business models, the PRA’s assessment was that it did not appear to compromise the safety and soundness of firms in way that threatens our objective, and nor did it threaten our insurance objective of policyholder protection.”

Speaking at the same event, Martin Wheatley, chief executive of the Financial Conduct Authority, mentioned the regulator’s promise to give the market more clarity on its expectations.

“In the advisory industry, we recently gave guidance on where the line dividing regulated advice and unregulated guidance fell.

“The aim was to provide certainty to those firms which, in response to the retail distribution review, are looking at how financial advice and guidance can be delivered to those on smaller budgets or without deep pots to invest.”

Mr Wheatley also mentioned that the FCA has created a master’s degree in financial regulation in conjunction with Henley Business School. “This will set a global standard and be open to all, including those we oversee,” he added.

peter.walker@ft.com