RegulationFeb 4 2016

PRA chief must calculate cost of Solvency II

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PRA chief must calculate cost of Solvency II

The chief executive of the Prudential Regulation Authority has been asked to find out what the cost of implementing Solvency II was to the industry.

Andrew Bailey, who will take over as chief executive of the FCA once a replacement can be found for him at the PRA, was asked to look into the cost of Solvency II by the chairman of the Treasury select committee Andrew Tyrie.

The request came during a hearing on the costs and benefits of Britain’s membership of the European Union.

Solvency II is a European-wide regulation that specifies the levels of capital that insurance companies must hold and was more than 10 years in the making.

During the hearing Mr Tyrie said the introduction of Solvency II was an “abject lesson” in how not to introduce a law.

He said: “I do think it might be worth us knowing publicly what the cost was and if firms are able to make an estimate with your supervision of what they feel would have been necessary anyway.

“You made the valid point that some of this work was not wasted because we would have had to have done some of it anyway.”

Mr Bailey said the issue with the introduction of Solvency II - which came into effect at the beginning of last month - was not necessarily the cost.

He said: “It went on for a very long time. The problem was that there were many false dawns in terms of when it would end and move into implementation.

“The consequence of that was that a lot of pressure was put on to implement before the thing was ended.

“The thing was only neded not that long ago actually.”

Despite this Mr Bailey added that there are “unintended consequences” in the regulation which still need to be ironed out.

Mr Bailey told the committee that the FSA spent £105m on the introduction of Solvency II and said that while he did not know how much the industry as a whole had spent it could be “billions”.