Bank ‘drags its feet’ over cuts to EU red tape
Threadneedle Street risks row with insurers as it warns of two-year delay to post-brexit reforms
THE Bank of England is facing a fresh row over the speed of post-brexit reforms after saying insurance red tape cannot be torn up for at least two years.
The Bank’s Prudential Regulation Authority (PRA) has told insurers that key aspects of Solvency 2 reform will not be implemented until at least early 2025 to ensure an orderly transition away from the current rule book, according to documents published last week.
The prolonged timeline has drawn criticism from senior Tory MPS, who are concerned that regulators are moving too slowly in axing swathes of Eu-era regulation.
Jacob Rees-mogg, the former business secretary, said: “The PRA is a consistent obstacle to reform and continues to drag its feet. It is holding back investment and reducing the UK’S competitiveness.”
The PRA last week launched its latest consultation on reducing the burden around reporting and administrative requirements for Solvency 2.
Changes to reporting requirements are one of four main pillars of the Government’s proposed reforms to the controversial rule book, which was introduced by the EU in 2016 and requires UK insurers to hold vast sums of cash on their balance sheets.
The PRA is consulting on changes to reporting requirements until next May. It said it will consult on the other three sections of reforms – including capital requirements – “at a later date”, raising the prospect that Solvency 2 reform will drag on beyond 2025, nearly a decade after the UK voted to leave the EU.
Insurance has been touted for years as an industry that could benefit from relaxing EU rules and industry chiefs have pledged to unleash a £90bn-plus investment “big bang” if ministers take advantage of Brexit and slash the Eu-era red tape.
Insurers and pension funds have argued that the current restrictions mean they are unable to plough as much capital as they want into illiquid assets such as infrastructure.
However, there are concerns in government that regulators are holding up the reforms.
The PRA, which supervises Britain’s insurers, previously said it was determined to ensure any easing of the regulatory burden does not create a risk to policyholders or to the stability of companies. It also warned against an overhaul that “decapitalises the insurance sector”.
Before the summer, Tory leadership election, Rishi Sunak, now Prime Minister, met insurance executives and told them that he wanted to deliver Solvency 2 reforms “at pace”.
A source close to the Bank said the PRA has already delivered its first phase of Solvency 2 reporting reform, which has “significantly reduced reporting for small and medium firms”.
They added that the PRA could have waited to consult on Solvency 2 reporting reforms until after the Government’s policy became clearer, but the regulator was “keen to go quicker on consulting where changes are not dependent on policy reform”.
The proposed reforms are expected to reduce the reporting and administration burden on businesses.
At the same time the “matching adjustment” mechanism covering long-term investments, which the industry says pushes it away from projects such as wind farms and into low-yielding sovereign and corporate bonds, will also be tweaked.
There have been growing concerns among insurance chiefs about how the overhaul is developing, with some arguing that the PRA is looking to water down the reforms. The Government has completed its own consultation on Solvency 2 and pledged to reform the rule book through its Financial Services and Markets Bill, which is currently going through Parliament. However, the draft legislation contains few specific details about changes to the regime.
A Bank of England spokesman said: “The timing of our proposed reforms to Solvency 2 reporting requirements is deliberately designed to coincide with the Government’s legislation.
“It would be costly and inefficient for firms to make two sets of changes in close succession.”
The PRA declined to comment.