Regulation of the UK’s insurance industry will soon take on a new form, according to Prudential Regulation Authority (PRA) chief executive Sam Woods (pictured).
Speaking on Tuesday at a virtual event organised by the Association of British Insurers, Woods said there are two ways in which the PRA’s role is about to change. One relates to Solvency II while the other, which the CEO described as “more fundamental,” has to do with Britain’s departure from the European Union (EU).
Woods cited the regulator’s preference for more rule-making, adding that the regime will be largely contained in the rulebook of the PRA instead of setting out the rules through legislation.
“PRA has no pro-active desire to increase its responsibilities,” stated the chief executive in his speech. “We have enough on our plate already. It’s just that it seems clear that, for our market, putting the details in the regulator’s rules rather than in statute (as the EU typically does) is a better approach.”
Woods highlighted that this is, in fact, the norm in all major jurisdictions except for Switzerland and the EU.
He said: “As a point of principle, it is consistent with the established model of an independent regulator taking time-consistent decisions in pursuit of long-term objectives given to it by Parliament. This follows the same logic as the arrangements in this country and many others for setting monetary policy.”
“And on a purely practical level, it ensures that rule-making is closely informed by the day-to-day risk assessments that we have to make as supervisors,” Woods went on to note. “This approach also helps ensure that rule-making keeps pace with developments and supports innovation.
“A changing world requires a tough but flexible regulatory regime that can adapt itself rapidly as needed – both to remove unnecessary barriers to innovation and to give policyholders reasonable protection from any new risks that arrive with it.”
The goal is to have a “streamlined set of rules all in one place,” said the Bank of England’s deputy governor for prudential regulation. This, Woods believes, would substantially ease the burden of compliance without compromising firms’ resilience.
“In short,” he asserted, “now that we have left the EU, we have no interest whatsoever in lowering levels of resilience or policyholder protection, but we can and should make changes to tailor regulation so it fits our market better and is more efficient and coherent.
“That process will take some time but it will work better if the detailed rules are placed into our rulebook.”
Meanwhile, Woods also “absolutely” recognised the need for enhanced accountability if the regulator’s remit is widened because of Brexit. The PRA chief explained: “It seems natural that if our rule-making role were expanded, then Parliament might choose to expand the amount of time it spends examining our regulations.
“As a regular attendee of TSC (Treasury Select Committee) hearings, I can assure you that we are already held very robustly to account for our activities – but I can see the point that some in Parliament have been making that if we do more rule-making, and with European Parliamentary scrutiny of rule-making no longer present, then we might be expected to do more to support Parliament in probing technical regulatory issues.”
Woods, who also pointed to the Solvency II review as the main event of 2021, offered assurances that they look forward to engaging fully, whatever Parliament decides when it comes to accountability.