Freshfields: Insurance and reinsurance News - Update on the new regulatory regime

25 June 2013

The multinational law firm gives an update on the first three months of the UK's new regulatory regime as it affects the insurance sector. The report highlights some of the most important trends that have become apparent or have continued to develop over this period.

The new regulatory regime came into force on 1 April, 2013. It replaced the unified regime of the Financial Services Authority (FSA).

To recap briefly, macro-prudential oversight is now vested in the Financial Policy Committee (FPC). The PRA has responsibility for the prudential regulation of (re)insurers, banks and the more significant investment firms, while the FCA has responsibility for conduct regulation and for prudential regulation of the remaining UK regulated firms.

The PRA and the FCA have distinct regulatory objectives and responsibilities. This split was anticipated for a considerable period by divisionalisation within the old regulator but even now it is not fully accepted by some parts of the industry. The Smaller Businesses Practitioners’ Panel remarked: "The new structure of two regulators has an inherent danger of overlap and underlap. Although there is an overall statutory duty to co-ordinate, we believe that this split will introduce additional risks and greater costs into the system, which will not necessarily be better for the significant number of smaller firms which will be dual regulated."

The FSA as a single unified regulator, however, struggled to cope with the banking crisis. This may have been partly because the then regime did not focus adequately on the macro-prudential perspective. It remains to be seen whether a tri-partite regime is more successful.

On the positive side, however, the split has allowed the FCA and the PRA each to focus more firmly on their respective priorities and new approach to regulation. In this respect they perhaps now have more flexibility than would have been possible during the FSA period.

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