The proposed measures will help reduce the risk of regulatory arbitrage.
Insurance Europe has responded to the Financial Stability Board’s (FSB) consultation on a proposed application of numerical haircut floors to transactions between non-bank entities, which include insurers, for securities financing transactions (SFTs).
In its response, Insurance Europe agreed with the report's conclusion that the value of non-bank to non-bank transactions is small, and would only pose risks if market practices were to change in the future or if regulatory arbitrage activities were to occur.
While Insurance Europe supports the application of numerical haircut floors for transactions between non-bank entities where the potential for risk is present, it is also concerned that the implementation could result in excessive regulation.
In particular, the following transactions should be exempted at the very least:
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Intra-group transactions
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Transactions in which financing is received by regulated entities subject to regulatory capital and liquidity requirements such as insurance companies
This is because, in Insurance Europe’s view, these transactions do not pose any significant risk.
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