In the written statement Financial Services Update on 23 June [HCWS309], the Chancellor announced that the Government would commence the next stage of the Future Regulatory Framework (FRF) Review and bring forward a review of certain features of Solvency II, the prudential regulatory regime for insurance firms. The Government has today laid the first FRF consultation on the wider regulatory framework for financial services and published a call for evidence as the first stage of the Solvency II Review. These reviews reflect the Government’s aim to make financial services regulation better tailored to the needs of the UK economy and its citizens, and to support the UK’s world-class financial services sector.
Following the completion of Phase I of the FRF Review, which focused on improving coordination between the UK’s financial services regulatory bodies, the Government is progressing with Phase II of the Review, which will examine how the wider regulatory framework for financial services should adapt now that the UK has left the EU. The important and wide-ranging issues raised by this Review, combined with the broad range of stakeholders that will be affected, make an in-depth review process appropriate. The Government will therefore consult in two stages, starting with the first consultation published today.
Leaving the EU provides an opportunity to shape our regulatory framework for financial services so that it is more coherent, agile and democratically accountable to support a stable, innovative and world leading financial services sector. The consultation proposes an overall approach that builds on the strengths of the UK’s existing domestic framework by:
- Providing a clear and coherent allocation of regulatory responsibilities between Parliament, the Government and the financial services regulators.
- Setting out a legislative approach under which Government and Parliament can establish an enhanced policy framework within which the regulators must operate.
- Making the UK’s expert, operationally independent regulators responsible for setting direct regulatory requirements on financial services firms and markets, according to the policy framework set by Government and Parliament.
- Reviewing accountability, scrutiny and public engagement arrangements, particularly in relation to the financial services regulators, so that these arrangements can be strengthened to reflect the regulators’ expanded responsibilities.
This first consultation is intended to generate a wide-ranging debate about the UK’s overall regulatory approach for financial services. The views gathered through the first consultation will then be used to develop a final package of proposals which will be set out in a second consultation during 2021.
The Government is reviewing Solvency II to ensure that the UK’s prudential regulatory regime for the insurance sector is better tailored to support the unique features of the UK sector and the UK regulatory approach. The review will focus on several specific areas of Solvency II, including the risk margin, matching adjustment, and reporting requirements, but the review will not necessarily be limited to these areas.
The Solvency II Review will be guided by three objectives:
- To spur a vibrant, innovative, and internationally competitive insurance sector.
- To protect policyholders and ensure the safety and soundness of firms.
- To support insurance firms to provide long-term capital to support growth, including investment in infrastructure, venture capital and growth equity, and other long-term productive assets, as well as investment consistent with the Government’s climate change objectives.
Both publications are available on www.gov.uk and will be open for responses until 19 January 2021.
The Future Regulatory Framework Review consultation https://www.gov.uk/government/consultations/future-regulatory-framework-frf-review-consultation
Solvency II Review call for evidence https://www.gov.uk/government/publications/solvency-ii-review-call-for-evidence
This statement has also been made in the House of Lords