‘A good day to bury bad news’ has been used a lot over the past 20 years and has become a cliché in politics. News, good or bad, doesn’t have to be deliberately buried these days- it’s just added to the pile. We’re going through a time where so much is happening, it just seems to go on and on.
Last Monday, The Economic Secretary to the Treasury issued a Written Ministerial Statement on the future of financial regulation. This gives us two further important pieces of information that need to be considered for their impact on regulatory strategy within your firm. It might not be as immediate as COVID-19, the US parliamentary elections or yet another severe weather warning, but the ‘Future Regulatory Framework’ and the ‘Solvency II’ reviews should be on your list.
Future Regulatory Framework (FRF) Review Consultation
The Treasury seeks to use the exit from the EU as an opportunity to overhaul the way that financial services are regulated here, moving away from the prescriptive European approach, and moving to a set of rules tailored specifically to the UK within a clear framework of accountability.
This first consultation looks at the structure and relationships between Parliament, the government, and the financial service regulators. The onshoring of EU regulation means that the status quo will remain in the short term, but it is proposed that the regulators take more of a primary role in the interpretation of government policy, developing new rules and regulations. It is expected that more flexibility will be available to the FCA/PRA in this, leading to a steady regulatory divergence from Europe.
Review of Solvency II
On the same day, HM Treasury have put out a call for evidence in relation to how the current EU based regime fits with the needs of the insurance sector following Brexit.
In this first stage in the review process, there are suggestions that the UK could move to a less rigid form of regulation, moving away from a rules-based model and back to a principles-based approach that was in favour some time back. This includes a proposal to bring in a less complex and less prescriptive Solvency Capital Requirement (SCR).
Additionally, consideration is being given to reconsidering a range of calculations and principles in the sector, including the calculations for the ‘risk margin’ and the ‘matching adjustment’. The risk margin is the way a firm ensures it has sufficient resources to raise capital or transfer liabilities, even when under stress. The matching adjustment is the expectation of matching long-term assets and liabilities, a measure of longer-term stability.
There may be more options for travel when the current restrictions are lifted- Lockheed Martin have just announced that they plan to launch their satellites from the Shetland Island of Unst from 2024. This will be a rival for the UK Space Agency backed Melness Croft spaceport, thirty miles from the former Dounreay nuclear power plant on the North coast of Scotland.
Following Brexit, The Scottish government is making calls for independence from the UK and Shetland and Orkney councils are investigating independence from Scotland. Could there be two rival spaceports in two new nations in the next few years?