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7 September 2022

Financial Services and Markets Bill

The insurance industry has argued for many years for growth and competitiveness to be included as regulatory objectives in financial services reform, which has now materialised as the Financial Services and Markets Bill. This has now been accepted, albeit as secondary aims. Chancellor Nadhim Zahawi outlined the bill’s primary aims of financial stability and consumer protection. The LMA believe that all four of these aims are of primary importance and could create a London market that is stronger and more attractive than ever.

In the aftermath of Brexit, eyes are on the London market and UK businesses to gauge how investor opportunities compare with international markets. It is imperative that this bill maintains the London market’s long history of excellent investment opportunities. This would be facilitated by Government placing international competitiveness considerations at the forefront of our regulatory framework.

Through industry consultation and collaboration, any future regulatory regime should ensure regulatory requirements are clearly set out, less burdensome and introduced in a consistent and controlled manner. This would ensure that the market maintains an attractive and efficient environment for investors, while protecting the financial security and best interests of the insureds.

The LMA wholeheartedly agrees with the view expressed by HM Treasury that the only viable regulatory environment of the future is one where regulators play a significant role in setting and implementing regulation, in cooperation with Government.

Government and financial services regulators can symbiotically play to their strengths. Government should set key elements of the regulatory framework, as anchor of the regime. Financial services regulators, meanwhile, should establish technical regulatory policy. Regulators would be able to use their relevant subject knowledge to tailor policy in response to changing market conditions and new regulatory challenges to ensure it operates as effectively as possible. Parliament should set out the legal framework for regulators to operate within, a system that would safeguard insureds while employing the experience and industry market knowledge of the regulators.

We would suggest a requirement for the regulators to apply differentiated approaches to different segments of the insurance industry as part of the competitiveness objective. Government should support the distinction between regulatory requirements for life versus non-life insurance, for example. Furthermore, policy holders would be protected by activity-specific regulation such as personal lines versus commercial lines or direct business versus intermediated business.

Increased accountability and scrutiny can be achieved through establishing frameworks for transparency in which regulators have a duty to explain themselves openly and directly to practitioners and the industry. The LMA, for one, stands ready to engage in constructive dialogue. Regulators should consult on policy change and follow up on how the policy has worked for those who are subject to it, creating an open line of communication between all interested parties. The FCA (Financial Conduct Authority) and PRA (Prudential Regulation Authority) should ensure alignment between both bodies, working together rather than against each other.

There is need for a new function, either as part of the regulator, or within Treasury, which has the role of providing proactive support for the assessment and onboarding of new ventures, applications, and innovations. It would be tasked with acting as a guiding hand through the regulatory landscape and holding the regulators to account for timely and properly informed responses.

The FCA should limit its scope of regulation to mitigate unnecessary expense on Lloyd’s underwriters doing business in markets that are already regulated. This makes the Lloyd’s market less competitive compared with other international markets, while adding no consumer protection benefit beyond that already provided by local regulations. While there are other significant strengths to the Lloyd’s market which continue to attract business, this regulatory trend acts as a constraint to growth and investment within it. As part of the competitiveness objective, we would expect to see UK regulators step back from this practice or be required to collaborate with international regulators before introducing rules which affect non-UK business written in London.

The LMA believe that the opportunities within the London market are continuing to grow, and with collaboration between Government, regulators, the insurance industry and insureds, the future could be brighter than ever. The LMA is willing and eager to engage with policymakers and regulators to make London the most ambitious, innovative, and attractive international insurance market: a goal that should unite as all.