16.6.2011

By Simon Miller

The Prudential Regulation Authority (PRA) is to be given a specific statutory objective to govern its responsibilites for the insurance sector.

In the Financial Regulation White Paper and draft Bill, published this afternoon, the government noted that the strategic emphasis on financial stability in the consutlation document could lead to a lack of focus from the PRA on ‘nonsystemic’ firms.

The paper said that respondents from the insurance sector noted in particular that the specific regulatory requirements of insurance business "might not be reflected in the generic financial stability approach proposed in the February consultation".

As a result, the government said it recognised that there is a strong
argument that the distinct nature of insurance business ought to be recognised in the regulatory framework, including in PRA’s objectives.

The White Paper also updates and enhances the competition regime under the Financial Conduct Authority (FCA); and introduces steps to strengthen the handling of cases of widespread consumer detriment, including misselling.

Launching the proposals, financial secretary to the Treasury Mark Hoban said: "This is a key milestone in the process of developing and implementing a new system of financial regulation, which will address the flaws in the ‘tripartite’ model that contributed to the financial crisis."

In a statement, the British Bankers' Association commented: "Regulatory change carries with it real consequences for consumers and businesses. This is not an abstract set of rules for an industry. It is fundamental to financial stability and economic recovery: it ensures standards of discipline in the financial markets and safeguards the international reputation of the City as the world's financial centre - and one of the biggest contributors to the UK economy."

The White Paper and Draft Bill can be found here.