Clean. Simple. 100% Finance.

Archive for December, 2013|Monthly archive page

Does new regulatory bodies FCA and PRA help the insurance regulations?

In Uncategorized on December 9, 2013 at 6:45 pm

Failing to meet its complete objectives, FSA is replaced by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in  April 2013 as per the requirement of Financial Services Act 2012. There are a few significant changes made in the Supervisory and Prudential guideline given by  FSA guidelines before 2012 and new guidelines given by FCA and PRA. FCA objective is to secure consumer protection, to protect and enhance the integrity of the UK financial system and to promote effective competition in the interests of consumers.

Since 2013, there are 4 Distinct Approaches applied in Implementation of Enterprise Risk Management by PRA – Rules, guidance, Single firm Assessment and Assurance.  PRA Approaches are divided among financial services companies into 4 Broad Categories. The approach from small Insurance Companies (Category 1) is very clear; there is no expectation of ERM implementation however the companies are expected to abide by the rules given by PRA. The approach for medium Insurance Companies (Category 2) should work a step ahead and should have their Risk Appetite statement and planning to implement ERM.  From the large Insurance Companies (Category 3), PRA expects them to agree and understand Enterprise Risk Management framework. Nevertheless, Insurance Companies in this category must inform PRA about any risk which has aggregation from Risk Appetite. In the last, from very large Insurance Companies (Category 4), PRA expects to take care of all 3 line of defence as well as to take care of program of continuous Assurance work. It looks obvious that PRA is now able to understand that Prudential Guidelines can’t be implemented in all firms in the same way and considering the problems of Insurance firms in their decisions which shows a positive attitude by the regulator.

Very recently, FCA has published a document on Risk Outlook( Authority, 2013) which focus on different aspect of problems faced by Insurance firms in ERM implementation. According to Solvency II guidelines, the risk management is not a one day process or deadline driven which can be accomplished over a short period of time. Even though, some companies are able to implement but its effectiveness is still questioned by the experts. FCA is now looking for long term solutions and more effective and robust ERM framework rather than showing top records of implementing ERM in black and white. In this Report they try to find out inherent biases and heuristics, inadequate financial capability, conflicts of interest, culture and incentives, ineffective competition, economic and market trends, technological developments, regulatory and policy changes, information asymmetries are the key drivers for conduct of risk. When Insurance firms takes into accounts these drivers into consideration while linking it with business plan can create Embedded risk culture in the organization which will ultimately benefit to Insurance firms and consumers. The recent draft guidelines of International regulations like Conframe may affect the present regulation in UK but subject to acceptability.

A journey from Cadbury, Turnbull reforms to Solvency ii, Industry demands need of regulations on national level stating the expectation from insurance companies rather following distinct guidelines of different regulations.

Advertisements