Insurance in Financial Services UK
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For an asset class that represents just 1.4% of insurer’s asset holdings1, equity release mortgages (ERMs) have consumed a remarkable amount of firm and supervisory time. A decade or so ago, the regulatory challenge of this asset class lay on the conduct side. More recently, however, and not without some irony, the main mitigant of these conduct risks, the no negative equity guarantee2 (NNEG), has switched the focus primarily onto the inherent prudential risks of equity release, namely its illiquidity and, owing to the NNEG, the long term exposure it brings to the fortunes of the housing market without further recourse to the borrower.
Banks are confronted by an ever increasing volume of compliance challenges. These challenges are fuelled by an increase in analytical complexity associated with regulatory and accounting requirements. This increase in analytical complexity has made solutions more complex to implement in an effective and efficient manner. Furthermore, the deadlines of these new regulatory requirements can be years apart and the requirements are often targeted on a specific business function, which makes it difficult to create synergies between compliance solutions.
In our report “The next frontier - the future of automated financial advice in the UK”, published in April, we noted that a key regulatory challenge for firms in providing automated advice is understanding which side of the “advice boundary” their services fall on – guidance or regulated advice. We argued that the success of automated models in the UK would therefore depend, in part, on how much clarity the Financial Conduct Authority (FCA) would be able to provide about where the boundary lies.
Insurers’ recovery and resolution: EIOPA calls for extensive powers mirroring international standards already applied to banks
The European Insurance and Occupational Pensions Authority’s (EIOPA’s) recently-issued opinion on the harmonisation of recovery and resolution frameworks for the insurance sector is a landmark step for the insurance industry towards implementing the G20’s 2011 commitment to end “too big to fail” for financial services1. While a harmonised resolution regime has been implemented (and applied this year in a live context) for the European banking sector, insurance resolution has so far remained a national matter. Consequently, substantial differences in regime and approach currently apply across Europe.
Proposed new rules on cashing in - will they lead to a tidal wave or a trickle of transfers out of DB schemes?
In recent months, the press has focussed increasingly on record pension transfer values and an apparent surge in the number of people looking to cash in their defined benefit (DB) pensions. The Pensions Regulator (TPR) estimates that approximately 80,000 transfers occurred from April 2016 to March 2017. Our experience with clients suggests that there has, undoubtedly, been an increase in transfer activity. That said, and although it is early days, when the emergent trend is viewed against the overall number of DB scheme members, a somewhat different perspective emerges, namely that, so far at least, the vast majority of people are holding on to their DB pensions.
The highly anticipated FCA Consultation Paper (CP17/25) on the extension of the Senior Managers and Certification Regime (SMCR) to all financial services firms was released yesterday, 26 July 2017. The SMCR is already place for banks, building societies, credit unions and PRA designated investment firms.
The FCA recently published its final report on the asset management market study (see our briefing here). One of the headline features was the proposed “all-in” fee. There has, however, been some uncertainty on where the FCA’s proposals stand in relation to forthcoming EU legislation which will, in any case, require an aggregated fee disclosure. This brief aims to shed light on this where possible.
FCA asset management market study - Boosting competition amongst asset managers through sharper accountability and disclosure
The Financial Conduct Authority (FCA) has published its much anticipated final report of its Asset Management Market Study. Although many of the proposals were trailed in the interim study, and remain subject to consultation, the report is wide-ranging and is likely to have a far-reaching impact on the asset management industry. Importantly, the FCA has detailed new proposals on governance arrangements, requiring that the Board oversees obligations imposed on fund managers prescribed through the Senior Managers Regime around acting in the customer’s best interests.
Are you ready for 1 January 2018? - Finalised PRIIPs RTS and imminent guidance pave the way for firms’ PRIIPs programmes
Many firms have swiftly resumed their PRIIPs programmes following the entry of the final Regulatory Technical Standards (RTS) on the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) in the Official Journal of the European Union, on 12 April 2017. The Regulation requires the disclosure of Key Information Documents (KIDs) when PRIIP products (such as funds, insurance investment products, structured products and structured deposits) are sold to retail investors.
On 13 June, the European Commission released the second set of proposed amendments to the European Markets Infrastructure Regulation (EMIR) on the recognition and supervision of third-country CCPs.
The proposal represents a fundamental overhaul of the EU’s approach to the recognition and supervision of third-country CCPs (the UK will be a ‘third country’ once it leaves the EU and assuming it does not join the EEA). It includes extensive and intrusive supervisory and enforcement powers for the European Securities and Markets Authority (ESMA), a significant new role for the European Central Bank (ECB) and an ability to require the most systemically significant third-country CCPs to establish themselves in the EU as a condition for providing their clearing services to EU clearing members and their EU clients. Overall the framework provides ESMA, the Commission and the ECB with very wide-ranging discretion in relation to third-country CCPs.