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Post-crisis regulatory reform for the insurance sector passed a significant milestone at the beginning of this year. While the banking sector has, for good reasons, dominated the post-crisis re-engineering of financial services regulation, the FSB1 nonetheless tasked the IAIS2 in 2013 with a similar objective for the insurance sector in the areas of resilience, supervision and systemic risk. The IAIS has now provided its response in the form of a package of measures that start in 2020.
Creditworthiness, affordability and commissions: the FCA’s expectations in relation to premium finance
It is estimated that over 40% of motor insurance customers and around 52% of household insurance customers in the UK opt to pay their annual premiums by monthly instalments1, with many entering into regulated credit agreements in order to do so.
The FCA is focused on the extent to which firms offering premium finance under regulated credit agreements are meeting the requirements of the consumer credit regime, including changes to the rules around creditworthiness and affordability.
In our experience, firms offering premium finance are sometimes unaware of the full extent of their regulatory obligations under the consumer credit regime. This blog highlights key aspects of the recent rule changes and FCA reviews of the wider consumer credit market which have important implications for premium finance firms.
EIOPA’s annual work programme tends not to deliver many surprises, given EIOPA’s three year planning cycle. However, despite the appearance of consistency there are some significant changes in EIOPA’s 2020 programme that insurers need to be aware of.
The most significant changes are:-
- planned activities to support the development of a sound cyber insurance market
- a reduced level of data requests and;
- a decision not to conduct an insurance stress test in 2020.
- The European Commission is seeking views on the “benefits and drawbacks” of an individual “accountability regime” under the Capital Requirements Directive (CRD).
- The proposals are at a formative stage, and it is uncertain whether they will ultimately be taken forward. Nonetheless, we recommend that Board members and senior managers pay close attention to how they unfold through the consultation process.
- Although the Commission has positioned these proposals as more of an extension of the existing fitness and propriety requirements, there are some potential parallels with the UK’s Senior Managers and Certification Regime (SM&CR).
The Basel Committee on Banking Supervision (BCBS) agreed the final elements of the Basel III framework in December 2017 (often referred to by industry as ‘Basel IV’), but the timing and nature of its implementation in the EU is subject to a complex legislative negotiation that has yet to begin.
On 5 December, the UK’s financial regulators, the Bank of England (BoE), Prudential Regulation Authority (PRA), and Financial Conduct Authority (FCA), published a series of consultation papers (CPs) on their proposed approach to operational resilience in the financial sector.
EIOPA’s extensive recent consultation1 on the 2020 review of Solvency II gives a first indication of the changes to Solvency II that EIOPA will recommend to the European Commission.
This blog highlights ten over-arching topics from the consultation that we consider indicate where significant change is and is not likely, and which in turn could have an important bearing on the UK’s post-Brexit prudential capital regime. Each topic is detailed in the appendix to this blog.
Last month, our article1 outlined our views on re-discovering customer lifetime value (“CLV”) within the capital markets sector. This month, we explore why adopting a CLV lens to customer lifecycle management can bring enhanced benefits for both corporate and investment banks (“CIB”) and their clients.
Alan Turing’s seminal 1950 paper "Computing Machinery and Intelligence", posed the question "Can machines think?" Introducing the idea of the first “learning machine with the potential of becoming artificially intelligent”. Since then machine learning (ML) has found its way into numerous processes; seeking to simplify our lives by making processes smarter, better and faster. Financial risk management is an industry that is rife with opportunities for ML to disrupt in the coming years, one of the most obvious areas being credit scoring.
In this blog we explore some of the main findings of the recently published Bank of England survey on ML, this is followed by our views on the challenges and potential solutions of implementing ML within a credit risk scoring framework.
On 31st October, the PRA published a Dear CEO letter to remind banks, building societies and designated investment firms that they are required to submit complete, timely and accurate regulatory returns. The fact that the PRA has seen the need to issue a reminder about such a core regulatory obligation reflects its concern about errors in regulatory reporting (both public and identified by the PRA in the course of its supervision) and what it sees as the need for appropriate investment in both data quality and processes to ensure the accuracy and completeness of reporting.
In this blog we consider how firms have been addressing regulatory reporting challenges to date, identify key areas of focus for Senior Managers, Boards and Audit Committees and provide our view on how firms might respond to the letter and how we can assist.