Insurance Regulation & Accounting
Coming your way…
IR&A’s
timetable is regularly updated to cover as many new developments as possible while also keeping an eye on events as they unfold. The first table incorporates the FSA’s agenda for consultations, discussion documents, thematic work or events of interest to insurers for the year ahead and beyond. On the next page we list the events, papers and developments on the horizon from other bodies in the UK, Europe and internationally.
| Title | Date | Detail |
|---|---|---|
| Travel insurance review National Audit Office review of the FSA | Q1 2007 First half 2007 | The FSA could be asked to oversee the regulation of travel agents (see Table 2 for more information). The Treasury commissioned the NAO (July 2006) to review the “economy, efficiency and effectiveness” with which the FSA carries out its statutory duties. It is the first time that the NAO has been granted access to the regulator. The NAO published its report in April and the Treasury is expected to lay the report before Parliament during the first half of 2007. |
| General insurance regulation – FSA review | June 2007 | The regulator announced in September 2005 that it was to review the effectiveness of the general insurance regulatory regime since it was first introduced at the beginning of 2005 in line with EU requirements for intermediary regulation. A final report was published in March that made some early suggestions for rebalancing the insurance regime, to include deregulation for some insurance lines such as household and motor and new rules for protection products to reflect the different levels of consumer detriment and understanding. The FSA said it will publish a consultation paper in June 2007 to discuss any rule changes to insurance conduct of business rules, with final revised rules made in December 2007. |
| Payment Protection Insurance (PPI) thematic work | June 2007 | The FSA is to revisit firms’ failing standards in the sale of PPI in its two-year long effort to improve practices. The FSA said the programme is one of the largest pieces of thematic work it has ever undertaken. The FSA is also considering changing its rules regarding PPI saying it is “not convinced that its current rules relating to PPI are delivering the protections that customers deserve and intends to see if there is a case for changes to some of the existing rules or the introduction of new rules”. The current exercise will concentrate on whether firms are informing customers that PPI is optional, that customers receive clear details about the product, its costs and exclusions, that the advice given meets the policyholder’s needs and that a refund is offered if the policy is cancelled. |
| Financial Services Compensation Scheme – wholesale pool proposals | Autumn 2007 | Following its funding review of the FSCS in March 2007 the FSA said it would launch a separate review for a wholesale pool to be made available in the event of a serious market failure exhausting the funds of the enlarged retail pool. The FSA said it does not expect the wholesale pool, should it go ahead, to be implemented before 1 April 2009. It said levies on the wholesale market are likely to be “irregular” and although it will announce a limit on wholesale businesses during the forthcoming consultation it has aired a figure of between £1bn and £2bn per year. |
| Industry guidance | Q3 2007 | The FSA published a discussion paper on industry guidance – how firms can use FSA confirmed guidance in its compliance with principles and rules – in November 2006. Adherence to the guidance is not mandatory but will supplement the FSA rules and principles where needed. The FSA is due to respond to the comments it received on the discussion paper in a statement during the third quarter of 2007. |
| Commission disclosure | Throughout 2007, with results of work due to be published in Q4 2007 | The FSA has been disappointed by the industry’s failure to come up with its own solution to the lack of transparency surrounding commissions earned by wholesale intermediaries. The regulator said it will analyse the extent to which lack of transparency leads to customer detriment or impairs market efficiency and whether regulatory intervention, via mandatory commission disclosure, would lead to benefits that outweigh the costs. |
| International Financial Reporting Standards | Q4 2007 | The FSA is to follow up on the changes to its prudential regimes in 2004/05, designed to accommodate IFRS and closely-related UK accounting standards. It will review the practical application of IFRS and consult on any proposed changes towards the end of the year. |
| Financial Reporting Council | Before end 2007 | The FRC is assessing progress in implementing the Combined Code on Corporate Governance. It opened comment in April to find whether companies believe the code has helped to improve board performance, its impact on smaller listed companies, and the effectiveness of the “comply or explain” mechanism. Views from listed firms, directors and investors are invited by 20 July 2007. The FRC will publish its findings before the end of 2007. |
| Financial Ombudsman Service – funding review | January 2008 A consultation paper due in early 2007 - already delayed from Autumn 2006 – has been postponed and will now form part of the FOS’s annual budget | Changes to the way the FOS is funded to make it fairer for firms have been shelved with the FSA and FOS deciding to defer any serious changes until the FOS’s case load stabilizes. The review, initiated in May last year, was expected to result in a consultation paper to discuss the more radical option, favoured by firms, to target case fees from the firms that use the service the most. The consultation had been subject to several delays, with the rules originally expected to be changed by the end of 2006, but will now be dealt with in a more modest form as part of the FOS annual budget. The FSA said the FOS is about to experience “significant volatility” in case numbers and that it “is not possible to model with any degree of certainty how significant changes at this stage would affect both the financial stability of the FOS and any alternative distribution of costs among firms”. |
| Financial Services Compensation Scheme – retail proposals | 1 April 2008 | New funding arrangements following a two-year review were published in March 2007 and proposed to enlarge the size of the fund to a potential £4.4bn. The FSA wants to disband the current system which sees defaults contained with their own sector in order to increase the available pool in the event of a serious collapse or a series of defaults. Any new funding arrangements will take effect from 1 April 2008. |
| Organization | Development | Date | Detail |
|---|---|---|---|
| Office of Fair Trading (OFT) – Payment Protection Insurance (PPI) | Consultation paper to refer the industry to the Competition Commission | Early 2007 | The OFT said in October 2006 that it intended to refer the UK PPI market to the Competition Commission and at the beginning of 2007 it made good on its word. The Competition Commission has opened a case on PPI to decide whether “any feature, or combination of features, of each relevant market prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom”. |
| HM Treasury | Travel insurance review | Q1 2007 | The UK Treasury is reviewing travel insurance sold by travel agents – currently unregulated – following pressure from consumer groups and the insurance industry to address the imbalance. A formal consultation was launched in November 2006, open until February 2007, which listed the options as no change, strengthened self-regulation or full FSA regulation. The government is expected to announce its decision in Q1 2007. The House of Commons Treasury Committee has recommended that the government bring travel agents under the FSA regime. |
| Ceiops | Solvency II Quantitative Impact Studies | H1 2007 | Ceiops is conducting a third QIS to build on the findings of the first two exercises. Ceiops said QIS 3 will include more detailed calibrations that will give firms a better idea of their capital requirements under the proposals for Solvency II. |
| European Commission | Framework directive for Solvency II | July 2007 | The EC is confident of producing a draft framework directive for Solvency II in July 2007. Member states are already ploughing through drafts and highlighting several areas for disagreement, including approaches to the Minimum Capital Requirement and how to address the issue of insurance groups. |
| Securities & Exchange Commission (SEC) | Sarbanes-Oxley (section 404) | 15 July 2007 | The SEC bowed to international negotiations and granted a one-year extension to foreign firms with a US listing to comply with new governance and internal control rules to 15 July 2006. An additional year – to 15 July 2007 – was granted in October 2005 for smaller companies (including foreign private filers) that are not accelerated filers. |
| European Commission | Insurance Guarantee Schemes | Second half 2007 | The Commission delayed a decision (due in the first half of 2006) on whether to propose legislation for mandatory insurance safety net schemes throughout the EU until it receives the results of a feasibility study. Terms of reference have been set and an external consultant appointed in Autumn 2006. The study could take until the second half of 2007 to be completed. |
| HM Treasury | Insurance Summit No 11 Downing Street | Autumn 2007 | The London Insurance Market Review Group, set up as part of the treasury’s High Level City Group and headed by Lloyd’s chairman lord Levene, is due to report on the modernisation of the wholesale insurance market to an insurance summit held by Ed Balls. The review will include proposals on improving processes, broadening industry skills and hosting a Global Risk Summit to stimulate market innovation. Also at the meeting, Mr Balls is expected to report back on the Treasury’s analysis of the sector and the potential for further reforms. |
| Competition Commission at the EC | Sector investigation into business insurance and retail banking | September 2007 | The consultation period for the Commission’s 155-page interim report raising several competition issues in the industry closed on 10 April 2007. The Commission announced that it will conduct additional investigations in targeted areas to clear up some issues and also to help sharpen the focus of the inquiry before it published its final report in September 2007. The review was first announced in June 2006. |
| National Association of Insurance Commissioners (NAIC) | Reinsurance collateral | September 2007 | A vote in favour of a new collateral charging system has been passed to a committee of the NAIC to refine the proposals by September 2007. Under the proposals drafted by the Reinsurance Task Force of the NAIC, all reinsurers (whether domestic or foreign) will be assigned a rating based on their financial strength and will have to lodge between 20% and 100% of their liabilities in collateral accordingly. The proposal introduces a collateral system for US reinsurers for the first time and offers foreign reinsurers the opportunity to file less than the 100% collateral currently levied on all non-US reinsurers. The latest development follows a draft proposal issued by the Reinsurance Task Force at the end of October which was voted on during the NAIC’s Winter Meeting in December 2006. |
| IASB | Phase II of IFRS accounting for insurance | 16 November 2007 | Work on Phase II started in 2004 and after several delays a discussion paper was published in May 2007. Comments are invited before 16 November, and given the discussion on measurements for liabilities it will be a lively period of debate. An exposure draft is expected to take an additional 18 months and a standard an extra year on top. |
| European Commission | EU Reinsurance Directive | December 2007 | The Reinsurance Directive was published in the Official Journal on 19 December 2005, giving member states until 10 December 2007 to transpose it into national law. |
| Better Regulation Executive of the UK government’s Cabinet Office | Davidson Review of Implementation of EU Legislation | By end 2007 and by July 2008 | Lord Neil Davidson QC’s review of the UK’s implementation of EU legislation has identified the Insurance Mediation Directive as over-implemented in the UK. It has recommended that the Treasury should consult on reducing the scope of activities caught by the FSA’s regulatory regime by the end of 2007. In addition, it recommends that the FSA should simplify rules on product disclosure, remove the requirement for insurers to check the authorisation status of intermediaries, reduce and simplify client money rules and reduce prescriptive rules in areas such as training and staff competence - all by July 2008. |
| European Commission and Ceiops | Review of the Insurance Mediation Directive | 2008/9 | In its green paper on retail financial services (published at the end of April 2007) the European Commission said it is to review the Insurance Mediation Directive “to make sure it is achieving its objectives of protecting consumers while promoting the single insurance market”. As a first step, Ceiops has been asked to look at the way the directive has been implemented. The EC said the IMD could be revised as a result of the review and that these changes could take place in 2008/9. |
| European Commission | IFRS equivalence | 2008 | Last year, the EC decided to continue to allow US listings using US GAAP until 2009, in line with the SEC roadmap for allowing IFRS based registrations. The US and EU are still working on mutual recognition and removing the reconciliation requirements for IFRS and US GAAP until the standard setters develop the longer term convergence process. In 2008, Charlie McCreevy said the SEC and the EC will have to take “crucial decisions” for plans beyond 2009. |