Risk watchdog will see off meltdown threat, says ABI

The ABI wants a new risk watchdog to help prevent another financial meltdown.

Stephen Haddrill, ABI director general, is calling for the government to set up the new watchdog, called the Macro-prudential Committee, by the end of the year. He also urged the government not to stifle competition in insurance through over-regulation.

The aims of the new committee are outlined in the ABI’s long-awaited report, Restoring Market Confidence.

It says the committee could be chaired by the governor of the Bank of England, with members from both the bank and the FSA, and focus on the “build-up of long-term systemic risk”.

The report says: “Borrowing has been at the heart of the current crisis, in part because the incentives to save are weak.

“With housing in short supply the property market has been and will again be an attractive investment. As the economy recovers we must ensure that the structural imbalance between saving and debt is monitored.”

Haddrill, in a press briefing said “tax and over-regulation” were a threat to competition.

He said: “As a result of this, we may fail to seize some of the opportunities. Investment is looking for a home, let’s make sure that London is the home it chooses.”

Haddrill also took a swipe at banking practices, and pleaded with regulators to distinguish between insurance and banking. “We do not have business that is built on high levels of remuneration, to the same extent of banking, and the high levels of business to be retained. That is not the way insurance operates,” he said.

The report endorses the current tripartite regulatory system – the Treasury, Bank of England and FSA – but calls for improved transparency and co-ordination between the three.

It also recommends there should be an overlapping membership of key committees, including Bank of England representation on the FSA Board, and adds that the FSA’s statutory duties should be reviewed to include a responsibility to help the Bank assess macro-economic risk.