Treasury fleshes out new regulatory regime

The government has unveiled the latest thinking on its shake-up of financial regulation.

A Treasury consultation paper, issued today, says that the Prudential Regulation Authority (PRA) - one of the two new regulators that will take over the functions of the FSA - will be responsible for authorising and supervising all insurers as part of its general duty to maintain firms’ long term soundness and the stability of the financial system.

Conduct of business and consumer protection issues for the insurance sector will lie within the remit of the Financial Conduct Authority (FCA) – the new name for the proposed body previously known as the Consumer Protection and Markets Authority.

The consultation paper also says that the PRA’s supervision of insurance firms will be less intensive than that for the banks.

It says: “The PRA will act in a way that recognises that insurance business models are different to those of banks, especially in terms of liquidity risk and the fact that insurance firm failure is generally less likely to be of systemic importance.”

But it says that the detailed approach that the PRA will take to the supervision of insurance firms for soundness and stability has yet to be fully hammered out.

“The Government, the Bank of England and the FSA will continue to consider how the characteristics of insurance firms should be recognised appropriately within the regulatory framework.”

The paper says the PRA will be the lead regulator of the Lloyd’s market. However, it says the FCA will also play a “significant role” by regulating conduct in relation to certain aspects of the activities of Lloyd’s, its members and other participants in the Lloyd’s market including “dealings with policyholders, customers and investors”.

The paper also takes forward proposals already outlined by the FSA in an earlier consultation document, giving the FCA powers to ban retail products or limit their distribution for up to 12 months.

And it proposes that both the PRA and the FCA will have oversight of the Financial Services Compensation Scheme.

Click here to read the Treasury consultation paper.