The deputy governor of the Bank of England has launched an outspoken attack on new European regulations that he warns could create further financial crises.
Paul Tucker, who is in charge of financial stability at the Bank, says he and his colleagues are "dismayed" by the costs insurers face to comply with planned European Union insurance capital rules, known as Solvency II, from 2014. The proposed rules were so complex that watchdogs and internal company supervisors could miss the bigger picture, he warned in a speech to insurance chiefs.
"At the Bank, as we get up to speed with the regime for insurance, we — and the FSA — have been dismayed by how much it is costing the industry and the regulator to adapt to Solvency II," he said. "We are also concerned that, like the initial attempts at Basel II for banks, it risks being too complicated in its desire to introduce a 'risk-sensitive' regime.
"We need to be wary of regulators drowning in masses of data going beyond anything they can get their hands round. Unless we are careful, it risks distracting supervisors from the big risks," he added.
The speech was music to the ears of insurers, some of which have been warning for some time that the solvency requirements are so onerous they could even reduce the pensions that are paid out to customers.
The new rules are regarded as the largest-ever change to solvency rules in Europe.
Plans to extend them to pension schemes could cost UK businesses £600bn, according to research by JPMorgan Asset Management, which said some pension funds would find it nearly impossible to hold the required amount of capital.
Mr Tucker's speech comes as Prudential – Britain's biggest insurer by some measures – is threatening to move its headquarters to Hong Kong.
It is especially concerned about the amount of capital it would have to hold in reserve against its American businesses and is calling on the UK authorities to intervene.
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