The British government is close to an agreement with regulators on insurance capital reforms intended to free up billions of pounds of investment into the economy.
Jeremy Hunt, the Chancellor of the Exchequer, will announce the details as part of the fiscal statement on Thursday if the talks are completed on time, according to people familiar with the matter, who did not want to be identified to discuss confidentiality arrangements.
The Treasury hopes to strike a deal with the Prudential Regulation Authority on the Solvency II rules after months of conflict between the two sides over how far deregulation should go. Those talks could still fall apart, one of the people said.
UK government rushes to outline proposed power to override financial regulators
Ministers insisted that insurers could direct more capital to areas such as infrastructure and climate transition. The PRA has warned that relaxing the restrictions on where insurers can invest could put future policyholders at risk.
The two sides have recently grown closer, according to the people familiar with the matter who did not want to be identified as they discuss private negotiations. The industry is now preparing for deregulation not to go as far as they want, according to one of the people.
“We are committed to delivering ambitious reform – including of the Solvency II rules – of the UK financial services sector,” a Treasury spokesman said. “We will outline further details in due course.” The PRA did not comment.
Hunt is preparing to announce a raft of reforms aimed at boosting the City of London as the government aims to show the UK’s potential for growth even as it struggles with a huge hole in the state finances. The statement is expected to be dominated by wide-ranging tax increases and spending cuts.
Other possible policies that could appear on Thursday are the rollback of EU rules that require fund managers to pay for analysts’ research. This would allow banks to bundle research with other services and promote coverage of smaller companies, with the aim of stimulating investor interest in them, according to the people.
There could be measures to improve the UK fintech sector and capital market reforms to tempt fast-growing and overseas companies to list in London, the people added.
The government is also working on plans for an intervention power over regulators to go into its Financial Services and Markets Bill, which is going through Parliament.
The Treasury initially raised the prospect of a call-in power last year, partly as a way to sway the PRA over the Solvency II reforms. If an agreement is eventually reached, the call could be watered down or abandoned, the people said.
Measures to change Solvency II – EU rules introduced across the bloc, including in the UK in 2016 – must also be included in the financial bill. The draft will become law by spring.
– With help from Alex Wickham.
Photo: Jeremy Hunt, UK Chancellor of the Exchequer, on October 26, 2022. Photo credit: Chris J. Ratcliffe/Bloomberg
Copyright 2022 Bloomberg.
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