We're not blocking post-Brexit freedoms, says Bank

We’re not blocking post-Brexit freedoms, says Bank

Web Desk

08th Jul, 2022. 08:31 pm
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UK regulators are blocking billions of pounds in post-Brexit investment.
Some worry that it could undermine the Bank of England’s independence.
PRA chief says potential to reshape insurance regulation is once-in-a-generation occurrence.

A significant financial watchdog has responded to accusations that it is preventing billions of pounds in UK investment by not utilising post-Brexit freedoms.

portions of the insurance sector assert Leveling up and net zero goals will be hampered by UK regulators’ caution on how pension savings might be invested.

Some worry that it could undermine the Bank of England’s independence by potentially pitting the Treasury against the latter.

Millions of workers’ pension savings are at the centre of the conflict.

On Friday, a senior bank official stated that while there was a chance to modify the law, there was also a duty to safeguard savers.

Sam Woods, the head of the Prudential Regulation Authority, a division of the Bank of England, stated that the potential to reshape insurance regulation to work better for the UK following Brexit is a once-in-a-generation occurrence.

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To avoid risks to the millions of current and future pensioners who depend on insurers for their retirement income, he said, “we also need to strengthen it in one area. We can do this while easing parts of the regime that were over-calibrated by the EU, and making it easier for insurers to invest in a wider range of assets.

When the UK was a member of the EU, Solvency II—a set of trans-European regulations—governed how pension money might be invested.

Despite the fact that many projects, including wind farms, social housing, and toll roads, had precisely the kinds of returns ideal for long-dated savings plans like pensions, the flexibility to invest in long-term, illiquid – hard to sell rapidly – assets was restricted.

The government and insurance companies want these regulations to be loosened so that they can invest tens of billions of pounds.

However, safeguarding the interests of policyholders is the main objective of the Bank of England’s insurance oversight.

The insurance companies feel that the Bank is being unduly conservative despite its proposal to modify some of the rules, and they have asked the Treasury and Number 10 to override the Bank.

Bank officials acknowledge that there is a “reasonable danger” that they will be overruled given the priority that the government has placed on its levelling up policy, net zero, and the prospective availability of billions of dollars.

There is no assurance that investors will choose to fund these UK ventures, though.

Regulators believe there is a good likelihood that the insurance companies would invest any additional funds made available by loosening the regulations abroad or just return the funds to their shareholders rather than using them to fund the government’s preferred initiatives.

The sums are substantial. The Bank of England has suggested arming the insurance sector with the means to invest an additional £45 billion to £90 billion.

If the Bank was less cautious, the industry claimed it could be double that amount.

The government has been informed by some leaders in the insurance business that the UK may become less competitive as a result of the EU’s consideration of altering its own regulations.

The majority of economists agree that there were few economic gains from Brexit, but they also agree that these policies were among them.

Officials from the Bank of England are aware that they may lose this intensely political battle.

Insiders worry that if that does occur, it might be the beginning of the Bank’s independence from the government, which it has had since 1997.

And the conflict is about to reach a crucial stage. On July 21, the regulator, the insurance sector, and the Treasury will have finished their dialogue.