FTAdviser: Bank of England warns EU Directive could 'drown' regulators

14 March 2012

Europe's looming Solvency II Directive could swamp national regulators in red tape and a flood of data that will prove punitive in terms of cost to monitor, and could risk them 'drowning' in an overly risk-sensitive regime, Bank of England deputy governor Paul Tucker has warned.

In a speech delivered to the Association of British Insurers in London, Mr Tucker said the Bank and the Financial Services Association are “dismayed” at how much the new legislation will cost the industry. He added that like Basel II for banks, Solvency II risks being too complicated in trying to introduce a “risk-sensitive regime”.

Mr Tucker said: “We cannot understand why the legislative regime places such stress on micro-regulators ‘approving’ specific models. This is pretty well bound eventually to bump into circumstances where the models have been found seriously wanting.

“We are certainly aware that the modelling of risk is long established in insurance. But we need to be wary of regulators drowning in masses of data going beyond anything they can get their hands round.”

He added that unless the industry is careful, these changes could actually distract supervisors from bigger risks. However, according to Mr Tucker, watching out for these big risks will fall to the Prudential Regulation Authority under the new ‘twin peaks’ structure, which he said will be a “big improvement” on the current supervision of the FSA.

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