Written evidence submitted by Aviva Plc
1. Aviva is supportive of reforms to the
UK system of financial supervision and regulation, in the light
of the recent financial crisis.
2. Much of the success of the Government's
proposals will depend on getting the detailed implementation right.
As such, I believe it is important to focus on how effective the
new financial architecture will be, rather than its structure.
3. In terms of how the new regulatory architecture
will work in practice, there are a number of issues raised by
the proposals that are of some concern to Aviva, and where we
feel further discussion and thinking is warranted.
4. As the UK's largest insurer, as an owner
of a large asset management business, and as a leading pan-European
player, we have a keen interest not only in the UK system of supervision
and regulation, but also in how it interacts with the emerging
EU architecture. We are, therefore, uniquely positioned to highlight
certain perspectives around what may work, and what may not, for
diverse groups in the proposals.
5. I would highlight the six areas overleaf
as ones where the Committee can helpfully investigate and review
the Government's proposals to ensure we get it right as we move
effectively from the existing regulatory structure to the new
one.
REMAINING ACTIVE
AND FOCUSED
IN KEY
EUROPEAN NEGOTIATIONS
6. The planned new EU supervisory architecture—and
its interactions with the UK regulatory framework—is very
important for large businesses like Aviva.
7. The new European Supervisory Authorities
(ESAs) are due to come into operation from 1 January 2011. There
is a risk that at this most critical phase, the UK will be preoccupied
by internal reorganisation.
8. EU level discussions on insurance and
asset management must remain focused, and receive appropriate
attention by senior officials, throughout the transitional period,
so that a strong UK voice continues to be heard.
9. For example, Solvency II is the most
important piece of modernising insurance legislation in a generation,
and the final Implementing Measures are still under discussion.
Full and active engagement in such crucial EU negotiations is
going to be critical to get the best outcome for our millions
of customers.
10. Proposal: During the transitional
period, we would urge the FSA to prioritise active engagement
in those European negotiations of vital importance to both the
insurance and asset management industry. We further recommend
that a dedicated team is put in place to oversee this engagement.
ACHIEVING APPROPRIATE
PRUDENTIAL SUPERVISION
FOR INSURERS
WITHIN THE
PRA
11. Historically, the purpose of the prudential
regulation of insurance companies has been the protection of customers.
This reflects the role of insurers as providers of retail consumer
products, and the fact they are participants in the financial
system—rather than drivers of it.
12. Under the new proposals, insurers will
be prudentially regulated within the PRA alongside banks and investment
banks. These are fundamentally very different businesses.
13. It is important that careful consideration
is given to "getting it right" when it comes to the
prudential supervision of insurance firms.
14. Proposals: (1) The primary objective
of the Prudential Regulatory Authority should incorporate a requirement
that the PRA pays adequate attention to the fundamentally different
rationale for the prudential regulation of insurance companies.
(2) The prudential supervision of banking and insurance within
the PRA should both be separately recognised within the internal
management structures, to ensure that they are of equal prominence.
ACHIEVING OVERSIGHT
AND A
HOLISTIC VIEW
OF LARGE,
DIVERSE NON-BANKING
FIRMS
15. As a large insurance group that includes
an asset management business, we do have a concern that under
the Government's proposals, no single body will be charged with
taking a holistic view of the whole Aviva group.
16. Under the proposed new structure, supervisors
would have to gain such an overview despite the fact that substantial
businesses within the Aviva group would be subject to prudential
supervision by different regulatory bodies: the insurance business
by the Prudential Regulatory Authority (PRA), and Aviva Investors
(our asset management business) by the Consumer Protection &
Markets Authority (CPMA).
17. Proposal: Group supervision
should be recognised within the proposed reforms so that a lead
supervisor can take a balanced view of groups.
ENSURING THE
FPC, PRA AND CPMA WORK
EFFECTIVELY TOGETHER
18. As a large, diverse financial organisation,
we are used to dealing with multiple regulators. As such we are
more interested in the effectiveness of the proposed new financial
architecture, rather than its structure.
19. It is clear though, that there will
need to be considerable cross-consultation and co-ordination between
the PRA, CPMA and the FPC in the effective discharge of their
responsibilities. Much of the success of the Government's proposals
will depend on getting the detailed implementation right, including
how liaison will happen in practice between these three bodies.
20. It is important that regulation continues
to strike the right balance between:
— delivering against the regulator's objectives;
— supporting important access to products
and services that consumers need;
— promoting a culture of saving and personal
provision; and
— attracting capital from investors into
the sector.
21. There are significant differences between
retail and wholesale markets and it will be important that the
priorities of the CPMA are not dominated by thinking rooted in
consumer protection.
22. The existing FSMA principles for better
regulation should be maintained and there will need to be appropriate
checks and balances to allow for transparent scrutiny of the performance
of the different regulatory bodies in the delivery of their objectives.
This should include formal external reporting to industry representatives,
as well as appropriate consultation on policy development.
23. Proposals: (1) The CPMA should
be led by someone of equivalent standing to the CEO of the PRA,
and who should be publicly recognised as such. This will avoid
the CPMA being perceived as a junior regulator in the new UK regulatory
system. (2) In order to create the right balance, we would recommend
a broader primary objective for the CPMA of not only ensuring
the financial system protects its consumers, but also of promoting
saving. (3) The existing Better Regulation principles, statutory
consultative Panels and consultation processes should be maintained
for both PRA and CPMA.
ENSURING APPROPRIATE
REPRESENTATION ON
THE FINANCIAL
POLICY COMMITTEE
(FPC)
24. The UK financial services market is
one of the most competitive and diverse in the world, including
a number of global banking, insurance and asset management businesses.
25. Financial stability mechanisms, whilst
naturally banking-focused, nonetheless need to properly take into
account the fundamental differences in business models of these
diverse firms, their relationships with consumers, and their varying
roles in the real economy.
26. Proposal: The membership of
the FPC needs to ensure there is appropriate and authoritative
representation covering buy side market participants (insurers
and asset managers) in addition to sell side.
MANAGING RISKS
IN THE
TRANSITIONAL PERIOD
BETWEEN NOW
AND THE
IMPLEMENTATION OF
THE NEW
STRUCTURE IN
THE UK
27. The transitional period between the
current and proposed new structure of financial regulation in
the UK must be very carefully managed, to ensure there continues
to be consistently high standards in the way the UK financial
services industry is regulated.
28. Proposal: We recommend a transitional
plan is developed by the FSA, in conjunction with stakeholders,
to demonstrate how key regulatory proposals and legislative requirements
will be managed over the transitional period, and approved as
soon as possible. This should include how controls over the quality
of supervisory decisions and policy formulation will be maintained.
Aviva looks forward to working with policymakers
on legislative proposals as they develop.
22 September 2010
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