The UK government is close to an agreement with regulators on insurance capital reforms designed to unlock billions of pounds of investment in the economy.
Jeremy Hunt, the Chancellor of the Exchequer, will announce details as part of the budget statement on Thursday if talks are finalized in time, according to people familiar with the matter, who did not want to be identified to discuss confidential arrangements .
The Treasury hopes to reach an agreement with the Prudential Regulatory Authority on Solvency II rules after months of dispute between the two parties over the scope of deregulation. Those talks could still fail, one of the people said.
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Ministers have pushed for insurers to be able to channel more capital into areas such as infrastructure and climate transition. The PRA has warned that easing restrictions on where insurers can invest could put future policyholders at risk.
The two sides have become closer recently, according to people familiar with the matter who did not want to be identified discussing private negotiations. The industry is now preparing for deregulation not to go as far as it would like, according to one of the people.
“We are committed to ambitious reform – including Solvency II rules – of the UK financial services sector,” a Treasury spokesman said. “We will give more details in due course.” The PRA did not comment.
More reforms
Hunt is preparing to announce a series of reforms aimed at boosting the City of London as the government scrambles to show the UK’s growth potential even as it grapples with a big hole in public finances. The statement is expected to be dominated by sweeping tax hikes and spending cuts.
Other possible policies that could feature on Thursday are the rollback of EU rules stipulating that fund managers must pay for analyst research. This would allow banks to bundle research with other services and increase coverage of small businesses, with the aim of boosting investor interest in them, people say.
There could be moves to strengthen Britain’s fintech sector and capital market reforms to entice fast-growing and foreign companies to list in London, the sources added.
The government is also working on plans for power to intervene over regulators in its Financial Services and Markets Bill, which is pending in parliament.
The Treasury initially raised the prospect of appeal power last year, partly as a way to influence the PRA over Solvency II reforms. If a deal is eventually reached, the appeal could be watered down or dropped, the people said.
Measures to change Solvency II – EU rules introduced across the bloc, including the UK in 2016 – are also to be written into the Finance Bill. The bill should become law by the spring.
–With help from Alex Wickham.
Photograph: Jeremy Hunt, UK Chancellor of the Exchequer, October 26, 2022. Photo credit: Chris J. Ratcliffe/Bloomberg
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