The Financial Services Authority has this month published the Turner review, which reports on and makes recommendations for reforming both UK and international approaches to financial regulation in order to create a more robust banking system.
A link to the report is: www.fsa.gov.uk/pubs/other/turner_review. pdf
The review states that the most fundamental changes required are those relating to capital adequacy, accounting and liquidity policies and there are also changes recommended in the regulation of governance and risk management. Of particular interest may be the FSA's comments on procyclicality (in particular their reference to rating-based triggers and collateral requirements) and their comments on the quality of bank capital.
This review does not have direct application to the insurance market. The FSA's 2009 Financial Risk Outlook (http://www.fsa. gov.uk/pubs/plan/financial_risk_outlook_2009.pdf) states that:
"We do not believe ...that the crisis has raised any doubts about the overall appropriateness of our capital adequacy regime for insurance companies, following its significant revisions in 2002 to 2004 (although we are keeping under review the possibility that there are further lessons to be learned)."
However, capital adequacy aside, the Turner review notes, at page 91, "The arguments for combining responsibility for the prudential regulation and supervision of all financial market sectors, e.g. banking and insurance, are very strong, with no apparent counterarguments..." hinting that this will have some impact on insurance regulation in the future. Further, the FSA have simultaneously with the report published a discussion paper (www.fsa.gov.uk/pubs/discussion/dp09_02.pdf) which, at chapter 13, considers possible implications for other sectors of the financial services market and notes that, for example, whilst weaknesses have been most evident in banks and investment banks, recommendations made by the Turner review on governance and risk management have "general application".
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