Speaking against a bill championed by Rishi Sunak while he was chancellor, BoE deputy governor Sam Woods said the changes, which could allow insurers to reduce their cash reserves, which are supposed to act as a buffer against sudden falls, they were “unbalanced”. The UK life insurance industry, which specializes in managing retirement savings, directly invests around £1.3 trillion in savings held in around 21 million individual pension pots. In a forceful intervention, Woods said: “Leaving the EU must not lead us to lower standards of financial regulation in the UK. “Changing prudential regulations in the UK should not simply be a one-way street, particularly when it would mean weakening protections for firms serving groups such as pensioners.” In addition to his role at the Bank, Woods is chief executive of the Prudential Regulation Authority, which oversees banking and insurance companies. Speaking at an online event on Friday, Woods said reforming insurance capital rules should not lead to weaker controls. “I am concerned that some may see this as a free lunch, but in reality less capital, fewer checks and less asset restrictions, with no measures to strengthen the part of the scheme where it is needed, means more risk for pensioners and other insured persons”. The Bank of England inherited the regulation of the financial industry after the financial crash of 2008. It was widely acknowledged that the previous supervisor had allowed banks and insurers to reduce their reserves, leaving them with little capital in a time of crisis. With the Treasury, the BoE created the Prudential Regulation Authority, which oversees 1,500 City firms, to take a tougher line. The change to insurance rules known as Solvency II inherited from the European Union is seen by the government as a key Brexit “dividend” for Britain’s financial industry. Jacob Rees-Mogg, the Brexit opportunity secretary, has called for EU financial rules to be rewritten to spark an “investment boom” in Britain fueled by the City of London. However, the pace and substance of the reform has disappointed insurers as the EU has pushed ahead with its own amendments. A draft UK bill was due to be introduced this month to implement insurance and other reforms, but disputes between No 10 and the Treasury forced the legislation to be delayed. “The world won’t fall apart if we don’t have a city minister for a day or two. I think we’re going to get one pretty soon,” Woods said. “It may of course be the case, given the political situation, that the government needs a bit more time to make decisions,” Woods said. The draft law gives the Bank powers to change Solvency II in a way that Woods said would free up the equivalent of 10-15% of the current capital held by life insurers, which could support between £45bn and £90bn in additional investments in the economy. The Bank has proposed amending three key parts of Solvency II to make it easier for insurers to invest in long-term assets such as infrastructure to help Britain reach net zero targets. Subscribe to the Business Today daily email or follow Guardian Business on Twitter @BusinessDesk Woods said there was general agreement on two of these, but there was opposition to the third, which relates to the so-called matching adjustment (MA), which allows insurance companies to recognize future income from investment returns as current capital. “In our view, a package that didn’t address the issues we’ve identified with customization would be seriously unbalanced,” Woods said. It would remove those items that insurers wanted to drop, he said, adding that MA already accounts for capital relief equivalent to two-thirds of the total capital base of the life insurance industry.
