Charlotte Clark CBE, Director of Regulation, reflects on how the Solvency II review, Brexit and Covid-19 affect the future of the regulatory landscape
What do you hope will be the outcome from the Solvency II review?
The fact we’re now consulting on Solvency II, after talking about it for so many years, is extremely positive. My hope is that the Treasury and the Prudential Regulation Authority (PRA) are in listening mode, and that they’re ready to make significant changes rather than simply tinkering with it, as we have a real opportunity to make the regime work better for everyone.
Fundamentally, the insurance industry has sizeable assets at its disposal and, if the review goes the way we hope, we’ll be able to unlock them for use on things that really make a difference, such as green infrastructure. A regime that facilitates this, while being less onerous, would be an excellent outcome.
The ABI was partly responsible for the review actually happening, and we’ve worked very constructively with the Treasury and the PRA on this reappraisal. Clarity on this issue will, I hope, provide stability as we move through the next decade.
As we near the end of the Brexit transition period, the government has launched a review of the industry regulatory framework. What are the likely outcomes of this process?
There is less clarity here than with Solvency II. I do have some concerns that the Treasury and the regulators want simply to give the regulators powers that the European Parliament had. However, I think we should approach the problem slightly differently. We need to work out what we need from a regulatory framework over the next 10 or 20 years, if the UK and London are to remain leading centres of finance and insurance. It means our regulators are going to have to be more forward-thinking, and really get to grips with data and digitisation, and the technology side of financial services more broadly, as well as being more open and accountable.
In the end, we all have the same aim of an effective, secure system, so this process mustn’t be about ‘levelling down’. Parliament will have a big role to play in this, and the government must show ambition. Across the financial services sector, including the regulators, we need to develop an open culture with a shared strategy that helps to define the direction of travel.
What is your view on the risk of divergence between European and domestic regimes?
There’s always a chance of divergence in standards for any sector but, on this issue, I don’t see it as significant risk. We’re constantly in discussion with our colleagues in Europe and beyond about standards. In the end, it’s about having a regime that is right for the UK but will sit within international standards, and I don’t think these things necessarily conflict.
What are the other major regulatory challenges ahead?
Although Covid-19 has taken centre stage this year, perhaps an even larger issue for the next decade is that of climate change. As we move towards COP26 next year, we are going to see a step change in the focus on climate change regulation. This will shape the role of financial services in what is a fundamental societal shift, determining how finance can support the green agenda. We need to be at the forefront of this, and we’ll be looking to the government to be explicit about its plans.
How do you think the test case currently under consideration by the Supreme Court will change the industry’s relationship with regulators?
I think it means we will look afresh at the potential for unforeseen events to disrupt our industry and the wider economy. At a basic level, we need to understand more about what we’re insuring, and customers need to understand what they’re being insured for. Regarding the regulators, I think there is a bit of resetting of the relationship to do. We all need to take a collective deep breath and think about what relationship we want going forward. Rather than allowing us to be defined by the arguments, we need to be defined by the challenge and our conversations.
What has been the role of the FCA during the pandemic?
The decision to bring the test case was made jointly between ourselves, our members, and the regulators, and I think this was a hugely important decision. Some things could have gone better, but we will hopefully learn from this. On the whole, the decision reflect a desire on all sides to tackle this important issue as quickly as possible.
It’s an interesting time to join any organisation. You moved from the civil service to the ABI in September, how did you find the switch?
To be honest, I was expecting a massive culture shock. However, I’ve found the transition remarkably refreshing, and the team made it very easy for me. I’ve missed working on financial services, and the ABI is a great organisation to be part of. Working remotely, I’ve lost out on some opportunities to meet people around the kettle, but virtual working seems to allow more time in the day to catch up and have conversations. Taking part in committees and sitting on the Board has shown me what a useful forum the ABI provides for the industry, allowing it to take a step back from the day-to-day and really think about the bigger picture. As we move into 2021, I think we’ll have an invaluable role in consolidating the learnings from this year and shaping the vision for the next decade.