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Tripartite system of financial regulation needs to improve say insurers The special resolution regime is not the way

The ABI (Association of British Insurers) today proposes new statutory responsibilities for the Bank of England to promote financial stability. The Association is responding to the consultation paper from the Tripartite Authorities - Government, FSA and Bank of England - following the Northern Rock saga.

The ABI says that many ideas in the consultation paper have not won support in the financial services sector. It singles out its concern about proposals for a Special Resolution Regime that could lead to premature intervention in banks. This, says the ABI, ‘would lead to a general loss of confidence in London as a financial centre and make the market less willing to provide finance even to healthy banks.'

The ABI is warning that a ‘rush into legislation' on the Government's strict timetable ‘could result in arrangements that are not fit for purpose and end up damaging confidence in the City of London.'

Stephen Haddrill, the ABI's Director General, said:

"Insurers are major investors in banks through equities, bonds and other instruments. We have a huge stake in continued financial stability in the UK.

"Intervention by the authorities in a bank should always be a last resort. We want to see improved supervision. There is a serious risk that rushed or inappropriate legislation could damage financial stability and our position as a leading financial centre."

The ABI also comments on the Government's proposals for changes to the retail depositor protection scheme for banks. The ABI says:

  • the scheme for paying compensation for bank depositors should be ring-fenced from other parts of the financial services industry
  • the FSA should rescind its plan for cross-subsidy between different sectors in the Financial Service Compensation Scheme which will add considerably to the cost of insurance for individual customers, particularly if the deposit protection scheme is pre-funded

· the current limit of £35,000 per customer should be retained since, as the consultation paper explains, this covers over 95% of all customers. Any higher limit would distort the savings market and add to the problems of moral hazard.

Stephen Haddrill said:

"Our customers should not pay for problems in another part of the financial services sector, particularly when, by doing so, they encourage inappropriate risk taking by firms and consumers alike."

Last updated 01/07/2016