Draft Solvency 2 (Group Supervision) (Amendment) Regulations 2021

Abena Oppong-Asare Excerpts

Tuesday 7th December 2021 General Committees

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

It is a pleasure to serve under your chairship, Ms Rees.

Following the Opposition reshuffle, my right hon. Friend the Member for Wolverhampton South East was due to be here; I hope that the Minister is not disappointed by my presence.

I thank the Minister for providing an overview of these technical regulations. I have a couple of general remarks to make before asking the Minister a couple of questions. As we have heard, the regulations relate to the solvency 2 directive that the EU passed in 2009 and implemented in 2016. The directive was set up to harmonise prudential rules for insurers across the EU. The UK implemented the solvency 2 directive through various pieces of legislation, including the Solvency 2 Regulations 2015. Obviously, when we left the EU single market, we left the EU solvency 2 regime, which onshored the rules.

According to the explanatory notes, the regulations we are considering today

“address failures of the retained EU law to operate effectively, and other deficiencies arising from the withdrawal of the United Kingdom from the European Union.”

As we have heard from the Minister, the regulations essentially allow the PRA to defer the decisions of overseas insurance regulators where we have agreed equivalence with them. As the Minister said, before the UK left the EU, the EU regulator issued guidelines to allow regulators at EEA level to rely on the supervision of another regulator in partially overlapping areas.

After we left the single market, the PRA adopted those same guidelines, but they are due to expire on 31 March 2022, as the Minister highlighted. He also said that if nothing is done, from 1 April 2022, the PRA would need to begin imposing certain extra group supervision requirements, even if the UK insurer it is regulating has a parent that is already subject to group supervision in another country deemed equivalent.

The regulations we are considering therefore allow the PRA to continue to disapply, in certain circumstances, insurance requirements relating to the UK’s insurance groups whose parent companies are supervised in “equivalent” countries. The PRA would only be able to do that if it were satisfied that compliance with the requirements by the insurance group in the UK would be unduly burdensome, and that the disapplication would not adversely affect the advancement of any of the PRA’s objectives. Under what circumstances would that happen? Can the Minister outline how “unduly burdensome” will be judged? Will the PRA have discretion in that respect?

On the PRA’s objectives, can the Minister say what steps will be taken to ensure that insurance policyholders in the UK will be protected and that their interests will remain central? How will the quality of overseas supervision be monitored, now and in the future, to ensure that those objectives continue to be met?

The explanatory notes say that allowing the PRA to rely on an overseas regulator’s supervision should mean reduced compliance costs for the insurance company, reduced costs for the PRA and a reduced need for co-ordination between the PRA and the regulator in that country to ensure consistency. We broadly welcome that and we recognise that these measures seek to avoid duplicating the work of the PRA. However, the Minister will know that the Lords Secondary Legislation Scrutiny Committee denoted the SI an instrument of interest on 30 November because of

“the absence of a level playing field: while the UK has granted equivalence to the EU in relation to the supervision of insurance groups, the EU has not reciprocated.”

The Minister has mentioned that the Treasury has worked very closely with the PRA, but can he tell us what impact that has on UK-based insurance firms and whether they are at a disadvantage compared with EU-based ones? Will he set out the work that the Treasury has undertaken to achieve reciprocal equivalence with the EU for insurance regulation, and why it has so far failed to achieve that?

Finally, will the Minister comment on the broader solvency 2 reform, which the Treasury is consulting on, and in particular on the balance between increasing competitiveness and safeguarding policyholders? I know that many in the industry believe that reforms could lead to increased investment and support infrastructure across the country, but I would be interested to hear the Minister’s views on that. I am sure he is relieved to hear that we will not oppose this SI, but I hope that he can address the points that I have raised, because I think they are important.