UK regulatory approach to ILS deemed “not fit for purpose”

A report from Conservative UK lawmakers that calls for greater Parliamentary accountability of regulators in the country, has cited the UK insurance-linked securities (ILS) experience as an example of regulatory failure to foster a new market opportunity.

The first report from the Regulatory Reform Group (RRG) looks at whether regulators and regulations have been putting outcomes for the consumer at the centre of everything they do and whether regulatory accountability is evident.

In the case of the UK’s efforts to develop an insurance-linked securities (ILS) market and foster ILS issuance activity there, it’s deemed that the regulators approach has fallen short.

The report explains, “HMT sponsored regulations to create a new market for Insurance-Linked Securities (“ILS”) in the UK at the beginning of 2018. The PRA were supportive in the development of this new opportunity, setting up a specialist unit for approvals.

“However, the approach they adopted to the review of applications was not fit for purpose, leading to extended timescales as well as extensive data and document requests and an uncertainty of outcome. As a result, only five of these vehicles were created.”

The report then looks at the success other ILS domiciles have had in the same time, claiming that Singapore copied the UK’s ILS regime and that as it had much greater success, with 18 ILS vehicles in a relatively short period of time, the UK has “lost out on over $700million of foreign investment in ILS to Singapore.”

They cite the industry body the London Market Group, saying that the LMG argues, “this is a clear example of regulators not being accountable to delivering change.”

The report adds, “Although significant effort went into setting up the UK’s ILS regulatory regime, sluggish approval processes and uncertainty meant significant financial benefits were not realised.”

The RRG says that the example of the UK’s efforts to attract ILS business, “illustrates the importance of parliamentary oversight in holding regulators to account,” and also highlights the importance of “questioning regulatory decisions that have negative economic consequences.”

It’s interesting to see the UK’s attempts to attract ILS business so clearly singled out for criticism here, it seems the think-tank behind the report finds it a good example of regulatory failings.

There have certainly been failings, and there continues to be a lack of general ILS activity that has used the UK’s regulatory regime for insurance-linked securities (ILS) so far.

But efforts continue to improve it, with the regulators seeking feedback from the industry last year, in order to try and increase use of the UK’s ILS regime.

Caroline Wagstaff, CEO of the London Market Group, said that she supports the RRG’s calls for reform.

“We are delighted to be supporting the efforts of the Regulatory Reform Group. We have been advocating strongly and consistently for greater accountability of regulators through our ongoing work on the Financial Services and Markets Bill. We believe that the Treasury should be setting out specific metrics to hold them accountable, that the regulators should be reporting consistently and that Parliament should be marking their homework.

“All of this feeds into the wider non-sectoral campaign being run by the parliamentary Regulatory Reform Group, and the report’s inclusion of a case study on the UK ILS market highlights what happens when rules and behaviours are not in sync,” Wagstaff said.

Also read:

PRA’s work on UK ILS market continues with consultation on ISPVs.

PRA to bring “flexibility & speed” to UK ILS, fast-track standard structures.

Regulators “inflexible culture” hindered UK ILS ambitions: Lords Committee.

PRA looks to evolve UK ILS regime, after challenging start: Sweeney.

ILS an example of UK regulations failing to support industry: LMG CEO.

UK’s PRA wants to improve ILS authorisation process and speed.

UK Gov committee approves plan to exempt ILS from Stamp Duty taxes.

UK needs “flourishing insurance securitisation market” – TheCityUK.