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The UK is urgent forward with plans to create a decision regime to cope with the failure of huge insurance coverage firms, saying the “swift and decisive” motion to rescue Silicon Valley Financial institution’s UK arm in March underlined the significance of such preparations.
The federal government mentioned on Wednesday that it might legislate “when parliamentary time permits” to offer the Financial institution of England new powers and suppleness to handle the demise of a giant insurer, mirroring the decision regime for banks, which was established in 2009.
Following a public session on the federal government’s plans, the Treasury mentioned the insurance coverage regime would supply the central financial institution with “powers to take immediate motion to stabilise and handle an insurer that’s failing or more likely to fail, topic to applicable safeguards”.
“Within the banking sector, the swift and decisive decision of Silicon Valley Financial institution UK . . . demonstrated how the UK’s current decision framework enhances UK monetary stability,” it added.
HSBC purchased the UK arm of the failed technology-focused lender in March for a symbolic £1 after last-minute talks led by Rishi Sunak and the BoE. The central financial institution is reviewing its decision regime for smaller banks after the collapse of the California-based Silicon Valley Financial institution.
The Treasury mentioned the proposed insurance coverage regime would search to protect continuity of insurance coverage cowl for policyholders, keep away from the “important worth destruction” for the sector of an insolvency course of, and assist public confidence in insurers.
The Affiliation of British Insurers welcomed how the federal government’s plans “concentrate on guaranteeing a level-playing subject” for insurers.
The business continues to be haunted by the failure of Equitable Life, which got here near collapse 20 years in the past, with policyholders dropping billions of kilos and the federal government paying greater than £1bn in compensation.
Just like the EU’s preparations, which had been introduced two years in the past, the UK plans for an insurance coverage decision regime enable for the writedown of buyer advantages, amongst different liabilities. Such proposals have been controversial with client teams.
However each the EU regime and the UK plans embrace a “no creditor worse off” safeguard, which means that no buyer ought to be worse off than they might be if the insurer had turn out to be bancrupt.
The UK plans additionally present top-up funds for these prospects who’re protected by the Monetary Companies Compensation Scheme, which gives redress when insurers fail in sure circumstances.
The Treasury mentioned that the general public session, issued in January, had obtained “close to unanimous assist” from respondents that the decision regime ought to align with worldwide requirements.
The federal government mentioned that Lloyd’s of London, the worldwide insurance coverage market place, wouldn’t fall throughout the scope of the regime.
It added that “dangers Lloyd’s may pose as a systemic market, reasonably than an insurance coverage agency or group” are mitigated by various decision preparations.