Being better informed: November 2017

October brought a raft of important regulatory developments, particularly in the prudential space, with key updates on Solvency II, group risk and internal MREL.

Starting with the banking sector, the PRA consulted on updates to its group risk policy on the distribution of financial resources in banking groups, and the calibration of requirements for individual group entities. The PRA plans to fully implement the policy changes from 1 January 2019, and expects firms to incorporate the changes in their 2018 ICAAP and ILAAP submissions before then. So banks should start to assess the possible impact of the proposals.

In another prudential development for banks, the BoE published a consultation on its updated approach to internal MREL and resolution. It proposes that internal MREL will cover both UK-headquartered banking groups and UK subsidiaries of overseas banking groups. Impacted firms should review how the BoE’s proposal would apply to their material subsidiaries and their plans for internal MREL.

Meanwhile the EBA issued an opinion on Brexit to provide guidance to firms considering restructuring their operations in response to Brexit. The EBA provides guidance on the authorisation of banks, the treatment of branches of UK banks in the EU, internal model approval, outsourcing arrangements and potential booking models, such as back-to-back booking, that many banks are exploring. The EBA strikes a pragmatic tone but calls for a tightening of the EU’s third country equivalence regime under MiFID II and for the ECB to be given supervisory powers over large investment firms.

The Government continues to scrutinise Solvency II. In its final report following an inquiry into the directive, the TC urged the PRA to reconsider its approach to Solvency II. The TC criticised both the directive itself and the way the PRA has implemented it. It wants the PRA to issue a strategy setting out what changes could be made to Solvency II, both now and post-Brexit, for the benefit of the insurance industry. The TC also called on the PRA to do more to promote competition. In response, the PRA proposed a series of improvements to the implementation of Solvency II, and committed to publishing a progress report by March 2018. Insurers should keep a close eye on developments in this space.

Insurance firms will also no doubt be preoccupied with the IDD. With the implementation date just three months away, in our feature article this month we analyse the latest developments from regulators and supervisors. We also consider what firms need to do to comply, and the steps they should be taking between now and February 2018 to prepare for the directive.

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Tessa Norman
Senior associate
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