10 February 2010
Published in: Risk governance, Regulation - supervision
UK insurers face extra governance test
The UK Financial Services Authority's (FSA's) proposals to reform governance for financial services will be counterproductive for insurers, according to city law firm Reynolds Porter Chamberlain (RPC). The reforms should be delayed for insurers so the sector does not have to go through two major changes to corporate governance rules in two years, it argues.
RPC said the proposed changes set out in last month's consultation paper published by the FSA, Effective corporate governance, overlap with Solvency II. The FSA wants to impose its new rules at the end of 2010 - before Solvency II governance details have been finalized - therefore requiring two major overhauls by 2012. This would be "an unnecessary, expensive and distracting burden for insurers," Jonathan Davies, partner at RPC, commented.
"The timing of the FSA's proposals is counterproductive because it is when corporate governance and control systems are being changed that mistakes are most likely to be made," Davies continued. "By making insurers implement two separate sets of changes within a short space of time they will actually increase the risk of governance failures."
The proposals in the consultation paper implement the FSA-specific recommendations in Sir David Walker's review of corporate governance published in November last year. The paper encourages companies to establish board risk committees and appoint top executives as chief risk officers -- although there is no mention of Solvency II despite the overlap in requirements. Originally intended just for banks, the Walker review has since been extended to insurance companies.
Davies added: "The FSA should be conducting a cost-benefit analysis of how this will impact insurers before proposing to gold-plate a major piece of European regulation, rather than rushing through their own changes first."