Turner Review Published

The Financial Services Authority has this month published the

Turner review, which reports on and makes recommendations for

reforming both UK and international approaches to financial

regulation in order to create a more robust banking system.

A link to the report is: www.fsa.gov.uk/pubs/other/turner_review.

pdf

The review states that the most fundamental changes required are

those relating to capital adequacy, accounting and liquidity

policies and there are also changes recommended in the regulation

of governance and risk management. Of particular interest may be

the FSA's comments on procyclicality (in particular their

reference to rating-based triggers and collateral requirements) and

their comments on the quality of bank capital.

This review does not have direct application to the insurance

market. The FSA's 2009 Financial Risk Outlook (http://www.fsa.

gov.uk/pubs/plan/financial_risk_outlook_2009.pdf) states

that:

"We do not believe ...that the crisis has raised any

doubts about the overall appropriateness of our capital adequacy

regime for insurance companies, following its significant revisions

in 2002 to 2004 (although we are keeping under review the

possibility that there are further lessons to be

learned)."

However, capital adequacy aside, the Turner review notes, at

page 91, "The arguments for combining responsibility for the

prudential regulation and supervision of all financial market

sectors, e.g. banking and insurance, are very strong, with no

apparent counterarguments..." hinting that this will have some

impact on insurance regulation in the future. Further, the FSA have

simultaneously with the report published a discussion paper (www.fsa.gov.uk/pubs/discussion/dp09_02.pdf)

which, at chapter 13, considers possible...