Last week Theresa May made the United Kingdom’s impending departure from the EU official. That is unfortunate as Europe needs the United Kingdom and the United Kingdom needs Europe. One has to look no further than Lloyd`s of London to see evidence of that: the world’s largest insurance exchange wants to set up a second office in Brussels as it fears exclusion from the mainland European market post-Brexit, if it operates solely from its London location.
Less bureaucracy, more efficiency for EU financial supervision
The United Kingdom is nonetheless still in the EU and that entails certain obligations for the British and their Prime Minister. We need to make sure these obligations don’t just fall by the wayside during the exit negotiations. The first priority is to establish clear operating conditions as a matter of urgency, including for financial supervision. Brexit presents us with an opportunity to reassess our position. We need to aim for reduced bureaucracy and increased efficiency. There are already calls in some quarters to merge the European Banking Authority (EBA) in London with the EU insurance supervisory body EIOPA in Frankfurt. The European Securities and Markets Authority (ESMA) is not currently attracting the same attention as it is located in Paris.
Proprietary insurance expertise is a must for the supervisory authority
It’s not really an issue to us in the insurance sector whether previously separate authorities merge or not. Although Bafin (the German financial supervisory authority) does show how banking, securities and insurance supervision can be consolidated into one entity. What insurers need is a European financial market supervisory authority with proprietary expertise in insurance.
I say we should avoid the emergence of a regulatory mishmash for the EU financial markets. Insurers’ business models are fundamentally different to those of other financial services providers. That’s why we have our own supervisory system known as Solvency II. Closer integration between the three European financial market supervisory bodies doesn’t contradict that. Insurance supervision could operate as an independent entity under the same roof as general financial supervision; Germany’s Bafin shows how this can work.
We insurers say no to the “twin peaks” approach
Given my position, you can imagine my thoughts on the “twin peaks” approach advocated in some quarters, whereby prudential regulation is conducted separately to the supervision of market conduct and consumer protection. That would lead to two authorities each monitoring the entire financial market from their own angle. We insurers reject this approach as it equates to a dual supervisory system inevitably leading to an unworkable harmonisation bureaucracy. Our overriding priority is to ensure the protection of the insurance collective as it lies at the heart of our business model. When making decisions in favour of individuals or small groups, we must always be mindful of how they affect the broader collective. That would be impossible with a strict separation of the supervisory function between the company, on the one hand, and the market on the other.
Consider the different characteristics of banking, insurance and securities markets
The displacement of EBA following Brexit does not in itself justify such a fundamental restructuring of the European supervisory system. The European three-pillar model has proved its worth: it ensures that the different characteristics of the banking, insurance and securities markets receive adequate attention and that the supervisory authorities have the requisite expertise.
Jörg von Fürstenwerth