Watchdog sets rules for banks and insurers

Tim Wallace
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MAJOR banks may have to reorganise their operations if they are too complicated for regulators to easily calculate their risks, under new guidelines published last night by the Financial Services Authority.

A separate document said the Prudential Regulation Authority (PRA) is willing to let insurers fail under its watch.

The PRA, which will be part of the Bank of England, wants to force banks to simplify their structures to allow it to get a better grasp of how the lenders are run.

The PRA will also force banks to operate within the spirit of its regulations, rather than the exact letter of the rules.

The second document on insurers said: “Contributing to an appropriate degree of policyholder protection and promoting resilience against failure does not mean protecting all policyholders in full in all circumstances.

“The statute is explicit that it will not be the PRA’s role to ensure that no insurer fails,” it goes on, saying that since insurers are not as systemically important as banks, and since they typically do not “undertake maturity transformation” – borrow short and buy long – they are not as vulnerable as banks can be. But the PRA will step in to maintain critical financial services.