The UK Government has unveiled plans to formulate new regulations to prevent the collapse of large insurance companies from affecting the financial system.
After the taxpayers bore the cost of the global financial crisis more than ten years ago, financial regulators across the world have already put in place rules to cope with failing banks.
However, there exist no such regulations in the UK to handle failures in the insurance sector.
The UK Finance Ministry said that the quick and decisive resolution of Silicon Valley Bank UK (SVB UK) in the banking industry proved how the country’s current resolution mechanism improves financial stability.
As a result, it solicited public views on a similar framework for insurance companies to ward off any such problem in the insurance industry.
The government received 13 written responses to the consultation on the proposed insurer resolution regime (IRR) in the UK.
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In its press statement, HM Treasury said: “Overall, respondents were supportive of the proposed introduction of the UK resolution regime for insurers and were broadly in agreement with the proposed framework, noting support for the introduction of a regime aligned to international standards and guidance.”
It added that the UK Government plans to bring new legislation when Parliamentary time allows.
The government noted: “The introduction of an insurer resolution regime would also ensure the UK remains at the forefront of international standards.”
It added that the new regulations should also apply to UK divisions of foreign insurance companies such as those from Gibraltar.
The UK also considered bringing the Lloyd’s of London insurance market under the new rules but turned it down since the market is already under specially tailored winding-up regulations, according to Reuters.
The UK is also drafting special rules for simplifying capital needs for insurance companies in a bid to boost investment in the economy, the news agency reported.
The EU is currently finalising its similar set of regulations for dealing with the failures of insurance firms.