In a comment piece published in The Times newspaper on Thursday,
Mark Carney said "integrity, honesty and skill" in senior managers
are not optional, whether they are in charge of insurers, investment
banks or building societies. (http://link.reuters.com/vaj59v)
Carney said the Bank of England wants senior managers of insurance
companies to be held accountable if things go wrong and
policyholders lose out.
"So alongside reforms that Parliament has asked us to make to hold
senior bankers to account, we will create a similar regime for
senior managers in the insurance industry," Carney said.
Carney did not detail what sanctions insurance executives could face
though new laws mean bankers found guilty of "reckless misconduct"
could face jail.
Carney also warned that although insurers escaped largely unscathed
from the meltdown in global credit markets seven years ago, they too
Britain shook up financial regulation in 2013, launching a new
watchdog operating from the Bank of England - the Prudential
Regulation Authority - with a remit to scrutinize banks and
The governor said the Bank would be "vigilant" about the flood of
new capital going into higher-risk investment vehicles, as record
low interest rates put pressure on insurers to consider higher-risk
investments to improve their returns.
Carney said the central bank is working with its European
counterpart to help to make it easier for insurers to provide more
funding to small, medium and large businesses and help to pay for
long-term infrastructure projects.
Despite stringent rules governing the amount of capital they should
hold, there is always the danger that an insurer will fail, Carney
A senior board member at a blue chip British insurance group said
the industry is benefiting from higher standards expected of it from
regulators in appointing senior executives and holding capital
against the risks they take.
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"The new way in which we are seeing regulators approach regulation
in the industry, giving more access to senior people, (taking) more
interest in the business model and the judgements some of the
companies are making... I believe we are seeing the benefit of
that," he said, on condition of anonymity because he is not
authorised to talk to the press.
A spokesman from industry body the Association of British Insurers
said: "We are very pleased (Carney) recognises the value of the
industry ... You would expect the Bank of England to keep a close
eye on an industry that is so fundamental to the UK economy and to
Britain's second financial watchdog, the Financial Conduct
Authority, said in March that it investigated whether people locked
into some 30 million pension and other savings plans sold by
insurance firms in the 30 years after 1970 are treated fairly
compared with new clients.
Shares in insurers including Aviva <AV.L>, Legal & General <LGEN.L>,
Prudential <PRU.L>, Resolution and Standard Life <SL.L> were hit on
speculation the FCA probe could lead to changes that affect the
profitability of the products.
(Reporting by Aashika Jain; Additional reporting by Chris Vellacott;
Editing by Lisa Shumaker/Ruth Pitchford)
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