We are focused, given our prudential remit as laid out in our statutory objectives, on the most material risks within firms, spending most time on those that pose the greatest risk to the stability of the UK financial system and the protection of policyholders. In the period since 2008, we have been steadily implementing the post-crisis reforms, both in banking and insurance. This has been a busy time but it is clear to me that this period is now drawing to a close, with the major remaining implementation tasks now narrowed to ring-fencing and bail-in debt. Instead of designing and implementing reforms, the job of supervisors becomes one of guarding them and holding the line. We are living through a vital moment in supervision and today I’d like to talk about three live challenges in turn: Brexit, an uptick in risk appetite and regulatory arbitrage. Brexit  A year ago, the UK voted to leave the EU. Although the negotiation is still in its early stages, changes to the trading relationship between the UK and the EU may require firms to alter their operations and the services they provide. Now that the Government has triggered Article 50, we expect firms with cross-border activities between the UK and the rest of the EU to undertake appropriate contingency planning for the UK’s withdrawal from the EU. I want to make clear that whilst the UK’s withdrawal from the EU will change many things, it does not change the PRA’s statutory objectives.
The statute’s definition of non-financial resources specifically mentions human resources – that will likely include many of you here today – and we have reflected this emphasis in our Senior Managers Regime to give specific responsibilities to key individuals in firms for the implementation of the prudential framework. Whilst we, as supervisors, may identify issues that warrant further investigation, we will not spot everything. Ultimately, it remains the responsibility of senior managers and Boards of Directors to identify and mitigate the risk that firms are not complying with the spirit of the regulation. Indeed, we hold industry to account for its compliance with the Fundamental Rules and Senior (Insurance) Managers Regime, just as much as we hold it to account for its compliance with the detail of our regulations. Solvency II contract boundary. Turning to an insurance example, Solvency II has introduced some changes to the way insurance companies calculate the reserves for their insurance products. In particular, the rules defining the ‘boundary’ of an insurance contract means that firms cannot recognise future premiums on 49 50  Individual Capital Adequacy Assessment 2.1 and Individual Liquidity Adequacy Assessment 2.1 Financial Services and Markets Act 2000, http://www.legislation.gov.uk/uksi/2013/555/article/2/made 22  All speeches are available online at www.bankofengland.co.uk/speeches  22  unit-linked savings policies that do not include any insurance cover or financial guarantee of benefits.