In our view a package which did not tackle the issues we have identified with the Matching Adjustment would be seriously unbalanced. It would simply remove bits of regulation that insurers don’t like without taking proper account of risks to policyholders, and would not provide a solid basis for investment. I worry that some might consider such a thing to be a free lunch, but in fact less capital, fewer checks and fewer restrictions on assets, with no steps to strengthen the part of the regime where that is needed, means more risk for pensioners and other policyholders. In our view leaving the EU should not lead us to lower standards of financial regulation in the UK. We should change regulations to work better for the UK, including by stripping away unnecessary bureaucracy we have inherited from the EU and taking steps to support investment,  Page 11  competitiveness and long-term growth. But changing prudential regulations in the UK should not be simply a one-way street, particularly where that would mean weakening protections for business which serves groups such as pensioners. There are areas where the regulation we have inherited from the EU is too strong for UK, and others where it is too weak. We should be willing to make changes in both directions where the evidence supports it. Industry will of course have strong views on any changes – we should attach significant weight to these and be willing to adapt our thinking in light of evidence provided.
We’re listening to the reasons for that reaction, will continue to engage and look forward to responses to the  Page 10  consultation, in order to make sure we fully understand the concerns being raised. It is important that whatever decisions are taken on this topic are taken based on the latest data and I would urge insurers to participate constructively in our evidence gathering. We understand the pressures on firms and are being as flexible as possible to enable firms to respond to our request. More broadly, we would welcome any ideas and suggestions for how the issues we have identified can be tackled. We have laid out one model, but it may well be the case that this could be improved upon or that there are other ways of achieving our objectives. We think it’s essential that we tackle the problems we have identified with the current regime, but we have an open mind as to how this is done as long as it is done credibly. I am also hearing some insurers say that they would prefer simply to stick with the EU’s version of Solvency II as it evolves. To be honest I think this is a red herring. The government has been clear that the point of leaving the EU, at least insofar as financial regulation goes, is to enable us to tailor our regime to make it work better for the UK.