Paul Fisher: Regulation and the future of the insurance industry Speech by Mr Paul Fisher, Executive Director for Insurance Supervision of the Bank of England and Deputy Head of the Prudential Regulation Authority (PRA), at the Westminster Business Forum conference, London, 22 January 2015. *  *  *  Introduction Thank you for inviting me to speak to you today. First, I would like to introduce myself. I have been both an academic and a long-term central banker, working across the Bank of England in various roles including as a specialist economist, private secretary (to Eddie George), Head of Foreign Exchange and then Markets Director. I have been on the MPC and the interim FPC. In 2014 I took on the role of Deputy Head of the Prudential Regulation Authority and I attend the PRA Board. Since mid-2014 I have also been covering as Executive Director of Insurance. In taking on this role temporarily, I have promised to maintain a regular and open dialogue with the industry; enable the delivery of Solvency II; and embed insurance supervision as part of the Bank of England. I welcome the opportunity to discuss today’s topics and the role regulation will play. However, I would also like to acknowledge some of the broader challenges facing the insurance industry.
For CCPs the task of assessing an insolvency counterfactual is likely to be harder still – particularly if it must rely upon a forecast of how the rest of the waterfall would have unfolded, the behaviour of the CCP’s participants and the movements of the markets in the days that would have followed if resolution had not taken place. A liquidation counterfactual must also confront the argument that the CCP would have protected itself from insolvency through full tear-up. Given these valuation challenges, I suspect there will need to be careful further consideration given to the formulation and practical application of the NCWO safeguard; we must end up with a safeguard that is sufficiently certain and capable of estimation in advance that both creditors and resolution authorities are able to make sensible decisions before, during and after resolution. With that, let me conclude by summing up some key points: •  CCP resolution is both a necessary and inevitable part of the overall post-crisis reform agenda to end Too Big to Fail. As private, profit-making enterprises CCPs must be allowed to fail, but, given their systemic importance, many will need to be allowed to do so in a manner that maintains the continuity of their critical functions. •  Having a credible resolution regime for Clearing Members is a big step forward in helping to reduce the risk of clearing member default and from that the risk of CCP failure.