The ‘back to the future’ proposal of merging the FCA, PRA and PSR is still a possibility, says global head of financial regulation

The insurance industry has welcomed Liz Truss being named the UK’s new Tory party leader and prime minister, which was announced yesterday at midday (5 September 2022).

Graeme T and Steve W Biba with Liz Truss

L-R: Biba’s Steve White, Liz Truss and Graeme Trudgill

Tory Party Conference 2017 

As reported by BBC News, Truss gained 81,326 of the votes to beat opponent Rishi Sunak who also ran for the position – he gained 60,399 votes.

In her acceptance speech, Truss said: “It’s an honour to be elected as the leader of the Conservative and Unionist party. I would like to pay tribute to my fellow candidates, particularly Sunak. It’s been a hard-fought campaign – I think we have shown the depth and breadth of talent in our party.

“I know that our beliefs resonate with the British people – our beliefs in freedom, in the ability to control your own life, in low taxes, in personal responsibility – and I know that is why people voted for us in such numbers in 2019. As party leader I intend to deliver what we promised those voters right across our country.”

Truss promised to deliver a plan to cut taxes, reduce energy bills and grow the UK’s economy.

She added: “I also want to thank our outgoing leader – my friend – Boris Johnson. You got Brexit done, you crushed Jeremy Corbyn, you rolled out the [Covid] vaccine and you stood up to Vladimir Putin. You are admired from Kiev to Carlisle.”

Johnson resigned as Tory party leader on 7 July 2002 and announced he was stepping down as prime minister, but is rumoured to be running again in the next general election, according to Lord Marland’s comments on BBC Newsnight.

Johnson gave his resignation speech outside 10 Downing Street at 07:30 this morning (06 September 2022). 

He said: ”I am now like one of those booster rockets that has fulfilled its function and I will now be gently re-entering the atmosphere and splashing down invisibly in some remote corner of the Pacific.

”Like Cincinnatus, I am returning to my plough and I will be offering this government nothing but my fervent support. Thank you to the British people for giving me the chance to serve. I will be supporting Truss and the new government every step of the way.”

Graeme Trudgill, Biba’s executive director, told Insurance Times: “One of Biba’s key functions is to represent our members’ interests at the highest level and as such it is important for us to develop and maintain relationships with decision makers.

“We wait with interest to see our new prime minister’s ministerial appointments and to working with them and their teams as necessary.”

The next general election is currently planned to take place in 2024.

Back to the future moment

There have been rumours circulating around the possibility of Truss merging the FCA, PRA and the Payment Systems Regulator (PSR).

Jonathan Herbst, global head of financial services regulation at Norton Rose Fulbright, said: “We have heard talk of the UK potentially returning to a single [financial] regulator – whether this ‘back to the future’ moment occurs remains to be seen.”

Currently the FCA and PRA are two separate entities, although they collaborate on certain issues.

The FCA works with insurance firms to ensure fair outcomes for consumers, whereas the PRA is responsible for the prudential regulation of financial services firms and supervision of banks.

Insurance Times contacted the FCA for comment, but the regulator declined.

Branko Bjelobaba, principal at compliance consultancy Branko, said: ”Truss and her team will need to ensure that unnecessary EU regulations are swept away and that the FCA steps up and provides the fullest consumer protection it can.  

”We waited with bated breath for the report on multi-occupancy insurances and I wonder if this could be the next PPI (payment protection insurance) scandal – how people have been made to pay for insurances that they have no control of and why so many have fed themselves greedily at the trough is beyond me.

”Bold action will be needed and Consumer Duty should ensure that products just do what they are supposed to do – [this is] not asking much.”

Trade body Insurtech UK said it was looking forward to working with the new Truss administration and continuing what it called a “good relationship” with government.

Insurtech UK’s co-chairs Luisa Barile and James York said: “We hope this good relationship continues with the new government and we find more opportunities to work together and support our vibrant sector. 

“Key policy areas include increasing accessibility to funding, reforming the PRA regulatory regime to encourage new capacity providers and reviewing the VAT regime for insurtechs. These are essential to enhancing the regulatory environment both for our members who want to expand both domestically and and overseas, as well as cementing the UK as a global leader for the sector.”

The pair explained that over the last few years Insurtech UK have had the opportunity to work closely with government on a number of successful initiatives, including the launch of the UK-US Corridor and the recent announcement of Innovate UK funding.

New powers

Herbst said that the new prime minister arrives at an important moment for the City of London – with the Financial Services Bill (FSB) soon entering its second reading in parliament – given that the UK has made little progress towards concluding equivalence agreements with the European Union (EU).

The FSB aims to give the UK more opportunities post-Brexit to generate competitiveness for its financial services sector.

Herbst added: “The bill is key for the new prime minister, as it gives the UK’s financial services regulators powers to reform EU legislation. Also, the government and parliament are given new powers to ‘call-in’ new regulatory proposals and intervene if in the public interest.”

He explained that the bill was prepared on Rishi Sunak’s watch at HM Treasury and the new government under Truss may look to make changes, or indeed scrap it altogether.

“It could also push the bill through parliament in its current state but then use the new call-in power to push for a much wider range of reforms,” Herbst added.

“Obviously, the input of the new financial secretary to HM Treasury will be key here and there is also the issue of managing the expectations of those in the Conservative party who have been critical that City reform hasn’t been fast enough nor wide enough.”

Possible IPT hikes 

Daniel Lloyd-John, Broadway Insurance Brokers chief executive, said Truss needed to offer “clarity and action” on priorities for the insurance industry and policyholders.

He explained: “There have been suggestions, for instance, that the Insurance Premium Tax might increase from 12% to 20%. Whilst it might generate additional income for the Treasury, I don’t think that it needs to rise.

“If it did – and given other financial pressures on households at the moment – it might force organisations and individuals to weigh up whether they can actually afford insurance at all and that would certainly not be a positive development.

“A new government needs to show a lead in helping address the issues which are impacting on insurers, brokers and their clients.”

Lloyd-John added that cyber attacks and climate change are resulting in more claims currently.

He said: “If ministers are able to tackle the underlying causes of both those things – improving security and protecting the environment – then that might mitigate the volume of related claims in the future.

“Insurance can help undo the impacts of the challenges that we face but it should only be one very vital part of a much larger infrastructure, which includes what is said and done by politicians of all persuasions in Westminster.”

Civil justice under pressure

Anthony Hughes, chairman and chief executive of the Credit Hire Association (CHO), said: “Civil justice is under huge pressure from chronic under-investment during the past decade, as well as the impact of the pandemic.

“We hope that the justice secretary will have the ear of number 10 and the opportunity to improve our courts, in particular reducing delays in getting cases heard. Access to justice for our member companies and their customers is essential to the proper functioning of our industry.”

In 2017, Truss became the first female lord chancellor and justice secretary when she replaced Michael Gove.

On a similar note, Matthew Maxwell Scott, executive director of the Association of Consumer Support Organisations (ACSO), said: “We must hope that the new prime minister’s experience as lord chancellor, however brief, will mean civil justice is higher up the agenda than it was with her predecessors.

“It looks almost certain that there will be a new justice secretary and whoever it is will have a crowded in-tray. We look forward to working with the new government to identify ways in which we can achieve better consumer outcomes.”

Although Maxwell Scott believes that attention will understandably focus on the Criminal Bar Association’s strike action – the situation is challenging right across the justice system.

“Record court delays, challenging fixed costs deadlines and a struggling OIC [Online Injury Claims] portal for minor injury claims all mean that urgent remedial action is required if access to justice is not to be denied as well as delayed,” he added.