BofE warns insurers on shadow banking
19 March 2012 London
Image: Shutterstock
Creating a trade repository for recording transactions would ensure insurers do not act like shadow banks, said BofE鈥檚 Paul Tucker.
Tucker, who acts as deputy governor for financial stability at the Bank of England, said there was a possibility of insurance firms building high-risk, in-house shadow banks through their securities lending businesses.
The BoE will become the main regulator for insurers like Aviva and Prudential from 2013 after the scrapping of the FSA, and looks to restructure the industry at an international level.
The FSA has already issued guidance on containing risks in these "liquidity swaps" but Tucker said this will not be sufficient.
"Internationally, the authorities are going to have to go further, putting some structure around these markets," said Tucker in a speech to officials in the insurance industry.
"One issue is transparency. Maybe we should at least contemplate introducing a trade repository. If we are moving towards greater transparency in derivative markets, why not do so in a core financing market."
Tucker also added that the BoE was 鈥榙ismayed鈥� by the costs insurers face in the wake of Solvency II, saying: "We are also concerned that ... it risks being too complicated in its desire to introduce a 鈥榬isk sensitive' regime."
Tucker, who acts as deputy governor for financial stability at the Bank of England, said there was a possibility of insurance firms building high-risk, in-house shadow banks through their securities lending businesses.
The BoE will become the main regulator for insurers like Aviva and Prudential from 2013 after the scrapping of the FSA, and looks to restructure the industry at an international level.
The FSA has already issued guidance on containing risks in these "liquidity swaps" but Tucker said this will not be sufficient.
"Internationally, the authorities are going to have to go further, putting some structure around these markets," said Tucker in a speech to officials in the insurance industry.
"One issue is transparency. Maybe we should at least contemplate introducing a trade repository. If we are moving towards greater transparency in derivative markets, why not do so in a core financing market."
Tucker also added that the BoE was 鈥榙ismayed鈥� by the costs insurers face in the wake of Solvency II, saying: "We are also concerned that ... it risks being too complicated in its desire to introduce a 鈥榬isk sensitive' regime."
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