The Treasury has announced a comprehensive package of reforms for the insurance sector that would enable UK-based firms to invest more in infrastructure projects.

Plans include an overhaul of Solvency II, the EU’s regulatory framework for the sector which the UK inherited post-Brexit.

Opportunity

Economic secretary to the Treasury John Glen told British insurers that “EU regulation doesn’t work for us anymore,” according to a report in the Guardian.

He added that there was an opportunity to grow the UK’s insurance sector, protect policyholders and make it easier to invest in the long-term.

£80bn investment

Tens of billions of pounds could be unleashed for the sector following the reforms, according to the Telegraph.

Legal & General and Phoenix Group have said they are ready to invest £80bn into “levelling up” and decarbonisation projects in the UK.

Consultation

Chancellor Rishi Sunak has also been reviewing Solvency II to determine whether its rules could be relaxed.

A consultation will be launched in April by the Treasury and the Bank of England’s Prudential Regulation Authority.

Former Brexit minister Lord Frost tweeted his approval, saying the plans were “pushing this Brexit opportunity forward”.

Brussels pushes ahead

Solvency II was introduced by the EU after the 2008 financial crisis, though Brussels is also looking at reforming the rules.

It has already published proposals that it claims could provide a capital boost of up to €90bn for Europe’s insurers to fund long-term investments.

The plan is currently being discussed among member states.

Banking reforms

The EU is also working on reforms to banking regulations via the finalisation of the Basel III framework.

The Bank of England is due to begin engagement on its own reforms in the second half of this year, with proposals not expected until 2023.

EU advantage

According to the FT, EU banks could soon be able to lend more cheaply to British businesses than their British competitors.

Changes to Basel III capital rules, ahead of the UK’s equivalent reforms, could allow EU banks to use less capital when they make loans to corporates without a credit rating, reducing their lending costs.

Big Bang 2.0

City AM reports that the next Queen’s speech will feature a post-Brexit overhaul of the UK’s financial services regulations.

The long-expected regulatory changes, which chancellor Rishi Sunak has called a ‘Big Bang 2.0’, could include proposals to change share-listing rules to make London a more attractive destination for tech start-ups to go public.

No 'boom and bust'

However, Reuters has reported warnings from the Bank of England that regulators must not bring back ‘boom and bust’ economic trends by chasing financial competitiveness post-Brexit.

Critics warn of a return to the ‘light touch’ regime that ended with taxpayers bailing out banks during the financial crisis.

The BOE has said it will add a formal objective for the central bank and the Financial Conduct Authority to support financial sector competitiveness and long-term economic growth, without damaging their ability to keep firms and markets safe.