A constantly evolving international regulatory environment, combined with the current economic climate, has generated common challenges for regulators worldwide, says Craig Swan.
Responses to the systemic challenges facing ﬁ nancial regulators involve striking a balance between having a framework that is consistent with international standards, while at the same time being appropriate for the home jurisdiction. Additionally there are the perennial issues faced by all ﬁ nancial services centres, including increased competition from overseas; ﬁ nding new markets; and managing through downturns in market cycles.
From a prudential perspective, regulators must appropriately respond to challenges facing the industry such as the persistent low interest rate environment and its implications for re/insurer underwriting discipline, model limitations in terms of risk aggregation (with signiﬁ cant lessons having arisen from the New Zealand earthquake and Thailand ﬂ oods in 2011) and associated risks arising from re/ insurers’ need to tap emerging markets as a source of growth.
From Bermuda’s perspective, we are also in the unique position of servicing all areas of the insurance market—insurance, reinsurance and captives. From a regulatory perspective, this means that we have to ensure the Bermuda Monetary Authority (BMA) remains effective, and correctly balances workable, risk-based supervisory regimes with international expectations, while also ensuring that any changes are appropriate to the variety of ﬁ rms within our market that may be affected.
"To be differentiated as a regulator, active international engagement is increasingly important and, in today's environment, this trend is likely to continue."
Another key area that requires constant attention is leading discussions and ensuring ongoing dialogue with other supervisors. Due to the large number of global companies that have been operating from Bermuda for decades, supervisory cooperation—with the US, UK and Europe, among others—has long been a key strategy of our regulatory approach. The BMA was a founding member of the International Association of Insurance Supervisors (IAIS) and currently is chair of the IAIS’s macroprudential policy and surveillance working group.
To be differentiated as a regulator, active international engagement is increasingly important and, in today’s environment, this trend is likely to continue. Engagement has also allowed us to engineer Bermuda’s framework so it remains world-class and can be regarded as equivalent by key jurisdictions.
Regulators must remain fully engaged internationally, in terms of supervisory cooperation; they also need to contribute to regulation at the global level. If they choose not to, they will simply be reacting to, or neglecting, developments after they occur, as opposed to contributing to and anticipating changes before they happen.
Authorities such as the Financial Stability Board and the G20 have charged all regulators with developing an effective response to risks relating to a growing volume of complex cross-border and interconnected transactions. How jurisdictions embrace this change and adapt to it in terms of their regulatory frameworks and engagement level will become crucial to how they are evaluated with respect to credibility, quality regulation and effectiveness on the global stage—by quality businesses, rating agencies, investors and fellow supervisors.
Craig Swan is director of insurance supervision at the BMA. For more information, visit www.bma.bm
Bermuda, BMA, regulation