Keeping an eye on things
BEIS published its long awaited consultation “Restoring trust in audit and
corporate governance” yesterday. UK Shareholders’ Association will be responding in due course.
However, the consultation is not just about audit and corporate governance. Chapter 11 (section 2) of the consultation is all about oversight and regulation of the actuarial profession.
Continue reading “Restoring trust in the actuarial profession”
Andrew Bailey is VERY VERY ANGRY. The London Capital and Finance collapse wasn’t his fault so don’t blame him!
Bailey acknowledged that a key problem had been a failure to act on phone calls to the FCA’s call centre raising concerns about LCF. But he said this was an operational flaw he inherited [in 2016] when taking up the CEO role. “The contact centre in my time was receiving 200,000 calls a year and there was no system for extracting information from those 200,000 calls . . . the red flags were buried in those 200,000 calls.”
Do pension buy-outs carry needless credit risks? I think they do but Catherine Hopper, unconflicted partner at LCP, thinks not.
Continue reading “Do pension buy-outs carry needless credit risks?”
Sorry to have been quiet recently. The reason is a number of projects which are under confidentiality restraints. Much as we dislike the whole concept of ‘confidentiality’, i.e. secrecy, it is the price for being involved at all.
However this call for evidence from HMT is too good to ignore. As InsuranceERM reports:
Matching adjustment
The matching adjustment (MA) is a vital contributor to a strong Solvency II capital position among UK life insurers, adding close to £70bn of capital to solvency balance sheets.
It is, however, very restrictive in terms of the types of liabilities and assets that qualify – and the UK is looking at the possibility of loosening that. The MA also requires the regulator to operate a strict approval process, which the government is also seeking to ease.
The restrictive rules have produced unintended consequences, the UK says. For example, the PRA has allowed firms to restructure, via securitisation, assets such as equity-release mortgages that would not otherwise qualify for MA inclusion. However, the regulator dislikes the additional complexity this introduces, and the fact that it is costly and is a barrier to its use by smaller firms.
You couldn’t make it up.
From the Penrose report following the Equitable Life disaster, 2004.
Sanctions against Deloitte and two audit partners in relation to Autonomy Corporation Plc
The Financial Reporting Council (FRC) today announces sanctions against Deloitte and former partners, Richard Knights and Nigel Mercer, following an investigation in relation to the audit of the published financial reporting of Autonomy Corporation Plc (Autonomy) for periods between January 2009 and June 2011 (the Autonomy Audits). An independent Disciplinary Tribunal made findings of Misconduct following a seven-week hearing during October and November 2019 and sanctions were determined following a hearing in July 2020.
Sanctions
- Deloitte has been fined £15 million, severely reprimanded and has agreed to provide a Root Cause Analysis of the reasons for the Misconduct, why the firm’s processes and controls did not prevent the Misconduct and whether the firm’s current processes would lead to a different outcome.
- Richard Knights has been excluded from membership of the Institute of Chartered Accountants for England and Wales for five years and has been fined £500,000.
- Nigel Mercer has been fined £250,000 and received a severe reprimand.
Dan McCrum of the FT has a further piece here about how various agents, including the German regulators, tried to stifle his investigation of Wirecard. The article is behind a paywall, but is summarised almost verbatim by Tyler Durden at Zerohedge here.
Many of the issues have already been picked up in mainstream media, but there are two that deserve more comment.
The National Bank of Belgium (NBB) has asked re/insurers not to pay dividends until at least 1 January 2021. The decision came after the European Central Bank extended its recommendation on 28 July for banks not to pay dividends until January 2021.
The Treasury Committee made the fatal mistake in their June letter of asking Andrew Bailey how the PRA it can determine that bond spread widening is the effect of illiquidity not anticipated defaults. NEVER ask a regulator how or why it has determined something, for then it will tell you in a way that means nothing.
Another great piece on insurance accounting from the Eye this week. As we always say, support great investigative journalism and buy a copy, but the crux of the article is our longstanding claim that the potential costs of no-negative-equity guarantees have been drastically understated.
Apparently there have been complaints about this since October 2018 to the Financial Reporting Council (FRC), the accounting regulator. After nearly two years, ‘the dozy regulator’ has finally addressed the point, concluding that “the guarantees should be valued at what they would sell for in the market, and since most equity release providers who might buy them (they wouldn’t, in reality) all value them in the same way, there’s no problem!”.
The FRC did not ask shareholders or policyholders what value they might place on these products, of course.
“If and when the final reckoning comes for the life insurance companies, as it did for Equitable Life 20 years ago, it might well be the bean-counting that does for them.”
We shall see.