Category: regulation

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Even German regulators are useless

Source: Mercedes Benz

An excellent piece here on the uselessness of regulation generally. The Wirecard affair has brought out a rash of articles about how German regulation has failed, as though regulation in other countries might be better.

Wrong.

 If anybody can make regulation work Germans, precise, efficient, un-corrupt and indomitable can do so.So, the problem must be, not that German regulators are inept, but that regulation as a whole cannot catch fraud. As 2008 proved, it cannot catch sophisticated cutting-edge scams, either. So wouldn’t we be better off without it?

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Superfunds

There were a few reports out over the weekend, e.g. here, about the The Pensions Regulator’s new interim guidance on superfunds.

The sheer lack of detail here is breathtaking. No formula,  no apparent regime for internal model approval, no regulatory returns.  Of course, they will “need to be comfortable that the investment and risk models superfunds intend to use are appropriate, robust and capable of accurately measuring and monitoring risks that the scheme is exposed to”, but no further details given yet.

The requirement to demonstrate “expected returns for various asset classes, attributable to the scheme and in the capital buffer” is ominous, but what else did you expect?

 

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Watchdog confirms it is looking into ERMs

In This is money today.

Homeowners told to take equity release could have been given the wrong advice it has emerged, as the City watchdog confirmed it is looking at mortgage lending practices in the later life market.  This is Money can reveal exclusively that the Financial Conduct Authority has been engaging with firms to help it better understand the market to reduce any potential harms.

Hard to say whether the review is connected with the issues we have raised here and elsewhere, though.

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Single point of failure

Wikipedia: “A single point of failure is a part of a system that, if it fails, will stop the entire system from working”. Right. You try to avoid this in any decent system, building in redundancy at every critical point. The classic example is a chain, where any single link is a single point of failure. You can build in redundancy by, e.g., adding a second chain. So long as each chain on its own can support the weight, nothing bad will happen if one chain breaks (bad luck if both break, though).

Something like that principle of redundancy was meant to be part of the life insurance Part VII regime. You have the PRA which approves the default model of the insurer. The FCA is meant to look at the same thing from the point of view of the policyholder (the PRA being a prudential regulator, as I pointed out to the court here, see page 5). The Independent Expert provides further assurance with his/her ‘independent’ report.  Finally, the court itself forms a judgment.

However, that principle seems to have been disastrously weakened in the light of the recent judgment by Justice Zacaroli.

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Matching adjustment on trial

This Friday I will be attending the Second Court Hearing on the Part VII proposal to transfer the long-term business of Equitable Life of Equitable Life Assurance Society, of which I am a policyholder, to Utmost Life and Pensions Limited.

I will be arguing that the Part VII transfer be blocked on the grounds that Utmost is financially much weaker than ELAS, because ULP’s balance sheet is propped up by £97m in non-existent capital created by an unsound practice called Matching adjustment.

If you are a regular reader you will be familiar with many of the arguments I will give, but the hearing is public so you may be interested in hearing them afresh, and seeing how the Court deals with them.

The hearing is on Friday 22 November 2019 at the Royal Courts of Justice, 7 Rolls Buildings, Fetter Lane, London, EC4A 1NL. Anyone is entitled to attend. The room location will be published on Thursday 21st.