In November, US and EU regulators will sit together on stage to discuss systemic risk management and the implementation of upcoming rules. But the conversation – at the annual gathering of the International Association of Insurance Supervisors (IAIS) – is likely to be awkward.
As Risk.net revealed earlier in October, US representatives on the Financial Stability Board (FSB) are refusing to endorse a 2017 list of global systemically important insurers (G-Siis). Meanwhile, at home, US regulators are crossing off insurers one by one from a list of domestic systemically important financial institutions (Sifis).
At the end of September, the US Financial Stability Oversight Council voted to rescind the designation of AIG as a systemically important firm. Prudential Financial is expected to be cut from the list before year-end, while MetLife shook off its designation through a district court ruling last year.
That leaves no legal mechanism by which US federal regulators could enforce G-Sii rules on these firms, even though they each remain on the current G-Sii list.
An imminent Treasury report is expected to argue against any non-bank Sifi designations, while many in the industry think the US rupture spells the end of entities-based insurance regulation at the global level. Some question whether global insurance regulation – beyond even the regulation of systemically risky firms – has much of a future.
Where does this leave the IAIS? The body has already been discussing the development of an alternative activities-based approach to assessing systemic risk, though completion is not due until 2019. But IAIS leaders have repeatedly insisted such an approach will run in parallel to G-Sii designations rather than replace them.
Risk.net understands Switzerland and Japan support the US’s blocking of the 2017 list, but other regulators, especially within the EU, want it renewed. It will therefore be difficult for European regulators to avoid either contradicting their past commitments to designation or their international colleagues when attempting to explain the current status of the G-Sii list.
We may well hear familiar noises from regulators about “ongoing discussions”. Suggestions that decisions on the status of G-Siis are being “delayed” or “postponed” might also be used to mask the facts as most already see them.
Attention may be diverted to how much work is being done on an activities-based approach, but the remaining G-Sii insurers will want clarity. The IAIS and FSB have already been heavily criticised for the opacity of the designation process. Offering contradictory or half-baked thoughts at this stage will only add to those feelings.
The industry would like the IAIS to offer direct answers to direct questions – admitting that regulators disagree greatly on the course of action and clarifying, perhaps, that G-Sii status is suspended for now.
As speakers at next month’s meeting rehearse their talking points, though, it seems doubtful such blunt responses will be in their plans.