The Convergence of Regulation and Risk Management Peter Vipond – Director, Financial Regulation and Taxation

Financial Regulation is moving to a risk-based approach- converging with Supervision ICAS has been key to this approach in the UK. Solvency II will extend it to all European insurers. However: ICAS will change in the process and become more formalised Much of the current ICAS will move to pillar I.

ICAS When ICAS was introduced by the FSA two of the three key objectives related to risk management: To give firms an incentive to improve risk management generally. To reinforce the responsibility of senior management to manage the firm’s capital in line with its risks. Only the third objective relates to a traditional concern of prudential regulation: To help FSA achieve a complete and coherent view of the overall capital adequacy of the firm

SOLVENCY II Solvency II will introduce specific risk management requirements. Firms will be required to put in place appropriate risk management systems. Firms will also have to carry out an ‘Own Risk and Solvency Capital Assessment’ (ORSA). This will sit in pillar II

What does this mean for firms? Assessment of ‘risk appetite’. Need to have in place systems to assess, monitor and control risks- as part of a risk process, not a static return. Board ownership of ICAS/ORSA,as the FSA has put PPFMs under Board ownership Most importantly, need to embed ICAS/ORSA in the strategy and operations of the firm.