Regulatory update

This quarterly regulatory update covers major new regulatory requirements and substantial developments that affect the investment management industry.

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European parliament approves ‘Solvency II’

On 22 April 2009, the European parliament voted overwhelmingly in favour of a framework to improve the financial stability of the insurance industry.The legislation will lead to the introduction of more stringent solvency requirements, which will better reflect the risks that insurance and reinsurance companies face in the course of their business. There is to be more transparent and better-defined relationship between the Solvency Capital Requirement (SCR) and the Minimum Capital Requirement (MCR).

An aim of this legislation is to move to a more pro-active supervisory regime that will look more closely at the risk management regimes used by individual insurance companies. In addition a revised method of supervision by supervisory colleges was approved which will facilitate the exchange of information between supervisory authorities and this would also provide insurance companies with savings on their compliance costs.

The directive must be transposed by member states by 31 October 2012. Insurance companies can now prepare themselves for the new supervisory regime. A summary of the approved legislation can be found at www.europarl.europa.eu.

IASB April board meeting

The International Accounting Standards Board is shortly expected to issue its exposure draft on fair value measurement. It may include additional disclosure for interim reporting.

Its April meeting discussed several other key issues such as management commentary, earnings per share and post employment benefits about which exposure drafts are expected in due course. More information at www.iasb.org.

NCOIL proposed CDS legislation

In a letter dated 22 May 2009, the Securities Industry and Financial Markets Association (SIFMA) and the International Swaps and Derivatives Association (ISDA) voiced their concerns over model legislation to govern credit default swaps, proposed by the task force on Credit Default Swaps regulation of the National Conference of Insurance Legislators (NCOIL). The letter may be viewed at www.isda.org.

SEC personnel securities trading proposals

The US Securities and Exchange Commission has set out proposals to tighten its internal compliance governing securities trading by its staff. Chairman Mary Schapiro outlined the proposals in its news digest on 22 May 2009 saying, “it only makes sense that we have a world-class compliance program – just as we expect from those we regulate… These measures will further bolster our standing by helping to prevent not only an actual impropriety, but the appearance of one as well.” More information at www.sec.gov/news/digest.shtml.