Regulator ‘surprised’ at poor resources for supervising financial institutions

FINANCIAL Regulator, Matthew Elderfield, has expressed surprise at the poor resources available to supervise financial institutions and said better regulation would improve the country’s reputation.

Mr Elderfield yesterday warned the sector that his plans to achieve the right quantity and quality of resources to carry out effective regulation of various financial sectors was going to result in higher fees.

Speaking at the annual lunch of the Irish Insurance Federation in Dublin yesterday, Mr Elderfield said it was necessary to ensure insurance firms with the biggest inherent risk profile due to their size had the right level of supervisory cover.

Although he made no direct reference to his decision to appoint administrators to Quinn Insurance, Mr Elderfield said the regulator would need to take a more systematic assessment of risk at the higher impact firms.

He claimed it was clear that there had been some spectacular failures of corporate governance during the financial crisis in Ireland and elsewhere. However, he added: “It is wrong to tar the whole industry with this problem and I’m sure there are strong corporate governance practices at many insurers.”

Mr Elderfield said his supervisory teams would in future be encouraged to become “more challenging and sceptical” in their assessment of risk at insurance companies.

“Our new approach means that if the stakes are sufficiently high and we are not convinced by management’s plans, we must be prepared to insist on our own solution.”

Mr Elderfield said getting balanced regulation of the insurance industry in Ireland was one of the high priorities of his new role.

“Ireland’s reputation as an international financial centre will be even stronger if it can knock on the head the lingering perception that corporate governance is sometimes compromised by concentrated personal business relationships that have the effect of deflecting effective challenge around the board table.”

He predicted the new EU regulatory requirements for the insurance industry – known as Solvency II which are due to come into effect by 2012 – offered a great opportunity for Ireland.

Mr Elderfield said he could see more non-EU insurance firms choosing Ireland as a base of operations as well as more EU companies moving here to centralise their business.

He urged insurance firms not to underestimate the impact of the directive as changes to solvency standards would be “both dramatic and subtle” through more exacting standards of risk management and new disclosure requirements.

The federation’s new president, Patrick Manley, said insurance firms, which remained relatively healthy compared to other sectors of financial services, welcomed the reform of regulation.