A summary of plenary 4 at the IFoA Conference (26 to 27 June 2023), which looked at the role of actuaries in the financial services revolution.
Ben Westerman, Interim Executive Director at the Aldersgate Group
Helen White, Head of Policy, TheCityUK
John Rowland, Managing Director, H/Advisors Cicero
Matt Saker (Chair), President of the IFoA
John Rowland described the regulatory developments in financial services over the last 3 years. These include the:
The underlying goals of all these developments are to:
Helen White focused on the fourth item in this list: competitiveness. TheCityUK supports making this a secondary objective, provided care is taken with extra powers for the regulators. It advocates a high-quality, stable, and independent regulatory regime, designed to be clear, proportionate, tailored for the UK, able to evolve over time, and where the benefits outweigh the burdens.
The regulators also need to operate more efficiently, as recent concerns about processing authorisations have shown. She also emphasised the importance of careful sequencing in how the regulatory reforms are implemented.
TheCityUK is concerned about low UK institutional investment in UK equities. This has decreased from 39% to only 4% since 2000, partly because of regulation. They hope the Autumn Budget will include incentives for defined contribution pension schemes to increase their UK equity holdings.
Ben Westerman discussed the regulatory reforms as they relate to sustainability issues and the political context. He said there are major policy gaps, and institutions are seeking more security in the face of political uncertainty. This is important because green investment has the potential to yield very significant economic growth. Although there are upcoming UK consultations in this area (for example on a green taxonomy), the general election could render them meaningless.
The UK government announced measures in March on green finance and energy security. These aimed to:
However, his view is that the UK is moving towards green finance at a slow pace in international terms. UK regulation is short term, and the government is nervous about the electoral implications of net zero. By contrast, he described the US Inflation Reduction Act as very significant.
The panel was asked how actuaries can play their part as the financial services revolution takes place. They noted actuaries’ involvement in related areas such as productive investment, Solvency II, and the ageing population. More generally, actuaries have a role to help businesses in all sectors (especially larger ones) as they work to become net zero.
One questioner suggested that regulation is generally a bad thing. Panellists highlighted the importance of regulation to give investors confidence. Non-UK investors need to be able to trust the UK environment. The Inflation Reduction Act has led to an influx of investment in the US. However, the quality of regulation is more important than the quantity.
An audience member asked if the current regulatory reforms go far enough. John Rowland said there was a tension between the government’s goal of a competitive economy and regulators’ instinct to be risk averse. The Financial Services and Markets Bill will give regulators more freedom, but it is too soon to say how they will use this.
Ben Westerman believed the reforms should go further, since the UK has experienced the biggest flight of capital for 50 years.
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