EC needs to clarify Solvency II

The European Commission needs to clarify the purpose and priorities of Solvency II, claimed Andrew Cox, partner at consultants Lane Clark & Peacock LLP.

He said: ‘The draft directive makes it clear that the main aim of Solvency II is policyholder protection, with financial stability only a secondary objective. As we reflect on the latest banking crisis, many will regard the Basel II framework as having failed to deliver financial stability, or in some cases even contributing to instability, because of an unhealthy reliance on financial models. People are rightly questioning whether Solvency II is likely to do any better.’

He added: ‘There is a school of thought that says market stability cannot be delivered by systems like Solvency II and Basel II, which focus on individual firms' risks. Rather, market-wide risks need to be proactively managed by regulators, central banks and governments at a higher level.’