In which regulatory environment do insurers operate? What does the regulations mean for the international financial markets?
Regulation – in whichever sector – is like teetering on a sharp mountain ridge. On the one hand, regulation of any kind places constraints on the freedom of industries and companies alike. But on the other hand, regulation is necessary to provide commercial sectors with the framework that they need in order to remain competitive. In practice, the art of finding the right balance often proves to be very challenging for the regulatory authorities, and they often take refuge in passing new laws and regulations in order to solve social and economic problems.
The process of setting standards is generally also influenced by political interests. As a result, ‘overregulation’ is already an established concept, and – in terms of the situation in Switzerland – the whole regulatory package is in danger of fast becoming a burden on the economy.
The weight of regulation in the Swiss financial market, principally driven by events during the financial crisis, has grown exceptionally rapidly. During the financial crisis it became clear that key aspects of international financial market regulation did not have the desired effect. In the wake of this crisis we saw how sweeping regulatory changes were introduced worldwide and new standards were created in great haste and under huge political pressure.
Although, in theory, tight regulation is expected to play a preventive role as well as create legal certainty, in practice it often proves to be reactive in nature. This means that something has to happen first before appropriate standards are implemented. However, it is impossible for standards that are generally based on principles (except in the United States) to cover every eventuality – no matter how specific. These rapid international developments, which had their origins in the banking sector, have clearly also left their mark on insurers as well as other key financial services providers, and this situation is reflected in the large number of amended, planned and newly implemented regulations, which are becoming increasingly complex. Regulation is no longer a matter for national governments alone. In fact, there is a discernible trend towards international harmonisation. As a Swiss insurance company, Baloise is facing considerable challenges, but so is Switzerland’s financial market regulation in general. This is because regulation is increasingly delegated upwards to the supranational level or even instigated by supranational institutions. When they are implemented, various standards and national specifics then have to be mutually recognised and aligned. In the international context, the Swiss business community expects its regulator to take sufficient account of specific Swiss circumstances and to endeavour to integrate them appropriately into the standards development process. Switzerland’s increasing tendency to exceed even international standards, known as the ‘Swiss finish’, may result in tried-and-tested regulations being brought in line with foreign solutions, which is not always beneficial or useful for Swiss companies. Regulation in all its aspects is therefore a challenging and complex arena in which Baloise operates and where good climbing equipment is absolutely essential!