ABI Conference - FSA's Adams speaks on Internal Model Applications

The FSA have just published Julian Adams' speech on Internal Models from yesterday at the ABI Conference.

Worth noting;

On the potential to replace ICA with SCR for 2013 (which Lloyds et al have been lobbying hard on);

“What we are in a position to do, however, is to invite firms to consider how they think their work on their Solvency II model could be used to meet those current rules, thereby removing the need for parallel running of two different models”

“As the current requirements will remain in force, it will be incumbent on firms to satisfy themselves that the Solvency II model, alongside their wider system of risk management and governance, meets the existing requirements in our Handbook. By approaching the issue in this way, we intend to avoid the need for firms to apply for a complicated series of waivers or to seek specific permission from us to make the transition early. We believe this is both proportionate and appropriate, given the amount of review work we will have done with firms following submission of their Solvency II model application to us”

On the basis to be used for internal model applications (the original guidance, or EIOPA's L2 on Tests and Standards for internal model approval)

“It is clear that the Level 2 text – and, in due course, the Level 3 text which will supplement it – is more appropriate to use as a matter of principle, since this sets out much more clearly the basis on which we are expected to assess firms’ applications, and it is the standard against which you and we will ultimately be judged”

“On balance, we feel that basing our application approach on the Level 2 text is the most sensible way to proceed, and we propose to do this is by cross-referencing the Level 2 text in the guidance materials we will be making available to firms in February of next year”

“I am aware that this will mean that some firms may feel that their efforts in following the Contents of Application approach will have been wasted, and I would like to reassure you that this is not the case. We will expect you to submit documentary evidence that you meet the requirements set out in the Directive, and completion of the Contents of Application is likely to go a long way towards demonstrating compliance with the Level 2 requirements, but it is those Level 2 requirements which will be definitive”

Looks like anyone who is going to get pre-approval to use their model to meet existing FSA handbook requirements is going to have to jump through a lot of hoops, and even then may fall short