Looking both ways
Speech given by
Sam Woods, Deputy Governor, Prudential Regulation and Chief Executive Officer,
Prudential Regulation
Remarks prepared for the May 2017 Building Society Association (BSA) Annual
Conference
Published 10 July 2017
I planned to deliver an abridged version of this speech at the BSA conference on 3 May but had to
withdraw my participation due to election purdah. I am grateful to Kayleigh Guinan, Eric Engstrom,
Nick Lock, Louise Oscarius and Alex Holmes for their assistance in preparing this text. I am also
grateful to David Kynaston and John Fforde, on whose work I have drawn heavily.
The theme of the BSA's conference is -
the future the challenges and opportunities that lie ahead for
building societies and what it means to be a modern mutual. Now, being forward-looking is great and we
have indeed built that into the most basic foundations of the PRA's approach. But only
looking forward
would be unwise, given history's ability to repeat itself. We need to look both ways.
In that context, I want to talk about supervision and why it matters - supervision, as distinct from regulation.
The two terms are often used interchangeably, but they are quite different. Regulation concerns the
framework of rules and legal standards which govern the way in which firms operate. Systems of regulation,
even if self-regulating, have been around for a good number of years in a wide variety of sectors, from media
to energy to education. Supervision, by contrast, is the dynamic pursuit of the relevant authority's statutory
objectives, through oversight of firms' activities. To do this effectively, you of course need regulation -
but
one without the other in financial services would, in my view, be futile.
At the PRA, we have committed ourselves to a judgement-based, forward-looking supervisory approach.
This means that we proactively take action to meet our objectives and we evolve our methods to reflect
emerging developments. It also means that we rely heavily on the judgement of supervisors and get them to
unearth and scrutinise the top risks at any given firm. This is delivered by a keen supervisory focus on
business models and the prudential health of firms rather than a sole preoccupation with firms' compliance
with regulation, important though that is. And because we rely heavily on judgements, the PRA has a central
spine of decision-making committees, with the most important supervisory decisions reserved for the
Prudential Regulation Committee (PRC).
But where did this approach come from? Most comparisons between the PRA's current supervision model
and those that preceded it focus heavily on the differences between the PRA's approach and that taken by
the FSA before the global financial crisis. But the truth is that the practice of supervision in the U.K. has
evolved slowly over time; indeed, the roots of supervision lie much deeper and can be traced back over the
past 100 years or so.
In this speech, I will take a whistle-stop tour through the twentieth century to examine the increasing role that
supervision has played in the regulation of financial institutions and why it remains an essential ingredient of
the regulatory framework here in the UK. This is especially true in the context of regulatory arbitrage and, of
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course, Brexit themes to which I will return later in this speech. First, though, I will consider the three main
roots of supervision during this period, namely the individual regimes of oversight relating to banks, building
societies and insurers1. I will proceed in alphabetical order in the hope that this will avoid offending any
sector, even if (regrettably) it means the bankers get in first.
1
My colleague Mark Yallop has given an excellent speech in similar terrain.
Banking Supervision
Let's begin in 1890. Our scene is Cannon St and an establishment which printed a weekly chronicle that
Hot off the press is a headline: "Messrs Baring Brothers' Issues". Then
went by the name of The Statist.
follows a well-informed, highly sceptical article which questioned the quality of much of the foreign business
being embarked upon by what was, at the time, considered by many to be the most respectable house in the
City of London2. I particularly like this story because my very first job after university, here in London,
involved sitting in Barings and trying to work out quite how much money Nick Leeson had lost.
What then prompted such a critical article, almost exactly 100 years before I found myself involved in the
clear-up after the Leeson episode? Barings, at this point, was responsible for about one quarter of the
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considerable funds flowing into Argentina a very attractive investment at the time and a man by the name
of Revelstoke was pivotal to its success. He managed to secure the flotation of the Buenos Aires Water
Supply and Drainage Company and, "with his propensity for double-or-quits, decided against the increasingly
common custom of having the issue fully
underwritten"3.
The flotation flopped in 1888 and, to make matters worse, a combination of financial maladministration and
political turmoil in Argentina left Barings over-exposed, with capital locked down in its various South
American holdings. This, coupled with the policy of the Russian government of steadily withdrawing its
large-scale deposits from the house, left Barings in a precarious position by 1890.
Rumours began to circulate that the firm might not have any surplus left after payment of its liabilities. The
Governor was alerted given the "almost unthinkable
consequences should Barings go down: not only would
the failure of the City's leading accepting house inevitably bring down a host of other firms... but the very
status of London would be threatened and thus the pre-eminence of the City as an international financial
centre"4.
between the Bank of England (hereafter "the Bank"), the Treasury and
Amidst much to-ing and fro-ing
Downing Street, it was becoming apparent that the crisis at Barings was one not only of liquidity but also of
solvency, and that there was now a palpable loss of confidence in the institution throughout the City. The
-
Bank alone could not afford to act as lender of last resort so eventually the Governor of the day Lidderdale
- within half an hour, the City's top institutions
announced the establishment of a guarantee fund for Barings;
-
rushed to contribute the likes of Raphaels (£250,000), Antony Gibbs and Brown Shipley (£200,000 apiece)
and Smith Payne & Smiths, Barclays, Morgan and Hambros (each contributed £100,000). Indeed, the
2
Kynaston, David. City of London: the history, London, Vintage Books, 2012, pp130-131
3
Ibid, p.131
4
Ibid, pp.133-134
leading joint-stock banks had put themselves down for £3.25m and by mid-afternoon the fund was up to
£10m and climbed further to £17m by the following week5.
Barings was saved. But the crisis revealed something about the relationship between the state and industry
at the end of the nineteenth century. Indeed, the institutional set-up explains quite a lot about the approach
taken towards the oversight of financial institutions at this time.
The Bank of England was still a private entity. The leading partners from each trading house sat on the
Bank's Court of Directors. This was a world of gentlemen's agreements and moral suasion, or "what a later
generation would know by shorthand as the Governor of the day raising his eyebrows"6.
One reason the Bank developed a supervisory interest in the clearing banks was to protect its balance sheet
given its role as banker to the banks but it was, at most, primus inter pares, and banks were largely
self-regulating. Indeed, the crisis at Barings was ultimately one of solvency not liquidity and so the Bank
would not devote its own resources to a recapitalisation.
Instead, the rescue of Barings Bank relied on the collective action of its industry peers and some
co-ordination by the Bank rather than any formal supervisory role. This is in contrast to later crises of
liquidity during which, in line with Bagehot's theory, the Bank extended credit at a penal rate to solvent but
illiquid banks and became lender of last resort.
Following the Barings episode, banks were required to publish their balance sheets on a monthly basis;
whilst this heightened awareness of competition between the banks, ultimately it did little to change the role
Bank's interaction with firms continued largely unchanged and the
of the Bank in overseeing the sector. The
system of regulation relied on the Bank's soft power (partly derived from its position as defender of the gold
standard) and willingness to intervene in a crisis as the lender of last resort (or at least coordinate such a
response).
During the first half of the twentieth century, the status of the Bank (as a private institution with semi-public
responsibilities and lack of statutory powers) explains in part why the system of regulation relied on a high
degree of self-regulation and a light supervisory touch throughout the early decades of the 1900s.
Nonetheless, in the rushing about at Threadneedle Street to deal with the Barings crisis more than a century
ago I can clearly discern people doing what I and colleagues have had to do at various times when firms
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have been under stress over the last decade it is called supervision.
5
Ibid, p.137
6
Ibid, p.148
A number of factors began to change the nature of supervision in the UK. First, the Bank's nationalisation in
the 1940s moved it onto a different footing as a truly public institution. The relationship between the Bank
and banking sector was no longer one of equals, though the Bank's approach did not alter course overnight.
The Bank of England Act 1946 subsequently granted the Bank a range of powers, including the ability to
issue directions to firms. A further legislative development - the Companies Act 1948 - conferred privileged
status on some institutions (recognised banks or discount companies) which resulted in the Bank granting
exemptions to these institutions by virtue of their status as a bank7. For the first time, we see evidence of
some differentiation of treatment between banks and regular companies.
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Meanwhile, the Accepting Houses Committee8 a collection of merchant banks with accounts at the Bank
had by this point grown in stature as an association that represented banks of good standing with the implicit
backing of the central bank9.
During the 1950s, and in exchange for the extension of this privileged status, the banks accepted a measure
of consultation in order to reassure the Bank that their name was still good. This often took the form of a
monthly meeting with the Governor to discuss the firm's balance sheet, and it was in this
setting that the
Bank formed an idea of the level of hidden reserves (or excess capital in modern parlance), something that
would otherwise go undisclosed in the firm's public accounts.
The Bank had some guidelines on the metrics it would tolerate - for example, there was an expectation that
about one-third of deposits plus one-fifth of acceptances10 should be matched by liquid assets. And the
Bank showed willing when it came to enforcing this, though notably only through moral suasion rather than
any formal sanction.
The Governor would sometimes meet the prospective leader of a bank should there be a change in
leadership, and he would expect to be notified of any significant transactions, a fact that Samuel Montagu
(whose business is part of HSBC's private
banking arm today) was sharply reminded of in 1957 when he
reportedly neglected to update the Governor on a potential M&A deal11.
Overall though, much of this interaction was based on courtesy rather than any expectation that the Bank's
approval was a pre-requisite or necessary. There was a relationship to be sure but it was all very informal;
the terms supervisor and supervised would have sounded out of place. There were no hard and fast
requirements and the approach was minimalist in style.
7
For example, through the granting of waivers on the publication of balance sheet data.
8
Originally set up in 1914 to manage difficulties in payments between countries at the start of World War One.
9
Fforde, John. The Bank of England and Public Policy: 1941 -1958, Cambridge, Cambridge University Press, 1992, p.750
10
A short-term debt instrument issued by a company that is guaranteed by a commercial bank, often used to facilitate trade.
11
Fforde, p.755
And yet, as in the 1890 Barings episode, you can see in this activity elements which persist in supervision
today. For instance, while I do not wish to offer any formal comment on the state of Mark Carney's
eyebrows, in my experience a meeting with Mark is always a useful way to focus the mind.
It is worth remarking that during this period there was a genuine window of opportunity to extend the
boundaries of banking supervision undertaken by the Bank and legislate accordingly12. However, after a
year's negotiation,
it came to nothing and instead of a Banking Act 1957, the banking sector would have to
wait until 1979 before the Bank involved itself more formally in the affairs of firms and, crucially, on a
statutory basis.
been 'no recent case of depositors losing their money. There was
In the period up to the 1970s, there had
little public interest in the subject and there had been no troubles that might have led to a demand for the
Bank's
help'13. This set of circumstances changed abruptly when the secondary banking crisis engulfed the
City in the period 1973-5. In short, very rapid and uncontrolled growth in the fringe (i.e. not primary) banking
sector came home to roost when the first oil shock hit in 1973, delivering a blow to the economic prosperity
enjoyed by the UK since World War II, reducing the value of bank assets and revealing a significant
mismatch of borrowings and lending that resulted in a liquidity, and subsequently solvency, crisis. The
secondary banks were especially affected, having been able to expand their balance sheets rapidly using
wholesale markets14, much as Northern Rock did just over thirty years later.
-
The number of affected banks surpassed fifty15 in total and the Bank coordinated a significant effort the
so-called 'Lifeboat' operation - to assist the troubled institutions, whether through shareholder support,
marriages to stronger banks or support directly from the Bank. The most important revelation, however, was
that these institutions had been allowed to go effectively unsupervised by the Board of Trade in the first
place.
- the lack of a definition of a "bank" in
Such a circumstance arose due to something seemingly quite simple
UK law. Under Schedule 8 of the aforementioned Companies Act 1948, certain firms could be exempted
from publishing their accounts in full on the grounds that they were banking companies. On this basis,
certain banks - in almost all cases, the well-established ones - were subject to Bank oversight. By contrast,
- "section 123" companies -
there was a population of 133 deposit-takers the so-called that were identified
as such by the Board of Trade, a body that did not possess the requisite powers of supervision over the
institutions concerned16. A gap therefore emerged in the regulatory perimeter with significantly limited
oversight. The consequences for the Bank were profound.
12
Ibid, p.777
13
Ibid, p.760
14
Gardener, Edward (ed). UK Banking Supervision: Evolution, Practice and Issues, London, Allen & Unwin, 1986, p.87
15
Ibid, p.100
16
Ibid, p.102
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The total lent during the Lifeboat operation exceeded £1.3bn at the peak equivalent to just over £10bn in
today's money17 - and there was "a growing realisation that the Bank of England supervisory system was
not rigorous enough for the more demanding era heralded by the events of the early
1970s"18. Indeed,
Gardener notes, presumably in relation to the secondary or "fringe" banks, that "there are other
cases where,
in dealing with a few of our newer charges, there must remain a question whether gentlemanly discussion
and exhortation to observe prudent practices will on their own always produce the desired result"19.
Moreover, the crisis, at least in part, encouraged the European Economic Community (EEC) to introduce a
requirement that deposit-taking institutions ought to be licensed. And in the UK, the experience of the crisis
created a swell of opinion that legislative updates to the Banking Act were necessary and, significantly, that
banking supervision should be undertaken by the Bank on a statutory basis for the first time.
This was not necessarily a welcome development for the Bank. George Blunden, head of Banking
Supervision at the time, felt the key characteristics of the Bank's approach - flexible, personal, progressive,
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participative were highly desirable, and he was keen not to have these eschewed by the forthcoming
legislation. The Bank prided itself on its flexible approach, its recognition of the role of the market and its
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consensual mode of supervision and was determined not to lose this as its oversight of the banking sector
inevitably took on a more formal tone. In large part, the Bank achieved its aim - the 1979 Banking Act was
evolutionary than revolutionary and written in such a way that "clear scope was preserved for the
more
continuance of the Bank of England's particular supervisory style"20. Indeed, "the legislation was designed to
interfere as little as possible with what was regarded as good in what had come before and only to add to the
earlier arrangements new features where the previous system had been found wanting"21.
The introduction of the Act did, though, formalise some of the basic supervisory activities carried out by the
Bank as well as introduce some new conditions, not least the requirement for the Bank to authorise
deposit-takers. In fact, the Bank did indeed withdraw licences and wind up deposit-takers on at least two
occasions following the Act's
introduction22.
In addition, there was an increased focus on the fitness and propriety of individuals running the banks, and
an acknowledgement that "this emphasis on qualitative assessment has been born of experience, as
provided the first sign of
management problems and inadequacies have typically difficulty"23. Moreover, the
Bank now received and reviewed on a quarterly basis returns which included a more detailed breakdown of
assets and liabilities as well as profitability. The Act also contained powers for the Bank to commission third
party expertise to review aspects of a firm's business, a commonly-used tool by the Bank in a bid to make
17
http://www.bankofengland.co.uk/education/Pages/resources/inflationtools/calculator/default.aspx
18
Ibid, p.74
19
Ibid, p.96
20
Ibid, p.77
21
Ibid, p.86
22
Ibid, p.107
23
Ibid, p.104
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the most of its resources something akin to a modern-day section-166. On the heels of this a different
dialogue began to emerge between the Bank and those institutions it supervised, with the Bank pointing out
deficiencies to the firm, the firm coming up with a remedial action plan and subsequent close monitoring by
the Bank to ensure delivery24.
By this point, the Bank was supervising almost 600 institutions: 291 recognised banks and an equal number
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of licensed deposit-taking institutions all serviced by an 80-strong division within the Bank. This resulted in
a two-tier system in which recognised banks enjoyed a superior status and a lighter supervisory touch.
Whilst this did not rub especially well with the licensed deposit-takers, there was scope for them to progress
to the lofty heights of "bank" status, and at least the new set-up had the advantage that all deposit-taking
institutions were now subject to Bank oversight.
It is fair to say that the new focus on supervision was not solely driven by domestic developments. Indeed,
the importance of supervision was enhanced by the increasingly international flavour of the City, following
the Big Bang and a wave of overseas investment (particularly from the US). The Basel Committee was
established in 1975 and the US and UK were the first to cooperate on the 'US/UK Accord', which laid the
foundation for a common assessment of firm capital in both countries25. The collapse of Banco Ambrosiano
in 1982 and the difficulties at Johnson Matthey Bankers in 1984 brought the risks inherent in the system into
sharp relief once more, and there was a renewed push to establish consolidated supervision across
borders26.
Through its participation in international fora, the Bank sought "to promote close supervisory co-operation, to
influence supervisory developments and to enhance the effectiveness of its own supervisory effort through
obtaining clearer pictures of the nature of the business operations engaged in by the institutions it supervises
and of the methods and operations of its international
counterparts"27.
The idea of a level playing field began to emerge in the international setting as well as the importance of
supervisory convergence in an increasingly globalised sector; this, alongside crises, motivated the evolution
of regulation and supervision to a large extent during the latter decades of the twentieth century. In addition,
the increasing size (including in the present day) of the financial sector and its contribution to UK GDP
underscored the importance of maintaining stability in the financial system, and a more active type of
supervision began to emerge.
Meanwhile, the Bank had established a Board of Banking Supervision 'to advise the Governor on
supervisory matters and oversee the implementation of the (reformed) Banking Act'28
and the supervisory
24
Hall, Maximilian, J.B. Handbook of Banking Regultation and Supervision, Hertfordshire, Woodhead Faulkner, 1993, p.75
25
Ibid, p.95
26
Kynaston, p.79
27
Hall, p.77
28
Ibid, p.23
function was further expanded. And this brings me back to the collapse of Barings Bank in 1995, following
which a report into the existing supervisory arrangements was commissioned from the (now also-collapsed)
Arthur Andersen, which in 1996 set out recommendations to overhaul the Bank's supervisory approach.
What you can see in all this is that supervision is not a static game, and has to move with the times. But
there are also some constants. In particular, although we have moved a very long way from the supervisory
practices (and hairstyles, other than the resurgence of beards amongst male supervisors) of the 1970s, we
have maintained the view of our predecessors that supervision cannot be a narrow, tick-box, compliance
exercise, and that judgement plays a key role.
Building society supervision
The merchant and trading banks of the City of London were no doubt significant in the world of wholesale
international finance. But there was another group - the building societies - that served a critical function in
servicing the UK economy, particularly retail customers. Indeed, up until 1980, building societies accounted
for approximately 80% of UK residential mortgages and over 40% of retail deposits29.
The first building society was established in 1775. It was known as Ketley's, the name of the landlord in
met (despite the tavern's formal name The Golden
whose pub the society Cross). Perhaps it is a shame
your boards don't meet in pubs any more, but I'm afraid it probably would result in a capital scalar if you did.
The original purpose of the societies was for members to pool resources to finance the building of houses;
these homes would act as collateral for additional finance and enable more houses to be built. The societies
were underpinned by a mutual structure.
Over the next 60 years, some societies chose to register under the Friendly Societies Act 1793, but the
remainder had no clearly defined legal standing. This was addressed in the Building Societies Act 1836
which provided a legal standing for building societies and, among other things, required their rules to be
certified by a barrister. The certifying barrister became, under the Friendly Societies Act 1846, the Chief
Registrar of Friendly Societies, and the Chief Registrar remained the regulator of building societies until
1986. I think it pays to have a bit of humility in life, so here in passing, and as the CEO of a regulator only 4
years old, I doff my supervisory cap to an outfit which survived in this hazardous line of work for 140 years.
A series of Building Societies Acts between 1836 and 1962 set out the statutory framework under which
building societies could operate and gave increasing powers to the Chief Registrar (hereon the "Registry").
Unsurprisingly, and in common with other financial services regulation, these additional powers were often
introduced as a result of scandal or crisis in the sector.
29
BSA Building Society Fact Book 1984
By 1960, the Registry had the power to call for an inspection of a society, to prevent it from taking deposits
and to prohibit it from advertising. During this period, the Registry operated a legalistic framework; indeed, it
was a statutory requirement until the late 1970s that the Chief Registrar and the two Assistant Registrars
were lawyers.
Only following the failure of Grays Building Society in 1978 (where all societies made good the losses that
otherwise have been suffered by Grays' retail depositors) did we see the first appointment of a
would
non-lawyer as Chief Registrar. With that, a new approach to supervision was adopted, comprising more
frequent visits to societies, the receipt of more regular, better quality information from societies, and the
recruitment of additional staff to undertake these enhanced supervisory activities.
The role of the Registry also evolved to reflect the market conditions of the day. One of its key functions was
to oversee inter-society mergers, which became a frequent occurrence as the number of building societies
reduced (largely through merger) from around 2,200 in 1900 to 480 in 197030. By this point, Registry staff
were examining societies' annual returns
and seeking to identify weaknesses in capital and liquidity; indeed,
there was a keen focus on the latter when, in 1976, building societies started to submit a monthly liquidity
return. I am told that at that time, the Registry had one electronic calculator to which the three building
society teams each had access for half a day each week. History does not relate what the calculator did for
-
the other three-and-a-half days perhaps it was resting.
of these practices have shaped the PRA's
I hope it will be as obvious to you as it is to me that many
approach to supervision today, just as much as our heritage from the Bank on the banking side. This is
partly because as the prudential supervisor of banks, building societies and insurers we must of course draw
in full on our heritage across all three sectors. But it's also because some of our wisest staff have been here
- most obviously Eric Engstrom who was, I understand, born in Ketley's pub in 1775.
all the way through
Indeed, the general approach that started to emerge for building societies in the early 80s was
forward-looking and judgment-based, though nobody at the time would have described it in such terms. By
this point, the Registry had introduced inspection teams to undertake on-site supervisory work. One target of
this more invasive approach was the New Cross Building Society, which was closed down in 1983 following
a detailed investigation of its business that uncovered non-compliance with key provisions of the Building
Societies Act. The Registry concluded that if the present management and existing policies continued, there
was a distinct risk of a crisis in this rapidly growing society and that it would then not be able to repay retail
depositors in full.
30
BSA Building Societies Yearbook 1998-99
A weakness of the legislation as it stood then was that the only hard power available to the Registry was to
force the closure of a building society. In most instances, the threat of such action was sufficient to achieve
the Registry's aims -
but in the case of New Cross, the most radical option had to be pursued.
The Building Societies Act 1986 aimed to improve this and handed enhanced powers to the newly-formed
Building Societies Commission (BSC), which was tasked with enforcing tougher prudential requirements in
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respect of capital, liquidity, systems of control and governance and all on a statutory footing (you will note
here the parallels with developments in banking supervision). Indeed, in its first report to Parliament, the
BSC made clear that it would complete the shift in supervision (already underway at the Registry) from a
reactive approach "to the more positive and forward-looking approach"31.
In practice, all societies were visited at least once a year (4 or 5 times for the larger ones). There was an
with the board; a report would be prepared with the supervisor's assessment; a letter
annual review meeting
would be sent to the board outlining actions to be taken forward by the society; management information and
strategy documents were reviewed, regulatory returns monitored, and mergers scrutinised.
Insurance supervision
The other major part of the PRA's supervisory responsibility is the oversight of insurers. Here our heritage,
as for building societies, is from outside the Bank. Indeed, despite the practice of insurance extending all the
way back to the era of Babylon, it is only in the past four years that the Bank has played any role in
supervising the sector. I will cover this more briefly, only because I have already given a speech devoted
entirely to this topic32.
and bound by the principle of "freedom with
Up until the 19th century, insurers were largely self-regulating
publicity", the idea that regulation was unnecessary as long as some element of disclosure existed to
encourage market discipline. This all changed when the Albert Life Assurance Company went under in 1869
and, in response, the Life Assurance Companies Act 1870 was introduced.
The Act ushered in strict new rules, including a requirement for those looking to set up an insurance
company to place a £20,000 deposit with the Accountant General. Financial information across insurers was
to become standardised and independently valued at least once every five years. The Act also introduced
conditions around takeovers and mergers, requiring that consent be sought from both the courts and
shareholders33 - a process alive and well today in the form of Part VII transfers. Whilst the Accountant
General could hardly be characterised as an active supervisor, the Act did at least lay down some
31
Annual Report of the Building Societies Commission 1986-87
32
http://www.bankofengland.co.uk/publications/Pages/speeches/2017/967.aspx See also:
http://www.bankofengland.co.uk/publications/Pages/speeches/2016/877.aspx
33
Tapp, Julian. 'Regulation of the UK insurance sector', in
Finsinger, Jorg. and Pauly, Mark V. The Economics of Insurance Regulation:
A Cross-National Study, London, Macmillan, 1986, p.29
requirements for life insurers for the first time. In 1909, these were extended to all other classes of business
in existence with the exception of motor and marine insurance, and by 1930 motor insurance was also
subject to this level of oversight.
During the early part of the 20th century, British society underwent a stark change as the invention of the car
transformed people's everyday lives. It also made for a lucrative line for insurers, not least as motor cover
was compulsory, though the period was also marked by a good number of insurers that failed. In response
to this, the Cassell Committee on Compulsory Insurance was established in 1937. With its
recommendations temporarily stalled by the onset of the Second World War, which understandably diverted
Parliament briefly from the noble topic of insurance supervision, they were implemented somewhat belatedly
in the form of the Insurance Companies Act 1946.
Crucially, the Act strengthened the powers of the Board of Trade (later the Department of Trade and
Industry, or DTI) and introduced solvency margins, with the amount being set as the greater of £50,000 or a
tenth of premiums34. In addition, insurers had to have at least £50,000 in paid up share capital and the
Motor Insurers' Bureau was established to fulfil claims for victims of
uninsured drivers, funded by a levy on
the motor insurance industry.
Despite these reforms, nine motor insurance companies failed in the period 1966-67. In typical fashion, a
new piece of legislation was enacted in response. The Companies Act 1967 further strengthened the hand
of the DTI, which was now empowered to refuse authorisation, impose conditions on a firm's operation and
prevent control of the