planks of the proposed new accord. there is a risk that in some circumstances there are drawbacks associated with this, since disclosure could make a troubled bank ’ s position worse at a difficult moment. but overall, we think the likely behavioural changes induced by greater transparency offer more benefits than risks. by this i mean that the prospect of having to disclose more about positions to the market will reduce banks ’ willingness to take on highly risky positions in the first place. benefits and drawbacks of complexity a number of other commentators have questioned the effectiveness of introducing greater complexity into the basel rules, on the grounds that the framework will always be inadequate to cope with innovation and arbitrage. it is certainly clear that a minimum capital framework, however sophisticated, cannot on its own capture the full range of risks in a banking organisation. this has been recognised by the basel committee ; it is the reason why the consultative paper introduces the supervisory review process for individual banks under pillar 2 of the framework, as a complement to the minimum capital standard laid down in pillar 1. it is equally clear that supervisors, even armed with powers to review the individual capital adequacy of banks under pillar 2, may under some circumstances be less effective than the market at disciplining risk taking, which again is why the basel committee is emphasising the importance of enhanced public disclosure under pillar 3 of the accord. but to my mind there is very considerable scope for improving the risk - sensitivity of the minimum capital standard before the benefits of this begin to be outweighed by the costs of greater complexity. indeed, greater risk sensitivity ought in some respects to mean more simplicity in the capital framework, achieved by aligning capital with a common underlying concept of risk, such as internal or external ratings. internal ratings indeed offer a very significant opportunity to bring regulatory measures of capital more into line with the economic measures established by industry best practice : in the absence of this, arbitrage of the system through securitisation and other means will remain a problem. the current review also offers the opportunity to iron out some of the existing, fairly arbitrary, quirks of the current accord. for example, by identifying the common characteristics and residual risks underlying various types of credit risk mitigation techniques - collateral, guarantees, netting, and credit derivatives - it is hoped that a more uniform and consistent treatment can be applied to these instruments in place of the various, somewhat ad hoc, treatments that have grown up to date. there is perhaps one cave

by industry on numerous occasions. it should not come as a surprise however that there are fundamental principles of the regime that we would seek to maintain. as i ’ ve said before, the principles of solvency ii – a whole balance sheet, market consistent approach to regulatory solvency, focus on good governance and risk management – remain valid. looking forward : emerging supervisory priorities beyond solvency ii, the insurance supervision directorate has a number of supervisory priorities that we are pursuing through firm supervisory programmes and cross - firm reviews. all speeches are available online at www. bankofengland. co. uk / news / speeches some of these are on a slower track due to our work with insurers in response to covid - 19. others have been brought into sharp relief by the crisis. i ’ ll focus on three. uk life insurers have been incentivised to invest in long - term, illiquid assets with higher yields for some time, given the low interest rate environment. as a result exposure to credit and other risks ( e. g. property ) has been increasing. this is further exacerbated by covid - 19 as wider economic disruption has impacted the underlying creditworthiness of some of these assets. the pra has published several – one might say many - supervisory statements setting out how we expect firms to manage risks arising from such investment strategies. we ’ ve clarified how we expect firms to apply and model the matching adjustment4 ; taken a deep dive into liquidity risk5 ; and provided additional guidance on the practical implementation of the prudent person principle 6, which is the part of solvency ii that deals with qualitative aspects of investment risk management. we will be publishing some further, important clarifications on the prudent person principle at the end of this month. we expect firms to demonstrate that they have strong governance and internal investment limits that are effectively implemented ; this remains one of our top priorities for supervision of the life insurance sector. operational resilience – a strategic priority for the pra and the bank as a whole - has been tested in a way few business continuity plans could forsee, as covid - 19 has affected all our operations, processes and people. the insurance industry – all the people who work in it - responded extremely well to the operational challenges that have arisen from the covid - 19 pandemic. there are, of course, still challenges for all of us as we move from immediate