Posts

Pinsent Masons gets cloud guidance improved for insurers

International law firm Pinsent Masons has seen a number of its recommendations enacted following its response to EIOPA’s consultation on cloud guidance, making it easier for insurers to comply with their regulatory requirements.

The guidance, which sets to place strict regulatory demands on insurers in respect of both the contents of their contracts with cloud providers and their governance of those contracts, has been under review since June 2019, with the final guidelines now being issued.

In its response to the consultation, the firm raised a number of concerns about both the wording of and rationale for some areas of EIOPA’s draft guidance. Those concerns addressed fundamental matters such as the scope of the guidance and potentially confusing concepts and terminology. They also focused on the requirements around the content of insurers’ cloud contracts, their exit planning, the extent of information that insurers would have to document about their contractual requirements, and the location of data in the cloud.

Pinsent Masons’ recommendations have led to the re-drafting of certain definitions, the removal of unclear language and greater clarity and alignment with the European Banking Authority (EBA).

Some of the changes included the removal of references to ‘material outsourcing’ to describe the concept of a ‘critical or important operational function’. EIOPA also agreed to drop plans that require insurers to assume that their purchase of goods or services from, or entry into arrangements with, cloud providers constitute outsourcing arrangements that are subject to its guidance in cases where the matter is unclear. They also deleted wording around having ‘directly measurable’ service levels specified in contracts after the firm said it was it was unclear how insurers could comply with that obligation.

Commenting on the guidelines, head of Fintech propositions at Pinsent Masons, Luke Scanlon said: “When regulators bring out guidance and impose rules which vary slightly from other requirements for regulated entities, this can lead to unintended consequences and cost for financial institutions. Ultimately, this cost is borne by the customer and therefore it is positive to see that EIOPA has taken the views of the sector into account and made some adjustments to its final guidance.

“In our response to the consultation we put forward the views of our clients impacted by this guidance to ensure that the final guidelines are fit for purpose. This is particularly important following recent data from the Bank of England which shows that insurers are falling behind with regards to the adoption of cloud based technology in comparison to banks. We hope that these changes will now facilitate far greater adoption across the sector.”

All new cloud outsourcing arrangements entered into or amended on or after 1 January 2021 will be subject to the guidelines, while insurers will have until the end of 2022 to bring cloud outsourcing contracts entered into prior to that date into line with the new requirements.

First Interest Rate Rise in 10 Years Adds to Mortgage Burden

An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed. The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited, or borrowed.

Many homeowners face higher mortgage payments after the Bank of England said it could no longer tolerate the inflation level and announced the first increase in interest rates in more than 10 years.

Despite weak growth and mounting uncertainty over the terms of Britain’s exit from the European Union, Threadneedle Street increased interest rates to 0.5% from 0.25% on Thursday, reversing emergency action taken immediately after the Brexit vote.

The move will add £22 a month to the costs of servicing the average variable rate mortgage, although the recent popularity of fixed-rate home loans means it will initially affect only 43% of home buyers.

Mark Carney, the Bank’s governor, said it was time “to ease our foot off the accelerator” but sought to reassure consumers and businesses that the first increase in rates since July 2007 was not the start of a sustained upward trend.

As things stand, Threadneedle Street is expecting two further quarter-point increases in interest rates by the turn of the decade, which would leave them at 1%.

The Bank said that the financial crisis and deep recession of a decade ago had permanently damaged the economy’s growth potential. Brexit had further reduced the “speed limit” at which the United Kingdom could operate without generating higher inflation, Carney said.

Still, the rate decision sparked sharp questions over the ability of consumers to repay loans amid rising use of personal borrowing and credit cards to offset higher prices.

Households are, in total, expected to face about £1.8bn in additional interest payments on variable rate mortgages in the first year alone, according to analysis by the accountancy firm Moore Stephens. The firm also estimates that households will pay as much as £465m in additional costs on credit cards, overdrafts, personal loans and car finance.

The Bank faced criticism for the timing of its decision due to weak readings on the economy and a lack of clarity from the Brexit talks.

Fear And Loathing In The Stock Market

A recent bearish hike in interest rates spooked stock market investors from around the globe. While a major shakeup may not yet be in the cards just now, experts say it’s a sign of things to come as the world’s major banks move to end easy policy.

A stock market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately, such as shares of private companies which are sold to investors through equity crowdfunding platforms. Investment in the stock market is most often done via stockbrokerages and electronic trading platforms. Investment is usually made with an investment strategy in mind.

The European Central Bank (ECB) is expected to announce a 50 percent reduction in the €60 Billion of bonds it buys each month. The Bank of England and Federal Reserve also meet next week.

James Paulsen, Chief Investment Strategist at Leuthold Group said, “This is a good example of the future. If it goes on too long and too fast then it’s going to be too severe. If it’s pretty measured, I think we can handle rising rates for a while.”

The yield on the 10-year Treasury note jumped to 2.47 percent, after having breached the technically important 2.40 level just the day before.

By the afternoon, yields settled back and the 10-year was at 2.44 percent.

Stocks traded sharply, as yields touched their high point, with the downs averaging 190 points before erasing about half its losses.