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The UK is pressing ahead with plans to create a resolution regime to deal with the failure of big insurance companies, saying the “swift and decisive” action to rescue Silicon Valley Bank’s UK arm in March underlined the importance of such arrangements.

The government said on Wednesday that it would legislate “when parliamentary time allows” to give the Bank of England new powers and flexibility to manage the demise of a large insurer, mirroring the resolution regime for banks, which was established in 2009.

Following a public consultation on the government’s plans, the Treasury said the insurance regime would provide the central bank with “powers to take prompt action to stabilise and manage an insurer that is failing or likely to fail, subject to appropriate safeguards”.

“In the banking sector, the swift and decisive resolution of Silicon Valley Bank UK . . . demonstrated how the UK’s existing resolution framework enhances UK financial stability,” it added.

HSBC bought the UK arm of the failed technology-focused lender in March for a symbolic £1 after last-minute talks led by Rishi Sunak and the BoE. The central bank is reviewing its resolution regime for smaller banks after the collapse of the California-based Silicon Valley Bank.

The Treasury said the proposed insurance regime would seek to preserve continuity of insurance cover for policyholders, avoid the “significant value destruction” for the sector of an insolvency process, and support public confidence in insurers.

The Association of British Insurers welcomed how the government’s plans “focus on ensuring a level-playing field” for insurers.

The industry is still haunted by the failure of Equitable Life, which came close to collapse two decades ago, with policyholders losing billions of pounds and the government paying more than £1bn in compensation.

Like the EU’s arrangements, which were announced two years ago, the UK plans for an insurance resolution regime allow for the writedown of customer benefits, among other liabilities. Such proposals have been controversial with consumer groups.

But both the EU regime and the UK plans include a “no creditor worse off” safeguard, meaning that no customer should be worse off than they would be if the insurer had become insolvent.

The UK plans also provide top-up payments for those customers who are protected by the Financial Services Compensation Scheme, which provides redress when insurers fail in certain circumstances.

The Treasury said that the public consultation, issued in January, had received “near unanimous support” from respondents that the resolution regime should align with international standards.

The government said that Lloyd’s of London, the global insurance market place, would not fall within the scope of the regime.

It added that “risks Lloyd’s might pose as a systemic marketplace, rather than an insurance firm or group” are mitigated by alternative resolution arrangements.

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