The Financial Services Authority and Prudential have come to blows. The regulator is insisting that the British insurer raise more capital to complete its mega takeover of Asian rival AIA. Prudential is haggling furiously to avoid this, fearing that it might further stretch the already strained economics of the deal. The embarrassing stand-off has delayed the giant rights issue Prudential needs to fund the takeover, and threatens to stain the reputation of the group's management team. It may even derail a transformative deal that would seal Prudential's position as a British global champion.
It has been suggested that the FSA has impeded Prudential's ambitions by imposing idiosyncratic rules on the insurer – something that would be wrong if true. The FSA has supposedly thrown up obstacles because of the scars left by Royal Bank of Scotland's disastrous takeover of ABN Amro. Hector Sants – in his last months as chief executive of the regulator – does not want to be remembered for another calamitous cross-border merger.
But this may be a misreading of the situation. Rather the FSA may be approaching the transaction in a prudent but fair spirit. Although it is hard to know what has been going on behind the FSA's doors, there is no reason to believe that unusually onerous requirements have been placed on Prudential. True, the FSA has been waspish about allowing the group to count pockets of capital within AIA's subsidiaries towards its group total. But there is a good reason for this. Prudential might not be able to patriate this capital back to the UK in an emergency were the local regulators to oppose it. Unsurprisingly, the FSA takes the view that UK policyholders' interests should not be jeopardised by regulatory decisions on the other side of the world.