Out-Law / Your Daily Need-To-Know

Out-Law News 3 min. read

FCA finalises insurance business transfer guidance


New guidance setting out how the Financial Conduct Authority (FCA) will scrutinise proposed transfers of insurance business has been finalised by the regulator.

The guidance explains the FCA's overall approach when reviewing proposals for transfers under Part VII of the Financial Services and Markets Act (FSMA). It also sets out factors that firms should consider before approaching the FCA and the documents they will be required to provide as part of the application process and to support their choice of independent expert (IE), who will then report to the court on the terms of the proposed scheme.

The FCA has provided one or more illustrative examples in each section of the guidance, which address issues that have arisen during previous Part VII transfer review applications. These examples are not intended to be prescriptive, but rather to "give applicants an expectation of the possible question and challenges we may raise on a particular case", it said.

The final guidance incorporates minor revisions and clarifications as a result of the feedback received by the FCA during its consultation process. In particular, it has clarified its expectations for the analysis of regulatory protections post-transfer, particularly in cross-border cases; and its expectations of the IE in relation to identifying potential competition considerations and 'materiality'. It has also provided more clarity about the types of future changes to the scheme that would require a return to court.

The FCA has also redrafted the introduction to the guidance, and the wording around its examples, "to clarify that the purpose of the guidance is to help firms identify areas of the transaction that differ from the expectations and examples covered in this guidance early in the process and avoid delays closer to the court dates".

"We do not want the guidance provided in this document to make the process more unwieldy or costly than it currently is," it said.

Part VII FSMA sets out the statutory mechanism allowing insurers and reinsurers to transfer portfolios of insurance business from one entity to another, subject to court approval. The process is led by the Prudential Regulation Authority (PRA), which is also responsible for providing certificates and other specific regulatory functions.

However, FSMA also gives the FCA an active role in the process, including consultation at all stages and a right to be heard by the court on applications to sanction a Part VII transfer. Both regulators also usually provide reports to the court setting out their assessment of the transfer scheme, and the court will not usually authorise a transfer if one or both of the regulators objects.

The guidance is intended to be read alongside the relevant chapter of the FCA Handbook (SUP 18), and also the PRA's April 2015 statement of policy setting out its approach to insurance business transfers.

The FCA's guidance confirms that it will consider each application on its own merits and circumstances, and will "take a proportionate approach" to its assessment. It states that the approach set out in its guidance will not necessarily be appropriate for every transfer, but that it "expect[s] applicants to explain why they have diverged from the guidance where it is relevant to a particular Part VII transfer".

Firms contemplating a Part VII transfer should contact both the FCA and the PRA "as early as possible", and not assume that each regulator will automatically keep the other informed. This initial contact can be as simple as "simply copying the initial email to the PRA to ourselves, or vice versa", the FCA said.

Firms are expected to provide the FCA with "a reasonably detailed proposed timetable for the transfer at as an early a stage as possible", so that the regulator can suggest changes if it has any concerns. This timetable must "allow adequate time for each step". Applicants are encouraged to meet with the FCA at an early stage, particularly if there are "unusual or complex elements" to the proposed transaction.

The guidance also covers the appointment of the IE and what the IE should cover in its reports to the court; the areas that the FCA will take particular interest it when it reviews the scheme document and the IR's report; and how the FCA will consider applications for dispensations from the obligations to notify all policyholders and other interested parties.

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.