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Posted in Market developments, UK

UK: Consultation on New Regulatory Framework for Insurance Linked Securities Opens

The FCA have opened a consultation on proposals to amend the FCA Handbook to incorporate a new regulated activity of “insurance risk transformation”.

The consultation documentation can be found on the FCA’s site, here. Responses are due by 14 March 2017.

The FCA are proposing changes to parts of the Handbook to incorporate Insurance Linked Securities (“ILS”),  additional rules for Insurance Linked Securities business and proposals for fees for the registration of protected cell companies.

In short, the proposals are to regulate ILS such that retail consumers are unable to purchase them – ILS would only be sold to Qualified Investors.

ILS are financial instruments, which are sold to investors, where the value of the security is linked to an insurable loss event. ILS are an alternative form of risk mitigation for insurance and reinsurance firms, offering a means for them to transfer risk to the capital markets through insurance SPVs.

The Government is keen to attract ILS business to the UK – hence the new regulated activity of insurance risk transformation proposed by HM Treasury in November 2016 and the new regulatory framework proposed by the FCA.