On Monday 15 May 2017 the Financial Conduct Authority (FCA) published a consultation paper on new proposed guidance on its approach to reviewing applications to transfer insurance business under Part VII of the Financial Services and Markets Act 2000 (FSMA) (a Part VII Transfer). Comments are requested by 15 August 2017.
In accordance with the terms of a Memorandum of Understanding between the FCA and Prudential Regulation Authority (PRA), the PRA takes the lead on managing the process of a Part VII Transfer and has responsibility for approving the appointment of an independent expert, approving notices, issuing the necessary certificates and corresponding with overseas regulators if necessary. The FCA has an active role in the process and must be consulted with by the PRA at all stages. Both regulators may provide reports to the Court and attend the final Court hearing.
The FCA says that it has produced the draft guidance partly in response to requests from industry practitioners to help them understand the FCA’s particular approach and requirements which may be different to that of the PRA, as it has different regulatory objectives. Also, to help applicants reduce costs by ensuring a smooth review process and avoiding additional work which would arise if the FCA rejected draft documents prepared by the applicant or independent expert.
Extensive guidance on the procedural aspects of Part VII transfers is already contained in Chapter 18 of the Supervision Manual (SUP 18) in the FCA Handbook. This proposed new guidance is intended to be read alongside SUP 18. The new guidance gives more detail about the sorts of issues which will give the FCA concern when considering an applicant’s documents and the independent expert’s report. It gives examples to illustrate issues the FCA has come across on previous Part VII Transfers and indicates the FCA’s reasoning behind decisions it has taken in certain cases. The FCA hopes that this will give an applicant an idea of what sort of questions or challenges the FCA may raise and enable an applicant to draft its application to ensure minimal regulatory challenge.
The draft guidance covers:
Chapter 2 – Initial considerations – the FCA has highlighted the importance of early contact with both regulators, preparation of a realistic timetable and early notification of any unusual or complex features of the transfer or identified risks.
Chapter 3 – Review of the appointment of the Independent Expert – the FCA expects the independent expert to demonstrate independence, sufficient skill, experience and resources. The chapter lists the criteria the FCA will consider when assessing the independent expert and the information/documents to be supplied to support the independent expert’s nomination.
Chapter 4 – Overview of the FCA’s approach – the chapter sets out detail on the matters the FCA will consider and comment on to the applicant and to the Court in the FCA’s report. These include business rationale for the transfer, background regulatory issues, competition considerations, changes affecting policyholders, on-going regulatory requirements, objections and unresolved issues.
Chapter 5 – the Scheme document – the FCA has referred to particular areas of interest:
- Clarity of business and liabilities being transferred
- Continuity of proceedings
- Changes to the Scheme
- Changes to the effective date and requests to the Court to make an ancillary order
Chapter 6 – Review of the form of the Independent Expert’s report – the chapter sets out in some detail the FCA’s expectations on the content of the independent expert’s report. The FCA emphasises that its review will not be limited to a high-level check of the contents of the report. It will want to be satisfied the report contains sufficient detailed analysis and reasoning, critical review and challenge of the applicant’s position.
Chapter 7 – Review of the communications strategy – policyholder communications is a large and important part of the FCA’s overall conduct consideration and the chapter provides guidance on the FCA’s expectations on:
- The definition of Policyholder
- Identifying and tracing Policyholders
- Content of communications
- Individual notifications
- Including sufficient information with sufficient prominence
- Document translation
- The need for further communications before the final hearing
- Deficiencies in notifications
Chapter 8 – Applications for dispensation from the Transfer Regulations – the chapter sets out the criteria for how the FCA will judge whether to object to an application for dispensation from the Transfer Regulations.