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UK: PRA proposals to Increase the Part VII Transfer Transaction Fee

On 13 February 2019, the PRA published Policy Statement (PS) 3/19, which sets out the PRA’s final policy on updating periodic fees and transaction fees for insurers. Notably PS3/19 implements a substantial increase in Part VII FSMA regulatory transaction fees. This change will come into effect on Friday 1 March 2019.

The Part VII transaction fee hike comes at an interesting time, following a period of increased popularity for Part VII transfers which are regarded as a key tool for Brexit restructuring. Part VII transfers allow UK firms to transfer parts of their business to EEA entities to ensure that they continue to benefit from passporting rights after exit day, currently on 29 March 2019.

The Current Fee Structure

Under the current PRA Rulebook the transferor in a Part VII transfer pays the PRA a regulatory transaction fee of:

  1. £9,250.00 for transfers involving long term insurance business; or
  2. £5,000.00 for all other transfers.

In addition to the regulatory transaction fee, the PRA’s current policy is that a firm entering into a Part VII transfer may be required to pay a special project fee (“SPF”). The SPF is calculated by multiplying the hours worked by the PRA in relation to the firm’s restructuring, by the graded hourly rate (the rates are found at Rule 5.7(2) of the PRA Fees Rulebook).

The New Fee Structure

As of 1 March 2019, there will be a single regulatory transaction fee of £20,000.00 regardless of the size of the transfer. Whilst this is a sizeable fee increase, according to the PRA the £20,000.00 charge reflects the approximate average cost to them in processing a transaction across all types of Part VII transfers.  Furthermore, the PRA have argued that the fee increase will not discriminate against smaller transactions because they consider that their costs incurred in processing applications does not tend to vary significantly with the size of the firm.

At least one respondent to the proposal to change the fees (see CP28/18) suggested that the fixed fee could act as a deterrent for smaller firms considering a Part VII transfer, or make it less attractive. The PRA responded by stating that they would consider any application for a fee modification or waiver in line with its usual process for exceptional cases.

The policy in respect to payment of SPFs has also changed. The PRA will levy a SPF for restructuring transactions expected to exceed £25,000 in transaction fees, which are calculated in accordance with the current system. Where this threshold is reached an SPF is charged for the full amount calculated, not just the excess over £25,000. If a firm carries out a restructuring which attracts a SPF and a Part VII transaction fee, the PRA may choose to levy an SPF to cover the entire cost of all related regulatory work conducted by the PRA, including the regulatory transactions. In these circumstances, the PRA would expect to waive the regulatory transaction fee for the Part VII.

FCA Transaction Fees

For dual regulated firms we note that there have been no similar updates in respect to the fees charged by the FCA. The FCA transaction fees, which are paid on top of the PRA fees, continue to be:

  1. £9,250.00 for transfers involving long term insurance business; or
  2. £5,000.00 for all other transfers.