PRA and FCA consult on insurance special purpose vehicles

The PRA and FCA have issued a consultation paper on the authorisation and supervision of insurance special purpose vehicles (ISPVs).

An ISPV is used in the transfer of risk from a (re)insurer to the capital markets by issuing insurance linked securities (ILS). The consultation paper should be read alongside HM Treasury’s consultation on the new regulatory and tax framework for ILS. The HM Treasury consultation proposes, amongst other things, a new regulated activity of risk transformation.

The FCA and PRA consultation includes:

  • Draft amendments to the PRA Rulebook
  • Draft PRA supervisory statement
  • Draft FCA statement
  • Draft ISPV application form
  • Draft notification form for new cells in a multi-arrangement ISPV

The consultation paper proposes that the PRA will be the lead regulator and the structure of ISPVs will be governed by FSMA, the Risk Transformation Regulations and Solvency II.

The paper proposes that where a clear and straightforward application is made and there is prior engagement with the regulators then a result can be expected within 6-8 weeks of an application being made. Overall, the PRA expects to determine applications within 6 months.

The PRA considers in its draft supervisory statement that independent legal opinions may be useful for ISPV applicants who need to demonstrate that the contractual transaction documents meet the regulatory requirements.

The PRA and FCA consultation closes on 23 February 2017. HM Treasury plans to introduce regulations to implement the new ISPV regime in the Spring of 2017. Going forwards, the PRA and FCA acknowledge that the policy will be kept under review to assess whether any changes may be necessary as the ILS market grows and as a result of Brexit.

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