The Financial Conduct Authority (FCA) has published Finalised guidance on the FCA approach to the review of Part VII insurance business transfers (FG18/4).
The finalised guidance sets out the FCA’s approach to reviewing insurance business transfer schemes under Part VII of the Financial Services and Markets Act 2000. Although the Prudential Regulation Authority leads the Part VII process, the FCA is also involved in the regulatory process. Specifically, the FCA is entitled to be heard by the court on an application to sanction the Part VII transfer.
The FCA consulted on its guidance between May and August 2017 (GC17/5). In light of some of the feedback received, the finalised guidance contains a few amendments to the version consulted upon. In particular the following may be of interest:
- The FCA has amended the introductory statement to clarify that the purpose of the guidance is to provide high-level information and examples to help firms understand FCA expectations and help prepare for the transfer. The FCA has amended the guidance to clarify that the purpose is to help firms identify areas of the proposed transfer that might differ from FCA expectations and therefore help firms to avoid delays to the transfer timetable. The FCA will not take a ‘comply or explain’ approach to the guidance.
- The FCA has clarified its expectations in relation to the independent expert’s approach to identifying competition relation matters. Although the FCA does not expect independent experts to be competition specialists, it will expect any competition concerns to be highlighted in the report.
- The FCA has clarified the guidance to include examples of appropriate scheme wording on transferring business and transferring liabilities. The guidance provides a number of examples of drafting which the regulator might challenge.
- The FCA has amended the relevant sections of the guidance to provide greater clarity regarding the type of changes to the proposed scheme that would require a return to court.
- The guidance has been amended to provide further details on the rationale for the FCA’s expectations in relation to legal advice in relation to non-EEA courts recognising insurance business transfers. Where the independent expert has taken advice about the recognition of a transfer, the FCA do not expect the independent expert to rely only on the advice but should consider the position should the advice turn out to be incorrect. The guidance now provides examples of mitigations firms should consider and the analysis that the FCA expects independent experts to carry out.
- Clarification on the FCA expectations in relation to broker communications. The FCA will expect brokers and other authorised third-parties to help facilitate the notification process.
- Where cross-border transfers are concerned, the FCA believes that insufficient analysis is provided of regulatory protections, such as the Financial Ombudsman Service and Financial Services Compensation Scheme. The regulator’s expectation is that applicants aim to preserve ombudsman protection, whether under voluntary or compulsory jurisdiction.