On 4 August 2016, HM Treasury published a consultation paper inviting views on the technical policy details relating to mutual deferred shares as set out in the draft Mutuals’ Deferred Shares Regulations 2016.
The regulations will allow mutual insurers to issue a new type of capital instrument created by the Mutuals’ Deferred Shares Act 2015. They aim to provide clarity and consistency about the characteristics of mutual deferred shares, so as to facilitate the development of a coherent market.
The consultation is structured as follows:
- Chapter 2 explains the main features of the regulation and asks a number of questions regarding policy issues;
- Chapter 3 explains the estimated impact on business that the regulations could have and seeks feedback to improve this assessment; and
- Chapter 4 explains some high level tax questions that may arise for mutuals issuing mutual deferred shares which will need to be the subject of future work.
Annexed to the consultation paper is a full draft of the regulations and a summary of the consultation questions, together with an explanation of how to respond.
The government expects that the regulators may develop additional guidance on mutual deferred shares. The FCA indicated in its June 2015 policy statement on restrictions on the retail distribution of regulatory capital instruments that it would keep the market under review and consider introducing requirements for the retail distribution of mutual insurers’ deferred shares if it deems necessary. The PRA has previously issued a number of supervisory statements about insurers’ capital and, following the finalisation of the mutual deferred shares regulations, may consult on a supervisory statement outlining its expectations for how mutual insurers can demonstrate they meet the conditions for issuance and gain PRA consent.
The consultation will run until 30 September 2016. Once the government has considered the responses it receives, it will publish a statement of its conclusions before laying the final regulations in Parliament supported by a final impact assessment. The Act specifies that the regulations will be subject to an affirmative vote of both Houses to approve them before they can come into force. The consultation paper states that this process is expected to take until the end of 2016.