The Prudential Regulation Authority (PRA) has published a consultation on a draft supervisory statement: International insurers: the Prudential Regulation Authority’s approach to branch authorisation and supervision (CP30/17). In CP30/17, the PRA seeks views on its proposed approach to the authorisation and supervision of third-country insurers that carry on business in the UK through a branch or subsidiary.CP30/17 will be relevant to all firms that currently carry on business in the UK using an EEA passport and those that are seeking to operate in the UK after Brexit. The PRA’s position, absent any agreement between the UK Government and European Union in relation to passporting, is that insurers will need to apply for authorisation in order to undertake regulated activities in the UK after the UK withdraws from the European Union (although there may be a “temporary permissions” regime to cover any agreed implementation period).  These firms would then be treated as other third-country branches.

CP30/17 sets out the factors that the PRA will consider when reviewing applications from a firm to operate as a third country branch in the UK. For approval, the PRA needs to be satisfied that:

  • the home jurisdiction’s prudential supervisory regime is ‘broadly equivalent’ to that in the UK;
  • the firm is capable of being supervised effectively by the home supervisor;
  • the whole firm is able to meet the Threshold Conditions;
  • there is sufficient supervisory co-operation with the home supervisor;
  • UK policyholders of the firm will be given the appropriate priority in an insolvency and there is no discrimination against policyholders whose business is written in the UK in the event of a winding-up; and
  • the firm is able to meet relevant PRA rules, including the Senior Managers and Certification Regime applicable to all individual within the branch.

In particular, the PRA will place considerable weight on an assessment of the quality and extent of cooperation with the home supervisor. The PRA will also take into account the scale of branch activity covered by the Financial Services Compensation Scheme (FSCS) and the impact of any possible failure of the firm on the financial system and insurance market.

In CP130/17 the PRA proposes that firms which are likely to have more than a £200 million of FSCS-protected liabilities should apply for authorisation as a UK subsidiary rather than conducting business through a branch. A subsidiary is a separate legal entity to its parent company and must meet regulatory capital requirements. The PRA proposes to consider additional factors to assess the impact of the failure of a third-country branch on its objectives. These include:

  • the availability of substitute products that would offer a policyholder a similar level of protection;
  • the branch’s position in the market, particularly assessing the size of the market share in a niche market;
  • level of connectivity of a branch in the industry it operates within: for example, the extent and complexity of inter-firm transactions; and
  • significance of the UK operations of the branch compared to business within other jurisdictions.

Notably, the PRA state that it believes no branch currently operating in the UK would, as a result of these factors, be deemed sufficiently significant to the wider insurance market and financial system to be required to subsidiarise.

View: PRA consult on approach to branch authorisation after Brexit