On 10 April 2015, the PRA issued a consultation paper on a draft supervisory statement relating to the right for firms to recognise assets and liabilities valued under UK GAAP principles for the purposes of Solvency II, where the two are consistent.
Article 9 of the Solvency II regulation permits a firm to recognise and value assets and liabilities under UK GAAP for Solvency II purposes if:
- UK GAAP is consistent with Article 75 of Solvency II.
- The valuation method is proportionate to the nature, scale and complexity inherent in the business of the undertaking.
- The process of valuing the assets and liabilities using international accounting standards (IRFS) would impose costs that are disproportionate with respect to the total administrative expenses of the firm.
The draft supervisory statement sets out the PRA’s expectations of firms that wish to apply the Article 9 derogation. In particular, the PRA expects firms to provide supporting evidence that the requirements of Article 9 are satisfied. The draft supervisory statement lists those UK GAAP treatments that the PRA considers to be consistent with Article 75 of Solvency II.
A copy of the consultation paper can be found here:http://www.bankofengland.co.uk/pra/Documents/publications/cp/2015/cp1615.pdf.
The deadline for comments on the draft supervisory statement is 10 July 2015.