The PRA is consulting on a draft statement of policy setting out its approach to ring-fencing transfer schemes (RFTS).

Part VII of the Financial Services and Markets Act 2000 (FSMA) provides for transfers of insurance or banking business to be sanctioned by the Court and sets out the framework for the process leading to that approval.  The Financial Services (Banking Reform) Act 2013 made further provision for an additional process for transfer of business known as an RFTS.  The purpose is to enable firms to restructure their businesses in order to comply with the ring-fencing requirements that will apply from 1 January 2019.

This consultation paper CP33/15 focuses on the PRA’s functions relating to this particular transfer of business.  It will be of interest to banks which will be required to ring-fence their activities, skilled persons commissioned to author the scheme report for submission to the court as part of the RFTS application, and other financial institutions and customers who have dealings with ring-fenced bodies.

Background

The Financial Services (Banking Reform) Act 2013 gave the PRA new powers in respect of RFTS, giving the PRA responsibility for :

  • nominating or approving the author of the scheme report – s109A(2) FSMA
  • approving the form of the scheme report – s 109A(3) FSMA
  • consenting to an application to the court for an order sanctioning an RFTS – s 107(2A – this is new requirement that does not apply for banking business transfers
  • if the transferee is an EEA firm, certifying to the court that its home state regulator has been notified of the proposed scheme and that 3 months have elapsed since notification.

The purpose of the draft statement of policy is to set out the PRA’s approach these matters.

Key stages of the initial process

  • Initial dialogue between PRA and firm to understand scope, timetable, nature of transfer and the nominated skilled person
  • Decision whether to approve form of scheme report, and nomination of skilled person, in consultation with FCA
  • PRA to certify to court consent to the application if appropriate
  • Directions hearing – timetable for notification to public and receipt of submissions
  • PRA to issue certificate of financial resources to court if appropriate (for solo regulated transferees, FCA issues the certificate)
  • If transferee is an EEA firm, PRA to certify re home state notification
  • Court determines whether to sanction scheme and issue orders to effect the RFTS

The draft policy statement provides guidance on how the skilled person should approach to the statutory question, on other matters to be included in the scheme report, on qualification and appointment of the skilled person, and on other matters that PRA will take into account in confirming consent (or not) to the RFTS application to the court,

Next steps

The consultation closes on Friday 30 October 2015.  A final statement of policy on the PRA’s approach to RFTS will then be issued.  The ring-fencing requirements are due to apply from 1 January 2019.