Lloyd’s sanctions clauses guidance
On 17 October 2014, the Society of Lloyd's published a market bulletin which sets out its general position regarding the use and function of sanctions clauses in insurance and reinsurance contracts.
The scope of the guidance relates primarily to the EU and UK sanctions regimes but many of the principles may apply to US sanctions. The guidance includes information on:
- the purpose of a sanctions exclusion clause;
- asset freezes;
- trade sanctions;
- considerations when applying a sanctions clause;
- other sanctions regimes, including the US;
- amendments and variations to standard wording;
- insurance subject to foreign law;
- due diligence and sanctions clauses;
- classes of business for which managing agents should consider deploying sanctions clauses; and
- subscription market issues.
In addition to the guidance, Lloyd’s has issued an abridged version which is attached at appendix 1 to the market bulletin. The purpose of this abridged version is for brokers and managing agents to inform clients and counterparties of Lloyd’s general position regarding the use and function of sanctions clauses on insurance contracts, should their clients seek this assurance.
PRA publishes CP22/14 on its approach to with-profits insurance business
On 14 October 2014, the Prudential Regulation Authority (PRA) published a consultation paper, CP22/14, which sets out proposed changes to the PRA's regulation of UK with-profits insurance business. The consultation paper:
- clarifies the PRA’s role and objectives in relation to with-profits in light of the framework of co- ordinated supervision of with-profits business as set out in the with-profits memorandum of understanding with the Financial Conduct Authority (FCA);
- explains how the new PRA Rulebook will affect the current designation of with-profits provisions within the existing shared Handbook; and
- proposes changes in anticipation of prudential regulations associated with Solvency II.
The PRA is proposing to delete all existing PRA-designated provisions in chapter 20 of the Conduct of Business sourcebook (COBS) and replace them with three new rules relevant to the prudential regulation of UK with-profits insurance business.
Appendices to CP22/14 include proposed changes to the PRA Rulebook and a draft supervisory statement.
Comments are requested by 14 January 2015. The PRA will publish a policy statement with feedback, finalised rules and final supervisory statement in early 2015. The changes to the rules will come into force from 1 January 2016.
PRA publishes CP21/14: Policyholder protection
On 6 October 2014, the PRA published a consultation paper, CP21/14, which sets out proposed changes to the PRA’s rules for insurance policyholder protection. These proposals aim to align the existing insurance compensation rules more closely with the PRA’s statutory objectives, and will
contribute to the future operational effectiveness of the Financial Services Compensation Scheme (FSCS) in providing continuity of cover, payment of benefits falling due and compensation in the event of the failure of an insurance firm.
The proposals relate to:
- FSCS insurance limits: there are increased limits for compensation for certain insurance products to reflect the significance to policyholders of the risk insured and the consequences of cover being withdrawn;
- successor firms: FSCS protection will be provided post-transfer for policyholders who have outstanding protected claims against an insurer whose claims were covered by the FSCS before their policies transferred to a successor firm;
- assignment and subrogation: the FSCS will be given flexibility in the way it seeks recoveries from failed insurers and third parties after paying out compensation, through new powers of automatic and electronic assignment and automatic subrogation of policyholders’ rights.
Appendices to the consultation paper include proposed changes to the PRA Rulebook and a draft statement of policy.
Comments are requested by 6 January 2015. The PRA plans to publish a policy statement with a summary of the feedback, final rules and an updated statement of policy for the FSCS in the first half of 2015.
The consultation paper says that when Solvency II comes into effect, certain provisions will affect how firms calculate their FSCS levy under chapter 21 of the Policyholder Protection Part. The PRA will need to make amendments to Chapter 21 to take account of these changes, and intends to consult on a set of proposals in 2015 once the reporting requirements under Solvency II are clearer. As part of that revision, the PRA also intends to address a number of small inconsistencies in the calculation mainly relating to the cross reference in FEES 6 tariff (FSCS calculation) to FEES 4.
ABI guidelines on the use of private investigators
On 3 October 2014, the Association of British Insurers (ABI) published guidelines on the instruction and use of private investigators (PIs). These guidelines, which are dated September 2014, apply to the instruction of PIs by insurers or their appointed lawyers or other authorised agents in the UK. They are intended to provide a framework for insurers to devise their own procedures for investigating claims from policyholders and third parties. The guidelines are designed to deliver a framework where insurers appoint with confidence only PIs who operate within the confines of the law and to high ethical standards.
Among other things, the guidelines outline the Financial Conduct Authority’s (FCA) requirements relating to outsourcing, which are relevant to firms using a PI. The guidelines say that the FCA expects insurers to ensure that the work performed by PIs, which impacts upon their claims handling practices, is consistent with their regulatory obligations under the Senior Management Arrangements, Systems and Controls sourcebook (SYSC), the Principles for Businesses (PRIN) and the Insurance: Conduct of Business sourcebook (ICOBS), and they are able to evidence this. It is therefore particularly important that insurers are aware of the following sections of the FCA Handbook and understand the impact they have on their practices in this area:
- ICOBS 8;
- Principle 2 (skill, care and diligence), Principle 3 (management and control) and Principle 6 (treating customers fairly);
- SYSC chapters 3 and 13.
The guidelines state that the guidance is not confirmed by the FCA. However, the FCA, the Information Commissioner’s Office and the Association of British Investigators have been consulted in
the development of the guidance. Adoption of the guidelines is voluntary and entirely at the discretion of each individual insurer.
Presidency publishes compromise proposal on IMD2
On 29 October 2014, the Presidency of the Council of the European Union published a sixth compromise proposal relating to the European Commission's proposed Directive amending the Insurance Mediation Directive (IMD) (known as IMD2), which the compromise proposal refers to as a Directive on insurance distribution.
The cover note for the compromise proposal, which is dated 28 October 2014, says that additions to the text of the fifth compromise proposal, which was published on 20 October 2014, are marked in underlined bold and deletions are indicated in strikethrough.
Council of the European Union publishes PRIIPS KID Regulation
On 24 October 2014, the Council of the European Union published the text of the proposed Regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) (the PRIIPS KID Regulation).
EIOPA consults on guidelines on product oversight and governance arrangements by insurance undertakings
On 29 October 2014, the European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on product oversight and governance arrangements by insurers. The consultation is on 12 proposed guidelines to better protect consumers during the early stages of product development to prevent miss-selling of insurance products due to poor product design.
EIOPA wants to ensure that:
- insurance products are always designed with specific consumer needs in mind;
- insurance products are always tested before being brought to the market;
- insurers only use distribution channels for products with the knowledge and expertise needed to inform and advise the consumer about the products; and
- insurers consider how too many product variants can be bad for the consumer.
The guidelines are addressed to national authorities. They make clear that full responsibility for compliance sits with insurers, even for products designed by third parties.
Comments are requested by 23 January 2015. EIOPA expects to publish a final report on the consultation and to submit the guidelines for adoption by its Board of Supervisors in the second quarter of 2015.
EIOPA publishes 2015/16 action plan for colleges of supervisors
On 30 October 2014, the European Insurance and Occupational Pensions Authority (EIOPA) published the action plan 2015/16 for colleges of supervisors, a list of cross-border insurance and re- insurance groups for which a college is in place and updated its webpage on colleges of supervisors.
The focus of the two-year action plan, which is dated 22 October 2014, is the implementation of Solvency II in 2016 and the major changes for supervision under the new regulation. The already approved and existing plan for 2015 has been updated to reflect recent developments and findings.
In order to achieve this objective the following Solvency II related themes have been defined as priorities and consistent basis for the college work in 2016:
- consideration of the appropriate quality and adequate set of data and information for the college to form a shared view on the risks of the group and its major solo entities;
- to improve the transparency of college work;
- whether there are there any plans for sub-group supervision;
- whether the own risk and solvency assessment and group solvency calculations are appropriate and consistent across the group;
- agreement on a procedure for reviewing that the full or partial internal model is still appropriate for group and solo solvency calculation purposes in the light of developments within the group entities or external environment.
IAIS publishes paper on group corporate governance
On 27 October 2014, the International Association of Insurance Supervisors (IAIS) published an
issues paper which illustrates the different approaches to governance structures of insurance groups.
The IAIS says that the need for this paper arose due to the growing awareness of the variety of approaches to governance adopted within insurance groups, and the different impact and demands those approaches can have on control functions which form a key element of the corporate governance framework of the group.
The objectives of the issues paper are to create awareness for insurers and supervisors of the challenges of centralised and decentralised governance approaches and possible solutions for these challenges, which should be taken into account when setting up and assessing the corporate governance framework of an insurance group. For that purpose the issues paper:
- identifies, to the extent possible, key characteristics relevant to good governance in different models;
- identifies challenges or risks to good governance arising from more centralised or more decentralised models adopted within an insurance group, including the impact a particular model adopted within a group can have on the effectiveness of its control functions;
- provides practices to insurers and supervisors which could help to achieve, within different models, the outcomes intended by applicable standards and objectives of good governance.
IAIS publishes paper on combating bribery and corruption
On 27 October 2014, the IAIS published an issues paper on combating bribery and corruption. The IAIS says that given an increasing international focus on bribery and corruption, and in view of the risks they pose to the insurance sector, its Financial Crime Working Group considered it timely to explore how this activity affects insurers and insurance intermediaries as well as how insurance supervision can help to ensure that insurers and insurance intermediaries manage such risks effectively.
The paper considers:
- the relevance of bribery and corruption to the insurance sector, highlighting a number of high- profile cases to date involving the insurance sector;
- the relationship between measures to combat bribery and corruption and frameworks for anti- money laundering/countering the financing of terrorism;
- the role of the insurance supervisor in combating bribery and corruption;
- the approaches that some supervisors use in combating bribery and corruption.
One of the conclusions of the paper is that, as shown by the cases illustrated in annex 1 to the paper, the insurance sector is vulnerable to bribery and corruption. Annex 2 to the paper provides an outline of major international developments in the area of bribery and corruption. These developments are not specific to insurance but are included as general background information because they affect the insurance sector in the same way as other areas of business.
IAIS publishes an application paper on approaches to conduct of business supervision
On 27 October 2014, the IAIS published an application paper on approaches to conduct of business (COB) supervision. The paper identifies approaches to COB supervision that IAIS members may wish to consider when supervising compliance with the requirements of insurance core principle (ICP) 19 (conduct of business) as well as implementing the related components of ICP 9 (supervisory review and reporting) and incorporating them into broader supervisory frameworks.
Among other things, the paper:
- discusses different approaches to defining and determining the scope of a supervisor's COB mandate, and how certain jurisdiction-specific context and conditions influence the COB supervisory approach;
- discusses each of the standards in ICP 9 and their supporting guidance from the perspective of COB supervision;
- elaborates on possible approaches to off-site monitoring and on-site inspection from a COB perspective. These are discussed with reference to supervising the fair treatment of customers at various stages of the insurance product life cycle, as contemplated in ICP 1;
- discusses some additional COB supervisory tools and approaches that some jurisdictions have adopted, which may also be of interest to jurisdictions developing or reviewing their approach to COB supervision.
IAIS publishes an application paper on supervisory colleges
On 27 October 2014, the IAIS published an application paper on supervisory colleges. This paper shares supervisors’ experiences with cooperation in supervisory colleges and presents good practices for global supervisory colleges. The paper covers the method of operation of supervisory colleges and specific arrangements needed to accommodate their functioning, including guidance on information exchange and confidentiality issues between supervisors.
The purpose of the paper is to provide best practices and examples throughout all phases of the college process. This includes additional consideration/information/material, including actual examples or case studies relating to the areas covered by the supervisory material for the practical application of the principles and standards, or where interpretation and implementation of the principles and standards may pose challenges to some supervisors.
The IAIS states that the paper does not set standards, offer binding guidance on standards, or provide interpretations of standards.
IAIS report on findings of self-assessment and peer review of ICPs 4, 5, 7 and 8
On 27 October 2014, the IAIS published a report on the findings from a self-assessment and peer review (SAPR) of insurance core principles (ICP) 4 (licensing), ICP 5 (suitability of persons), ICP 7 (corporate governance) and ICP 8 (risk management and internal controls).
The report was prepared by the IAIS’ expert team conducting the SAPR in consultation with the standards observance subcommittee and implementation committee.
The SAPR expert team found that observance of the ICPs and standards is high, however there are notable shortcomings. A breakdown by observance is contained within the report, with some of the most common challenges to observance including:
- legislative frameworks that do not provide the powers needed to meet the requirements of the standards;
- supervisory practices that are reactive and not sufficiently robust; and
- supervisory concerns that are not resolved in a timely fashion, or to the satisfaction of the supervisor.
The expert team believes that there is a need for guidance in some areas, clarifications of some standards, or outreach in terms of helping jurisdictions understand the obligations under the ICPs reviewed and the supervisory methodologies that can be used for assessing insurers in these areas.
The assessment identified some significant regional differences. Some regions have relatively low levels of observance for particular standards and the report says that these regions would most likely benefit from focussed supervisory capacity building or training in these areas.
IAIS develops basic capital requirements for G-SIIs
On 23 October 2014, the IAIS published a document setting out the basic capital requirements (BCR) for global systemically important insurers (G-SIIs), together with a factsheet on the BCR.
Beginning in 2015, the BCR will be reported on a confidential basis to group-wide supervisors and be shared with the IAIS for purposes of refining the BCR as necessary. During this reporting period, the IAIS will review the suitability of the BCR factors to ensure that the BCR remains fit for purpose. From 2019, G-SIIs will be required to hold capital no lower than the BCR plus higher loss absorbency (HLA).
The development of the BCR is the first step of the IAIS' long-term project to develop risk based group-wide global insurance capital standards. The second step is the development of HLA requirements to apply to G-SIIs, due to be completed by the end of 2015. The HLA will build on the BCR and address additional capital requirements for G-SIIs reflecting their systemic importance in the international financial system. The final step is the development of a risk based group-wide insurance capital standard, due to be completed by the end of 2016 and applied to internationally active insurance groups from 2019.
EIOPA publishes guidelines on legal entity identifier
On 20 October 2014, EIOPA published its final report and guidelines to national competent authorities (NCAs) on the use of the legal entity identifier (LEI). Both documents are dated 11 September 2014. With these guidelines, EIOPA supports the adoption of the LEI system proposed by the Financial Stability Board and endorsed by the G20. EIOPA consulted on the guidelines in June 2014.
The LEI code is a 20 digit alpha-numeric code that connects to key reference information that enables clear and unique identification of companies participating in global financial markets.
The guidelines are intended to facilitate the use of LEIs as unique identification codes for insurance and reinsurance undertakings and groups as well as for institutions for occupational retirement provision under the national competent authorities’ supervisory remit. They seek to establish consistent, efficient and effective supervisory practices by harmonising the identification of legal entities in order to ensure high-quality, reliable and comparable data. The use of LEI will apply to all information collected by EIOPA, including Solvency II reporting and registers.
EIOPA says that NCAs must confirm their compliance or intention to comply with the guidelines within two months. EIOPA has published a template (an Excel document) to assist NCAs to do this. The guidelines will become applicable on 31 December 2014.
EIOPA consults on conflicts of interest on direct and intermediated sales of insurance-based investment products
On 1 October 2014, EIOPA published a consultation paper on conflicts of interest on direct and intermediated sales of insurance-based investment products. The consultation paper is the result of a request for technical advice, together with a mandate, both dated 19 May 2014, from the European Commission on possible delegated acts on conflicts of interest in the distribution of insurance-based investment products, as introduced as an amendment to the Insurance Mediation Directive (IMD) by the MiFID II Directive.
By amending the IMD, Article 91 of the MiFID II Directive aims to lay down similar requirements of consumer protection for the distribution of investment products and insurance products that have an investment element. A delegated act is foreseen both in MiFID II as regards conflicts of interest of investment firms and in the amended IMD as regards conflicts of interest of insurance intermediaries and insurance undertakings.
EIOPA published a discussion paper on 21 May 2014 and on 1 October 2014, published a final report on this discussion paper. Having taken into account the feedback received, EIOPA has published the consultation paper which sets out in more detail the recommendations that EIOPA considers including in its technical advice to the Commission.
These focus on:
- minimum criteria for determining the types of conflict of interest whose existence may damage the interests of customers or potential customers of the insurance intermediary or insurance undertaking;
- defining the steps that insurance intermediaries or insurance undertakings might reasonably be expected to take to identify, prevent, manage and disclose conflicts of interest when carrying out insurance distribution activities;
- proportionality: ESMA is of the opinion that an explicit reference to the principle of proportionality in the implementing measures for the amended IMD would not appear appropriate or necessary.
- remuneration and inducements;
- investment research.
Comments are requested by 1 December 2014. EIOPA is required to provide its final technical advice to the Commission by 13 February 2015.
FSB updates key attributes of effective resolution regimes for financial institutions
The Financial Stability Board (FSB) published its key attributes of effective resolution regimes for financial institutions in November 2011. The key attributes set out twelve essential features which the FSB considers should be part of the resolution regimes of all jurisdictions.
On 15 October 2014, the FSB published an updated version of the key attributes document incorporating guidance on their application to non-bank financial institutions and on arrangements for information sharing that support the effective resolution of cross-border financial institutions.
The four new annexes have been developed by the FSB in conjunction with relevant standard-setting bodies (the Committee on Payment and Market Infrastructure (CPMI), the International Association of Insurance Supervisors (IAIS) and the International Organisation of Securities Commissions (IOSCO)). They were issued for public consultation in August 2013 and have been revised in light of the comments received. The annexes set out guidance which, amongst other things, covers:
- resolution of insurers: this elaborates in further detail on the resolution framework for systemically important insurers and should assist authorities and firms in implementing the
resolution planning requirements set out in the policy measures for global systemically important insurers published by the IAIS in July 2013;
- protection of client assets in resolution: this builds on IOSCO’s report on recommendations regarding the protection of client assets, which was published in January 2014;
- information sharing for resolution purposes: this sets out principles for the design of national legal gateways and confidentiality regimes to allow the exchange with domestic and foreign authorities of non-public information that is necessary for planning and carrying out resolution. It also includes provisions on information sharing and confidentiality that should be included in the institution-specific cross-border co-operation agreements that the key attributes require for all global systemically important financial institutions.
FSB consults on the identification of critical functions and critical shared services for systemically important insurers
On 16 October 2014, the FSB published a consultation paper on guidance for the identification of the critical functions and critical shared services for systemically important insurers. The guidance should assist national authorities in implementing the recovery and resolution planning requirements set out in the FSB’s key attributes of effective resolution regimes for financial institutions and in the policy measures of the IAIS for globally systemically important insurers (G-SIIs).
The draft guidance on the identification of critical functions and critical shared services for insurers is designed to support resolution planning for G-SIIs and other systemically important insurers by providing a framework for the identification of the functions and services that would need to be maintained in resolution consistent with the objectives of systemic stability and policyholder protection. It aims to promote a common understanding of which functions and shared services could be critical by providing common definitions and evaluation criteria.
The guidance addresses functions and services provided by insurance or reinsurance companies, groups and conglomerates that could be systemically significant or critical if they fail. Within insurers, the guidance focuses primarily on those which are identified by the FSB as G-SIIs. However, many aspects also will be relevant for those identified by any national authority as systemically important.
Comments are requested by 15 December 2014.
European Commission adopts Delegated Regulation
On 10 October 2014, the European Commission published the text of a Delegated Regulation it has adopted containing implementing rules for the Solvency II Directive (2009/138/EC). It also published the 26 Annexes to the Delegated Regulation on its Solvency II webpage, together with an impact assessment and a set of frequently asked questions.
The implementing rules cover, among other things:
- the valuation of assets and liabilities, including the so-called “long-term guarantee measures”;
- how to set the level of capital for asset classes an insurer may invest in;
- the eligibility of insurers' own fund items to cover capital requirements;
- how insurance companies should be managed and governed;
- equivalence assessments of third-country solvency regimes;
- the internal model framework;
- rules related to insurance groups.
Simplified methods and exemptions apply in some cases to make the application of Solvency II easier for smaller insurers in particular.
The rules on capital requirements for asset classes promote high-quality securitisation by laying down lower capital requirements for investment by insurers in high-quality securitisation. The definition of high-quality securitisation, based on a report by the European Insurance and Occupational Pensions Authority, is aligned in the Solvency II implementing rules and in the Commission's Delegated Act on a liquidity coverage ratio for banks.
PRA update for directors
On 16 October 2014, the PRA published a letter from Andrew Bulley, PRA Director of Life Insurance, and Chris Moulder, PRA Director of General Insurance, to firms giving an update on Solvency II developments. An appendix to the letter contains a timetable giving details of the next communications the PRA intends to issue and any firm actions required between now and March 2015.
Among other things, the letter says that:
- information on the Solvency II balance sheet, technical provisions and review of own funds has been published on this webpage and in a separate document. This information sets out how the PRA will gain assurance that a firm’s Solvency II balance sheet is adequate for all internal model and some large standard formula firms when assessing the solvency capital requirement calculations. The PRA is proposing a two-step approach. The first is a “review and recommend” report on the preparedness of firms to implement the Solvency II regulatory framework in respect of the balance sheet, technical provisions and own funds. This report will be required from firms before the end of the first quarter of 2015. The second step will be a “reasonable assurance” opinion on the balance sheet, technical provisions and own funds which should, ideally, be completed by 30 June 2015. Supervisors will contact those firms that will be affected by this process before mid-November 2014. If firms are uncertain whether this should apply to them they should get in touch with their usual supervisor contact;
- the PRA is completing the analysis of its data collection exercise held in August 2014 and says that the high level results indicate that the standard formula should be appropriate for most firms;
- the PRA is concerned that although some firms are making good progress, a number of firms are still behind with internal model work and not meeting deadlines. The PRA says that it sees a risk that some firms will not receive approval to use their model unless there is significant progress between now and when formal applications are received;
- it is also evident, following discussions with firms, that some have still not developed a contingency plan should the PRA reject the model application. Supervisors will be having more detailed discussions with firms on their plans in the coming months in order to clarify their contingency plan.
FCA publishes FS14/1: feedback statement on FSA CP12/13 Solvency II - COBS rule changes
On 14 October 2014, the Financial Conduct Authority (FCA) published a feedback statement, FS14/1,on the conduct elements of chapters 7 and 8 of its predecessor, the FSA’s, July 2012 consultation paper CP12/13: “Transposition of Solvency II Part 2”.
The FCA says that FS14/1 will be of primary interest to insurance firms within the scope of Solvency II. In particular, as the feedback is primarily about the Conduct of Business sourcebook (COBS) 20 (with- profits business) and COBS 21 (unit-linked business)) and related consequential amendments, the feedback statement is of interest to insurance firms writing savings business, where the FCA intends to largely maintain its current protections for policyholders in the Solvency II environment.
The FCA says that firms were broadly supportive of the proposals outlined in chapters 7 and 8 of CP12/13 on changes to the rules in COBS 20 and 21, although in some areas the FCA has amended its proposals in reaction to feedback received. More generally, the FCA has sought to simplify and clarify the consulted-on rules, some of which are expressly mentioned in the main feedback text.
The final rules will not be made until early 2015 but a revised version of the draft instrument proposing changes to the FCA’s rules, which takes into account the comments in the feedback statement is attached in the appendix. The draft instrument has not yet been considered by, and so is subject to review by, the FCA Board. As such the draft rules in the appendix represent a working draft. Further changes may be required before the draft rules are proposed to the FCA Board, for example, as a result of consequential changes from other Solvency II work streams (including relating to INSPRU application provisions) or in light of further comments made to the FCA in response to this feedback statement.
PRA publishes CP23/14: Solvency II approvals
On 15 October 2014, the PRA published a consultation paper, CP23/14, which sets out its expectations of firms, and provides further clarity in relation to applying for certain Solvency II approvals. It also provides details regarding the PRA’s pre-application process for approval to use the matching adjustment (MA). The PRA has also published an appendix which includes the six checklists specified in the consultation paper.
Chapter 1 of the consultation paper introduces the draft supervisory statement and details the PRA’s statutory obligations. Chapter 2 specifies the PRA’s expectations and provides guidance on applying for the following approvals:
- internal model;
- MA, ancillary own funds and undertaking specific parameters; and
- other approvals including exclusion of an entity from the scope of group supervision, single group own risk and solvency assessment, and solvency and financial condition report dispensation;
- the calculation method for the group solvency capital requirement.
The PRA says that it expects firms to read this statement alongside all relevant European legislation, also taking into account the draft rules published in CP16/14: Transposition of Solvency II: Part 3, published in August 2014, and Paul Fisher’s letter “Solvency II: Matching adjustment”, dated 15 October 2014. The letter answers questions on Article 77(b) of the Solvency II Directive, specifically on interpreting the eligibility criteria and the nature of the evidence the PRA expects firms to submit to demonstrate compliance with these criteria. It also provides firms with feedback on the MA trial submission process which took place over summer 2014.
Chapter 3 details the PRA’s pre-application process for the MA which will allow the PRA to determine whether a firm’s draft application for MA approval is likely to meet the requirements of the formal application and provide feedback where the PRA determines work is still required. Submissions are requested from 1 December 2014 to 6 January 2015. Firms should advise their usual supervisory contacts of their intention to participate by 30 November 2014. Although not mandatory, the PRA strongly encourages firms wishing to use the MA to participate in this process.
The PRA says that at the time of issuing this consultation paper, the draft Solvency II Regulations (the Delegated Act and the implementing technical standards) had only been issued in draft format. The guidance issued in this consultation paper is therefore based on the expected content of these Regulations and will be subject to change depending on the final versions. The PRA will communicate any changes as appropriate.
Comments are requested by 9 January 2015. The PRA intends to issue a further communication in November 2014 on other Solvency II approvals which are not discussed in this consultation paper.
The PRA will publish a Solvency II policy statement with feedback, which includes the final supervisory statements, in the first quarter of 2015.
PRA update for groups
On 15 October 2014, the PRA updated the webpage, in the preparing for Solvency II section of its website, which provides information on what Solvency II means for groups.
Among other things, the webpage contains a section on how Solvency II will affect firms outside the European Economic Area (EEA) which belong to EEA-regulated groups. In October 2011, initial technical assessments on the equivalence of Japan, Bermuda and Switzerland were delivered to the European Commission by EIOPA. These assessments are currently being revisited to take account of developments in the three regimes and the final equivalence criteria published in the Commission's Solvency II Delegated Regulation. EIOPA hopes to update its advice to the Commission by the end of 2014. The Commission has decided that there will not be any further full equivalence assessments before Solvency II implementation.
The Omnibus II Directive contains provisions creating a transitional regime for equivalence. In 2012, the Commission initially asked EIOPA to carry out full professional secrecy assessments and a gap analysis against Solvency II in respect of eight countries that have expressed an interest in being covered by the transitional equivalence regime. The countries are Australia, Chile, China, Hong Kong, Israel, Mexico, Singapore and South Africa. EIOPA was subsequently invited to assess the Isle of Man in the same way. For those countries that the Commission decides should be included in the transitional equivalence regime, the effect is to treat the third country's solvency regime as if it had been assessed as equivalent under Article 172, 227 or 260 of Solvency II (as applicable) for a defined period, even though it will not have been subject to a full equivalence assessment.
Once Solvency II is applied, EEA group supervisors, in collaboration with EIOPA and college members, may undertake an equivalence assessment under Article 227 or 260 (where no decision has already been made by the Commission and the relevant third country is not within the scope of transitional equivalence). EIOPA has consulted on guidelines on the conduct of these assessments.
The PRA says that it is considering its approach to third country equivalence and intends to communicate further in the fourth quarter of 2014.