The FCA published finalised guidance on its approach to reviewing insurance business transfer schemes under Part VII of the Financial Services and Markets Act 2000.
Yesterday, the FCA published finalised guidance on its approach to reviewing insurance business transfer schemes under Part VII of the Financial Services and Markets Act 2000. This follows on from the proposed guidance published in May 2017, which we summarised here. The guidance is designed to help firms familiarise themselves with the FCA’s process and what information the FCA is likely to take into account when reviewing an application. Although the PRA leads the Part VII process, the guidance highlights the FCA’s active role.
Changes made to the proposed guidance
The FCA has updated the proposed guidance in response to the feedback it received. The following changes are particularly noteworthy:
'Comply or explain' - in response to comments that the introduction of the proposed guidance suggested a 'comply or complain' approach, the FCA has clarified that the purpose of the guidance is to help firms identify areas of the transaction that differ from the expectations and examples covered in the guidance early in the process to avoid delays closer to court dates.
Definition of "materiality" by Independent Experts – the FCA has clarified that while it is are aware that Independent Experts sometimes provide definitions of "materiality" in their reports, it is not an FCA requirement for them to do so.
Transferring liabilities - the proposed guidance stated that the Scheme document should be specific about the liabilities that are being transferred with the business (as we discussed here). The FCA has provided further clarity of their expectations and has updated this section of the guidance to include examples of Scheme wording on transferring business and transferring liabilities (see paragraph 5.7 of the finalised guidance).
Changes to FOS and FSCS coverage - some respondents sought clarity over the FCA's expectations for the analysis of regulatory protections post-transfer, particularly in light of the UK's withdrawal from the EU. The FCA has added detail on this at paragraph 6.12: in the context of an EU withdrawal they would expect applicants to preserve FOS at least until the point of policy renewal.
- Definition of "policyholder" – as previously discussed, the FCA's interpretation of the definition of "policyholder" is very broad. The FCA's view on this remains the same, but it has clarified that, where appropriate, it will be open to firms applying for dispensations that would achieve the same outcome as a narrower definition of "policyholder".