Following consultations in 2016 and 2017, on which we have previously reported1, HM Treasury has published the final version of the regulations which will enact the UK's insurance linked securities (ILS) regime2.
The proposed regime aims to establish the UK as an alternative location for ILS business which can compete with low tax and (comparatively) low regulation ILS domiciles such as Bermuda, the Cayman Islands and Guernsey.
During the consultation process, there was some concern over how the UK's regime would, in practice, be able to compete with these existing regimes. To some extent, the Government has addressed these concerns in the final regulations:
On the tax side, the activities of UK ILS vehicles will be exempt from UK corporation tax if certain conditions are met, and debt/ equity payments (e.g. dividends) made to a vehicle's investors will be exempt from withholding tax. Accordingly, UK investors will be taxed as normal, but overseas investors will be taxed based on their local regime.
On the regulatory side, there remain concerns around how quickly investors will be able to establish new vehicles. The Government has adjusted its original position and, where a multi-transaction vehicle is used, the regulations now require only a notification to the FCA each time a new cell is created, and a notification to the PRA each time a risk is assumed on behalf of a cell. However, the PRA will still have up to six months to determine applications for the initial authorisation of a multitransaction vehicle, although the Government has said that the PRA will try to determine applications within 6 to 8 weeks if the vehicle is non-complex and for a single transaction.
The regulations are expected to be introduced into Parliament after the Houses return in early September and state that they will come into force later in the autumn. However, the regulators have not, at the time of writing, published updated versions of the draft rules governing the regime which they published in November 2016, so it is possible that this date may slip.