The Financial Conduct Authority (FCA) is jointly consulting with the Prudential Regulation Authority (PRA)[1] on the proposed approach to authorisation and supervision of Insurance Special Purpose Vehicles (ISPVs), which will facilitate Insurance Linked Securities (ILS) business.
HM Treasury is introducing a new framework for Insurance Linked Securities (ILS) business, and is consulting on Regulations[2] which are intended to take effect from Spring 2017. The FCA and PRA expect to be able to accept applications for authorisation of ISPVs once the new framework has taken effect.
There will be a new regulated activity of insurance risk transformation for which ISPVs will need to apply, and there will also be new authorisation forms, on which the PRA is consulting.
As dual-regulated entities, ISPVs will still need to apply to the PRA for authorisation. As under the current process, the FCA will need to give consent for an authorisation to be approved.
Given the time-sensitive nature of ILS transactions, the PRA and FCA are encouraging applicants to engage with the regulators prior to submitting applications. Where this engagement occurs and the proposal is relatively straight-forward and supported by good quality documentation, applications should be determined within 6-8 weeks.
The framework which HM Treasury is consulting on includes a new corporate structure, the protected cell company (PCC). The PCC structure is intended to allow each contract for risk transfer to be established as a separate cell.
The FCA intends to be responsible for registering and incorporating PCCs rather than Companies House.
The PRA is consulting on a new rule which would require ISPVs to notify the PRA before establishing new cells and to submit a pre-transaction notification form. This notification would also be reviewed by the FCA. The joint PRA FCA consultation on ISPVs includes a draft notification form.
The consultation is open until 23 February 2017. We also published a follow-up consultation[3] on 31 January 2017 that set out our proposals for the changes required to our Handbook in order to reflect the new ILS framework.