VII wonders - PRA and FCA update their approaches to insurance business transfers

The PRA and FCA have published updates to their approaches for insurance business transfers, following the conclusion of their respective consultations launched in July 2021. 

The respective approaches specifically cover "Part VII transfers" under which firms may transfer all or part of their insurance business to another firm subject to the High Court sanctioning the transfer (and in lieu of individual policyholder consent). The Part VII process is led by the PRA, with the FCA also involved and ultimately able to object to the transfer. 

PRA updates

The PRA's 2021 consultation paper proposed updates to its statement of policy (SoP), as well as additional guidance - in particular, regarding the PRA's specific role and approach to Part VII transfers:

• Guidance for firms, independent experts and other interested parties includes information on what material firms should provide in the preliminary stages of a Part VII, and greater clarity on the PRA's expectations for scheme reports prepared by the independent expert.
• Additional guidance on the PRA's approach to transferees in run-off includes a proposal that for schemes triggering certain criteria, the PRA will use its FSMA s. 166 powers to assess the operational readiness of the transferee.

The revisions set out in the PRA's January policy statement (which, incidentally, also include additional guidance for friendly society transfers) are not considered by the regulator to be significant, but include allowing firms to submit documentation to the PRA a minimum of six weeks ahead of the sanction hearing. Elsewhere, the PRA has included examples of what it would consider "other means" as to which it can satisfy itself of a transferee's operational resilience. 

The changes to the PRA SoP took effect on 12 January.

FCA updates

Meanwhile at the FCA, it has been consulting in parallel on its guidance originally published in 2018. The purpose of its consultation was to account for Brexit and clarify its own expectations in relation to Part VII transfers, following its recent experiences and stakeholder feedback. 

The latest changes set out in February's finalised guidance include clarifying the regulator's expectations as to what is meant by "sufficiently independent" in the context of the independent expert. Separately, it has clarified that the regulatory review period includes up to when the transfer documents are lodged at court and, in the case of the sanction hearing, when the supplementary independent expert report is published. 

Despite feedback around the "comply or explain" approach in the existing guidance being disproportionate and not in line with FCA practice, the FCA stopped short of making any fundamental changes to its expectations. Instead, it reaffirmed its expectation that firms raise with the regulator at an early stage areas where the firm or the independent expert feels it is unreasonable, not relevant or inappropriate to follow the FCA's guidance.

The FCA's final guidance will similarly be of interest to firms, their advisers and independent experts typically appointed to report to the High Court on the Part VII terms.