PRA consults on treatment of third-country insurance branches
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The UK’s prudential regulator has launched a consultation on how it should approach and supervise UK branches of foreign insurers.
The proposals come as a result of three key drivers of change: Brexit, lessons learned during the temporary permissions regime, and the review of Solvency II, which contains proposals relating to third-country branches.
Proposals include factors that determine whether an entity is a branch or a subsidiary:
According to the regulator, a subsidiary is a separate legal entity from its parent and, as such, must meet regulatory capital requirements with its own funds, and have its own governance and risk management. A branch forms part of a third-country branch undertaking that is headquartered abroad.
The PRA proposed as information when assessing the risks of a third-country branch:
· whether the third-country branch undertaking is able to meet the threshold;
· whether the home jurisdiction’s supervision regime is ‘broadly equivalent’;
· whether the firm is capable of being supervised effectively by the home supervisor and the PRA’s reliance on the home supervisor;
· whether there is sufficient supervisory cooperation with the home supervisor by setting out the high-level outcomes the PRA would expect to see, and its approach to memorandums of understanding and splits of responsibilities;
· whether UK policyholders of the third-country branch will be given the appropriate priority in an insolvency, and ensuring this is the case on an ongoing basis; and
· whether the third-country branch undertaking is able to meet relevant PRA rules, and if the full Senior Managers and Certification Regime is applicable to the relevant individuals responsible for the branch.
Currently, EEA insurers operate in the UK under the temporary permissions regime, which will end on 31 December this year.
The consultation closes on 12 January 2024. The PRA plans to publish the proposed final policy documents by the second quarter of 2024.
How will overseas insurers in the UK be impacted by the PRA’s approach?
