Consultation Paper CP30/17 International insurers: the Prudential Regulation Authority s approach to branch authorisation and supervision

Transcription

1 Cnsultatin Paper CP30/17 Internatinal insurers: the Prudential Regulatin Authrity s apprach t branch authrisatin and supervisin December 2017

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3 Cnsultatin Paper CP30/17 Internatinal insurers: the Prudential Regulatin Authrity s apprach t branch authrisatin and supervisin December 2017 The Bank f England and the Prudential Regulatin Authrity (PRA) reserve the right t publish any infrmatin which it may receive as part f this cnsultatin. Infrmatin prvided in respnse t this cnsultatin, including persnal infrmatin, may be subject t publicatin r release t ther parties r t disclsure, in accrdance with access t infrmatin regimes under the Freedm f Infrmatin Act 2000 r the Data Prtectin Act 1998 r therwise as required by law r in discharge f the PRA s statutry functins. Please indicate if yu regard all, r sme f, the infrmatin yu prvide as cnfidential. If the Bank f England r the PRA receives a request fr disclsure f this infrmatin, the Bank f England r the PRA will take yur indicatin(s) int accunt, but cannt give an assurance that cnfidentiality can be maintained in all circumstances. An autmatic cnfidentiality disclaimer generated by yur IT system n s will nt, f itself, be regarded as binding n the Bank f England and the PRA. Respnses are requested by Tuesday 27 February Please address any cmments r enquiries t: Claire Ward Prudential Regulatin Authrity 20 Mrgate Lndn EC2R 6DA CP30_17@bankfengland.c.uk Bank f England 2017

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5 Cntents Overview 5 Prpsals 5 The PRA s statutry bligatins 8 Appendix 12

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7 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December Overview 1.1 In this cnsultatin paper (CP), the Prudential Regulatin Authrity (PRA) seeks views n its prpsed apprach t authrising and supervising third-cuntry insurers that carry n (r are cnsidering carrying n) insurance business in the United Kingdm thrugh a branch r by frming a subsidiary. The purpse f the prpsals is t supprt the interpretatin f the PRA Rulebk n third-cuntry branches and t explain the PRA s plicy twards authrising and supervising third-cuntry insurers r thse cntemplating establishing a branch r subsidiary in the United Kingdm. 1.2 The prpsals are relevant t all existing and prspective insurance firms carrying ut regulated activities, but nt headquartered, in the United Kingdm that are nt able t benefit frm passprting rights. The PRA s apprach 1 t branch supervisin fr Eurpean Ecnmic Area (EEA) firms that are currently branching int the United Kingdm under the passprting arrangements remains unchanged until the United Kingdm withdraws frm the Eurpean Unin. Subject t the utcme f the negtiatins between the United Kingdm and the Eurpean Unin, and in particular absent sme new agreement in relatin t EEA firms, these firms wuld have t apply fr authrisatin in rder t undertake PRA regulated activities in the United Kingdm after the United Kingdm withdraws frm the Eurpean Unin. They wuld then be treated in the same way as ther insurance branches. 2 At the time f this cnsultatin, the prpsals d nt apply t Swiss General Insurers, as defined in the PRA Rulebk, t which different requirements apply pursuant t the Swiss Treaty Agreement (N. 91/370/EEC). 1.3 The PRA prpses t publish a supervisry statement t set ut factrs that wuld be cnsidered relevant when cnsidering authrisatin as a third-cuntry branch r a subsidiary (see appendix). Supervisry Statement (SS) 44/15 Slvency II: third-cuntry insurance and pure reinsurance branches 3 will remain unchanged. Respnses and next steps 1.4 This cnsultatin clses n Tuesday 27 February The PRA invites feedback n the prpsals set ut in this cnsultatin. Please address any cmments r enquiries t CP30_17@bankfengland.c.uk. 1.5 The prpsals in this CP have been designed in the cntext f the current UK and EU regulatry framewrk. The PRA will keep the plicy under review t assess whether any changes wuld be required due t changes in the UK regulatry framewrk, including thse arising nce any new arrangements with the Eurpean Unin take effect. 2 Prpsals 2.1 The PRA prpses new factrs t be cnsidered alngside its current requirements fr third-cuntry branch authrisatin Under Eurpean law, the hme state supervisr f an EEA insurer that perates as a branch in anther EEA cuntry is respnsible fr the prudential supervisin f the whle firm (including the branch). As a result, the PRA, where it is the hst supervisr f such branches, is currently nt respnsible fr the prudential supervisin f thse branches. In accrdance with the Slvency II Directive 2009/138/EC, the PRA has certain pwers t act in relatin t such branches in exceptinal situatins; and has greater rights f cnsultatin and infrmatin in relatin t EEA branches that are designated as significant. 3 Nvember 2015:

8 6 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December When cnsidering applicatins frm a firm fr authrisatin as a third-cuntry branch, the PRA s apprach is anchred in its statutry bjectives and includes an assessment f regulatry equivalence and the supervisability f the insurer that seeks t perate in the United Kingdm thrugh a branch. The PRA already cnsiders, and needs t be satisfied that: the hme jurisdictin s prudential supervisin regime is bradly equivalent in an assessment f equivalence by the PRA including assessment f the hme jurisdictin s (this is nt an exhaustive list): rules; pwers; supervisin f individual firms and the cnslidated grup; infrmatin sharing; cnfidentiality; and cmpetence and independence f supervisin. (Such an assessment is likely t be linked t, but nt necessarily the same as, frmal determinatins f equivalence in respect f Slvency II.) the firm is capable f being supervised effectively by the hme supervisr; the whle firm is able t meet the Threshld Cnditins; there is sufficient supervisry cperatin with the hme supervisr; UK plicyhlders f the firm will be given the apprpriate pririty in an inslvency and that there is n discriminatin against plicyhlders whse business is written in the United Kingdm in the event f a winding up; and the firm is able t meet relevant PRA rules, including the Senir Insurance Managers Regime and, subject t publicatin f the final plicy frm CP14/17, nce the extensin takes place, the full Senir Managers and Certificatin Regime 1 applicable t the relevant individuals respnsible fr the branch. 2.3 The PRA assesses these cnsideratins in their ttality, but emphasises the verall supervisability f an insurer that perates in the United Kingdm thrugh a branch. In particular, the PRA will place cnsiderable weight n assessing the extent and quality f cperatin with the hme supervisr. In perfrming the assessment, the PRA will balance the verall supervisability against the nature and scale f the insurance activities that the firm prpses t carry ut, including thse thrugh its UK branch. 2.4 The PRA prpses that it als cnsiders the: 1 The extended SM&CR fr insurers will nt cme int effect until a cmmencement date has been set by HM Treasury.

9 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December scale f UK branch activity cvered by the Financial Services Cmpensatin Scheme (FSCS) and is satisfied that the prtected amunt cvered by the FSCS can be absrbed by insurers liable t cntribute t the FSCS; and impact f the failure f a firm with a UK branch n the wider insurance market and financial system. 2.5 The PRA s apprach t brad equivalence f a hme supervisr, plicyhlder discriminatin and relevant PRA regulatin has been published in SS44/15 and the PRA s Apprach t Insurance Supervisin. 1 The scale f UK branch activity cvered by the FSCS 2.6 The FSCS is the last resrt prvider f cmpensatin t eligible plicyhlders in the event f an insurer becming inslvent. It is an imprtant element in the United Kingdm s arrangements fr prtecting plicyhlders. The level f FSCS liabilities is a strng indicatr f the risk f a branch t bth plicyhlders and FSCS levy payers. 2.7 Fr nn-life insurance, the FSCS prtects plicies held by individuals and micr-businesses (turnver up t 1 millin) and all plicyhlders in respect f cmpulsry insurance (mainly mtr and emplyer liability). Fr life plicies, essentially all plicyhlders are prtected. 2.8 Levies n insurers writing FSCS-prtected business are used t cver the csts f cmpensatin. The size f these levies is limited t prevent insurers becming unprfitable as a result f their FSCS levy bligatins. The FSCS has a brrwing prtcl in place with HM Treasury fr access t the Natinal Lans Fund fr funding requirements in excess f these annual limits. Given this, the PRA expects a greater level f supervisry versight fr firms writing FSCS-prtected business. The PRA has a greater ability t mitigate risks in subsidiaries as it has access t a wider range f supervisry tls and legal pwers. Accrdingly, we expect a firm abve a certain threshld t subsidiarise. 2.9 When assessing the value f an apprpriate threshld fr branches, the PRA has cnsidered current third-cuntry branches and ptential applicatins fr branch authrisatin that it may expect in the future. Althugh nt a hard limit, it prpses that firms which are likely t have mre than 200 millin f FSCS-prtected liabilities shuld apply fr authrisatin as a UK subsidiary rather than cnducting business thrugh a branch A threshld f 200 millin is a straightfrward measure and a single failure at this level culd be absrbed by the industry in cmparisn t the caps n FSCS annual levies The PRA is prpsing using all FSCS prtected liabilities (rather than a sub-set) as a threshld after cnsidering that: levies n the industry due t default f a firm will reflect all FSCS liabilities; and btaining data splitting ut different types f FSCS-prtected liability might be nerus fr firms The PRA als welcmes views n alternative appraches t defining a threshld eg ne fcussed n a narrwer set f liabilities which are directly retail and might exclude sme 1 March 2016: 2

10 8 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December 2017 insurance liabilities prtected by the FSCS such as cmpulsry insurance taken ut by larger, cmmercial firms. Hwever this may nt be apprpriate as the end recipients f cmpulsry insurance held by cmmercial firms are likely t be individuals. The impact f a branch failure n the wider insurance market and financial system 2.13 If a branch s FSCS-prtected liabilities are belw 200 millin it culd still pse a risk t the wider insurance market and financial system f the United Kingdm depending n the types f plicy and significance f the branch in its market In retail business the PRA generally has a lwer tlerance fr failures in annuity and lngterm business (amng thers) than sme ther nn-life r reinsurance prducts. This reflects the imprtance t many plicyhlders f cntinuing t receive benefits frm annuity and lngterm plicies ver a lng timescale Fr cmmercial business, there is a risk that, in sme cases, the interruptin f prvisin f a particular prduct culd have an impact n financial stability. In practice this is mst likely t arise where a firm has a large market share in a niche market and there is lw prduct substitutability. Failure f the firm culd then disrupt the real ecnmy thrugh prduct withdrawal. Disruptin culd als arise acrss a prduct categry serviced by multiple firms T accunt fr these risks, the PRA prpses t cnsider additinal factrs t assess a third-cuntry branch s ptential impact against its bjectives and risk t financial stability including the: availability f substitute prducts that wuld ffer a plicyhlder a similar level f prtectin; branch s psitin in the market, particularly assessing the size f the market share in a niche market; level f cnnectivity f a branch in the industry it perates within: fr example, the extent and cmplexity f inter-firm transactins; and significance f the UK peratins f the third-cuntry branch cmpared t the amunt f business within ther jurisdictins These factrs will be cnsidered when reviewing an applicatin fr third-cuntry branch authrisatin. The PRA believes that n third-cuntry branch currently perating in the United Kingdm wuld, as a result f these factrs, be deemed sufficiently significant t the wider insurance market and financial system fr it t be required t subsidiarise. 3 The PRA s statutry bligatins 3.1 The PRA is required by FSMA t cnsult when setting its general plicies and practices. 1 In ding s, it is required t cmply with several statutry and public law bligatins. The PRA meets these bligatins by prviding the fllwing in its cnsultatins: a cst benefit analysis (CBA); 2 1 Sectin 2L f FSMA. 2 Sectin 138J (2) f FSMA.

11 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December an explanatin f the PRA s reasns fr believing that making the prpsed rules is cmpatible with the PRA s duty t act in a way that advances its general bjective, insurance bjective (if applicable), and secndary cmpetitin bjective; 1 an explanatin f the PRA s reasns fr believing that making the prpsed rules are cmpatible with its duty t have regard t the regulatry principles; 2 and a statement as t whether the impact f the prpsed rules will be significantly different t mutuals than t ther persns The PRA shuld have regard t aspects f the Gvernment s ecnmic plicy as recmmended by HM Treasury The PRA is als required by the Equality Act 2010 t have due regard t the need t eliminate discriminatin and t prmte equality f pprtunity in carrying ut its plicies, services and functins. Cst benefit analysis 3.4 The PRA is required t publish an analysis f the csts and benefits and an estimate f thse csts and benefits. The PRA is nt required t perfrm a CBA if it cnsiders that the impact n csts and benefits is f minimal significance. The PRA aims t prvide a CBA n material plicies even when it is nt prpsing changes t its rules, such as in this case. 3.5 The prpsals cntained in this CP relate t the PRA s appetite fr subsidiarisatin. The tls available t the PRA are mre wide ranging when supervising a subsidiary and hence if a firm s business is deemed t generate a significant expsure fr the FSCS and impact n plicyhlders, it may be asked t create a subsidiary. This will prmte the safety and sundness f firms and cntribute t securing an apprpriate degree f prtectin fr plicyhlders. The PRA believes the prpsals set ut in this CP advance its bjectives. 3.6 Csts fr the PRA in implementing this supervisry apprach are expected t be minr as an authrisatin prcess is required whether a firm applies fr authrisatin as a branch r subsidiary. 3.7 The PRA estimates that these prpsals may lead t additinal ne-ff and nging csts t branches which subsidiarise. One-ff csts cnsist f csts such as the legal csts t incrprate a firm in the United Kingdm. Onging csts cver the additinal cst f the dayt-day business f a subsidiary, such as hlding capital, maintaining a bard, tax, and cmpliance with regulatins. 3.8 The PRA believes there wuld be n immediate impact n firms that are currently authrised t perate in the United Kingdm thrugh third-cuntry branches. It is anticipated that it may impact decisins f firms that wuld lk t apply fr third-cuntry branch authrisatin in the future. Given the number f factrs that affect the estimated cst t individual firms and the uncertainty in hw many firms wuld apply fr branch authrisatin, the PRA is unable t prvide an estimate f csts fr all the pssible cases f subsidiarisatin. 1 Sectin 2B, sectin 2C and sectin 2H (1) f FSMA. 2 Sectin 2H 2 f FSMA. 3 Sectin 138K (2) f FSMA. 4

12 10 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December The PRA s secndary bjective is t facilitate effective cmpetitin between prviders f PRA regulated activities, and cmpetitin is effective when it is fair and prudent. The PRA expects a minimal impact n cmpetitin in the United Kingdm frm its prpsals. The PRA envisages that there will be little, if any, impact n third-cuntry branches currently authrised by the PRA, and that this plicy will lead t nly a small number f subsidiarisatins in the future. The PRA believes any burden n firms t subsidiarise is prprtinate t the risk t its ther bjectives In cnclusin, the prpsed apprach is expected t generate little cst t firms that currently perate in the United Kingdm as third-cuntry branches, but may impse sme additinal cst t firms that may wish t perate as third-cuntry branches in the United Kingdm in the future, accmpanied by sme pssible effects n cmpetitin; hwever the PRA expects that these will be utweighed by the benefits t the safety and sundness f firms as articulated in paragraph 3.5. Cmpatibility with the PRA s bjectives 3.11 The prpsals wuld ensure the PRA prmtes the safety and sundness f the firms it regulates by reducing the risk f failure fr branches with high FSCS-prtected liabilities. In the event f inslvency a call n the FSCS is cvered by levies n the insurance industry, therefre significant levies culd cause sme insurers t becme unprfitable Plicyhlders that have been identified as requiring additinal prtectin are cvered by the FSCS. By cnsidering the risk t these plicyhlders the PRA is cntributing t an apprpriate degree f prtectin fr plicyhlders The PRA has assessed whether the prpsals in this CP facilitate effective cmpetitin. The PRA is willing, in principle, t allw third-cuntry insurers t set up branches in the United Kingdm as it recgnises the benefits in terms f cmpetitin that this will bring. The PRA has fcussed its plicy n areas where it believes the ptential csts t the UK system f firms perating as a branch are utweighed by the assciated benefits. Regulatry principles 3.14 In develping the prpsals in this CP, the PRA has had regard t the regulatry principles. Fur f the principles are f particular relevance The principle that the PRA s resurces shuld be used in the mst efficient and ecnmical way pssible. The PRA has fllwed this principle when cnsidering equivalence f ther regulatry authrities and whether infrmatin and supervisin prvided and implemented by anther bdy is likely t be sufficient fr the PRA t rely upn when assessing whether a firm meets the Threshld Cnditins fr authrisatin The principle that any burden r restrictin that the PRA impses n a persn, firm r activity is prprtinate t the benefits expected as a result. The PRA will nly require subsidiarisatin where there is an unacceptable level f risk t its bjectives. The PRA has cnsidered the benefits t the firm that perating as a branch can bring, particularly in terms f its cmpetitive benefits. The prpsals cnsider all significant factrs and allw a prprtinate apprach t be adpted befre cnsidering subsidiarisatin The principle that the PRA shuld exercise its functins as transparently as pssible. The PRA has utlined the prpsed apprach t the supervisin f third-cuntry branches alngside its reasning. This CP attempts t ensure the regulatry apprach is pen and accessible.

13 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December The principle that cnsumers shuld take respnsibility fr their decisins. The PRA impses fewer restrictins n firms writing cmmercial r reinsurance business and therefre expects their cnsumers t take a greater respnsibility fr their decisins. HM Treasury recmmendatin letter 3.19 HM Treasury has made recmmendatins t the Prudential Regulatin Cmmittee (PRC) abut aspects f the Gvernment s ecnmic plicy t which the PRC shuld have regard when cnsidering hw t advance the PRA s bjectives and apply the regulatry principles The aspect f the Gvernment s ecnmic plicy mst relevant t the prpsals in this CP is cmpetitiveness and trade The Gvernment wishes t ensure that the UK remains an attractive dmicile fr internatinally active financial institutins, and that Lndn retains its psitin as a leading internatinal financial centre. The Gvernment cnsiders that achieving this aim in a manner that is cnsistent with rbust institutins and a resilient system will supprt its aims fr sustainable ecnmic grwth The Gvernment als aims t encurage trade and inward investment t the United Kingdm that can help bst prductivity and grwth acrss ur ecnmy. This can be supprted by imprved cmpetitin pening the United Kingdm t new ways f ding things and being seen as a gd place t d business The PRA believes that these prpsals are cnsistent with rbust institutins and a resilient system, and will nt materially affect Lndn s psitin as a leading internatinal financial centre. This is because the prpsals aim t maintain the quality f supervisin applied t the UK branches f insurers in scpe. The prpsals in this CP strengthen the supervisry framewrk t secure a sustainable presence f UK branches f insurers. The PRA s view is that this is an imprtant cmpnent f an pen wrld ecnmy which in turn benefits the UK ecnmy. Impact n mutuals 3.24 In the PRA s pinin, the impact f the prpsed supervisry statement n mutuals is expected t be n different frm the impact n ther firms. Equality and diversity 3.25 The PRA has perfrmed an assessment f the plicy prpsals and des nt cnsider that the prpsals give rise t equality and diversity implicatins. 1 Infrmatin abut the PRC and the recmmendatins frm HM Treasury are available n the Bank s website at

14 12 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December 2017 Appendix: Draft supervisry statement Internatinal insurers: the Prudential Regulatin Authrity s apprach t branch authrisatin and supervisin 1 Intrductin 1.1 This supervisry statement adds t the Prudential Regulatin Authrity s (PRA s) Apprach t Insurance Supervisin 1 and supplements Supervisry Statement (SS) 44/15 Slvency II: third-cuntry insurance and pure reinsurance branches. 2 It clarifies hw the PRA will authrise and supervise third-cuntry insurance branches. Third-cuntry insurance branches are branches f insurers perating, but nt headquartered, in the United Kingdm that are nt able t benefit frm passprting rights. In particular, this statement sets ut the PRA s expectatins n when a subsidiary wuld be mre apprpriate than a branch fr a thirdcuntry insurer wishing t carry ut insurance business in the United Kingdm. 1.2 This supervisry statement is relevant t all third-cuntry insurance branches, as well as t any insurer nt headquartered in the United Kingdm lking t perate in the United Kingdm in the future. As at the date f publicatin, this statement des nt apply t Swiss General Insurers, as defined in the PRA Rulebk, t which different requirements apply pursuant t the Swiss Treaty Agreement (N. 91/370/EEC). 1.3 Setting ut the PRA s prpsed apprach t branch supervisin in a supervisry statement helps all firms t understand the PRA s expectatins, and s uses the resurces f the PRA efficiently. In additin, the benefits set ut at cnsultatin advance the PRA s bjectives f prmting safety and sundness and plicyhlder prtectin f PRA authrised firms, in rder t prtect and enhance the stability f the financial system f the United Kingdm. Backgrund 1.4 The apprach t the supervisin f insurers that perate in the United Kingdm was set ut in the PRA s Apprach t Insurance Supervisin and further clarified in SS44/15. In the Apprach dcument, the PRA explains hw its supervisry apprach is anchred in its bjectives t prmte the safety and sundness f firms, and cntribute t securing an apprpriate degree f prtectin fr plicyhlders. Insurers in the United Kingdm 1.5 If authrised t d s, insurers headquartered utside f the United Kingdm can perate in the United Kingdm either thrugh a branch r by frming and perating thrugh a subsidiary. This can either be thrugh direct PRA authrisatin r, in sme circumstances, thrugh passprting rights. A subsidiary is a separate legal entity frm its parent and, as such, must meet its regulatry capital requirements with its wn funds and requires its wn gvernance and risk management. A branch frms part f a legal entity headquartered abrad. 1.6 Third-cuntry insurers perating thrugh a branch in the United Kingdm are subject t the PRA s rules n third-cuntry branches as set ut in the PRA Rulebk with additinal backgrund in the Insurance Apprach dcument and SS44/15. Fr example, such branches need t have sufficient assets attributed t their branch business t meet branch liabilities and 1 March 2016: 2 Nvember 2015:

15 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December t have a lcal branch manager. The PRA als requires that the legal entity as a whle has sufficient financial resurces. Supervisry pwers reflect the differences in hw a firm is structured. Insurance subsidiaries are subject t the PRA s sl insurance regime. In cntrast, respnsibilities fr the prudential supervisin f branches are split between the supervisr where the insurer is headquartered (the hme supervisr) and the PRA (the hst supervisr). 1.7 In prmting its statutry bjectives f safety and sundness and plicyhlder prtectin, the PRA fcuses principally n the harm that firms can cause t the stability f the UK financial system. Aspects f bth life and nn-life insurance can be deemed critical t ensuring a stable financial system. The PRA s view is that, subject t certain safeguards, the ability f financial services firms t branch int ther cuntries is an imprtant cmpnent f an pen wrld ecnmy which in turn benefits the UK ecnmy. 1.8 The Financial Cnduct Authrity (FCA) is the cnduct regulatr fr all insurers perating in the United Kingdm. All branches are subject t the FCA s cnduct f business rules; these are nt affected by this supervisry statement. 2 Assessing risks f a third-cuntry branch t the United Kingdm 2.1 When cnsidering applicatins frm a firm fr authrisatin as a third-cuntry branch, the PRA s apprach is anchred in its statutry bjectives and includes an assessment f regulatry equivalence and the supervisability f the insurer that seeks t perate in the United Kingdm thrugh a branch. The PRA cnsiders, and needs t be satisfied that: the hme jurisdictin s prudential supervisin regime is bradly equivalent in an assessment f equivalence by the PRA including assessment f the hme jurisdictin s (this is nt an exhaustive list): rules; pwers; supervisin f individual firms and the cnslidated grup; infrmatin sharing; cnfidentiality; and cmpetence and independence f supervisin. (Such an assessment is likely t be linked t, but nt necessarily the same as, frmal determinatins f equivalence in respect f Slvency II.) the firm is capable f being supervised effectively by the hme supervisr; the whle firm is able t meet the Threshld Cnditins; there is sufficient supervisry cperatin with the hme supervisr; UK plicyhlders f the firm will be given the apprpriate pririty in an inslvency and that there is n discriminatin against plicyhlders whse business is written in the United Kingdm in the event f a winding up;

16 14 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December 2017 the firm is able t meet relevant PRA rules, including the Senir Insurance Managers Regime and, subject t publicatin f the final plicy frm CP14/17, nce the extensin takes place, the full Senir Managers and Certificatin Regime 1 applicable t the relevant individuals respnsible fr the branch; the scale f UK branch activity cvered by the Financial Services Cmpensatin Scheme (FSCS) and is satisfied that the prtected amunt cvered by the FSCS can be absrbed by insurers liable t cntribute t the FSCS; and the impact f the failure f a firm with a UK branch n the wider insurance market and financial system. 2.2 The PRA s apprach t brad equivalence f a hme supervisr, plicyhlder discriminatin and relevant PRA regulatin has been published in SS44/15 and the PRA s Apprach t Insurance Supervisin. The final tw factrs abve, which will be cnsidered in parallel t the thers when reviewing an applicatin fr third-cuntry branch authrisatin, are explained further belw. 2.3 The PRA assesses these cnsideratins in their ttality, but emphasises the verall supervisability f an insurer that perates in the United Kingdm thrugh a branch. In particular, the PRA will place cnsiderable weight n assessing the extent and quality f cperatin with the hme supervisr. In perfrming the assessment, the PRA will balance the verall supervisability against the nature and scale f the insurance activities that the firm prpses t carry ut, including thse thrugh its UK branch. The scale f United Kingdm branch activity cvered by the FSCS 2.4 Eligible plicyhlders f insurers perating in the United Kingdm which are authrised by the PRA are cvered by the FSCS. Therefre, regardless f whether third-cuntry insurers perating in the United Kingdm d s thrugh branches r subsidiaries, the ptential cst t the FSCS f an insurer default wuld be the same. 2.5 The level f FSCS-prtected liabilities is a strng indicatr f the risk f a branch t bth plicyhlders and FSCS levy payers. 2.6 Levies n insurers writing FSCS-prtected business are used t cver the csts f cmpensatin. The size f these levies is limited t prevent insurers becming unprfitable as a result f their FSCS levy bligatins. The FSCS has a brrwing prtcl in place with HM Treasury fr access t the Natinal Lans Fund fr funding requirements in excess f these annual limits. Given this, the PRA expects a greater level f supervisry versight fr these firms and the PRA has a greater ability t mitigate risks in subsidiaries as it has access t a wider range f supervisry tls and legal pwers. While nt a hard threshld, the PRA expects third-cuntry branches t have under 200 millin f insurance liabilities cvered by the FSCS when perating as a branch and may cnsider authrisatin as a subsidiary as an alternative where this is nt the case. The impact f a branch failure n the wider insurance market and financial system 2.7 If an insurer s FSCS liabilities are belw the threshld f 200 millin f FSCS liabilities, it culd still pse a significant risk t the financial stability f the United Kingdm. The PRA will cnsider ther relevant factrs when reviewing the ptential impact f a third-cuntry branch n financial stability, including the: 1 The extended SM&CR fr insurers will nt cme int effect until a cmmencement date has been set by HM Treasury.

17 Internatinal insurers: the PRA s apprach t branch authrisatin and supervisin December availability f substitute prducts that wuld ffer a plicyhlder a similar level f prtectin; branch s psitin in the market, particularly assessing the size f the market share in a niche market; level f cnnectivity f a branch in the industry it perates within: fr example, the extent and cmplexity f inter-firm transactins; and significance f the UK peratins f the third-cuntry branch cmpared t the amunt f business within ther jurisdictins.