5 Compliance arrangements Application for Authorisation Insurance Special Purpose Vehicles (ISPV) Application - Notes Important information to read before completing the application form Please take time to read these notes carefully. They will help you to fill in the application form correctly. When completing the application forms you will need to refer to the relevant parts of the PRA Rulebook: www.prarulebook.co.uk and the FCA Handbook: www.handbook.fca.org.uk/. If after reading these notes you need more help please: check the PRA website: www.bankofengland.co.uk/pra check the FCA website: www.fca.org.uk call the PRA Authorisation Helpline: 020 3461 7000 email the PRA: ISPVMailbox@bankofengland.co.uk call the FCA Customer Contact Centre on 0845 606 9966 email the FCA Customer Contact Centre: fcc@fca.org.uk. These notes, while aiming to help you, do not replace the rules and guidance in the PRA Rulebook and the FCA Handbook, and corresponding PRA Supervisory Statement 8/17 Authorisation and supervision of insurance special purpose vehicles, and FCA Policy Statement 17/24 authorising and supervising insurance special purpose vehicles. Terms in these notes In this application pack we use the following terms: 'you' refers to the person(s) signing the form on behalf of the applicant firm; we, us or our refers to the appropriate regulator(s); PCC refers to Protected Cell Company; applicant firm refers to the firm applying for authorisation, except where an applicant is applying to become a PCC, in which case the term applicant firm refers to the proposed PCC and/or the applicant on behalf of the proposed PCC (as applicable); FCA' refers to the Financial Conduct Authority; PRA refers to the Prudential Regulation Authority; FSMA refers to the Financial Services and Markets Act 2000; Solvency II Directive refers to Directive 2009/138/EC; Delegated Regulation refers to Commission Delegated Regulation (EU) 2015/35; Implementing Regulation refers to Commission Implementing Regulation (EU) 2015/462; RTR refers to the Risk Transformation Regulations 2017 (SI 2017/1212); AMRE refers to Aggregate Maximum Risk Exposure as defined in Article 1(44) of the Commission Delegated Regulation (EU) 2015/35; Qualifying holding as defined in Article 13(21) of the Solvency II Directive; and SS refers to the Supervisory Statement 8/17 Authorisation and supervision of insurance special purpose vehicles.
1 Core Details The PRA Rulebook and FCA Handbook Introduction The PRA Rulebook and FCA Handbook set out our legislative powers and other provisions made under powers given to us by FSMA. They are available online. As they are extensive documents, you will only need to refer regularly to the specific parts that will affect your business. The relevant parts are included throughout these notes. In addition, there are also FCA Statements and PRA supervisory statements. Handbook guides are guides to the FCA Handbook as a whole and are aimed at particular types of firms. They will point you in the direction of relevant material. Supervisory statements focus on the PRA s expectations and are aimed at facilitating firm and supervisory judgement in determining whether they meet those expectations. They do not set absolute requirements which are contained in rules. Relevant PRA Rulebook Parts and supervisory statements for ISPVs PRA Rulebook Parts (http://www.prarulebook.co.uk): Insurance Special Purpose Vehicles Part; Insurance Fitness and Propriety Part; Insurance - Senior Insurance Management Functions Part; Senior Insurance Managers Regime Applications and Notifications Part; and Key Function Holder Notifications Part. Supervisory statements: Supervisory Statement SS8/17 Authorisation and supervision of insurance special purpose vehicles - http://www.bankofengland.co.uk/pra/pages/publications/ss/2017/ss817.aspx Supervisory Statement SS35/15 Strengthening individual accountability in insurance - http://www.bankofengland.co.uk/pra/pages/publications/ss/2015/ss3515.aspx FCA Handbook and Handbook guides for ISPVs: FCA Handbook - https://www.handbook.fca.org.uk/handbook/ FCA Statement FCA Statement authorising and supervising insurance special purpose vehicles - https://www.fca.org.uk/publications/policy-statements/ps17-24-handbookchanges-insurance-linked-securities PRA/FCA ISPV Application Form - Notes 2017 page 2
1 Core Details 1 Core Details We need to know this information to contact you during our assessment, to enable efficient processing of your application and so that we can update the Financial Services Register, the public record of authorised firms. Contact for this application 1.1 Contact details of the person we will get in touch with about this application. This should be someone in the UK. If you feel that a second contact name is useful e.g. if the main contact won't be available for a long period of time, please provide details. Details of professional advisers Some applicant firms seek professional help in completing the application (e.g. from a compliance consultant or lawyer). Questions 1.2 to 1.4 ask if the applicant firm has had such help, and if so, requests details of its adviser. 1.2 Have you used a professional adviser to help with this application? 1.3 Name of professional adviser's firm. 1.4 Name and contact details of professional adviser. 1.5 Do you want us to copy all correspondence to the professional adviser? Please note that while we will copy correspondence to the applicant firm's professional advisers, we will always deal directly with the applicant firm when processing the application. Timings for this application 1.6 Does the applicant firm have a proposed date for authorisation they would like us to consider (dd/mm)? The time taken to determine each application is significantly affected by the complexity of the arrangement, the quality of the application submitted and whether it is complete. We are required by law to determine applications within six months of receipt of a completed application. However, we aim to make a decision about the application as soon as possible. The PRA considers that where applications represent a relatively straightforward proposal, and are supported by good quality documentation this should allow a determination to be reached within a 6-8 week period. In addition, where effective pre-application engagement has taken place the 6-8 week timeframe is more likely to be feasible. The PRA will process applications as quickly as possible and approval may be possible more PRA/FCA ISPV Application Form - Notes 2017 page 3
1 Core Details quickly in some circumstances. For applications that are complex or novel, applicants should recognise the need for additional review time. 1.7 Principal place of business of applicant firm Once authorised, this address will appear on the firm's public entry on the Financial Services Register. Please note that for this purpose the principal place of business means the main place where work is performed or business is carried on. Legal status of the applicant firm 1.8 Provide details on the legal structure of the applicant firm, and the date and location of incorporation or formation. 1.9 Please attach the ISPV s Memorandum and articles of association If these are not complete at the point of application, the applicant firm may send draft documentation. 1.10 Does the applicant firm have a registered number e.g. Companies House number? 1.11 You must confirm that all details given in this section match companies house records. Financial year end 1.12 Date of the applicant firm's financial year end (dd/mm). Once authorised, this is the date that will be used to determine the timing of the ISPV s reporting to us in accordance with Article 325(4) of the Delegated Regulation. If the applicant firm is a limited company the date you enter here must match that in the Companies House Registration. 1.13 Does the applicant firm intend to change the registered name given on the front of this form upon authorisation? History of applicant firm 1.14 Has the applicant firm ever been refused or had revoked any licence, membership, authorisation, registration or other permission granted by a financial services regulator or government body in the United Kingdom or overseas? 1.15 Has the applicant firm ever, after having made an application to a regulatory body for any of the items below, decided not to proceed with it. PRA/FCA ISPV Application Form - Notes 2017 page 4
2 Scope of Permission 2 Scope of Permission In accordance with Regulation 7 of the Risk Transformation Regulations 2017, the PRA will impose a limitation on the applicant firm s permission, which will determine the scope of the regulated activities that the applicant firm may carry on (referred to in this application form as the Scope of Permission or SOP ). The SOP will set out: the regulated activity the applicant firm is authorised to carry on; and any limitations attaching to it. The applicant should signpost the parts of the application that are likely to be relevant to form the basis of the limitation on the permission granted by the PRA under Part 4A FSMA. Background The SOP, through the limitation and any requirement that may also be imposed, will set out the scope of activities and arrangements the applicant firm will be authorised to carry on. FSMA states that no person may carry on a regulated activity in the UK, or purport to do so, unless that person is either authorised or exempt. This is known as the general prohibition. If the applicant firm carries on a regulated activity that is not set out in its permission notice then it could be in breach of FSMA and subject to enforcement action. Finally, please be aware that these details are usually shown on the Financial Services Register, available on our website at: https://register.fca.org.uk Type of ISPV 2.1 For which type of entity is the applicant firm seeking authorisation? Applicants wishing to be authorised as an MISPV will need to include a PCC registration form alongside this application form. If authorisation is granted to the applicant firm the FCA will then incorporate the PCC. Once incorporated, if the decision is to approve the applicant firm as an MISPV, then the PRA will authorise the vehicle. If the decision is to refuse the applicant firm, the FCA will not incorporate the PCC. Regulated activities 2.2 You must confirm that the applicant firm is seeking permission to carry on the regulated activity of insurance risk transformation. See Article 13A of the FSMA Regulated Activities Order (SI 2001/544) for definition of Insurance Risk Transformation. The definition is also set out in chapter 3A of the Risk Transformation Regulations 2017. 2.3 Is the applicant firm proposing to carry on any additional ancillary activities? PRA/FCA ISPV Application Form - Notes 2017 page 5
2 Scope of Permission Agreeing to carry on a regulated activity 2.4 You must confirm whether the applicant firm requests permission to carry on the regulated activity of 'Agreeing to carry on a regulated activity'. Limitation on the Scope of Permission 2.5 The PRA expects the SOP will contain at least those components outlined in the table below. This is not an exhaustive list and the basis of the SOP will be considered on a case-by-case basis. The PRA may deem it appropriate to include any other information submitted as part of this application within the SOP. Please signpost where the information addressing these components is contained in the application submission. These are not expected to be additional information requests than those that make up the rest of this application form. The information provided must be fully and correctly referenced and of sufficient quality and detail. PRA/FCA ISPV Application Form - Notes 2017 page 6
3 Risk Transfer and Funding 3 Risk Transfer and Funding All ISPVs must meet the applicable requirements concerning the transfer of risk and funding of the vehicle. This application should sufficiently anticipate the nature of the business to be undertaken and the arrangements, structures, and mechanisms that will govern the ISPV, whether these are to be implemented immediately or are options which the ISPV may undertake in the future. Purpose of the ISPV 3.1 Describe the purpose for which the ISPV is being established and the proposed lifetime of the vehicle, including a summary of the risk transfer(s) and types of business the ISPV proposes to undertake. Contractual provisions and mechanisms between the ISPV and the cedant(s) 3.2 Provide a copy of the draft contractual arrangement(s) relating to the risk transfer between the ISPV and the cedant(s). Include details on how the contract will meet the requirements of Articles 319 and 320. Where the cedant(s) is/are domiciled in an EEA jurisdiction, explain how it meets the requirements to qualify as risk mitigation given in Articles 210 and 211 of the Delegated Regulation. Effective risk transfer approach 3.3 Provide an assessment outlining how the legal and governance structures of the ISPV are deemed to comply with the requirements of Articles 318, 319, 320, 321, 326 and 327. Where the cedant(s) is/are domiciled in an EEA jurisdiction, explain how it meets the requirements to qualify as risk mitigation given in Articles 210 and 211 of the Delegated Regulation. Transaction documentation 3.4 Provide transaction documentation, or drafts thereof, regarding the issue of debt or financing mechanisms, and risk transfer to providers of such debt or financing mechanisms, to explain how compliance with Articles 320 and 321 of the Delegated Regulation will be maintained. Where the cedant(s) is/are domiciled in an EEA jurisdiction, explain how the requirements to qualify as risk mitigation given in Articles 210 and 211 are met. PRA/FCA ISPV Application Form - Notes 2017 page 7
3 Risk Transfer and Funding Fully funded approach 3.5 Provide an assessment outlining how the legal and governance structures of the ISPV are deemed to comply with the requirements of Articles 318, 319, 320, 321, 326 and 327. Where the cedant(s) is/are domiciled in an EEA jurisdiction, explain how it meets the requirements to qualify as risk mitigation given in Articles 210 and 211 of the Delegated Regulation. Investment policy 3.6 Provide an investment policy outlining the ISPV s investment strategy/strategies and its adherence to the solvency requirements according to the subparagraphs of Article 327 of the Delegated Regulation. Communication with the supervisory authority of the cedant 3.7 Where possible, if the cedant(s) are domiciled in the EEA, provide details of the relevant contact at the supervisory authority responsible for the cedant(s), and a copy of any correspondence that notifies the supervisory authority of the cedant(s) concerning the intention to transfer risk to an ISPV. If the cedant is unknown at the time of submitting the application the applicant firm should provide these details as soon as they become known. In the case of an MISPV these details must be submitted as part of the MISPV New Risk Assumption Notification Form. PRA/FCA ISPV Application Form - Notes 2017 page 8
4 Governance, Systems and Controls, and Personnel 4 Governance, Systems and Controls, and Personnel We must be satisfied that the applicant firm has staff of adequate quantity and quality, as well as appropriate governance, systems and controls. Corporate governance 4.1 Describe the governance framework for the ISPV. Sound administrative and accounting procedures, internal control and risk management 4.2 Describe the administrative and accounting procedures, internal control mechanisms and risk management system as required by Article 324 of the Delegated Regulation. Qualifying holdings and close links 4.3 Provide a structure chart of the applicant firm s ownership/equity structure and of any close links. If there are any close links, indicate whether any close link might prevent our effective supervision of the applicant firm, and the business type of the close link. This information helps us to understand who controls/owns the applicant firm and the relationships the firm might have with other individuals or entities. The term Close Link has the meaning given in threshold condition 4F(3) (Effective Supervision) as set out in Schedule 6 (Part 1E) of FSMA. 4.4 For each shareholder that meets the qualifying holding threshold as outlined in paragraph 3.9 of the SS please outline the ISPVs framework for assessing the fitness and propriety of these shareholders. This should consider all of the criteria in Article 323(1)(a)-(d) of the Delegated Regulation. The term qualifying holding has the meaning of Article 13(21) of the Solvency II Directive 4.5 For each shareholder that meets the qualifying holding threshold as outlined in paragraphs 3.8 and 3.10 of the SS please provide the following where applicable: 4.6 Will there be any arrangements within the PCC which could enable shareholders in cells to exercise significant influence over the MISPV? 4.7 Are there any associations that exist or will exist between a director or a member or shareholder with a qualifying holding in the applicant PRA/FCA ISPV Application Form - Notes 2017 page 9
4 Governance, Systems and Controls, and Personnel firm and any person who will undertake material contracts with the applicant firm? Senior Insurance Manager Regime (SIMR) / Controlled Functions We need to be satisfied that the applicant firm has staff of adequate quality, skills and experience at all levels. We will also consider the extent to which the members of the governing body have experience in the financial services industry. What is an approved person? An approved person is a person who is approved by the relevant regulator to perform a senior insurance management function or a FCA controlled function for an authorised firm. To be approved and continue to be approved to perform a senior insurance management function (SIMF) or a FCA controlled function, an individual must meet and maintain the criteria for approval (the 'fit and proper test') and then perform their relevant function(s) in line with the PRA Rulebook and FCA Handbook; and FCA s Code of Conduct (COCON). What is a senior insurance management function? A senior management function is a function, relating to the carrying on of a regulated activity by a firm, which is specified by the PRA in the table of PRA senior insurance management functions, under section 59 of FSMA 2000. A a full list of all the senior insurance management functions and an explanation of each one at: PRA Functions: http://www.prarulebook.co.uk/rulebook/content/part/212559/02-02-2017 FCA Functions: https://www.handbook.fca.org.uk/handbook/sup/10a/ You should review the description of each senior insurance management function and identify those that apply to the applicant firm. 4.8 List the names of the individuals who will perform the SIMR functions required of an ISPV (SIMF1, SIMF2, SIMF9), as well as those performing any other applicable SIMR functions applicable. 4.9 Please fill in the relevant application form (see Senior Insurance Managers Regime Applications and Notifications Part of the PRA Rulebook) for each of the individuals nominated for a SIMF role at the ISPV. See the application forms on this page: http://www.bankofengland.co.uk/pra/pages/authorisations/simr/default.aspx 4.10 Where the applicant requires additional FCA Controlled Functions please list the names of the individuals. 4.11 Please fill in a Form A - Application to perform controlled functions for each individual who will be performing a controlled function that you have listed above and attach it to your application. The relevant Form A can be found at http://www.bankofengland.co.uk/pra/pages/authorisations/simr/default.aspx PRA/FCA ISPV Application Form - Notes 2017 page 10
4 Governance, Systems and Controls, and Personnel Key functions More information about the identification of key functions can be found in the PRA s SS35/15 Strengthening individual accountability in insurance. 4.12 Where key function holder responsibilities exist please provide the names of the individuals who will be responsible for each identified key function (other than the controlled functions above) and also where they are based. An individual may perform more than one key function. Name Description of Key Function for which the individual is notified Individuals work address 4.13 Please fill in a Form M Notification of non SIMF appointment - for each individual who will be responsible for a key function that you have listed above, who have not already been identified as SIMFs. The relevant Form M can be found at: http://www.bankofengland.co.uk/pra/pages/authorisations/simr/default.aspx Outsourcing Where a firm outsources critical or important operational functions or any relevant services and activities, it remains fully responsible for discharging all of its obligations under the regulatory system and must comply with the following conditions: 1. the outsourcing must not result in the delegation by senior personnel of their responsibility 2. the relationship and obligations of the firm towards its clients under the regulatory system must not be altered 3. the conditions with which the firm must comply in order to be authorised, and to remain so, must not be undermined 4. none of the other conditions subject to which the firm's authorisation was granted must be removed or modified 4.14 Will the applicant firm be outsourcing any functions to third parties? IT Systems The risks to the applicant firm's proposed business of the failure or error of its IT systems will be greater if the applicant firm's IT system is complex and/or it is dependent on its IT systems. In such cases, we require additional information on the applicant firm's IT systems, and the control framework for managing the risks. We need to be satisfied that the applicant firm will have in place robust IT systems and PRA/FCA ISPV Application Form - Notes 2017 page 11
4 Governance, Systems and Controls, and Personnel the control framework for managing the risks posed by them from authorisation and on an ongoing basis. In addition, where a firm outsources critical or important IT and related functions, it remains fully responsible for carrying out all of its obligations under the regulatory system. 4.15 Are the IT systems to be outsourced? 4.16 What due diligence has been undertaken on the third party? 4.17 Will a new IT system be required, or will there be any substantive changes that will impact timeframes? 4.18 Explain how the applicant firm will comply with requirements in SYSC 13.9 of the FCA Handbook? 4.19 Provide details of the IT business continuity and the disaster recovery plans the applicant firm will put in place to ensure business continuity. Reporting 4.20 Describe how the ISPV s planned supervisory reporting procedures will comply with the requirements of: PRA/FCA ISPV Application Form - Notes 2017 page 12
5 Compliance Arrangements 5 Compliance Arrangements The applicant firm must have appropriate compliance arrangements in place. Compliance procedures 5.1 Please confirm the applicant firm has in place documented compliance procedures that relate specifically to the regulated business for which it is seeking permission. Compliance monitoring programme 5.2 You must confirm the applicant firm has in place a documented compliance monitoring programme that relates specifically to its compliance procedures manual. Financial crime 5.3 ISPVs should have appropriate policies and procedures to prevent financial crime. Please describe the steps the applicant firm has put in place to counter the risks that it might be used by others to further financial crime. This includes any offence involving a) fraud or dishonesty; b) misconduct in, or misuse of information relating to, financial markets; or c) handling the proceeds of crime. PRA/FCA ISPV Application Form - Notes 2017 page 13
6 Documents submitted with this application 6 Documents submitted with this application You must list which forms and documents you have attached. Supporting documents you are sending with this application 6.1 Please list below all the documents you are sending with this application. 6.2 Please provide any comments on supporting documents if necessary. Other information 6.3 If there is anything else you would like to tell us about this application please provide details below. PRA/FCA ISPV Application Form - Notes 2017 page 14
8 Declaration 7 Application fee You must send a cheque for the appropriate application fee in full with this application, otherwise the application will not be processed. Application fee The application fee for ISPVs is 5,000. You must pay the full application fee by cheque. It is not refundable (even if the applicant firm decides to withdraw its application). PRA/FCA ISPV Application Form - Notes 2017 page 15
8 Declaration 8 Declaration Declaration Who must sign the declaration? PRA/FCA ISPV Application Form - Notes 2017 page 16