The UK’s Financial Conduct Authority (FCA) has unveiled its proposed approach to authorization and supervision of insurance special purpose vehicles (ISPVs), which will facilitate insurance linked securities (ILS) business.

The consultation will be open until 23 February 2017.

The ISPVs will facilitate the ILS business for which the HM Treasury is introducing a new framework. The program is now in the consulting stage after which the regulations will be imposed from Spring 2017.

After the new framework comes into effect, both the FCA and the the Prudential Regulation Authority (PRA) expect to accept applications for ISPV authorisations.

A new regulated activity of insurance risk transformation is likely to emerge from the framework with the ISPVs required to apply for it following the implementation.

New authorizations forms on which PRA is currently carrying on consultations will also come through after the framework is formalized.

As per the FCA, ISPVs would have to still apply to the PRA to seek authorization for being dual-regulated entities. The FCA will continue to take the call to approve authorisation of ISPVs.  

Both the FCA and PRA are said to be urging applicants to engage with the regulators before submitting applications owing to the time-sensitiveness of the ILS transactions.

According to the FCA, applications would be determined in a 6-8 weeks window provided there is engagement with the regulators and if the proposal is considerably straight-forward and backed up by proper documentation.

HM Treasury’s consultation on the framework features a new corporate structure dubbed as protected cell company (PCC).

In the PCC structure, each contract for risk transfer will be set up as a separate cell.

The FCA is likely to take up the responsibility for both registration and incorporation of the PCCs ahead of the Companies House.

PRA on the other hand is going ahead with consultations on a new rule that would need ISPVs to inform it prior to establishing new cells and also to submit a pre-transaction notification form.


Image: FCA and PRA to jointly provide consultations to HM Treasury on ILS regulations. Photo: courtesy of Stuart Miles and