The FSA have published two of the series of consultations on rules to transpose the Solvency II Directive into the UK Handbook. This consultation programme is running alongside the Treasury’s transposition of Solvency II, through amendments to the current Financial Services Bill, to implement the Directive.
What does CP12/13 include?
In CP12/13 we set out our proposed rules and guidance on areas that were not covered, or were only partially covered, in our first CP (CP11/22). CP12/13 includes how the rules may apply to the Lloyd’s insurance market and our policy for separate disclosure of capital add-ons, together with proposed changes to existing Handbook rules governing with-profits and unit linked business.
What does CP12/13 not include?
The issues not covered, and reasons why, are:
National Specific Reporting Templates – work on this has been integrated within an overall review of reporting and notification requirements under the jurisdiction of the PRA and FCA.
External audit – discussions are still ongoing within EIOPA on this and Level 3 guidance is still being developed.
Further amendments to FIT and SUP to reflect changes in controlled functions –EIOPA guidance on the fit and proper assessment has yet to be finalised, and the changes required to divide the approved persons regime between the PRA and FCA must be understood before we can confirm the final detail of any changes arising from Solvency II. In this light, we have now decided not to implement separate CF14 (risk function) and CF15 (internal audit) for Solvency II firms, as indicated in CP11/22, but to continue to regulate these functions under the existing CF28 function for the time being.
Grandfathering existing Insurance Special Purpose Vehicles (ISPVs) – need for transitional arrangements is influenced by the outcome of the Level 2 legislation for the provisions for ISPVs.
Cost comparisons of using internal models versus standard formula for calculating firms’ SCRs – this is dependent on the availability of reliable and good quality data.
Will this affect you, directly or indirectly?
This consultation will be of direct and primary interest to all insurance firms captured within the scope of Solvency II. It will also be of indirect interest to non-Directive firms, representative trade bodies, business advisers and consultants, and other financial advisers involved, serving in or linked to the insurance industry.
Given the primary objective of the Solvency II Directive is to achieve an appropriate level of policyholder protection, retail and commercial insurance policyholders may wish to take note of the general content of this paper. The CP sets out how Solvency II will be implemented into UK law and how this links to the European process (Section II).
What approach have we taken to consultation of conduct elements of Solvency II?
We have included proposals for the conduct elements of Solvency II in CP12/13 that were not included, or partially included, in CP11/23. Feedback to proposals contained in CP11/23 are available in FS12/2. We will aggregate our Handbook related communications for both prudential and conduct elements of Solvency II.
What will the FSA do next?
We aim to collate the feedback from CP11/22 and CP12/13 together with the conduct elements of Solvency II contained with CP11/23 to publish a Policy Statement later in 2012 or early 2013. This will depend on two things:
the adoption of the EU Omnibus II Directive and final Solvency II Level 2 measures; and
the legislative timetable for UK regulatory reform and FSA Handbook designation.
Further consultations may also be required when the Omnibus II Directive is adopted and the proposals for the Level 2 text are finalised later in 2012. We will provide further details when we publish our Policy Statement.
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