The Financial Conduct Authority (FCA) is jointly consulting with the Prudential Regulation Authority (PRA) on the proposed approach to authorisation and supervision of Insurance Special Purpose Vehicles (ISPVs), which will facilitate Insurance Linked Securities (ILS) business.

HM Treasury is introducing a new framework for Insurance Linked Securities (ILS) business, and is consulting on Regulations which are intended to take effect from 1 April 2017. From this date, the FCA and PRA expect to be able to accept applications for authorisation of ISPVs under this framework.

There will be a new regulated activity of insurance risk transformation for which ISPVs will need to apply, and there will also be new authorisation forms, on which the PRA is consulting.

As dual-regulated entities, ISPVs will still need to apply to the PRA for authorisation. As under the current process, the FCA will need to give consent for an authorisation to be approved.

Given the time-sensitive nature of ILS transactions, the PRA and FCA are encouraging applicants to engage with the regulators prior to submitting applications. Where this engagement occurs and the proposal is relatively straight-forward and supported by good quality documentation, applications should be determined within 6-8 weeks.

The framework which HM Treasury is consulting on includes a new corporate structure, the protected cell company (PCC). The PCC structure is intended to allow each contract for risk transfer to be established as a separate cell.

The FCA intends to be responsible for registering and incorporating PCCs rather than Companies House.

The PRA is consulting on a new rule which would require ISPVs to notify the PRA before establishing new cells and to submit a pre-transaction notification template. This notification would also be reviewed by the FCA. The joint PRA FCA consultation on ISPVs includes a draft notification template.

The consultation is open until 23 February 2017. The FCA expect to issue a further consultation considering how to incorporate the new ILS framework into the FCA Handbook in early 2017.

Source: FCA website.