FinregE RIG Insights: PS15/24 – Review of Solvency II: Restatement of assimilated law

PRA, Solvency 2, RIG, Compliance AI, LLM, Legal AI

Publication Date: 2023-10-03 | Regulator: Bank of England (BOE) and Financial Conduct Authority (FCA)

Title: Review of Solvency II: Restatement of assimilated law

Main Objective and Summary

The main purpose of the regulatory document, specifically the PS15/24 – Review of Solvency II: Restatement of Assimilated Law, is to provide an updated framework for the Prudential Regulation Authority (PRA) regarding the implementation and oversight of Solvency II regulations. This document outlines the PRA’s approach to restating provisions from assimilated law into its policy material, ensuring that the regulatory framework remains effective, clear, and aligned with the overarching objectives of safety, soundness, and policyholder protection.

Summary of the Document:

  1. Overview of Proposals: The document summarizes the proposals made in CP5/24, which aimed to restate existing provisions from assimilated law without materially altering their substance. It highlights the PRA’s commitment to maintaining the integrity of the regulatory framework while ensuring clarity and consistency in its application.
  2. Feedback and Responses: The document includes a summary of feedback received from stakeholders regarding the draft policy proposals. It addresses general points raised by respondents and outlines how the PRA has considered this feedback in finalizing the rules.
  3. Objectives Analysis: The PRA reaffirms its objectives analysis, indicating that the proposed changes continue to advance its primary goals of ensuring the safety and soundness of firms and protecting policyholders. The document details how the new transitional measures and clarifications support these objectives.
  4. Transitional Measures: The document introduces new transitional rules that allow firms to recognize certain increases in Deferred Tax Assets (DTA) and recalibrate their financial projections until specific permissions expire. This aims to provide firms with flexibility while ensuring compliance with regulatory requirements.
  5. Governance and Compliance: The document emphasizes the importance of robust governance structures and compliance mechanisms within firms. It outlines expectations for firms to maintain documentary evidence of compliance and to be prepared for supervisory assessments.
  6. Cost-Benefit Analysis: The PRA provides an analysis of the costs and benefits associated with the proposed changes, ensuring that the regulatory framework remains proportionate and effective in achieving its objectives.
  7. Implementation and Next Steps: The document outlines the implementation timeline for the proposed changes and the PRA’s expectations for firms to adapt their governance and compliance frameworks accordingly.
PRA, Solvency 2, RIG, Compliance AI, LLM, Legal AI

Questions we asked our AI RIG (Regulatory Insights Generator)

What are the new and updated requirements mentioned in relation to...

The new and updated requirements related to the risk margin, as outlined in the PS15/24 document, focus on the calculation and regulatory framework surrounding the risk margin within the context of the PRA Rulebook. Below are the key updates and requirements:

  1. Restatement of Risk Margin Calculation: The PRA has proposed to restate the risk margin calculation formula and parameters into the Technical Provisions Part of the PRA Rulebook. This ensures that the methodology for calculating the risk margin is clearly defined and accessible within the UK regulatory framework.
  1. Simplified Methods for Calculation: The PRA has acknowledged its power to permit firms to use simplified methods for calculating the risk margin. This flexibility allows smaller firms or those with less complex operations to adopt less burdensome approaches while still meeting regulatory requirements.
  1. Technical Provisions Structure: The PRA has introduced specific Technical Provisions, including:
    • Technical Provisions 4: This section outlines the overarching risk margin requirement.
    • Technical Provisions 4A: This section details the calculation of the risk margin, specifying the rules and methodologies that firms must follow.
    • Technical Provisions 4B: This section defines the reference undertaking for the risk margin calculation, providing clarity on the benchmarks and standards to be used.
  1. Glossary Definition Update: The PRA has updated the definition of the term “risk margin” in the PRA Rulebook Glossary. The updated definition now references Technical Provisions 4, 4A, and 4B, ensuring that all relevant aspects of the risk margin calculation are included and clearly articulated.
  1. Feedback Consideration: The PRA has considered feedback from stakeholders regarding the risk margin provisions. While some respondents suggested that certain provisions could be redundant, the PRA has decided to maintain the existing structure to ensure clarity and comprehensiveness in the regulatory framework.
  1. Implementation Timeline: The PRA has outlined an implementation timeline for these updated requirements, ensuring that firms are aware of when they need to comply with the new rules and how they should adapt their internal processes accordingly.
  1. Ongoing Compliance and Governance: Firms are expected to maintain robust governance structures to ensure compliance with the updated risk margin requirements. This includes documenting their methodologies for calculating the risk margin and being prepared for supervisory assessments.

The new and updated requirements related to “Technical Provisions – Further Requirements” as outlined in the PS15/24 document include several key aspects aimed at enhancing the clarity and effectiveness of the regulatory framework for technical provisions. Below are the main points regarding these requirements:

  1. Creation of a New Part in the PRA Rulebook: The PRA has established a new section titled “Technical Provisions – Further Requirements” within the PRA Rulebook. This section consolidates additional requirements that were previously not captured in the existing Technical Provisions Part.
  1. Restatement of Regulations: The PRA proposed to restate certain regulations from the Capital Requirements Directive (CRD) relating to technical provisions, excluding those related to discount rates and the risk margin. This restatement aims to ensure that all relevant requirements are clearly articulated within the PRA Rulebook.
  1. Clarification of Requirements: The new requirements provide clarity on the additional obligations that firms must adhere to when calculating technical provisions. This includes detailed guidance on how firms should approach the determination of technical provisions, ensuring consistency and transparency in their calculations.
  1. Cross-Referencing Existing Requirements: The new section includes cross-references to existing requirements within the PRA Rulebook, ensuring that firms understand how the new requirements interact with previously established rules. This approach aims to enhance the comprehensibility of the regulatory framework.
  1. Introduction of Specific Guidelines: The PRA has introduced specific guidelines and standards of practice (SoPs) related to the calculation of technical provisions. These guidelines provide firms with a framework for compliance and best practices in determining their technical provisions.
  1. Feedback Incorporation: The PRA has taken into account feedback received from stakeholders regarding the proposed requirements. This feedback has informed the finalization of the rules, ensuring that the updated requirements reflect the practical realities faced by firms in the industry.
  1. Implementation Timeline: The new requirements are set to take effect on 31 December 2024, providing firms with a clear timeline for compliance and adaptation to the updated regulatory framework.
  1. Documentation and Evidence: Firms are expected to maintain comprehensive documentation and evidence of their compliance with the new technical provisions’ requirements. This includes records of calculations, methodologies used, and justifications for the assumptions made in determining technical provisions.

The new and updated requirements related to own funds, as outlined in the PS15/24 document, focus on the regulatory framework governing the capital resources that firms must maintain to ensure their solvency and stability. Below are the key updates and requirements concerning own funds:

  1. Restatement of Own Funds Requirements: The PRA has proposed to restate the majority of own funds requirements from the Capital Requirements Directive (CRD) into the Own Funds Part of the PRA Rulebook. This restatement aims to consolidate and clarify the existing requirements for firms regarding their own funds.
  1. Definition Updates: The PRA has revised the definitions of key terms related to own funds, including:
    • Restricted Own Funds (ROF): The definition of ROF has been updated to remove circularity with the definition of Ring-Fenced Funds (RFF). The PRA has incorporated relevant content from CDR Article 80(2) into the ROF definition, ensuring that all pertinent aspects are included.
    • Tier 2 and Tier 3 Own Funds: The definitions of Tier 2 and Tier 3 own funds have been updated to reflect current practices and regulatory expectations.
  1. Permissions and Waivers: The PRA has outlined its approach to granting permissions and waivers related to own funds. This includes a clear process for firms to seek regulatory approval for specific own funds items and the conditions under which waivers may be granted.
  1. Transitional Rules: The PRA has introduced new transitional rules for own funds, allowing firms to adapt to the updated requirements over a specified period. This transitional approach aims to mitigate the impact of the changes on firms’ capital positions.
  1. Clarification of Eligibility Criteria: The updated requirements clarify the eligibility criteria for various own funds items, ensuring that firms understand which capital resources can be classified as own funds and under what conditions.
  1. Reporting and Disclosure Requirements: The PRA has specified new reporting and disclosure requirements related to own funds. Firms must provide detailed information regarding their own funds composition, including the types and amounts of capital held, to enhance transparency and regulatory oversight.
  1. Feedback Consideration: The PRA has considered feedback from stakeholders regarding the proposed own funds requirements. While some suggestions for amendments were received, the PRA has decided to maintain the core structure of the requirements to ensure consistency and clarity.
  1. Implementation Timeline: The updated own funds requirements are set to take effect on 31 December 2024, providing firms with a clear timeline for compliance and necessary adjustments to their capital management practices.
  1. Governance and Compliance: Firms are expected to establish robust governance frameworks to ensure compliance with the updated own funds requirements. This includes maintaining appropriate internal controls, risk management processes, and documentation to support their own funds calculations.

The new and updated requirements related to Standard Formula rules, as detailed in the PS15/24 document, focus on the regulatory framework governing the calculation of the Solvency Capital Requirement (SCR) using the Standard Formula. Below are the key updates and requirements concerning Standard Formula rules:

  1. Restatement of Standard Formula Articles: The PRA has proposed to restate several articles from the Capital Requirements Directive (CRD) that pertain to the Standard Formula. This restatement aims to ensure that the rules governing the SCR are clearly articulated within the PRA Rulebook.
  1. Introduction of New Definitions: The PRA has introduced new definitions relevant to the Standard Formula, including:
    • Standard Formula (SF): A clear definition of the Standard Formula has been established to delineate its purpose and application within the regulatory framework.
    • Ring-Fenced Funds (RFF): The definition of RFF has been updated to reflect its role in the calculation of the SCR and its interaction with the Standard Formula.
  1. Notification Requirements: The PRA has introduced a notification requirement for firms seeking to utilize alternative approaches to the Standard Formula. This replaces the previous requirement for firms to demonstrate compliance to the PRA’s satisfaction, streamlining the process for firms while maintaining regulatory oversight.
  1. Clarification of Calculation Methodologies: The updated requirements provide detailed guidance on the methodologies that firms must use when calculating their SCR using the Standard Formula. This includes specific instructions on the treatment of various risk factors and the application of the formula components.
  1. Cross-Referencing Existing Rules: The PRA has included cross-references to existing rules and guidelines within the PRA Rulebook to enhance the comprehensibility of the Standard Formula requirements. This approach ensures that firms can easily navigate the regulatory framework and understand how different rules interact.
  1. Feedback Incorporation: The PRA has taken into account feedback from stakeholders regarding the proposed Standard Formula rules. Adjustments have been made based on this feedback to improve clarity and address concerns raised by firms during the consultation process.
  1. Implementation Timeline: The new and updated Standard Formula requirements are set to take effect on 31 December 2024. This timeline provides firms with a clear deadline for compliance and necessary adjustments to their capital calculations.
  1. Governance and Documentation: Firms are expected to establish robust governance frameworks to ensure compliance with the updated Standard Formula requirements. This includes maintaining appropriate internal controls, risk management processes, and documentation to support their calculations and methodologies.
  1. Specific Provisions for Adaptations: The PRA has outlined provisions for adaptations to the Standard Formula, allowing firms to apply for modifications under specific circumstances. This flexibility is intended to accommodate the unique risk profiles of different firms while ensuring that the overall regulatory objectives are met.

The new and updated requirements related to Ring-Fenced Funds (RFF) as outlined in the PS15/24 document focus on the definition, scope, and regulatory expectations surrounding RFFs within the context of the Solvency II framework. Below are the key updates and requirements concerning RFFs:

  1. Explicit Definition of RFF: The PRA has introduced an explicit definition of Ring-Fenced Fund (RFF) in the PRA Rulebook Glossary. This definition aims to clarify the existing implied understanding of RFFs and ensure consistency in its application across all UK Solvency II firms, including Lloyds and its members.
  1. Exclusion of Certain Arrangements: The PRA has explicitly excluded Managed Accounts and Portfolios (MAPs) from the RFF definition. This decision is based on the parallel application of relevant Solvency II rules to both RFFs and MAPs, ensuring that the regulatory intent remains clear and consistent.
  1. Revisions to the Definition of Restricted Own Funds (ROF): The PRA has revised the definition of Restricted Own Funds (ROF) to eliminate circularity with the RFF definition. The updated ROF definition incorporates relevant content from CDR Article 80(2), ensuring that all pertinent aspects are included without ambiguity.
  1. Feedback Consideration: The PRA has taken into account feedback from stakeholders regarding the proposed RFF definition. Concerns were raised about the potential for the definition to capture a broader range of structures than intended. In response, the PRA has amended the definition to preserve the existing policy intent and provide clarity for firms assessing whether their arrangements qualify as RFFs.
  1. Guidance on Compliance with RFF Guidelines: The PRA has reiterated its expectations regarding firms’ compliance with the RFF Guidelines. While the revised definition aims to clarify the scope of RFFs, the PRA expects firms to continue considering the existing RFF Guidelines when identifying arrangements that may constitute RFFs.
  1. Clarification on Collateral and Reinsurance Arrangements: The PRA has decided not to explicitly exclude collateral or reinsurance arrangements from the RFF definition. While the PRA does not expect these arrangements to generally constitute RFFs, it acknowledges that the substance of certain arrangements could lead to them being captured by the definition.
  1. Implementation Timeline: The updated RFF requirements are set to take effect on 31 December 2024. This timeline provides firms with a clear deadline for compliance and necessary adjustments to their governance and operational frameworks.
  1. Governance and Documentation: Firms are expected to establish robust governance frameworks to ensure compliance with the updated RFF requirements. This includes maintaining appropriate internal controls, risk management processes, and documentation to support their assessments of whether arrangements qualify as RFFs.

The new and updated requirements related to governance, as outlined in the PS15/24 document, focus on enhancing the regulatory framework for systems of governance within firms operating under the Solvency II regime. Below are the key updates and requirements concerning governance:

  1. Restatement of Governance Provisions: The PRA has proposed to restate provisions from the Capital Requirements Directive (CRD) that pertain to systems of governance. This includes Articles related to risk management systems, remuneration, and the management of conflicts of interest within insurance firms and groups.
  1. Clarification of Key Functions: The PRA has clarified that the term “functions” in the governance context encompasses all key functions as defined in the PRA Glossary. This clarification ensures that firms understand the breadth of responsibilities associated with governance structures.
  1. Minor Drafting Modifications: The PRA has made minor drafting modifications to the new governance rules to align them more closely with their equivalent provisions in the CRD. These changes are primarily administrative and aim to enhance clarity without altering the underlying policy.
  1. Feedback Incorporation: The PRA has considered feedback from stakeholders regarding the proposed governance rules. Responses highlighted concerns about the precision and clarity of the drafting. In response, the PRA has made adjustments to improve the comprehensibility of the governance requirements.
  1. Risk Management System Requirements: The updated governance framework emphasizes the need for firms to establish robust risk management systems. This includes ensuring that risk management is integrated into the overall governance structure and that appropriate resources are allocated to manage risks effectively.
  1. Remuneration Policies: The PRA has reiterated the importance of remuneration policies that align with the risk profile of the firm. Firms are expected to ensure that their remuneration practices do not encourage excessive risk-taking and are consistent with the long-term interests of the firm and its stakeholders.
  1. Management of Conflicts of Interest: The updated requirements emphasize the need for firms to have effective mechanisms in place for identifying, managing, and mitigating conflicts of interest. This includes establishing clear policies and procedures to address potential conflicts that may arise within governance structures.
  1. Documentation and Record-Keeping: Firms are required to maintain comprehensive documentation of their governance frameworks, including policies, procedures, and records of decision-making processes. This documentation is essential for demonstrating compliance with governance requirements and for regulatory oversight.
  1. Implementation Timeline: The new governance requirements are set to take effect on 31 December 2024. This timeline provides firms with a clear deadline for compliance and necessary adjustments to their governance structures.
  1. Ongoing Monitoring and Review: The PRA expects firms to conduct ongoing monitoring and review of their governance frameworks to ensure continued compliance with the updated requirements. This includes regular assessments of the effectiveness of governance arrangements and making necessary adjustments as needed.

The new and updated requirements related to public disclosure, as outlined in the PS15/24 document, focus on enhancing transparency and clarity in the reporting obligations of firms under the Solvency II framework. Below are the key updates and requirements concerning public disclosure:

  1. Restatement of Public Disclosure Requirements: The PRA has proposed to restate the public disclosure requirements from the Capital Requirements Directive (CRD) into the Reporting Part of the PRA Rulebook. This restatement aims to consolidate and clarify the existing disclosure obligations for firms.
  1. Integration of EIOPA Guidelines: The PRA has incorporated the European Insurance and Occupational Pensions Authority (EIOPA) Guidelines on reporting and disclosure into the PRA’s Supervisory Statement SS40/15. This integration ensures that firms align their public disclosure practices with established European standards.
  1. Feedback Incorporation: The PRA has considered feedback from stakeholders regarding the proposed public disclosure requirements. Adjustments have been made based on this feedback to improve clarity and address concerns raised by firms during the consultation process.
  1. Correction of Rule Referencing Errors: The PRA has identified and corrected minor rule referencing errors in the Reporting Part of the PRA Rulebook. These corrections relate to specific rules and articles, ensuring that firms have accurate references for their disclosure obligations.
  1. Clarification of Disclosure Obligations: The updated requirements provide detailed guidance on the specific information that firms must disclose publicly. This includes clarifications on the types of financial and non-financial information that should be included in the Solvency and Financial Condition Report (SFCR) and other public disclosures.
  1. Materiality Considerations: The PRA has reiterated the importance of materiality in public disclosures. Firms are expected to assess the materiality of information when determining what to include in their disclosures, ensuring that only relevant and significant information is presented to stakeholders.
  1. Disclosure of Intra-Group Transactions: The PRA has emphasized the requirement for firms to disclose intra-group transactions. This disclosure aims to enhance transparency regarding the relationships and transactions between group entities, which is crucial for understanding the overall risk profile of the firm.
  1. Implementation Timeline: The updated public disclosure requirements are set to take effect on 31 December 2024. This timeline provides firms with a clear deadline for compliance and necessary adjustments to their reporting practices.
  1. Governance and Documentation: Firms are expected to establish robust governance frameworks to ensure compliance with the updated public disclosure requirements. This includes maintaining appropriate internal controls, risk management processes, and documentation to support their disclosures.

The new and updated requirements related to Insurance Special Purpose Vehicles (ISPVs), as outlined in the PS15/24 document, focus on enhancing the regulatory framework governing these entities. Below are the key updates and requirements concerning ISPVs:

  1. Restatement of Regulations: The PRA has proposed to restate regulations relating to UK ISPVs from the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CIR) into the PRA Rulebook. This restatement aims to consolidate existing regulations and clarify the requirements applicable to ISPVs.
  1. Fit and Proper Requirements: The PRA has introduced amendments to the fit and proper requirements for shareholders or members with a qualifying holding in ISPVs. This includes:
    • A requirement for ISPVs to assess whether shareholders or members with a qualifying holding meet fit and proper criteria.
    • An ongoing obligation for ISPVs to ensure that their assessments do not indicate that any qualifying holders fail to meet these criteria.
  1. General Conditions for ISPVs: The PRA has clarified the general conditions that a UK ISPV must satisfy at all times. This includes:
    • The obligation for ISPVs to assume risks from undertakings through reinsurance contracts or similar arrangements.
    • The requirement for ISPVs to ensure that shareholders or members with a qualifying holding do not pose a risk to the effective operation of the ISPV.
  1. Demonstration of Compliance: The PRA has emphasized that UK ISPVs must be able to demonstrate compliance with relevant requirements upon request. This includes:
    • The ability to provide supporting evidence that they meet the conditions outlined in the PRA Rulebook.
    • Specific requirements related to solvency and risk management that must be demonstrated to the PRA.
  1. Clarification of Solvency Requirements: The PRA has amended rules related to solvency requirements for ISPVs to clarify how these requirements intersect with reporting obligations. This includes:
    • Amendments to Rule 2.4, which specifies that a UK ISPV must demonstrate compliance with solvency requirements if requested, not just through regular reporting.
  1. Aggregate Maximum Risk Exposure (AMRE): The PRA has defined the concept of Aggregate Maximum Risk Exposure (AMRE) in the Annex A (Glossary) of the ISPV Part of the PRA Rulebook. This definition outlines how the maximum payments, including expenses, that the ISPV may incur are calculated.
  1. Removal of Redundant Criteria: The PRA has decided to remove certain criteria from the definition of AMRE that were deemed inappropriate in the context of the UK ISPV regime. This change reflects the ability of UK ISPVs to accept risks from any undertaking, not just those subject to specific technical provisions.
  1. Notification Requirements: ISPVs are required to notify the PRA as soon as they become aware that any shareholder or member with a qualifying holding may not be fit and proper. This requirement enhances the PRA’s oversight of ISPVs and ensures timely communication of potential risks.
  1. Implementation Timeline: The updated requirements for ISPVs are set to take effect on 31 December 2024. This timeline provides firms with a clear deadline for compliance and necessary adjustments to their governance and operational frameworks.
  1. Ongoing Monitoring and Review: The PRA expects ISPVs to conduct ongoing monitoring and review of their compliance with the updated requirements. This includes regular assessments of their governance structures, risk management processes, and adherence to fit and proper criteria.

The new and updated requirements related to Insurance Groups, as outlined in the PS15/24 document, focus on enhancing the regulatory framework governing the supervision and management of insurance groups. Below are the key updates and requirements concerning Insurance Groups:

  1. Restatement of Group Supervision Regulations: The PRA has proposed to restate the remaining group supervision regulations from the Solvency II Capital Requirements Directive (CRD) into the Group Supervision Part of the PRA Rulebook. This restatement aims to consolidate and clarify the existing regulations applicable to insurance groups.
  1. Updated Definitions: The PRA has updated the definitions of group-specific parameters to improve clarity. This includes refining the terminology used in the Group Supervision Part of the PRA Rulebook to ensure that it accurately reflects the regulatory expectations for insurance groups.
  1. Minor Grammatical and Drafting Changes: The PRA has made minor grammatical and drafting changes to the final rulebook and policy material. These changes are intended to enhance readability and ensure that the regulatory text is clear and unambiguous.
  1. Incorporation of HMG’s Overseas Insurance Regime: The PRA has updated the Group Supervision part of the PRA Rulebook, Supervisory Statement (SS) 9/15, and the Statement of Policy (SoP) regarding the PRA’s approach to insurance group supervision to reflect the UK Government’s overseas insurance regime. This update ensures that the PRA’s expectations align with the current regulatory landscape.
  1. Feedback Consideration: The PRA has considered feedback received from stakeholders regarding the proposals for insurance groups. The final policy reflects the PRA’s responses to this feedback, ensuring that the regulatory framework is responsive to the needs and concerns of the industry.
  1. Clarification of Reporting Obligations: The updated requirements clarify the reporting obligations for insurance groups. This includes specifying the types of information that must be reported to the PRA and the timelines for such reporting, ensuring that the PRA has timely access to relevant data for supervisory purposes.
  1. Governance Framework Requirements: Insurance groups are expected to establish robust governance frameworks that facilitate effective oversight and management of risks across the group. This includes ensuring that governance structures are in place to support compliance with regulatory requirements.
  1. Materiality in Group Supervision: The PRA has reiterated the importance of materiality in the context of group supervision. Insurance groups are expected to assess the materiality of information when determining what to disclose to the PRA, ensuring that only relevant and significant information is communicated.
  1. Ongoing Monitoring and Review: The PRA expects insurance groups to conduct ongoing monitoring and review of their compliance with the updated requirements. This includes regular assessments of their governance structures, risk management processes, and adherence to reporting obligations.
  1. Implementation Timeline: The updated requirements for insurance groups are set to take effect on 31 December 2024. This timeline provides firms with a clear deadline for compliance and necessary adjustments to their governance and operational frameworks.

The PRA’s definition of RFF is intended to enhance clarity, maintain regulatory consistency, and ensure that firms have a clear understanding of their obligations under the Solvency II framework. In the context of the proposed changes outlined in CP5/24, the PRA defines the term ‘Ring-Fenced-Fund’ (RFF) as follows:

  1. Explicit Definition: The PRA aims to make explicit the existing implied definition of RFF by introducing a defined term in the PRA Rulebook Glossary. This is intended to clarify the concept of RFF and ensure that it is consistently understood across all relevant UK Solvency II firms, including Lloyds, its members, and managing agents.
  2. Preservation of Existing Policy Intent: The revised definition is designed to accurately preserve the existing policy intent as articulated in the relevant recitals of the Solvency II Directive and the Capital Requirements Directive (CDR). The PRA emphasizes that the updated definition should align with the Guidelines on RFFs to facilitate a clear understanding of the term.
  3. Exclusion of MAPs: The PRA has decided to explicitly exclude Mutual Association Products (MAPs) from the definition of RFF. This distinction is important as it clarifies that while MAPs and RFFs may share some similarities, they are fundamentally different concepts within the Solvency II framework.
  4. Scope of Application: The definition of RFF applies to all firms calculating their Solvency Capital Requirements (SCRs) using the Standard Formula (SF), Internal Model (IM), or Partial Internal Model (Partial IM). This broad applicability ensures that all relevant entities are subject to the same understanding and requirements regarding RFFs.
  5. Clarity and Robustness: The PRA has taken into account feedback from respondents regarding the clarity of the proposed definition. The revised definition aims to provide additional clarity for firms when assessing whether their arrangements should be treated as RFFs, thereby preventing misinterpretation and unintended consequences.
  6. Alignment with Guidelines: The definition incorporates elements from the EU Guidelines on RFFs, ensuring that firms are aware of the characteristics that constitute an RFF and the regulatory expectations surrounding them.

The purpose of the feedback process mentioned in the review of Solvency II is multifaceted and serves several key objectives:

  1. Stakeholder Engagement: The feedback process is designed to engage stakeholders, including firms, industry representatives, and other interested parties, in the regulatory development process. By soliciting and considering their input, the PRA aims to ensure that the perspectives and concerns of those affected by the proposed rules are taken into account.
  2. Improvement of Draft Policies: The feedback process allows the PRA to gather insights and suggestions regarding the draft policy proposals. This input can lead to improvements in the clarity, effectiveness, and practicality of the final rules. The PRA can identify areas where stakeholders may have concerns or require further clarification, enabling them to refine the proposals accordingly.
  3. Transparency and Accountability: By publishing feedback and responses to the consultation, the PRA enhances transparency in its decision-making process. This accountability helps build trust among stakeholders, as they can see how their input has influenced the final proposals and understand the rationale behind the PRA’s decisions.
  4. Alignment with Regulatory Objectives: The feedback process ensures that the final proposals align with the PRA’s regulatory objectives and principles. By considering stakeholder feedback, the PRA can assess whether the proposed rules effectively address the intended regulatory outcomes and whether they are compatible with the broader objectives of financial stability and consumer protection.
  5. Facilitation of Future Reforms: The feedback process also serves as a foundation for future reforms. By understanding the concerns and suggestions raised by stakeholders, the PRA can identify potential areas for further development or adjustment in subsequent policy iterations, ensuring that the regulatory framework remains responsive to evolving market conditions and stakeholder needs.
  6. Cost-Benefit Analysis: The PRA utilizes feedback to conduct a more comprehensive cost-benefit analysis of the proposed rules. Stakeholder input can provide valuable information regarding the potential impacts of the rules on firms and the market, helping the PRA to assess whether the benefits of the proposed changes outweigh the costs.

The revised UK regulations, particularly in the context of the Solvency II framework post-Brexit, differ from the original Solvency II directives in several key areas. While they retain many core principles of the original Solvency II directives, they also introduce significant adaptations to governance, reporting, and compliance requirements, allowing for greater regulatory independence and responsiveness. Below are the main distinctions:

  1. Regulatory Framework and Authority:
    • Original Solvency II Directives: The Solvency II framework was established under EU law, governed by the European Insurance and Occupational Pensions Authority (EIOPA) and applicable across all EU member states.
    • Revised UK Regulations: Post-Brexit, the UK has developed its own regulatory framework under the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The UK regulations are tailored to the specific needs of the UK insurance market, allowing for greater flexibility and responsiveness to local conditions.
  1. Assimilated Law:
    • Original Solvency II Directives: The directives were directly applicable and enforced uniformly across EU member states.
    • Revised UK Regulations: The UK has introduced the concept of “assimilated law,” which refers to retained EU law that has been modified to fit the UK context. The PRA has restated provisions from the original Solvency II directives into its own rules, ensuring continuity while allowing for amendments that reflect UK-specific regulatory priorities.
  1. Transitional Provisions:
    • Original Solvency II Directives: The original directives included specific transitional provisions for firms to adapt to the new requirements.
    • Revised UK Regulations: The UK regulations introduce new transitional measures, such as the ability for firms to recognize increases in Deferred Tax Assets (DTA) based on future taxable profits. These measures provide firms with additional flexibility and time to comply with the new requirements.
  1. Third-Country Branches:
    • Original Solvency II Directives: The directives included specific provisions for the treatment of third-country branches operating within the EU.
    • Revised UK Regulations: The UK has established its own framework for third-country branches, which may differ from the EU’s approach. The revised regulations provide clarity on how these branches will be regulated and supervised in the UK context.
  1. Risk Margin Calculation:
    • Original Solvency II Directives: The risk margin calculation was standardized across the EU, with specific methodologies outlined in the directives.
    • Revised UK Regulations: The UK regulations restate the risk margin calculation formula and parameters but may allow for adaptations that reflect the UK market’s unique characteristics and risk profiles.
  1. Reporting and Disclosure Requirements:
    • Original Solvency II Directives: The directives established uniform reporting and disclosure requirements for all EU insurers.
    • Revised UK Regulations: The PRA has introduced updated reporting rules and templates that may differ from the EU’s requirements, allowing for a more tailored approach to reporting that aligns with the UK regulatory environment.
  1. Flexibility and Proportionality:
    • Original Solvency II Directives: The EU framework was often seen as prescriptive, with less room for proportionality based on firm size or complexity.
    • Revised UK Regulations: The UK regulations emphasize a more principles-based approach, allowing for proportionality in the application of rules based on the size and complexity of firms. This flexibility aims to reduce the regulatory burden on smaller insurers while maintaining adequate protections for policyholders.

The amendments to PRA rules and policy material mentioned in the PS15/24 document encompass a range of updates aimed at enhancing clarity, consistency, and compliance within the regulatory framework. Below are the key amendments outlined in the document:

  1. Restatement of Existing Provisions: The PRA has restated existing provisions from assimilated law into PRA rules without material changes to the policy substance, ensuring that the regulatory framework remains consistent and clear.
  1. Minor Amendments to Specific Rules: The PRA has made minor amendments to specific rules, including:
    • CGB 11B.1(2)(g), CGB 11B.3(5), and CGB 11D.4(2) to align the wording more closely with corresponding Capital Requirements Directive (CRD) Articles. This adjustment aims to enhance precision and clarity in the regulatory text.
  1. Clarification of Reporting Templates: The PRA has finalized reporting and disclosure templates and instructions, ensuring that they are updated to reflect the latest regulatory requirements. This includes the Matching Adjustment Asset and Liability Information Return (MALIR) template and instructions.
  1. Removal of Redundant Text: The PRA has removed redundant text and addressed typographical errors in the PRA Rulebook and related policy materials. This effort aims to improve the overall readability and usability of the regulatory documents.
  1. Updates to Definitions: The PRA has updated definitions within the PRA Rulebook Glossary, including the definition of “technical provisions” to enhance clarity and avoid circular references. This ensures that definitions are clear and unambiguous for stakeholders.
  1. Incorporation of Feedback: The PRA has incorporated feedback received from respondents during consultations into the final policy material. This includes adjustments made in response to comments regarding the clarity and precision of the regulatory text.
  1. General Conditions for ISPVs: Amendments have been made to clarify the general conditions that Insurance Special Purpose Vehicles (ISPVs) must satisfy, including the obligations related to risk acceptance and shareholder qualifications.
  1. Ongoing Monitoring Requirements: The PRA has emphasized the importance of ongoing monitoring and review of compliance with the updated requirements, ensuring that firms maintain adherence to regulatory expectations.
  1. Implementation Timeline: The amendments to PRA rules and policy material are set to take effect on 31 December 2024, providing firms with a clear deadline to implement necessary changes and ensure compliance.
  1. Finalization of Policy Material: The PRA has finalized policy material consulted on in CP5/24, including Supervisory Statements (SSs) and Statements of Policy (SoPs), ensuring that all relevant amendments are amalgamated within the final material.

The new reporting templates and instructions introduced as part of the PS15/24 document focus on enhancing the regulatory reporting framework for insurance firms. Below are the key updates regarding the new reporting templates and instructions:

  1. Final Reporting Templates: The PRA has confirmed the final reporting templates that were previously published as ‘near-final’ in PS3/24. These templates are designed to facilitate consistent and comprehensive reporting by insurance firms to the PRA.
  1. Matching Adjustment Asset and Liability Information Return (MALIR): A new template called the Matching Adjustment Asset and Liability Information Return (MALIR) has been introduced. This template is specifically designed to capture detailed information regarding the matching adjustment applied by firms, including:
    • The assets and liabilities that are subject to the matching adjustment.
    • The calculations and methodologies used to determine the matching adjustment.
  1. Updated Reporting Instructions: Alongside the new templates, the PRA has provided updated reporting instructions that outline how firms should complete and submit the reporting templates. These instructions include:
    • Detailed guidance on the information required in each section of the templates.
    • Clarifications on the definitions and terms used within the templates to ensure consistency in reporting.
  1. Implementation Timeline: The new reporting templates and instructions are set to take effect on 31 December 2024. This timeline allows firms to prepare for the changes and ensure that their reporting processes align with the updated requirements.
  1. Minor Amendments: The PRA has also made minor amendments to existing reporting templates to address typographical errors, formatting issues, and updates to cross-references in the PRA Rulebook. These changes aim to enhance the clarity and usability of the reporting templates.
  1. Ongoing Monitoring and Feedback: The PRA encourages firms to provide feedback on the new reporting templates and instructions. This feedback will be considered for future updates and improvements to the reporting framework.

To align their internal documentation and policies with the revised regulations outlined in the PS15/24 document, firms should undertake a systematic approach. Below are the recommended steps:

  1. Review the Revised Regulations:
    • Thorough Examination: Conduct a detailed review of the PS15/24 document and any related regulatory updates to understand the specific changes to the PRA rules and policy material.
    • Identify Key Changes: Highlight the amendments that directly impact the firm’s operations, including new reporting templates, definitions, and compliance requirements.
  1. Gap Analysis:
    • Assess Current Policies: Perform a gap analysis to compare existing internal policies and documentation against the revised regulations.
    • Identify Discrepancies: Identify areas where current practices do not align with the new requirements, including reporting processes, compliance controls, and risk management frameworks.
  1. Update Internal Policies and Procedures:
    • Revise Documentation: Update internal policies, procedures, and manuals to reflect the changes in regulatory requirements. This may include:
      • Modifying compliance policies to incorporate new reporting obligations.
      • Updating risk management frameworks to address any new risks identified in the revised regulations.
    • Incorporate New Templates: Ensure that the new reporting templates and instructions are integrated into the firm’s reporting processes.
  1. Training and Awareness:
    • Conduct Training Sessions: Organize training sessions for relevant staff to ensure they understand the changes in regulations and how these affect their roles and responsibilities.
    • Disseminate Information: Provide clear communication regarding the updates to policies and procedures, ensuring that all employees are aware of the changes.
  1. Implement Compliance Controls:
    • Strengthen Compliance Framework: Enhance compliance controls to monitor adherence to the revised regulations. This may involve:
      • Establishing new reporting mechanisms to ensure timely and accurate submissions.
      • Implementing checks and balances to verify compliance with updated policies.
  1. Engage with Stakeholders:
    • Consult with Legal and Compliance Teams: Collaborate with legal and compliance teams to ensure that all updates are compliant with the regulatory framework.
    • Seek External Advice: If necessary, consider engaging external consultants or legal advisors to provide insights on best practices for compliance with the revised regulations.
  1. Monitor and Review:
    • Establish Review Mechanisms: Set up regular review processes to monitor compliance with the updated policies and procedures.
    • Feedback Loop: Create a feedback mechanism for staff to report challenges or issues encountered in implementing the new requirements, allowing for continuous improvement.
  1. Documentation and Record-Keeping:
    • Maintain Records: Ensure that all changes to policies and procedures are documented, and maintain records of training sessions and compliance checks.
    • Audit Trail: Create an audit trail to demonstrate compliance with the revised regulations during internal or external audits.

Firms should pay attention to several additional aspects as they align their operations with the revised regulations outlined in the PS15/24 document. Here are key considerations:

  1. Impact on Capital Requirements:
    • Understanding SCR Calculations: Firms should closely monitor how the changes in reporting templates and the introduction of the Matching Adjustment Asset and Liability Information Return (MALIR) may affect their Solvency Capital Requirement (SCR) calculations.
    • LACDT Considerations: Pay attention to the implications of the Loss Absorbing Capacity of Deferred Tax (LACDT) proposals, particularly regarding the thresholds and caps introduced, as these may impact capital management strategies.
  1. Materiality and Disclosure:
    • Materiality Assessments: Firms should conduct assessments to determine what constitutes material information under the new regulations, especially regarding omissions in the Solvency and Financial Condition Report (SFCR).
    • Intra-group Transactions: Increased focus on the disclosure of intra-group transactions may require firms to enhance their documentation and reporting practices to ensure compliance with the new expectations.
  1. Regulatory Reporting Timelines:
    • Adherence to Deadlines: Firms must be aware of the implementation timeline for the new reporting templates and ensure that they are prepared to meet the deadlines set by the PRA, specifically the effective date of 31 December 2024.
    • Transition Period Considerations: Understand any transitional provisions that may apply during the implementation phase, allowing for a smoother transition to the new requirements.
  1. Stakeholder Engagement:
    • Communication with Regulators: Maintain open lines of communication with the PRA and other regulatory bodies to clarify any uncertainties regarding the new requirements and seek guidance as needed.
    • Engagement with External Auditors: Firms should engage with their external auditors to discuss how the changes may affect the audit process and ensure that they are aligned with the new reporting expectations.
  1. Risk Management Enhancements:
    • Reassess Risk Profiles: Firms should reassess their risk profiles in light of the new regulations, particularly concerning the recognition of future taxable profits and the implications for overall risk exposure.
    • Proportionality Considerations: Smaller firms or those with lower SCRs should consider how the PRA’s approach to proportionality may affect their compliance obligations and reporting requirements.
  1. Continuous Monitoring and Adaptation:
    • Stay Informed on Future Developments: Firms should remain vigilant for any future updates or changes to the regulatory landscape that may arise from ongoing consultations or policy developments by the PRA.
    • Adaptation to Regulatory Changes: Establish a framework for continuous monitoring of regulatory changes and ensure that internal policies can be adapted swiftly to accommodate new requirements.
  1. Documentation and Record-Keeping:
    • Comprehensive Documentation: Ensure that all changes made in response to the revised regulations are thoroughly documented, including the rationale for changes and the processes followed.
    • Audit Preparedness: Maintain readiness for audits by ensuring that documentation is organized and accessible, demonstrating compliance with the updated regulations.

The key implementation dates and transitional periods outlined in the PS15/24 document are as follows:

Key Implementation Dates:

  1. Final Rules and Policy Material:
    • Effective Date: The final rules and policy material reflecting the changes set out in the PS15/24 document will come into effect on 31 December 2024. This includes the final rules and policies from PS2/24, PS3/24, and the reporting rules in PS10/24.
  2. Transitional Rule for Legacy Preference Shares:
    • Effective Date: A transitional rule allowing firms to continue treating legacy paid-in preference shares issued prior to 18 January 2015 as not relevant when assessing compliance with certain unrestricted Tier 1 own funds requirements will come into force on 2 January 2026.
  3. LACDT Transitional Period:
    • Effective Date: Firms are permitted to utilize an increase in deferred tax assets (DTA) based recognition of future taxable profits in their Loss Absorbing Capacity of Deferred Tax (LACDT) calculations until 30 December 2025. After this date, firms must obtain s138BA permission to continue utilizing this approach.
  4. Reporting Requirements:
    • Effective Date: The PRA Rulebook: Solvency II Reporting Reform Instrument and additional reporting policy material from PS3/24 will be effective for quarterly and annual reporting reference dates falling on and after 31 December 2024.

Additional Considerations:

  • Firms should ensure they are prepared to meet these deadlines and understand the implications of the transitional periods on their compliance strategies and reporting obligations.
  • It is crucial for firms to maintain documentation and records related to these implementation dates and transitional provisions to demonstrate compliance during audits and regulatory reviews.

We then asked the RIG to auto-generate a suggested control framework and create an associated Policy...

Based on the requirements suggest a control framework for a firm to comply with this regulation?

To establish a robust control framework for compliance with the requirements outlined in the PS15/24 document, firms should consider implementing the following components:

  1. Governance Structure
    • Compliance Oversight Committee: Establish a dedicated committee responsible for overseeing compliance with the new regulations. This committee should include representatives from key functions such as compliance, risk management, finance, and operations.
    • Clear Roles and Responsibilities: Define roles and responsibilities for compliance at all levels of the organization, ensuring accountability for adherence to regulatory requirements.
  1. Risk Assessment and Management
    • Regular Risk Assessments: Conduct periodic risk assessments to identify potential compliance risks associated with the new regulations, including those related to SCR calculations, LACDT, and reporting requirements.
    • Risk Mitigation Strategies: Develop and implement risk mitigation strategies to address identified risks, ensuring that they are integrated into the firm’s overall risk management framework.
  1. Policy Development and Documentation
    • Comprehensive Policies: Create and maintain comprehensive policies that reflect the new regulatory requirements, including those related to capital management, reporting, and disclosure of intra-group transactions.
    • Documentation Standards: Establish documentation standards for all compliance-related activities, ensuring that records are complete, accurate, and readily accessible for review.
  1. Training and Awareness
    • Employee Training Programs: Develop and implement training programs for employees at all levels to ensure they understand the new regulations and their implications for daily operations.
    • Ongoing Awareness Campaigns: Conduct ongoing awareness campaigns to keep employees informed about regulatory changes and compliance expectations.
  1. Monitoring and Reporting
    • Compliance Monitoring: Implement a compliance monitoring program to regularly assess adherence to the new regulations. This may include automated systems for tracking compliance with reporting deadlines and requirements.
    • Internal Reporting Mechanisms: Establish internal reporting mechanisms for employees to report compliance concerns or breaches without fear of retaliation.
  1. Audit and Review
    • Regular Internal Audits: Conduct regular internal audits to evaluate the effectiveness of the compliance control framework and identify areas for improvement.
    • External Audit Engagement: Engage external auditors to review compliance with the new regulations, particularly focusing on the accuracy of SCR calculations and reporting practices.
  1. Regulatory Engagement
    • Proactive Communication with Regulators: Maintain open lines of communication with the PRA and other regulatory bodies to clarify any uncertainties regarding compliance requirements and seek guidance as needed.
    • Feedback Mechanism: Establish a feedback mechanism to incorporate insights from regulatory interactions into the firm’s compliance practices.
  1. Technology and Tools
    • Compliance Management Systems: Invest in compliance management systems that facilitate tracking, reporting, and documentation of compliance activities.
    • Data Analytics: Utilize data analytics tools to enhance the accuracy and efficiency of SCR calculations and reporting processes.
  1. Continuous Improvement
    • Review and Update Controls: Regularly review and update the control framework to reflect changes in regulations, business operations, and emerging risks.
    • Feedback Loop: Create a feedback loop to gather insights from compliance monitoring, audits, and employee feedback to continuously improve the control framework.

Risk Margin Compliance Policy

  1. Purpose

The purpose of this policy is to establish a framework for the calculation, management, and reporting of the risk margin as required by the Prudential Regulation Authority (PRA) under the Solvency II regime. This policy aims to ensure compliance with the relevant regulations and to mitigate risks associated with the calculation and reporting of the risk margin.

  1. Scope

This policy applies to all employees involved in the calculation, management, and reporting of the risk margin within [Firm Name]. It encompasses all business units and functions that contribute to the determination of technical provisions and risk margin calculations.

  1. Definitions
    • Risk Margin: The amount added to the best estimate of liabilities to ensure that the total technical provisions are sufficient to cover the insurance obligations over the lifetime of the contracts.
    • Technical Provisions: The sum of the best estimate of liabilities and the risk margin.
    • SCR: Solvency Capital Requirement, the capital required to ensure that the firm can meet its obligations over a specified time horizon.
  1. Regulatory Framework
    • This policy is developed in accordance with the PRA’s requirements as outlined in the PS15/24 document, specifically regarding the restatement of assimilated law related to the risk margin. The firm will adhere to the following regulations:
      • The Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024.
      • Technical Provisions Part of the PRA Rulebook, including Technical Provisions 4, 4A, and 4B.
  1. Responsibilities
    • Compliance Officer: Responsible for overseeing the implementation of this policy and ensuring adherence to regulatory requirements.
    • Actuarial Team: Responsible for the accurate calculation of the risk margin in accordance with the prescribed methodologies and guidelines.
    • Finance Department: Responsible for the integration of risk margin calculations into financial reporting and ensuring that all relevant disclosures are made.
    • Internal Audit: Responsible for conducting periodic audits to assess compliance with this policy and the effectiveness of controls in place.
  1. Risk Margin Calculation
    • The risk margin will be calculated using the methodology prescribed in Technical Provisions 4A and 4B of the PRA Rulebook.
    • The calculation will consider the following factors:
      • The best estimate of liabilities.
      • The cost of holding capital to support the liabilities.
      • The prescribed parameters and formulae as outlined in the PRA regulations.
  1. Documentation and Record Keeping
    • All calculations related to the risk margin must be documented in a clear and comprehensive manner.
    • Supporting documentation, including assumptions, methodologies, and data sources used in the calculations, must be retained for a minimum of [insert duration, e.g., 5 years].
    • Documentation must be readily accessible for review by internal and external auditors.
  1. Reporting Requirements
    • The risk margin will be reported as part of the technical provisions in the firm’s financial statements and regulatory submissions.
    • The firm will ensure that all reporting is completed in accordance with the deadlines specified by the PRA and that all disclosures are accurate and complete.
  1. Monitoring and Review
    • The Compliance Officer will conduct regular reviews of this policy to ensure its effectiveness and alignment with regulatory changes.
    • The policy will be reviewed annually, or more frequently if required, to incorporate any updates to regulatory requirements or internal processes.
  1. Training and Awareness
    • All employees involved in the calculation and reporting of the risk margin will receive training on this policy and the relevant regulatory requirements.
    • Ongoing training programs will be established to ensure that employees remain informed about changes in regulations and best practices.
  1. Non-Compliance
    • Any instances of non-compliance with this policy must be reported immediately to the Compliance Officer.
    • Disciplinary actions may be taken against employees who fail to adhere to this policy, in accordance with the firm’s disciplinary procedures.
  1. Approval and Implementation

This policy has been approved by [insert approval authority, e.g., Board of Directors] and is effective as of [insert effective date]. All employees are required to comply with this policy and contribute to the firm’s commitment to regulatory compliance.

By adhering to this Risk Margin Compliance Policy, [Firm Name] aims to ensure that it meets all regulatory requirements related to the calculation and reporting of the risk margin, thereby safeguarding its financial stability and integrity.

sfdsfdsada@2x-300x106

Level 39
One Canada Square
Canary Wharf, London
United Kingdom

Phone: +442045370860
Email: info@finreg-e.com
Social: Linkedin

Compliance Controls Mappings Compliance Self Assessments Controls Management Digital Rulebooks Governance, Risk & Compliance (GRC) Machine Readable Regulations Horizon Scanning Regulatory Change Automated Compliance Regulatory Horizon Scanning Regulatory Change Management Regulatory Impact Assessments Risk Management Regulatory Obligations
Compliance Auditing Compliance Gaps AnalysisRegulation Obligations Regulatory Impact Assessment Compliance Management Automated Compliance Compliance Workflows Digital Rulebooks Regulatory Horizon Scanning Regulatory Change Automated Compliance Regulatory Change Management Internal Regulation Management Project Management Regulatory Affairs Management Regulatory Policy Management Regulatory Change Management Regulatory Public Policy Regulatory Alerts Regulatory Publications Regulatory News Regulatory Alerts Regulatory Analytics Regulatory Developments Regulatory Updates Fast Compliance Regulatory Optimisation Regulatory Obligations Regulatory Technology (RegTech) Compliance Automation Risk Management Rule Inventories
APIs App Development Cloud Database Management ML/AI Development Software Development
FCA Handbook
News Sitemap
Working with us
Case Studies Use Cases Why FinregE?

Copyright © 2024 FinregE | All rights reserved 

Downloads Alert