CP17/3: Proposed Handbook changes to reflect the new regulatory framework for Insurance Linked Securities

Open consultation
31/01/2017
Consultation closes
14/03/2017
Policy Statement
Q2 2017
Q2 2017

We are consulting on our proposals for the changes required to the FCA Handbook to incorporate the new regulated activity of insurance risk transformation.

Show CP17/3 (PDF)

Insurance Linked Securities (ILS) are financial instruments, which are sold to investors, where the value of the security is linked to an insurable loss event.

ILS are an alternative form of risk mitigation for insurance and reinsurance firms, offering a means for them to transfer risk to the capital markets through Insurance Special Purpose Vehicles (ISPVs). In November 2016, Her Majesty’s Treasury (the Treasury) proposed a new regulated activity of insurance risk transformation, as part of designing a new framework to attract ILS business to the UK.

This Consultation Paper (CP) sets out our proposals for the changes required to the FCA Handbook to incorporate the new regulated activity of insurance risk transformation. This includes changes to the application provisions of parts of the Handbook to incorporate ILS, some additional rules we propose to create for ILS business, proposals for fees for the registration of protected cell companies (PCC), and a number of consequential changes.

Who this applies to

Our proposals will affect:

  • ISPVs
  • firms that undertake (outsourced) activities on behalf of ISPVs
  • professional advisers to ISPVs
  • firms considering becoming involved in setting up ISPVs or issuing ILS
  • insurers seeking to use ISPVs as part of their risk mitigation strategy

It is currently proposed that investment in ILS will be restricted to Qualified Investors and, therefore, they cannot be sold to retail consumers. The proposals will be of interest to those Qualified Investors who invest or may consider investing in ILS in the future.

It is unlikely these proposals will be of interest to retail consumers outside of the Handbook definition of Qualified Investors, though retail consumers may have an interest where ILS are sold in breach of the proposed restrictions.

Next steps

This consultation has now closed. We will consider your feedback and intend to publish our rules in a Policy Statement once the Treasury Regulations have been finalised (our timetable is dependent on the publication of final regulations by the Treasury).