Policy Statement 17/24 (PS17/24) set out our near-final rule changes required to the FCA Handbook to incorporate the new regulated activity of insurance risk transformation. When we published PS17/24 on 1 November 2017 we had to publish near-final, draft material because the Risk Transformation Regulations 2017 (RTR) had not become law. The RTR have now come into force, so we have finalised our rules.
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 proposed a new regulated activity of insurance risk transformation, as part of designing a new framework to attract ILS business to the UK.
This Policy Statement sets out:
- our response to the feedback received to CP16/34 and a near-final ‘FCA Statement – authorising and supervising insurance special purpose vehicles’ (see Chapter 2)
- our response to the feedback received to CP17/3 and the near-final rules that incorporate the new regulated activity of insurance risk transformation into our Handbook (see Chapter 3)
Who this applies to
Our Policy Statement will affect:
- 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
The Risk Transformation Regulations 2017 (RTR) restrict investment in ILS to qualified investors (QIs) only, so they should not be sold to retail consumers. The rules will be of interest to QIs who invest in, or will consider investing in ILS in the future.
The rules come into force on 13 December 2017 and must be complied with from that date by all affected firms.