Draft Insurance and Reinsurance Undertakings (Prudential Requirements) Regulations
Draft regulations to reform Solvency II, the prudential regulatory framework for insurers and reinsurers, made available for the purpose of early engagement.
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The Financial Services and Markets Bill was introduced to Parliament on 20 July 2022. It creates new powers for the Treasury by regulations to make transitional amendments to, restate, or modify retained EU law relating to financial services and markets. These regulation making powers are subject to Parliamentary approval. After the Bill gains Royal Assent it will allow the Government to commence revocation of existing Solvency II legislation.
The Treasury has developed early drafts of regulations that will be made under the powers in the Bill to give effect to the reforms to the prudential regulation of the insurance sector in the UK. These reforms were announced in the Review of Solvency II: Consultation Response in November 2022. The reforms will boost economic growth by delivering a more tailored, clearer and simpler regulatory regime. They will also cement the UK as one of the best countries in the world in which to do business. The Government is determined to implement reforms as soon as possible. The Government expects that reform of the risk margin will be in force in legislation by year end 2023. It is considering options to enable reforms to the matching adjustment to come into force by the end of June 2024, and the remainder of the new regime will come into force by year end 2024.
Those parts of the Solvency II regime which are not restated or saved under this statutory instrument will be replaced with the PRA’s new rules. This will bring the regime into line with the Financial Services and Markets Act 2000 model of regulation by keeping the overarching framework for regulation set by the government in legislation but removing most detailed regulation from the statute book.
These draft statutory instruments are subject to change based on further engagement made possible by publishing the draft now. These regulations will also need to work effectively with related PRA rules. Adjustments to the regulations may be necessary as the PRA complete the development of their rules. Final statutory instruments will be laid in Parliament after the Bill receives Royal Assent.
In addition, the Treasury will make:
- Commencement regulations to bring into force provisions of the Bill to revoke:
- Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/13/8/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of insurance reinsurance (Solvency II)
- The Solvency 2 Regulations 2015
- Regulations under the new section 138BA inserted by the Bill into the Financial Services and Markets Act 2000. Revocation will include the provisions in Part 4 of the 2015 Regulations that deal with measures which require PRA approval, such as use of internal models. In future, use of these measures will be the responsibility of the PRA. HM Treasury will use the power at new section 138BA of FSMA to grant the PRA flexibility to disapply or modify the application of any of its rules. Firms will then be able to apply to the PRA for permission to use measures which require PRA rules to be disapplied or modified. It will be for the PRA to set out its policy on how it will consider applications to disapply or modify its rules and how firms should apply to the PRA for any particular permission to do so. Existing approvals firms have to use measures covered by Part 4 of the 2015 Regulations will continue to be valid.