UK implementation of Solvency II

Substantial activity amongst the UK authorities preceded the 31 March 2015 deadline for transposition of Solvency II into national law, perhaps the most significant of which was the release by the Prudential Regulation Authority (the “PRA”) of its final rules on 20 March. Those rules are contained in the PRA’s Policy Statement 2/15 (here), which runs to 330 pages and is accompanied by 17 supervisory statements as well as providing feedback on responses to prior consultation papers.

At the same time as releasing its final rules, the PRA also published a consultation paper on the application process for the “volatility adjustment” (here), in light of the fact that firms wishing to use the volatility adjustment can, as from 1 April 2015, submit a formal application to do so. Separate consultation papers were subsequently issued on 31 March in relation to the treatment of sovereign debt in internal models (here) and on 10 April on the consistency of UK generally accepted accounting principles with Solvency II (here).

Although the larger part of the Solvency II transposition process has fallen to the PRA, as prudential supervisor, the Financial Conduct Authority (the “FCA”) has also had to make changes to its conduct rules, largely relating to the provision of information to consumers and in order to align with the Directive. The FCA released its final rules in Policy Statement 15/8 (here) on 27 March.

Changes have also been required to primary legislation in order to implement the Directive and HM Treasury has made corresponding amendments via the Solvency 2 Regulations (SI 2015/575) (here).

The accountability regime for senior managers of insurance firms is also undergoing change. On 23 March the PRA published a policy statement in relation to the new Senior Insurance Managers Regime and on 27 March the PRA published a consultation, jointly with the FCA (here), in relation to these changes. Some aspects of the new regime transpose or are closely connected to the implementation of certain Solvency II governance requirements, while others are intended to align the accountability regime for insurers more closely with the forthcoming Senior Managers Regime for banks. Separate consultations by the FCA (here) and the PRA deal with proposals for non-Directive firms.

For further information, please contact Duncan Barber, Partner (tel. +44 20 7456 3356), Victoria Sander, Partner (tel. +44 20 7456 3395) or, in relation to the senior insurance managers regime, Celyn Armstrong, Counsel (tel. +44 20 7456 4767).