Update 4 July 2016: Following feedback, the PRA has made some minor amendments to the rules, though the broad policy approach has not changed. Please see ‘Solvency II: external audit of the public disclosure requirement’ - CP23/16: the consultation closes on Thursday 4 August 2016.
This consultation paper (CP) is relevant to firms in scope of Solvency II including the Society of Lloyd’s (insurers), auditors and those individuals or firms who are likely to use the Solvency and Financial Condition Report (SFCR). For insurers not in scope of Solvency II (non-directive firms) Prudential Regulation Authority (PRA) Rule 9.6 of The Interim Prudential Sourcebook for Insurers (IPRU INS) will continue to apply. The PRA plans to consult in 2016 Q1 on rules for non-directive firms.
This CP sets out the PRA’s proposal for a policy to require the external audit of elements of Pillar 3 disclosure under Solvency II and seeks feedback on the proposal, draft rules and draft supervisory statement. Under Pillar 3, firms in scope of Solvency II are required to disclose publicly a SFCR. The proposed policy would require external audit of quantitative and qualitative information included in the ‘Valuation for solvency purposes’ and ‘Capital management’ sections of the SFCR (relevant elements of the SFCR) of insurers prepared at the solo, group and sub group level.
Where Solvency II requires the production of a SFCR, the PRA proposes to require the relevant elements to be externally audited, subject to two exemptions. First, the Solvency Capital Requirement would be exempt if calculated using an approved full or partial internal model. Secondly, where Solvency II requires information in the SFCR to be produced using sectoral rules, that information would not be subject to external audit.
The proposal is intended to give users of the SFCR, including investors, policyholders and the PRA, greater confidence in the quality of the disclosure. Investors may need this information to make informed investment decisions, which should contribute to market discipline and the PRA’s objectives of promoting the safety and soundness of firms and securing an appropriate degree of protection for policyholders.
This consultation closed on Friday 19 February 2016. The PRA invited feedback on the proposal, draft rules and draft supervisory statement set out in this consultation. Responses should be sent to CP43_15@bankofengland.co.uk
The PRA will consider the feedback received and will publish a policy statement with the final rules, and a supervisory statement.
Solvency II: external audit of the public disclosure requirement – CP43/15