The PRA fines Barents Reinsurance S.A., London Branch £1,785,000 for internal controls, governance and reporting failures

News release

The Prudential Regulation Authority (the “PRA”) has fined Barents Reinsurance S.A., London Branch (“Barents”) £1,785,000 for failing to organise and control its affairs responsibly and effectively, as well as governance and regulatory reporting failures. This is the first time the PRA has fined a firm operating purely as a reinsurer. 

Barents Reinsurance S.A. is a Luxembourg-based reinsurer. From 28 February 2017, Barents Reinsurance S.A. operated in the UK via a branch under the EU’s passporting arrangements. 

Following the UK’s withdrawal from the EU, the ‘Temporary Permissions Regime’ (“TPR”) permitted EU firms to continue their activities for a limited period of time. When the TPR commenced, all relevant parts of the PRA Rulebook applied to Barents, including the PRA’s Fundamental Rules and Third Country Branch Rules (the latter subject to certain transitional relief). The PRA wrote to firms before the TPR commenced to ensure that they were operationally ready and understood the PRA’s expectations of firms operating within the TPR.

The PRA’s investigation found that from July 2021 to October 2023, Barents failed to: 

• organise and control its affairs responsibly and effectively because it did not adequately prepare for the regulatory impact of the UK's exit from the EU, or ensure that certain Internal Audit recommendations were implemented in a timely manner;
• have a system of governance proportionate to its operations; 
• have a business continuity plan that adequately took into account the UK business; and have appropriate systems and structures in place to fulfil its reporting requirements, leading to the late submission of certain required regulatory reports.

As a result of the failings, the PRA has found that from July 2021 to October 2023, Barents breached the following rules in the PRA Rulebook:

• Fundamental Rule 6 (a firm must organise and control its affairs responsibly and effectively);
• Rules 2.3 and 2.6 of the Conditions Governing Business Part of the PRA Rulebook; and
• Rules 2.1 and 2.5 of the Reporting Part of the PRA Rulebook.

Shoib Khan, Director, Insurance Supervision for the PRA, said: 

“The PRA welcomes international participation in the UK insurance (including reinsurance) market, subject to safeguards to ensure that this is accompanied by financial and operational resilience. The PRA terms this ‘responsible openness’. 

Barents fell materially short of its obligations to comply with the PRA rules applicable to third country branches once subject to the UK regulatory framework. As a result it failed to organise and control its affairs responsibly and effectively, and to have appropriate governance and reporting arrangements in place. 

Third country branches operating in the UK should therefore ensure that they fully engage and comply with the UK regulatory framework.”

Barents has sought to remediate the weaknesses identified and has incurred substantive remediation costs to date. 

Barents’ cooperation throughout the investigation, including the early admission of failures, resulted in a 15% reduction in the penalty calculation. Barents agreed to resolve the matter and therefore qualified for a 30% reduction in the fine, without which the fine imposed by the PRA would have been £2,550,000. 

Notes to editors 

1. Final Notice.
2. As of 31 October 2023, Barents is in Supervised Run-Off (“SRO”) with a deemed Part 4A permission and is winding down its UK operations. 
3. Barents breached Fundamental Rule 6, Rules 2.3 and 2.6 of the Conditions Governing Business Part of the PRA Rulebook; and Rules 2.1 and 2.5 of the Reporting Part of the PRA Rulebook.
4. Fundamental Rules: Fundamental Rule 6 - A firm must organise and control its affairs responsibly and effectively.
5. Conditions Governing Business Rules: Conditions Governing Business 2 - General Governance Requirements.
    - Rule 2.3 “A firm’s system of governance must be proportionate to the nature, scale and complexity of its operations.”
    - Rule 2.6 “A firm must take reasonable steps to ensure continuity and regularity in the performance of its activities, including the development of contingency plans. To that end, the firm must employ appropriate and proportionate systems, resources and procedures.”
6. Regulatory Reporting Rules: Reporting 2 – Reporting to the PRA.
    - Rule 2.1 “A firm must submit to the PRA information which is necessary for the purposes of the PRA’s supervision of the firm.”
    - Rule 2.5 “A firm must have in place appropriate systems and structures to fulfil the requirements set out in 2.1 to 2.4, as well as a written policy approved by its governing body ensuring the ongoing appropriateness of the information submitted by the firm to the PRA.”
7. Third Country Branches Rules. Third Country Branches 7 – Conditions Governing Business and Third Country Branches 9 – Reporting.
8. The Prudential Regulation Authority’s approach to insurance supervision, April 2013 (as updated in July 2023) sets out the PRA’s approach to banking supervision.
9. For the concept of “responsible openness”, see the 2021 speech on “Responsible openness in the Insurance Sector” by former Executive Director Anna Sweeney, and paragraphs 1.5 and 1.6 of The PRA’s approach to insurance branch authorisation and supervision. 
10. The Bank of England’s approach to enforcement: statements of policy and procedure, January 2024 (as updated in November 2024) sets out the PRA’s approach to exercising its main enforcement powers under the Act. The PRA’s approach to the imposition of penalties is outlined in the PRA Penalty Policy; and the PRA’s approach to settlement is outlined in the PRA Settlement Policy.