CP21/23 – The PRA’s approach to the authorisation and supervision of insurance branches

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Responses are requested by 12 January 2024.

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Responses can be sent by email to: CP21_23@bankofengland.co.uk.

Alternatively, please address any comments or enquiries to:
Fariha Husain, Insurance Branch Supervision Team
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA

1: Overview

1.1 This consultation paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposals to consolidate and formalise existing PRA policy on overseas insurers that write business in the UK through the establishment of a third-country branch, and to offer more clarity on the expectations of these third-country branches. The PRA proposes to make these changes in the light of its experience of authorising and supervising third country insurance branches following the UK’s withdrawal from the EU, and to make consequential changes to reflect the proposals for insurance branches consulted on under CP12/23 – Review of Solvency II: Adapting to the UK insurance market as part of the Solvency II Review.

1.2 The PRA proposes to:

• introduce a new statement of policy (SoP) (Appendix 3) that would replace supervisory statement (SS) 2/18 – International insurers: the Prudential Regulation Authority’s approach to branch authorisation and supervision (Appendix 1);
• amend SS44/15 – Solvency II: third-country insurance and pure reinsurance branches (Appendix 4); and
• Amend SS20/16 – Solvency II: Reinsurance – counterparty credit risk (Appendix 5).

Scope

1.6 The proposals in this CP are relevant to all third-country branch undertakings (as defined in the PRA Rulebook), and any insurance undertaking that is not headquartered in the UK or Gibraltar, that is seeking authorisation to operate as a branch in the UK.

1.7 The proposals do not apply to Swiss General Insurers, as defined in the PRA Rulebook, to which different requirements apply pursuant to the Swiss Treaty Agreement (No. 91/370/EEC).

1.8 The PRA has a statutory duty to consult when introducing new rules or changing rules (Financial Services and Markets Act 2000 (FSMA) (s138J)), or when introducing new standards instruments (FSMA s138S). When not making rules, the PRA has a public law duty to consult widely where it would be fair to do so. The proposals in this CP would not introduce new rules or rule changes. However, the PRA has assessed the potential costs and benefits of these proposals as good practice.

1.9 In carrying out its policy making functions, the PRA is required to comply with several legal obligations. The analysis in this CP explains how the proposals have had regard to the most significant matters, including an explanation of the ways in which having regard to these matters has affected the proposals. The PRA has not consulted any statutory panels as part of this CP.

Background

1.10 Many overseas firms operating in the UK are significant providers of financial services to the UK economy. The PRA is open to the activity of international insurers operating in the UK and recognises the benefits that these international insurers can bring to the UK. Where the threshold conditions are met at authorisation and continue to be met on an ongoing basis, and where consistent with the PRA’s general objective (to promote the safety and soundness of the firms it regulates) and its insurance objective (to secure an appropriate degree of policyholder protection), the PRA is open to hosting international insurers.

1.11 The PRA’s holistic approach to the authorisation and supervision of third-country branches is set out in Appendix 3 to this CP. The PRA’s approach is based in its statutory objectives, the PRA’s assessment of ‘broad equivalence’ of the third-country branch undertaking’s home jurisdiction and the PRA’s assessment of the ‘supervisability’ of the third-country branch and undertaking. This CP contains proposals to amend and clarify the PRA’s approach to the authorisation and supervision of third-country insurance branches.

These proposals have been informed by three key drivers of change:

• The UK’s withdrawal from the EU.
• The PRA’s lessons learned in the authorisation and supervision of third-country insurance branches during the Temporary Permissions Regime (TPR).
• The Solvency II Review, which contains proposals relating to third-country branches.

1.12 Following the UK’s withdrawal from the EU, European Economic Area (EEA) firms that were previously operating in the UK under passporting rights were placed into the TPR. This allowed them to continue operating for a limited period while seeking authorisation under Part 4A of the Financial Services and Markets Act 2000 (FSMA) to carry out regulated insurance activities in the UK through a third-country branch.

1.13 The TPR is scheduled to end as of 31 December 2023, and the PRA is currently completing its review of the remaining Part 4A applications from EEA insurers. The PRA has received over 180 branch authorisation applications, and several supervisory lessons have been learned in the process of transitioning from the European passporting framework to a post-EU withdrawal third-country branch regime.

1.14 The PRA previously communicated these lessons via a series of letters addressed to branch managers,^{footnote [1]} the latest of which was sent to branches on 31 May 2023. This CP builds on the topics covered in that letter and proposes to clarify and update the PRA’s approach to the authorisation and supervision of insurance third-country branches as a result of these lessons learned.

1.15 Finally, CP12/23 was published by the PRA on 29 June 2023 and set out proposals in respect of third-country branches, including the proposed removal of branch capital requirements and proposed changes to reporting requirements. The PRA is currently considering responses to these proposals.

1.16 The principles underlying the proposals in CP12/23 (of maximising reliance on home supervisors, of the importance of the financial resources of the third-country branch undertaking, and of the PRA’s proportionate approach to supervision, which resulted in proposals for a significant reduction in regulatory reporting burden) are common to the proposals within this CP. These principles reflect the particularity of third-country branch legal status (branches are not separate legal entities and they cannot fail independently of the third-country branch undertaking).

Implementation

1.17 The PRA proposes that the implementation date for the changes resulting from this CP would be on publication of the proposed final policy documents by Q2 2024.

Responses and next steps

1.18 This consultation closes on Friday 12 January 2024. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP21_23@bankofengland.co.uk. Please indicate in your response if you believe any of the proposals in this consultation paper are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

1.19 Unless otherwise stated, any remaining references to EU or EU-derived legislation refer to the version of that legislation which forms part of retained EU law.^{footnote [2]}

2: The PRA’s proposals

Clarifying the PRA’s approach to assessing risks of a third-country insurance branch

2.1 The PRA proposes to delete SS2/18 – International insurers: the Prudential Regulation Authority’s approach to branch authorisation and supervision and transfer most of the provisions into a proposed new SoP, which would consolidate and clarify the PRA’s approach to authorisation and supervision of third-country branches. While the PRA’s substantive approach to the authorisation and supervision of branches would remain materially unchanged, the proposed new SoP would provide further detail on the PRA’s approach to assessing the risks of a third-country branch. Please see Appendix 2 for a mapping table, which sets out the provisions that have moved from SS2/18 to the proposed new SoP.

2.2. SS2/18 currently sets out the PRA’s approach to the authorisation and supervision of third-country branch undertakings, and in particular, the circumstances and criteria in which authorisation as a subsidiary may be more appropriate than authorisation to operate through a branch.

2.3 Paragraph 2.1 of SS2/18 also currently sets out a high-level list of the various factors that the PRA considers when assessing the risks of a third-country branch. Two of these factors are then set out in greater detail: the scale of UK branch activity covered by the Financial Services Compensation Scheme (FSCS), and the impact of a third-country branch failure on the wider insurance market.

2.4 To aid regulatory transparency and clarity, the PRA considers that when moving across these provisions to the proposed SoP it would be appropriate to provide additional information on how the PRA considers the remaining factors currently listed in paragraph 2.1 of SS2/18 when assessing the risks of a third-country branch, as follows:

• whether the third-country branch undertaking is able to meet the Threshold Conditions – in particular, the PRA proposes to set out how the condition that business is conducted in a prudent manner applies to third-country branch undertakings in the context of financial resources, and what actions the PRA could take when an undertaking notifies the PRA that it is in, or projected to be in, difficulty;
• whether the home jurisdiction’s supervision regime is ‘broadly equivalent’;
• whether the firm is capable of being supervised effectively by the home supervisor and the PRA’s reliance on the home supervisor;
• whether there is sufficient supervisory cooperation with the home supervisor by setting out the high-level outcomes the PRA would expect to see, and its approach to memorandums of understanding and splits of responsibilities;
• whether UK policyholders of the third-country branch will be given the appropriate priority in an insolvency, and ensuring this is the case on an ongoing basis; and
• whether the third-country branch undertaking is able to meet relevant PRA rules, and if the full Senior Managers and Certification Regime is applicable to the relevant individuals responsible for the branch.

2.5 Paragraph 2.10 of SS2/18 currently sets out that the PRA will consider, among other things, the significance of the UK operations of the third-country branch compared to the amount of business within other jurisdictions.

2.6 The PRA continues to consider that this is an important factor in determining the supervisibility of a third-country branch undertaking. Where a third-country branch undertaking writes the majority of its business in the UK through a branch, this may compromise the ability of the home supervisor to supervise the whole firm.

2.7 The PRA currently assesses the relative size of the branch compared to the undertaking on a case-by-case basis, and therefore proposes to add this clarification to the proposed SoP by setting out that the PRA will assess the proportion of the undertaking’s business that has been written by the branch, and whether subsidiarisation may be more appropriate.

2.8 The PRA recognises that other factors are also important, such as the branch’s potential impact category, and the nature of the business written by the branch. Therefore, the PRA proposes to take a proportionate approach when assessing the size of the branch relative to the undertaking.

2.9 Chapter 7 of SS44/15 sets out the PRA’s approach to composite third-country branches. The PRA considers that this chapter would be better placed as a chapter in the newly proposed SoP, and therefore proposes to delete Chapter 7 of SS44/15 and transfer it into the draft SoP.

The PRA’s approach to assessing the reinsurance arrangements of a third-country branch

2.10 During the authorisation and supervision of third-country branches during the TPR, the PRA found that applications contained a wide variety of complex reinsurance arrangements. As a result, the PRA proposes to set out its approach to considering the implications of the reinsurance arrangements of a third-country branch undertaking when assessing the risks of a third-country branch in the SoP.

2.11 Reinsurance can be an important risk management tool. However, overreliance on reinsurance can undermine the substance in a legal entity and impact upon the incentives for prudent risk selection and management. As such, the PRA focuses on levels of intra-group reinsurance, aggregate reinsurance cessions and concentration of reinsurance arrangements as these are areas that could pose risks to third-country branch undertakings’ independence and supervisibility.

2.12 One example of such a risk is where there are high-levels of intra-group reinsurance being ceded by the third-country branch undertaking, meaning that aggregate capital protecting policyholders could be reduced, and thus becomes further removed from branch policyholders.

2.13 Another example is where the third country branch undertaking cedes more risk than is retained, which can result in deteriorating independence of the third-country branch undertaking. This could undermine the incentives for prudent management of insurance risk and the resilience of the third-country branch undertaking.

2.14 The proposals in the draft SoP consider the implications for the PRA’s assessment of aggregate reinsurance cessions where third-country branch liabilities include FSCS-protected liabilities, which are relevant for both prospective and existing third-country branches regarding the expectations relating to reinsurance arrangements.

Clarifying the PRA’s expectations of third-country branches – amendments to SS44/15

2.15 The PRA’s discussions with third-country branches during the TPR also highlighted a number of topics where further clarification of the PRA’s expectations would be beneficial to third-country insurance branches. Therefore, the PRA proposes to update SS44/15 – Solvency II: third-country insurance and pure reinsurance branches, to make amendments to existing text, and to include additional chapters setting out the PRA’s expectations in relation to specific topics. This CP sets out each of these topics below in turn.

Notifications

2.16 The PRA proposes to amend SS44/15 to set out its expectations regarding notifications from third-country branch undertakings in the following circumstances:

• when financial resources are no longer considered adequate;
• when the third-country branch undertaking projects that the FSCS-protected liabilities of the branch may grow above the indicative £500 million threshold;
• when reinsurance arrangements change materially; and
• when the liabilities and/or premiums of the third-country branch increase materially as compared to the third-country branch undertaking.

Own Risk and Solvency Assessment (ORSA) reporting

2.17 Following discussions with third-country branch applicants during the TPR, the PRA considers that it would be useful to provide third-country branches with further clarification regarding the ORSA, and therefore proposes to add a new chapter into SS44/15 with respect to ORSA reporting.

2.18 The PRA recognises that risks to the third-country branch operations are often covered in the third-country branch undertaking’s ORSA, given that the branch forms part of the same legal entity and is often affected by the same risks. Therefore, the PRA proposes to allow third-country branches to submit the third-country branch undertaking’s ORSA in lieu of a separate third-country branch ORSA, as long as the ORSA clearly identifies and sufficiently covers any material risks for the third-country branch operations, as well as any risk of the third-country branch undertaking, which may have an effect on branch operations.

2.19 SS44/15 sets out that the PRA expects third-country branches to comply with the Guidelines on the Supervision of branches of third-country insurance undertakings (‘Branch Guidelines’) that are relevant to them. Several of these Branch Guidelines relate to the branch ORSA. Therefore, given that the PRA is consulting on its expectations with regard to the branch ORSA within this CP, the PRA considers it would be also helpful to transfer and restate these guidelines in SS44/15 as part of this CP, to support the consolidation of the PRA’s expectations of third-country branches with respect to the ORSA. This would not materially change the PRA’s expectations of third-country branches, given that branches are currently expected to comply with the Branch Guidelines that are relevant to them in any case.

Systems of governance and Senior Management Functions (SMFs)

2.20 The PRA proposes to clarify its expectations regarding systems of governance by setting out in SS44/15 the relevant Parts of the Rulebook that third-country branches are required to adhere to, as well as setting out its expectations with regard to organisational structures. The PRA considers this appropriate to support transparency and accountability given the possibility for conflicts of interest between the third-country branch and the undertaking, for example where individuals are performing an SMF role for the third-country branch and a role for the undertaking.

2.21 Furthermore, the TPR process highlighted the need for further clarification regarding SMFs. The PRA proposes to clarify its expectations by setting out in SS44/15 that third-country branch undertakings should refer to SS35/15 – Strengthening individual accountability in insurance. The PRA also proposes to set out factors for third-country insurance branches to consider in their assessment of the need for SMF role holders in order to meet the PRAs expectations, such as the size, nature, and complexity of the third-country branch, as well as consideration of whether the role of any SMF role holders at the third-country branch undertaking is wholly dedicated to the third-country branch.

Re-domiciliation

2.22 The PRA proposes to clarify its approach to re-domiciliation. Where a third-country branch undertaking authorised to operate as a third-country branch re-domiciles to another home jurisdiction, the PRA would expect a new branch application to be submitted. The PRA considers that this is appropriate, given that the new home jurisdiction could alter the PRA’s risk assessment of the third-country branch. As such, the PRA would need to re-assess the risks that the third-country branch could pose to UK policyholders and the financial system as a whole.

2.23 The PRA recognises that submitting an entirely new branch application could be unduly burdensome on firms. Therefore, the PRA would draw on its existing knowledge of the operations of the third-country branch when assessing the application and would expect that any new branch application places more emphasis on any changes arising from the re-domiciliation.

Outsourcing and operational risk

2.24 The PRA proposes to clarify its expectations regarding outsourcing and operational risk by setting out in SS44/15 the relevant Parts of the Rulebook that third-country branches are required to adhere to, as well as the relevant PRA policy publications. The PRA considers this would be helpful clarification to third-country branches.

Reinsurance counterparty risk

2.25 The PRA proposes to clarify that SS20/16 – Solvency II: reinsurance – counterparty credit risk is applicable to third-country branch undertakings, by adding this to paragraph 1.6 of SS44/15. The PRA also proposes to amend SS20/16, as set out in Appendix 5, in order to align the language of the scope with the language used in the PRA Rulebook. The PRA considers that clearer and more consistent language will enhance transparency.

PRA objectives analysis

2.26 The PRA considers that the proposals in this CP (to consolidate and clarify existing PRA expectations) would advance the PRA’s primary objective to promote the safety and soundness of firms, given that it would allow for more effective supervision of insurance branches.

2.27 In addition, the proposed content regarding notification when an undertaking is in difficulty, and clarification regarding the appropriate degree of priority for UK policyholders in the event of insolvency, such that there is no discrimination against policyholders whose business is written in the UK in the event of a winding up, would contribute to the PRA’s insurance objective of securing an appropriate degree of policyholder protection.

2.28 The PRA considers it important that third-country branch undertakings retain a certain proportion of liabilities on their balance sheet and maintain limits on exposures to any reinsurance counterparty. This promotes the safety and soundness of firms and contributes to securing an appropriate degree of protection for policyholders.

2.29 High levels of reinsurance at the level of the third-country branch undertaking can mean the aggregate capital backing the undertaking’s liabilities could be reduced, and further removed from branch policyholders as they become more reliant on the financial resources of the reinsurer. This could compromise the PRA’s ability to supervise the branch effectively, as the PRA may have no supervisory relationship with the reinsurance counterparty or its supervisor.

2.30 The PRA considers that the proposal to clarify its approach to assessing the size of the third-country branch as a proportion of the undertaking would contribute to securing an appropriate level of policyholder protection, as well as firm safety and soundness.

2.31 Where the third-country branch undertaking writes a relatively large proportion of its business through a UK branch, as compared to that written by the undertaking, then the failure of such a firm has the potential to impact the UK more significantly than the home jurisdiction. Given the potential impact on policyholder protection in the UK, the PRA considers that it is less appropriate to rely on the home supervisor in these circumstances and considers subsidiarisation as an appropriate alternative.

2.32 The PRA has considered how the proposals in this CP would affect its secondary competition objective and expects that there would be a minimal impact on competition in the UK. The proposals aim to clarify the PRA’s existing approach to third-country branch supervision, and therefore, the PRA considers there would be little impact on third-country branches currently authorised by the PRA.

2.33 The PRA has also assessed whether the proposals in this CP advance its secondary objective to facilitate the international competitiveness of the UK economy and its growth in the medium to long term, subject to alignment with relevant international standards. The proposals would clarify the PRA’s approach and expectations for third-country branches, which may encourage international insurers to apply to operate in the UK through a branch, given that applications will be assessed against a clear and consistent set of criteria.

Cost benefit analysis (CBA)

2.34 The PRA considers that the proposals in this CP would help to clarify its approach to the authorisation and supervision of third-country branches, and as such, are designed to increase regulatory transparency. The proposals in this CP would not result in new rules, rule changes, or require any additional reporting from firms. Therefore, the PRA considers that the associated costs of these proposals are likely to be minimal for firms.

2.35 To a large extent, the proposals in this CP would consolidate and formalise the PRA’s approach to the authorisation and supervision of insurance third country-branches, as already set out in SS2/18, SS44/15, and the letters to branch managers. In particular, the proposals clarify the PRA’s approach to assessing when a subsidiary is likely to be more appropriate than a branch. The costs and benefits related to subsidiarisation have already been considered in CP30/17 – International insurers: the Prudential Regulation Authority’s approach to branch authorisation and supervision.

2.36 The PRA has considered the benefits of setting out its approach to reinsurance arrangements and expects that it will reduce the uncertainty surrounding the PRA’s expectations with regards to firms’ management of reinsurance exposures.

2.37 The PRA considers that firms would experience cost saving as a result of the proposals in this CP, given that the enhanced transparency relating to the PRA’s reinsurance arrangements would reduce the need for firms to perform iterative rounds of analysis that require input from actuaries and advice from independent experts. The PRA also considers that firms would be able to make more informed decisions and pre-emptively make changes to their reinsurance arrangements, ahead of submitting an application.

2.38 The PRA recognises that by setting out its approach to reinsurance arrangements, some firms applying for authorisation as a third-country branch may need to amend their reinsurance arrangements in order to comply with the PRA’s expectations. However, given that the PRA currently assesses firms’ reinsurance arrangements using these standardised criteria, the PRA considers that these costs would arise in any case – they are not additional costs as a result of the proposals. Therefore, the PRA considers that the benefits of being transparent and setting out its approach publicly outweigh the associated costs.

2.39 The PRA considers that its proposal to clarify the scope of SS20/16 could generate a one-off operational cost to branches that did not consider themselves within the scope of SS20/16, associated with familiarising and assessing themselves against the PRA’s expectations. However, the PRA considers that this cost would be minimal, given that third-country branches already have to manage their risks, including risks arising from reinsurance counterparties, as per Conditions Governing Business 3.1, Fundamental Rule 8^{footnote [3]} and SS1/20 – Solvency II: prudent person principle.

2.40 The proposals would also improve the PRA’s operational efficiency and effectiveness, given that they would reduce the resource required for the purpose of future authorisation decisions and ongoing supervision of third-country branches. The PRA processed approximately 180 third-country branch applications during the TPR and a number of these applications had issues relating to complex reinsurance arrangements. In some cases, such applications could take more than double the amount of time to process, as compared to a typical application without complex reinsurance arrangements. As a consequence of the proposals in this CP, the PRA expects to be able to reallocate some of this internal resource, given that firms will be aware of the PRA’s approach to assessing reinsurance arrangements ahead of submitting an application.

2.41 In conclusion, the proposals in this CP are expected to generate minimal cost to firms that currently operate in the UK through a third-country branch. However, the PRA considers that the proposals may impact the decisions of firms that are considering applying for third-country branch authorisation in the future. In particular, firms may opt against applying for third-country branch authorisation, given that they may recognise that they fall outside of the PRA’s risk appetite for branch authorisation. Conversely, more firms may be encouraged to apply for authorisation due to the increased clarity regarding the different factors that the PRA considers when assessing the risks of a third-country branch.

2.42 However, given the range of factors that could affect the estimated cost to individual firms, as well as the uncertainty regarding how many firms may apply for branch authorisation in future, the PRA is unable to provide an estimate of costs for all possible cases.  The PRA welcomes more data and evidence from respondents as part of this consultation.

‘Have regards’ analysis

2.43 In developing these proposals, the PRA has had regard to the FSMA regulatory principles, and the aspects of the Government’s economic policy set out in the HMT recommendation letter from 2022. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

• The need to use the PRA’s resources in the most efficient and economical way (FSMA regulatory principle): The PRA has had regard to this principle by responding to industry’s requests for enhanced clarity regarding the PRA’s expectations for firms that want to establish a third-country branch in the UK, with a particular focus on regulatory requirements and expectations. The PRA has also provided additional guidance on areas such as its approach to assessing the level of intragroup and outwards reinsurance arrangements, and the relative size of the UK third-country branch compared to the undertaking as a whole. The PRA expects that this would have a positive impact on PRA resource by reducing the number of firm queries, thus resulting in a more efficient process for reviewing applications. The PRA has also had regard to this principle when considering the equivalence of other jurisdiction’s supervisory regimes, and whether the information and supervision provided by home supervisors is likely to be sufficient for the PRA to rely upon when assessing whether a firm meets the Threshold Conditions for authorisation.
• The principle that a burden or restriction which is imposed on a person should be proportionate to the benefits which are expected to result from the imposition of that burden (FSMA regulatory principles): The PRA has had regard to this principle by setting out its expectations for subsidiarisation only where there is an unacceptable level of risk to its objectives, recognising that it would not be beneficial to require subsidiarisation where the risks arising from the branch are not considered impactful. The proposals also consider a number of factors that would allow for the PRA to adopt a proportionate approach when considering subsidiarisation or when developing its appetite regarding tolerance in reinsurance levels.
• The desirability of the PRA exercising its functions in a way that recognises differences in the nature of businesses carried on by different persons (FSMA regulatory principles): The PRA has had regard to this principle when outlining its approach to overseas insurers that wish to operate in the UK through the establishment of a third-country branch. The proposals would allow the PRA to consider different treatment for branches based on the manner in which they operate and also take into consideration the particularity of their legal status (branches are not separate legal entities and they cannot fail independently of the third-country branch undertaking). The PRA has also considered the different types of business that branches write, and where appropriate, has proposed different approaches for branches that write FSCS-protected lines. The PRA considers that the proposals are in line with its overall approach to supervision and regulation, and are reflective of the different risks to its objectives represented by firms operating with different models.
• The principle that the PRA should exercise its functions as transparently as possible (FSMA regulatory principles): The PRA has had regard to this principle by proposing to publish a consolidated SoP, which aims to ensure the PRA’s regulatory approach is open and accessible. The PRA has also had regard to this principle by introducing new factors for consideration for the authorisation of third-country branches, such as the additional guidance that reflects current internal assessment processes, thus giving firms a better understanding of the PRA’s expectations.
• Economic growth (HMT recommendations letter) and sustainable growth (FSMA regulatory principles): The PRA considers that these proposals would support financial stability, to the extent that they create a robust and coherent policy framework regarding firms that operate in the UK through a branch. This is a pre-requisite for strong, sustainable, and balanced growth.
• UK attractiveness for international financial services (HMT recommendation letter) The proposals in this CP are intended to improve the overall efficiency of the market by ensuring that the PRA remains open to all insurers seeking to operate in the UK via a branch. Furthermore, the PRA considers that the proposals would help to ensure that applications are assessed against a clear and consistent set of criteria, which would contribute to enhancing the UK’s attractiveness for international financial services given that a prolonged application process can be a barrier to attracting new entrants to the UK market. Consequently, these proposals are intended to improve the clarity and confidence with which supervisors can engage with firms seeking authorisation as third-country branches, while still ensuring appropriate prudential standards.
• Smart regulatory reform (HMT recommendation letter): The proposals set out in this CP would be consistent with the government’s aim to deliver smart regulatory reform because they would consolidate the existing PRA policy on third-country insurers that write business in the UK through the establishment of a branch, while also streamlining authorisation and supervision requirements.
• Senior management responsibility (FSMA regulatory principles): The proposals set out in this CP would not lead to the introduction of any new rules or change the responsibilities of third-country branch senior management regarding compliance with PRA rules. However, the proposals seek to clarify PRA expectations with regard to the SMF functions that are relevant to third-country branches. Therefore, the PRA has had regard to this principle.

2.44 The PRA has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for this set of proposals, it is because the PRA considers that ‘have regard’ to not be a significant factor for this set of proposals.

Impact on mutuals

2.45 The PRA considers that the impact of the proposed rule changes on mutuals is expected to be no different from the impact on other firms.

Equality and diversity

2.46 The PRA considers that the proposals do not give rise to equality and diversity implications.