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Part VII transfers – through the FCA's microscope

24 May 2017. Published by Neil Brown, Partner

Draft FCA guidance sheds light on its approach to Part VII insurance business transfers and aims to reduce the time and cost required to undertake a transfer.


The FCA recently released draft guidance on its approach to reviewing Part VII insurance business transfers. The draft guidance is intended to supplement the existing FCA guidance at Chapter 18 of the Supervision manual in the FCA Handbook.  It is proposed to help industry practitioners better understand the FCA's approach, and to help reduce the time and cost required to undertake a Part VII transfer.  This helpful objective can only be welcomed, in particular at a time when many insurers are considering Part VII transfers as part of their Brexit-related restructurings.


The FCA is asking for comments on the draft guidance by close of business on 15 August 2017.  Please feel free to contact us at RPC if you would like to route any comments through us or have any questions.  The guidance is available here

Some key issues 

The draft guidance is relatively detailed, and is 63 pages long.  However, we have picked out below a few of the key points:

  • Transferring liabilities – the Scheme document should be specific about the liabilities that are being transferred with the business.  In particular, attention is drawn to the need to be explicit as to whether or not mis-selling liabilities are transferred.  This echoes the need to for rigorous drafting accuracy, as highlighted by the recent Supreme Court case of Wood v. Capita Insurance Services Limited [2017] UKSC 24 (for more information on this decision, please see our article in Insurance Day).    

  • "Two-way challenge" – the independent expert should challenge the information received from the applicant firm and other involved parties, and the applicant firm should challenge the conclusions of the independent expert. The purpose of the "two-way challenge" is to ensure the independent expert has not overly-relied upon information provided by involved parties, and ultimately, that the Court, the regulators and Policyholders are in a position to be able rely on the conclusions and recommendations of the independent expert report.   

  • Communications to Policyholders; who is a "Policyholder"? – the FCA takes the view that the definition of  "Policyholder" remains very broad. The FCA guidance sets out a few examples that in the FCA's opinion would fall within the definition of "Policyholder", including third-party claimants under motor policies and potential claimants where the possibility of a claim is remote. The FCA acknowledges that applicants may take a different view on the scope of this definition and remains open to waiver applications for certain classes of Policyholders as a practical way of approaching differences in interpretation.

  • The Aviva Judgment helpfully, the draft guidance gives specific endorsement to the judgement of Norris J in Re Aviva International Insurance Limited [2011] EWCH 1901 (Ch.) (the Aviva Judgment), and adds further detail to the way in which it would be interpreted.  This case sets outs the factors that should be taken into account in deciding whether to grant a waiver from the requirement to notify a particular group of Policyholders of the transfer.