FCA approach to Part VII transfers

03 May 2022

On 15 February 2022, the Financial Conduct Authority (FCA) published its final guidance (FG22/1) on its approach to reviewing insurance business transfer schemes under Part VII of the Financial Services and Markets Act 2000.

Initial Considerations

The FCA encourages early engagement from any firm contemplating a Part VII transfer and expects to see a detailed proposed timetable for the transfer as early as possible. Any changes to the proposed timetable should be brought to the attention of the regulators swiftly to ensure they have time to approve any amendments, or plan resources accordingly. 

Firms are expected to include a broad description of the business to be transferred, including the classes of business, numbers of policyholders, number of open claims and any unusual or complex elements to the proposed transfer. 

The FCA requires a minimum of six to eight weeks to review the documents for the directions hearing and four weeks to review the documents for the sanction hearing. The FCA now suggests that this period of document review generally finishes when the applicants submit the documents to the Court ahead of the respective hearings. 

Independent Expert 

The Prudential Regulation Authority (PRA) is responsible for approving or nominating the person proposed as the Independent Expert (IE) but must consult the FCA before doing so. 

When considering whether to approve an IE, independence is key. In some circumstances, the FCA will object to IEs who have previously worked for the applicants. If the proposed IE intends to work as IE on two interacting projects concurrently or consecutively, they must be able to demonstrate that they can act independently. 

The IE will be required to demonstrate to the FCA that there will be no material adverse impact on policyholders either by lack of independence or insufficient skill, experience and/or resources. 

Firms will be expected to supply the FCA with the following information/documents:

  • A full CV.
  • A statement of independence and of capacity to do the work.
  • A draft letter of engagement including full details of the IE’s fees.
  • Details of the proposed peer reviewer (CV, Statement of Independence).
  • A full CV for each of the proposed principal team members expected to work on the project.

FCA's Overall Approach

The FCA expects applicants and IEs to submit near final documents for review. Any issues with the documents or any material conduct issues should be flagged to the FCA as soon as possible.  

The IE is expected to highlight any matters which could affect policyholders from a competition perspective. 

The applicants and the IE will be required to demonstrate that they have adequately considered any changes to how the business will be run or operated; the transfer's impact on vulnerable policyholders; that the policyholder communications have sufficiently described all areas of potential change which may have an adverse impact; and whether there are sufficient protections in the transfer documentation or proposals to mitigate against possible adverse impacts on policyholders.

Any objections from policyholders and other interested parties should be responded to in a timely manner. 

Scope of Transfer

There must be clarity as to the business and liabilities being transferred. The business being transferred must be clearly defined and identifiable. Where all the insurance business is being transferred, and the transferor will be applying to cancel its regulatory permissions following the transfer, the FCA expects all liabilities to be transferred.

Amendments to Policy Terms

The scheme document should provide for the FCA to be notified of minor or technical amendments to policy terms in advance to give it a reasonable opportunity (at least 28 days) to object. Where a change to policy terms is not required by law or regulation, the FCA must be satisfied that that there will be no material adverse impact on policyholders. 

The FCA may object to the use of powers that involve requests to the Court to exercise its powers to make ancillary orders (such as amendment to policy terms) in the context of a Part VII transfer. The FCA may question whether such proposed changes are necessary as part of the transfer. If the changes are considered necessary, they should be clearly and prominently notified to policyholders. The FCA may object if it considers the applicants are using the Part VII transfer artificially or opportunistically to inappropriately change provisions of the business. 

Communications Strategy

Applicants must confirm and demonstrate, subject to dispensation applications, that they have made all reasonable efforts to identify, trace and contact all relevant persons. The FCA are open to the use of digital communication methods for notification to some policyholders, although accept that this may not be adequate for all policyholders.

All communications will need to be easily understood by a person with limited technical insurance knowledge and not have a dissuasive effect. A key amendment to the previous guidance is that the legal notice is now required to include any previous names where the business has been in run-off. 

Firms are expected to provide freephone telephone numbers wherever possible and for phone lines to be open at appropriate times to include overseas policyholders (so not just 9am to 5pm UK time). Firms may be required to arrange for overseas call centres if proportionate and practicable in the circumstances. 


The changes reflect the increased scrutiny and role the FCA has taken with Part VII transfers. FG22/1 has provided more clarity to the expectations of the FCA in respect of insurance business transfers.

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