A Part VII transfer, also known as ''insurance business transfer scheme'', is a transfer of business or parts of a business under Part VII of the
Financial Services & Markets Act 2000 in the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
. Part VII transfers are a common tool used by
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
businesses to address required business transformation in preparation for or in response to
Brexit
Brexit (; a portmanteau of "British exit") was the withdrawal of the United Kingdom (UK) from the European Union (EU) at 23:00 GMT on 31 January 2020 (00:00 1 February 2020 CET).The UK also left the European Atomic Energy Community (EAEC or ...
.
Background
Insurance companies based in the United Kingdom can operate in other parts of the
European Union
The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...
under a so-called EU passport arrangement for financial services. Under this arrangement, insurance policies for risks elsewhere in the EU, can be underwritten in the UK. With the UK's departure from the EU, insurers would not be able to pay out claims under such policies. According to the
Financial Conduct Authority
The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
, this could affect 38 million policyholders with policy values of up to GBP 55 billion.
Transfer
Under a Part VII transfer, an insurance company will set up a separate
legal entity
In law, a legal person is any person or 'thing' (less ambiguously, any legal entity) that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for ...
in an EU country that will service policies with EU clients after Brexit. A submission to a UK court will be made to transfer the book of business to this EU entity. Once approved, clients will need to be duly informed that their business will move. The process usually takes approximately 18 months. Prior to Brexit, 10 such applications were made to UK courts on average per year. Given the volume of transfers in the run up to the date when the UK leaves the EU, there have been reports about delays in court hearings.
The
Prudential Regulation Authority (PRA) which oversees insurance businesses has proposed increasing the fee it charges companies for such business transfers to GBP 20,000 effective 1 March 2019 given the complexity of the transaction.
In a similar fashion, banks use the Part VII transfer framework to move their
swap
Swap or SWAP may refer to:
Finance
* Swap (finance), a derivative in which two parties agree to exchange one stream of cash flows against another
* Barter
Science and technology
* Swap (computer programming), exchanging two variables in t ...
business to EU entities.
Approaches and timelines chosen by companies vary given the cost and complexity of the transfer. While some companies have already transferred their business or are in the process of it, others are exploring alternative options. As an alternative to Part VII transfers, some financial institutions have alternatively opted to sign new contracts with clients in their post-Brexit location.
References
{{Reflist
External links
Financial Services and Markets Act 2000, Part VIIThe FCA’s approach to the review of Part VII insurance business transfers
Financial regulation in the United Kingdom
Insurance in the United Kingdom
Brexit