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Financial Services and Markets Act 2000

Part Vii: Control of Business Transfers

194.This Part provides a mechanism for transferring, with the sanction of the courts, all or part of the business of certain kinds of authorised persons.  In broad terms, the mechanism covers 2 types of transfer:

  • transfers of insurance business; and

  • transfers of banking business.

195.The mechanism, as it relates to transfers of insurance business, replaces the arrangements under sections 49 to 52B of, and Schedule 2C to, the Insurance Companies Act 1982, which implement requirements of the EC insurance directives.  Banking business transfers have usually required a private act of Parliament, which can involve a lenghty procedure and substantial cost to the firms concerned.

Section 104: Control of business transfers

196.This section establishes that the arrangements under Part VII are generally the exclusive route for giving effect to the types of transfer to which the Part applies. However, the definition of insurance business transfer schemes under section 105 provides for qualifying cross-border transfers to be approved in other member States, in accordance with the directives.

Section 105: Insurance business transfer schemes

197.This section defines the insurance business transfers covered by the new mechanism.  It only applies to transfer schemes where, after the transfer, the business transferred will be carried on from an establishment in the EEA, and where prior to the transfer all or part of the business to be transferred is:

  • carried on, wholly or in part, in the EEA by a “UK authorised person” (defined in subsection (8)); or

  • reinsurance business and it is carried on in the UK branch of an EEA firm (see Schedule 3); or

  • carried on, wholly or in part, in the United Kingdom by an authorised person who is neither a UK authorised person nor an EEA firm.

198.In each case the authorised person transferring the business must have the appropriate permission under Part IV of, or Schedule 3 to, the Act.

199.However, subsection (3) sets out a series of cases for which the new mechanism does not apply. The mechanism does not apply where the transferor is a friendly society (referred to as case 1). Such transfers are covered by provisions in the Friendly Societies Act 1992.  The other cases are where the arrangements under this Part do not apply are:

  • transfers of reinsurance business by UK authorised persons which have been approved by a court in another EEA State or by the relevant regulator in the State or States in which it is carried on (case 2);

  • transfers of business carried on outside the EEA which do not include policies (other than reinsurance policies) against risks arising in the EEA, and which have been approved by the courts or relevant authorities in a non-EEA State (case 3);

  • where each of the policyholders has consented to the transfer, in cases of reinsurance business and entities where the policyholders are ‘controllers’ (within the meaning of Part XII) of the firm or other firms in the same group, essentially “captive” insurers (case 4).

200.Subsections (5) to (7) ensure that the powers of a court to make orders under the Companies Act (and the equivalent Northern Ireland provisions) dealing with schemes for reconstruction (compromises or arrangements agreed with creditors) can apply in transfers covered by the arrangements under the Part.

Section 106: Banking business transfer schemes

201.This section enables parties to a transfer of business involving accepting deposits to apply to the court for an order sanctioning the transfer.  Subsection (1) applies the arrangements under this part to transfers of the business of authorised persons domiciled in the United Kingdom with permission to accept deposits, wherever the business is carried on.  It also applies the arrangements where an overseas firm carrying on banking business in the United Kingdom transfers its business to another firm.  However, the arrangements do not apply to transfers from building societies (for which separate arrangements exist under the Building Societies Act 1986) or credit unions or transfers falling within section 427A of the Companies Act.

Section 107: Application for order sanctioning transfer scheme

202.This section enables either a transferee, or the transferor, or both, to apply to the court for an order sanctioning a transfer of an insurance or banking business.  Subsection (3) makes provision as to the court to which an application may be made. The appropriate court will depend on the country or territory in which the businesses are registered or have their head office.

Section 108: Requirements on applicants

203.This section confers on the Treasury a power to specify, by regulations, requirements with which firms must comply before seeking an order sanctioning a transfer under section  111.  Where firms have not complied with those requirements, the court would not be able to sanction the transfer.

204.Subsection (3) confirms that regulations made under this section may include requirements to give notice and the way in which notice must be given.  This may, for example, include giving notice of the proposed transfer to customers or creditors of the firm but the kinds of requirement are not limited.

205.Regulations made under this power may also specify the circumstances in which the court may decide that a firm need not comply with a requirement.  This is necessary to ensure that in circumstances where a firm cannot reasonably comply with a requirement, it need not prevent a court from approving a transfer.  An example where this might be necessary is in relation to a requirement to give notice to customers of the firm transferring its business to another, in circumstances where it did not have contact details for some of its customers, as sometimes happens in the case of dormant bank accounts or old life insurance policies.

Section 109: Scheme reports

206.Under this section, it is a requirement that a proposal to transfer insurance business is to be accompanied by a report by an expert.  The coverage of the report may be determined by the Authority and the appointment of the expert is subject to the approval of the Authority.  The purpose of this section is to ensure that the court is presented with a full and accurate report of the proposed transfer by an independent expert in order that the court may properly assess its impact, including the effect on policyholders of the authorised person in question (and any third parties who may rely on their policies).

Section 110: Right to participate in proceedings

207.This section gives the Authority and those affected by the proposed transfer a right to be heard by the court when it is considering an application under section 107.  This will mean that the Authority will be able to make representations about matters which, as regulator, cause it concern.  It also ensures that any person connected with either the transferor or transferee firm - including customers of either firm or their employees - may also make representations to the court about the implications for them.  The court will be able to take these views into account when considering the application.

Section 107: Sanction of the court for business transfer schemes

208.This section sets out the conditions that must be met before the court may sanction a business transfer scheme.  The conditions are that the transferee firm has obtained any necessary certificates, which are set out in Schedule 12, and also that court is satisfied that the firm will have the necessary authorisation to carry on that business after the transfer (unless no authorisation is required, as may be the case for some reinsurance undertakings in other territories).

209.The precise requirements imposed under the Schedule will depend on a number of factors including whether the business in question is insurance or banking business, and the location of the business (that is whether it is domiciled in the United Kingdom, another EEA member State or overseas).

210.An insurance business will require:

  • a certificate about confirming that it has the necessary margin of solvency (paragraph 2 of the Schedule); and

  • a certificate indicating that a host State regulator - in cases involving risks or firms located in another EEA member State - has consented (or failed to object within 3 months) to the transfer (paragraphs 3 to 5).

211.In the case of a bank it will need to produce:

  • a certificate confirming that the bank has adequate resources; and

  • in the case where either the transferor or transferee company is domiciled in another EEA state, a certificate confirming that the home state regulator has been informed about the transfer.

212.In deciding whether to sanction the scheme, the court must consider whether it is appropriate, in all the circumstances, to do so.

Section 112: Effect of order sanctioning business transfer scheme

213.This section makes it clear that any order of the court sanctioning a business transfer scheme may include any necessary provisions to ensure that any transfer is able to take proper effect.  Accordingly, the court will be able to order either that all rights and liabilities of and against the firm whose business is being transferred become rights and liabilities of the transferee firm, or that appropriate measures are taken to extinguish or reduce such rights and liabilities.

214.A reduction may be necessary, for example, where a firm is insolvent and the transfer of business is part of a “rescue” proposal. In other cases, rights and liabilities may not be suitable for transfer and so alternative arrangements may be required, for example in the case where a bank had a taken a floating charge over the assets of the firm in relation to a credit facility, where neither would be relevant to the ongoing business after the transfer.

215.These arrangements are consistent with the previous arrangements under Schedule 2C to the ICA 1982 and relevant companies and insolvency legislation.

Section 113:  Appointment of actuary in relation to reduction of benefits

216.This section enables a court, in response to an application from the Authority, to appoint an independent actuary to report on a business transfer in particular circumstances.  This is aimed particularly at situations where a company from which business is to be transferred is in financial difficulties and unlikely to be able to meet all of its obligations to policyholders or other creditors.  By the application of insolvency law, the policyholders would only be entitled to recover a proportion of the amounts due to them.

217.Section 112 enables the court to sanction a transfer that has the effect of reducing liabilities to policyholders, since in many cases allowing the transfer to a solvent company will be preferable to leaving the policyholder to recover money due from the insolvent insurer.  In practice, a transfer would most likely only be approved where the effect was no worse than if it did not go ahead.  The purpose of this section is to enable the court to take an informed view about the proposed reduction in benefits, to ensure that policyholders interests are properly protected.  A policyholder who suffered loss in such circumstances might be able to make a claim to the compensation scheme under Part XV of the Act.

Section 114: Rights of certain policyholders

218.This section provides that any EEA policyholders whose local law confers on them a right to cancel the policy in the event of a transfer have an adequate opportunity to exercise that right.

Section 115:  Certificate for the purpose of insurance business transfers overseas

219.This section is a paving provision for Part III of Schedule 12 which enables the Authority to issue a certificate about the solvency of a UK authorised firm to which insurance business is to be transferred from overseas.  Such a certificate would enable the Authority to confirm to a regulatory authority in another EEA member State or Switzerland that the transferee firm was financially sound and able to accept the business being transferred to it.

Section 116: Effect of insurance business transfers authorised in other EEA States

220.This section ensures that, where an insurance business transfer has been approved in another EEA member State in accordance with its domestic procedures, the transfer has effect in UK law.  This means that where a person in the United Kingdom has an insurance policy with an EEA company whose business is in another member State, their contract is transferred so that the policyholder continues to enjoy the same rights and to be subject to the same obligations against the new company as they did against the company that issued the original policy.

Section 117:  Power to modify this Part

221.This section allows the Treasury by regulations to modify the arrangements in relation to prescribed categories of transfer (for example, to ensure sufficient flexibility to allow for possible exclusions where transfers were subject to approval procedures in overseas jurisdictions).  This section also allows the Treasury by regulations to amend the provisions of this Part to provide for its more effective operation.

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