SUP App 3.10 Mapping of Insurance Directives to the Regulated Activities Order

The guidance in AUTH 3.10 and Table 3 describes in broad outline the relationship between:

1. (1)

   the insurance-related regulated activities specified in the Regulated Activities Order; and

2. (2)

   the activities within the scope of the Insurance Directives

The meaning of contract of insurance is set out in article 3(1) of the Regulated Activities Order (Interpretation). It does not include benefit-in-kind funeral plans, which are specified in article 60 of the Regulated Activities Order (plans covered by insurance or trust arrangements). Such funeral plans (to the extent that they are insurance) are also excluded from theInsurance Directives. It covers some contracts which might not otherwise be viewed as insurance in the United Kingdom (for example, contracts of guarantee). These contracts are also governed by theInsurance Directives. For the purpose of the Regulated Activities Order, a contract of insurance includes a contract of reinsurance as well as a contract of direct insurance.

Article 1 of the First Non-Life Directive and article 2 of the Consolidated Life Directive provides that the Directives "concern the taking up and pursuit of the self-employed activity of direct insurance". By contrast, article 10 of the Regulated Activities Order (Effecting and carrying out contracts of insurance) also covers reinsurance.

Articles 2, 3 and 4 of the First Non-Life Directive and article 3 of the Consolidated Life Directive set out certain exclusions by reference to:

1. (1)

   types of insurance;

2. (2)

   types of insurer;

3. (3)

   particular conditions under which insurance activities are carried out.

4. (4)

   annual income; and

5. (5)

   particular identified institutions.

Some of the exclusions referred to mirror exclusions in the Regulated Activities Order. So, the exclusion for breakdown insurance in article 2(3) of the First Non-Life Directive is matched by a slightly narrower exclusion in article 12 of the Regulated Activities Order (Breakdown insurance). The separate treatment of benefit-in-kind funeral plans under the Regulated Activities Order (see SUP App 3.10.4 G) is matched by their exclusion on a slightly wider basis in article 3(5) of the Consolidated Life Directive. Other requirements from these Directives are also excluded from regulation by the Exemption Order.

Most of the exclusions under the Directives, however, are not excluded from being regulated activities. For example, article 3 of the Consolidated Life Directive and article 3 of the Non-Life Directive exclude certain mutual associations whose annual contribution income falls below a defined threshold. In the United Kingdom, these include certain smaller friendly societies commonly referred to as "non-directive friendly societies". The activities of such societies are regulated under the Act, on a "lighter basis" than the activities of other insurers.

Under the Act and the Regulated Activities Order, the activities of effecting and carrying out contracts of insurance are treated as being carried on in the United Kingdom on the basis of legal tests under which the location of the risk is only one factor. If the risk is located in the United Kingdom, then (other relevant factors being taken into account) the activity will, in the vast majority of cases, also be viewed as carried on in the United Kingdom. There are exceptions, however, and overseas insurers may insure risks in the United Kingdom without carrying on business here and so without requiring to be regulated (although the financial promotion regime may apply). By contrast, under the Directives, the responsibility, as between EEA States, for regulating the conduct of passported insurance services is determined by reference to the location of the risk or commitment, as defined in article 1 of the Consolidated Life Directive and article 2 of the Second Non-Life Directive.

So, the effect of App 3.12.1 is that an insurer may be carrying on insurance business in the United Kingdom which is to be treated as a regulated activity under article 10 to the Regulated Activities Order (Effecting and carrying out contracts of insurance) in circumstances where the risks covered are treated as located in another EEA State. In that event, the insurer is required by Schedule 3 to the Act to passport into the State concerned and may be subject to conduct of business requirements in that State (see SUP 13.10 (Applicable provisions)).

An insurer authorised in another EEA State who is insuring UK risks and so passports on a services basis under the Insurance Directives into the United Kingdom (see ), may not be carrying on a regulated activity in the United Kingdom. But, if it passports into the United Kingdom, it will qualify for authorisation under paragraph 12 of Schedule 3 to the Act (Firms qualifying for authorisation). Where this is the case, the insurer will be subject to conduct of business requirements in the United Kingdom (see 3SUP 13A.63 (Which rules will an incoming EEA firm be subject to?)).

Although the Insurance Directives are concerned with the regulated activities of effecting and carrying out contracts of insurance, an incoming EEA firm passported under the Insurance Directives2 will be entitled to carry on certain other regulated activities without the need for top-up permission. This is where the regulated activities are carried on for the purposes of or in connection with the incoming EEA Firm's insurance business1. These regulated activities may include:

1. (1)

   dealing in investments as principal;

2. (2)

   dealing in investments as agent;

3. (3)

   arranging (bringing about) deals in investments;

4. (4)

   making arrangements with a view to transactions in investments;

5. (5)

   managing investments;

6. (6)

   safeguarding and administering investments;

7. (7)

   advising on investments;

8. (8)

   agreeing to carry on a regulated activity of the above kind.

The financial promotion regime under section 21 of the Act (Restrictions on financial promotion) may also apply to EEA insurance undertakings regardless of whether they carry on a regulated activity in the United Kingdom or passport into the United Kingdom.

The Insurance Directives do not apply to reinsurance. But, the Insurance Directives do not prevent insurance undertakings authorised under those Directives from carrying out reinsurance as well as direct insurance business. Article 13(2) of the First Non-Life Directive and article 10(2) of the Consolidated Life Directive state that financial supervision of insurance undertakings "shall include verification, with respect to the insurance undertaking's entire business, of its state of solvency, of the establishment of technical provisions and of the assets covering them". On that basis, an insurance undertaking authorised in another EEA State which carries on a mixed direct insurance and reinsurance business, and is, therefore, subject to the requirements of the Directives, will generally be treated as being subject to 'equivalent protection' . This is for the purpose of paragraph 3 of Schedule 4 to the Act (Exercise of treaty rights). The insurance undertaking will, therefore, generally be able to qualify for permission 3as a Treaty Firm for its reinsurance business if it follows the procedure provided for by Schedule 4 (see 3SUP 13A.3.4 G3 to 3SUP 13A.3.11 G3 (Treaty Firms) and also AUTH 3.21 (Treaty firms applying for Part IV Permission)). This will be in addition to the insurance undertaking being an EEA firm under Schedule 3 of the Act for its direct insurance business.