SUP App 3.10 Mapping of the Solvency II Directive to the Regulated Activities Order7

The guidance in 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 Solvency II Directive7

   7

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 theSolvency II Directive.7 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 theSolvency II Directive.7 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 Solvency II Directive provides that the Directive “lays down rules concerning... the taking up and pursuit, within the Community, of the self-employed activities of direct insurance and reinsurance". Article7 10 of the Regulated Activities Order (Effecting and carrying out contracts of insurance) also covers reinsurance.

Articles 3 to 12 of the Solvency II Directive7 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 in the Solvency II Directive7 mirror exclusions in the Regulated Activities Order. So, the exclusion for breakdown insurance in article 6 of the Solvency II Directive7 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 10 of the Solvency II Directive.7 Other requirements from the Solvency II Directive7 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, the activities of "non-directive friendly societies"7 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 Solvency II Directive,7 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 13(13) and (14) of the Solvency II Directive.7

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 Solvency II Directive7 into the United Kingdom 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 Solvency II Directive is7 concerned with the regulated activities of effecting and carrying out contracts of insurance, an incoming EEA firm passported under the Solvency II Directive7 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.