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UK government releases final ILS rules

July 23, 2017

The UK government has now published final regulations for the new insurance-linked securities (ILS) regime, with the rules expected to come into force in autumn.

The UK treasury said that the new regulations, published on 20 July, “introduce a competitive regulatory and tax regime for Insurance Linked Securities which will ensure that UK gets a share of this rapidly growing market.”

The regulations cover how to set up an ILS vehicle, the associated taxation system and legal framework and provide for a tailored and proportionate approach to authorisation and supervision.

Economic secretary to the treasury, Stephen Barclay said that the new bespoke regime will ensure that the UK remains the most competitive (re)insurance hub in the world.

"This global business is evolving rapidly and we are determined to make sure we're part of this evolution," he said.

Meanwhile, Malcolm Newman, chairman of the London Market Group (LMG)’s ILS taskforce said he believes that there is a “real appetite” in the London market to invest in ILS products which will bring investors to the UK and make a significant contribution to growing the country’s trade.

“The new ILS framework offers a very exciting future for the London Market to continue to deliver innovative new products that make a real difference,” he remarked.

The initial draft regulations from the treasury included several elements that industry commentators lobbied to change during a consultation period earlier this year.

One was a proposal to require pre-deal authorisation for new individual risk transfer cells set up under the umbrella of an insurance special purpose vehicle (ISPV), which has now been dropped.

Instead, underwriters must notify the Prudential Regulation Authority within five working days of setting up new risk transfer cells.

However, the timeframe to initially approve new vehicles has remained the same. Regulators have said they will endeavour to authorise non-complex, single-transaction ISPVs within six to eight weeks.

The regulations will be laid before Parliament after summer recess and will come into force in the autumn of this year.