Prudential Regulation Authority Rulebook

5.1

These Guidelines complement the Delegated Regulation regarding ring-fenced funds (RFF).

5.2

Guidelines 1 to 4 describe the characteristics of RFF together with details of arrangements, restrictions and types of business which are generally inside or outside the scope of the RFF regime. Firms should follow the approaches set out in these Guidelines in determining whether they need to recognise RFF. In particular, the PRA draws firms’ attention to paragraph 1.13 of Guideline 3 which makes clear that all restrictions in place at the time of calculation of the Solvency Capital Requirement (SCR) should be taken into account, irrespective of the time period for which those restrictions apply.

5.3

In SS14/15^[13] the PRA sets out its expectation that the restrictions on assets and own funds resulting from the nature of, and regulatory regime for, with-profits insurance business in the United Kingdom will generally mean that each with-profits fund displays the characteristics of a RFF under Solvency II.

5.4

Firms should follow Guideline 5 paragraph 1.17 when assessing whether a RFF is not material and documenting their assessment. Firms should send such assessments to their usual supervisory contact.

5.5

Where a RFF is not material, firms should apply paragraph 1.16 of Guideline 5.

5.6

Firms should follow Guidelines 6 to 8 in determining the assets and liabilities within the scope of RFF. The PRA’s approach to with-profits business, as set out in the With-profits Part of the PRA Rulebook, and supervisory statement SS14/15, will apply to those firms which have with-profits funds and their treatment as RFF. The PRA notes that Guideline 8 will be of particular relevance to with-profits funds and the treatment of profit-sharing arrangements whereby transfers to shareholders arise from the distribution of discretionary benefits to policyholders. The treatment of other types of profit-sharing arrangements will depend on the structure of the business and the scheme or other legal arrangement that specify the mechanism by which amounts are distributed to shareholders and policyholders. Firms with more complex arrangements should engage with their usual supervisory contact regarding their treatment.

5.7

Firms should follow Guidelines 9 to 13, and 17 in carrying out the calculations required by the Delegated Regulation in respect of the:

• notional SCR for the purpose of calculating any required adjustment to own-funds;
• notional SCRs to be aggregated for the purpose of standard formula calculations for RFF and matching adjustment portfolios;
• calculation of the SCR as a whole for internal model firms; and
• reporting of the SCR by risk module by standard formula firms.

5.8

On Guideline 14, firms should engage with their usual supervisory contact at an early stage in order to discuss what evidence the PRA would need in order to be satisfied with the proposed methodology.