Solvency II Divergence Hub

Rule waivers and modifications [UK]

Rule permissions (replacing approvals), modifications and waivers under Solvency II UK

Following amendments made to the Financial Services and Markets Act 2000 (FSMA), by the Financial Services and Markets Act 2023, there are now two statutory provisions which give the Financial Conduct Authority and Prudential Regulation Authority (PRA) the power to modify or waive the need to comply with a regulatory rule.

The general power under s138A FSMA

The regulator may either on the application of a regulated person/firm, or with the consent of a regulated person/firm, give a direction that all or any of the rules (other than those specifically excluded under s 138A(2) FSMA) are not to apply to that person/firm (a waiver) or are to apply with specified modifications (a modification).  The regulator must be satisfied that compliance with the rules, or with the rules as unmodified, would be unduly burdensome or would not achieve the purpose for which the rules were made and the direction would not adversely affect the advancement of the regulator’s objectives.  A direction may be subject to conditions.  The regulator may revoke a direction or vary its terms on the application, or with the consent, of the person/firm.  The PRA’s guidance on approvals is currently set out in Supervisory Statement 15/15  - this will be revoked on 31 December 2024 and replaced by the new subject specific Statements of Policy (SoP) (see below).

New power under s138BA FSMA

This new power is available in respect of those regulatory rules specified by HM Treasury.  In the case of the PRA, the power will apply to any rules made by the PRA (other than those specifically excluded by section 138BA(3)^[1]. The new power replaces the power to grant approvals under Part 4 of the Solvency 2 Regulations 2015 (see below). Instead of ‘approvals’ the language has changed to ’rule permissions’. The PRA consulted on its approach to rule permissions made under s138BA (CP3/24 – The PRA’s approach to rule permissions and waivers) and Policy Statement 12/24 containing feedback to responses and the final SoP was published, and took effect, on 25 July 2024.  The PRA’s power to grant rule permissions under S138BA is not subject to any statutory criteria. Instead, the PRA’s SoP sets out how the PRA will generally exercise its power.  Specific criteria which the PRA will consider in deciding whether to grant a rule permission in relation to a particular PRA rule will generally be communicated in subject specific SoPs.  If specific criteria have not been set out in a SoP, the PRA will consider the statutory criteria applicable under s138A FSMA.  

Chapter 4 of the Permissions and Waivers Part of the PRA Rulebook details information about the application process. The PRA expects applications made under either section to be accompanied by detailed information and evidence demonstrating how the relevant criteria are met.

Powers under the Solvency 2 Regulations 2015/575

Currently, under the provisions of Part 4 of the Solvency 2 Regulations 2015 (the Regulations), the PRA may grant an approval or vary an existing approval for a number of different measures.  The exception is in respect of Matching Adjustment where rule permissions are already being given under S138BA.

The Regulations will be revoked on 31 December 2024 when the new subject specific SoPs will come into effect.  Existing approvals given to firms will continue to be valid and firms will not need to reapply. ^[2]

Table of Statements of Policy

Latest developments

On 25 September 2024, the PRA published a statement providing clarification about the standing of existing PRA rule waivers and modifications when the Solvency II reforms take effect on 31 December 2024.  Existing waivers and modifications may need to be varied to reflect changes to the PRA rules and to remove references to assimilated law which will be revoked on 31 December 2024.  In mid-November the PRA will contact affected firms with further instructions and to request consent to vary the wording of their existing directions so that they remain valid on 31 December 2024.  Firms will not be required to submit new applications for existing waivers or modifications to be varied.

[1]               The Financial Services and Markets Act 2000 (Disapplication or Modification of Financial Regulator Rules in Individual Cases) Regulations 2024 (SI 2024 No.539) – coming into force on 30 June 2024

[2]               The Insurance and Reinsurance Undertakings (Prudential Requirements)(Transitional Provisions and Consequential Amendments) Regulations 2024 (SI 2024 No. 594) which come into force on 30 June 2024 – provides that MA approvals granted prior to 30 June 2024 under regulation 42 of the Solvency 2 Regulations will carry over and become a permission under s138BA.