Prudential Regulation Authority Rulebook

3.1

In order for an RFTS to be sanctioned, an application must be made to the court. To aid the court in its decision as to whether to sanction the transfer, the court must be provided with a scheme report to be authored by a person appearing to the PRA to have the skills necessary to enable a person to make a proper report (‘a skilled person’).

3.2

The PRA must approve the skilled person, in consultation with the FCA. In most cases the PRA would anticipate that the firm would nominate the skilled person; this is discussed in further detail in section six.

3.3

The scheme report must address a question specified in the legislation as to ‘(a) whether persons other than the transferor concerned are likely to be adversely affected by the scheme, and (b) if so whether the adverse effect is likely to be greater than is reasonably necessary in order to achieve whichever of the purposes mentioned in section 106B(3) is relevant’ (‘the statutory question’).^[3] The purposes are specified in paragraph 5.4.

3.4

The PRA must approve the form of the report, in consultation with the FCA.

3.5

The PRA must, if it is satisfied that the application may properly proceed, consent to the firm’s application to the court. This is a new requirement for the PRA that does not apply for banking business transfers. In deciding whether to give consent, the PRA must have regard to the scheme report.

3.6

The PRA must also issue two certificates to the court. The first certifies the PRA’s approval to the application. The second certificate issued by the PRA is to certify that the transferee will possess adequate financial resources. The court may not sanction an RFTS unless the PRA has certified that, taking the proposed transfer into account, the transferee (ie the receiving entity) possesses, or will possess before the scheme takes effect, adequate financial resources.

3.7

If the transferee is authorised in an EEA state other than the United Kingdom then the PRA will also need to issue a third certificate to the court, certifying that:

1. (i) the home state regulator of the transferee has been notified of the proposed scheme; and
2. (ii) a period of three months beginning with the notification has elapsed.

3.8

The key stages of the RFTS process are set out below.

1. (i) The PRA will have initial dialogues with the firm proposing the RFTS to understand the scope, timetable and nature of the transfer as well as the nominated skilled person
2. (ii) The PRA may wish to have preliminary discussions with the nominee about the transfer before the PRA determines if they are suitably qualified to undertake the task required of the skilled person. The PRA will then approve or nominate the skilled person in consultation with the FCA.
3. (iii) The PRA, in consultation with the FCA, will approve the form of the scheme report.
4. (iv) The PRA will, if appropriate (having regard to the scheme report and other relevant matters), consent to the application to the court.
5. (v) A Directions hearing will take place where the court sets out a timetable for the applicant^[4] to notify the public of the RFTS application and receive any written submissions from persons alleging they would be adversely affected by the scheme.
6. (vi) The PRA will take account of any representations made to the court and if appropriate, will confirm its approval of the application by the issue of a certificate to the court.
7. (vii) The PRA is required, if appropriate, to issue a certificate as to financial resources to the court. Where the transferee is an FCA solo regulated entity, the FCA will issue the certificate of financial resources. Where the transferee is authorised in an EEA state other than the United Kingdom, the home state regulator will issue the certificate as to financial resources.
8. (viii) Where the transferee is an EEA firm, a certificate will be provided by the PRA to the court certifying that the home state regulator of the transferee has been notified of the proposed scheme and has either responded or the period of three months has elapsed. The home state regulator will also be engaged at an early stage in the process. In all cases, EEA regulators will be notified of the proposed RTFS.
9. (ix) The court decides whether to sanction the RFTS and issue order(s) to effect the RFTS from a specified date.

3.9

The PRA and FCA (the regulators) will work jointly with one another throughout each individual RFTS process in pursuit of the objectives of the regulators and to ensure our decision-making processes are conducted in an appropriately coordinated manner. This engagement will include the PRA consulting the FCA as set out in section 3D of FSMA. The FCA has also published guidance on its approach to RFTS.

3.10

FSMA^[5] also prescribes certain statutory functions in relation to RFTS for both the PRA and FCA. In accordance with FSMA, the PRA and the FCA maintain a Memorandum of Understanding^[6] which describes each regulator’s role in relation to the exercise of its functions under FSMA relating to matters of common regulatory interest and how each regulator intends to ensure the co-ordinated exercise of such functions.

3.11

The PRA will lead the process for the RFTS. As described above, the PRA will also be responsible for specific regulatory functions connected with RFTS applications including the provision of certificates under section 111 of FSMA. The only exception to this is when the transferee is an FCA solo regulated entity. In this instance, the FCA will issue the certificate of financial resources to the court.

3.12

Both the PRA and the FCA^[7] are entitled to be heard at the proceedings. The two regulators may also provide the court with written representations setting out their views on the proposed transfer scheme, for example, by way of a report to the court. The PRA will decide in relation to each RFTS whether it is necessary or appropriate for it to prepare a report, considering its objectives and other relevant matters.

3.13

Transfers may have both positive and negative effects on persons other than the transferor. A key concern for the PRA will be to satisfy itself that persons other than the transferor have adequate information and a reasonable time within which to determine whether or not they are adversely affected and, if adversely affected, whether to make representations to the court. When reaching its view, the PRA will act in a way it considers most appropriate to advancing its own statutory objectives. The FCA also has a particular interest in the publication and notification of customers and the PRA will engage closely with the FCA on this.