SUP App 2.3 Purpose

To fulfil its obligations under the Insurance Directives, and as part of the FSA's risk-based approach to supervision, there are certain times when the FSA needs to monitor a firm more closely than it normally would. This is so the FSA can fulfil its function of supervising firms properly and meet the regulatory objective of securing an appropriate degree of protection for consumers.

The rules in SUP App 2.1 to 2.141require a firm to submit reports and information to the FSA when:

1. (1)

   a firm is failing to satisfy threshold condition 4 (Adequate resources) (see COND 2.2), and its capital resources have fallen below its required margin of solvency, or its guarantee fund; or

2. (2)

   the capital resources of a firm have fallen below its capital resources requirement; or

3. (3)

   a firm has decided to cease to effect new contracts of insurance; or

4. (4)

   a firm is going through periods of potential uncertainty, for example, when it has come under the control of a new parent undertaking or following the grant or variation of permission.

The FSA may also ask a firm to submit reports and information to it when the firm's capital resources fall below the level advised in individual capital guidance 1given to the firm.

In accordance with the Insurance Directives, a firm whose capital resources have fallen below its required margin of solvency, or its guarantee fund, is required, by the rule set out in this appendix, to submit a scheme of operations, together with an explanation of how its capital resources will be adequately restored. In order to secure an appropriate degree of protection for consumers, the FSA applies the rule in this appendix to firms to which the provisions of the Insurance Directives would not otherwise apply.

A firm which is entering into run-off is required to submit a scheme of operations, including an explanation of how its liabilities to policyholders will be met in full. Where the capital resources of such a firm subsequently fall below its required margin of solvency, the firm is required to submit a plan for restoration.

Following a change in control, or the grant or variation of permission, the reports submitted help the FSA to identify when a firm departs from the scheme of operations submitted as part of the notification of a change in control, or an application for the grant or variation of permission, and on which basis such notification or application was approved.

Principle 4 of the FSA's Principles for Businesses provides that firm's should hold adequate financial resources, while GENPRU 1.2.26 R 1requires a firm to maintain overall financial resources which are adequate to ensure that there is no significant risk that it cannot meet its liabilities as they fall due. In considering these requirements, a firm may decide to maintain capital resources above the level advised in individual capital guidance1 given by the FSA, or, if no individual capital guidance 1has been given, above its capital resources requirement. The amount of any such additional capital resources held is at the discretion of the firm. However, the extent to which a firm matches these additional capital resources to the volatility of its capital base, in conjunction with the strength of its systems and controls environment, is likely to affect the frequency with which it is subject to intervention under this appendix.

In relation to a firm carrying on with-profits insurance business, action which it takes either to restore its capital resources to the levels set by the intervention points in this appendix, or to prevent its capital resources falling below those points, should be consistent with Principle 6 of the FSA's Principles for Businesses. Principle 6 requires a firm to pay due regard to the interests of its customers and treat them fairly.

These rules are in addition to the other rules and guidance in SUP, in particular SUP 2 (Information gathering by the FSA on its own initiative), SUP 15 (Notifications to the FSA), SUP 16(Reporting requirements) and the Principles for Businesses (PRIN).