Tax Considerations in the Global Environment: Solvency II and Outsourcing Jonathan Drake Clausen Miller LLP

Solvency II and Outsourcing A brief overview – where are we now? PRA/FCA current requirements What do the Directives say? What does EIOPA say? What do you need to do?

A brief overview – where are we now? Level I Solvency II Directive adopted in November 2009 and originally due for implementation 2012 Omnibus II Directive and further Directives adopted so that date for implementation for insurers is 1 January 2016 Detailed draft implementing measures prepared by EU Commission and issued for approval by EU Council and Parliament with EIOPA preparing implementing Technical Standards EIOPA recently issued guidelines to regulators on various aspects of implementation

PRA/FCA current requirements Handbook at SYSC 13.9 gives guidance on managing outsourcing arrangements in relation to operational risk Tell them in advance of a “material” outsourcing Intra-group arrangements to be treated in the same way Before the arrangement – analysis/due diligence/transition/operational risks? Issues to include in outsourcing agreement Performance management BCP – what if service provider fails? As an operational risk issue affects both standard and internal models and has capital implications

What do the Directives say? Solvency II Directive Art. 49 – outsourcing of “critical or important” functions should not undermine the governance or source to policyholders, increase operational risk nor affect regulators ability to regulate Art. 50 EIOPA to draft Regulatory Technical Standards to specify in detail conditions under which outsourcing may be performed Specific consideration to be given to outsourcers in 3 rd countries

What does EIOPA say? Detailed advice given to Commission in “CEIOPS [now EIOPA] Advice for Level 2 Implementing Measures on Solvency II: System of Governance October 2009” Commission draft Delegated Act published October 2014 contains outsourcing requirements derived from the above (Article 274) More detailed requirements than in SYSC 13.9 although generally similar Recent EIOPA Guidance to Regulators: Guideline 44 – regulators to ensure that insurers determine whether an outsourced function is “critical or important”

What do you need to do? Prepare an outsourcing policy and identify the important arrangements Ensure you have done appropriate due diligence on outsourcers and that they are now and will be able to meet Solvency II requirements Have an open dialogue with them – but remember to plan for failure!

Jonathan Drake | Partner Clausen Miller LLP T: (0) E:

Questions