Good News from the FSA for Joint Venture Participants
The FSA has recently indicated that risk management services provided to a joint venture participant by another participant in the same venture, or a group member of one of the participants, may not constitute regulated activities 'by way of business'. Such activities may therefore escape regulation under the new rules governing insurance intermediaries which come into force on 14 January 2005. Thus, the arranging party may not require authorisation from the FSA for such activities.
The activities of arranging or advising on contracts of general insurance only give rise to the need for authorisation under the Financial Services and Markets Act 2000 if conducted 'by way of business'. The business test requires some remuneration for the activities, and FSA guidance indicates that the term will be construed widely, to encompass any direct or indirect economic benefit.
AIRMIC (The Association of Insurance and Risk Managers) and LMBC (the London Market Insurance Brokers Committee of the British Insurance Brokers Association) had lobbied the FSA to exclude from regulation intra-group insurance arrangements whereby one company arranges insurance for other companies in the same group. The FSA conceded, back in July, in a letter to AIRMIC, that payments passing between members of a group and a group company carrying on insurance mediation activities might not be the third party relationship which the insurance mediation directive (which the rules are designed to implement) intended to cover. Consequently, such payments may not constitute remuneration.
The FSA has now confirmed this view, in a guidance note published on its website
(http://www.fsa.gov.uk/mgi/risk_managers_sept04.html).
In the guidance note, the FSA has taken the opportunity to clarify a residual area of doubt, namely as to whether the meaning of 'group' was such that joint venture arrangements would also be excluded from regulation.
The FSA has confirmed that the approach to group risk management activities may be applicable in other situations including that of joint ventures. They say that whether the entity which provides the insurance or risk management services to the joint venture participants is carrying on regulated activities will depend on the circumstances, and whether the parties...
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