Provident Insurance Plc & Ors v The Financial Services Authority (FSA)

The court held that the proposed transfer of Gateway's insurance business fell within Part VII of the Financial Services and Markets Act 2000 (FSMA) and so required the court's sanction under s.111 because the test in s.105(2)(c) was satisfied: Gateway was neither a UK authorised person nor an EEA firm for the purposes of Part VII but did have permission to effect or carry out contracts of insurance by virtue of the Gibraltar Order.

In reaching that conclusion the judge interpreted the Gibraltar Order as limited in scope to modifying authorisation under Part III of FSMA (pursuant to s.409) and held that the Treasury had no power under s.409 to extend the operation of Part VII (which would require reliance on s.117). The Gibraltar Order therefore did not render Gateway an EEA firm for Part VII purposes but did give it permission to write business in the United Kingdom.

The court also determined applications for waivers of the notification requirements in the Transfer Regulations. It approved a range of proposed alternative notification measures as proportionate and practical but refused two broad waivers sought in respect of policyholders sourced through one broker (BGL) on the basis that the court should not disenfranchise a large constituency of policyholders and that policyholder protection required direct or appropriately targeted notification.

This was a directions hearing under Part VII FSMA concerning two linked insurance business transfers from Provident Insurance plc and Gateway Insurance plc to MMA Insurance plc, all members of the Covéa Group. The principal novel issue was jurisdiction: whether the Gateway transfer, where Gateway is authorised in Gibraltar, fell within the scope of Part VII FSMA so as to require court sanction under s.111. The second group of issues concerned compliance with the notification requirements in the Financial Services and Markets Act 2000 (Control of Business Transfer) (Requirements on Applicants) Regulations 2001 (the Transfer Regulations) and the grant of waivers under regulation 4(2).

The claimants sought directions and a number of waivers of the ordinary notification requirements. The Financial Services Authority supported the transfers but opposed two of the waivers. The judge framed the issues as (i) whether Gateway should be treated as an EEA firm for the purposes of s.105(2)(c) of FSMA or otherwise fell within the definition of an insurance business transfer scheme; and (ii) whether the Transfer Regulations' requirements for notifying policyholders could be waived in whole or in part.

On jurisdiction, the court analysed s.104 and s.105 FSMA and related definitions (including the definitions in Schedule 3 and the Interpretation Act 1978) and examined the effect and vires of the Financial Services and Markets Act 2000 (Gibraltar) Order 2001 (the Gibraltar Order). The judge concluded that Gibraltar is not in its own right an EEA State and that the Gibraltar Order, made under s.409 and s.428(3) FSMA, was limited to modifying authorisation provisions under Part III. The Treasury did not have the power under s.409 to modify the effect of Part VII; that would require reliance on s.117. Consequently, for the purposes of Part VII Gateway was not an EEA firm but did have permission to effect or carry out contracts of insurance under the Gibraltar Order; therefore s.105(2)(c) was satisfied and the court had jurisdiction to sanction Gateway's transfer.

On notification the court identified the relevant regulatory regime in the Transfer Regulations (notably regulation 3 and the waiver power in regulation 4(2)) and reviewed established factors to be weighed when considering waivers (including practicality, possibility of contacting policyholders, utility of contact, alternative channels, proportionality and commercial collateral interests), drawing on prior first-instance authorities. The judge accepted that the FSA has a substantive consumer-protection interest in assessing notification proposals and that the court must balance policyholder protection against commercial and practical difficulties.

The court approved multiple waivers and alternative notification arrangements proposed by the applicants as proportionate in the circumstances (for short-term policies, dormant or suspected fraudulent claims, certain white-labelled products and tailored newspaper advertising covering most affected policyholders). However, the court refused two extensive waivers sought for policyholders supplied via one broker (BGL) because those waivers would withhold direct or targeted notification from a very large constituency (some 72,000–100,000 Provident policyholders and a significant number of MMA policyholders). The judge emphasised the importance of enabling policyholders to decide for themselves whether to participate and invited the parties to seek agreement on targeted advertising that minimised commercial prejudice while protecting policyholders’ interests.

The court determined that it has jurisdiction to sanction the Gateway transfer because the scheme satisfies s.105(2)(c) of FSMA: Gateway is not an EEA firm for Part VII purposes but does have permission to effect or carry out contracts of insurance under the Gibraltar Order; consequently the transfer is an insurance business transfer scheme within s.105 and s.104 applies. The court approved most of the applicants' proposed waivers of the Transfer Regulations' notification requirements as proportionate and practical, but refused two broad waivers sought in respect of policyholders arranged through one broker (BGL) on grounds of policyholder protection and the scale of affected policyholders, and adjourned briefly to allow the parties to agree targeted advertising or return for further directions.