shutterstock/Gerard Lynch
2 November 2021

Irish captives escape service company regulation

Captives look likely to escape new guidance from the Central Bank of Ireland (CBI) on using service companies for staffing in the insurance sector.

The guidance will set out the bank’s expectations for managing risks from such arrangements.

“The Central Bank has observed a practice within the insurance sector whereby a number of insurance and reinsurance undertakings (undertakings) are seeking to enter, or have entered, arrangements for the use of separate legal entities for the provision of extensive staffing to the undertaking (staffing arrangements),” the  draft guidance states.

“These entities, often referred to as service companies or service providers, are usually part of the same group as the undertaking. The Central Bank is focused on these staffing arrangements due to their potential, if not effectively managed, to threaten the operational resilience of undertakings regulated by the Central Bank.”

It adds: “It is the responsibility of the boards of undertakings to ensure that there are appropriate governance structures in place, including appropriate organisational and operational structures and risk management systems and, where this is not the case, to appropriately modify or eliminate inappropriate structures or arrangements.”

The guidance makes an exception for arrangements between captive re/insurance undertakings and captive management companies for captive management services, “due to the specificity of the captive re/insurance model”.

While consultation on the guidance, issued in August, only closes on Saturday, lawyers at Irish business law firm Mason Hayes & Curran say it’s likely to stand.

“[W]e believe that industry participants can expect the CBI to issue the proposed guidance in due course without material changes. This is because the publication of CP144 followed that of an earlier discussion paper in which the CBI raised most of the same issues, so it seems determined to legislate in this area,” write partners Rowena Fitzgerald and Liam Flynn in  an update.

Others, though, should review their practices. “Re/insurers would be well advised to review their existing staffing arrangements against the proposed guidance, and to identify any gaps in documentation, processes, and procedures to ensure that they are able to deliver on the CBI’s expectations,” they state.