A Cayman Islands reinsurance firm has been slapped with a large fine on its London operation in a first by a Bank of England-run regulator.
The regulator, however, reduced what would have been a bigger fine because the firm acknowledged the error and quickly moved to comply with the Brexit-related regulatory requirement oversight.
Barents Re, which is headquartered in Cayman, although registered in Luxembourg, was hit with the £1.78 million fine (about CI$2 million) for “failing to organise and control its affairs responsibly and effectively, as well as governance and regulatory reporting failures”, the Prudential Regulation Authority (PRA) said in a press release on the bank’s website.
The company is the first pure reinsurer to be targeted by the authority after it failed to follow rules imposed on European Union companies after the UK quit the bloc in 2020, under the Brexit deal.
The authority said Barents had breached the ‘Temporary Permissions Regime’, which allowed EU-based companies to continue business activity for a limited period.
Shoib Khan, director of insurance supervision at the authority, explained, “Barents fell materially short of its obligations to comply with the [Prudential Regulation Authority] rules applicable to third country branches once subject to the UK regulatory framework.
“As a result, it failed to organise and control its affairs responsibly and effectively and to have appropriate governance and reporting arrangements in place.”
Khan said, “The PRA welcomes international participation in the UK insurance, including reinsurance, market, subject to safeguards to ensure that this is accompanied by financial and operational resilience.”
But he added, “Third country branches operating in the UK should therefore ensure that they fully engage and comply with the UK regulatory framework.”
The authority, however, emphasised that Barents had cooperated with its investigation and taken steps to fix the problems, at considerable financial cost.
It said the cooperation, including “the early admission of failures resulted in a 15% reduction in the penalty calculation”.
The Prudential Regulation Authority added, “Barents agreed to resolve the matter and therefore qualified for a 30% reduction in the fine, without which the fine imposed by the PRA would have been £2.55 million.”
Not prepared for impact of Brexit
The investigation found that Barents did not properly prepare for the regulatory impact of Brexit or ensure that some internal audit recommendations were implemented on time.
The authority added that Barents had failed to set up a governance system “proportionate to its operations” and did not have a business continuity plan that factored in its UK operation.
It said the company had also failed to set up appropriate systems to fulfil its reporting requirements, which meant required regulatory reports were submitted late.
The London office of Barents has been in a supervised run-off – where a reinsurer ceases to write new business, but will still settle claims on existing contracts until they expire – since October 2023 and is in the process of winding down its UK operations.
Financial stability unaffected
In an official response to the fine, Barents said that the breaches did not affect the company’s financial stability, underwriting or day-to-day operations.
It added it had implemented Project Horizon, a remediation programme to boost its governance and reporting processes, in 2023, which was completed that year.
It highlighted that the authority had not found that the breaches were “deliberate or reckless” and that, apart from the failure to submit regulatory reports, the breaches identified “did not result in any crystallised risk during the relevant period”.
A Barents Reinsurance SA spokesman said, “We take our regulatory obligations seriously and are dedicated to upholding the highest standards.
“The steps we’ve taken, including Project Horizon, reinforce our operational resilience and ensure we continue to meet regulatory expectations.”
Barents has a total of nine international offices, including subsidiaries, partners and representative offices in nine cities, including Miami, Panama, Rome, Madrid and Milan.
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