PRA's Manuel Sales sets out what it takes to merge friendly societies under Part VIII, alongside CP12/26
Serguey Asael Shinder2 min readManuel Sales of the Prudential Regulation Authority spoke on 5 October to the Association of Financial Mutuals about Part VIII transfers, the process under the Friendly Societies Act 1992 by which one friendly society transfers some or all of its business to another. The PRA decides whether a transfer goes ahead, and the speech accompanies consultation paper CP12/26, which sets out how it approaches those decisions.
Why now. Sales said some mutuals have told the PRA their business models may not be sustainable in the longer term, citing competition, technological change and economic pressures, and that some are considering a solvent exit, including a transfer. Firms had told the PRA they wanted a clearer picture of the process and of what informs its decisions; the consultation paper is meant to provide that.
What the PRA looks for.
- Members' interests in each society. Benefits may not be shared equally or arrive at the same time; the question is whether the transfer is in the interests of the members of each participating society, and the PRA asks firms to consider in what circumstances some members could be worse off.
- Permissions. Regulatory permissions do not transfer with the business, so the acquirer must check it holds what it needs; some firms compared both firms' entries on the FCA register.
- Overseas members. The PRA must assess whether the acquirer could be legally unable to carry on the business for members abroad. Sales said firms find this harder than for UK members and the PRA is considering further clarification.
- The vote. An acquirer can ask the PRA to let its board approve the transfer instead of a members' vote. The PRA will not dispense with the vote lightly, and the CP sets out reference points for when it might consent.
- Actuarial reports and member communications. Reports should show effects before, immediately after and after integration, positive and adverse; the CP clarifies when an Independent Actuary's report is likely to be required, which should help firms estimate costs. The PRA also reviews the Schedule 15 statement sent to members.
Sales described the process as resembling a house move: the transfer itself is the last step, and most of the work, and cost to members, comes before it.