The FCA has published CP26/29 “A tailored regime for captive insurance”, setting out its proposed regulatory framework for captive insurers operating in the UK. The consultation is an important step in the Government’s plans to develop a UK captive insurance market. At present, businesses wishing to establish a captive typically look to established jurisdictions outside the UK. The FCA’s proposals, alongside the Prudential Regulation Authority’s (PRA) proposed prudential framework, are intended to provide a credible domestic alternative. The significance of the proposals lies not simply in the creation of a new regulatory category, but in the approach the FCA has taken. Rather than applying the existing insurance framework in full, the FCA proposes removing or modifying requirements that are principally designed to address risks arising from dealings with retail customers. The result would be a substantially lighter regulatory framework than that applying to conventional insurers, while retaining requirements around governance, accountability, risk management and regulatory oversight.
Why is the FCA proposing a separate regime?
A captive insurer is established primarily to insure risks arising within its own corporate group. This creates a different risk profile from that of an insurer offering products to the wider public. The FCA’s starting point is that the close relationship between the captive and the entities it insures reduces many of the conduct risks that underpin the existing insurance rulebook. Where both parties form part of the same corporate group, there is generally less need for the regulatory protections designed to address information asymmetry, product design, sales practices and the treatment of retail customers. The proposed regime reflects this distinction. Initially, the framework would focus on single-parent, or “pure”, captives. These captives would be permitted to insure or reinsure eligible risks within their corporate group, subject to restrictions intended to ensure that higher-risk business does not enter the streamlined regime. In particular, captives would not be permitted to provide direct insurance to consumers or certain smaller businesses that benefit from access to the Financial Ombudsman Service. Restrictions would also apply to areas including compulsory insurance, employee benefits and life insurance. These limitations are fundamental to the FCA’s approach. The lighter regulatory framework is possible precisely because the permitted business of a captive would be tightly controlled.
A materially different conduct regime
Perhaps the most striking aspect of CP26/29 is the extent to which the FCA proposes disapplying requirements that ordinarily form a significant part of an insurer’s compliance framework. The Consumer Duty would not apply. The FCA also proposes that ICOBS, CASS and DISP would not apply, while the insurance product governance requirements in PROD 4 would not apply to contracts effected by captive insurers. The Training and Competence sourcebook would similarly not apply. This is a significant departure from the regulatory framework applicable to conventional insurers, but it follows logically from the restrictions on the business that captives would be permitted to undertake. If a captive cannot directly insure consumers and other protected customers, applying a body of rules designed principally to protect those customers would add regulatory cost without necessarily addressing a corresponding risk. However, the proposed regime should not be viewed as light-touch regulation in the broader sense. The FCA would continue to expect captives to satisfy the Threshold Conditions, and important requirements relating to governance, systems and controls, risk management, conflicts of interest and individual accountability would remain. The practical compliance focus therefore shifts. Captives may face considerably fewer requirements around customer treatment and product governance, but the quality of their governance and operational arrangements will remain central to both authorisation and ongoing supervision.
Faster authorisation – but preparation will matter
The FCA and PRA are proposing a significantly streamlined authorisation process for captive insurers. For a complete application relating to permitted captive business, the regulators are proposing a determination period of approximately four to six weeks. For businesses accustomed to the timescales associated with regulated firm authorisations, this is likely to be one of the most attractive aspects of the proposed framework. The important qualification is “complete”. A shorter regulatory determination period does not remove the need to demonstrate that the business is ready to operate as a regulated insurer. Applicants will still need to demonstrate appropriate financial and non-financial resources, suitable governance, effective risk management, appropriate outsourcing arrangements and a viable business model. In practice, much of the work is therefore likely to take place before the application is submitted. Businesses considering the UK as a captive domicile should expect regulatory readiness, governance design and documentation to form an important part of the establishment process. Early engagement with the FCA and PRA is also likely to be valuable, particularly where the proposed structure, insured risks or outsourcing model is less straightforward.
Governance remains at the centre of the framework
The proposed governance arrangements are deliberately proportionate but retain clear individual accountability. The PRA proposes requiring at least one SMF1 Chief Executive on the captive insurer’s Board. The FCA does not propose introducing additional mandatory FCA Senior Management Functions solely because an entity is a captive. However, executive directors who are not otherwise approved through the PRA regime may require approval as SMF3 Executive Directors. Captives would also generally be expected to have at least one non-executive director, with the appropriate Board composition ultimately depending on the nature, scale and complexity of the business. This is an important feature of the proposed regime. The FCA is willing to reduce requirements where the underlying conduct risk is limited, but it is not proposing to dilute responsibility for the operation of the regulated entity. Corporate groups will therefore need to consider carefully who sits on the captive’s Board, who holds regulatory responsibility and whether those individuals have sufficient knowledge and capacity to exercise meaningful oversight.
Outsourcing is likely to be a key regulatory issue
For many prospective captives, one of the most important areas in CP26/29 is the FCA’s treatment of captive managers. Captives frequently operate with relatively lean internal resources and rely heavily on specialist captive managers for administration and other operational activities. The proposed regime accommodates that model, but the FCA makes clear that outsourcing does not transfer regulatory responsibility. The captive’s Board remains accountable. The FCA expects many captive management arrangements to constitute material outsourcing, meaning that firms will need appropriate due diligence, contractual protections, monitoring and oversight arrangements. This distinction is likely to matter in practice. A captive may outsource much of its day-to-day operation, but it cannot outsource its regulatory accountability. Boards will need sufficient information and expertise to challenge the captive manager, understand the risks facing the business and demonstrate that outsourced services are being appropriately supervised. For groups assessing whether to establish a UK captive, the operating model should therefore be considered alongside the legal and regulatory structure from the outset. A nominal Board overseeing a largely outsourced operation without meaningful challenge or management information is unlikely to meet regulatory expectations.
A lighter reporting framework
The FCA also proposes reducing routine regulatory reporting. Captive insurers would not be subject to the regular FCA reporting requirements under SUP 16 that apply to conventional insurers. Instead, the FCA intends to rely primarily on event-driven notifications under SUP 15, supplemented by certain captive-specific notifications. This should reduce the ongoing administrative burden considerably. It also places greater importance on firms understanding when regulatory engagement is required. A lighter reporting calendar does not mean less responsibility for identifying and escalating material developments. Captives will need effective processes for recognising circumstances that trigger notification obligations and ensuring that the FCA is informed appropriately.
Will the proposals make the UK an attractive captive domicile?
That will depend on more than the FCA Handbook. Capital and tax treatment, access to experienced advisers, regulatory predictability and overall operating costs will all influence where groups establish captives. However, CP26/29 addresses a key potential barrier by proposing a regime proportionate to the risks captives actually present, rather than applying requirements designed for conventional insurers. The proposed £2,820 FCA application fee and £600 annual periodic fee support this approach. Although regulatory fees are only one part of the overall cost, they indicate an intention to keep the FCA burden proportionate. The proposals may therefore encourage groups with overseas captives to reconsider the UK, while making captive insurance more viable for businesses that have previously decided against establishing one.
What should firms be considering now?
Although the regime remains under consultation, interested businesses can begin assessing whether a UK captive would be suitable. This should include the risks to be insured, whether they fall within the permitted business, the expected scale and whether insurance would be written directly or through reinsurance. Governance and the operating model should also be considered early, including potential Board and Senior Manager candidates, access to appropriate insurance expertise and, where a captive manager is used, clear responsibilities and effective Board oversight. Existing captive owners should consider not only cost, but whether relocating to the UK could provide benefits through closer governance, simpler group oversight and better alignment with wider risk management arrangements.
Next steps
The consultation closes on 14 October 2026, with the FCA and PRA expecting the new framework to be implemented in mid-2027. The initial regime focuses on pure captives, with more complex structures, including protected cell companies, expected to be considered separately. CP26/29 represents a significant shift towards regulating captives according to the risks of their specific business model. If implemented broadly as proposed, it could remove an important regulatory barrier to establishing captives in the UK. Whether the UK becomes a major captive domicile will ultimately depend on the wider legal, prudential and commercial environment.
How Complyport can help?
- Regulatory Readiness and Authorisation: We can assess proposed captive structures against FCA requirements and support firms through regulatory readiness and the authorisation process, including preparation of key policies, procedures and supporting documentation.
- Governance and SM&CR: We can help establish proportionate governance arrangements, including Board responsibilities, Senior Manager accountability, Statements of Responsibilities and wider SM&CR requirements.
- Outsourcing and Captive Manager Oversight: Where captive managers or other third parties perform key functions, we can review outsourcing arrangements, due diligence, contractual controls, management information and ongoing Board oversight.
- Ongoing Compliance Support: Following authorisation, we can provide ongoing compliance monitoring, regulatory advice and support with FCA notification requirements, helping firms maintain effective systems and controls as the captive develops.
Contact Us
To understand how these changes may impact your business, or to discuss how Complyport can streamline your compliance with the new Companies House requirements, get in touch to arrange a meeting with one of our Subject Matter Experts.
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