On Jun. 9, 2025, RSA CB issued directive D2-2025 to banks on matters related to the capital treatment of significant investments in insurance entities.
Directs banks, branches of foreign institutions and controlling companies as well as auditors of banks of the capital treatment of investments in insurance businesses.
Specifies how limited recognition framework must be applied in prescribed instances.
Banks must comply with requirements specified in directive on or before Jul. 31, 2025.
On Apr. 11, RSA CB issued proposed directive on capital treatment.
RSA CB issued draft directive on capital treatment of investments in insurance entities.
Proposed directive issued to all banks, controlling companies, branches of foreign institutions, eligible institutions and auditors of banks or controlling companies.
Capital Resources
Important that capital structures of banks with investments in insurance entities, capital resources of respective bank and insurance entities be appropriately separated.
Basel Committee on Banking Supervision (BCBS) gave effect to this by prescribing that investments in insurance entities and/or subsidiaries, among other entities, be outside the scope of regulatory consolidation for consolidated reporting purposes.
Proposed directive specifies manner in which the limited recognition framework provided for in regulations 38, Regulations relating to Banks must be applied by banks with significant investments in insurance entities.
Where the bank owns more than 10% of the issued common share capital or where the entity is an affiliate as envisaged in regulation 38(5)(b)(i), Regulations re banks.
Proposed Directive
A bank shall not apply the threshold deduction method to investments in insurance entities or businesses without the prior written approval of Prudential Authority (PA).
A bank shall not include any post-acquisition reserves related to insurance investments, subsidiaries and cell captive arrangements outside scope of regulatory consolidation in either the bank solo or group consolidated capital.
A bank shall apply threshold deduction method to value of initial investment, with such initial investment being held at historic cost to prevent banking groups from including any insurer's post-acquisition reserves in their CET1 capital.
Banks with investments in insurance businesses, cell captive arrangements may adjust value of initial investment where an impairment is raised against such an investment in order not to hold capital on an initial value subsequently adjusted downwards.
Banks may also adjust value of initial investment when share capital is adjusted permanently in the form of recapitalizations and / or share buy-backs, for example.
A bank shall report variations to the value of the initial investment to PA biannually.
Banking groups may include distributions such as actual dividends declared in their qualifying CET1 capital and reserve funds from such insurance businesses once declared by the insurers' board of directors or related governance structures.
Banks not in compliance with directive at the date of issuance may approach PA, to bilaterally agree on a transition period (that is not longer than 12 months) in terms of the derecognition of post-acquisition reserves currently included in CET1 capital.
Effectiveness
Comments on proposed directive must by submitted to RSA CB by May 17, 2023.
Jun. 2025 Final Directive
On Jun. 9, 2025, RSA CB issued directive D2-2025 to banks on matters related to the capital treatment of significant investments in insurance entities.
Directs banks, branches of foreign institutions and controlling companies as well as auditors of banks of the capital treatment of investments in insurance businesses.
Specifies how limited recognition framework must be applied in prescribed instances.
Banks must comply with requirements specified in directive on or before Jul. 31, 2025.
