The UK’s prudential regulator has fined Barents Reinsurance for failing to adequately prepare for Brexit.
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The Prudential Regulation Authority (PRA) announced the £1.79 million fine yesterday, saying Barents failed to organise and control its affairs responsibly and effectively, as well as noting governance and regulatory reporting failures.
Luxembourg-based Barents, which is currently winding down its UK operations, began its UK operations in 2017 through a local branch under EU passporting arrangements. After the UK’s withdrawal from the bloc, EU firms could continue their activities for a limited period under the Temporary Permissions Regime (TPR).
Despite operating under the TPR from December 2020 and being notified of requirements beforehand, the PRA said that Barents failed to align with the PRA’s rulebook in several ways between 2021 and 2023. This included Barents having “no formal governance” within the UK, despite it bringing in approximately 70% of the group’s business, with its governance coming from its executive committee in Luxembourg.
Barents also failed to finalise a business continuity plan despite it being flagged in a previous audit report in 2018, failed to submit a regular supervisory report until being reminded by the PRA, and did not implement a regulatory reporting procedure until September 2023, the regulator said.
The firm’s own audit showed some implementation of enhanced controls but flagged weaknesses in controls as well as cases where risk mitigation was inadequate or lacking across several business lines and functions. “Such matters had a direct read across and impact on the firm’s ability to organise and control its affairs responsibly and effectively,” the PRA said.
Barents’ cooperation throughout the investigation, including the early admission of failures, as well as agreeing to resolve the matter, saw the fine reduced by a total of 45% from what would otherwise have been £2,550,000.
The penalty marks the first time the PRA has taken action against a firm operating exclusively as a reinsurer. It said Barents has sought to remediate the weaknesses identified and has incurred “substantive” remediation costs to date.
Barents fell “materially short” of its obligations to comply with the PRA rules applicable to third country branches once subject to the UK regulatory framework, said PRA director of insurance supervision Shoib Khan.
“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. “Third country branches operating in the UK should therefore ensure that they fully engage and comply with the UK regulatory framework.”