Sullivan Advises ITFA on Revised Guidelines for CRR Compliant Non-Payment Insurance Policies

(London) - International law firm Sullivan has advised ITFA (the International Trade and Forfaiting Association), on its recently published revised guidelines on the structure and content for Capital Requirements Regulation (CRR) compliant non-payment insurance policies.

Their publication follows significant market debate over the eligibility of insurance as a credit risk mitigant for CRR purposes, over the past year.

The drafting of the CRR left significant room for interpretation, and some financial authorities subsequently engaged in consultations to provide clarification, including the UK’s Prudential Regulation Authority (PRA) and the German Federal Financial Supervisory Authority (BaFin), in 2018.

Both financial regulatory bodies considered the issue of when insurance cover complies with the eligibility criteria relevant for "guarantees" as defined in the CRR, thereby enabling banks to reduce risk-weighted assets. The consultation process in 2018 provided an opportunity to better inform the regulator about the processes and practical use of the non-payment insurance product for trade and transaction banking.

Following the consultation process, the PRA modified its original view on several points in its revised Policy Statement (PS8/19) which was published in March 2019 and also clarified how the CRR should be understood and applied in order to achieve regulatory capital reduction through the use of insurance.

In light of these clarifications, ITFA reviewed its guidelines on the structure and content for CRR compliant non-payment insurance policies. ITFA members can view the revised guidelines on its website.

The most significant changes as a result of the PRA's clarifications can be seen in the amendments to the definitions of the waiting period; exclusions in insurance policies; and the PRA's revised guidance on the expression "clearly defined and incontrovertible."

The guidelines also now include an Annex providing some market-standard wording for certain clauses, including those relating to nuclear exclusions and sanctions.

The Sullivan team advising in relation to the revised guidelines was led by the Head of the UK Insurance and Disputes Practices, Marian Boyle, with Managing Associate Hannah Fearn in London.

About Sullivan

In 2019, Sullivan was named “Best Trade Finance Law Firm” 2019, by both leading trade finance publication Global Trade Review (GTR) at its annual Leaders in Trade Awards, held in May 2019, and Trade Finance Global (TFG) at their 2019 International Trade Finance Awards held in February.

Sullivan (formerly known as Sullivan & Worcester) represents clients that represent the future. From investment management, trade finance, taxation, real estate, including sophisticated REIT and opportunity zone structures, to blockchain ventures and complex business transactions and related disputes. Sullivan’s nearly 200 attorneys in Boston, London, New York, Tel Aviv and Washington, DC, guide organizations that are rewriting the rules.

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Contact:
Will Hulbert
+44 (0)1603 431 936
will@hulbertandco.com