Monday, February 26, 2024

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Missing cell legislation a major shortcoming for Dublin, Solvency II a hurdle

One of Dublin’s largest shortcomings as a domicile is its lack of cell company legislation, according to Mike Matthews, international commercial director at Artex Risk Solutions.

Malta is the only European Union captive domicile that has protected cell company (PCC) legislation in place, with cells proving a huge growth area for captive business in multiple jurisdictions over the past five years.

More broadly in Europe, Guernsey, Gibraltar and the Isle of Man all facilitate cell business, with Guernsey particularly popular. Further afield, Bermuda and the Cayman Islands have comparable cell company facilities, while multiple states in America offer sponsored captives, cells and LLC structures.

 “I think one of the big failings in Dublin, and lots of commentators have touched this over the years, is the lack of protected cell legislation in Ireland,” he told Captive Intelligence.

He said the main challenge for introducing cell legislation in the jurisdiction is linked to Solvency II mechanics, “especially where core assets can be exposed, unlike other domiciles where they typically do not have access to core funds”.

“For a PCC cell to meet the Solvency II minimum capital requirements, it still needs to be able to leverage that core capital, so that it does not need to have the minimum level of capital itself,” Matthews said.

“As such, I can see why it has to have access to the core, but that does not work for a lot of PCC sponsors.”

He said he is seeing a “huge uptick” in clients looking to use PCCs, segregated accounts, and other rent-a-captive solutions, as a way of funding risk instead of going down the single parent route.

“They are easier to get through their own internal governance structures, because unlike creating your own wholly owned subsidiary, it’s not the same process as the client is not going to the board looking for high capital allocation,” he said.

Matthews said creating a cell is a more “streamlined process” for many sponsors, as well as being more flexible when a client wants to stop using it as there is not a subsidiary that requires liquidating.

“A client can simply clean the balance sheet and just surrender that licence.”

He also highlighted the cost savings of utilising a cell over other captive structures.

“The cost of running a cell captive is much less as a client has got the economies of scale because they are within an entity that has multiple cells with its facility costs spread across all of them,” he added.

After early success, captive formations in Ireland have stagnated in recent years.

Captive Intelligence published a long read last week detailing some optimism that potential regulatory procedure changes at the Central Bank of Ireland (CBI) could help reignite captive interest in the jurisdiction.

A source close to the CBI told Captive Intelligence that they work in a “reactive” manner when it comes to requests from the industry, and no business has approached the regulator in recent years with a PCC business plan or proposal.

“Having said that, it is not in legislation, so maybe they think it will be a very quick answer,” the source, speaking under the condition of anonymity, said.