The FCA's Proposed UK Captive Insurance Regime: What CP26/29 Means for Firms

On 14 July 2026 the Financial Conduct Authority (FCA) published CP26/29: A tailored regime for captive insurance, proposing a bespoke conduct framework for single-parent captive insurers in the United Kingdom. These are proposals, not final rules. The consultation closes on Wednesday 14 October 2026 and the FCA expects implementation in mid-2027, once both regulators have published their final rules and policies. The paper was published alongside the Prudential Regulation Authority's CP11/26, which covers the prudential framework. The two papers are designed to be read together.

The proposals matter to a narrower group than the coverage suggests. There are currently no captive insurers established in the UK, so this is not a change landing on an existing regulated population. It is relevant to corporate groups considering establishing or relocating a captive here, to captive managers and insurance intermediaries within FCA-authorised broking groups, and to insurers and reinsurers exploring fronting arrangements or reinsuring captive business. For those firms, the proposals set out both the price of entry and the compliance obligations that would follow authorisation.

What Is the FCA Proposing for UK Captive Insurers?

Captive insurance is a form of self-insurance in which a business establishes a regulated insurance subsidiary to finance risks within its own group, paying premiums to that subsidiary rather than to a third-party insurer. The FCA's paper covers conduct matters only. The definition of a captive insurer, the permitted lines of business and the prudential and governance framework sit substantially in PRA CP11/26, and the FCA cross-refers rather than duplicating them.

The commercial context is set out in the consultation. The FCA cites global captive premiums of $69 billion in 2021, projected to reach $161 billion by 2030, and notes that the UK insurance sector contributes over £37 billion to UK gross domestic product each year. Responses to HM Treasury's November 2024 consultation suggested that between 650 and 850 organisations might consider establishing a UK captive, with between 300 and 500 UK-operating businesses already running captives in offshore domiciles such as Guernsey and the Isle of Man. The FCA also cites a 2026 survey by the industry body Airmic in which 58% of respondents said they would consider forming a new UK captive or moving an existing captive to the UK, while noting that only some of that stated interest is likely to materialise.

A single type of captive, with hard limits on who it can insure

The regulators propose a single category of captive able to write business on both a direct and a reinsurance basis, rather than separate direct and reinsurance captives. The scope is deliberately confined to single-parent captives, also known as pure captives, which insure or reinsure the risks of their own group and parties connected to it. Group and association captives are not in scope, and neither are protected cell companies, which the regulators intend to consult on separately once the necessary legislation is in place. No date has been given for that.

The proposed restrictions are the foundation of the whole regime. On a direct basis, captives would not be permitted to enter contracts with, or cover, individuals or entities eligible to refer complaints to the Financial Ombudsman Service (FOS). The consultation identifies three categories in particular:

1. consumers;

2. small and medium-sized enterprises that fall outside the Handbook definition of large commercial customers; and

3. policy stakeholders as defined in the FCA Handbook glossary, including leaseholders under a multi-occupancy building insurance policy.

   
   

Table 1 of the consultation summarises the position across each line of business. Compulsory lines, employee benefits, corporate risks with named individuals and material non-group undertakings below the £1 million turnover threshold would be closed to captives on a direct basis but generally open on a reinsurance basis. Life insurance, other than defined employee benefits, would be closed on both bases. Other non-life corporate risks would be open on both.

Two points deserve care here. The FCA notes in Table 1 that it anticipates the limitation will also include the policy stakeholder restriction, wording that suggests this is not yet settled. And the interaction between the £1 million turnover figure, the Financial Services Compensation Scheme threshold and the FOS eligibility test is explained in the PRA's paper rather than the FCA's, so firms assessing their own structures should read PRA CP11/26 Chapter 3 directly.

A streamlined authorisation route, with conditions attached

The regulators are proposing to determine complete applications within four to six weeks of receipt. That is a significant commitment by the standards of insurance authorisation, but the consultation is explicit that it is conditional. The FCA states that the timeframe can only be met where applications are complete and of requisite quality, and where the applicant is ready, willing and organised to conduct regulated activities at the point of application. Gaps or material issues will delay assessment.

The same conditionality applies to individuals. Applicants for Senior Management Function roles are told to gather regulatory references and background checks before applying, because issues with these will hold up the authorisation as a whole. The FCA encourages early engagement with FCA Authorisations and the PRA before an application is submitted.

Captive insurers would be dual-regulated firms holding permission to effect and carry out contracts of insurance as principal. Applicants would need to demonstrate that they meet the threshold conditions covering effective supervision, appropriate resources, suitability and business model, assessed against the nature, scale and activities of a captive rather than those of a conventional insurer.

Which Handbook rules would apply, and which would be switched off

The FCA's general approach is that the high-level standards applying to conventional insurers would also apply to captives, unless specifically disapplied or modified. The disapplications are targeted at retail-facing requirements, on the basis that the customers of a captive are part of, or closely connected to, the owning group.

Under the proposals, the following would not apply:

• PRIN 12, the Consumer Duty, and PRIN 10 on client assets except where a captive holds them;

• ICOBS and CASS, including the customer's best interests rule;

• DISP and COMP, reflecting the exclusion of FOS-eligible complainants from direct business;

• PROD 4, in relation to products used to effect a contract of insurance by a captive;

• the Training and Competence sourcebook;

• SUP 16, the regular reporting requirements applying to general insurance and life firms; and

• INSPRU and MIPRU, as PRA prudential regulation would apply instead.

  
  

The requirements that remain are more significant than the list of disapplications might imply. COND, FIT, SYSC and most of the Principles for Business would continue to apply. COCON would apply, though the FCA considers individual conduct rules four and six, and those relating to the Consumer Duty, would not be relevant. SYSC 13 on operational risk systems and controls and SYSC 14 on risk management for insurers would apply in full, with relevant parts of SYSC 2, 3, 10, 18 and 28 also applying, and SYSC 22 to 24 applying in connection with the senior management function.

Governance reduced to a single senior management function

The FCA is not proposing additional requirements beyond the PRA's governance model, which it summarises in Chapter 3. That model centres on one Senior Management Function, an SMF1, on the captive's board, accountable for the responsibilities inherent in or allocated to the role and accountable to both regulators. All other PRA functions would be disapplied. The board would need at least one non-executive director, with an expectation of an independent non-executive depending on size and complexity, and captives would be expected to propose contingency plans should the SMF1 be unable to continue.

Notably, an employee of a captive manager may hold the SMF1 role, provided they meet the fitness and propriety test and conflicts of interest are appropriately managed. The FCA does not propose to mandate additional FCA senior management functions. However, in line with its approach to Insurance Special Purpose Vehicles, executive directors other than those approved by the PRA as PRA SMFs would need pre-approval as SMF3s.

The draft Handbook text also contains helpful guidance on proportionality. At draft SYSC 3.5.10G the FCA states that it would generally not expect a captive to have the nature, scale and complexity to require a separate compliance function, an internal audit function or audit committee, a risk assessment function or risk management committee, or a chief risk officer.

Captive managers and the proposed SYSC 3.5 requirements

This is the part of the consultation that will generate the most work in practice, and the part most likely to be overlooked. Captive management is not a regulated activity under the Regulated Activities Order, so captive managers do not need authorisation unless they carry on other regulated activities. But the captive itself would remain fully responsible for outsourced activities, and the FCA proposes a new SYSC 3.5 setting out what that responsibility involves.

Draft SYSC 3.5.5R would require a captive to exercise due skill, care and diligence in appointing a captive manager, satisfying itself as to the manager's expertise, capacity, permissions, systems and governance, and its own ability to manage conflicts and take corrective action. Draft SYSC 3.5.6R then prescribes minimum content for the management agreement itself, including a detailed list of the functions the manager will exercise, arrangements for whistleblowing, record keeping, conflicts management, controls over sub-delegation, and a requirement that the manager engage directly and cooperatively with the FCA. The draft also provides that the FCA would have an express right to enforce certain provisions of that contract, and that those provisions could not be varied or rescinded without FCA consent.

Alongside this, draft SUP 15.8 would require notification of changes to captive manager arrangements, including new appointments, terminations, significant changes to the management agreement and changes to the manager's details, with a copy of the agreement to be supplied.

Supervision and fees

The FCA proposes a primarily reactive supervisory model, relying on SUP 15 notifications for material events and key changes rather than annual reporting. On fees, the FCA proposes a Category 4 application fee, currently £2,820, and a flat annual periodic fee of £600, with captives added to the A.3 fee block. The cost benefit analysis puts combined FCA and PRA application fees at £7,820 and combined annual fees at £1,630 per captive, alongside estimated management fees of £40,000 a year and legal, accounting and actuarial costs of £10,000 a year for a newly established captive.

Key Themes Behind the Proposals

Three themes run through the paper and are worth drawing out:

1. The first is that proportionality is conditional, not automatic. The relief from retail conduct rules exists because the permission boundary keeps consumers, FOS-eligible SMEs and policy stakeholders out of directly written business. The FCA states expressly that the tailored requirements apply only to activities conducted within the scope of a firm's permissions, and that captives operating outside those permissions may face regulatory intervention. A captive that drifts outside its permitted lines of business would lose the basis on which the concessions rest.

   
   

2. The second is that speed depends on preparation. The four to six week commitment is real but is repeatedly qualified. In our experience of FCA authorisation applications more generally, the causes of delay are consistent: incomplete regulatory business plans, governance arrangements that are described rather than evidenced, and senior manager applications submitted before references and checks are in hand.

   
   

3. The third is that the compliance burden has moved rather than disappeared. Firms reading the list of disapplied sourcebooks may conclude that the ongoing obligations are minimal. The obligations that remain are concentrated in governance, systems and controls, the outsourcing relationship with the captive manager and the SUP 15 notification regime, and the draft rules on the management agreement are more prescriptive than the outsourcing requirements most firms are used to.

What Should Firms Do Now

The immediate task for most readers is assessment rather than implementation, and the steps below should be scaled to how far a firm has progressed in its thinking. Nothing in CP26/29 requires an existing regulated firm to change its arrangements today.

For corporate groups considering a UK captive, we would suggest the following:

• Test the proposed scope against the risks you would want the captive to write, paying particular attention to whether any intended cover would touch consumers, FOS-eligible SMEs or policy stakeholders on a direct basis.

• Read PRA CP11/26 alongside the FCA paper, since the definition, the permitted lines of business and the prudential requirements sit there.

• Consider the governance model early, including who would hold the SMF1 role, whether that person would be a group employee or a captive manager employee, and how conflicts would be identified and managed in the latter case.

• Identify a non-executive director and consider whether the size and complexity of the captive would attract the expectation of an independent non-executive.

• Plan the application on the assumption that completeness determines timing, and engage with FCA Authorisations and the PRA before submission.

  
  

For captive managers, intermediaries and insurers already in the chain, the more useful steps are:

• Review standard management agreement templates against the draft minimum terms in SYSC 3.5.6R, particularly the provisions on sub-delegation, FCA access and the proposed FCA enforcement right.

• Consider whether captive management services would be provided through an existing authorised entity or a separate unregulated subsidiary, and if the latter, how you would ensure it does not carry on activities requiring authorisation.

• Assess where a fronting or reinsurance relationship with a UK captive would sit within your existing risk and conduct frameworks.

  
  

Firms with a view on the proposals should also consider responding to the consultation before 14 October 2026. Responses can be submitted through the FCA's website or to captives@fca.org.uk. Consultation responses are one of the few points at which the design of a new regime can still be influenced, and the FCA has invited feedback on all eight questions in the paper.

Frequently Asked Questions

Does the Consumer Duty apply to captive insurers?

Under the FCA's proposals, no. CP26/29 states that PRIN 12, the Consumer Duty, would not apply to captive insurers, on the basis that the entities a captive insures are part of, or closely connected to, the owning group. This is a proposal and not a final rule. Most other Principles for Business would continue to apply.

Who can a UK captive insurer insure under the proposals?

A captive would be limited to insuring or reinsuring the risks of its group entities and parties connected to the group. On a direct basis it could not enter contracts with, or cover, consumers, SMEs eligible to refer complaints to the Financial Ombudsman Service, or policy stakeholders such as leaseholders under a multi-occupancy building insurance policy. Several categories closed on a direct basis, including compulsory lines and employee benefits, would remain open on a reinsurance basis. The full position is set out in Table 1 of CP26/29 and in PRA CP11/26.

How long would FCA authorisation take for a captive insurer?

The regulators propose to determine complete applications within four to six weeks. That commitment is conditional on the application being complete and of requisite quality, and on the applicant being ready, willing and organised to conduct regulated activities at the point of application. Senior manager applications with outstanding references or background checks would delay the whole authorisation.

Do captive managers need to be authorised by the FCA?

Captive management is not a specific regulated activity under the Regulated Activities Order, so a captive manager does not need authorisation unless it carries on regulated activities requiring authorisation under the Financial Services and Markets Act 2000. The captive insurer would remain responsible for outsourced activities, and the FCA proposes prescriptive minimum terms for the management agreement between the two.

When would the UK captive insurance regime come into force?

The consultation closes on 14 October 2026 and the FCA expects implementation in mid-2027, after both regulators publish final rules and policies. An extension of the regime to protected cell companies is intended at a later stage, once the necessary legislation is in place, but no date has been given for that.

How Compliance Angle Can Help

The most immediate support need arising from CP26/29 is authorisation. We provide FCA authorisation and application support to firms preparing applications, including regulatory business plans, threshold conditions evidence and the supporting documentation that determines whether an application is treated as complete. Given that the proposed four to six week timeline depends entirely on completeness and quality, preparation before submission is where the value sits.

We also assist with governance and SM&CR arrangements, which for a captive would centre on the single SMF1 model, the fitness and propriety position where that individual is employed by a captive manager, and the conflicts arrangements that would need to sit around it. Where firms need proportionate systems and controls documentation, we support policy and procedure development scaled to the draft SYSC expectations rather than to a conventional insurer's framework.

For firms already in the captive chain, whether as managers, intermediaries or fronting insurers, a compliance gap analysis or regulatory health check is often the proportionate response at this stage, focused on management agreement terms and outsourcing oversight rather than on wider framework change. We also provide Board and Senior Manager advisory support for firms weighing whether a UK captive is the right structure and what the regulatory commitment would involve.

Our support is practical and proportionate to a firm's business model, permissions,

size and regulatory risk. We do not recommend framework overhauls where a targeted review is sufficient. If you would like to discuss what CP26/29 would mean for your firm, or you are considering responding to the consultation before 14 October 2026, please contact us at info@complianceangle.co.uk.

Source: Financial Conduct Authority, CP26/29: A tailored regime for captive insurance, published 14 July 2026, alongside Prudential Regulation Authority CP11/26. The consultation closes on 14 October 2026.