Setback to private finance projects if FSA regulates special purpose vehicles
Private finance initiative (PFI) projects are being put in jeopardy because of regulatory concerns.
The special purpose vehicles (SPVs), which purchase insurance on behalf of parties involved in PFI projects, are believed to be carrying out regulated activities and will therefore have to apply for FSA authorisation.
One Lloyd's broker said: "The jury's still out with regard to whether SPVs will have to be regulated."
He added that if the FSA decided to regulate SPVs arranging insurance for PFI projects it would place a huge burden on insurance brokers.
"If they have to be regulated, it creates huge problems for us as we'd have to take them under our wing as they [SPVs] are not insurance professionals".
Cameron Smith, partner of law firm Ashurst, said that the funding for upcoming PFI projects could be withdrawn if the issue was not clarified soon.
"[Fund suppliers] may not be prepared to lend funds until this is clarified," he said.
Smith added that one PFI project had recently been delayed at the final stage because the issue of regulating SPVs arose.
The London Market Brokers' Committee recently wrote to the FSA to seek guidance on the issue.
In its response, the FSA said: "It seems likely that such SPV's [which arrange insurance on behalf of itself, its subcontractors and client] will be carrying on regulated activities."
But the issue is complicated by the fact the FSA states that SPVs are not to be regarded as carrying out insurance mediation activity unless the people involved are "pursuing the activity for remuneration".
Smith said: "For PFI deals currently being negotiated, it is suggested that project companies write to the FSA for guidance."