Insurance Regulatory eBulletin - Brexit

EC statement on a hard Brexit
On 19 July, the EC issued a statement on preparing for the withdrawal of the UK from the EU on 30 March 2019 calling on stakeholders to intensify preparations at all levels and encouraging all stakeholders affected by the UK’s withdrawal to take the necessary preparation actions now. It notes that the EU is working hard to reach an agreement on an orderly withdrawal, but there is no certainty that an agreement will be reached. And even if an agreement is reached, the UK’s relationship with the EU will no longer be one of a Member State and thus, will be fundamentally different. All concerned need to be prepared for the withdrawal.

For financial services firms, passporting rights will cease to exist after withdrawal. The statement notes on the issue of contract certainty that post Brexit: “at this juncture, there does not appear to be an issue of a general nature linked to contract continuity as in principle, even after withdrawal, the performance of existing obligations can continue. However every type of contract needs to be looked at separately.”

EIOPA Brexit Opinion
On 28 June, EIOPA published an Opinion detailing the duty of insurance intermediaries and insurance undertakings to inform customers about the potential impact of the UK withdrawing from the EU. The Opinion notes that national supervisory authorities have a responsibility to ensure insurers take appropriate contingency measures in an effort to ensure the continuity of services for cross-border insurance contracts between the UK and Member States of the EU. 

Possible impacts identified by EIOPA include:

• change of the contractual counterparty following a transfer of insurance contracts to another insurance undertaking;
• continuity of services and validity of insurance contracts;
• change or loss of protection provided by any existing national compensation scheme due to the transfer of insurance contracts to an insurance undertaking located in another jurisdiction;
• tax implications of insurance contracts (e.g. insurance premium tax following the relocation of an entity to another jurisdiction);
• changes to the claims management procedure or to other customer services (e.g. following a change of domicile of an insurance undertaking);
• additional organisational arrangements to deal with customer inquiries related to the withdrawal of the UK from the EU (e.g. publication of FAQs for customers, contact details, helpline etc.);
• jurisdiction and contact details of the competent authority following a transfer of insurance contracts to another insurance undertaking or the relocation of an entity;
• change of the law applicable to the insurance contract.
The FCA’s approach to Brexit
On 19 July, Nausicaa Delfas, the FCA’s Executive Director of International, gave a speech setting out how the FCA are preparing for a smooth transition, what it expects from firms it regulates, and the FCA's future vision.

In preparing for a smooth transition, Ms Delfas notes that the FCA's starting assumption is that a transition or implementation period, from March 2019 to December 2020, will form part of the final agreement. However, the FCA has been working with the Bank of England and the Government to develop a number of safeguards and contingencies, in the event of a hard Brexit, to ensure a smooth exit. Ms Delfas also outlined some of the challenges the FCA face in achieving a smooth transition and in particular the potential ‘cliff edge’  risks caused by an abrupt loss of passporting particularly in relation to contract certainty.

The FCA has also undertaken work around the EU Withdrawal Act (EUWA), which will convert existing EU legislation into UK law after March 2019 to provide continuity and certainty after exit day. The EUWA also gives Ministers power to amend retained legislation, including references to the Commission or European Supervisory Authorities which will have no UK jurisdiction post-Brexit, by statutory instrument. The FCA has also undertaken work on the temporary permissions regime, which will allow European Economic Area firms and funds using a UK passport to continue to operate for a period of time.

The FCA is expecting firms to take responsibility for their own plans in preparation of Brexit and she highlighted:

• new structures put in place must still enable the FCA to supervise the UK business effectively and ensure that the threshold conditions are met;
• check that the supply chains to your business are prepared;
• where senior management are relocating, ensuring that appropriate senior oversight remains in the UK;
• continuity of service to customers as fully and fairly as the law permits, and communication with affected customers, in the UK and elsewhere, in a clear and timely fashion, including, for example, what regulatory protections will apply.

Ms Delfas then discussed the FCA's future vision. Following Brexit, the UK and EU will have equivalent regimes and their markets will remain highly integrated. The FCA believe promoting common global standards, alongside its work to onshore a rulebook that is equivalent to the EU post-Brexit, provides a solid basis for cross border business to take place. Ms Delfas concluded by stating the FCA, the Government, the Bank of England and FCA counterparts from around the world are working together to reach a good outcome. However, achieving a good outcome and a smooth transition requires energy and commitment from both industry and regulators.

The speech supplements the FCA’s statement on the FCA’s role in preparing for Brexit published on 27 June.
FCA webpage: preparing your firm for Brexit
On 19 July, the FCA published a Brexit webpage for solo regulated firms ‘Preparing your firm for Brexit’, aimed at helping firms to understand whether they will be affected by EU withdrawal, and if so, to:

• work out what changes might have to be made to a business, or which additional regulatory permissions  may be needed to continue to carry it out;
• think about any information needed to give to customers, in a way that is clear, fair and not misleading;
• consider the implications of a range of possible scenarios including an implementation period;
• discuss implications with the relevant EEA regulator, a trade association, and / or get independent legal advice.

The FCA encourage firms to regularly check the website for further information.

FCA update on the temporary permissions regime
On 24 July, 2018 the Government published the draft Statutory Instrument that will form the legislative basis of the temporary permissions regime for inbound passporting EEA firms and funds. At the same time the FCA provided an update setting out more detail on how the regime will operate including its initial views on the FCA rules they propose applying to firms while they are in the regime.

The temporary permissions regime will enable relevant EEA firms and funds which passport into the UK to continue operating in the UK for a limited period if the passporting regime falls away abruptly when the UK leaves the EU. The update also explains which firms and funds can use the temporary permissions regime and the process by which firms and funds will need to notify the FCA that they want to enter the regime and obtain a temporary permission.

There will be a formal consultation in Autumn 2018.