On 20 December 2017, the Treasury, PRA and FCA clarified their approach to EEA-headquartered financial services firms wishing to carry on business in the UK post-Brexit. More recent evidence to the House of Commons Treasury Committee (“TC”) sheds further light on the PRA’s thinking. It also highlights the difficulty for the PRA of giving guidance to firms while so much uncertainty surrounds the UK’s future relationship with the EU.
- Together, the PRA’s papers and comments provide firms with a greater understanding of how the PRA expects incoming EEA firms to plan for Brexit.
- Comments made to the TC also recognise the additional costs associated with establishing and maintaining a UK subsidiary as compared to operating through a branch here.
- The PRA’s proposed requirements for firms to subsidiarise are, nonetheless, worrying. In particular, applying a test based on the amount of a firm’s FSCS-protected business appears to us to be flawed.
- It is not clear whether the PRA’s comments relate to both new and in-force business. For a non-life insurer, in particular, a requirement to transfer all of its in-force business (much of which will have a duration of less than a year) to a newly-established subsidiary would result in considerable unnecessary expense.
- The PRA’s approach makes a number of assumptions that may turn out to be incorrect. In particular, Sam Woods (CEO, PRA) warns that, if there is no cooperation between the remaining EU states and the UK post-Brexit, “we are not in the business of allowing branches, and firms would have to subsidiarise”. This leaves firms unclear whether the approach being taken by the PRA today will change again in the lead-up to Brexit.
- EEA insurers that do business in the UK on a services-only basis are not covered by the PRA’s comments. The difference between the EU law approach to the requirement for a services passport and the UK approach to “non-admitted” business means that some EEA insurers should not need PRA authorisation for their coverage of UK risks post-Brexit.
The deadline for responses to CP30/17 is 27 February 2018. In the meantime, firms affected by the PRA’s proposals should, if they have not already done so, begin to plan for obtaining authorisation for their activities in the UK.
The PRA is consulting separately on its approach to banks (see CP29/17).