Regulators extend transitional direction powers in line with Brexit delay

The FCA, Bank of England (“BoE”) and PRA yesterday announced measures to extend certain UK-specific Brexit transitional relief provisions for a further six months until 31 December 2020, in line with the extension of Exit Day until 31 October. This is generally in line with industry expectations and does not signal any material changes to the regulators’ policy or approach. (It should be noted that these timelines are separate from the 3-year maximum period applicable under the (separate) Temporary Permissions Regime (“TPR”), which remains unchanged in terms of overall maximum duration).

The FCA has issued a statement confirming its intention to extend the proposed duration of the directions issued under its temporary transitional power (“TTP”) to 31 December 2020, reflecting the six-month extension of Article 50. The TTP is intended to minimise disruption for firms and other regulated entities if the UK leaves the EU without a withdrawal agreement. For those areas covered by the TTP, firms do not generally need to prepare now to meet the changes to their UK regulatory obligations that are connected to Brexit.

The FCA’s statement clarifies that, other than the additional time, the FCA’s approach to the use of the TTP remains unchanged from that previously communicated. Firms are reminded, in particular, that certain obligations will not be covered by the TTP: these include some significant areas such as reporting under EMIR and the MiFID II transaction reporting regime, which will present particular challenges for EEA firms operating in the EEA under the TPR. The FCA reiterates that it expects TPR firms to use the additional time between now and the end of October to prepare to meet these obligations and confirms that it will publish further information before exit day on how firms should comply with post-exit rules.

The PRA and BoE have published a related consultation paper, which provides an update on the BoE and PRA’s approach to the TTP. The consultation also briefly explains and consults on the proposals to amend further certain regulatory requirements to take account of changes to EU law taking effect between March and October 2019. On use of the TTP, the PRA and BoE confirm, consistent with the FCA, that the proposed adjusted fixed end date for the TTP directions will be 31 December 2020, and that the overall approach to use of the TTP remains generally unchanged from the approach previously outlined by the PRA and BoE.

PRA-regulated firms within the scope of the TPR are reminded that ,for the most part, the TTP will not apply to obligations arising in consequence of their status change upon entering the TPR. The PRA and BoE are also consulting on proposals to fix deficiencies arising from the UK’s withdrawal from the EU and to make consequential changes in light of the extension to the Article 50 period (in order to deal with EU binding technical standards (“BTS”) entering into force between March and October 2019). The PRA does not expect material changes to be required to address this. Changes required to take account of EU laws and regulations other than BTS remain the responsibility of HM Treasury, which is separately engaged on this exercise.

 

Katherine Dillon
Katherine Dillon
Of Counsel, London
+44 20 7466 2522
Alison Matthews
Alison Matthews
Consultant, London
+44 20 7466 2765

EU guidance on “no-deal” Brexit suggests increased risk Hague Convention on Choice of Court Agreements won’t apply to exclusive English jurisdiction clauses agreed pre-Brexit

The post below was first published on our Litigation blog.

As we have previously noted, there is some uncertainty over whether, following a “no-deal” Brexit, EU27 countries will apply the 2005 Hague Convention on Choice of Court Agreements where an exclusive English jurisdiction clause was agreed before exit day. This is sometimes referred to as the change of status risk, and it arises because the Convention applies only to exclusive jurisdiction clauses agreed after the Convention came into force for the chosen state. The UK is currently a party to the Convention by virtue of its EU membership, but that will cease on exit day and the UK will then re-join in its own right. As things currently stand, following the recent delays to Brexit and the UK’s resultant suspension of its accession to the Convention, the UK will re-join with effect from 1 November 2019.

The question therefore is whether EU27 countries will treat the Convention as having been in force for the UK since 1 October 2015, when the Convention came into force for the EU generally, or only from when it re-joins on 1 November. In the latter case, the Convention will not apply to exclusive English jurisdiction clauses agreed before that date, and therefore the recognition of such clauses and the enforcement of resulting English judgments will be a matter for domestic law in each EU27 country. In those circumstances most (but not necessarily all) EU countries are likely to enforce English judgments in many circumstances, but the type of judgment enforced may be more limited and the procedures involved more time-consuming and costly.

The change of status risk appears to have been heightened by recent guidance issued by the European Commission concerning civil justice in the case of a “no-deal” Brexit. The guidance is not entirely clear, but it seems to suggest that the Commission’s view is that the Convention will not apply to exclusive English jurisdiction agreements concluded before exit day. This is not of course conclusive – it could be that national courts in the EU27, and ultimately the CJEU, will adopt a different interpretation. However, it is obviously unhelpful to parties who are entering into exclusive English jurisdiction clauses now, or have done so since 1 October 2015, and would wish to obtain the benefit of the Convention in the event of a “no-deal” Brexit.

We have updated our decision tree on enforcement of English judgments in the EU27 post-Brexit (which was first published on 26 March 2019) to reflect the recent delays to Brexit and the UK’s accession to the Hague Convention. Please click on the image below to access the document.

Brexit – Impact of Article 50 extension on the UK Temporary Permissions Regime

Following last week’s agreement between the UK and the EU to extend Article 50 until 31 October 2019, the FCA has confirmed that it will also extend the deadline for incoming EEA firms to enter the UK Temporary Permissions Regime (“TPR“) to 30 May 2019.  The FCA’s announcement only applies to firms for which the FCA is the “relevant regulator”, which includes insurance intermediaries.

If the Withdrawal Agreement can be ratified by 30 May 2019, the TPR will not come into force. This is because an implementation period would allow incoming EEA firms to continue their activities in (or into) the UK until the end of December 2020.

If no agreement is reached by the UK and the EU before the end of May, it is not clear whether the FCA will extend the window for notification to align with the Article 50 deadline of 31 October 2019.   The FCA has stated that it will continue to keep the TPR notification window under review, but it is unlikely that further detail will be provided until there is greater political clarity on if, when and how the UK will leave the EU.

In light of this uncertainty, any incoming EEA intermediaries who intend to rely on the TPR should proceed on the assumption that they will need to submit their notifications by the end of 30 May 2019.

The position for insurers is different.  The PRA has confirmed that “[the] deadline for a firm to notify the PRA that it wishes to enter the TPR has passed” and that it “does not intend to further extend the notification period”.

The period for notifications set out in the PRA’s Direction: ‘Temporary permission and variation: notification before exit day’ 7 November 2018 as amended by the PRA Direction – ‘Temporary permission and variation: notification before exit day (amendment) 28 March 2019) ended on 11 April 2019. The validity of notifications made by insurers before the deadline is not affected.

New decision tree on enforcement of English judgments in the EU27 post-Brexit

The post below was first published on our Litigation blog.

Amidst the ongoing uncertainties in relation to both the nature and timing of Brexit, we have published a new decision tree on enforcement of English judgments in the EU27 post-Brexit. It is intended to act as a quick reference guide to help determine which rules will apply to enforcement of a judgment post-Brexit – whether the current rules in the recast Brussels Regulation, or the 2005 Hague Convention on Choice of Court Agreements, or the local rules in each EU27 country. Please click on the image below to access the document.

 

Maura McIntosh
Maura McIntosh
Professional Support Consultant, London
+44 20 7466 2608
Anna Pertoldi
Anna Pertoldi
Partner, London
+44 20 7466 2399

 

FCA Brexit guidance – too little, too late?

With a month to go until the UK is due to leave the EU, FCA guidance published yesterday is too late for most UK insurers and intermediaries to change their plans.  Understandably, the FCA has waited for views to be expressed by EIOPA before commenting itself on the position for insurers and brokers.  It took until last week, though, for that EIOPA guidance to be published (see our previous comments).   The FCA’s guidance adds little, if anything, to what was said by EIOPA.  For brokers, in particular, the FCA acknowledges that this is “a complex area” and advises firms to contact local EEA regulators and seek legal advice.

Two FCA statements are directed at insurers and insurance intermediaries:

Some key points are set out below.  A warning about the advice issued by FCA is, however, that much of the following is a matter of individual EEA state discretion.  It cannot be assumed, therefore, that the approach advocated by the FCA (and by EIOPA) will be adopted in all jurisdictions.  As is often the case for Brexit-related questions, the answer depends on taking local advice in the relevant EEA state.

The FCA has followed up today with the publication of near-final rules and guidance that will apply if the UK leaves the EU without a deal (see FCA PS19/5).  The PRA has also published an update to firms on its plans for Brexit, including near final materials (see PRA PS5/19).  Feedback from both regulators includes further details on use of the temporary transition power, through which they aim to ensure that firms and other regulated entities do not generally need to prepare now to meet new UK regulatory obligations.  In most cases, firms will be given a period of 15 months to adapt to these changes.

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EIOPA issues Brexit advice – some good news for UK insurers and intermediaries?

Recommendations issued on Tuesday by EIOPA emphasise the importance of safeguarding policyholders in the event of a “no deal” Brexit.  Encouragement given to EEA states to help UK insurers meet their obligations to EEA policyholders is particularly welcome.

In some areas, EIOPA has provided explicit guidance on the approach it expects individual states to take.  For example, it is clear (and unsurprising) that UK insurers should not be allowed to write new contracts in the EEA without authorisation. In other areas, EIOPA has taken a “softer” approach.  Examples include that regulators:

  • should apply “a legal framework or mechanism to facilitate the orderly run-off” of business which becomes unauthorised as a consequence of Brexit; and
  • should not prejudice policyholders who have “an option or right in an existing insurance contract to realise their pension benefits“.

Overall, EIOPA’s announcement attempts to strike an appropriate balance, reflecting the considerable lobbying efforts by UK and EU27 trade bodies.  Its acknowledgement of individual state discretion in a number of key areas does, however, still leave uncertainty for UK firms planning for 29 March 2019.  There is also nothing in EIOPA’s recommendations that could not have been said many months (or even years) ago.  It is a pity that politics have prevented earlier publication of these recommendations, leaving industry to spend many millions on unnecessary legal advice and other contingency planning.

EIOPA has given national regulators 2 months to say if they comply with each recommendation, or explain non-compliance.

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Preparing for Brexit: EEA (re)insurers – UK Temporary Permissions Regime

The FCA portal for incoming EEA firms to notify the PRA and the FCA of their intention to enter the UK Temporary Permissions Regime (“TPR”) is now open.

The TPR will apply if the UK leaves the EU on 29 March 2019 without an implementation (transitional) period. It ensures that EEA firms currently operating under an incoming passport (either from a UK branch or on a cross-border services basis into the UK) can continue to carry out regulated activities in the UK until they receive new direct authorisation by the UK regulators.

This short “at a glance” guide contains an overview of how the TPR will apply to EEA (re)insurers and suggests some next steps.  Notifications must be submitted before 29 March 2019.

 

Brexit Final Political Declaration: Nothing [new] to see here?

The Political Declaration setting out the Framework for the Future Relationship between the EU and the UK was published earlier today.

On financial services (including insurance), the final declaration essentially contains the same three points as in last week’s outline political declaration (as discussed in our blog post of 15th November), although there is some limited further clarification.

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Brexit deal – what does it mean for insurers and insurance intermediaries?

Yesterday’s announcements on the terms agreed for the UK’s withdrawal from the EU say relatively little about the future framework for cross-border trade in goods or services.  More detail is expected on this next week.

The final deal remains subject to approval by the European Council, the EU Parliament and, crucially, the UK Parliament.  Nonetheless, yesterday’s agreement must have increased the chances of a transitional (or implementation) period for the UK’s withdrawal from the EU.  During that period, both (re)insurers and (re)insurance intermediaries would continue to benefit from the passporting rights that they currently hold, but ultimately stand to lose.

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Brexit – Deal on financial services may deliver little for insurance industry

Press reports over the past couple of days suggest that a deal struck by the UK government would “give UK financial services companies continued access to European markets after Brexit” and that “UK financial companies will be able to operate as they now do in Europe“.

There has not been any confirmation that a deal on services has in fact been reached. Rather, there have been denials. Any deal on services is also dependent on all other aspects of a withdrawal agreement and the new UK-EU relationship being agreed.

The press reports suggest that the EU may have agreed to accept that the UK regulatory regime is “equivalent” to EU standards (which will undoubtedly be true at the time of exit), and that the UK will be given greater certainty than other third countries that this acceptance will not be arbitrarily withdrawn. Michel Barnier has since suggested (in a tweet on 1 November) that this greater certainty for the UK as to withdrawal of equivalence may not be forthcoming.

Whether or not a deal has in fact been reached on services, it is important to recognise that securing “equivalence” does not mean that UK insurers and intermediaries can continue to carry on cross-border business as if they held passporting rights.

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