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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EIOPA Conference: The Main Themes

Three of the themes that EIOPA sees as its priorities were covered at its annual conference on 20 November. All of the topics were the subject of frank and spirited debate, with a range of different views being represented in the panel discussions.

EIOPA should be commended for encouraging views that were contrary to its own to be expressed, an approach which made for a worthwhile and balanced discussion of the topics.

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EIOPA issues second warning about the impact of Brexit on insurance contracts

EIOPA has published an opinion and FAQs emphasising the need for insurers and insurance intermediaries to explain to policyholders how Brexit will affect their insurance cover.

At first sight, EIOPA’s comments appear to reinforce concerns that political compromise cannot be expected on policies written (or performed) on a cross-border basis before the UK’s withdrawal from the EU (so-called “legacy contracts”). The particular issue for UK insurers is whether they will have the authorisation they need, post-Brexit, to continue to meet their obligations to EEA policyholders under these contracts. Closer examination of the words used by EIOPA may, however, mean that fewer policies are caught by this issue than has been assumed to date.

Our discussion of EIOPA’s latest opinion can be found here.

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Solvency II trilogue discussions conclude – so what happens now?

Earlier today, it was announced that yesterday’s trilogue discussions on the Omnibus II Directive (Omnibus II) had finished in agreement.  The announcement puts to rest recent uncertainty about the future of the Solvency II Directive and sets in train a timetable bringing the new regime into force from the beginning of 2016.

Of more immediate concern, a consultation paper issued by the PRA (CP9/13) in October describes its approach to guidelines published by the European Insurance and Occupational Pensions Authority (EIOPA) that address Member State preparations for Solvency II (theGuidelines).

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Solvency II – “an object lesson in how not to make law”?

Andrew Tyrie MP (Chairman of the Treasury Committee) recently described Solvency II as “an object lesson in how not to make law”.  In similar vein, Andrew Bailey of the PRA has said that Solvency II is “lost in detail” and “vastly expensive”.

Draft Guidelines issued by EIOPA in March aim to restore credibility to the Solvency II project and to reassure firms that vast sums spent by them in preparing for the new regime have not been wasted. However the introduction of compulsory reporting and ORSA requirements while Pillar 1 negotiations remain unresolved is controversial. Because the Guidelines have no legal force, there is also a danger that they will fail to secure a “consistent and convergent approach” to preparation for Solvency II. The Guidelines are open for consultation until 19 June.

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