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

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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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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BREXIT UPDATE – EEA (RE)INSURERS

EEA insurers and reinsurers doing business in the UK under the insurance passport must prepare for the UK’s withdrawal from the EU. We consider, in our latest “At a Glance” guide, the impact of Brexit on the cross-border activities of EEA (re)insurers, including how firms might respond to the European Council’s recent agreement to a transition period.

The “At a Glance” guide can be found here.

PRA AND FCA CLARIFY IMPACT OF BREXIT TRANSITION FOR INSURANCE SECTOR

Recent announcements made by the PRA and FCA clarify their approach to Brexit following the European Council’s agreement to a transition period for the UK’s withdrawal from the EU. In particular, insurers, insurance intermediaries and other financial services firms have been encouraged to assume that they will continue to benefit from passporting rights until December 2020. Whilst this is a welcome development, firms cannot be complacent:

  • As “nothing is agreed until everything is agreed”, there can be no certainty about the transition period until all terms of the Withdrawal Agreement are approved, which will only come much later (if at all) in the Brexit negotiations.
  • Failing such agreement, the UK’s “temporary permission” regime will enable firms coming into the UK from other EEA jurisdictions to carry on business here while they obtain the PRA and FCA authorisations needed for those activities. UK firms with EEA operations seem unlikely, however, to benefit from a similar concession.
  • In practice, this means that UK firms with significant EEA interests are continuing to plan, for now at least, on the assumption that there will be no transition period. Otherwise, they risk disruption to their business if the UK leaves the EU without agreeing the envisaged transition period as part of the terms for its withdrawal.

We consider the latest announcements from the PRA and the FCA. We also note the PRA’s policy statement (PS4/18) and Supervisory Statement (SS2/18) on its approach to branch authorisation and supervision, which were issued at the same time. Continue reading

Brexit – PRA consults on approach to UK branches of incoming insurers

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.

The PRA’s consultation (CP30/17) on its approach to third country insurers, a separate “Dear CEO letter” and comments made to the TC on 16 January merit further comment.

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Further PRA reform of Solvency II implementation – internal models and reporting

This article was first published on Thomson Reuters Regulatory Intelligence on 17th January 2018.

On 12 December 2017, the PRA published the second in a series of three consultation papers on reforms to the Solvency II regime (CP27/17).  The PRA’s proposals are intended to reduce how often an insurer must apply for approval of changes to its internal model, specifically where approval is needed for an accumulation of minor changes. A process for quarterly model change reporting is also proposed.

The third, and final, consultation paper in the series (CP2/18) was published on 12 January 2018 and proposed some changes to reporting requirements.

CP21/17, the PRA’s first consultation paper in this series, concerns the matching adjustment and is open for comments until 31 January 2018 (see our blog entry of 17 November 2017).

Other aspects of Solvency II that the PRA has confirmed it is looking at are:

  • recalculation of the Transitional Measure on Technical Provisions – the PRA is looking at further simplification of the recalculation process; and
  • external audit of Solvency and Financial Condition Report – the PRA is gathering evidence on whether its approach remains proportionate, particularly for smaller firms.

Responses to CP27/17 and CP2/18 are required by 20 March 2018 and 13 April 2018 respectively. This article looks, in particular, at changes proposed by CP27/17[1].

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Delay to IDD start date/Guidance on UK approach to Brexit

Delay to IDD start date

The EU Commission published draft legislation today (in the form of a proposed Directive and a proposed Delegated Regulation) to delay the IDD start date to 1 October 2018.  It has agreed to requests for a delay made by the European Parliament and a number of Member States despite expressing the view that industry has already been given considerable time to adapt to the new rules.  Individual states are still required to transpose the IDD into domestic regimes by 23 February 2018. The European Parliament and the Council will need to agree the new date in an accelerated legislative procedure.

Brexit – UK approach to incoming financial services firms

The Treasury, PRA and FCA have today set out proposals for dealing with EEA-headquartered financial services firms wishing to conduct regulated activities in the UK post-Brexit.  The concern, of course, is how those firms, including (re)insurers and (re)insurance intermediaries, can operate in the UK once they have lost passporting rights (assuming that they do so).

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