‘Final Preparations For End Of The Transition Period’ Letter To CEOs Of Insurance Firms

Written by Mike Dalmiras

The Bank of England together with the FCA have written a letter to CEOs of insurance firms to remind them on the importance of being prepared for the end of the Brexit transitional period, which is set to end on the 31 December 2020, to minimise disruption and ensure market stability.

The UK authorities have put in place a series of temporary measures to ensure financial stability for UK households and businesses that could arise from disruption to the provision of cross-border financial services if the UK and EU do not agree on a post-Brexit agreement covering the financials services sector. Such measures include the Temporary Permissions Regime (TPR) and the use of temporary transitional powers, that will allow businesses to continue accessing services from EU financial institutions even after the end of the Brexit transitional period.

Nonetheless, it is expected that Brexit might cause significant market volatility, specifically to EU-based clients and, therefore, the letter aims to remind firms of the key areas requiring final preparations, including: contingency planning and continuity of cross-border business in respect of EU liabilities; Part VII saving provision; data; EEA bank account closures; EEA passporting firms; and TPR firms’ Part 4A submission timeline.

Contingency planning and continuity of cross-border business in respect of EU liabilities

Insurance firms planning to run-off their remaining liabilities relying on EU run-off regimes, where these are available, or seeking to transfer their EU liabilities to an EU-authorised insurer, should ensure that they finalise preparations and implement suitable and realistic contingency plans prior to the end of the transitional period. The letter also reminds firms and intermediaries of their duty to inform customers about the possible impact of the withdrawal of the UK from the EU on insurance contracts.

More information about the FCA’s expectations can be found here.

Part VII saving provision

The Part VII ‘saving provision’ under the Financial Services and Markets Act 2000 (FSMA) has been a key aspect of the Brexit restructuring toolkit for UK insurers, enabling transfers of European insurance to EU-domiciled affiliates or subsidiaries through a court-sanctioned legal transfer process.

It will apply where that insurance business transfer scheme is already underway at the end of the transition period (under the current Part VII regime) and has met two conditions: payment of the regulatory fee and approval of an independent expert. Part VII provision will only take effect on exit day if the UK does not enter into the withdrawal agreement with the EU.

Data

The use of standard contractual clauses (SCCs) in relevant contracts is one way that EEA firms can comply with the EU’s cross-border personal data transfer laws after the end of the transition period in the absence of a decision by the European Commission on UK data protection adequacy.

UK insurance firms are advised to make sure whether their contracts that involve the transfer of personal data need to be updated in line with the EU requirements or to consider other appropriate measures for personal data transfers from the EEA into the UK. This could include reviewing the position for EU vendors or third parties on which the services of UK insurance firms rely on.

EEA Bank Account Closures

Insurance firms with customers residing in the EU, whose UK bank accounts may be closed, are expected to communicate with their customers and review whether making or receiving payments could still be achieved to and from overseas accounts. Firms are also expected to explore alternative arrangements so that impacted customers can continue to benefits from their insurance products. The FCA also expects firms to communicate with their customers in a timely and supportive manner.

EEA Passporting Firms

EEA passporting insurance firms will need to obtain a temporary Part 4A permission to operate in the UK pending permanent authorisation as Third Country Branches with a Part 4A permission. While in TPR, firms will be subject to the same regulatory obligations and supervisory framework as if they were a Part 4A authorised firm.

The PRA sets its expectations in the Prudential Regulation Authority’s approach to branch authorisation and supervision. Furthermore, the FCA and PRA have set out information for firms on using TPR through the FCA’s website.

TPR firms’ Part 4A application submission timeline

The PRA has sent information requests to firms that had notified entering the TPR but had not provided a Part 4A application yet. The PRA requested this information in order to allocate enough resources to review the large volume of the expected Part 4A applications.

TPR firms are expected to submit their Part 4A application during the quarter previously notified to the PRA (for example, Q3 2021).

If a TPR firm anticipates that it will be unable to submit during the quarter previously notified, it should contact the PRA at the earliest opportunity: PRA.TPR@bankofengland.co.uk

Further reading

https://www.bankofengland.co.uk/prudential-regulation/letter/2020/final-preparations-for-the-end-of-the-transition-period-insurance-firms?sf130864283=1 ; https://www.fca.org.uk/news/statements/fca-writes-joint-letter-brexit-bank-ceos-insurance-firms-updates-website-all-firms

https://www.bankofengland.co.uk/financial-policy-summary-andrecord/2020/october-2020.


Mike Dalmiras

Mike Dalmiras joined Complyport in March 2020. Prior to joining Complyport, Mike completed a Schuman Traineeship at the European Parliament. Mike holds an LL.B Law degree from the University of Essex and an MSc in Project and Enterprise Management from University College London (UCL).

If you would like to discuss anything in this article, please complete the form below

    [recaptcha]

    I agree with the usage of my email to be used by Complyport and related companies for marketing purposes

    Facebook
    Twitter
    LinkedIn
    COntact us for assistance

    Please fill our free consultation form and a member of our team will get in contact with you.