Three of the UK’s top financial market regulators have signed a joint letter warning insurers against resting on their laurels when it comes to preparing for Brexit on December 31.
The Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA) and the Bank of England said that while a lot of preparation have already been done to ensure a smooth transition, more work still needs to be made.
“It is imperative that firms continue to build on their preparatory work to ensure that they, and to the extent possible their clients, are ready for a range of scenarios at the end of the transition period,” the regulators wrote.
The letter noted that most of the risks for cross-border financial services, such as the UK and the EU failing to agree on equivalence or other arrangements for the industry, have been mitigated.
“This reflects the extensive preparations made by authorities and the private sector over a number of years,” the letter said.
The measures put in place include the Temporary Permissions Regime and the use of temporary transitional powers as well as the strategies developed by firms.
“However, financial stability is not the same as market stability, and some market volatility and disruption to financial services, particularly to EU-based clients, could arise,” said the letter.
“Financial institutions are continuing to make preparations and engage with clients and customers to minimise any disruption, and it is important that they continue to do so. Final steps by individual firms are required to ensure their preparedness for the end of the transition period. These actions will vary between firms and may differ between UK firms and EEA firms operating in the UK.”
The letter urged companies to make sure they had planned for contingencies to ensure the businesses could keep operating in respect to EU liabilities.
The three authorities added that the UK parliament has legislated for Part VII saving provision to provide parties with the opportunity to obtain a UK court order sanctioning the transfer of insurance business within two years. This would apply where the company has already started its transfer scheme at the end of the transition period, which ends on December 31 at 11pm. The scheme has to meet two conditions: payment of the regulatory fee and approval of an independent expert.
“Firms should note that the mutual recognition framework contained in the Solvency II Directive will not apply to insurance business transfers sanctioned by the UK courts after the end of the transition period, even if they fall within the saving provision,” the FCA, PRA and Bank of England wrote. ‘
“Instead, recognition will be based on national regimes in each EEA jurisdiction. Therefore, insurers intending to rely on the saving provision as part of their contingency plans should continue to engage proactively with relevant EEA authorities.”
Data was another issue discussed in the letter. It said that since the European Commission had as of yet made a decision regarding how adequate the UK’s data protection rules were, firms were encouraged to use standard contractual clauses in relevant contracts as this is still a way that EEA firms can comply with the EU’s cross-border personal data transfer laws after the expiry of the transition period.
“UK firms are generally well-advanced on their part in making arrangements for the implementation of these clauses into UK-EEA contracts,” the regulators wrote. “You may need to consider whether contracts involving the transfer of personal data to your firm from the EEA (where those contracts have not yet been remediated) need to be updated to comply with EU requirements or to consider other appropriate measures for personal data transfers from the EEA into your firm in the UK, where this is necessary to ensure the continuity of services to your firm. This could include reviewing the position for EU vendors or third parties on which your services rely.”
Looking at EEA bank account closures, the regulators noted, “The ability of UK banks to continue providing services to customers – particularly retail customers – resident in the EU will be determined by national regimes. If you have customers in the EU who are reliant on UK banks accounts that may be closed, you will need to review your capability to make and receive payments to and from an overseas account. You will also need to identify impacted customers and work with them to implement alternative arrangements if necessary so that they can continue to benefit from their insurance product. The FCA expects you to communicate with your customers in a timely and supportive manner.”
The regulators also urged businesses to make sure they had made sure that they would still be able to conduct business in compliance with the Temporary Permissions Regime.
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