The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have sent a ‘Dear CEO’ letter to insurance providers in the UK about their strategies and contingency plans once the Brexit transitional period comes to an end in 2021.
Firms have been told it is “imperative they continue to build on their preparatory work to ensure that they are ready for a range of scenarios at the end of the transition period”.
The two regulators told insurers that many measures have been passed to help them plan for the next few months ahead.
One of the areas that could see the biggest disruptions is the one of cross-border business.
But the FCA and PRA said that risks have been mitigated if the UK and EU are unable to strike a deal.
“UK authorities have put temporary measures in place to ensure that UK households and businesses will be able to continue accessing services from EU financial institutions after the end of 2020. These measures include the Temporary Permissions Regime (TPR) and the use of temporary transitional powers.”
UK-EU business transfers
They added that companies have already developed strategies and established entities in the EU, if appropriate to them, and that they can make use of business transfers under the Financial Services and Markets Act Part VII, if needed.
Parliament has also legislated for a Part VII “saving provision” which will provide two years from the end of the transition period for “parties to obtain a UK court order sanctioning the transfer of insurance business”, the regulators said.
“It will apply where that insurance business transfer scheme is already underway at the end of the transition period and has met two conditions: payment of the regulatory fee and approval of an independent expert.”
But the FCA and PRA warned that the mutual recognition framework part of the Solvency II Directive will not apply to business transfers sanctioned by the UK courts after 31 December 2020.
In such cases, recognition will be based on national regimes in each European Economic Area (EEA) jurisdiction.
From 1 January 2021, firms passporting to the UK from the EEA can obtain a temporary “Part 4A” permission to operate in the UK pending permanent authorisation as ‘third party branches’ with a Part 4A permission.
The timing of submitting these applications should be “during the quarter previously notified to the PRA”.