PRA and FCA jointly issued a letter to the chief executive officers of all insurance firms on the importance of being prepared for the end of the transition period to Brexit, to minimize disruption and ensure market stability. The letter, from Anna Sweeney and Charlotte Gerken at PRA and Matt Brewis at FCA, sets out key areas requiring final preparations for the end of transition period. The key areas include contingency planning and continuity of cross-border business in respect of EU liabilities; legislation related to Part VII "saving provision"; cross-border personal data transfer laws; bank account closures and passporting firms in European Economic Area; and Part 4A application submission timeline of the Temporary Permissions Regime firms.
The following are the key highlights of the joint letter:
- Contingency planning and continuity of cross-border business in respect of EU liabilities—Firms intending 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-authorized insurer should ensure that they finalize preparations and implement suitable and realistic contingency plans in advance of the end of the UK transition period. Firms should proactively continue to discuss their contingency plans, as well as any associated risks with the relevant EU authorities, to ensure that they remain satisfied with them.
- Legislation related to Part VII "saving provision"—Parliament has legislated for a Part VII saving provision. This will provide up to two years from the end of the transition period for parties to obtain a UK court order sanctioning the transfer of insurance business. 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. Therefore, insurers that intend to rely on the saving provision as part of their contingency plans should continue to engage proactively with the relevant European Economic Area authorities.
- Cross-border personal data transfer laws—In the absence of a decision by EC on UK data protection adequacy, the use of standard contractual clauses in relevant contracts is one of the available ways that the European Economic Area firms can comply with the cross-border personal data transfer laws of EU, after the expiry of the transition period. Firms may need to consider whether contracts involving the transfer of personal data to their firms from the European Economic Area need to be updated to comply with EU requirements or to consider other appropriate measures. This could include reviewing the position for EU vendors or third parties on which services of firms rely.
- European Economic Area bank account closures—The ability of UK banks to continue providing services to customers resident in the EU will be determined by national regimes. If firms have customers in the EU who are reliant on UK banks accounts that may be closed, firms will need to review their capability to make and receive payments to and from an overseas account. Firms 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. FCA expects firms to communicate with their customers in a timely and supportive manner.
- European Economic Area passporting firms—On entry into the Temporary Permissions Regime at the end of the transition period, the European Economic Area passporting firms will obtain deemed temporary Part 4A permission to operate in the UK pending permanent authorization as Third Country Branches with a Part 4A permission. PRA and FCA have set out information for firms using Temporary Permissions Regime on their websites. This includes information on the rules that will apply to firms in the Temporary Permissions Regime and considerations for firms leaving the Temporary Permissions Regime. PRA and FCA will also continue to work closely with firms regarding their applications for permanent authorization. In addition, the Financial Services Contracts Regime (FSCR) will enable the European Economic Area passporting firms that do not enter the Temporary Permissions Regime to wind down their UK business in an orderly fashion.
- Part 4A application submission timeline for Temporary Permissions Regime firms—In August 2019 and June 2020, PRA had sent information requests to every firm that had notified into the Temporary Permissions Regime but had not provided a Part 4A application asking when they intended to submit a Part 4A application. PRA is now planning its review activity based on the dates provided by the Temporary Permissions Regime firms. Therefore, it is important for a Temporary Permissions Regime firm to submit the Part 4A application during the quarter previously notified to PRA.
Keywords: Europe, UK, Insurance, Brexit, Operational Risk, Brexit Transition, Temporary Permissions Regime, Passporting, Solvency II, PRA, FCA
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