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On 20 December the PRA and HMT provided welcome clarification on their approach to EEA insurers operating in the UK after Brexit.
In a written statement to the House of Commons, Philip Hammond confirmed that the UK will (if necessary) take a unilateral approach to business being written into the UK from the EEA to ensure continuity of financial services. Specifically, he stated that the government will if necessary bring forward legislation:
- to enable EEA firms and funds operating in the UK to obtain a “temporary permission” to continue their activities in the UK for a limited period after Brexit
- to ensure that any contractual obligations, such as insurance contracts, which are not covered by the regime can continue to be met.
Alongside this statement came the publication of two consultation papers by the PRA on its approach to the authorisation and supervision of branches of (i) international insurers and (ii) international banks, and an accompanying “Dear CEO” letter. Key points for EEA insurers in the letter and the consultation are:
- the letter confirms that firms which will need a PRA authorisation post-Brexit (in the absence of passporting rights) can submit applications for that authorisation from January 2018. The PRA comments that “we will then review timelines and assumptions as the political process moves forward”
- for authorisation as a third country branch, the PRA will require that the home jurisdiction’s prudential supervision regime is ‘broadly equivalent’ (which will not necessarily be the same as formal equivalence under Solvency II) and that there is “sufficient supervisory cooperation” with the home supervisor. In the “Dear CEO” letter the PRA comments that, given progress to date in the Brexit negotiations, for the present firms may plan on the assumption that these requirements will be met
- other conditions for branch authorisation will include that the whole firm is able to meet the Threshold Conditions and that the position of UK policyholders of the firm on an insolvency is appropriately protected
- firms with significant liabilities which are covered by the Financial Services Compensation Scheme (the PRA suggestion is that this should be set at a figure of around £200 million) should apply for authorisation as a subsidiary rather than conducting business through a branch. The PRA has asked for feedback on the proposed threshold, including whether compulsory insurance taken out by larger, commercial firms should be excluded from the test.
The consultation period ends on 27 February 2018.
Written statement
PRA publications