UK Government sets out no-deal scenario plans for financial services

With a no-deal scenario looking increasingly possible for Brexit, insurance buyers in both continental Europe and the UK will be looking to their governments and institutions to provide guidance in the event that the UK leaves the EU without an agreement. The UK Government has attempted to set minds at rest, as far as possible, by issuing guidance entitled: Banking, insurance and other financial services if there’s no Brexit deal. It stresses that a no-deal scenario remains unlikely given the mutual interests of the UK and the EU in securing a negotiated outcome, and notes optimistically that negotiations are progressing well. However, in a statement that risk managers will appreciate, it states: “It’s our duty as a responsible government to prepare for all eventualities, including no deal, until we can be certain of the outcome of those negotiations. It has always been the case that as we get nearer to March 2019, preparations for a no-deal scenario would have to be accelerated. Such an acceleration does not reflect an increased likelihood of a no-deal outcome. Rather it is about ensuring our plans are in place in the unlikely scenario that they need to be relied upon.” The aim is to allow businesses and citizens to understand what they would need to do in a no-deal scenario, so they can make informed plans and preparations, says the government. As it currently stands, EU buyers using UK-based insurers are in a clearer situation than UK customers of EU insurers. This is because the UK Government says it is committed to ensuring that a “functioning legislative regime is in place, to minimise disruption and avoid material unintended consequences for the continuity of financial services provision, to protect the existing rights of UK consumers, or to ensure financial stability”. As part of this, it is committed to introducing a Temporary Permissions Regime (TPR) that will allow European Economic Area (EEA) firms currently passporting into the UK to continue operating in the UK for up to three years after exit, while they apply for full authorisation from UK regulators. The government has already published in draft the legislation that will deliver the TPR. It has also committed to legislation alongside this to ensure that contractual obligations (such as under insurance contracts) between EEA firms and UK-based customers that are not covered by the TPR can continue to be met. The three-year period will allow time for these firms to apply for authorisation to continue operating in the UK, and if they receive authorisation covering the full scope of the services that they currently provide, then they will be able to continue to provide services as before, says the government. However, it is not so clear for EU-based insurance-buying customers of UK firms. As the UK government puts it, in the absence of action from the EU: “EEA-based customers of UK firms currently passporting into the EEA may lose the ability to access existing insurance contracts, due to UK firms losing their rights to passport into the EEA, affecting the ability of their EEA customers to continue accessing their services. This could impact these firms’ ability to continue to service their existing products.” The UK Government says it will put in place unilateral action, if necessary, to resolve these issues as far as possible on the UK side. But ultimately, it points out: “The UK authorities are not able through unilateral action to fully address risks to the EEA customers of UK firms currently providing services into the EEA using the financial services passport. The government is committed to working with EU partners to identify and address such risks.” In its guidance, the government acknowledges that many UK financial services firms have already taken unilateral action to make sure that they can continue to provide services into the EEA by establishing a new EU-authorised subsidiary. It says this would allow the UK firm to offer new services after exit through its EEA subsidiary, and in some cases existing contracts could be transferred to the new entity. The clock is ticking and there will, no doubt, be similar guidance from the EU, which will have to acknowledge the possibility of a no-deal scenario. Practically no one wants a no-deal scenario but as the likelihood increases as the deadline gets closer, the UK Government is at least trying to manage the risk and, as any good risk manager would, prepare for all eventualities and worst-case scenarios.

UK Government sets out no-deal scenario plans for financial services

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