Be Ready for a No-Deal Brexit

A No-Deal Brexit would pose unique and unprecedented challenges for the UK, as well as for the EU, including Ireland. Brexit of any kind will mean change, and managing a no deal Brexit would particularly be an exercise in damage limitation. It would be impossible in a no deal scenario to maintain the current seamless arrangements between the EU and UK across a full range of sectors, including the financial services sector.

Reminder to members to prepare for a No-Deal Brexit

Regardless of whether there is a two week or six week extension, if the Withdrawal Agreement is not ratified, which looks more likely with each passing day, EU law will cease to apply to and in the UK on the last day of the extension.

If the UK leaves the EU without a deal in place to maintain some or all of its current passporting arrangements, then passporting rights from and into the UK will cease.

Orderly Run-Off or Temporary Permissions Regime

Both the Irish government and the UK government have drafted legislation to allow for an orderly run-off, and in the case of the UK, a temporary permissions regime.

Under the UK Temporary Permissions Regime (TPR), Irish insurers and intermediaries will be deemed to have permission on a temporary basis. The scope of the permission will mirror the insurers/intermediaries current passporting permission in place pre-Brexit.  It is anticipated that the regime will apply for a maximum of three years.  If the insurer/intermediary wishes to avail of this regime it must notify the FCA using its Connect system.  This notification must be filed before end of 11 April 2019.

If the insurer/intermediary fails to apply for the TPR it will automatically be subject to the Financial Service Contracts Regime (FSCR).  The FSCR was introduced by the UK Government to ensure existing contractual obligations not covered by the TPR can continue to be met. The FSCR will permit UK contracts entered into pre-Brexit to continue to be serviced, so that it can wind down / run–off this business in an orderly fashion.  No new business can be written under the FSCR.  The FSCR will apply for a period of 15 years for insurance contracts.

The Irish legislation will also allow a temporary run-off regime, which, subject to a number of conditions, will enable UK insurers and intermediaries to continue to fulfil contractual obligations to their Irish customers for a period of three years after the date of the withdrawal of the UK from the EU. However, those insurers/intermediaries will no longer be able to write new insurance contracts or continue insurance distribution in respect of new insurance contracts in Ireland until they obtain a relevant authorisation from the Central Bank.

UK Insurers

Irish insurance intermediaries are not permitted to place risks with UK insurers (after withdrawal day) as they will no longer be able to avail of the EU passporting regime. Many of these insurers have set up separate legal entities in Ireland (or other EU member state) and will continue through their Irish/EU entity to conduct business as usual in respect of EU risks.

UK Wholesale Brokers

A significant number of Irish insurance intermediaries place risks through UK wholesalers in order to access certain insurance markets for particular risks.    A number of these UK wholesalers and markets have not relocated to Ireland or other EU member state.  The loss of access to these markets is a huge concern among the broking industry.

If UK intermediaries wish to continue to be involved in distribution activities for EU risks, placed with EU insurers, after the withdrawal date, they must be established and registered in the EU.  They will not be permitted to place the risk otherwise.  In order to access the UK market, this EU entity would have to set up a branch in the UK.

If UK intermediaries wish to continue to be involved in distribution activities for EU risks, placed with UK markets, after the UK’s withdrawal they must be established and registered in the EU in line with the relevant provisions of the IDR.  In accordance with Regulation 9(9) of the IDR, the outsourcing of insurance distribution services to entities other than EU registered intermediaries – including in a no-deal Brexit scenario to UK insurance intermediaries not registered in the EU27 – is, prima facie, not permissible.  However, the Central Bank of Ireland will consider the particulars of each proposed outsourcing arrangement on a case-by-case basis.

The expectation is that Intermediaries should seek their own legal advice if they are unsure as to whether their activities comply with the relevant legislative and regulatory requirements, before submitting a proposed outsourcing arrangement to the Central Bank (in relation to insurance distribution activities).

Irish Intermediaries

Alternatively, it was also proposed that an Irish intermediary could establish a UK registered branch and refer Irish/EU risks to its UK branch to access the UK market.  This is a costly option and in the case of many small brokers, simply not feasible.  All such proposals must be submitted to the Central Bank for assessment to ensure that such a branch meets the Central Banks expectations in terms of substance, supervisability and enforceability.

The FCA’s position

It should be noted that the FCA have taken a different approach.  They will allow UK wholesale brokers, where they are placing the risk with an EU insurer, to sell to EU brokers.  This has confused the matter for Irish intermediaries as EU law (and our own legislation) will not permit them to do so.