Effect of “No Deal” Brexit
Tue Nov 6 2018
Effect of “No Deal” Brexit
If the Withdrawal Agreement is ratified before 30 March 2019, there will be a transition period of 21 months to 1 January 2021 at which time EU law will cease to apply to and in the UK.
If the Withdrawal Agreement is not ratified before 30 March 2019, which looks more likely, with each passing day, there will be no transition period and EU law will cease to apply to and in the UK as of 30 March 2019. This is referred to as the ” No Deal/Hard Brexit’.
If the UK leaves the EU without a deal in place to maintain some or all of the current passporting arrangements, then passporting rights from and into the UK will cease.
What Does This Mean?
1 – Authorisations:
- UK Insurance markets will not be authorised to conduct regulated activities within the EU, including the Republic of Ireland (ROI) – i.e. they will not be able to advise clients, arrange/conclude contracts of insurance, collect premiums or handle claims. Branches of UK insurers in the ROI will need an authorisation in the ROI (or other member state) to be able to continue to conduct business here.
- ROI Insurance markets (that are passporting their services into the UK) will also no longer be able to conduct their business on the basis of their ROI registration/authorisation within the UK. (However, see note below on UK Temporary Permissions)
2 – Continuity of insurance contracts:
The loss of EU authorisation may affect the ability of UK insurance markets to continue performing certain obligations and activities and ensure service continuity with regard to contracts concluded before the withdrawal of the UK from the EU.
3 – Information disclosure:
Pursuant to art. 17-25 of IDD (i.e. the articles dealing with information requirements and conduct of business rules), policyholders/customers should be informed about the impact on their rights and on the provision of insurance services that may emerge from the withdrawal of the UK, including the upcoming loss by the relevant intermediary (or undertaking) of its EU authorisation.
Possible UK Temporary Permissions
The UK have drafted up legislation that is intended to take effect on the day the UK leaves the EU which will convert existing body of directly applicable EU law into UK domestic law.
The legislation, if it is enacted, will also implement a ‘temporary permissions regime’. This will allow, in effect, ROI (and other EEA) financial services providers operating in the UK on a passporting basis to continue their activities in the UK for a limited period after exit day in order to allow them to obtain UK authorisation or transfer business to a UK entity asnecessary.
The regime is designed to minimise the disruption faced by EEA firms and UK businesses and consumers due to the loss of passporting rights arising from EU withdrawal and will ensure that:
- firms can continue to carry out business as before, writing new contracts and servicing existing contracts entered into before exit day for a temporary period after exit day,
- firms have appropriate time to prepare for and submit applications for UK authorisation and complete any necessary restructuring
- the PRA and the FCA can manage the expected applications for UK authorisation from EU firms that were previously operating in the UK via a passport in a smooth and orderly manner.
If a Broker is passporting its services into the UK (i.e. has clients in the UK) they must seek to obtain authorisation from the UK Regulator (FCA) as soon as possible.
Disclosure of information to customers about the impact of the withdrawal of the United Kingdom from the European Union
In relation to the risk of service continuity of insurance contracts post-Brexit, brokers must take necessary steps to prepare for the UK’s withdrawal from the EU:
- Take the appropriate contingency measures to ensure the continuity of services for cross-border insurance contracts between the UK and ROI. This will entail them asking each UK provider in respect of their ROI clients, and each ROI provider in respect of their UK clients, what their contingency plans are;
- Make customers and beneficiaries aware in a timely manner of the implications of these contingency measures both for existing and for new contracts concluded before the withdrawal date;
- Provide customers with clear information on the contingency measures taken or planned and on their impact on insurance contracts;
- Inform new customers about the impact on their contractual rights and on the provision of insurance services that may emerge from the withdrawal of the UK from the EU.
Insurance Brokers can assess whether and how the measures they have started to take or plan to take will affect the services provided to their customers. The impact will depend on the contingency measures taken by the individual insurance undertaking/provider.
Brokers should ensure the continuity of their services in order to fulfil their contracts with their customers. Without taking contingency measures, customers of cross-border contracts between the UK and the ROI may face risks when it comes to the provision of services by insurers on a cross-border basis between the UK and the ROI after the withdrawal date.
There is a duty on brokers to inform customers about the possible impact of the withdrawal of the UK from the EU on insurance contractsand of the relevant contingency measures taken by insurance undertakings and about the continuity of their contracts. It concerns all cross-border insurance contracts between the UK and ROI which might be affected by the withdrawal of the UK, including contracts that will already be terminated on the withdrawal date, but for which open claims exist or might be reported thereafter.
Customers must be provided with clear and non-misleading information on the contingency measures taken or planned and on their impact on their insurance contracts. In addition, they should be provided with information where no measures are taken and the reason for not taking measures should be communicated to them. New beneficiaries should be informed when they submit claims.
The impact on customers will depend on the contingency measures taken by the individual insurance markets. The following are examples of possible impacts:
- change of the contractual cover following a transfer of insurance contracts to another insurance undertaking
- continuity of services and validity of insurance contracts
- In respect of UK pensions for ROI citizens, the pension payments may not be permitted to be paid into a non-UK bank account.
- change or loss of protection provided by any existing national compensation scheme due to the transfer of insurance contracts to an insurance undertaking located in another jurisdiction
- tax implications of insurance contracts including e.g. insurance premium tax following the relocation of an entity to another jurisdiction
- changes to the claims management procedure or to other customer services (e.g. following a change of domicile of an insurance undertaking)
- additional organisational arrangements to deal with customer inquiries related to the withdrawal of the UK from the EU (e.g. publication of FAQs for customers, contact details, helpline etc.)
- jurisdiction and contact details of the competent authority following a transfer of insurance contracts to another insurance undertaking or the relocation of an entity
- change of the law applicable to the insurance contract.
In order to enable potential customers to make an informed decision before concluding or renewing an insurance contract, they should be appropriately informed by their Broker about the impact on their contractual rights and on the provision of insurance services that may emerge from the withdrawal of the UK from the EU.
For the purposes of this newsletter UK includes ‘Northern Ireland and Gibraltar’.
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