FCA Brexit guidance – too little, too late?

With a month to go until the UK is due to leave the EU, FCA guidance published yesterday is too late for most UK insurers and intermediaries to change their plans.  Understandably, the FCA has waited for views to be expressed by EIOPA before commenting itself on the position for insurers and brokers.  It took until last week, though, for that EIOPA guidance to be published (see our previous comments).   The FCA's guidance adds little, if anything, to what was said by EIOPA.  For brokers, in particular, the FCA acknowledges that this is "a complex area" and advises firms to contact local EEA regulators and seek legal advice.

Two FCA statements are directed at insurers and insurance intermediaries:

• Brexit: information for life insurers in the UK about pensions and retirement income
• Brexit: information for general insurers and intermediaries in the UK

Some key points are set out below.  A warning about the advice issued by FCA is, however, that much of the following is a matter of individual EEA state discretion.  It cannot be assumed, therefore, that the approach advocated by the FCA (and by EIOPA) will be adopted in all jurisdictions.  As is often the case for Brexit-related questions, the answer depends on taking local advice in the relevant EEA state.

The FCA has followed up today with the publication of near-final rules and guidance that will apply if the UK leaves the EU without a deal (see FCA PS19/5).  The PRA has also published an update to firms on its plans for Brexit, including near final materials (see PRA PS5/19).  Feedback from both regulators includes further details on use of the temporary transition power, through which they aim to ensure that firms and other regulated entities do not generally need to prepare now to meet new UK regulatory obligations.  In most cases, firms will be given a period of 15 months to adapt to these changes.

Insurers

The FCA confirms the position taken by EIOPA that business that was originally transacted with UK customers who have subsequently moved into the EEA should not be regarded as cross-border business.  In other words, an insurance contract is characterised as domestic or cross-border at the time it is written and is not affected by later changes.  This is particularly helpful for those life companies that have not to date sought to transfer this type of business to an EEA-authorised carrier.  It is also helpful, as is recognised by the FCA, that EIOPA extended its comments to rights to exercise an option or right in an existing insurance contract to realise pension benefits.

It follows that business that was originally written cross-border can only be serviced post-Brexit (or post the implementation period if the UK leaves with a deal) by an EEA-authorised insurer.  For those insurers who have not already transferred this business to an EEA carrier, a Part VII transitional regime will allow applications that are pending at the Brexit date to be completed under the existing regime after that date.  The effectiveness of such a transfer still depends, however, on whether EEA states are willing to recognise it, as was recommended by EIOPA last week.  HM Treasury has now published draft regulations that provide for a Part VII transitional.

Intermediaries

For brokers and other intermediaries, the FCA is short on concrete advice, which is not particularly surprising.  UK firms are advised that they should seek agreement for proposed arrangements with the relevant state regulators and appropriate legal advice.  FCA comments that this is a particularly complex area also come as no surprise but provide little comfort to firms who are trying to restructure their operations for Brexit, while also continuing to meet the needs of their UK and non-EEA clients.

One interesting point is that the FCA restricts its comments to distribution services provided "to EEA policyholders for EEA risks".  This could mean that, from the FCA's perspective at least, Article 16 of the Insurance Distribution Directive ("IDD") does not catch distribution activities to EEA policyholders in relation to non-EEA risks.

The FCA's guidance for general insurers and intermediaries includes some additional advice to firms that have decided to stop servicing customers in the EEA after Brexit.  Those firms are expected to ensure that customers are treated fairly as the business is wound down.  Particular emphasis is placed on providing clear and timely information to customers and firms are warned by the FCA not to use Brexit as an excuse to "off-load" customers. It is not clear whether this comment has been triggered by the action of any particular firm.