There have been multiple warnings about the potential legal and regulatory impact of Britain’s departure from the European Union, particularly when it comes to the conduct of insurance business. Prudential Regulation Authority (PRA) chief executive Sam Woods, for instance, lamented four months ago that the
authorisation and supervision of a significant number of additional companies – amid ongoing restructuring in response to Brexit – was likely to place a material extra burden on the regulator’s resources.
Talking about the issue of whether existing insurance contracts would be honoured post-Brexit, Association of British Insurers (ABI) director of regulation Hugh Savill previously said: “You have to go to court to get approval for transfer, and you also need the approval of the regulator at both ends.” That is in lieu of grandfathering, without which contracts would have to be transferred so that providers and policyholders are within the same jurisdiction.
Now it has been revealed that the Bank of England (BoE), the UK’s central bank, itself issued pretty much the same warning to the High Court. Only when it did in September, the BoE decided to keep it a secret – making the fact, as well as the rationale behind the non-disclosure, known just this week when it published minutes of Financial Policy Committee (FPC) meetings.
“The FPC had been briefed that, to mitigate these risks, firms were planning either to secure new authorisations for existing entities or transfer contracts to a new entity with the correct permissions,” read the record for the November 22 and 27 FPC meetings. “The UK process of transferring insurance contracts relied on a court procedure that could take 12-18 months; given the volume of these applications was expected to be three to five times the normal level, there was a risk that transfers would not be completed in time.
“The PRA and FCA had been working to ensure that firms’ plans were as robust as possible, and the Bank had written to the High Court to alert them to the potential for increased applications. The Bank had also discussed the risks in this area with HM Treasury.”
The record added that HM Treasury, the PRA, and the Financial Conduct Authority (FCA) were drawing up options to safeguard UK policyholders, some of which it noted may require legislation or cooperation with the EU.
“At the time of the Committee’s Q3 policy meeting, work had been underway, but not yet finalised, by HM Treasury, the PRA, and FCA on options to provide a solution to protect UK policyholders, where this could be achieved by unilateral action from UK authorities,” continued the record. “The FPC had judged that additional disclosures at that stage were against the public interest as it could prompt policyholders to take costly and potentially unnecessary actions to safeguard the future continuity of their contracts.
“It had therefore decided, under section 9U of the Bank of England Act 1998, to defer publication of details of both the estimates and the work underway from the Record of its Q3 meeting.”
According to the record, since the third quarter meeting, HM Treasury had worked further on options to preserve the continuity of insurance contracts and all options for mitigating risks to the continuity of outstanding cross-border financial services contracts were being considered.
“In light of this commitment, the Committee judged that the risks of prompting unnecessary action by policyholders had reduced and agreed that the publication of its Q3 discussion on the risk of a discontinuity in insurance contracts could now be published,” it said.
Related stories:
With the uncertain future of ‘grandfathering’, insurers better start moving
British insurers warn of Brexit legal issues
.jpg)
