The Bank of England (BoE) has welcomed the European Union’s (EU) decision to allow a Brexit implementation period, and has assured the re/insurance industry that it can plan to operate as normal during this time, although companies may need to seek authorisation subsequently.
UK and EU governments last month agreed to an implementation period as part of the UK’s withdrawal from the EU, which will give companies an additional 21 months to transition into the post-Brexit landscape and avoid a disorderly shift.
However, many financial institutions have remained apprehensive of such a political deal, which will not be formally ratified by governments until the autumn, and which could be compromised by domestic political upheaval in the months before Britain leaves.
The BOE has now reassured relevant firms that they can expect to operate as usual on the assumption that UK authorisation or recognition will only be needed by the end of the implementation period.
The UK Government has also committed to allowing firms to continue UK activities for a limited time after withdrawal by bringing forward legislation to create temporary permission regimes, which ensures that a back-stop will be available in the event the Withdrawal Agreement is not ratified.
Additionally, the Financial Policy Committee (FPC), is developing a checklist of mitigating actions that authorities and firms can implement to avoid disruption to the financial services.
The BoE has also confirmed that European Economic Area (EEA) banks and re/insurers may apply for authorisation to operate as a branch in the UK as part of their Brexit preparations, although non-UK central counterparties (CCPs) should continue to engage with the BoE on their UK recognition process.
The threshold of Financial Services Compensation Scheme (FSCS) protected liabilities indicating that an insurer should potentially operate as a subsidiary has now been raised by the Prudential Regulation Authority (PRA) from £200 million to £500 million.
John Liver, Financial Services Partner at EY, commented on the news, “The UK financial services regulators’ announcements today that firms can rely on the transition period agreed by the EU Council last week to plan their Brexit response, is welcome news. It significantly mitigates the cliff edge risks to financial stability and markets that were material for a March 2019 deadline. The UK authorities were able to do this because of the Government’s welcome intention to provide a legislative backstop in the unlikely event that the withdrawal agreement does not cement the transitional agreement.
“However, it is currently an asymmetric arrangement that only benefits EU authorised firms. UK firms will now be looking for greater flexibility on Brexit implementation timing from their EU supervisors following the political agreement on transition, or in the absence of these, a proposal to mitigate some of the pinch points that might hit financial services should there be no transition.”
