The Prudential Regulatory Authority, (PRA) – the UK’s financial market regulator – has asked re/insurers to immediately address the Brexit question by setting a mid July deadline for firms to produce a worst-case-scenario back-up plan for post-Brexit trading.
The regulator is demanding firms convey their plans to deal with all potential outcomes after deeming the financial sector “unevenly” prepared against the “most adverse potential outcomes”.
Further investigation by Moore Stephens – a top ten accounting and advisory network – has confirmed that many firms still lag behind PRA requirements over the issue of redomiciling as they wait to see where market and industry partners move.
Alex Barnes, Partner at Moore Stephens, commented; “Two and half months may seem a decent period of time, but firms will need to finalise their plans and discuss them at board level before they submit them to the PRA by the July deadline.”
Moore Stephens Partner and regulatory expert Michael Butler added; “The PRA is fully aware of the length of time it takes for regulatory authorisation and therefore it is likely that once the assurances have been submitted in July, the PRA will want to see proof that applications have been made where required by March 2018 to ensure they and other European regulators have the required period to assess them ahead of a ‘cliff edge’ Brexit in March 2019.
“There are clearly larger insurers that have existing offices across the EU and therefore will be able to move books of business to those branches. The problem may well be for the medium to small mono line insurers.”
Moore Stephens research into UK insurer’s response to Brexit, found that 30% of re/insurers still intend to create operations in another jurisdiction, while 15% intend to increase operations in another jurisdiction.
The top three potential countries for relocation were named as Ireland, Luxembourg and Germany.
However, nearly half all Moore Stephen’s respondents said they didn’t believe the EU will continue to exist in its current form in five years’ time – so although 40% of firms said they would change their operating model to accommodate Brexit, firms have shown reluctance to make major adjustments, which they believe, may be redundant a few years down the line when geopolitics demands a different response.
“For companies this is a two to three year project with the potential that you could get 90% down the line and find that you don’t need it, which would be a bitter pill to swallow,” added Butler. “The fact is there is not enough time to sit on the fence and then follow the market, but there is also not enough certainty.”
Barnes said the issue was just as pressing for European insurers who currently operate through branches in the UK; “They will have a similar issue as they may need to gain authorisation from the PRA for the branch or a new subsidiary company.”
“The UK has implemented a gold-plated version of Solvency II and there is no likelihood that will be relaxed post Brexit. This may cause issues for European insurers in terms of the requirements of the PRA for authorisation,” he explained.