The UK government’s no-deal Brexit document suggests that UK firms that have relied on passporting rights may not be able to do business at all in the European Economic Area (EEA) if there is no deal, and the document appears to put the onus on the European Union (EU) to solve the issue for UK companies passporting into the EEA.
The government has said that the financial services sector is a very important part of the UK’s economy. However, a lack of clarity and ongoing uncertainty surrounding the UK’s exit from the EU in March 2019, has led many insurers, reinsurers, and other industry service providers to establish EU hubs in order to ensure continuity post-Brexit.
Companies in the UK and in any other EEA country can carry out numerous activities in any other EEA country through passporting, which essentially enables entities authorised in one member state to provide services to clients in another member state, absent the need for regulatory supervision or authorisation.
“Unless the EU acts to maintain continuity, then UK financial services firms passporting into the EEA will lose the ability to do that at the point of exit,” says the no-deal document. This suggests that the UK government is pushing this onto the EU to solve, which, ultimately might be unsuccessful and that would leave many companies and customers in a very difficult position.
“This may have implications for their ability to meet contractual obligations with EEA-based clients, where to do so without EEA permissions would breach relevant member state rules and any applicable EU rules that apply to third countries,” continues the document.
For UK-based customers that access banking, insurance, investment funds and other financial services with EEA companies that currently passport into the UK, the government says its proposed Temporary Permissions Regime (TPR) will enable these companies to provide those services to UK clients for up to three years post-Brexit.
However, the proposed TPR does not appear to work the other way, and the UK government states that in “the absence of action from the EU, EEA-based customers of UK firms currently passporting into the EEA, including UK citizens living in the EEA, may lose the ability to access existing lending and deposit services, insurance contracts (such as life insurance contracts and annuities) due to UK firms losing their rights to passport into the EEA, affecting the ability of their EEA customers to continue accessing their services.
“This could impact these firms’ ability to continue to service their existing products.”
The document notes that the government has “committed to taking unilateral action,” if needed, so that it can be resolved on the UK side. However, it continues to note that this is not sufficient to tackle the potential risks, saying that it is essential that coordination with the EU takes place.
Numerous insurers and reinsurers have now set-up EU hubs in remaining member states post-Brexit to ensure continuity for their clients, and it is likely more have plans to do the same as widespread uncertainty surrounding much of Brexit continues to cast doubt over the UK’s ability to strike a deal in time for the March, 2019 deadline.
Some industry organisations have commented on the government’s Brexit proposals, including the London and International Insurance Brokers’ Association (LIIBA), which recently wrote to Prime Minister, Theresa May, over the ‘enhanced equivalence’ regime proposed in the Government’s recent Brexit White Paper.
