Out-Law News | 28 Nov 2017 | 2:45 pm | 2 min. read
Comments last week by Gabriel Bernardino, chair of the European Insurance and Occupational Pensions Authority (EIOPA), made clear that EIOPA does not expect insurers to benefit from any forbearance from local regulators in EU countries in carrying on cross-border contracts post-Brexit. Bernadino accordingly urged insurers not to rely on regulators taking a lax approach to regulation in the period following Brexit.
Bernardino's comments are in line with an EIOPA opinion paper, issued in July, a similar opinion issued by the European Securities and Markets Authority (ESMA), as well as recent policy statements by the European Central Bank (ECB).
Speaking at an industry conference in Frankfurt, Bernardino said that regulators were seeing "a lot of talk, but not much walk" from insurance firms around Brexit preparations.
"I believe that it is now more than crucial that all insurance groups properly assess the risks of a 'cliff edge' scenario to their business and consider all possible solutions to mitigate them under the available regulatory framework," he said.
Reiterating the conclusions of EIOPA's July opinion paper, Bernardino has also stressed the expectation that insurers planning to apply for authorisation of new insurance firms in EU countries to assure continued access to the single market, must ensure that they have a significant presence in the EU member state.
"Sound supervision demands appropriate location of management and key functions, and empty shells or letter boxes should not be acceptable," he said in July.
Financial regulators in the UK and elsewhere have been urging insurers to develop contingency plans for a 'hard' Brexit, under which they would no longer be able to rely on existing passporting rights to continue service existing cross-border contracts. This could mean that UK insurers are not able to pay out on claims to customers in the EU after the UK exits the EU in March 2019.
UK insurers with existing cross-border businesses in the EU will have been considering how to deal with that business post-Brexit. This may involve applying for authorisation of new insurance companies in EU Member States to ensure that they can continue to write new business after Brexit or even selling off particulars books of business.
Tobin Ashby, a financial services expert at Pinsent Masons, the law firm behind Out-Law.com, said that Bernardino's comments "reinforce what we are increasingly seeing from regulators – that they are looking for contingency plans to be implemented by financial services firms sooner rather than later".
"If insurers are not sufficiently prepared closer to Brexit, regulators will point to these statements and firms will not be able to argue that they were not aware of the issue," he said.
"While there is still some hope for a political solution to the problem for cross-border financial services emerging from negotiations, firms need to be taking action to be ready for a range of outcomes if they are not doing so already," he said.