The two UK financial regulators, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have sent a letter to the chief executives and branch managers of insurance firms in the UK. The letter reminds firms about the end of the transition period in December and the need to be ready for a range of possible scenarios at the end of this period.
The letter makes it clear that both regulators expect firms to make all necessary final preparations to ensure that they are ready for the end of the transition period. The steps will vary between UK firms and EEA firms operating in the UK.
The letter is broken down into different areas where the regulators remind firms of expectations. These are:
- Contingency planning and continuity of cross-border business in respect of EU liabilities. Under this heading firms are reminded that they must finalise preparations to run-off or transfer EU liabilities. Insurers should have prepared contingency plans and should have measures in place to ensure that they don’t undertake regulated activities without authorisation. Firms are reminded of their duty to inform customers about the possible impact of the end of the transition period on their customers and treat them fairly.
- Part VII saving provision. Legislation enables insurers to benefit from a two year window in which to obtain sanction for a portfolio transfer on condition that they have paid the regulatory fee and appointed an independent expert. The letter notes that the end of the transition period will bring an end to mutual recognition of portfolio transfers under Solvency II. From January 2021, recognition will be based on national regimes.
- Data. The letter states that in the absence of a decision by the European Commission on the adequacy of UK data protection measures, the use of the Standard Contractual Clauses in relevant contracts is a way for firms to comply with the EU’s cross-border data transfer laws after the end of the transition period. Firms should consider whether contracts involving the transfer of personal data from the EEA should be updated to comply with EU requirements.
- EEA Bank Account Closures. After the end of the transition period national regimes will determine the ability of UK banks to continue to provide services to retail customers. Accordingly, firms should review their ability to make payments to and from accounts.
- EEA Passporting firms in the UK. EEA passported firms that obtain temporary permission to operate in the UK pending authorisation as third country branches must ensure that they are operationally prepared to meet UK requirements once they enter the temporary permissions regime (TPR). Once in the TPR, firms will be subject to the same obligations as if they had Part 4A permission (subject to any regulatory transitional relief).
- TPR Part 4A application submission timeline. Firms entering the TPR should have let the PRA know when they intend to submit their Part 4A application. The PRA expects firms to submit their application in the relevant quarter and to contact the PRA if they are likely to miss their landing slot.
- Other issues. Other issues include the loss of benefits such as motor insurance ‘green cards’ and international certificates of insurance. Firms should be taking measures to address how the end of the transition period will impact their business and should keep their supervisors informed of these steps.
The letter was dated 21 October 2020.