The European Insurance and Occupational Pensions Authority (EIOPA) has released a long-awaited set of recommendations which were rumoured to offer some slight relief to UK intermediaries not yet ready for Brexit, possibly because through all the uncertainty they remained hopeful of a reversal of fortunes or more likely were unsure of what they would need to do with little clarity or guidance available for intermediaries.
Unfortunately, that hope remains no more than that and as the political situation dives deeper into the quagmire with each day, EIOPA offers no respite. Their recommendations were expected to offer EU regulators the opportunity to give UK intermediaries a transition period of up to 6 months in the event of a hard Brexit in order to get their shop in order. That expectation has not been met and the recommendations have in essence been an instruction that EU regulators should take steps to require UK intermediaries dealing with EU business to be regulated in the EU from the outset.
The outcome is therefore potentially bleak for intermediaries who, dealing with EU business even though they do so only in the UK, do not have their own EU regulated entity:
- There is an interpretation of the Insurance Distribution Directive (IDD) being relied on by EU regulators which requires any intermediary involved in the distribution chain with EU risks to be authorised in the EU even if doing so from a place of business in the UK and with no presence in the EU. That interpretation destroys the argument that a UK broker can rely on the principle known as reverse solicitation. That is, it is OK to be involved in the distribution chain with EU business provided an EU authorised broker is producing the business to you in the UK and you are not operating a branch or otherwise trading in the EU.
- The EIOPA recommendations require EU regulators to ensure that UK intermediaries dealing in EU risks in their jurisdiction are authorised in that jurisdiction.
There is perhaps one slight glimmer of sunshine in all of this. The EIOPA recommendations specifically identify that these requirements should be applied to those intermediaries which “target” EU27 Policyholders. There are a variety of interpretations as to what this might mean but I anticipate that if you are an MGA, wholesaler or broker offering EU products or have EU coverholders or a network of EU producing broker arrangements you are likely to fall within the definition of an intermediary targeting EU27 policyholders. The same may be true if your business plan for this year still identifies the EU as a significant market or area of growth.
There are ways for intermediaries to structure their businesses and affairs in order to be able to continue to deal with EU business and policyholders. If you have left it until now to decide what to do it is time to act. Please contact us if we can be of assistance.
Kenneth Underhill
Director
Implement Compliance Solutions & Resources