No deal Brexit would hit insurance and bank accounts of UK expats

The risk of a no-deal Brexit departure could see UK citizens living in the EU facing loss of banking access and insurance cover until regulatory oversight is agreed with the EU, although the government will put in temporary recognition for EEA financial services firms to allow passporting for three years 

With less than 200 days to go until departure, the fear of a no Brexit deal has been elevated with the release of Treasury guidance for banking and financial services.

In a no deal scenario, UK firms’ position in relation to the EU would be determined by the relevant member state rules and any applicable EU rules that apply to third countries (countries outside of the European Economic Area (EEA)) at that time, according to the Treasury policy paper issued on 23 August.

As the majority of UK financial regulation derives from EU law after 29 March 2019, assuming there is no Brexit deal, ministers will have powers under the European Union (Withdrawal) Act 2018 powers to amend the law to ensure that there is a fully functioning financial services regulatory framework at the point of exit, which has been criticised for giving undue powers to government.

As well as financial regulatory and cross-border issues, a no-deal Brexit would also affect individuals and business customers, with many financial services firms reviewing their UK operations and implications for UK citizens living and banking in EU member states.

Some EEA firms that provide deposit taking and retail banking services in the UK do so via a UK-authorised subsidiary. There will be no change to their UK authorisation as a result of the UK leaving the EU, and they will be able to continue providing services. However, this would not be a reciprocal arrangement in the event of no deal.

The government policy paper states: ‘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 a 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.’

Hugh Savill, director of regulation at the Association of British Insurers, said: ‘Leaving the EU without a deal would cause major inconvenience to millions of pensioners, travellers and drivers. Today’s paper emphasises the risk of insurers not being able to make payments to customers based in the EU after the end of March next year.

‘Obviously insurers want to meet their commitments to their customers, but this problem has the potential to affect millions of insurance customers, including UK pensioners overseas. It can be fixed by co-operation between the UK and EU regulators – if the EU authorities wish to do so. Insurers have of course been making contingency plans for their own operations for many months now, but this contract issue is not one that insurers themselves can fix.’

In the no-deal financial policy paper, although the government has said it would treat EEA states largely as it does other third countries and their firms, the paper stated that ‘there will be instances where it will diverge from this approach in order to ensure that a functioning legislative regime is in place, to minimise disruption and avoid material unintended consequences for the continuity of financial services provision, to protect the existing rights of UK consumers, or to ensure financial stability’.

Even despite the no deal scenario planning, the government stressed that ‘at this stage, firms should continue to plan on the basis that an implementation period will be in place from March 2019 to December 2020, and continue to follow guidance from the regulators’.

There are also plans to introduce a Temporary Permissions Regime (TPR) that will allow EEA firms currently passporting into the UK to continue operating in the UK for up to three years after exit, while they apply for full authorisation from UK regulators.

The government has published in draft the legislation that will deliver the TPR which will be overseen by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). Similar temporary regimes will be provided for EEA electronic money and payment institutions, registered account information service providers, and EEA funds that are marketed into the UK.

There will also be a requirement for legislation to ensure that contractual obligations (such as under insurance contracts) between EEA firms and UK-based customers that are not covered by the temporary permissions regime can continue to be met.

The government has already laid draft secondary legislation that will establish a temporary recognition regime (TRR) for central counterparties (CCPs). This regime will allow non-UK CCPs to continue to provide clearing services to UK firms for a period of up to three years while those CCPs apply for recognition in the UK. The Bank of England has published further details on the approach to recognising non-UK CCPs.

The government will also be bringing forward legislation to deliver transitional arrangements for:

  • central securities depositories;
  • credit rating agencies;
  • trade repositories;
  • data reporting service providers;
  • systems currently under the Settlement Finality Directive; and
  • depositaries for authorised funds.

The government has also committed to using the powers in the European Union (Withdrawal) Act 2018 to provide the financial services regulators with a general transitional tool that will allow them to phase in post-exit regulatory requirements for firms where these are related to the UK leaving the EU, including firms in the TPR and TRR.

The government will transfer functions currently carried out by European bodies to the appropriate UK body.

In terms of mergers, acquisitions and IPOs, the government will treat prospectuses that are valid in the UK before exit (including those approved by a competent authority in a different EU member state) as valid for the remainder of the 12 months from their date of approval, including where that includes a period after the UK exits the EU.

The HM Treasury guidance, Guidance Banking, insurance and other financial services if there’s no Brexit deal

Report by Sara White

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