After 47 years of having been a Member State, the UK left the EU on 31 January 2020. It continued to participate in the European Union's Customs Union and the European Single Market during a transition period that ended on 31 December 2020.

On 24 December 2020, the text of the Trade and Cooperation Agreement between the European Union and the UK (TCA) was published. It started to apply on a provisional basis on 31 December 2020. The UK and the European Parliament have now ratified it.

Financial services (including insurance) are covered by the TCA but only in the same way that they are covered in EU trade agreements with other third countries. The TCA does not include provisions concerning equivalence frameworks for financial services (i.e. provisions that would enable UK-based companies to sell services into Europe, and vice-versa, as long as the regulations do not diverge substantially from Brussels or from London).

A separate, short Joint Declaration on Financial Services Regulatory Cooperation was also published with the TCA. The Joint Declaration is an agreement to agree at a later stage some of the detail on financial services. In this respect, the UK and the EU intend to agree a Memorandum of Understanding (MoU). It should give further clarity on equivalence rules. However, this is unlikely to apply to insurance distribution as there are no equivalence provisions in the IDD (this will apply to insurers as there are equivalence provisions (even if limited) in Solvency II Directive).

On 26 March, after three months of talks, the EU and the UK declared that “technical discussions on the MoU had been concluded, however, formal steps are still required on both sides before the deal can be signed. Although this is expected to happen "expeditiously". The MoU will establish a Joint UK-EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services issues for UK and EU regulators to discuss closer cooperation in future, share information, and hold talks on regulation and supervision, which sit alongside the Trade and Co-operation Agreement. The Joint UK-EU Financial Regulatory Forum will be attended by a UK financial services representative and a financial services representative of the EU27. The MoU does not address regulatory equivalence.

Impact of the TCA on insurance distribution activities

The end of the Brexit Transition Period has resulted in the loss of IDD passporting right for UK intermediaries in the EU and for EU intermediaries in the UK. The TCA provides no implementation period, nor includes any provisions that make up for the loss of these passporting rights. This means that UK intermediaries, in order to continue operating within the EU, will have to comply with the – often varying – domestic rules, procedures and authorisations applicable to their activities in each of the countries in which they wish to operate. And same thing for EU intermediaries operating in the UK.

The TCA commits the EU and the UK to maintain markets access for operators from the other party seeking to supply financial services through the establishment of a local branch. Fundamentally, UK intermediaries broadly retain the right to establish in the EU, and vice versa but this is subject always to the prudential carve-out, which preserves the ability for the UK and the EU to adopt or maintain measures for prudential reasons, and extensive reservations in relation to existing and future non-conforming measures that do not comply with certain principles of the TCA.

EIOPA Recommendation and other measures

In February 2019 EIOPA issued 9 recommendations for the insurance sector in light of the UK withdrawing from the EU.

With regard to distribution activities, Recommendation 9 states the following:

“Competent authorities should ensure that UK intermediaries and entities which intend to continue or commence distribution activities to EU27 policyholders and for EU27 risks after the UK’s withdrawal are established and registered in the EU27 in line with the relevant provisions of the IDD. Competent authorities should ensure that intermediaries, which are legal persons and are established and registered in the Union, demonstrate an appropriate level of corporate substance, proportionate to the nature, scale and complexity of their business. These intermediaries should not display the characteristics of an empty shell. Moreover, the professional and organisational requirements of the IDD must be met on a continuous basis. This is without prejudice to the right of the Member States to introduce special provisions in their national law for third country intermediaries, provided that equal treatment of intermediaries on the respective market is guaranteed. 30. When assessing whether a specific UK intermediary or entity is providing distribution activities in the EU, competent authorities should take into account that only the consistent and uniform application of the IDD can guarantee the same level of protection for consumers and ensure a level playing field in the Union. Competent authorities should ensure that all intermediaries carrying out distribution activities which target EU27 policyholders and EU27 risks fall under the scope of the IDD. For this purpose, competent authorities should assess any distribution model against the definition of distribution activity as provided for in the IDD”.

On 31 October 2019, EIOPA published on its website responses from NCAs on whether they comply with each of EIOPA’s recommendations (or explain the reasons for not complying with those recommendations). According to the information published, all NCAs comply or intend to comply with almost all recommendations.

- Published on June 2021 -

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