The UK Government’s draft Brexit withdrawal agreement is “unfortunate for the insurance industry” due to its focus on equivalence, according to Bob Haken, insurance partner at Norton Rose Fulbright.
The draft agreement and political declaration on the UK’s future relationship with the EU following Brexit were approved by the UK Government cabinet on 14 November but has since been met with considerable criticism.
Five government ministers, including Brexit secretary Dominic Raab, have resigned and a vote of no confidence in prime minister Theresa May is believed to be likely.
The political declaration notes that for financial services, in general, there will be a commitment to “preserving financial stability, market integrity, investor protection, and fair competition, while respecting the [EU and UK’s] regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest”.
Additionally, it outlines the start of equivalence assessments between the EU and UK “as soon as possible after the UK’s withdrawal from the union, endeavouring to conclude these assessments before the end of June 2020”.
Haken suggested that the agreement’s focus on equivalence “is unfortunate for the insurance industry as, unlike some other financial services, equivalence under Solvency II does not grant market access for insurance business”.
He added: “At present, therefore, it seems unlikely that the withdrawal agreement or political declaration will preserve passporting rights for UK insurers.”
For reinsurance, Haken commented there may be a “glimmer of hope” as “there is a commitment to reaching equivalence decisions as soon as possible after 29 March 2019, endeavouring to conclude those assessments by 30 June 2020.”
Neither the draft agreement or the political declaration provide any clarity on the issue surrounding contract continuity following the expiry of the transitional period.
Haken described this as a “missed opportunity”.
He said: “Neither document recognises the important issue of contract continuity following the expiry of the transitional period, meaning that the contingency plans that many hoped would be unnecessary will have to be deployed by the end of 2020.”
