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BREXIT: the Impact on EU Insurers’ Passporting rights and the potential Gibraltar opportunity
By Derren Vincent, Managing Director of␣ Willis Towers Watson
Following the decision by referendum for the UK to leave the European Union (EU), there remains uncertainty
as to the impact this momentous decision will have on the Financial Services sector, certainly until there is greater clarity around what any future new relationship between the UK and the EU might be.
At the time of writing, it has been widely reported that Theresa May will formally begin the Brexit process by the end of March 2017. She has also promised a “Great Repeal Bill” in the next Queen’s Speech, which will overturn the act that took the UK into the EU, removing the European Communities Act 1972 from the statute book. We also understand that the government
propose to enshrine all existing EU law into British law.
Notwithstanding this announcement on the timing of triggering Article 50 of the Lisbon Treaty, there remains a major question over how long in practice the new UK relationship with the EU will take to negoti- ate. Solvency II, for example, took more than 10 years to negotiate even though it related to a single industry segment.
There is a two year deadline for the UK leaving the EU once Article 50 of the Lisbon Treaty is triggered, if of course the negotiations with the EU have not by then been concluded. Negotiations with the EU might however take less than two years, and provide for a shorter timeframe to exit.	We can safely say therefore that insurers have a maximum of two years from the triggering of Article 50, to formulate and execute any con- tingency plan.
Hard or Soft Brexit?
At one extreme a “hard” Brexit could involve the UK refusing to compromise on issues like
the free movement of people, leaving the EU single market and trading with the EU as if it were any other country outside Europe, based on World Trade Organization rules.
At the other end of the scale, a “soft” Brexit might involve some form of member- ship of the European Union single market, in return for a degree of free movement.
Whether or not the UK retains a free movement of services will impact on how UK and Gibraltar insurers will do business into the EEA in the future. EU insurers writing direct insurance into the UK are also equally affected,
EU passporting allows insurers that are authorised to provide financial services in one European Economic Area (EEA) jurisdiction to provide them in another EEA jurisdiction without the need for authorisation in that second jurisdiction. It achieves this by permitting the provision of cross border services or the establishment of a physical presence through a branch office or agent.
The key question for many insurers throughout the UK and Gibraltar must be, therefore, whether they will continue to enjoy the current ease of access into EEA markets. However, EU insurers are also faced with similar concerns as to how they will access the UK market, with the City of London being one of the world’s biggest insurance centres. We understand that there are over 8,000 ‘passports in’ to the UK and circa 5,500 out.
The maintenance of access to European markets, in particular financial services, is a key objective for the UK in its negotiations,
although certain EU leaders have already made objections to the UK’s wish to “cherry pick” particular options and benefits.
It’s not beyond the realms of possibility that a compromise will be reached, providing an arrangement that falls somewhere between the two extremes. It’s also reasonable to surmise that the best case and any alternative case would require the UK to operate an equivalent regulatory regime. i.e. the continuance of a Solvency II equivalent regulatory framework for insurers who wish to access the EU market.
Who might be Affected?
Currently, over 90% of Gibraltar business is written into the UK so for the majority of the existing Gibraltar insurers, it is business as usual. It is also reported from the Finance Centre that licence applications and interest in the jurisdiction remains healthy since the referendum. Those affected, will therefore be insurers that are either:
• UK or Gibraltar based, and are directly writing consumer risks into other EU territories through the ‘passport’ provision as opposed to having a separate regulated entity in that jurisdiction; or
• EU based insurers writing UK or Gibraltar risks, without a separate UK regulated and capitalised entity.
Gibraltar - a special case
Gibraltar is within the EU, and complies with all applicable EU directives, by virtue of the fact that the Treaty of Rome applies to territories whose external affairs are the responsibility of a member state. Therefore the ‘passport’ for insurance business into Europe is affected in the same way as for UK mainland located insurers.
However, unlike the rest of Europe, Gibraltar’s passport into the UK should be unaffected as this is derived through the ‘bilateral’ Financial Services and Markets Act 2000 (Gibraltar) Order 2001. So, writing insurance business into the UK is not driven by any EU directive given that this refers only to pass-porting between member states.
As mentioned earlier, it is arguably not unreasonable to think that continued access to the UK market will require Gibraltar insurers to have ‘equivalence’ status. That is, they will be subject to a set of Gibraltar regulations
Best case
• Preservation of a similar cross-border regime by way of provision of services or estab- lishment of a branch without triggering a requirement for a direct regulatory authorisation in the host state
• This undoubtedly will require the maintenance of a Solvency II regime for those insurers wishing to access EU markets
Worst case
• Full exit without ability to passport • UK insurers will need to con- sider how they will continue to undertake EU business
Gibraltar International

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