Ensuring Electronic Signature Lawfulness for Insurance Industry in European Union

How to eSign a document: electronic signature lawfulness for Insurance Industry in European Union

hello and welcome to this video on brexit and the insurance industry my name is Adam Bogdan or I'm a partner at Berman latent paisa net LLP and that BLP I work in the area of corporate insurance this video will explore some of the issues posed by brexit for the UK insurance industry and will cover issues such as path porting equivalents on what practically insurers should be doing and when Pass sporting allows insurers to sell their services from 1e a country to another so the EI is the European Union plus Norway Iceland and Liechtenstein and a company say in France can sell their services to Germany basically through a notification process there's no need to get separately authorised in Germany now there's two ways they can do that one is through setting up a branch in the other country the so-called host country the other way is to do so without a branch just cross-border which is known as the services passport both of these are essentially enshrined in the European Union treaty and we didn't Treaty of Rome and has subsequently been elucidated in the insurance directives and now solvency - so they are a very important right for European insurers now there are certain requirements that a host country can require an insurer from a home state to abide by and these are known as the general good and they cover conduct issues such as notification and consumer protection workers protection and so forth but there's a body of case law that the European Court of Justice has gone through to limit the ability of a host state country to impose those requirements so the requirements must be necessary objectively necessary for example for workers protection or consumer protection they must be proportionate so if there's an easier way to achieve those objectives that should be done they cannot be discriminatory and that's very important in other words say a French insurer was selling into Germany the German regulator boffin could not impose a requirement on the French insurer that it did not impose on the German domestic insurers because that would be discriminatory and that is nearly always not allowed so essentially with the ability to restrict insurers for conduct general good only which is as I say very restricted insurers have a pretty good ability to sell across borders within the European Union now they have to be companies to benefit from this Brant branches do not themselves have paths porting rights but the ability for company to do that without having to get separately capitalized separately authorized and separately approved is a very valuable right for insurers in the EEA there are three types of equivalent that's on c2 Grant's potentially to third countries and by third countries I mean countries are not members of the EEA such as America or Switzerland or any other country outside the EEA so the first one concerns reinsurance let's say French insurer wants to reinsure some business with a Swiss reinsurer now Switzerland is not part of the e it's not part of the single market so we are equivalents the Swiss reinsurer could be treated differently brought in all sorts of ways particular capital treatment but because Switzerland and Bermuda certain exceptions is regarded as equivalent for reinsurance that reinsurance contracts will be treated by the EU as if it had been concluded with a reinsurer based in an AEA country and therefore there won't be any discrimination on that basis which obviously is very advantageous to reinsure us in those equivalent countries now there are two other forms of equivalents one is so-called group solvency which is where you have e a insurers that have subsidiaries in third countries such as the US or canada or mexico and that basically allows those subsidiaries to be included in the group Songza calculations of the EEA holding company and several countries have that equivalents now the last type is a type that most relevant for the UK after brexit because this is where you have a third country with a holding company that has a subsidiary in the EU and this allows the group solvents in supervision to be done at the level of the holding company instead of having to have separate ssam to two calculations for the group so this is this is where you have a third country with a holding company and subsidiaries in the EU or yeh now at the moment only Switzerland and Bermuda with certain exceptions have this level of equivalents the America for example does not have this you well in short equivalents as good as passport in nowhere near and their various reasons for this firstly equivalence is a decision essentially it's a decision of the European Commission under advice from Europa now there is an alternative method by which an EI group supervisor can decide equivalents and consultation with others but so far it's basically been European Commission so ultimately it is a political decision and the trouble is that equivalents need not be permanent it could be temporary and could be taken away in future particularly if it's regarded that the third country's regulatory system has diverged from the European system and you might say well why would that happen surely once you have equivalents you don't change your rules but of course Europe changes its rules and if the third country doesn't keep up with that it could cease to be equivalent so that's the first issue secondly and importantly equivalents is only available for direct insurers and very limited cases it's only there really for group supervision and group solvency it isn't therefore for conduct at all so any country can impose pretty much whatever conduct restrictions they want on the basis of the existing equivalence regime for direct insurers which is a huge issue it also doesn't give passport rights in the sense that being equivalent does not give you the right suddenly to sell your services cross-border you would need suffer authorizations for that just as if you weren't equivalent so it spoke different from pass porting and also equivalence is not available at all for brokers there's no equivalence regime in place for brokers at the moment it is available for reinsurers and that is useful but for direct insurers equivalents is very limited at the moment under Solomon c2 another issue is that although you may get group supervision equivalents that wouldn't cover your solo capital treatment so if you are an insurer with an internal model that's been approved by the PRA in the UK after brexit you might still need it to be approved by an individual country in the EA so ing to figures that were published recently in a letter from the FCA about 220 UK insurers passport out of the UK into the rest of the EA and about 700 insurers passport from the EEA back into the UK so obviously far more insurers passport into the UK than out of the UK now some people have said well that's that means we've got a very strong negotiating hand because it means that other European countries use passport into the UK far more than vice-versa and therefore if you ended passed forcing you it would hurt EI insurance firms far more than hurts UK insurance firms but isn't necessarily true those figures are fairly crude they don't for example tell you anything about the amount of premium concern there the figures by number not by value they also don't take it to account really the way that multinational placements work through Lloyd's of London for example and the way that reinsurance works so those figures are quite basic it has been said though that 87% of insurance through Europe cross board is done through subsidiaries and not through passport thing now obviously UK companies insurers already have subsidiaries in the rest of the EI don't need any further equivalents in the sense that they already have subsidiaries that will remain in the EU after brexit and can themselves benefit from pass porting however many of the third country insurers such as the big global insurers that are headquartered in the United States use UK as their hub for European insurance in other words they have a often a single subsidiary in the UK and other UK subsidiaries and they sell to Europe through branches in the rest of the European Union and sometimes just cross-border without any branch or subsidiary so the issue they will have is that post breaks is they do nothing and we have no path for thing and no equivalence they have no ability to pass sport going forward because obviously in that scenario they wouldn't have any subsidiaries in the EU and therefore they'd have no path porting rights from the UK what could insurers do if they're worried about the potential loss of passport in rights as a result of brexit well essentially there are three main options one is if they do not already have any subsidiaries located in the EU other than the UK they can incorporate a new subsidiary elsewhere in the EU or EEA that would then grant them passport and rights to sell their services across borders in the EA of course easier said than done for a new subsidiary you need new authorization there is quite a long process to go through particularly if you have no infrastructure in the country you have operations to set up you have to agree the capital and in practice it can be quite inefficient because you may not get the authorization you need in the short term to release capital from the UK and therefore to some extent you're duplicating capital which can be quite inefficient and it's far from ideal the second option is to acquire an existing EA or EU insurance company because by doing that you will benefit from the passport thing that that group currently has now of course you'd have to go through a change of control process that can take several months but that would allow you to benefit from passport rights you can also incorporate an SE or convert your company into an SC which is a European public company and you can do that by having a non authorised company subsidiary in another country in the EA and merging it with the UK company having converted it into a public company so you can form an se in that way and then there's a second stage you can move the registered office of the SE so essentially what you're doing moving the company from the UK into the rest of the EEA people sometimes ask about branches now you can of course her branches in the EA and have them authorised even as a third country but branches do not give you pass porting rights you can use a portfolio transfer to transfer and business from a branch in hee EA to say another company in the EA that's fine but that is about transferring business the branches don't give you pass voting rights and therefore branch won't resolve the issue of how to get the ability to sell cross-border in an easy way post brexit so should insurers enact their plans now or should they wait and see well certainly insurers should be doing their contingency planning now and many probably most insurers already have done so so the question really is if and when do they put these plans into operation and it's a very difficult question because no one really knows what's going to happen and if you are thinking of incorporating a new subsidiary in getting your authorized and another EI country or doing an acquisition of a company or forming an SCA European company all of those take time particularly where you're incorporating a new company and getting it authorized you may be looking at a year possibly two years so it's very difficult because you can't delay and hope for the best because if you do that and you find out there's no transition period there's no interim agreement we have a kind of hard brakes and a half cliff edge in say March 2019 you don't have time then to enact your plans so the prudent thing to do is to start thinking about what what is your lead time how quickly can you put these plans into effect and then work backwards from the two years after article 50 triggered which the government says will be done by the end of this March 2017 [Music]