The UK financial services watchdog has identified seven industry “issues” that require further action as the clock ominously ticks down to 31 October 2019, which prime minister Boris Johnson has sworn will be the UK’s last day as a member of the European Union.
The key one being retail financial services preparation.
The Financial Conduct Authority (FCA) also flagged up share trading obligation, the derivatives trading obligation, clearing, uncleared derivatives, data exchange and progress on contract repapering as areas of concern for either the UK or the EU.
Commitment to consumers
Andrew Bailey said, during a speech in London on 16 September 2019, that the majority of UK retail firms have “confirmed that they plan to maintain existing products and services to their customers resident in the EU”.
“Let me start by emphasising the FCA’s commitment to prioritising consumer protection in financial services, and to be clear that applies to all consumers wherever they are located,” Bailey added.
“As an example, UK insurers should pay claims on existing policies wherever the policyholder happens to be located.
“To be clear, I have never met an insurer who disagrees with this statement, and I doubt that policyholders would either.
“For our part, we are clear that our consumer protection objective applies equally in respect of consumers wherever they are resident.”
Risks
Bailey went on to say that there remains a risk that the lack of legal certainty in some jurisdictions will create adverse outcomes for consumers.
“Our approach to these issues has been a mix of engagement with other authorities and seeking to ensure firms are prepared.
“We have been clear that we expect firms to do what they can to act consistently with local legal and regulatory requirements and expectations whilst being driven by the right consumer outcomes.”
Problems
Keith Richards, chief executive of the Personal Finance Society, said the FCA’s comments show some European countries could cause problems for UK-based insurers who want to continue to pay claims on existing policies no matter where the policyholder happens to be located.
He said: “Some countries, such as Germany and Italy, have introduced a mechanism to make sure, if an insurance business becomes unauthorised as a result of Brexit, insurers can still pay claims on existing policies wherever the policyholder happens to be located.
“However, as the FCA has highlighted today, some member states may choose to insist that insurers become established in their member state in order for them to carry on paying contracts.
“In a hostile no-deal scenario some of the proposed mechanisms could be changed over time. To be clear, this is only likely to affect a very small number of consumers: even in January this year, the EU identified that issues would only exist for ‘a handful of non-life insurance undertakings in the UK’.
“However, there is no way all clients can be guaranteed of a permanent seamless transition of the payment of claims in a no-deal scenario.”
Agreements
The FCA’s chief executive added that the financial watchdog has signed a number of cooperation agreements with the EU markets, insurance and banking authorities which will take effect in a no deal outcome.
The memorandum of understandings will allow jurisdictions to share confidential information; allow UK or EU-based firms to delegate or outsource certain activities to firms based in the other jurisdiction; and support future market access and equivalence decisions.
“We have also agreed changes to 43 non-EU MoUs that we need to amend and expect to have all necessary MoUs signed by exit day,” he added.
Next steps
Bailey said: “I hope I have emphasised enough that, at the FCA, we do not take a view on the substance of Brexit, but we do believe that however and whenever it happens it should not compromise protection for all consumers wherever they are domiciled.
“There is no reason to sacrifice open financial markets and many reasons to preserve them, and in particular wholesale markets counterparties should be able to choose where they trade according to principles such as best execution.
“We have made considerable progress, but we do not underestimate the task ahead.”
Prepared
Elsewhere, Lloyds Bank surveyed 112 UK financial institutions; from global banks and insurers to intermediaries, investors and asset managers, about their Brexit plans.
It found more than half of firms feel they are prepared for the UK’s departure from the EU, with 59% stating they are ready for a ‘no-deal’ Brexit with little or no dependency on a transition period and no further extension.
The remainder of firms surveyed are dependent to some extent on a transition period to complete their contingency planning.
Almost a third (29%) said that they have a limited dependency on a transition period, while 12% said that they have a significant dependency on one.
