Under the European Union (Notification of Withdrawal) Act 2017, the Parliament of the United Kingdom empowered the Prime Minister to give to the Council of the European Union the formal notice for starting negotiations for the United Kingdom’s withdrawal from the European Union. In March 2017, the United Kingdom triggered Article 50 to begin its withdrawal from the EU.
The actual withdrawal is scheduled to occur in March 2019, followed by a transition period to December 2020. To date, there has little progress on the transition period, so Financial Services providers and Insurers are now at the point where they must put in place alternatives in the event of a hard Brexit.
Under the EU Insurance Mediation Directive, many life and general insurance policies written in Ireland are issued by UK insurers operating as an Irish branch or directly, using ‘Freedom of Services’. In the event of a hard Brexit, those policies will become invalid, in the absence of any transition arrangements.
To combat this, Insurers have been setting up new companies based within the EU. The next step in the process is to transfer all affected policies from the existing UK entity to the new EU insurer. The procedure for doing that is set out in Part VII of the UK Financial Services and Markets Act 2000, [FSMA]. A Part VII transfer is a court-sanctioned legal transfer of some or all of the policies from one company to another. The process is long and tedious and can take up to 9 months to complete.
For that reason, anyone who has an insurance policy with a UK insurer can expect to begin receiving correspondence soon, advising about the proposed transfer of their policies.
Policy transfers generally will have no effect on the substance of the policyholder’s rights and obligations under the contract or on the insurer’s obligations to the policyholder. However, some policyholders’ eligibility for access to the UK Financial Services Compensation Scheme [FSCS] and/or the Financial Ombudsman Service [FOS] may change and EU rather than the UK regulatory regime will now apply to those policies.