London Market needs EU equivalence regime change in Brexit deal: LMG
The UK government has recognised that the London Market does need to see significant changes to the EU equivalence regime but there are no equivalence frameworks for insurers under Solvency II or for brokers under the Insurance Distribution Directive, said Clare Lebecq, CEO of the London Market Group (LMG).
Earlier in November, The Association of British Insurers (ABI) welcomed the prospect of a Brexit deal that includes a regulatory equivalence regime for financial services with the EU enabling mutual market access.
An equivalence regime would mean that the EU recognises the financial services standards and their enforcement in the UK as equivalent to the EU. In theory, both parties would remain free to set their own standards and market access as long as regulatory outcomes are broadly the same. The EU has developed an equivalence approaches for financial services with Japan, the US and Canada.
But such a standard approach may not work for the London Market.
“The EU has long recognised that the treatment of firms providing financial services to sophisticated, commercial clients should be more flexible,” Lebecq said. She stressed that access to the right markets is key if EU clients should continue to benefit from competition amongst service providers. “In other sectors, such as investment management, this is recognised, and appropriate equivalence regimes exist to preserve EU client access to appropriate third countries. We are keen to ensure that both sides of the negotiations see the mutual need to extend this sort of arrangement to insurance and insurance intermediation,” Lebecq explained.
The LMG is working with the UK government to show how these precedents could be leveraged to allow a mutually beneficial trading relationship to continue in insurance, Lebecq noted. “We have had a positive response so far and will continue to develop these proposals because we need a solution that works for the whole market; for brokers, carriers and reinsurers,” she said.
The Brexit deal that the UK government has negotiated with the EU will be put for vote in parliament on December 11. There is a good chance that the deal is voted down, according to market observers, which may mean that the UK leaves the EU without a deal.
“If we do see the deal voted down, then the government and parliament may well need to consider other options,” Lebecq said. “LMG has been clear, however, about the negative consequences of a ‘no deal’ for the industry and where this would leave our clients,” she added.
The LMG has been warning about the challenges regarding the fulfillment of contracts in a ‘no deal’ scenario. “It would be unacceptable to see EU clients left in a detrimental position, not knowing whether their claims would be paid or not,” Lebecq said.
Some member state governments such as France and Germany are introducing contract continuity laws in the event of there being no deal with the UK.
“If the current deal goes through, the next stage is for the government to see if they can find a future arrangement which preserves as much cross border trading as possible,” Lebecq said.
“Our Brexit Taskforce, representing all elements of the market, was disappointed that the government felt it could not pursue a mutual market access agreement, but we have continued to work with them to propose alternatives,” she said.
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