On the 31st October 2019, the European Insurance and Occupational Pensions Authority (EIOPA) issued the responses provided by the competent authorities of each individual member state in relation to the ‘Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union’ which EIOPA had published on the 19th February 2019 (“the EIOPA Recommendations”).
In its response to EIOPA Recommendations, the Maltese financial services regulator, the Malta Financial Services Authority (MFSA), has indicated that it complies or will comply with the recommendations included in the EIOPA Recommendations.
In particular, in its response, MFSA indicated that a communication has been issued to all affected UK undertakings, UK intermediaries and Gibraltar-based insurance undertakings and intermediaries, wherein the MFSA’s expectations in the event of the UK’s withdrawal from the EU were explained.In order to facilitate the orderly run-off of business which becomes unauthorised in the event of the UK’s withdrawal from the EU, the MFSA, in the said communication, sets out the following:
1. MFSA expects UK and Gibraltar-based insurance undertakings deciding to carry out an orderly run-off of the business which will become unauthorised to follow a set procedure.
According to this communication, the UK and Gibraltar-based insurance undertakings were required to notify the MFSA by the 13th September 2019 that they intend to carry out an orderly run-off. The communication also contained information which such undertakings are required to provide to the MFSA, including:
- i. The date as from when such undertaking will be carrying out the run-off;
- ii. The classes of business of insurance and the details of the nature of the risks or commitments;
- iii. The volume of gross and net technical provisions;
- iv. An indication of the remaining term run-off or servicing of the business;
- v. Confirmation as to whether the UK or Gibraltar-based insurer will be carrying out the run-off or servicing of the business or whether it will be appointing an entity to do so.In case of the latter, such undertaking is expected to:
- Provide the MFSA with the name and details of the entity that will be appointed to carry out the run-off or servicing of the business; and
- Enter into a run-off or servicing agreement with the entity appointed to carry out such run-off or servicing.
2. The expectation that UK and Gibraltar-based insurance undertakings submit a Run-Off/Servicing form annually which will enable the MFSA to monitor the run-off business of such insurance undertakings.
3. The fact that as a consequence of the UK’s withdrawal from the EU, UK and Gibraltar-based insurance undertakings will no longer be allowed to conclude new insurance contracts or establish, renew, extend, increase or resume insurance cover under the existing insurance contracts in Malta, unless they are authorised for such insurance activities by the MFSA.
4. The requirement that UK and Gibraltar-based insurance undertakings which would like to continue servicing cross-border business in Malta and obtained authorisation from the MFSA to carry out such cross border business, through the establishment of a branch, to comply with the relevant provisions of the Insurance Business Act, Regulations and Insurance Rules issued thereunder and the Insurance Distribution Act, Regulations, and Insurance Distribution Rules issued thereunder, including the Conduct of Business Rulebook.
In this context, MFSA also informs UK and Gibraltar-based insurance undertakings that where they have obtained authorisation from the MFSA to carry out cross-border business through the establishment of a branch in Malta, and such undertakings have not made use of such authorisation within 12 months, or ceased to pursue business in Malta for more than six months, the MFSA may withdraw the authorisation of such undertakings.
5. The MFSA will be allowing the finalisation of a portfolio transfer from a UK insurance undertaking to an insurance undertaking authorised by the MFSA, provided that it was initiated before the UK’s withdrawal from the European Union. The MFSA deems a portfolio transfer to be initiated where the PRA, the FCA or the GFSC have notified the MFSA about the initiation of such portfolio transfer, before the UK’s withdrawal from the EU.
6. The MFSA will be drafting internal procedures to include EIOPA’s recommendation on the change in the habitual residence or establishment of the policyholder in its supervisory review processes by the end of this year, in the event that the UK withdraws from the EU.
7. That, in the best interests of the policyholders, the MFSA expects current UK and Gibraltar-based insurance undertakings with cross-border business in Malta to immediately disclose to their policyholders and beneficiaries, unless they have already done so, the information as indicated in the EIOPA Opinion on disclosure of information to customers about the impact of the withdrawal of the United Kingdom from the European Union (EIOPA-BoS-18/119) of the 28th June 2018, in relation to insurance contracts concluded before the withdrawal date of the UK from the EU (including contracts that would already be terminated on the withdrawal date, but for which open claims exist or may be reported thereafter).
8. That upon the UK’s withdrawal from the EU, the MFSA will immediately remove the UK and Gibraltar-based insurance undertakings from the Maltese Financial Services Register, which provides a list of insurance undertakings that have passported to Malta under freedom of establishment and freedom of services.
9. That UK and Gibraltar-based intermediaries and entities which intend to continue or commence distribution activities after the UK’s withdrawal from the EU, are expected to be established and registered in line with the relevant provisions of the Insurance Distribution Act. The MFSA also expects that intermediaries which are legal entities, seeking registration in Malta, to demonstrate an appropriate level of corporate substance, proportionate to the nature, scale and complexity of their business. Furthermore, where UK and Gibraltar-based intermediaries and entities providing distribution activities in Malta do not obtain authorisation from the MFSA before the UK’s withdrawal from the EU, such intermediaries were required to inform the MFSA of a realistic contingency plan, by the 13th September 2019.
The responses of each EU Member State to the EIOPA Recommendations can be accessed by clicking here.
This document does not purport to give legal, financial or tax advice. Should you require further information or legal assistance, please do not hesitate to contact Dr. Edmond Zammit Laferla or Romina Bonnici