Brexit & Lloyd's Market Bulletin
Hello and a Happy New Year,
As you are no doubt aware, on the 1st January 2021 the United Kingdom left the EU. The FCA’s official position is that EU firms that wish to continue undertake regulated activities while established in the UK should have registered under the Temporary Permissions Regime (“TPR”), which gives some breathing space before needing to make a decision on UK authorisation.
Lloyd’s Market Bulletin Y5321
Lloyd’s Market Bulletin Y5321 was issued on the 23rd December 2020, with the intention of clarifying Lloyd’s position on Brexit. We noted that the Bulletin expressed the view that EEA brokers (such as the example it quoted of an Italian Broker) would need to ensure they are UK-Authorised or have a UK branch to continue to conduct European located business. We believe that this message, expressed in such unqualified terms, might cause confusion for those brokers who do not have an establishment in the UK, because the deadline for setting up a Branch under Passporting arrangements passed several weeks ago. As a result, we expect some EU Brokers to have questions as to how they can continue to do business here following Britain’s departure from the EU.
In the Bulletin, Lloyd’s also mentioned that firms “might be able to utilise the Overseas Persons Exemption” – an expression that we feel could have been expanded upon in the Bulletin but wasn’t. Helodrium is here to reassure you that EU intermediaries which do not have an “Establishment” (a Branch) in the UK should have confidence that they can, in fact, rely on the Overseas Person Exemption (“OPE”) in respect of placing their EU business into Lloyd’s. This exemption is potentially a useful means for EU firms seeking to continue placing business in the UK for whom full UK authorisation would create problems under EIOPA Recommendation 9.
Overseas Persons Exemption - what you need to know
The OPE enables firms domiciled outside the UK to provide certain regulated services in the UK on a cross-border basis, largely without obtaining authorisation in the UK. Without going into unnecessary detail, it provides an exemption from the normal legislation governing regulated activities for those brokers which are coming from outside the UK to do business within the UK. In particular, this includes EU Lloyd’s Brokers placing business in the London Market.
Under normal FCA Rules, if a firm has a permanent place of business in the UK, that firm would need to be authorised in the UK; however, an overseas “person” (i.e., a firm) is defined as a person which does carry on regulated activities in the UK but which does not have a permanent place of business in the UK. This would apply to an EU broker arriving in London from his office somewhere in the EU27 and entering the Lloyd’s building. He can seek to engage with an underwriter – and enter into a contract of insurance – without being considered to be conducting regulated activities under UK regulations and therefore does not need to seek authorisation from the FCA.
Things to consider
(!) The OPE only applies if a firm engages in regulated activities 'with or through' an authorised or exempt person which, in the case of EU Brokers coming to London to place EU business, means a FCA authorised underwriter – and, of course, all Lloyd’s Managing Agents are.
(!) The exemption can only be used if your activity is deemed as a “legitimate approach”, which means you cannot solicit business while in the UK.
(!) If you have a subsidiary or branch in the UK, you must ensure that there is a strict division between the business of your UK company (or branch) and any activity carried out with UK clients from the head office in the EU member state.
If you are looking to take advantage of the diversity of underwriting that the Lloyd’s market offers, then the rules outlined above should generally apply automatically. However, if you are confused by anything about the OPE, contact us at Helodrium – we will be happy to advise on your particular case.