EIOPA issued a consultation on 1 August 2022 seeking feedback on its supervisory statement on the use of governance arrangements in third countries (i.e. non-EU member states) which perform functions or other activities for the EU market.
This development forms part of the EU response to post-Brexit trading adaptations introduced by insurers and other financial services firms across the UK and EU to adapt to the changing legal and trading relationship. For many businesses, this involved the creation of subsidiaries either in the EU or in the UK, as well as related branches to help maintain access for clients to key services now that Brexit has taken effect. The supervisory statement and the approach proposed by EIOPA is intended to apply not only to insurers, but also brokers and MGAs who may utilise different structures to access EU markets.
A key concern for the EU across financial services is that insufficient management and governance oversight will be performed in the EU on products and services offered to EU customers:
“Undertakings should not display the characteristics of an empty shell that could arise, among others, from situations where the undertakings use third country branches, or similar governance arrangements, to perform disproportionally functions or activities”.
The paper continues by highlighting that in EIOPA’s view, “…an appropriate level of corporate substance should allow for an appropriate oversight and assessment of undertakings’ governance to guarantee effective decision-making and risk management and to allow for proper supervision”. The supervisory statement goes on to describe in further details, what supervisors across the EU should seek to identify in structures utilised by undertakings to ensure they maintain an ability to monitor compliance with EU legislation, where it may apply.
This approach is also to be addressed in the authorisation of businesses where applicants will be expected to justify proposed structures and how proper supervision will not be impeded by certain governance arrangements.
Given the importance of the London specialty market to the credit insurance and surety markets, ICISA members should familiarise themselves with the proposals, including considering where post-Brexit structures they may be utilising compare to EIOPA’s expectations. ICISA will continue to monitor this and related developments.
If ICISA members wish to discuss this topic further, please contact Daniel de Búrca.
