The U.K. Prudential Regulation Authority has eased a key restriction that it was planning to impose on insurers wanting to set up branches in the U.K. post-Brexit.
Under plans announced in December 2017, the U.K. financial regulator said it would allow non-U.K. insurers to establish branches without needing a financial services passport after Brexit, but only if they had less than £200 million of liabilities that would fall under the protection of the Financial Services Compensation Scheme, or FSCS. Those over the threshold would need to set up a full U.K.-regulated subsidiary.
But the regulator announced March 28, alongside the Bank of England's regulatory approach to Brexit, that it had raised the threshold to £500 million, making it easier for insurers to meet the requirement to set up a branch rather than a full-blown subsidiary. The FSCS, which is funded by levies on financial services firms, compensates the U.K. customers of financial services firms when the firms themselves cannot.
Insurers based in the European Economic Area, or EEA, can set up branches in the U.K. without needing to set up a full U.K.-regulated subsidiary under the financial services passporting regime. But after the U.K. leaves the EU, passporting is widely expected to be lost, meaning that U.K. and EEA insurers will no longer be able to access one another's markets so easily.
The plan would allow EEA-based insurers to continue to access the U.K. insurance market using a branch rather than having to establish a subsidiary.
The PRA acknowledged that pushing up the threshold to £500 million would mean that "the risk to the FSCS will rise." But it added: "The cost of a single firm with a U.K. branch failing remains below the maximum FSCS levies that could be absorbed by the industry having regard to the caps on FSCS annual levies."