LMG Update: Brexit
On 11th December the House of Commons will make one of the most critical decisions in a generation...
MPs will vote on the Government’s Withdrawal Agreement and the Political Declaration, outlining the parameters for our future relationship with the EU.
The vote represents a culmination of over two years of negotiations, during which the London Market Group (LMG) has represented the interests of the brokers and underwriters in London, both in the UK and in the EU, ensuring that its voice has been heard at the highest levels.
Protecting clients – for obvious reasons we’ve placed a heavy emphasis on the interests of our clients in all discussions, particularly the challenges regarding the fulfilment of contracts in a ‘no deal’ scenario. It would be unacceptable to see EU clients left in a detrimental position, not knowing whether their claim would be paid or not. Thanks to this pressure, member state governments including France and Germany are now introducing contract continuity laws in the event of there being no deal.
Breathing space – while the deal is by no means perfect, the 18-month transition period is critical; firstly, to give firms enough time to undertake the necessary restructuring but also to offer breathing space to the Government to see if they can find a future arrangement which preserves as much cross border trading as possible.
Influencing the future agreement – this has been at the core of the LMG’s Brexit activity. 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 the them to propose alternatives.
Equivalence –following our many meetings with ministers, officials and regulators, the government has recognised that the London Market does need to see significant changes to the EU equivalence regime. We do want to see reinsurance equivalence from day one, but the issue is that there are no equivalence frameworks for insurers under Solvency II or for brokers under the Insurance Distribution Directive. We have therefore been looking closely at precedents in other financial services sectors to find an answer.
The EU has long recognised that the treatment of firms providing financial services to sophisticated, commercial clients should be more flexible. Access to the right markets is key if EU clients are to 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.
LMG is actively working with the Government, taking our message directly to Downing Street, to show how these precedents could be leveraged to allow a mutually beneficial trading relationship to continue in insurance. 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.
Explaining the value of London – throughout the process we’ve worked hard to communicate the value of the London Market to both the UK economy and across the EU27, given the crucial role the market plays in pooling European risks and acting as a bridge for the continent to markets in the US and Asia.
We’ve met with representatives of all the major EU member state governments, and many of their regulators, to make the point that the London Market wants to continue to be able provide the necessary cover and support to businesses across Europe. If the deal is accepted by the UK Parliament, the EU27 member states will develop a new mandate for the European Commission to take forward future negotiations with the UK.
The LMG has already started meeting with trade representatives from member states to ensure that the London Market and the need to review the equivalence frameworks gets a fair hearing.
No deal – if we do see the deal voted down then the Government and parliament may well need to consider other options. The so called “Norway for now” option, for example, would help to secure continued access to the single market and maintain our passporting rights - but these are ultimately political decisions for Westminster. LMG has been clear, however, about the negative consequences of a ‘no deal’ for the industry and where this would leave our clients.
Whatever happens on the 11th the LMG will continue to represent all the interests of the London Market. In these uncertain times it’s vital that we make our voice heard.