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This publication is available at https://www.gov.uk/government/publications/draft-insurance-distribution-amendment-eu-exit-regulations-2019/insurance-distribution-amendment-eu-exit-regulations-2019-explanatory-information
The European Union (Withdrawal) Act 2018 (EUWA) repeals the European Communities Act 1972 on the day the UK leaves the EU and converts into UK domestic law the existing body of directly applicable EU law. The purpose of the EUWA is to provide a functioning statute book on the day we leave the EU.
The EUWA also gives Ministers powers to make statutory instruments (SIs) to prevent, remedy or mitigate any failure of EU law to operate effectively, or any other deficiency in retained EU law. We refer to these contingency preparations for financial services legislation as ‘onshoring’.
HM Treasury is using these powers to ensure that the UK continues to have a functioning financial services regulatory regime in any scenario.
This SI is part of the wider work the government is undertaking to prepare for the UK’s withdrawal from the EU. It is not intended to make policy changes, other than to reflect the UK’s new position outside the EU, and to smooth the transition. The changes made in this SI would not take effect on 29 March 2019 if, as expected, we enter an implementation period.
The accompanying draft SI is intended to provide Parliament and stakeholders with further details on our approach to onshoring financial services legislation. The draft instrument is still in development. The drafting approach, and other technical aspects of the proposal, may change before the final instrument is laid before Parliament.
3. Policy background and purpose of the SI
3.1 What does the underlying EU regulation and UK law do?
The Insurance Distribution Directive (IDD) sets the regulatory framework for the distribution of insurance in the EU updating and replacing the Insurance Mediation Directive (IMD). It is a ‘minimum-harmonising’ directive that aims to improve consumer protection by introducing a level playing field across insurers and insurance distributors. It covers the initial registration, passporting arrangements, and ongoing regulatory requirements for insurance and reinsurance distributors. It applies to the vast majority of participants in the sale of insurance products, i.e., insurers and reinsurers of insurance products that sell directly to customers, as well as agents and brokers of insurance and reinsurance. The application of the IDD is wider than the IMD, covering organisational and conduct of business requirements for insurance and reinsurance undertakings. The IDD also introduces requirements in new areas, including product oversight and governance, and enhanced conduct rules for Insurance–Based Investment Products (IBIPs).
3.2 Deficiencies this SI remedies
This SI intends to address deficiencies in retained EU law relating to the IDD that arise from the UK leaving the EU. The IDD will not be retained EU law as it is a directive that has already been implemented in the UK through domestic legislation and FCA rules. This SI intends to fix deficiencies in the EU directly applicable delegated regulations that have been made under the IDD by transferring functions from EU entities to appropriate UK bodies, replacing cross references to EU legislation with the relevant UK measures which implemented those provisions, and removing other EU references which are no longer appropriate. This SI is also intended to apply the current scope of the delegated regulations that have been made under the IDD; the scope will include all UK-based firms conducting insurance distribution in the UK as well as those intermediaries and insurers operating under the Temporary Permissions Regime after the UK leaves the EU.
3.3 Transfer of functions
To ensure that the UK’s standalone insurance distribution regime will work effectively, certain key functions carried out by EU institutions will need to be transferred to appropriate UK bodies. Non-legislative functions will be transferred to the FCA, as the relevant national competent authority. Specifically, the SI transfers to the FCA the power to make technical standards regarding a standardised presentation format of the insurance product information document (IPID) as currently set out in the IDD Commission Implementing Regulation (EU) 2017/1469. The IPID is a standardised document that provides pre-contractual information about insurance products to help people compare them and make informed decisions.
The Financial Regulators’ Powers (Amendment) (EU Exit) Regulations 2018 will ensure the requirements for an IPID will be retained by delegating use of the EUWA section 8 fixing power to the FCA, so they can fix deficiencies in the Binding Technical Standards (BTS) in advance of exit day, and also establishes the statutory basis under which the FCA can continue to maintain the IPID after exit. The power given to the FCA in this SI will enable them to update the IPID requirements in the future. Without this power, the IPID requirements could only be updated by further secondary legislation, potentially resulting in consumer detriment as this would take more time to implement. The FCA already have the power to make rules which could cover similar territory and, as such, this would not see any significant expansion in their scope.
Any legislative functions, such as the Commission’s power to adopt delegated acts, will be transferred to HM Treasury. This includes the powers to make regulations about conflicts of interest, regulations about inducements, and regulations on assessments of suitability, appropriateness and reporting to customers. This SI also transfers legislative functions to the Treasury relating to the power to specify principles for product oversight and governance.
3.4 Relevant Rulebook and Binding Technical Standard changes
The FCA will be consulting on changes to its rules that implemented the IDD, including in relation to the IPID to reflect the changes introduced through this SI. The consultation is expected to be published in November 2018.
This SI affects the rules applicable to firms involved in insurance distribution. This includes insurers and insurance brokers, but also other firms involved in distributing insurance products, such as price comparison websites, banks, and mortgage intermediaries.
This SI does not include provisions that may be necessary to ensure Gibraltarian financial services firms’ continued access to UK markets in line with the UK Government’s Statement in March 2018, and other provisions dealing with Gibraltar more generally. Where necessary, provisions covering Gibraltar will be included in future SIs.
The intention of this SI is not to make policy changes to these rules, as such there are expected to be very limited stakeholder impacts from this SI. The intention of this SI is to make changes to reflect the UK’s new position outside the EU, and to smooth the transition to this position. HM Treasury has engaged with industry bodies where possible to ensure awareness of these changes.
4. Next steps
HM Treasury plans to lay this instrument before Parliament before exit.
5. Further information
If you have queries regarding this instrument, email FSlegislationEUWA@hmtreasury.gov.uk