Britain’s exit from the EU at 23.00 GMT on January 31 2020 has seen the country enter an ‘implementation period’, which will operate until December 31 2020. For now, therefore, the current rules over passporting – those rights that enable foreign banks and financial institutions to operate in the UK and their UK equivalents to operate in Europe – will remain unchanged.
However, those using EU banks and institutions in the UK, and taking out insurance from EU-based providers passporting in the UK, may need to keep a watchful eye on developments, to ensure their assets remain protected.
Under current law, the Financial Services Compensation Service (FSCS) offers a compensation service to the customers of financial institutions that have failed, including banks, insurance companies and mortgage providers. This means, for instance, that customers’ bank balances are protected up to a value of £85,000 per eligible person, per bank, building society or credit union, if the institution failed after January 1, 2017.
The FSCS website highlights that it “may be able to pay compensation” if an insurance firm fails. However, as it says, for this to happen, the insurance firm must have been regulated by the Prudential Regulation Authority or have been an EEA authorised firm passporting into the UK. The insurance broker must have been regulated by the FCA.17
Previous failures that led to policyholders gaining compensation have included those of Latvian insurer, Balva AAS Insurance, (2014) and German insurer, Berliner Versicherung (BVAG), in November 2015.
For now, the FSCS statement says: “As a result of the implementation period, FSCS expects there will be no changes to the scope of its protection before 31 December 2020 resulting from the UK’s exit from the EU.”18
Despite this current reassurance, it will pay to keep an eye on the situation, where insurers are headquartered and the basis on which they are operating within the UK, as we head to January 1, 2021.