A silent masterstroke: The Berne Financial Services Agreement (2/2)
The Swiss Confederation and the United Kingdom of Great Britain and Northern Ireland signed an agreement on mutual recognition in financial services, also called the Berne Financial Services Agreement, on 21 December 2023. It has several sectoral annexes, each dealing with the details for a particular financial sector. Annex 4 deals with insurance. The purpose of the Agreement, the mutual recognition, is reiterated in the annex: “Covered Financial Services Suppliers are permitted to provide Covered Services to Covered Clients from the territory of one Party into the territory of the other Party, as set out and specified in the Sectoral Annexes”. The covered services for both Parties in the insurance field are not entirely the same.
Covered services are, from Switzerland into the UK, all as defined under the domestic law of the UK: (1) effecting and carrying out insurance contracts for non-life risks, such as MAT, credit and suretyship, fire and natural forces, other damage to property, motor vehicle liability, general liability, miscellaneous financial loss, … (2) auxiliary services to insurance such as consultancy, actuarial, risk assessment and claims settlement services, (3) effecting and carrying out reinsurance including retrocessions for all classes of underlying risk and (4) distribution activities by (re)insurance intermediaries for the mentioned non-life classes of insurance risks and for all classes of underlying risks. For these covered services, Swiss suppliers shall not require notification and authorization. But the suppliers can only be a Swiss insurance company, conducting direct insurance or reinsurance, or an insurance intermediary.
Covered services, from the UK into Switzerland, concern grosso modo the same lines of business, but explicitly includes damage to nuclear facilities, legal protection insurance, business travel assistance for employees and board members of covered clients, specific D&O covers, cyber risks, etc. Excluded are the provision of cover for insurance subject to a public law regime, and those which require a legally enforceable pool participation.
Insurance distribution activities of UK insurance intermediaries, if supplied by an insurer, and for the risks mentioned, are also covered.
The insurers which want to provide covered services from the UK into Switzerland must also be generally subject to the Solvency II regulatory requirements (except UK branches of Swiss insurers) and must meet the solvency requirements without capital relief measures such as the matching adjustment, the volatility adjustment, the dynamic volatility adjustment, and the transitional measures on the risk-free interest rate and on the technical provisions. The insurers must also fulfil the requirements of the company’s specific management buffer and may not have life liabilities except if stemming from a non-life contract. FINMA must be notified.
Covered clients are, enterprises that meet at least 2 of the 3 following requirements: turnover> 36 million GBP or 40 million CHF; balance sheet > 18 million GBP or 20 million CHF and > 250 employees. Consequently, the enterprises targeted are larger than those the Solvency II directive classifies as large risks (especially concerning the turnover and balance sheet criteria).
For services from Switzerland into the UK, these are permitted in accordance with domestic UK law.
For services from the UK into Switzerland, the annex further details such as the requirements which are deferred for suppliers, or from which they are relieved, both for insurance companies as well as for insurance intermediaries. Also, the pre-contractual disclosures, the ad-hoc disclosures to covered clients on request, and the supervisory reporting requirements are detailed.
The Agreement is complemented by enhanced regulatory and supervisory cooperation. This supervisory cooperation is further detailed in the sector-specific annexes and contains provisions related to the notification, the dialogue between supervisory authorities and exchange of information, and host intervention powers.
I believe that this Agreement opens a noteworthy avenue for further cooperation among countries where a high level of trust in each other’s regulatory and supervisory system and framework is paramount, coupled with a serious business interest and a long-term vision about the mutual beneficial effect on both systems.