Le Brexit Nouveau est arrivé
On Christmas Eve 2020, the EU and the UK agreed on the long debated Trade and Cooperation Agreement (TCA). It goes beyond a free trade agreement. It has been provisionally applicable since 1 January 2021. It is a horizontal agreement, 400 plus pages, with more than 1000 pages of annexes. The provisional application will cease upon ratification or on 28 February 2021. The negotiated text of the TCA, published in the Official Journal of 31 December 2020, has not yet been subject to final legal-linguistic revision. The authentic and definitive texts resulting from such revision will replace ab initio, the signed versions of the TCA. These authentic and definitive texts of the TCA will be published in the Official Journal of the European Union in due time by 30 April 2021. But in the meantime, there it is! Le Brexit Nouveau est arrivé.
What is in it for insurance or other financial services? Not as much as some had hoped for. It foresees in the application of the general measures to services, contained in Heading One of Part Two, Title II: Services, Chapter 1,2,3 and 4, such as cross-border trade in services market access, and non-discrimination; in the application of sections 1 and 2 of Chapter 5: Regulatory Framework, and in section 5: Financial services. Section 5 contains measures such as the potential for a prudential carve-out, the treatment of confidential information, how to deal with international standards, financial services new to the territory of a party, self-regulatory obligations and clearing and payment systems. The TCA does not cover any decisions relating to equivalences for financial services or on the adequacy of the UK data protection regime as these are unilateral EU decisions. This was already made clear in July 2019 when the EU in a Communication explained that “Third countries may express an interest in being assessed, which the Commission will duly consider. It should be noted that equivalence empowerments do not confer a right on third countries for their framework to be assessed or to receive an equivalence determination, even if those third countries are able to demonstrate that their framework fulfils the relevant criteria. Similarly, while in many cases the EU is adhering to international standards, and a third country’s adherence to international standards will be an important factor, this does not mean that the Commission would automatically find that country EU equivalent in a specific area”. The Agreement also does not provide for a financial services passport or for the easy recognition of professional qualifications, as these are rights reserved for EU Member States. And these Member States have made ample use of their powers to make reservations, different for each Member State. By way of example in the area of existing measures: in Bulgaria, Spain, Poland, Portugal and Sweden, direct branching is not permitted for insurance intermediation, as local incorporation is required. In Austria, the management of an insurance branch must consist out of two natural persons residing in Austria. In Germany, Hungary and Lithuania, insurers not incorporated in the EU, can only supply direct insurance services via a branch. In Italy, only natural persons may have access to the actuarial profession, and have to have an EU nationality unless there is reciprocity.
However, the TCA is complemented by a series of Declarations, one of which is the Joint Declaration On Financial Services Regulatory Cooperation Between The European Union And The United Kingdom in which the two parties agree to establish structured regulatory cooperation on financial services, with the aim of establishing a durable and stable relationship between autonomous jurisdictions. Based on a shared commitment to preserve financial stability, market integrity, and the protection of investors and consumers, these arrangements will allow for: (1) bilateral exchanges of views and analysis relating to regulatory initiatives and other issues of interest; (2) transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions; and (3) enhanced cooperation and coordination including in international bodies as appropriate. Secondly, according to the Joint Declaration, both Parties will, by March 2021, agree a Memorandum of Understanding (MoU) establishing the framework for this cooperation. The Parties will discuss, inter alia, how to move forward on both sides with equivalence determinations between the Union and United Kingdom, without prejudice to the unilateral and autonomous decision-making process of each side.
But the treaty is not the end of a relationship, it is its beginning. It installs quite a series of institutions to manage this new relationship, which should be based according to Title X of the TCA on Good Regulatory Practices and Regulatory Cooperation such as “Regulatory measures shall not constitute a disguised barrier to trade” but which does not apply to regulatory authorities and regulatory measures, regulatory practices or approaches of the Member States. First, there is the Partnership Council (PC), with representatives of the EU and the UK meeting in different configurations depending on the matters under discussion, and co-chaired by a member of the European Commission and a UK representative (ministerial level). One of its powers is to adopt amendments to the Agreement where the Agreement provides for it, and the ability to establish specialised committees beyond the 19 already established in the TCA. Second, there is the Trade Partnership Committee (TPC), ten Trade specialised committees such as the Trade Specialised Committee on Services, Investment and Digital Trade addressing matters a.o. on financial services, and a further eight Specialised Committees. Third, there are four working groups established in the TCA with the potential to establish more. Fourth, there is a Parliamentary Assembly consisting out of EU and UK MPs which may make recommendations to the PC. Fifth, the Agreement foresees in the creation of a Civil Society Forum. Sixth, there will be an arbitration tribunal, which can be replaced by expert panels for the purpose of level playing field rules.
There will be further negotiations in the next few years. Every 5 years the Treaty will be reviewed, and there will be the opportunity to make changes.
In the meantime, the Commission and the UK have resumed talking eying a Memorandum of Understanding by 31 March 2021. And the Solvency II review on both sides of the Channel continues.