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International Insurance and Reinsurance News, Trends, and Cases

Posted in Regulatory and legislative updates, Spain

Spain: Contingency measures following no-deal Brexit published –and they guarantee continuity of insurance contracts and smooth adaptation to new regime for British insurers

What is all about?

Brexit month is finally here –or is it? Interests at stake on both sides of the Channel, fearing consequences of a no-deal Brexit, may end up cristalysing in a delay and extension to Article 50 of the TEU.

Whatever the case, as things stand now, the UK is due to leave the EU on 29 March, 2019, regardless of whether there is a deal with the EU or not.

In an effort to mitigate consequences for citizens and businesses of a no-deal Brexit the Spanish Council of Ministers approved last 1 March a Royal Decree on Brexit contingency measures covering a wide range of issues –from healthcare to travel to financial services and insurance. Continue Reading

Posted in Regulatory and legislative updates, UK

UK: Corporate Insurance Newsletter – February 2019

The Hogan Lovells’ Corporate Insurance Newsletter for February  has been published.  This provides a round-up of UK, EU and international regulatory developments relevant to UK based insurance market participants.  In this issue, amongst other items, we cover:

  • Latest Brexit related consultation papers and other material from the HM Treasury, PRA and FCA
  • The FCA’s final report on its review of the wholesale insurance brokers market review
  • The European Commission’s request to EIOPA for technical advice on the review of the Solvency II Directive
Posted in UK

UK: OFSI flexes its muscles in imposition of first monetary penalty for breach of financial sanctions

Executive summary:

On 21 January 2019, OFSI issued its first monetary penalty for a breach of financial sanctions, marking a significant development in the UK’s evolving sanctions enforcement landscape. OFSI’s first use of its new monetary penalty powers, introduced by the Policing and Crime Act 2017, resulted in a £5,000 penalty issued to R. Raphael & Sons plc, trading as Raphaels Bank. The bank disclosed to OFSI its dealing in funds in the amount of £200 belonging to a designated person under the Egypt (Asset-Freezing) Regulations 2011. Firms should take note of OFSI’s recent enforcement action as an increased impetus to ensure effective compliance with financial sanctions restrictions.

Analysis:

Monetary penalties for sanctions breaches are a familiar concept in the US and have been imposed by the Office of Foreign Assets Control (“OFAC“) for many years.

OFSI’s increased powers under the Policing and Crime Act 2017, which came into effect on 1 April 2017, were heralded at the time as a potential shift to a more ‘OFAC style’ hard line approach to financial sanctions breaches in the UK as, previously, enforcement options available to OFSI (and, prior to that, HM Treasury) had been limited to formal criminal prosecution or a public warning letter.

Under the Policing and Crime Act 2017, OFSI was granted the power to impose monetary penalties of up to £1 million or 50% of the value of the breach (whichever is greater). OFSI subsequently issued its Guidance on Monetary Penalties for Breaches of Financial Sanctions (the “Guidance“) in May 2018 which detailed how it would apply these powers and, in particular, how it would review the seriousness of the breach to determine the level of monetary penalty to impose. Please see our blog post here for more details.

On 25 February 2019, OFSI published a notice about the monetary penalty which had been issued to Raphaels Bank on 21 January 2019. Whilst the published details of the breach by Raphaels Bank are limited, it appears that it made a disclosure to OFSI in respect of its dealing with funds in the amount of £200 belonging to a person designated under the Egypt (Asset-Freezing) Regulations 2011.

A £5,000 monetary penalty was imposed by OFSI, which had been reduced from £10,000 “in consideration of Raphaels Banks’ disclosure and cooperation“. Pursuant to the Guidance, this suggests that the case in question was considered ‘serious’ by OFSI as a 50% reduction of the baseline penalty was applied to take into account the voluntary disclosure. In light of this, it is important to note that OFSI appears willing to impose sizable fines irrespective of the value of the underlying transaction even where it was voluntarily disclosed (here, an almost 2500% uplift in value), particularly as the present case was not assessed to be a ‘most serious’ case and involved the Egypt programme, a programme that is not currently considered to be of particular critical/strategic importance for the UK.

Next steps:

Whilst this action does not provide far-reaching insight into OFSI’s broader strategy towards enforcement, firms falling within OFSI’s jurisdiction should view this first monetary penalty as an opportunity to take stock of their own sanctions compliance operations. With the regulatory landscape shifting towards more aggressive enforcement, entities should ensure that they have comprehensive systems and controls in place to identify and mitigate any sanctions risks.

Relevant employees should be aware of the requirements for disclosing any breaches of sanctions legislation to OFSI as soon as practicable, as well as the potentially severe consequences of failure to disclose. In particular, the reduction in penalty in the present case shows the benefits of voluntarily disclosing as soon as possible in order to take advantage of such mitigation.

Additionally, insurance companies should satisfy themselves that any third party’s systems and controls (such as agents, brokers and introducers) are also sufficient to mitigate UK sanctions risks.

If you have any queries regarding monetary penalties for breaches of financial sanctions, please contact a member of the Hogan Lovells team.

Useful links:   

HM Treasury’s penalty notice on the Raphaels Bank case can be found here.

Posted in European Union, Market developments, Russia, UK, USA

Webinar: Sanctions: Navigating the Labyrinth

The pace of change to the global financial sanctions landscape picked up dramatically during the course of 2018. Global (re)insurers, brokers and policyholders now face an increasingly complex lattice of measures imposed by the UN, U.S., EU, UK and other countries. These measures often have different scope, jurisdictional reach and can directly conflict with one another.

Click here to read more and register for the webinar.

Posted in Regulatory and legislative updates, UK

UK: PRA proposals to Increase the Part VII Transfer Transaction Fee

On 13 February 2019, the PRA published Policy Statement (PS) 3/19, which sets out the PRA’s final policy on updating periodic fees and transaction fees for insurers. Notably PS3/19 implements a substantial increase in Part VII FSMA regulatory transaction fees. This change will come into effect on Friday 1 March 2019.

The Part VII transaction fee hike comes at an interesting time, following a period of increased popularity for Part VII transfers which are regarded as a key tool for Brexit restructuring. Part VII transfers allow UK firms to transfer parts of their business to EEA entities to ensure that they continue to benefit from passporting rights after exit day, currently on 29 March 2019. Continue Reading

Posted in Regulatory and legislative updates, UK

UK: A pretty clean bill of health for the London Wholesale Broker Market

FCA publishes its Final Report for Wholesale Insurance Broker Market Study

The FCA has published today its final Report in respect of its Market Study of the wholesale insurance broker market.

The Market Study was launched in November 2017 with a focus on evaluating the level of competition in the sector in light of how the sector is developing.  For discussion of the FCA’s Terms of Reference for the Market Study and further background, please see the previous blog post on this topic here. Continue Reading

Posted in Regulatory and legislative updates, USA

US: NAIC forms working group to explore alternative restructuring mechanisms for insurers seeking to transfer blocks of business

On 19 February 2019, the NAIC Financial Condition (E) Committee voted to form a Restructuring Mechanisms Working Group (the “Restructuring Working Group”) and a Restructuring Mechanisms Subgroup (the “Restructuring Subgroup”) to consider the issue of various insurance business transfer (“IBT”) laws that have been adopted, or are being considered, across the United States. These IBT laws, which generally allow insurers to transfer books or blocks of business to other insurers by operation of law (e.g., following regulatory and court approval), and often without the affirmative consent of impacted policyholders, are similar to “Part VII” transfers authorized under the UK Financial Services and Markets Act 2000.

Click here to read our Client Alert.

Posted in Regulatory and legislative updates, UK

UK: Transition without a transition period: EIOPA issues recommendations on continuity of insurance contracts following no-deal Brexit

On 19 February 2019, the European insurance regulator EIOPA released recommendations for the insurance sector, calling on national supervisory authorities (“NCAs“) in the EU27 to minimise the detriment to insurance policyholders and beneficiaries in case of a no-deal Brexit. Other states in the European Economic Area (“EEA“) can be expected to follow EIOPA’s recommendations. The recommendation follows EIOPA’s call to action for firms to ensure service continuity for cross-border insurance – see our previous blog here.

The recommendations relate to the treatment by insurance regulators in the EU27 of UK insurance undertakings and insurance intermediaries providing cross-border services after Brexit. In particular, EIOPA has sought to allay concerns regarding “contract continuity”, the uncertainty about how UK insurers which have validly underwritten EEA business prior to Brexit, would be able to service that business from 30 March 2019, the point at which the UK will become a third country with no right to “passport” authorisations within Europe. Continue Reading

Posted in Regulatory and legislative updates, Spain

Spain: D&O: tax liability and exclusions

This post aims to analyze the recent decision issued by the Civil Chamber of the Spanish Supreme Court dated 29 January 2019 and the impact said ruling may have in the cover offered by D&O policies in Spain.

The directors and officers of a company may, as a consequence of their position, be exposed to a claim arising from a management error or negligence, breach of duty, lack of diligence or lack of supervision. This liability is not limited to the civil sphere, but also extends to other areas such as tax liability. Continue Reading

Posted in Regulatory and legislative updates, UK

UK: PRA publishes Consultation Paper 3/19 “Solvency II: Longevity risk transfers-simplification of pre-notification expectations”

On 5 February 2019, the Prudential Regulation Authority (PRA) published Consultation Paper (CP) 3/19, which proposes to update Supervisory Statement (SS) 18/16 “Solvency II: longevity risk transfers” to simplify the pre-notification requirements for longevity risk transfers and update the key risks the PRA considers arise from longevity risk transfers.

Since Solvency II came into effect the PRA has closely monitored longevity risk transfers to ensure that the transactions are for reasons of genuine risk transfer, as opposed to a means of balance sheet manipulation to reduce the risk margin applying to liabilities which may not benefit from transitional measures. For further information on this topic see our earlier blog post here. Continue Reading