EIOPA Consultation on use of Third Country Branches

On 1 August 2022, the European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper (dated 29 July 2022) on a draft supervisory statement on the use of governance arrangements in third countries to perform functions or activities (EIOPA-22-715). The aim of the draft supervisory statement is to ensure appropriate supervision and monitoring of the compliance of insurance undertakings and intermediaries with the requirements of the relevant EU legislation in relation to their governance arrangements in third countries. This sounds rather technical but the content has potentially very practical implications. Depending on the outcome of the consultation and the statement to be issued by the European insurance regulator, underwriting of EU risks from a third country branch or distribution of insurance into the EU via a third country branch might become much harder if not impossible.

EIOPA reiterates it had previously underlined the need for insurance undertakings not to display the characteristics of an empty shell company and instead demonstrate an appropriate level of corporate substance, including the presence of decision-makers, key function holders and staff to an extent proportionate to the nature, scale and complexity of the firm's business in the EEA. Specifically, EIOPA is concerned by governance arrangements when they are used to conduct certain regulated functions and activities for undertakings and intermediaries that ultimately serve policyholders in the EU or EEA. The regulator claims this to have the potential to impair risk management and effective decision making. It is supposed to impact the ability of supervisory authorities to conduct proper supervision. Many insurers in the London market including Lloyd´s Managing Agencies as well as brokers and MGA´s but also companies based and authorised in other third countries may have to revisit their (post-Brexit) set-up regarding European risks and business. It is fair to say that EIOPA is neither the first nor alone with this approach; many national regulators within the EEA including EU 27 have taken a similar approach for a while now and have pushed for more local mind & management within their jurisdictions.

Of course, this is still developing but most likely an indication of the “direction of travel” of EIOPA. Feedback to the draft supervisory statement can be provided until 31 October 2022 by sending a response to the questions set out in an accompanying online survey.

If you have any questions about the potential consequences of the expected statement or would like to discuss an existing or future regulatory set-up, please get in touch. We have colleagues in the UK as well as in numerous EU27 jurisdictions happy to help and support you.