Nicky Morgan, new chair of the Treasury Committee, has written to Sam Woods, CEO of the Prudential Regulation Authority requesting information on the PRA’s recent survey of regulated firms that undertake cross-border activities between the UK and the rest of the EU.
Nicky Morgan says, “The cliff edge facing businesses in April 2019 is a cause for concern, particularly in the insurance sector. Based on the information the PRA has collected, I have asked Sam Woods about how insurers will respond as the Brexit deadline approaches, and the key risks of a no deal scenario. I have also asked Woods for his views on the desirability and design of a transitional arrangement with the EU, to provide more time to negotiate and prepare for a new UK-EU economic relationship."
In April the Prudential Regulation Authority, wrote to all insurers undertaking cross-border activities between the UK and the rest of the EU. The PRA requested a summary of their contingency plans for the UK’s exit from the EU, and assurances that those plans covered the most adverse potential outcomes, in which the UK leaves the EU with no withdrawal or trade agreement, and no transitional arrangements to mitigate a sudden loss of market access.
In preparation for the formation of the Treasury Committee, which may wish to consider the implications of exiting the EU for financial services, Nicky Morgan has requested information on the following:
- Whether all firms within the scope of the inquiry have now responded to his request;
- Woods’ assessment of the preparedness of firms for a no deal scenario, in which the UK leaves, and whether firms that are underprepared share common characteristics;
- The nature and timing of the actions firms will take as the risk of a no deal scenario rises, and whether firms have identified common trigger points that precipitate such action;
- How the nature and timing of actions firms will take under a no deal scenario varies by the nature of the business they conduct (e.g. banking versus insurance), and the type of legal entity (UK-headquartered insurer versus a subsidiary of a US insurer);
- Whether the PRA has the capacity to directly authorise and supervise all those firms currently providing services in the UK under passporting arrangements;
- Whether the collective execution of no deal contingency plans poses a material risk to the PRA’s objectives, and to financial stability more generally, and whether firms are waiting for competitors to execute their contingency plans before activating theirs;
- Taking into account the results of this exercise, Woods’ views on the desirability and design of transitional arrangements, including a bridging period between the end of the Article 50 negotiations, and the entry into force of an agreement on a new UK-EU economic relationship.
Morgan has requested an immediate 24-hour response from Woods.