I know that we are all fatigued by the Brexit shenanigans that have been going on for what seems like an eternity, but there is life after the EU and it is vital that the UK not only look to replace trading agreements that will be pre-empted by the withdrawal agreement, but also look for new opportunities. The UK Government must be on the front foot when it comes to its international financial services strategy and ensure that it has a clear road map of priorities that will help our industry to maintain its preeminent global position.
Maintaining the status quo
We have already had some positive movements and intent. At the end of December 2018, the UK and the US agreed the text of an agreement that will preserve the benefits of the existing EU-US Covered Agreement for UK firms. In addition, at the end of January, the UK and Switzerland signed a bilateral agreement on direct insurance (other than life assurance). This allows UK and Swiss firms to branch into each other’s jurisdiction with greater ease thanks to the mutual recognition of each other’s insurance regulations. However, both the US and Swiss agreements simply replicate what is already in existence; they make no attempt to deepen our trading relationships. The question is, shouldn’t the UK Government be more ambitious and aim for more than just the status quo?
Building on sound foundations
There is still significant scope in the US to grow trade in direct insurance services, a view also expressed by the new LMA chairman Andrew Brooks during his interview with the Financial Times.
As part of a future agreement that could facilitate this the UK Government should consider how the National Association of Insurance Commissioners in the US could be encouraged to seek greater harmonisation of the definitions of “industrial risk”. This would be an important basis for developing greater mutual recognition between the US and UK concepts. Any client company that qualifies under the industrial risk exemption can procure insurance from a wider range of insurers without leaving the state or following surplus lines procedural requirements.
Similarly, the current UK-Swiss Agreement offers an opportunity for future growth. The Government can focus on the right of access for UK & Swiss (re)insurers into each other’s markets, regulator co-operation and joint supervision arrangements. This may sound overly ambitious, but the Swiss have already negotiated two bi-lateral financial services agreements with Liechtenstein and Germany. The principles behind these agreements and the precedents they set have the potential to be used in other sectors such as commercial insurance.
Of course, this is just the tip of the iceberg. There are many more opportunities for the Government to deepen trading relationships with other third countries, but of course one must always consider what countries will seek in return and how this impacts our domestic markets. However, it is encouraging to see that the Government is starting to reach out for input and to ask for direction over where their efforts should be focused. As an industry we must be ready to respond positively and collectively to their requests so that our message does not get lost or diluted by the swell of requests from asset managers and bankers. We must get out there, engage and be ready to promote our position as an industry that contributes over 25% to the City of London’s GDP – this is not the time to be shy and retiring!