Belgium: Brexit transitional measures for United Kingdom insurance undertakings and intermediaries

Key takeaways

• Under Belgium’s transitional regime for the insurance industry, United Kingdom insurance undertakings and insurance, ancillary insurance and reinsurance intermediaries can continue servicing existing (re)insurance policies in Belgium as from 1 January 2021 without being required to obtain a local license or authorization first.
• In order to benefit from the transitional regime, both United Kingdom insurance undertakings and insurance intermediaries have to satisfy certain cumulative conditions. Among others, they will have to notify the Belgian competent supervisory authorities of their intention to rely on the transitional regime, they may not engage in new activities in Belgium (which includes renewing or extending existing (re)insurance policies) and they will have to provide a plan to the Belgian competent supervisory authorities on how they intend to run off their activities.
• For United Kingdom insurance undertakings, the transitional regime applies until the existing insurance policies that have been put in run off have expired (without the possibility to renew or extend such policies). For United Kingdom insurance intermediaries, the transitional regime will expire on 30 June 2022 at the latest.
• United Kingdom insurance undertakings and insurance intermediaries that benefit from the transitional regime will remain subject to Belgium’s insurance conduct of business rules.

In more detail

1. Background

In the European Union (EU), a license or authorization granted to an insurance undertaking or insurance intermediary in one member state is valid in the entire territory of the EU. If such entity wishes to provide services in another member state through the freedom of services or the freedom of establishment, it must notify its home competent supervisory authority, which will subsequently transmit such information to the competent authority of the host member state. This principle of mutual recognition is commonly referred to as the European passport regime, which applies to various types of regulated financial institutions and financial services providers, including EU insurance undertakings and insurance intermediaries.

As a consequence of the United Kingdom’s withdrawal from the EU, the United Kingdom no longer benefits from the EU’s internal market regime, meaning that United Kingdom insurance undertakings and insurance intermediaries (and other types of financial institutions and financial services providers) have lost their European “passport” to provide services in the various member states of the EU. As from 1 January 2021, United Kingdom entities accordingly qualify as third-country entities, which generally implies that they will have to obtain a local license or authorization in each member state in which they wish to conduct business.

To temporarily ensure the continuity of existing (re)insurance policies as from 1 January 2021, the Belgian legislator adopted the Royal Decree of 22 December 2020¹ containing Brexit transitional measures for the United Kingdom insurance industry. This means that United Kingdom insurance undertakings and insurance, ancillary insurance and reinsurance intermediaries are allowed to continue servicing existing (re)insurance policies in Belgium on a temporary basis without being required to obtain a local license or authorization.

The Royal Decree of 22 December 2020 executes Article 20, paragraph 1 of the Belgian Act of 3 April 2019 on the withdrawal of the United Kingdom from the EU (“Brexit Act“). Article 20, paragraph 1 of the Brexit Act authorizes the Belgian government to take measures to safeguard the continuity of existing contracts and legacy books of United Kingdom financial services providers that lost their license, registration, permit or other type of authorization to carry out activities in Belgium, as from 1 January 2021. Therefore, the Royal Decree of 22 December 2020 executes this provision with regard to the insurance industry. No other royal decrees have been adopted yet to introduce similar transitional measures for other financial services industries. This briefing therefore only focuses on the transitional regime for the United Kingdom insurance industry.

2. Continuity of contracts for the United Kingdom insurance industry as from 1 January 2021

The Royal Decree of 22 December 2020 provides for a temporary transitional regime for the United Kingdom insurance industry whereby a distinction is made between the regime for insurance undertakings and the regime for insurance intermediaries.

2.1 United Kingdom insurance undertakings

As United Kingdom insurance undertakings have lost their European passport, they are no longer authorized to carry out insurance activities in Belgium under the freedom of services or the freedom of establishment, unless they establish an authorized branch in Belgium. The mere servicing of existing contracts and legacy books (even without entering into new insurance policies) is in principle already sufficient to trigger authorization requirements in Belgium.

To safeguard the continuity of existing contracts and legacy books, the Royal Decree of 22 December 2020 provides for a temporary transitional regime for United Kingdom insurance undertakings similar to the regime for Belgian insurance undertakings that wish to withdraw their license. In accordance with the transitional regime, a United Kingdom insurance undertaking may continue servicing existing insurance policies concluded before 1 January 2021 in Belgium without being required to apply for authorization, but only if it satisfies the following cumulative conditions:

• It must notify the National Bank of Belgium (“NBB”) of its intention to rely on the transitional regime.
• It undertakes not to conclude any new insurance contracts in Belgium, with the exception of the conversion of capital into interest or vice versa of life insurance policies and the continuation on an individual basis of occupational health insurance.
• It provides evidence to the NBB that it is authorized in the United Kingdom to carry out the insurance activities that are covered under the Belgian insurance policies.
• It delivers proof to the NBB that it complies with the legal and regulatory requirements applicable in the United Kingdom; that it is not subject to a recovery plan, to a short-term financing plan or to any similar measure adopted by the supervisory authorities of the United Kingdom; and that no reorganization measure has been imposed on it in the United Kingdom.
• It provides the NBB with a plan setting out how it will settle its existing obligations.
• It undertakes to provide financial and operational support for its Belgian activities so that the insurance benefits can be liquidated in the best interest of policyholders and beneficiaries.
• It appoints a legal representative in Belgium.

The information above must be updated on an annual basis and each time a significant change to such information occurs. The United Kingdom insurance undertaking must inform the policyholders and beneficiaries as soon as possible that the continuity of their insurance benefits is being ensured and it must provide them with all useful information in that respect.

The Belgian legislator also clarified that the loss of an authorization to operate in Belgium as a result of Brexit is not in itself a valid reason to unilaterally terminate or amend insurance policies governed by Belgian law. Moreover, United Kingdom insurance undertakings that benefit from the transitional regime will remain subject to Belgium’s conduct of business rules, as provided for in the Belgian Act of 4 April 2014 on insurances.

The transitional regime also applies to United Kingdom entities that are in the process of applying for authorization as a Belgian branch of a third-country insurance undertaking until such authorization has been granted.

2.2 United Kingdom insurance intermediaries

As United Kingdom insurance, ancillary insurance and reinsurance intermediaries (together referred to as the United Kingdom insurance intermediaries) have also lost their European passport, they are no longer able to carry out activities in Belgium unless they obtain authorization from the Belgian Financial Services and Markets Authority (“FSMA”). For intermediaries, the mere servicing of existing contracts and legacy books (even without distributing new (re)insurance policies) is in principle already sufficient to trigger authorization requirements in Belgium.

To safeguard the continuity of existing contracts and legacy books, the Royal Decree of 22 December 2020 also provides for a temporary transitional regime for United Kingdom insurance intermediaries, allowing them to continue servicing existing (re)insurance contracts concluded before 1 January 2021 without being required to obtain authorization from the FSMA. In order to benefit from the regime, the United Kingdom insurance intermediary must cumulatively satisfy the following conditions:

• The maximum period during which it may continue to service existing contracts may not exceed 18 months and it will therefore expire on 30 June 2022 at the latest.
• It must notify the FSMA of its intention to rely on the transitional regime.
• It must provide the FSMA with a plan explaining how it intends to cease its (re)insurance distribution activities in Belgium prior to 30 June 2022.
• It provides the FSMA with evidence that, under United Kingdom law, it is authorized to carry on (re)insurance distribution activities and that it complies with the legal and regulatory requirements in force in the United Kingdom.

The transitional regime does not imply that United Kingdom insurance intermediaries can renew or extend (tacitly or otherwise) existing (re)insurance contracts, or introduce, extend, increase or reintroduce cover into those contracts. The 18 month-period could also be shorter for certain United Kingdom insurance intermediaries, for example, depending on the duration of their plan for terminating their activity or if they have been registered with the FSMA before the expiry of this period. Intermediaries that, at the end of the period, would still be engaged in (re)insurance distribution activities in Belgium and that, within that period, would not have been registered with the FSMA must cease all distribution activities, even for existing contracts. A violation of these provisions may give rise to civil, criminal and administrative sanctions.

The information referred to in the bullet points above must be updated on an annual basis by the intermediary according to the frequency and modalities established by the FSMA.

Furthermore, the FSMA may impose measures aimed at safeguarding the rights of policyholders, insured persons and beneficiaries of (re)insurance agreements. These measures include in particular the possibility for the FSMA to order the intermediary to transfer all or part of its (re)insurance distribution activities or to terminate its (re)insurance distribution agreements. Finally, the transitional regime also applies to those entities that have applied for registration as a Belgian insurance, ancillary insurance or reinsurance intermediary until such registration has been granted.

3. Want to know more?

If you want to read more, the Royal Decree of 22 December 2020 and its preparatory works can be found here. If you require further assistance or guidance on the matter, please consult your regular contact at Baker McKenzie.

1 The Royal Decree of 22 December 2020 executing, as far as insurance undertakings, insurance, ancillary insurance and reinsurance intermediaries are concerned, Article 20, paragraph 1 of the Act of 3 April 2019 on the withdrawal of the United Kingdom from the EU.