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The Wholesale / Retail Distribution Model Post a No-Deal Brexit

The reality of a no-deal Brexit looms large over multiple disciplines, businesses and industries but for insurance intermediaries, registered pursuant to the Insurance Distribution Directive (Directive (EU) 2016/97) (the “IDD”) in both the UK and EU27, a no-deal Brexit has the potential to fundamentally shift the foundations underpinning its industry.

Wholesale / Retail Distribution Model

Currently, significant numbers of EU27 authorised intermediaries place risks through large UK based intermediaries in order to access certain insurance carriers for particular risks - the Wholesale / Retail Distribution Model. In recent months, as entities which rely heavily on this model looked to put in place their Brexit contingency plans, the extent to which a no-deal Brexit would impact the ability of this model to continue, has been discussed extensively with supervisors throughout Europe.

Up until 19 February, there were only suggestions of how Europe would approach this matter, however, on this date, EIOPA released its recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union (the “Recommendations”) and addressed the topic of distribution activities under Recommendation 9 of the Recommendations.

Recommendation 9

In short, it appears that Recommendation 9 is suggesting that if a UK only registered intermediary intends to continue or commence ‘distribution activities’[1] with EU27 intermediaries for EU27 located risks following a no-deal Brexit, the only permissible way for such distribution activities to be carried out, is if that UK only registered intermediary is established and registered in the EU27 pursuant to the IDD [2].

Recommendation 9 also states that such establishments cannot be ‘an empty shell’, a position which the Central Bank of Ireland has long communicated since the Brexit referendum and most recently during its Insurance Sector Conference on 15 February last - see comments by Ed Sibley.

The fall out for the Wholesale / Retail Distribution Model

In light of Recommendation 9, Matheson believes that following a no-deal Brexit, the Wholesale / Retail Distribution Model will potentially be challenged as follows:

  • a UK only registered intermediary will not be permitted to engage in distribution activities with EU27 intermediaries in respect of EU 27 risks; and
  • an EU27 intermediary will not be permitted to engage in distribution activities with UK only registered intermediaries in respect of EU27 risks.

Is there a way forward?

We believe that there are two workarounds available:

  • UK only registered intermediary (following 29 March)
    Establish a subsidiary as an intermediary in an EU27 country to access EU27 risks and then use the reverse branch model to access the UK market, where required[3].
  • EU27 intermediary
    Establish a UK registered branch of the EU27 intermediary and refer EU27 risks to its UK branch to access the UK market, where required.

We fully appreciate that these options can be slow, complicated and expensive to complete and in the case of many small independent brokers, simply not viable. We also understand that neither do they present an immediate solution for 29 March. This is why we maintain that the fall out for the Wholesale / Retail Distribution Market is likely to be significant if EIOPA maintains the stance detailed in Recommendation 9.

If you are either a UK only registered intermediary (following 29 March) or an Irish registered intermediary impacted by Recommendation 9 and wish to discuss your options further, please contact a member of our Insurance team.


[1]. In Recommendation 9, EIOPA states that any distribution model must be assessed against the definition of distribution activity as provided in the IDD. Article 1 (1)(1) and Article 1 (1)(2) of the IDD set out the definitions of what constitutes insurance distribution and reinsurance distribution respectively

[2]. Recommendation 9 also recognises the right of each of the EU27 to adopt its own view on how intermediaries should be regulated, so long as the minimum standards of the IDD are met. Matheson hopes to see some guidance from the Central Bank of Ireland on the position of UK only registered intermediaries before 29 March. However, we anticipate that any such guidance will be broadly aligned with the Recommendations.

[3]. It appears to Matheson that the Recommendations permit this approach which is consistent with that position taken by the Central Bank of Ireland in recent months, in the context of a number our large scale UK broking clients.