Insurance Jottings
EU Still Seeking Clarity Over Britain’s Financial Services, Insurance Rules
The European Commission is still waiting for Britain to say if it will diverge from European Union rules before Brussels can decide on UK financial market access, a spokesman for the EU executive body said on the 10th November.
Daniel Ferrie, spokesman for EU financial services chief Mairead McGuinness,
said the announcement by Britain on the 9th November to grant EU financial firms selective access to the UK provided no further clarity on possible divergence from EU rules going forward.
With less than two months before Britain’s full access to the EU ends under post-Brexit transition arrangements on the 31st December, London’s giant financial hub faces being largely cut off from its biggest customer.
Britain’s finance minister, Rishi Sunak, said on the 9th November that he would not wait for Brussels to decide on UK access and would instead unilaterally allow EU financial firms to offer selected services to UK customers from January.
The EU is assessing access under its “equivalence” system which opens the way for foreign financial firms if their home rules are as robust as those in the 27-nation bloc.
“The Commission’s assessment of the UK’s relevant rules for potential equivalence decisions is ongoing,” Mr Ferrie said.
It evaluates whether Britain’s future as well as current regulatory frameworks reach the same outcomes as those in the EU, he said.
Britain has indicated it will not apply some EU rules and look to amend capital requirements for insurers.
“The UK Treasury’s statement provides no further clarity on the UK’s possible divergence from EU rules going forward, or about the UK’s future supervisory practices,” Mr Ferrie said.
The EU has only granted temporary access for derivatives clearing to date.
Expressing frustration with the EU equivalence process, Mr Sunak told Parliament on the 9th November that his team had spent months replying to Brussels even though EU and UK rules are the same.
“We haven’t had a single question back from the European Union after sending 2,500 pages of responses over to them,” he said.
Karel Lannoo, chief executive of Brussels think tank CEPS, said Britain had to stay open to EU financial firms if it wanted to remain a global financial centre.
But Mr Sunak showed on the 9th November how Britain can move nimbly in financial services when the bloc faces lengthy process and compromises, he said.
“This is a threat for the EU, of which they are not yet aware,” he continued.
EU sanctions against Turkey
Standard Club notification dated: 10 November 2020
Turkey and Greece have been in a dispute for some time regarding who has the right to exploit gas reserves in key areas of the Eastern Mediterranean. Greece and the EU have declared that Turkey’s exploration operations in these areas which includes west of Cyprus and within Cypriot territorial waters as illegal and have called on Turkey to refrain from such activities.
On 11 November 2019 the EU adopted a framework of restrictive measures which provided that sanctions may be imposed on individuals or entities involved in unauthorised drilling activities in the Eastern Mediterranean.
On the same day EU Regulation 2019/1890 was published which is available here.
The Regulation provides for:
- an asset freeze against individuals and entities who have been identified as being responsible for or involved in the planning, preparing, participating in, directing or assisting drilling activities in relation to hydrocarbon exploration and production which have not been authorised by Cyprus within its territorial sea or exclusive economic zone (EEZ) or on its continental shelf
- providing financial, technical or material support for the above mentioned drilling activities
- being associated with Individuals or entities referred to above.
To date the EU has only applied sanctions under the framework once i.e. in February 2020 it imposed an asset freeze on two senior officials of Turkey’s state-owned company, the Turkish Petroleum Corporation (TPAO), in relation to Turkey’s unauthorised drilling operations offshore Cyprus.
On 6 November 2020 the European Council extended the above sanctions framework for another year, until 12 November 2021.
We recommend that members should carry out careful due diligence regarding any counterparties which could be the target of these sanctions and contact their usual club contact should they have any queries.
Top Investor Group Including Allianz Warns Firms to Cut Ties to Coal
Some of the world’s largest insurers and pension schemes are warning companies they invest in not to finance, insure, build, develop or plan new thermal coal plants or face sanctions, including possible divestment.
The Net-Zero Asset Owner Alliance, whose members include German insurer Allianz and manage a combined US$5 trillion in assets, is making the call after a recent commitment to set tougher carbon limits on their portfolios.
To meet the terms of the Paris Agreement on climate change, which aims to limit global warming to 1.5 degrees Celsius above pre-industrial norms by 2050, developed economies need to phase out most thermal coal by 2030, with a global phase out by 2040.
In a report seen by Reuters ahead of its release on the 8th November, the alliance said all companies owned by the group needed to develop their own plans to transition away from thermal coal.
“If no long-term carbon footprint reduction can be produced the members will need to escalate and ultimately divest,” Günther Thallinger, Member of the Board of Management, Investment Management, Environmental, Social and Governance (ESG) at Allianz, said.
To help guide them, the group issued a set of core principles including that, other than coal plants currently under active construction, no further thermal coal power plants should be financed, insured, built, developed or planned.
“Alliance members believe that all companies in our portfolios should have a firm understanding of the wider implications for the activities, operations and projects that they are engaged in,” the report says.
There should also be an immediate cancellation of all new thermal coal projects which are in
a pre-construction phase, including coal mines and related infrastructure, as well as the supply of other products or services.
In addition, all unabated existing coal-fired electricity generation, which is not captured by carbon sequestration or storage, should be phased out, it said, adding: “Participation in activities and projects which are not aligned with these principles is incongruent with our net-zero goals and the aspirations we have in respect to the different decarbonisation strategies of the companies we invest in.”