16 Solvency II Directive (Solvency II)

Subject(s):

Banks and cross-border issues — Capital markets — Financial regulation

This concluding chapter discusses two relevant directives: the Directive (2009/138/EC) on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II); and the Directive (2016/97/EU) on insurance distribution (IDD). As with many other European financial services laws, Solvency II and the IDD create a single market for insurance and insurance distribution respectively through the use of passporting rights exercised by firms with their head office in a Member State of the EEA (in the case of Solvency II) or by firms established in a Member State of the EEA (in the case of the IDD). Even where the UK and the remainder of the EU operate on the basis of the same underlying rules, there is a key philosophical difference in approach between the UK and the EU. The UK’s regulatory regime is ‘activity-based’, which means that the determining factor in deciding whether UK regulation applies is the location at which the regulated activity takes place. Most of the rest of the EU instead operate a ‘location of risk-based’ approach for insurance, which looks at where the insured risk is located. This can lead to significant differences for cross-border insurance, and once the UK has left the EU will create an asymmetrical relationship.