Brexit Relocations – An insight in to the Central Bank’s likely Supervisory Approach for Insurance Undertakings

The anticipated relocation of (re)insurance undertakings consequent to Brexit has prompted the European Insurance and Occupational Pensions Authority (“EIOPA”) to issue an opinion promoting regulatory and supervisory convergence (the “Opinion”). The Opinion adopts guidance for national competent authorities (“NCAs”) on issues relating to authorisation, governance, outsourcing and on-going supervision arising in the context of Brexit.  


The guidance in the Opinion is consistent with the Central Bank’s statements on its approach to Brexit relocations, especially with regard to substance requirements and the need to ensure that there is a level of expertise and seniority within the undertaking to ensure that the undertaking is actually running the business from the EU jurisdiction of authorisation. According to the Central Bank’s recently published Brexit FAQ paper (the “Brexit FAQ Paper”), it strongly supports and actively engages with the objectives and guidance adopted in the Opinion. The Opinion, together with the Brexit FAQ Paper, provides a useful guide as to the supervisory approach that is likely to be adopted by the Central Bank to Brexit relocations and indeed any other new authorisation applications.

The Authorisation Process

Undertakings seeking to establish an Irish undertaking for the purposes of providing (re)insurance services in the EU can expect to undergo a pragmatic, efficient, open and rigorous authorisation process. The Central Bank adopts an outcomes-focused, risk-based approach in assessing applications for authorisation. The Central Bank has consistently indicated that it cannot and would not automatically recognise an existing authorisation granted by another country's regulator. However, it can take some aspects of that regulator’s assessment into consideration, for example with respect to fitness and probity requirements.

Given the tight Brexit timelines, undertakings seeking to relocate need to engage in detailed Brexit planning and make a well-structured and well-prepared approach to the Central Bank as early as possible in order to ensure that applications are progressed in a timely manner. 

Applicant undertakings are required to submit a sufficiently detailed formal application to the Central Bank, demonstrating that the undertaking is well-run, financially sound and complies with EU and Irish authorisation requirements. The application should provide the Central Bank with a clear insight into the business model of the undertaking and the geographical distribution of planned activities from the perspective of targeted policyholders. The decision to relocate to Ireland should also be clearly justified in the application. 

“Empty shell” undertakings

The Opinion requires NCAs to ensure that insurance undertakings do not display the characteristics of an “empty shell”. Applicant undertakings must therefore demonstrate an appropriate level of corporate substance, proportionate to the nature, scale and complexity of the planned business. Undertakings are required to employ key function holders and senior managers in the member state of establishment, even where that undertaking is part of a group.

The Central Bank adopts a holistic approach to this question and would expect an applicant undertaking to show that its "heart and mind" is in Ireland. This means that the undertaking must be adequately resourced in Ireland; the mind and management of the applicant undertaking must be located in Ireland and the day-to-day decisions about the direction of the applicant undertaking's business should be taken in Ireland. Essentially, the Central Bank requires that entities seeking to locate in Ireland are controlled by their boards and management located in Ireland and not run from elsewhere.   

The Central Bank expects senior management presence in Ireland so that full authority and effective control of the applicant undertaking rests within Ireland. Indications of this may include: (i) decision making at board level taking place within Ireland, (ii) significant senior management presence in Ireland; and (iii) financial control, legal and compliance, and risk management included in functions located within the head office/principal place of business. 

Outsourcing of critical or important activities

While an insurance undertaking may outsource or delegate certain functions, it cannot do so to the extent that it is effectively hollowing out an important part of the regulated activity. The insurance undertaking must remain responsible for the performance of the outsourced activity and ensure that there is a level of expertise and seniority within the undertaking to monitor and manage the performance of critical or important functions that have been outsourced.

The Opinion reiterates the Solvency II requirements that critical or important functions (such as compliance, portfolio/risk management and claims handling) may not be outsourced by insurance undertakings where the outsourcing would materially impair the system of governance of the insurance undertaking; unduly increase operational risk; impair the NCA’s ability to audit; or undermine the service to policyholders.

Outsourcing arrangements will be assessed by the Central Bank on a case-by-case basis whereby, the Central Bank will seek to ensure that outsourcing arrangements do not limit the ability of the Central Bank to effectively supervise regulated undertakings. In line with Solvency II, access to information and to the service provider’s premises by both the insurance undertaking and the Central Bank should be guaranteed. The Opinion highlights the relevance of this requirement in circumstances where the service provider is located in a third country (outside the EEA).   

Outsourcing arrangements will be monitored by the Central Bank on a continuous basis to ensure that such arrangements do not create legal or practical impediments to the Central Bank’s ability to supervise regulated undertakings. 

On-going Supervision

The Central Bank is required to review and evaluate each undertaking’s strategy and processes on an ongoing basis to assess existing and arising risks. Where the Central Bank identifies weaknesses or deficiencies in the undertaking’s strategies and processes, it will require the insurance undertaking to remedy such weaknesses or deficiencies appropriately.

The Opinion specifically instructs NCAs, such as the Central Bank, to exercise a specific supervisory review, proportionate to the risks of the applicant undertaking’s business model, in the first years following authorisation to review the consistency with the initial business model.


The Central Bank’s current approach to authorisations is already broadly consistent with EIOPA’s guidance in the Opinion.

As the Central Bank has repeatedly stated, the authorisation process forms an important part of its supervisory model and the Central Bank is committed to providing a clear, pragmatic, efficient and open authorisation process, while ensuring a rigorous assessment of the applicable regulatory standards. The Central Bank has also frequently emphasised the need for applicants to demonstrate substance in Ireland.

Key elements that will form part of any authorisation process include:

  • the expectation that the business will be run from here, the board and effective management of the undertaking will be located here and that commercial and business decisions will be taken here;
  • the undertaking’s own understanding of the risks to its business, how they are managed by local management and mitigated;
  • ensuring that the interests of policyholders are central to the business proposition; and
  • ensuring that clear policies and procedures are in place for outsourcing arrangements that provide for effective monitoring and oversight of such arrangements and sufficient access to information and the premises of the service provider. While the activity may be outsourced, responsibility may not and must remain with the Irish undertaking.

Any undertaking that meets the Central Bank's regulatory standards can expect to be authorised in Ireland. We expect the Central Bank will, of course, perform its own analysis on the impact of any of the principles on its existing authorisation requirements although we do not expect any material adjustments will be necessary.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.