RFS0023
Written evidence submitted by London & International Insurance Brokers' Association
Please find overleaf the response from London and International Insurance Brokers’ Association (LIIBA) to this call for evidence.
LIIBA is the trade association for Lloyd’s insurance brokers active in the complex specialty market in London. We have 152 groups of firms that are members of our Association – the majority of which are SME businesses. Our members work with a global client base with two thirds of the business placed in London emanating from overseas. Collectively our members bring $121bn of gross written premium to London each year. The market as a whole generates £39 billion for UK GDP – around a quarter of that contributed by the City of London.
We would be happy to discuss any aspect of our submission if that would be helpful to the Committee.
Request for input to Treasury Select Committee’s call for evidence.: Are the UK’s financial sanctions on Russia working?
There was/is some disparity between sanctions regimes (UK, EU & US) and timing of designated persons and entities. From an effectiveness perspective, once entities or individuals are sanctioned (asset freeze), ultimately financial services (insurance) cannot be provided directly or indirectly.
The sanctions are having an impact on Russia’s ability to generate funds. This in turn negatively impacts Russia’s ability to continue its war against Ukraine. However, the landscape is evolving and actors will evolve their strategies to circumvent sanctions. This means that we can never be 100 percent certain that the sanctions are complete and effective but must continuously review the situation. An example of this in practice is the ongoing review of items found on battlefields in Ukraine that are become subject to export controls.
Asset freezing measures are silent on the provision of all services to designated parties. This creates uncertainty for the insurance industry on the basis that, for example, the provision of coverage and related broking services is not prohibited, only the consideration thereof. Sanctions clauses within relevant insurance contracts / agreements only exclude an insurers or brokers liability to provide services if prohibited, meaning that insurers / brokers tend only to have legal recourse to freeze relevant funds, rather than grounds to terminate the relationship as a whole. To mitigate the resultant uncertainty, which may be unintended, recommendation to mimic the definitions found within OFAC SDN prohibitions regarding ‘dealing in property interests’ of designated persons.
Ultimately, confiscation is a matter for government(s) in conjunction with other international partners to determine.
Our request is that businesses are given certainty that should funds be seized by government which require the business to hand over such funds, that there is clear guidance on how business can account for these transactions and, most importantly, that there will be no legal recourse by the sanctioned party against the business in the future.
Whilst the sanctions imposed on Russia relating to the oil and gas industry are intended to affect the revenue of Russia and their ability to generate income to further the war in Ukraine, the knock on or unintended consequences of placing sanctions on parties that purchase oil or gas can have negative effects of the overall global price of oil and gas, and prevent parts of the world (non UK, EU & US) from accessing such products. The existing process relating to the oil price cap (OPC) and associated attestations relating to the price the oil was purchased (below the price), appears to be a more proportionate approach. Other potential avenues/initiatives on whether third countries have alternatives to that of purchasing Russian oil.
Imposing financial sanctions against those who purchase Russian oil and gas is only viable where the relevant parties have not complied with the terms of the OPC, or, at least, are purchasing the relevant price cap. Price caps could be lowered as they are often above the market price (trade sanctions policy input required), with grounds introduced to publicly name, but not immediately designate parties who engage in trade above the lowered price caps (similar to Congress reporting provisions within OFAC CAATSA provisions). Publication could represent a pre cursor to designation intended to deter above price cap trade, allowing companies to make risk based decisions regarding relationships with named parties at natural expiry / renewal points of policies or contracts.
The danger might be that UK finds itself in a position where it sanctions individuals and entities in friendly nations and sends messages the complete opposite of those given by the G7 + Oil Price Cap coalition – of which the UK is a partner.
Evidence would be welcome on, but does not need to be limited to:
Broadly speaking the guidance provided by OFSI is relevant, accessible, and timely. OFSI provides various email communications and guidance on matters such as the Oil Price Cap, and useful circulars including from the National Economic Crime Centre (NECC) – coordinated updates with the NCA and FCDO, on topics such as sanctions circumvention and exporting high risk goods.
That said, it would be helpful to create additional guidance which addresses, for example, due diligence expectations regarding compliance with circumvention provisions in the context of entities ‘phoenixed’ in the wake of designation.
b. OFSI’s licensing regime
OFSI licensing regime can sometimes be arduous in respect of the amount of information required to submit applications, and could benefit from improved coordinated/alignment with other enforcement agencies/bodies such as ECJU and OFAC.
c The resources available to OFSI
It is understood that OFSI’s resources (staffing levels) have increased significantly since the start of the Russia war in Ukraine, and this has seen improved response times on licensing queries and guidance / engagement with industries
d. Enforcement work by OFSI
What happens to frozen funds in the long term? For example, funds which are currently ring-fenced or frozen may relate to an entity subject to sanctions and no obvious plan with what will happen to those funds in the medium-long term.
e. OFSI's implementation and enforcement of the oil price cap
OFSI, the G7 and Price Cap Coalition members should be commended for designing and implementing the oil price cap guidance and framework, allowing for non-UK, EU & US parts of the world to continue to access Russian oil and maintain/control global oil prices. A key part of the oil price cap was to harmonise / align the approach of the UK, EU and US to ensure consistency in its application.
The OPC is designed to give safe harbour from strict liability if attestation requirements are met, meaning that companies tend to have less insight into potentially suspicious activities, noting that securing price information for Tier 3A companies is not a routine requirement. That said, it would be helpful to introduce specific grounds for designation for apparent OPC breaches, or engagement in above price cap trade, rather than designation under ‘obtaining a benefit from or supporting the Government of Russia by carrying on business in sector of strategic significance to the Government of Russia, namely the Russian energy sector.’
f. OFSI’s international cooperation
Broadly speaking it is understood that international cooperation and alignment on sanctions is good, however there is some disparity between sanctions regimes (UK, EU & US) and timing of designated persons and entities. We welcome the secondments between OFSI and OFAC and the close cooperation with international partners.
g. OFSI’s work in the insurance sector
Since the start of the Russia war in Ukraine, there has been an increase in stakeholder consultation from OFSI in the insurance sector including, Lloyds / IUA / LMA and the Sanctions in Insurance Roundtable forums.
Overall OFSI engagement with the insurance sector has improved and there appears to be an increased understanding that insurance related products and services are to be viewed separately to that of general financial services. Historically a lot of OFSI focus would have been towards the banking sector and not specifically insurance focused.
h. OFSI’s work in the maritime sector
Since the start of the Russia war in Ukraine, there has been increased engagement from OFSI including, Lloyds / IUA / LMA regarding contract / clause wordings, which overlaps with the maritime sector and issuance of General Licences
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The insurance sector operates with different risks and challenges to other financial services providers, and OFSI has understood that the insurance sector may need specific guidance and requirements. As noted above, stakeholder engagement has improved, and OFSI communicated early around insurance related prohibitions such as aviation and space related products and services in Lloyds and the London Market. OFSI also implemented General Licences relating to payments to UK insurance companies for UK property and motor insurance, for Designated Persons.
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March 2024