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When ITAR Met Brexit

The U.K. is the global hub for the satellite and space insurance industry. There are, however, significant issues related to Brexit which may threaten the U.K.’s current position, and which may lead to members of the insurance industry having to undertake expensive restructuring.

Layer on issues caused by U.S. International Traffic in Arms Regulations (ITAR), and the possible need to re-export technical data to insurance teams in new European operating companies, and the industry faces a minefield of regulatory issues.

Consequences of Brexit for the Satellite and Space Insurance Market

While discussions between the U.K. and the European Union (EU) are continuing, the lack of certainty in the end result has led many insurance companies to seek to mitigate the risks to their business caused by the U.K.’s withdrawal from the EU.

One of the most potentially damaging consequences of leaving the EU is that the regulatory framework which enables U.K. insurance and financial services companies to establish branches and sell products into other EEA Member States — the so-called “passporting rights” — will no longer exist. This will happen either from the date the U.K. leaves the EU or at the expiry of a transitional period after this date (although there is currently no legal certainty that a transitional deal will be reached). Many insurance companies therefore are undergoing large-scale restructuring. This may involve setting up operating companies in EU countries prior to the U.K.’s exit on March 29 to ensure the continued ability of companies to operate across the EU.

Transferring Technical Data Outside the U.K. post-Brexit — and Compliance with ITAR

To underwrite risks and make decisions on insurance claims, including in relation to space and satellite related claims, insurance companies are required to be provided with technical data from the manufacturer or operator of the satellite or launch vehicle. Where U.S. entities are involved, this technical data may be subject to the ITAR, the licensing procedure of which is regulated by the Directorate of Defense Trade Controls (DDTC) within the U.S. Department of State.

To allow for the transfer of this technical data between underwriters, brokers, consultants, operators and manufacturers, all parties enter into Technical Assistance Agreements (TAA), which take around three to six months to put in place. TAAs are prescriptive as to which countries technical data may be transferred to and the nationalities of individuals who may receive the technical data.

The restructuring of insurance companies because of Brexit may lead to the “reexport” of technical data from the U.K. to the new operating companies in an EU country. Many TAAs, though, may not currently permit the reexport of such technical data to those EU countries if such countries are not included in the schedules to the TAAs. Noting that a generic reference to “the EU” or “an EU member state” will not be sufficient for ITAR purposes, such reexport may necessitate the urgent amendment of TAAs to include the relevant named EU countries — a process that requires a request for approval to be made to the DDTC. This can take a further three months; so any requests for such amendments need to be made well in advance of March 29 to ensure continuity of service.

“Once these amendments have taken place and technical data can be reexported, detailed consideration and planning will need to be given as to how the technical data covered by the TAA should be managed by employees of both the original U.K. company and the new EU operating company. This would include how the technical data can be used, recorded, stored, communicated and shared both within the new EU operating company and, more importantly, between the original U.K. company and the new EU operating company,” says Praetor Legal Director Jason Betteley.

Impact on the U.K.

Although unlikely to have been a consideration for many people voting to leave the EU, Brexit is nevertheless likely to mean that the U.K. will lose some of its share of the satellite and space insurance market to an EU Member State post Brexit.

Insurance companies will need to balance compliance with a new post-Brexit European regulatory landscape with compliance with the ITAR requirements, and ensure that they can continue to service existing customers’ policies with or without amendments to TAAs. VS