TheCityUK, the financial services industry lobby group, said that unless the UK and EU agreed a deal to “grandfather” certain long-dated financial contracts with obligations extending beyond Brexit it could “lead to significant financial stability risks”.
The warning highlights the growing frustration among City of London executives about the slow progress of talks to decide what rules will govern access to financial markets between the UK and EU after Britain leaves the bloc on March 29, 2019.
While the British government has promised to legislate to prevent insurance policyholders and cross-border derivatives having their contracts voided by Brexit, no reciprocal offer from EU authorities has been made.
Once banks and insurers lose their passporting rights to provide financial services relatively freely between the UK and EU, they fear they could be legally blocked from honouring many of their cross-border financial obligations.
“We have been banging the drum quite loudly on this issue and our concern is the stopwatch is running down on it,” said Miles Celic, chief executive of TheCityUK. “Our concern is that it is now being caught up in a regulatory game of chicken.
“While service providers are preparing to take steps to mitigate the impact of the loss of passporting rights, it is highly unlikely that this will be adequate to fully address the contract continuity issue by March 2019,” he added.
Some insurers, such as Hiscox, have started transferring UK insurance contracts for clients in the rest of the EU to subsidiaries they have established there. This involves a court-approved procedure under Part VII of the Financial Services and Markets Act 2000. But Mr Celic estimated that the procedure could take as long as “12 to 18 months”, adding: “There simply aren’t enough lawyers and there isn’t enough court time to address 36m insurance contracts.”
Drawing a parallel with EU legislation ensuring contract continuity after the introduction of the euro in 1997, Mr Celic said financial companies risked facing a post-Brexit choice between “either you don’t keep your commitment to your customer or you break the law”. [...]
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