There is no guarantee that Brexit won’t disrupt millions of insurance and derivative contracts and it is still up to firms to take preventive measures, the European Union’s financial services chief said on Thursday.
Valdis Dombrovskis was asked by EU lawmakers whether he could offer EU citizens guarantees that policies they had bought from insurers in Britain would still pay out if there is a hard or no-deal Brexit next March, when Britain is due to leave the European Union.
“I would be somewhat hesitant to give guarantees because negotiations are still ongoing and the outcome is still not 100 percent clear,” Dombrovskis told the European Parliament.
Britain and the EU have agreed on a “standstill” transition period whereby EU rules remain in force in Britain until the end of 2020, which would ensure continuity in cross-border financial contracts like insurance policies and derivatives.
But this transition is part of Britain’s broader EU divorce settlement which is still being negotiated, and won’t be legally watertight until October or later.
The Bank of England has said 82 billion pounds ($111 billion) of insurance liabilities involving 48 million policyholders could be affected across Britain and the European Economic Area. Derivatives worth a notional 26 trillion pounds are also caught in the Brexit crosshairs.
Without transition, it would be illegal in some cases to make payouts on insurance contracts or amend derivatives contracts after March.
Insurers in Britain have begun the lengthy legal process of moving blocks of policies to new or expanded hubs in the EU.
Britain has said it would legislate to avoid disruption to financial services offered by EU firms to Britons in the event of a hard Brexit.
Banks and insurers have urged the bloc to formally agree to “grandfathering” or allowing the stockpile of existing multi-year financial contracts to run their course.
But Dombrovskis stuck to the bloc’s line on Thursday that it was up to industry rather than EU authorities to play a “major role” in avoiding contract disruption.
Insurers and banks in Britain could transfer insurance policies and derivatives contracts to EU entities, while clearing of contracts was already being looked at, he said.
“For other market infrastructures like trading venues and depositories, the identified risks are of smaller magnitude,” Dombrovskis said.
Risks here to financial stability could be tackled through measures such as allowing a “phasing out,” if needed, he said without elaborating.
The European Central Bank and Bank of England working group announced this month to deal with financial stability around Brexit Day next March will look at these concerns, Dombrovskis said.
“We are working towards an orderly exit and to minimize disruption,” he said.
($1 = 0.7402 pounds)