Brian Hayes MEP today (Thursday) warned that financial services contracts between the UK and the EU that last beyond March 2019 are at risk in a no-deal scenario.
“The EU’s regulatory framework enables financial services to be ‘passported’ between the UK and all EU countries. This regulatory framework will cease to apply after March 2019 when the UK leaves the EU.
“And if no arrangements are put in place to manage the fallout from the change in the regulatory relationship between the UK and the EU, then over €1.3 trillion worth of financial services contracts are at risk.
“These are agreed long-term contracts whose lifespan lasts well beyond Brexit. They relate mainly to insurance and derivatives and are of huge importance for the financing of the EU economy.
“If we have a no deal scenario, effectively a cliff edge, many of these financial services contracts will be null and void and there is complete uncertainty about the value of the outstanding assets and how they would be redeemed.
“It is in both the EU’s and the UK’s interest to find a solution on this issue, separate to the overall Brexit negotiations. Contractual certainty is a must for UK and EU businesses.
“It’s time for both sides to get serious with these talks. We need to move to phase two of the negotiations urgently in order to solve all of these trade and contractual issues, as well as the transition period.
“If we don’t have a blanket solution for cross-border financial services contracts, each contract will need to be individually assessed to determine whether the contract can legally continue.
“There is precedent for how this issue can be resolved. When the euro currency was introduced, continuity measures were put in place for over-the counter (OTC) derivatives to ensure that contracts were not impacted by the change in currency.
“For the existing stock of financial services contracts between the EU and the UK, a transition period can be put in place that allows contracts to continue as they do for a defined period. This will allow financial service providers to transfer or restructure existing contracts to deal with the future regulatory arrangement between the EU and the UK.
“Resolving the issues for financial services contracts must be done at least by the first quarter of 2018 and should be done in conjunction with the overall transitional arrangements for Brexit. We cannot leave businesses in complete uncertainty. The European economy is so dependent on financing from the city of London. Everything must be done to ensure that we keep our common economic interests intact post-Brexit.”