The financial services sector is making urgent contingency plans for a no deal Brexit, but that might not be enough to prevent very damaging consequences for firms and ordinary consumers.
The biggest risks relate to cross-border contracts, which cover financial arrangements between firms and consumers across the EU.
Failure to ensure so-called “contract continuity” would mean that hundreds of thousands of financial contracts which affect ordinary people — insurance policies and pensions, for example — could be rendered void overnight. It is a huge issue.
TheCityUK, a financial services lobby group, told BI that a no deal Brexit could mean:
• Valid insurance claims in the UK were not paid;
• Pensions could not legally be paid;
• Derivatives contracts — a crucial means of hedging financial risk — could become invalid and be unpaid.
The size of some of those contracts, as well as the important role of derivatives contracts in providing financial stability, means disruptions to contract continuity carry “the potential for huge financial stability risk,” according to Kerstin Matthias, head of policy at TheCityUK.
“It’s a very serious problem,” she told BI.
“Industry is doing what it can to ensure that, regardless of any political or regulatory agreement, they can service their existing customers and clients. But it is a huge task to transfer all these existing contracts to a new entity.”
“There’s simply a sequencing and timing issue where [firms] won’t be able to transfer all these contracts by March next year,” she added.
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