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A survey by the law firm Pinsent Masons found 51% of companies had triggered their plans for a no-deal Brexit, including shifting work abroad to European subsidiaries.
Some lobbyists are instead calling on the Bank of England and other regulators to allow them to act as if the deal were watertight in order to avoid further disruption. “Without such political guidance, firms will have to assume that March 2019 is the UK exit date and plans will need to be executed accordingly,” warned Stephen Jones, the chief executive of UK Finance, which represents banks and mortgage lenders.
But in the wider economy, business leaders say there is no substitute for urgent progress at the talks in Brussels. “From product standards, to VAT, to customs, to immigration – businesses need answers fast,” said Adam Marshall, the director general of the British Chambers of Commerce. “With one year to go until the UK’s formal exit from the EU, negotiators must redouble their efforts to find pragmatic solutions to the many real-world questions firms face all across the UK.”
[...]“There is an inevitable cost to insurance policies if you remove the current framework and you don’t replace it with something that works,” said Huw Evans, the director general of the Association of British Insurers. [...]
Most alarmingly of all, overseas payouts made under long-term policies such as annuities or corporate liability cover may become illegal in some cases if the UK insurer is not licensed to operate in an EU member state. This is already putting off cross-border activity and forcing insurers to set up local subsidiaries, but represents a ticking timebomb for older contracts unless a replacement for the so-called “passporting” system is found.
“The real issue is less new business and more business that has already been written which in many cases long, long predate Brexit,” added Evans. “The Bank of England estimated there are 30 million of these policy-holders across the EU, of whom 6 million are in the UK.” [...]
Even if the transition agreement survives, time is running out. “There is still much detail to be agreed in the two-and-a-half years between now and the end of the transition period – a tiny period of time in business terms considering the scale of the challenge,” added Hookham. “It is now critical that both sides focus closely on trading arrangements to minimise the potential for delays, which will otherwise hit supply chains and economies on all sides hard.” [...]
“It’s particularly acute in industries where your ability to perform a contract depends on a licence,” said James Smethurst of the law firm Freshfields. “Subject to overriding consumer protection laws, which limit the extent that suppliers can unilaterally change the terms of a contract, there are things that you could do contractually to relieve yourself from some of the potential consequences of a hard Brexit.”
“Where there isn’t that option and you are facing the loss of the licence, that is harder to draft around, other than simply the ability to terminate the contract if it is unlawful to provide the service.”
In the case of some industries, such as derivatives trading, contracts can be for eye-watering sums of money. The Bank for International Settlements estimates that the gross notional value of outstanding derivatives in the world is between $450tn and $500tn (£317tn to £353tn) – many of them between clients in different jurisdictions after Brexit.
Unlike insurers, the industry would still be legally able to make payments and honour the contract itself if there is no replacement regulatory permission granted. But a Brexit deal that does not include financial services could greatly complicate the process of transferring outstanding derivatives contacts or packaging them up in ways demanded by regulators.
This in turn is expected to force many investment banks to begin the complex and risky process of transferring business to other countries to protect themselves against the risk of a hard Brexit.
“Existing trades won’t become invalid whatever happens, but making changes to those trades could become more difficult,” said Scott O’Malia, the chief executive of the International Swaps and Derivatives Association. “Without some kind of agreement or legislation, firms might decide to transfer business to local subsidiaries to ensure there’s no interruption.” [...]
Pinsent Mansons' Report: How prepared are large businesses for Brexit? (paywall)