The European Union spurned UK calls for a legislative fix to the threat posed by Brexit to trillions of dollars of financial contracts, telling banks and insurers to solve the problem themselves.
Valdis Dombrovskis, the EU’s financial-services policy chief, said the private sector must take the lead in ensuring that existing contracts can continue and not be disrupted when the UK exits the EU. At issue are 96 trillion pounds ($134 trillion) of derivatives and tens of millions of insurance policies that UK regulators say might be thrown into disarray because firms could lose their ability to fulfill agreements with clients.
“So far we don’t see evidence that most of the issues couldn’t be solved by the private sector itself,” Dombrovskis said in a Bloomberg TV interview on Tuesday. “The bulk of the job to adjust the business models to the post-Brexit reality still falls on the market participants.”
Dombrovskis said the EU is still assessing the matter.
In a speech on Tuesday, he said he plans to discuss the issue with Bank of England Governor Mark Carney and UK Chancellor of the Exchequer Philip Hammond.
The continuity of contracts has emerged as a major Brexit issue
because existing agreements are structured to rely on firms’ authorisations to do business across the 28-nation EU. Once the UK leaves, those permissions will likely fall away, leaving firms unable to service cross-border contracts.
The BOE and the UK’s Financial Conduct Authority have been warning about the potential risks to financial stability for months and called last week for legislation in both jurisdictions to alleviate the problem. The financial industry has proposed possible solutions, including so-called grandfathering of contracts so that they can run to maturity under existing laws.