In a letter to the chair of the Treasury Committee, Nicky Morgan, Hammond wrote: “With respect to financial services, the Government is alive to the risk that the UK’s withdrawal could in some cases create legal uncertainties as to the status of existing cross-border insurance, pension and other financial services contracts sold under passporting arrangements.”
The term ‘legal uncertainties’ implies such arrangements could be rendered effectively illegal, potentially creating huge problems for policyholders and providers.
No legal authorisation
Hammond’s letter was in response to correspondence from Morgan, in which she said that exiting the EU without a deal would mean passporting rights would end on the day of Brexit, leaving insurers and other cross-border financial services providers without the legal authorisation to service cross-border business.
However, the Chancellor plays down this prospect in his letter, which is dated 20 September and just been publicly published.
He says that the Bank of England, FCA and PRA are working with insurers and pension firms, among other financial services providers, to ensure “they have comprehensive plans in place for the full range of possible outcomes.
The Financial Policy Committee has said that it will oversee contingency planning to mitigate risks to financial stability as the withdrawal process unfolds”.
Hammond goes on to say there is a shared interest for the UK and EU in minimising the impact of Brexit in such circumstances and ensuring “that we avoid outcomes that impose unnecessary costs and disruption on individuals and businesses as the UK leaves the EU.
“This is also likely to mean agreeing supervisory arrangements that are symmetrical, reciprocal and reliable, and that address legitimate financial stability concerns.”
Legal limbo ‘prevented’
Paul Stanfield, chief executive of the Federation of European Financial Advisers (Feifa), said he believed it is unlikely that suitable arrangements will not be made to prevent cross-border insurance and pensions falling into a legal limbo.
“It would be in no-one’s interests to let that happen, not least those UK and European citizens who would be negatively affected, and those handling the negotiations will be well aware of that. I would expect the politicians on both sides will do everything in their power to come to a sensible agreement on this point.”