This week has seen Brexit sharing the headlines with the ongoing COVID-19 pandemic.
The talks between the UK and European negotiators have been on and off like a light switch. One moment talks have ended then a glimmer of hope as the flickering light of a deal is reignited.
The EU is the master of the eleventh hour deal. It thrives on making sure the other side blinks first . However, the problems with the Brexit trade agreement have the insurance sector at their very heart.
The UK goods market is worth an estimated £98 billion to the EU. The UK is an exporter of services rather than goods and the EU is worth an estimated £24 billion to the UK when its comes to the exports of its services which includes financial services.
The City of London has been the European centre of financial services since the UK joined the EU, if not before, and therein lies the problem.
The European Union is determined to ensure that continental Europe has its own financial services centre, while the UK government is keen to keep the City as the centre of the world’s financial services industry.
UK negotiators say there is much wrong with the deal on the table, which is less favourable than the agreement between the EU and Canada, a deal that the UK had hoped to replicate.
Such are the concerns that the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA) took the decision this week to send a joint letter to the CEOs of the UK’s insurance and reinsurance firms to stress the need to be prepared for the departure of the UK with no trade deal agreed.
Many political commentators, and many in the London market, will say that a no deal departure was on the cards from the outset, and the sector has been preparing for such an eventuality from day one.
The PRA and FCA have acknowledged as much in their letter, but the surprise was just how much uncertainty remains around issues such as, data, regulation, payments, and Part VII transfers which occur after the end of the year. These have been allowed by the UK but are not recognised by the EU so firms will need to negotiate with individual European regulators to ensure the business can be transferred to their EU operations.
The letter also made it clear that while the best of plans have been made the potential for disruption remains, although exactly what this disruption will look like is unclear.
There may be a deal with seconds left on the clock but the financial services sector is bracing itself for a no deal departure with the EU unlikely to restore passporting rights unless they came with access to UK fishing waters, a red line that the British government has said it simply won’t cross.