A new report by S&P Global has claimed that financial institutions (FIs) are now “past the point of no return” in regard to the implementation of their Brexit contingency plans, which can no longer be reversed whatever the outcome of the UK’s negotiations with the EU.
Many FIs have already begun to trigger aspects of their contingency plans, such as cross-border legal entity mergers and the establishment of additional licensed entities, which cannot be undone even if, against all odds, the UK decides to remain in the single market or EU, the report noted.
S&P’s analysis is relevant to insurance and reinsurance companies in the UK market, many of which have been preparing for Brexit by establishing new European hubs and attempting to resolve ongoing regulatory issues.
The report also suggested that, for companies with no contingency plans currently in place, it may now be too late to avoid disruption from Brexit.
Less than six months remain until the UK is due to leave the EU in March 2019, yet few of the major questions that will guide future economic performance for the country’s FIs, as well as regulation and policymaking, have been answered.
For most companies, the most immediate concern of Brexit contingency plans is risk mitigation, which has been complicated by the ongoing uncertainty surrounding the extent and terms of any political arrangement.
While the report viewed the re/insurance and financial industries as well-prepared in many respects, it added that companies and their regulators still have a lot of work to and have precious little time left to deliver if a political deal that allows an orderly transition is not reached.
S&P maintained that a political deal and an orderly outcome, aided by a transition period, is still the most likely outcome, but cautioned that the risk of a disruptive Brexit remains significant.
A ‘no-deal’ scenario would have substantial unmitigated risk for companies throughout the financial sector, including insurers and reinsurers, but banks are likely to be the most vulnerable to a disruptive Brexit, S&P said.
If banks are disrupted it could lead to a domestic political crisis and the economy contracting, which would also leave the property market vulnerable if unemployment rose.
Other largely open European countries, like Ireland, Belgium or The Netherlands, could also feel the impact of a disruptive Brexit, although re/insurers and other FIs in these countries are likely to be more able to accommodate it.
