U.K. Call for Brexit Contract Fix Wins German Support
(Bloomberg) -- European Union and U.K. authorities must agree on a political solution to the threat Brexit poses to trillions of dollars in derivatives and insurance contracts, according to Germany’s top financial regulator.
Felix Hufeld, the president of BaFin, said the industry alone cannot solve the problem, in comments that appear to break with EU policy makers who’ve said they don’t see a need for urgent government action. His comments are aligned with U.K. and industry views that policy makers should solve the issue and ensure contracts can continue post-Brexit.
“It is almost impossible to fix that problem exclusively just by one side of the stakeholders involved, let it be the industry itself or individual supervisors,” Hufeld said in a Bloomberg Television interview on Thursday. “I’d rather prefer a regulatory or legislative solution to fix the problem.”
Hufeld said the issue is “one of the major challenges” and that “there should be a solution on the political level” to provide security.
At issue is the ability of firms to continue servicing contracts if the U.K. leaves the EU without a specific agreement in place to ensure companies have the authorizations they need to do business in both markets. Without those permissions, firms could be unable to service contracts.
The Bank of England has repeatedly emphasized that the problem of “contract continuity” can’t be solved by the private sector. The BOE has said as much as 96 trillion pounds ($125 trillion) of derivatives contracts are at risk.
The European Commission, the EU’s executive arm, has said that it doesn’t see an “issue of a general nature” in relation to financial contracts because existing obligations can continue “in principle.” It’s repeatedly said that the onus is on companies themselves to Brexit-proof their existing contracts.
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