(Bloomberg) -- The European Union spurned U.K. calls for a legislative fix to the threat Brexit poses 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 won’t be disrupted when the U.K. exits the EU. At issue are 96 trillion pounds ($134 trillion) of derivatives and tens of millions of insurance policies that U.K. 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.”
No final decision has been made on contract continuity, and Dombrovskis said in a speech that he plans to discuss the issue with Bank of England Governor Mark Carney and U.K. 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’ authorizations to do business across the 28-nation EU. Once the U.K. leaves, those permissions will likely fall away, leaving firms unable to service cross-border contracts.
The BOE and the U.K.’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.
FCA Chief Executive Officer Andrew Bailey said on Tuesday that policy makers on both sides of the Channel need to start now to prevent Brexit from disrupting markets.
“The cliff-edge risks are symmetric in that they are present both in the U.K. and the EU,” Bailey said in a speech in London. “We have a common obligation to do everything we can and work together to do that. Financial stability is far too important to engage in a standoff.”
While the U.K. is prepared to act alone where it can, such an approach is “distinctly second-best” to a joint solution, he said.
“So I want to get on with it, please,” Bailey said.
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