A no-deal Brexit would have “horrific” consequences for the Scottish financial sector, according to experts briefing Westminster’s Scottish affairs committee.
Alastair Ross of the Association of British Insurers told MPs that financial transactions currently carried out in Europe by UK firms could become illegal overnight in the absence of a deal with the EU.
He said the UK was the largest insurance hub in Europe, selling around £10 billion of products to the EU per year while importing a few tens of millions.
Although some insurance firms have been planning for Brexit since the second half of 2016, Mr Ross said some would not be ready for a no-deal exit.
He explained: “A no-deal scenario would mean – to put it in very fundamental terms – that it could become illegal for insurers to actually honour the contracts they’ve entered into with people.
“People … would find that it may be illegal for them to pay into a policy or to contribute to a pension they’d signed up to, or that it’s illegal for the insurer to pay out on those policies.
“Now that’s certainly not in the best interests of the customer, but that’s the situation we could find ourselves in, where regulators in the EU27 states say the payment of that money is a regulated activity, and therefore you’re breaking the law.”
He agreed with committee chairman Pete Wishart that the scenario would be “pretty horrific”.
Mr Ross said no deal would also end the European Health Insurance Card system, forcing people to claim medical care in the EU on travel insurance, pushing up premiums.
UK drivers and haulage firms would also lose automatic EU-wide motor insurance, meaning a return to the “green card” system of the 1970s.
Conor Law of UK Finance, the trade association for the finance and banking industry, said around £22 trillion of contracts between the UK and the EU could be judged as “regulated activity” after a no-deal Brexit, pushing up costs for firms and potentially making certain contracts unworkable.
The financial services industry in Scotland manages more than £800bn in funds, employs 100,000 people directly, and generates £8bn a year for economy.