On October 15, the House of Commons’ Exiting the European Union Committee published a letter (dated September 18), from Guy Verhofstadt MEP to Seema Malhotra MP, on the impact of Brexit on existing contracts.

Mr. Verhofstadt is the European Parliament’s Brexit Coordinator. He appeared at a committee hearing on June 20 and has written to Ms. Malhotra following a question she raised at the hearing.

In his letter, Mr. Verhofstadt states that, in relation to ensuring the continuity of contracts concluded before Brexit (such as insurance and OTC derivatives contracts), the assessment made by the EU so far indicates that “issues are likely to be linked to a far more limited set of contracts than initially feared by some”.

For cross-border insurance contracts, the vast majority are one-off or short-term year contracts, such as travel insurance. There are no cliff-edge risks. The limited number of these contracts that would remain in place post-Brexit would be valid, and the performance of existing obligations could generally continue to take place.

Many uncleared OTC derivative contracts expire before March 30, 2019. In addition, derivative contracts concluded between UK and EU market participants should, in principle, remain valid, even in a no-deal scenario. There is, therefore, no issue of contract certainty. However, the performance of certain life-cycle events, such as roll-over, novation and portfolio compression, imply, in general, the creation of new rights and obligations, for which an authorization under EU or national law may be required.

Mr. Verhofstadt notes that, under the Solvency II Directive (2009/138/EC), insurance firms must take measures to ensure contracts can continue to be serviced. As stated by European Insurance and Occupational Pensions Authority (“EIOPA“), customers must be clearly informed about the possible impact of Brexit on their insurance contracts and on the relevant measures taken by insurance firms.

In Mr. Verhofstadt’s view, a transition period until the end of 2020, during which the current position (including passporting rights) would be maintained, would provide stakeholders with more time to adapt to the new situation. However, until the withdrawal agreement is concluded and ratified, there is no legal certainty on a transition period.