Sam Woods told a House of Lords committee that the PRA was anticipating up to 10,000 jobs to shift to the EU on 'day one' of Brexit, based on submissions provided to the regulator by the banks, insurers and financial firms that it regulates. However, he said that the actual number of jobs that would be lost was a "moving feast", which would depend on the nature of the UK's future trade arrangements with the EU.
Woods also used his appearance before the House of Lords' EU financial affairs subcommittee to reiterate the need for the government to agree a transitional deal by Christmas, as well as to call for a specific clause in the final withdrawal agreement dealing with cross-border financial services contracts. Such an arrangement would not be without precedent, as similar changes had to be made to contracts when the euro single currency was introduced, he said.
The PRA has previously warned about the potential impact of Brexit on cross-border insurance, reinsurance and derivatives contracts. However, Woods' comments to the committee, which were picked up on by the Financial Times, were his first public call for this to be dealt with explicitly in the EU withdrawal agreement.
"By far the best fix would be for something to be included in the withdrawal bill," Woods told the committee. "There would have to be bilateral agreement to fix this on both sides."
Experts at Pinsent Masons, the law firm behind Out-Law.com, have warned of the urgent need for clarity for financial firms about whether their cross-border policies will still be enforceable after Brexit. If the issue is not addressed early during the negotiations, firms may be left with the choice of breaking local law by acting without authorisation in relevant countries after March 2019, or not being able to honour contracts with their European customers.
Insurers holding large numbers of long-term cross-border contracts, for example for pensions or life insurance products, potentially face significant problems, as 7% of general insurance contracts and 3% of life contracts undertaken in the UK are cross-border, according to Bank of England figures. If a solution cannot be found, insurers may need to choose to either sell the portion of their business involving the cross-border policies or move those policies to an EU subsidiary business, but each of these options requires court approval and must be completed before the UK exits the EU in order to be effective.
The figure of 75,000 potential long-term job losses is not a Bank of England estimate, Woods told the committee. It was put forward by Oliver Wyman, the consultancy, and based on a 'no deal' Brexit, in which the UK must revert to World Trade Organisation rules with no transition period in its dealings with the EU. The figure also includes the impact that the loss of financial services jobs would have on other parts of the economy.
The 10,000 'day one' estimate is based on firms' early contingency plans for a 'no deal' Brexit and accounts for less than 1% of UK jobs in the financial services sector, or 2% of UK banking and insurance jobs, according to Woods.
Financial regulation expert Elizabeth Budd of Pinsent Masons said that it was "important not to scare-monger into panic" as "there seems to be little doubt that even if the UK does take a knock that its pre-eminence as a global financial services centre will remain".
"There seems to be little doubt that there will be some job losses in the financial services sector as a result of Brexit," she said. "However, as Sam Woods makes clear, the actual number is a moving feast and whether 75,000 is an accurate assessment remains to be seen."