Westminster’s Scottish Affairs Committee was told of potentially “stark” consequences for businesses, pensioners and others.
MPs heard that failure to reach a withdrawal agreement could impact on trillions of pounds of financial contracts between the UK and the EU.
A worst-case scenario could see some businesses unable to continue, while a no-deal Brexit could also make it illegal to pay out some pensions.
The number of people employed in the financial and related professional services industry north of the border grow by 6.6 per cent from 151,000 to 161,000 in the last year.The committee was taking evidence in Edinburgh from a range of experts on the impact of leaving the EU on trade and investment.READ MORE: Theresa May to tell Cabinet meeting no-deal Brexit is ‘more likely than ever before’
Committee chairman Pete Wishart asked: “In the event of a no deal, what would happen to the continuity of cross-border financial contracts between the UK and EU, and what would this mean for firms and consumers?”
Conor Lawlor, of UK Finance, the trade association for the finance and banking industry, said: “There is about 27 trillion to 29 trillion dollars (£20 trillion to £22 trillion) worth of contracts agreed between the UK and the rest of the European Union.
“The majority of these are insurance and derivatives risk management tools that are incredibly important to supply chains and businesses across Europe.
“If the UK is unplugged from the European Union overnight... a lot of those contracts don’t fall away, they’re still fundamentally based on commercial or corporate law.
“What’s difficult to do is intervene in those contracts because that would be deemed a regulated activity.
“In best-case scenario it means increased costs, in worst-case scenario it means the business can’t function because (a) counter-party can’t intervene and make the contract work in the way that it should.”
Alastair Ross, of the Association of British Insurers (AIB), repeated a warning that some pension payments could become illegal.
The AIB has previously warned that a no-deal situation would leave insurance contracts in “legal limbo”, with firms unsure if they could legally pay claims for contracts drawn up before Brexit, which would be paid out in EU countries.
The issue could affect pensioners living in countries with insurance-based pensions.
Mr Ross said: “You might be in this position where it could be deemed illegal to actually pay somebody the pension that they’ve paid into.
“This is the advice that we’re getting, dependent on the attitude of the regulator of the country into which you are paying that payment.
“If it’s considered a regulatory activity then it could be deemed illegal if you do not have consent under a no-deal scenario.
“That would be a very stark position, but that’s the situation that we’re looking at.”
When Mr Wishart called the scenario “pretty horrific”, Mr Ross agreed.
He also warned that travellers could lose access to EU health insurance cards, putting “significant pressure on travel insurance premiums”, while any requirement to reintroduce insurance “Green Cards” to enable motorists to drive in Europe could be “an extensive exercise”.