Britons living in the European Union could lose access to their UK bank accounts and businesses on the continent could be cut off from investment banks in London if there is a no-deal Brexit, the British government said on Thursday.
In a document detailing contingency planning if Britain leaves the EU in March with no transition deal, the government said unilateral action on several fronts could only minimise disruption up to a point.
Over a million Britons living abroad may not be able to access their UK bank accounts to receive pensions and salaries, the document said.
All Britons will face higher costs to make card payments in the EU when travelling abroad or shopping online.
The EU this year agreed to cap the fees retailers pay to process debit and credit card transactions. Without a deal between London and Brussels, British customers will no longer be covered by a ban on cross-border surcharges, which prevents business from imposing excessive charges on consumers.
The government had previously said those charges cost Britons about £166 million in 2015.
"Leaving the EU without a deal would cause major inconvenience to millions of pensioners, travellers and drivers," said Hugh Savill, director of regulation at the Association of British Insurers.
Currently banks, insurers and fund managers in Britain have unfettered access to the EU, their biggest export market, worth £26 billion last year, under the bloc's "passporting" rules.
Without a deal, banks, insurers and pension providers would have to establish operations in the EU or be legally barred from serving clients or sending out payments.
The Brexit minister, Dominic Raab, played down the threat that tens of thousands of British retirees in the EU losing access to their pensions.
"It's hardly in the interests of southern Spain to do harm to the UK pensioners out there," Raab told reporters.
The government said it was committed to giving regulators like the Bank of England and the Financial Conduct Authority a "general transitional tool" to phase in changes to ease the impact if no deal is agreed.
However, the EU would also need to take action to avoid disruption in cross-border financial services, it said.
Brussels has said it is primarily up to banks and insurers themselves to prepare for Brexit, such as by opening new hubs in the bloc.
EU ACTION NEEDED
The document said the EU needed to reciprocate British action to ensure continuity in cross-border insurance policies, derivatives contract, and core market services for companies and people. Without EU action, the document said, businesses across the bloc could no longer use investment banks in Britain.
Brussels, for example, would need to give investors in the EU permission to continue using a share trading platform or clearing house in London, where most euro-denominated derivatives are currently cleared.
The finance ministry and the Bank of England will give details next month on how customers in Britain can continue using a settlement house in the EU, a critical step whereby cash is exchanged for legal ownership of a stock or bond.
Fund managers in the City operate many funds listed in countries like Luxembourg and Dublin, and the plans said Britain was ready to agree cooperation arrangements with the EU as soon as possible to ensure this could continue.
"The stark fact is that there can be no continuity without EU reciprocity. Mutual interest may point to some deal, but the EU holds all the cards," said Simon Morris, a financial services lawyer at law firm CMS.