Ireland's central bank on Thursday told financial services firms they must brace for major disruptions as a result of Brexit and said that some in the insurance industry in particular appeared complacent about the risks.
While Dublin has pitched itself as a post-Brexit European Union base for British financial firms,Ireland is widely seen as being the EU country with the most to lose from a possible hard Brexit because its economy is so intertwined with that of its neighbour.
"Brexit will have broad, fundamental impacts and will substantively alter the functioning of the UK, Irish and European Financial Systems," deputy governor of the Irish Central Bank Ed Sibley said in a speech on Thursday.
He called on financial firms operating in Ireland to prepare for the plausible worst-case scenarios as the final outcome of talks remains so unclear.
Irish banks face possible hits on profitability and asset quality due to the expected slowdown in British and Irish economic growth, while sterling weakness may impact the repayment ability of Irish companies, Sibley said.
But while most of the Irish banking sector is domestically owned, it is the insurance and funds sector that are most exposed to the possibility that British firms will lose their ability to use "passporting" to work in EU countries.
Most of the insurance policies issued in Ireland by international firms are issued from Britain and Gibraltar - accounting for 1.8 billion euros of non-life and 2.5 billion euros of life insurance business.
"Without action, there are risk that UK and Gibraltar-based insurers passporting into Ireland will lose their ability to continue to provide insurance cover," he said.
Sibley said he was concerned that a survey of insurance firms supervised by the Irish central bank indicated 147 of 197 firms deemed that Brexit would have little or no impact on them.
"This is an astounding number," he said.
Sibley said UK fund managers could also lose the right to manage Irish authorised funds under the passporting regime.
Britain's Central Securities Depository may also lose its right to passport its services into Ireland, with a direct impact on the settlement of Irish equities, he said. (Reuters)