Anna Sweeney, executive director at the Prudential Regulation Authority, said that the measures announced by HM Treasury last week would mean a total block on any payments between insurers in Britain and Russian aerospace companies.
The government announced last Thursday that it would ban U.K. insurers and reinsurers from providing cover for Russian-owned aircraft or satellites, or for parts destined for use in the country's aviation and space industries. The measures were introduced after Russia invaded Ukraine, its neighbor.
Sweeney told the House of Lords Industry and Regulators Committee on Tuesday that the rules would also introduce a ban on payment of claims, effectively making existing insurance contracts void.
"The sanctions are intended to apply to all payments that are related to existing business as well as new contracts," Sweeney told the lawmakers. "It would also apply to payments from claims for existing contracts."
The government has not set a date for implementing the sanctions, saying it would introduce legislation "in due course."
The chief executive of the Prudential Regulation Authority, Sam Woods, told the hearing that it was a "bit of a scrabble" to implement the sanctions, which would become more challenging if the government expanded their scope. The Bank of England has been asked to consider the impact of the sanctions on the U.K. financial system, Woods said.
"The one reassurance I can give the committee is that we've looked very carefully at whether these are manageable in terms of any collateral damage on the U.K. financial services sectors. So far we are comfortable that they are," Woods added.
Sheldon Mills, executive director of consumers and competition at the Financial Conduct Authority, told the committee that Lloyd's of London and insurers in the City should be careful about applying the sanctions.
"They will have to put in place systems and controls to both identify contracts and start the process of restricting access, both for new contracts and claims on existing contracts," Mills added. "While that is a significant exercise, we're confident it is one that the industry can do."
Lloyd's of London has been approached for comment. The corporation has said that it supports sanctions and would work with regulators to apply them.
--Editing by Ed Harris.
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