The Commons Treasury Committee heard from insurance, economic and finance experts on how Russia's economy has responded to sanctions imposed by the U.K. and other countries. They also told the lawmakers how sanctions have hit London's insurance sector.
"The impact on Russia — difficult to say: the impact on the U.K. insurance market — profound," Neil Roberts, head of marine and aviation cover at Lloyd's Market Association, the main trade association for the Lloyd's insurance marketplace in London, told the hearing.
"The volume of the legislation that's been coming out has been very difficult for people to manage. Even very well-resourced compliance teams have been finding it troublesome, and insurers are not as well-resourced as banks, and they're also finding it difficult," Roberts added.
Roberts told MPs that the complexity of the legislation behind the sanctions has left the sector in a state of "extreme caution." Clients, brokers and other participants in the market remain unclear on how to comply with sanctions. Substantial potential penalties have only compounded this problem, the committee heard.
Roberts added that potential claims for lease aircraft stranded in Russia could run into billions of dollars, despite aviation premiums being relatively low.
Britain imposed sanctions on Russia and Russian banks at the end of February after troops began the invasion of Ukraine. The U.S. also imposed sanctions on Russian banks and key figures in the county's business and politics, including government officials and Putin himself.
The Office of Financial Sanctions Implementation has imposed six fines for sanctions breaches since it opened in March 2016. It has imposed no fines for breaches of sanctions against Russia since the beginning of the invasion of Ukraine.
Elina Ribakova, deputy chief economist at the Institute of International Finance, told the lawmakers on Monday that sanctions "are a moving target: we cannot just shoot one arrow and decide, 'fine, we have won,' and the sanctions will work themselves through the system and have an impact."
Ribakova told MPs that some sanctions which initially caused bank runs on major institutions such as Sberbank, Russia's largest lender, have had a lessened impact as the state responded to the economic shocks.
"If you look at the statistics for February and March, in March deposits have fully recouped the loss that was suffered by the financial system in February," Ribakova added. "That means the response from the central bank has been extremely successful."
Dr Nigel Gould-Davies, senior fellow at the International Institute for Strategic Studies, told the committee that Western sanctions were already causing problems for Russia because of the country's reliance on Western goods and structural weaknesses in the supply chain.
Putin's government has responded to the sanctions with a series of financial measures designed to stabilize the Russian economy, including freezing credit ratings for five months.
The Kremlin also introduced a new law forcing all Russian companies to remove their shares from foreign stock exchanges last week as the country tries to cut itself off from Western financial markets and escape the effects of sanctions.
Western sanctions on Russia forced the Kremlin to make a $649.2 million payment in rubles on dollar eurobonds on April 4. The move caused the EMEA Credit Derivatives Determinations Committee — an international debt management committee — to declare a "potential failure to pay" on April 20.
--Additional reporting by Najiyya Budaly, Daniel Wilson and Lauren Berg. Editing by Ed Harris.
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