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29 May 2019
On 19 January 2019 France passed Law 2019-30, which authorised the government to make ministerial orders to prepare for the United Kingdom's departure from the European Union without a deal, particularly in the area of financial services.
On 6 February 2019 the government adopted Ministerial Order 2019-75, which aims to ensure that International Swap Derivatives Association (ISDA)-type master agreements on financial services continue to be used.
If the United Kingdom leaves the European Union without a deal, UK financial institutions will become third-country entities that no longer benefit from the European passport which allows them to provide the same investment services in all other EU states that they are authorised to provide in the United Kingdom.
A no-deal Brexit and subsequent loss of the EU passport for UK financial institutions will affect investment services agreements – in particular, those that provide for two levels of contractual formalisation:
This is the case for transactions involving derivatives, repurchase agreements or lending of securities using the ISDA master agreement.
To enable an EU client to pursue its existing contractual relationships after a no-deal Brexit, the ministerial order offers a simplified method of replicating a master agreement with an EU entity that belongs to the same group of companies as the UK financial institution with whom that client had an existing contractual relationship. Accordingly, Article 3 of the ministerial order provides that a client that is established in an EU state and is a party to a master agreement governing transactions involving financial instruments that was entered into with a UK party before the United Kingdom's withdrawal from the European Union, is deemed to have accepted a financial institution's offer for a new master agreement if the following cumulative conditions are met:
Provided that all of these conditions are satisfied, the new master agreement will come into force without any further formality or express acceptance by the offer's recipient.
The replication of master agreements is possible only within 12 months of the ministerial order's provisions coming into force on the United Kingdom's withdrawal from the European Union without a deal.
For further information on this topic please contact Rhidian David or Agnes Braka-Calas at Hughes Hubbard & Reed LLP by telephone (+33 1 44 05 80 00) or email (firstname.lastname@example.org or email@example.com). The Hughes Hubbard & Reed LLP website can be accessed at www.hugheshubbard.com.
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