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Between 2016 and 2017, significant changes to the law governing stays in derivatives contracts will come into effect, bringing many new considerations for lawyers to familiarise themselves with. Michael Beaton, managing partner at Derivatives Risk Solutions, explains how the law change will affect third-country organisations, having a considerable effect on business arrangements outside the EEA.
A policy statement from the Prudential Regulation Authority (PRA) sets out final rules aimed at reducing the risk of contagion from the failure of a relevant firm and supporting its orderly resolution. The rules ensure resolution action taken in relation to a firm would not immediately lead to the early termination of its financial arrangements (or those of its subsidiaries) governed by third-country law while similar financial arrangements governed by the UK laws, or those of another EEA jurisdiction, are stayed.
The EU Bank Recovery and Resolution Directive 2014/59/EU (BRRD) gives the Bank of England (in certain circumstances, and in its capacity as UK resolution authority) the power to temporarily suspend the rights of a counterparty to a contract with a firm in resolution to:
In support of this power, the PRA has introduced a requirement (as detailed in Policy Statement PS25/15) which, broadly, prohibits any in-scope firm (see below) which has entered into a ‘Third-Country Law Financial Arrangement’ from:
in relation to that arrangement unless its counterparty agrees ‘in an enforceable manner’ (and not necessarily ‘in writing’) to be subject to similar restrictions on early termination and enforcement of security interests to those that would apply as a result of a UK firm’s entry into resolution, if the financial arrangement were governed by UK law.
A Third-Country Law Financial Arrangement means any obligation created under any of
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1. Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris
2. Likes ballet, playing the harp and holidays
3. Thinks the law is always changing!
Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris. She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.
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