FMLC examines the effects of hard Brexit on legacy financial contracts

The Financial Markets Law Committee (FMLC) has published a report on UK withdrawal from the EU, Issues of legal uncertainty arising in the context of the robustness of financial contracts, which considers the possible consequences of a hard Brexit on legacy financial contracts—ie contracts in existence on exit day. The report takes an in-depth look at the question of the continuity of legacy financial contracts and highlights the legal uncertainty which will arise if there is no clarity as to the future of the UK-EU relationship post-Brexit. It also suggests a number of ways this uncertainty could be reduced or avoided.

The report divides the possible consequences of a hard Brexit on legacy financial contracts into three broad categories:

• consequences under the general law, eg in those cases where the contract may be affected by illegality or frustration

• any consequences under the terms of the contract itself, eg in those cases where a loss of authorisation may breach a representation and trigger a termination event

• consequences under criminal law or similar sanctioning regimes, these might come into play were the firm considered to be carrying on a regulated activity without authorisation

Three possible solutions to these consequences are considered:

• transfer of legacy financial contracts to an appropriately authorised entity in the EU

• insertion of an appropriate Brexit clause into any legacy financial contracts entered into after the referendum—a Brexit clause is a contractual provision which triggers some change in the rights/obligations under the relevant contract as a result of a defined Brexit-related event

• negotiation of an agreement between the UK and EU (or between the UK and individual EU member states) to grandfather legacy financial contracts

Source: Report: The robustness of financial contracts after Brexit

Area of Interest