On Thursday 10th November, Brick Court hosted the latest in its series of panel discussions on the legal implications of Brexit. The event was moderated by Mark Hapgood QC, who opened by observing that one of the most important issues arising from Brexit is the impact it will have on banking and financial services in the UK. He posed two questions: what degree of risk is posed to the banking and financial services industries by leaving the EU, and what is the best way to mitigate that risk?
Andrew Henshaw QC spoke about the existing passporting arrangements and the position the UK will find itself in if it neither joins the EEA nor negotiates full access to the single market. He considered investment and retail business, banking and insurance and reinsurance, identifying the existence of equivalence decision regimes and the opportunities for third country branches to operate within the EU. He noted that there are many gaps in these systems, and equivalence decisions may be hard to obtain for political reasons. In addition, no equivalence decisions are likely to be taken before the UK leaves the EU, and therefore financial institutions must plan for the worst. In this context, he also raised the possibility of both legal and practical ‘work-arounds’ that financial institutions may want to consider.
Caroline Binham (Financial Times) considered the risk to the pre-eminent position of London with regard to banking and financial services posed by Brexit. She noted that the risk depends on the form that Brexit ultimately takes, but observed that the mood in the City is increasingly sombre. The threats to jobs and GDP are severe, and the contagion effect means that the impact of Brexit will be felt well beyond the banking and finance industries. She also highlighted the fact that EU stands to lose as a result of Brexit, and doubted the attractiveness of relocating financial business to New York following the election of Donald Trump.
Damian Bisseker (Credit Suisse) provided an in-house banking perspective. He observed that banks are in a difficult situation. They are under pressure from regulators to have plans in place for the worst case scenario, while it remains unclear what the post-Brexit regulatory framework will look like. Banks are also under time pressure to act. Factors banks must consider include the significance of their business with EEA counterparties, the attractiveness of different jurisdictions and the different models that could be adopted. He also noted the importance both of lobbying by banks and the lobbying of banks by foreign jurisdictions. Finally, he made the practical suggestion that banks should ensure that process agents are available throughout Europe.
Jasbir Dhillon QC addressed the likely role for English law in international banking and finance transactions after Brexit. Considering choice of law, he observed that market counterparties are unlikely to move away from English law given its certainty, stability, familiarity and commerciality. Similarly, he expressed the view that market counterparties are likely to continue to prefer English jurisdiction. The knowledgeable judiciary, adherence to the freedom of contract and fidelity to the rule of law all make England an attractive place to litigate. There may even be a shift towards exclusive jurisdiction clauses if the UK ratifies the Hague Convention on Choice of Court Agreements as judgments obtained pursuant to such clauses will be enforceable throughout the EU. Finally, he observed that international arbitration will not be adversely affected by the UK’s departure from the EU.
Simon Firth (Linklaters) spoke about the effect of Brexit on derivatives and the future of the ISDA Master Agreement. He also considered that English law will remain the favoured law in the context of derivatives for two key reasons. First, the characteristic series of transactions designed to hedge each other require a consistent choice of law to prevent exposure on any one transaction. In the absence of an obvious alternative to English law, it is unlikely the choice of law will shift. Second, the derivatives market has historically suffered from a lack of predictability as a result of the paucity of case law. However, this has been markedly improved by a series of good judgments from the English courts. A shift to a different choice of law would require his process to be restarted from scratch.
The presentations were followed by a lively Q&A session, and comments were invited from the floor. Topics addressed included whether any positives could be seen as resulting from Brexit, the extent to which the UK could or would retain EU standards and legislation after leaving the EU, the market’s view on the model of Brexit likely to be adopted and the relevance of economic difficulties already facing Europe.