Choice of jurisdiction clauses and recognition of judgments of UK courts
There will be minimal impact in relation to choice of English governing law provisions and choice of English jurisdiction. However, recognition of English judgments will no longer be automatic under the EU Brussels 1bis Regulation and will have to follow local recognition rules.
Bail-in clause to comply with Article 55 of the EU Bank Recovery and Resolution Directive to be inserted into English law governed finance documents
Finance parties may need to immediately amend finance documents as debt participations will be less attractive to EEA lenders if there is no bail-in clause.
Increased costs provisions in finance documentation could be activated
Lenders may seek to recover costs incurred if compliance with UK and EU regulation imposes additional costs.
Information requirement (Prospectus Directive/Transparency Directive)
It will no longer be possible to use a securities prospectus approved by a competent UK authority within the EEA without separate authorisation issued for third countries, and vice versa.
Market infrastructure for trading in financial products
RMs, MTFs and OTFs from the UK may no longer be able to grant EEA trading partners access to their trading platforms without special regulatory authorisation (third-country passport). Conversely, trading platforms authorised within the EEA could no longer be able to grant access to trading partners from the UK without authorisation from the UK regulatory authority.
Central counterparties ("CCPs")
UK-based CCPs will no longer be able to clear and settle trading transactions from Member States without separate authorisation. In particular, trading platforms from the EEA (e.g. stock exchanges) will no longer be able to access UK-based CCPs (London Clearing House) without special arrangements being made. Similarly, CCPs authorised within the EEA will no longer be able to access clearing partners from the UK without authorisation from the UK regulator.
As the UK has left the EU and the single market, how will UK/EEA cross-border business be regulated and what is the timetable?
The extensive single market mutual recognition/DRC arrangements between the UK and the rest of the EU/EEA (such as passporting) no longer apply. The EU–UK Trade and Cooperation Agreement does not include any provisions to replace passporting rights under the Single Market Directives. In particular, there is no mutual recognition of licensing regimes, and the market access provisions do not preclude EU Member States from imposing authorisation requirements on UK financial services businesses (and vice versa). There are no provisions on equivalence or regulatory cooperation in the area of financial services.
UK authorisation ceases to be valid in EU/EEA states and authorisation in EU/EEA states ceases to be valid in the UK
Loss of single market mutual recognition includes the end of passporting for firms and funds and brings to an end many other DRC arrangements for cross-border business. This impacts both EU/EEA business with the UK and UK business with the EU/EEA. Groups are now working on more detailed planning and implementation for the regulatory restructuring of cross-border business, including (i) establishing and applying for authorisation for new EU/UK entities, (ii) switching cross-border business to subsidiaries on the other side of the UK/EU border, (iii) obtaining local authorisation for foreign branches (when this is possible) and (iv) restructuring services business which will become prohibited under local perimeter rules. Longer lead-time items include new licences. Re-documentation, e.g. of client and other relationships, must now be considered.
Critical issues for the structuring of cross-border business in the absence of single market DRC/mutual recognition
New structures may depend on the extent to which groups can rely on procedures such as fronting, reverse solicitation, intra-group outsourcing/support and transaction booking, and the differing local member state perimeter regimes. Regulators have been publishing guidance on various issues relevant to Brexit restructuring, including ESA guidance on the restrictions and limitations that will apply.
Without single market DRC, some current modes of supply for UK/EEA cross-border business will be prohibited
Some modes of supply cannot be continued, even by obtaining local authorisation. Services business may be prohibited and require local delivery/establishment; other business (such as retail deposit taking) may require a local subsidiary because use of a local branch may be prohibited.
Transactions and other contracts
Brexit changes to the current legal regime will impact the terms and effect of contracts and transactions. There will be a broadly based review of standard documentation – both precedents and industry standards such as ISDAs. Firms and lawyers will need to be alert when dealing with contracts and transactions whilst uncertainty remains.
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