Trade body wants English
courts to rule on European swaps after Brexit
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[August 21, 2017]
By Huw Jones
LONDON (Reuters) - English courts should
continue to rule on disputes over cross-border derivatives contracts
after Brexit to avoid clogging up a $483 trillion global market, a trade
body said on Monday.
The International Swaps and Derivatives Association (ISDA), which helps
to run the market by setting out basic contract terms, said the vast
majority of cross-border trades in Europe are currently governed by
English law.
This means that adjudication between two sides of a trade takes place in
an English court as European Union rules allow market participants such
as banks and companies to choose which national court they want to rule
on disputes.
But Britain leaves the EU in March 2019, raising legal uncertainty over
existing and future contracts which can span years, ISDA said in a
statement on Monday.
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"It is currently uncertain whether the choice of English law and
jurisdiction made prior to Brexit will be recognized once the UK
leaves," ISDA said.
"This makes it difficult to establish commercial relationships, as these
arrangements are commonly made at the outset."
Swaps are used by companies to "insure" themselves against unexpected
moves in interest rates and currencies, and the price of raw materials
to limit the risks faced by those running a business.
"ISDA urges both the UK and EU to agree on post-Brexit transitional
provisions for contracts under English law to reduce complexity and
costs for all market participants," ISDA said.
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Anti-Brexit, pro-European Union Remain supporters wave flags as they
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The bulk of swaps are written by banks in London, where they are also largely
cleared or passed through a third party to ensure a contract's completion, even
if one side goes bust.
Some EU policymakers want the clearing of swaps denominated in euros shifted
from London to the euro zone, a step ISDA said on Monday has never been tried
before on such a huge scale.
The bloc's executive European Commission has proposed that the EU would help
supervise clearing houses like LCH <LSE.L> in London after Brexit, with forced
relocation of clearing to a euro zone rival such as Eurex <DB1Gn.DE> only a last
resort.
ISDA said joint oversight and regulatory cooperation would avoid splitting up
the clearing market, a step that would bump up costs for euro zone users in
particular.
Having to connect to a new clearing house would also be a "time consuming and
labor intensive process" which could create a bottleneck, ISDA said.
(Reporting by Huw Jones, editing by Louise Heavens)
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