On January 8, the International Swaps and Derivatives Association, Inc. (ISDA) published a blog post providing insight into how it is preparing for the UK’s departure from the European Union and how this will impact the use of the industry-standard ISDA Master Agreement.
The blog explains that, as it currently stands, virtually all of the ISDA Master Agreements entered into between counterparties that are both located in the EU or EEA are governed by English law. Counterparties typically also submit to the jurisdiction of the English courts. Because the UK is currently part of the EU and European Economic Area (EEA), any English court judgement is automatically recognized and enforced across those member states. Without a Brexit deal that replicates the effects of EU/EEA membership, English law would become a third-country law after Brexit. One of the consequences is that English court judgements would not be automatically recognized in EU/EEA countries which could translate into additional costs and delays for cross-border enforcement.
The blog goes on to state that some swaps market participants in the EU and EEA may want to retain the convenience of automatic recognition across the EU/EEA by using the jurisdiction of an EU/EEA country, rather than English law, in its agreements. Counterparties may also want to retain specific benefits of EU legislation—for example, protections under certain EU national insolvency laws that require use of an EU member-state-law agreement in order to receive those protections. In response, the blog states that ISDA is drafting French and Irish law governed Master Agreements, along with French and Irish court jurisdiction clauses. This would be in addition to the existing English, Japanese and New York law choices. The blog explains that in order to be representative of the civil and common law systems across the EU, French and Irish law have been suggested.
The blog states that working groups have been established, and are making good progress in considering the issues and identifying what changes might be necessary to the Master Agreements.