Cliff Edge Effects under EU Law in a No Deal Brexit Scenario


There has been increasing concern that the UK may withdraw from the EU without concluding a withdrawal agreement under Article 50 of the Treaty on European Union and without any transition (or implementation) period to allow market participants time to adjust.

There has been considerable discussion of the impact of this ‘no deal’ scenario on the ability of UK firms to rely on their single market passports, both to conduct new over-the-counter (OTC) derivatives business and to service legacy contracts with EU 27 clients and counterparties without authorization in the EU 27 (as well as on the obstacles to UK firms transferring legacy contracts to EU 27 affiliates). Similarly, there has been discussion of the corresponding impact of the loss of the passport on EU 27 firms conducting OTC derivatives business with UK clients and counterparties. This paper does not discuss those issues.

Instead, this paper sets out other reasons why a ‘no deal’ scenario has the potential to create a disruptive cliff-edge change in the EU regulatory requirements that apply to OTC derivatives business in a way that may adversely affect EU 27 or UK firms and their EU 27 and UK clients and counterparties.

This paper focuses on the treatment of OTC derivatives business under existing EU law. It does not consider the impact of any current legislative proposals to amend that law or whether any such amendments are likely to take effect in advance of Brexit. This paper does not address any issues arising under data protection legislation or consumer law.

The paper was developed by the International Swaps and Derivatives Association, the Association of German Banks (Bundesverband deutscher Banken), the Italian Financial Markets Intermediaries Association (Associazione Intermediari Mercati Finanziari, or ASSOSIM), the Banking and Payments Federation Ireland, the Danish Securities Dealers Association (Børsmæglerforening Danmark), the Dutch Banking Association (Nederlandse Vereniging van Banken) and the Swedish Securities Dealers Association (Svenska Fondhandlareföreningen).

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