Banking – Top 5 Issues (March 2021)

1. Regulatory and Product Qualification Divergence - There is a real risk of divergence in regulatory standards and product qualification/categorisation between the EU and the UK, post-Brexit, resulting in potential regulatory arbitrage, regulatory risk and increased complexity and costs.  For a further discussion on equivalence regimes see Financial Services Generally (here). 
2. Uncertainty around choice of Law, Jurisdiction and Enforcement of Judgements - Many industry sectors and financial products have traditionally chosen English law as the universally convenient and understood governing law for those industry sectors/products.  English law is likely to continue to be chosen as the governing law and England will be selected in jurisdiction clauses. Post-Brexit, the principles of the Rome Regulations (as retained under English domestic law ) will continue to determine governing law issues in the UK however ,the incorporation of the Recast Brussels Regulation (which accommodates the automatic recognition and enforcement throughout the EU of judgements obtained in a Member State) into national legislation, remains to be resolved.
   
   This potentially gives opportunities for jurisdictions such as Ireland.  For example, ISDA published Irish and French law versions of the 2002 ISDA Master Agreement.  This initiative formed part of ISDA's overall strategy to provide tools to future proof contractual arrangements against the uncertainty presented by Brexit. 
3. LIBOR (and IBOR) Transition and Replacement - For several decades a significant portion of financing transactions have used LIBOR as a reference rate to determine amounts payable (in particular interest).  Regulators have been concerned about the financial markets over reliance on LIBOR and the potential for creating systemic risk and regulators have a preference to see market participants using rates based on overnight, virtually risk-free rates (RFRs).
   
   In addition, under the EU Benchmark Regulation (the BMR), EU-supervised banks can generally only use benchmarks that are (i) authorised by an EU administrator or (ii) qualify under the BMR third-country regime. In April 2020 the Bank of England Working Group stated that lenders should be in a position to offer non-LIBOR linked loan products to their customers and that from the end of Q3 2020 any new LIBOR loans should contain clear contractual arrangements to facilitate conversion ahead of end 2021.The FCA announced on 5/3/2021 the phased cessation of the LIBOR benchmarks from 31/12/2021 to 30/6/2023 while continuing to publish1,3 and 6 month LIBOR until end 2021 with a consultation as to the feasibility of publishing those rates on a synthetic basis  up to 31/12/2022.
4. Challenges in Cross-Border Insolvencies/Restructurings - The UK has established itself as a leading restructuring jurisdiction in Europe and has benefitted from, inter alia, the availability of the EU Insolvency Regulations.  If the EU Insolvency Regulations no longer apply, then the UK could be open to the risk of competing insolvency proceedings being commenced in other jurisdictions and not being able to rely on the primacy of the UK proceedings.  In addition, it would necessitate seeking recognition in other jurisdictions for the appointment of UK insolvency officials, which will add complexity to the process as well as cost and time.  Similarly, European insolvency processes and insolvency officials would lose automatic recognition in the UK.
5. Availability of Funding, Enhanced Consumer Protection (post Brexit/Post COVID-19) - Pre COVID-19, EU governments established financial supports to seek to tackle the impact of Brexit on indigenous businesses.  COVID-19 has required a coordinated European response to the economic effects of COVID-19 and a much enhanced funding stimulus to assist indigenous businesses together with forbearance by EU banks and financial institutions. The availability of future funding to combat the effects of Brexit (and COVID-19) poses a risk for businesses and personal finance.  Consumer protection will continue to be a focus in the context of a growing number of non-performing loans.

Contact:

Siobhan Carlin Partner Email Siobhan +353 1 639 5188		Jason Hollis Partner Email Jason +353 1 489 6510		Elaine Hanly Consultant Email Elaine +353 1 639 5160