BrexitCentral: Ignore the scaremongering about a Brexit “cliff edge” for the City of London

In the Brexit negotiations, unexamined assertions have been increasingly used as political tools in an attempt to coerce the UK into a situation from which there can be no satisfactory resolution.

The latest concern is the alleged legal ‘cliff-edge’ that is claimed to arise on Brexit, under which, it is feared, exising financial contracts, particularly derivatives and insurance contracts, will become illegal to perform after Brexit. This thinking then triggers a chain of reasoning which threatens to reduce the chances for financial businesses of getting the best type of Brexit deal.

The ‘reasoning’ is that, to obtain a transitional deal, the UK must concede on whatever is necessary. Otherwise UK-based financial institutions will exercise contingency plans to move business to the EU-27 to avoid the cliff edge. It requires the UK to make whatever further concessions are required to obtain a deal permitting mutual access for financial services, after the transitional period has expired, regardless of its conditions (and despite the UK potentially having to apply increasingly stifling EU regulation), again in part to avoid the cliff edge.

On closer examination, the perceived cliff edge making such a dangerous chain of reasoning seem inescapable is largely in the mind, asserting that when the EU’s regulatory perimeter springs up after Brexit, with the UK outside it, contracts between UK financial businesses and EU customers or counterparties become frustrated. But that ignores the existence of the public international law doctrine of acquired rights, as well as rights to property under the European Convention on Human Rights and the EU’s own Charter of Fundamental Rights.

Each of these regimes applies to contracts in existence at the point of Brexit and protects their performance from interference, including from any supervening regulatory barriers. The protections also cover any options embedded in the agreements. Even now, parties can use these regimes to adjust their contractual relationships, prior to Brexit, in order to ensure a smooth Brexit and to increase the longevity of current arrangements.

To read Barney Reynolds’s piece for BrexitCentral in full, click here.

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