Many lawyers are all too familiar with the dictum of JP Morgan, the famous banker – their role is to figure out how to achieve legally what the client wants to achieve. It is not just to advise what cannot be done. Able, imaginative lawyers can generally do this. Yet, after the Brexit referendum, many have been identifying obstacles not solutions.
Alleged legal difficulties can be treated as weapons, or launch pads for constructive answers. The line can be blurred, discouraging many but the most determined. Like the famous Knights of Ni who were incapacitated by hearing the word “it”, their modern day counterparts recoil at trigger words like “reverse solicitation”, “acquired rights” or “rights to property”, unusually fearful perhaps that these might encourage clients to exploit this particular change.
For many, professional reputations may be at stake. Lawyers may already have advised clients to make huge expenditure by contrast with simple, effective and cheaper, solutions. Take for instance the question of whether UK financial services firms would be in breach of local criminal law if they perform contracts in operation on Brexit day for their EU27 customers after Brexit. Such a concern might arise in respect of some derivatives and insurance contracts after Brexit day – and some lawyers think it a criminal offence to perform those contracts, or perhaps that such contracts should be rapidly transferred en bloc to licensed EU27 affiliates. Member state regulators, operating more as marketing bodies than regulators, rub their hands, issuing papers arguing for more jobs in their countries.
But in international law the doctrine of acquired rights, and in supranational law the right to property, protect contracts where an ascertainable value exists – there is no good reason to confiscate those assets from their owners, the contracting parties. The expectations under the contracts have become entitlements that cannot generally be undermined.
There are also the practicalities to be considered. What EU27 regulator would prevent their own insured businesses from claiming on policies for a calamitous event when they have dutifully been making insurance premium payments?
As one insurance company client said when an EU27 regulator wrote to it asking how it planned to address potential claims for such payouts, “please clarify if you are telling us not to pay out on claims to your customers”. They did not hear back.
Now, many EU member states have enacted legislation to protect the performance of in-flight agreements, or are obliged to do so to conform with their international obligations. The European Commission has denied there is an problem. Yet many businesses are still being encouraged to move EU27 contracts to EU27 entities.
Another example of steering clear of positive legal solutions occurs with respect to the EU law’s concept of “reverse solicitation”, which allows businesses to service customers in the EU27 at their request after a hard Brexit. Though initially brushed aside, its mechanics are finally being actively considered across the City. Some lawyers, extraordinarily, even slowed matters down by turning to EU regulators to ask what the law is, relying on that, rather than analysing it for themselves. Many lawyers, even now, stop short of giving all the options.
In fact the disruption of a so-called hard Brexit need not be as dramatic as some have portrayed. The benefits of the City can continue to be enjoyed by EU27 customers, just as they are by customers from elsewhere. Already we see significant changes made by the EU to ensure continuity for EU27 customers even with no deal.
So, for instance, three UK central counterparty clearing houses (CCPs) will be recognised by the EU authorities in a no deal scenario, maintaining the status quo for derivatives clearing.
Steps have also been taken to preserve delegation models for fund managers, enabling EU investors to continue accessing UK-based investment talent. Added to the protections of international law such steps mean far less drama, and far greater continuity for the sector than may even now be thought.
Where does this damaging thinking come from? It is true that EU law is heavily politicised and the European Court of Justice (ECJ) is quasi-legislative, often changing the law to suit, to promote its federalist objectives. But in this instance the rules in question sit above EU law, and EU concepts are defined in such a way that there are significant limits to what the ECJ could ever decide. The EU could not possibly sustain its desired image as a law-based system were the ECJ openly to ignore the law completely on a matter so public.
The reality is the auto-responses of many naysayers increasingly ring hollow. The UK can achieve a smooth Brexit. It is for the lawyers, the able, imaginative lawyers for which the UK is renowned and respected the world over, to assist in that task.
The Mandarin name for England, “Land of Heroes”, provides a steer. Already many have moved to provide positive, balanced advice. But those who give disproportionate weight to the obstacles are at best unhelpful and, at worst, engaged in politically motivated misdirection.
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