Draft French law on Brexit issues

The draft framework law for Brexit has been approved by the French Senate and is expected to be debated by the French Assemblée Nationale on or around 10 December 2018. When this law is approved, the French government will be able to provide legal certainty for a number of situations linked to a “no deal” Brexit.

Update 18 January 2019

The draft text was approved by both houses on 19 January 2019 and was published on Sunday 20 January. We will let clients know as soon as any draft Ordonnances have been prepared.

Update 11 December 2018

The French Assemblée Nationale approved (with some useful amendments on the French share savings plan rules / PEA) the draft law on 10 December. Given that amendments were made, the text cannot be immediately finalised and published. However, we can now say with certainty that the Government will be empowered (probably in January) to enact rules to cover off a hard Brexit.

On 6 November 2018, the French Senate approved a draft law giving powers to the French government to take all relevant measures (for six months) in a number of specific fields where Brexit presents challenges. The draft law is due to be debated by the French Assemblée Nationale on or around 10 December 2018. In the absence of any amendments it will be approved shortly thereafter.

The draft law covers a very broad range of topics from residence rights of UK citizens, their right to work in France, social security access, customs issues and a whole host of matters that most people had no idea would be affected by Brexit, such as veterinary controls at the border.

Most pertinent to us, however, are the seven lines that refer to French access to the UK interbank and securities settlement systems, the continued use of master agreements and legal certainty for contracts concluded before Brexit.

Whilst we have not had sight of the draft ordonnances (the legal texts that the French government would be authorised to issue), the impact study accompanying the draft law does suggest what those ordonnances might cover.

Importantly, the impact study confirms the view (following that of the President of the French regulator (the AMF) and that of the HCJP (Haut Comité Juridique de la Place Financière de Paris)) that all “continued service” contracts (ie advisory agreements and segregated account/DIM contracts) must be terminated or transferred on Brexit. With respect to “immediate execution” contracts, and related investment and banking services, the approach is more nuanced.

In effect, for “immediate execution” contracts, the impact study would suggest that these may continue to exist (and would not be void) provided that there was no renewal of the core obligation nor any modification of an essential obligation.

The intention is to create a limited list of permitted changes to such “immediate execution” contracts so that UK based counterparties/services providers would have legal comfort that they would not be breaching either the French banking monopoly or the French investment service provider monopoly.

Useful examples were given in the impact study. In the context of banking services, any contract where monies are committed prior to Brexit could continue to run. In contrast, any contracts with uncommitted facilities could not continue after Brexit. In the context of derivative contracts, the exercise of an option would not be seen as a modification of an essential obligation, but a roll or change of maturity date would be.

N.B. One useful takeaway from the impact study is that it suggests that French investors can continue to hold investments in UK AIFs and UCITS (which would mark a change in current French policy on fund marketing). Moreover, the study states that capital calls by UK private equity firms would not be seen as a fund marketing act.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.