Brexit: First tangible measures published by French Government in order to prepare for a Hard Brexit

This article follows on from our update on 23 November 2018.

The Financial Services Ordonnance

Further to our update of 24 January 2019, the “financial services ordonnance” was published this morning.

This ordonnance has seven key measures, however, some are dealt with more clearly than others:

  • A first measure ensures the continuity of French entities' access to the UK interbank and securities settlement systems.

  • A second measure clarifies the rules applicable to insurance contracts validly concluded by UK insurers pre-Brexit. On this point the ordonnance confirms the obligation of UK insurers to execute these contracts, despite the loss of their EU passport. However, these contracts may not be renewed or give rise to the issue of new premiums, under penalty of nullity.

  • The third measure aims to clarify the powers of the prudential supervision and resolution authority (ACPR) vis-à-vis UK entities that have concluded contracts on the basis of the European passport (possibly alluding to the continuation of certain “immediate execution” contracts post-Brexit - but without expressly confirming this possibility).

  • A fourth measure makes two amendments to enable the main framework contract for derivatives, the International Swaps and Derivatives Association (ISDA) framework contract, to operate under French law. These amendments will allow the actors to adopt an ISDA framework contract under French law offering the same characteristics as the framework contract under English law.

  • A fifth measure defines an alternative mechanism to the use of novations with respect to framework contracts used for financial services. The offer of a new framework agreement shall be deemed to have been accepted (ie without the express consent of the French client) if the new framework agreement is identical to the initial framework agreement, with the exception of the fact that the new contract would be governed by French law and subject to the jurisdiction of French courts.

  • A sixth measure allows UK securities (and UK funds) to remain eligible, for a limited period (up to three years), in French equity savings plans (PEAs) and equity savings plans dedicated to SMEs and ETIs (PEA SMEs), as well as for private equity funds that must comply with exposure ratios to European companies. Note that the limited period will be defined by an Arrêté, and it may be that a reduced grandfathering period is agreed for liquid stocks.

  • A seventh measure designates the French Financial Markets Authority as the competent authority for the supervision of securitisation-related activities, in order to enable the securitisation market to continue to operate under enhanced security conditions.

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