On 15 October 2018, the House of Commons’ Exiting the EU Select Committee (the Committee) published a letter (dated 18 September 2018) that the European Parliament’s Brexit co-ordinator, Guy Verhofstadt MEP, had sent it. Mr Verhofstadt’s letter is in response to a question he received whilst appearing before the Committee on 20 June 2018 and concerns the impact of Brexit on existing contracts.
Key points in Mr Verhofstadt’s letter include:
- when it comes to ensuring the continuity of contracts concluded before Brexit – such as insurance and over-the-counter (OTC) derivatives contracts – the assessment made by the EU so far indicates that issues are likely to be linked to a far more limited set of contracts than initially feared by some;
- in the case of uncleared OTC derivatives, many of these contracts expire before March 30, 2019. In addition, derivative contracts concluded between UK and EU market participants should in principle remain valid. As analysis from market participants has shown, under the applicable national third country provisions of different Member States the performance of existing obligations under the contract could continue. This would mean that there is no issue of contract continuity, even in case of a no-deal scenario;
- but the performance of certain life-cycle events such as roll-over, novation and portfolio compression, imply, as a rule, the creation of new rights and obligations, for which an authorisation under EU or national law may be required. The use of the term “life-cycle events” hides that in many cases these events lead to the creation of new rights and obligations, to new contracts.