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Financial Regulation Update: New Developments in Derivatives and Swaps

04 July 2018

New Irish law governed ISDA Master Agreement 

The International Swap and Derivatives Association (ISDA) has published the Irish law governed ISDA Master Agreement: the 2002 ISDA Master Agreement (Irish law). This innovation is significant as English law governed documents prevailed in the European swaps and OTC derivatives markets since the first publication of the ISDA Master Agreements for netting and collateral arrangements in 1987.

With many financial institutions and swap counterparties considering relocating to European cities including Dublin, the publication of the Irish law ISDA Master Agreement gives greater choice and options to the participants, who may have concerns about the continued efficacy of English law agreements post Brexit. ISDA, in its July 2018 press release, commented that English law may become a third-country law after Brexit which means that English court decisions would no longer be automatically recognised and enforced across the EU and EEA. That would not be the case for Irish court judgements under the new Irish law ISDA master agreements, reducing the steps involved in settling a contractual dispute with an EU/EEA counterparty.

Ireland is an EU member state with a significant financial services industry. Ireland’s legal system is based on common law principles which place significant emphasis on freedom of contract between commercial counterparties, and as an EU member state, benefits from, and is subject to, EU policy, regulation, supervision and oversight[1].   

2018 ISDA Choice of Court and Governing Law Guide

In late February 2018, ISDA published a guide offering a range of new model choice of court and choice of law provisions for use in either the ISDA 2002 Master Agreement or the ISDA 1992 Master Agreement (Multicurrency - Cross Border).

The move followed a consultation in 2017 with its members, after which the ISDA recognised that the jurisdiction provisions may be regarded as “somewhat outdated” given a number of important legislative developments at EU and international level since the provisions were initially formulated and introduced. These developments include:

  • Rome II Regulations (2009) and Brussels I Recast (Regulation 1215/2012)
  • The Hague Convention of 30 June 2005 on Choice of Court Agreements

The guide includes:

  • Model forms of jurisdiction clauses: (i) exclusive and (ii) non-exclusive
  • Model governing law clauses, covering the choice of law for non-contractual obligations

ISDA availed of the opportunity to clarify what is meant by ‘disputes’, when referred to in jurisdiction clauses.  A ‘dispute’ includes matters which arise directly but also importantly those arising indirectly from the interpretation and operation of the contracts such as non-contractual rights and obligations. 

Conclusion

The introduction of Irish and French law governed ISDA Master Agreements will give more options and a greater degree of flexibility to participants in the swaps and OTC derivatives markets that would prefer to continue trading under an EU Member State law with EU court jurisdiction clauses once the UK leaves the EU.

The publication of 2018 ISDA Choice of Court and Governing Law Guide may also aid in the development of and access to new markets and the development of centres for dispute resolution for swaps and OTC derivatives. These measures will likely assist in risk mitigation and thereby help to future-proof against uncertainties which may impact transactions and transaction counterparties.

With 29 March 2019 as the Brexit date fast approaching, the swaps and derivative markets recognise the need to adjust and to allow increased optionality in documentation and dispute resolution procedure.

For more information on the use of Irish law governed ISDA Master Agreements, contact a member of our Financial Regulation team. 


The content of this article is provided for information purposes only and does not constitute legal or other advice.


[1] ISDA has also published a French law 2002 ISDA Master Agreement which is significant for credit institutions operating in civil law legal systems.

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