Financial contracts worth trillions of pounds may be able to avoid a “cliff edge” if no Brexit deal is agreed thanks to the European Convention of Human Rights (ECHR), according to a lawyer’s report published today.
The right to property enshrined in the convention could offer a way for contracts to remain valid if the UK crashed out of the EU with no deal, according to Barney Reynolds, a partner at US law firm Shearman and Sterling.
Meanwhile, the already existing reverse solicitation regime could allow financial firms to continue serving European clients, Reynolds claimed.
The status of contracts after Brexit is a crucial fear for many businesses, and particularly for the financial services industry.
The Bank of England last month warned the Brexit process could endanger the functioning of 25 per cent of the UK and EU’s derivative positions, contracts worth a notional value of £20 trillion. If the contracts cease to be legally valid it could be a threat to financial stability, the Bank warned.
The reliance on the ECHR would also likely grate with some members of the Conservative government: before the EU referendum Prime Minister Theresa May said the UK should remain in the EU but leave the ECHR.
Reynolds, a proponent of cutting regulation for financial services after Brexit, claimed firms would be able to rely on the ECHR in the case of no deal being agreed, meaning they will not have to “trigger contingency plans early”.
However, the ECHR provisions would only provide “a remedy of last resort” rather than an effective solution, said Charles Brasted, a regulatory partner at law firm Hogan Lovells.
While firms would theoretically be able to pursue the human rights argument in court, Brasted said firms would take little comfort from the impractical process necessary to enforce the rights.
“It’s a very long way from the current contractual right,” he said.
For financial firms in the UK serving EU clients Reynolds claimed reverse solicitation would allow business to continue. Reverse solicitation, in which a firm asks another firm to use its service, allows some business to be exempted from some EU regulatory restrictions.
However, the workaround would only work for clients actively seeking new business.