The UK's status in the EU and its treaties. The UK will not be able to officially withdraw from the EU until June 2018. At that time, the UK government would be required to give notice to, and negotiate a framework for a new relationship with, the EU, which would result in the UK ceasing to be subject to EU treaties and directives that have not been incorporated into domestic UK legislation.

European Free Trade Association (EFTA) and European Economic Area (EEA). Upon its exit, the UK could become a member of the EFTA and the EEA. Entry into these groups would require the four other EFTA member states to agree to the UK's inclusion, inclusion in which is not linked to the EU in any way. If the UK becomes a member of these groups, certain EU directives would remain in effect, providing a degree of regulatory continuity. These include, among others, directives on:

Choice of Law. Under Rome 1 and 2 Regulations, courts are required to give effect to the parties' choice of law, as elected by the parties under Section 13(a) of the 2002 ISDA Master Agreement (see Practice Note, Understanding the ISDA Master Agreement and Schedule: Section 13: Governing Law and Jurisdiction). In the event that the UK does not elect to become part of the EFTA or the EEA, express choice of law provisions in contractual obligations will likely be respected under UK legal traditions. However, the Rome 2 Regulation also includes choice of law provisions for non-contractual relationships, which will no longer be binding on UK courts and will not provide the continued certainty that market participants enjoy under the current EU directives.

Choice of courts and arbitral forums. The 2002 ISDA Master provides that, if a proceeding related to an ISDA Master Agreement involves a Convention Court (as defined in the 2002 ISDA Master), English courts have non-exclusive jurisdiction, while if the proceeding does not involve a Convention Court, English courts have exclusive jurisdiction. The Convention Court definition also includes an exclusive jurisdiction clause for English-law-governed ISDA Master Agreements that are entered into between EU counterparties and reciprocal recognition across the EU of judgments from member states. This analysis may be altered post-Brexit, depending on, among other things, whether the UK becomes a member of the EFTA. Arbitration clauses in ISDA Master Agreements will likely be unaffected, as those are governed by the New York Convention on the Recognition of Foreign Arbitral Awards, which the UK is subject to regardless of its EU member-state status.

Bank Resolution. Under EU Art. 55 BRRD, governing bail-in provisions, UK companies will be required to include contractual provisions in their trading documentation with EU financial institutions that acknowledge that they may be subject to a bail-in liability in the event that it is required by the applicable regulator. While secondary regulation that the UK has passed implementing EU Art.55 BRRD on a domestic level may be repealed, the UK Banking Act 2009 already includes many of the recovery and resolution tools that were required under the EU directive. Reciprocal recognition of actions taken to resolve struggling financial entities will no longer exist. For details on bail-in provisions, see Legal Update, LSTA and LMA Publish Form EU Bail-in Contractual Recognition Provisions.

Insolvency. The harmonized rules governing corporate insolvency (EUIR) will no longer apply to the UK. The UK has enacted the Cross-Border Insolvency Regulations 2006 (CBIR) that implement UNICITRAL Model Law on cross-border insolvencies. While these laws are not as comprehensive as the EU regulations on corporate insolvency, they would create mutuality with other countries that have enacted that model law, including Greece, Poland, Romania, and Slovenia. Cross-border insolvency regulation for financial institutions would likely be repealed with the European Communities Act 1972, and any cross-border insolvency of a financial institution would have to rely on English common law, which is not comprehensive.

Collateral. English law for transfer and other collateral arrangements was robust prior to the implementation of the EU Collateral Directive (FCAD), but will likely require upgrades to EU regulatory requirements applicable to initial margin. Enforcement of English security rights in cross-border corporate insolvencies would become subject to English law that existed prior to the entry into force of the EUIR.