knowledge | 2 October 2018 |
On the Way - Irish Law ISDA Credit Support Documents
The International Swaps and Derivatives Association, Inc. (“ISDA”) has circulated for member comment credit support documents governed by Irish and French law. Following the publication of Irish and French law versions of ISDA’s 2002 Master Agreement earlier this year (see our earlier briefings here and here), this is a further step in ISDA’s strategy to provide users of its documentation with the tools they need to future-proof contractual arrangements against the uncertainties presented by Brexit.
The Irish law drafts are based on these English law ISDA credit support documents, with which the derivatives industry is very familiar:
- 1995 Credit Support Annex (Bilateral Form – Transfer);
- 1995 Credit Support Deed (Bilateral Form – Security Interest); and
- 2016 Credit Support Annex for Variation Margin (VM) (Bilateral Form – Transfer).
Reflecting the approach taken to the Irish law version of the 2002 Master Agreement, the draft Irish law credit support documents differ in very limited respects from the English law versions on which they are based.
ISDA first circulated draft Irish law credit support documents to members for comment in February 2018 but subsequently decided to prioritise the finalisation and publication of the Irish and French law versions of the 2002 Master Agreement, which were published in June 2018 along with updated Irish and French law netting opinions encompassing those documents. This is the first occasion on which draft French law credit support documents have been circulated; they comprise French law versions of the English law 1995 Credit Support Annex (Bilateral Form – Transfer) and 2016 Credit Support Annex for Variation Margin (VM) (Bilateral Form – Transfer), together with a form of French law Master Pledge Agreement encompassing a financial securities account pledge and cash account pledge. Although drafted for use with accounts located in France, notes to the Master Pledge Agreement suggest that it may be used with other accounts, subject to taking relevant local law advice.
ISDA has decided not at this stage to circulate Irish or French law governed credit support documents to facilitate compliance with regulatory initial margin regimes, pending expressions of interest from members in such documents. As the law governing such documents tends to be that of the jurisdiction in which the relevant custodian is located, rather than the law governing the related master agreement, whether such documents are in due course circulated will likely depend on whether parties subject to such regimes choose custodians in Ireland and France to provide the custodial services supporting such arrangements.
This new ISDA initiative is a welcome development. The availability of Irish law ISDA credit support documents to support the existing Irish law ISDA 2002 Master Agreement will facilitate users that have a preference for contracts governed by the laws of Ireland, or of an EU Member State more generally, whether that derives from Brexit-related concerns or other reasons. Given that OTC derivatives are increasingly transacted on a collateralised basis – whether for regulatory compliance and/or risk management reasons – we expect the availability of Irish law credit support documents to enhance the popularity of the Irish law ISDA 2002 Master Agreement as a document of choice within the EU. In a post-Brexit environment, where Ireland will be the largest common law jurisdiction in the EU and judgments of EU Member State courts benefit from automatic recognition and enforcement throughout the EU, ISDA’s initiative will be a significant benefit to users of ISDA documentation and to Ireland. The very limited differences between the existing English law, and new Irish law, versions, and the similarities that exist between English and Irish contract law and legal systems, will be viewed as points of strength and reassurance by those users.
McCann FitzGerald was delighted to work closely with ISDA on the Irish law aspects of this project and strongly encourages ISDA members to participate in ISDA’s consultation process on the draft documentation.
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.