The Law Society has warned of dire consequences for the English legal system if the government presses ahead with ‘protectionist’ measures contained in its banking reform plans.
In a 54-page response to the Treasury’s June white paper on banking reform, Chancery Lane focuses on the proposal to separate retail and investment banking through a so-called ‘ring-fence’. The white paper proposes that ring-fenced banks should only be able to contract major obligations under European Economic Area laws.
This would have ‘serious unintended consequences impacting on the legal profession’, says the Society’s Banking Reform Group, which comprises senior and specialist lawyers with expertise in banking, competition and regulation. Ring-fenced banks would be excluded from contracting under ‘highly respected legal systems such as those of New York and Switzerland’, the response adds, ‘but leaving them free, to take an extreme example, to contract under the law of (say) Romania, with dispute resolution in (say) Somalia.’
The response adds: ‘[This] offers an insult to major trading partners, likely to damage not only the competitiveness and access to markets of UK regulated banks, but also the place of English law as the legal system of choice in much of the world and the income this generates in the UK – this is because this type of measure invites retaliation on a wider scale which might prevent or reduce the current widespread use of English law.
‘The legal profession would bear the brunt of that decline, but the whole of the UK would be poorer and there would be an impact over time on the UK’s standing overseas.’
Calling on the government to abandon the measure, Chancery Lane disputes the perception that use of a non-EEA legal system exposes banks to unacceptable risks.
It adds: ‘This is plainly not the case: major financial transactions are very rarely written under the laws of any jurisdiction that is not widely respected and also contains a major financial centre. Further, choice of jurisdiction for dispute resolution is at least as important, probably more so, than choice of law and the most popular jurisdictions (England, New York and Switzerland are the top three – often used for contracts governed by another law) are all highly respectable.
‘Nothing would be gained by cutting off any UK business, including ring-fenced banks, from choosing to contract and arrange dispute resolution under these laws and a good deal of damage would be done.’
To read the full response see the Law Society website.