knowledge 13 December 2018 |

Hot off the Press – Irish Law ISDA Credit Support Documents

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.

Both the Irish and French law are based on these English law title transfer ISDA credit support annexes, with which derivatives market participants are very familiar:

• 1995 Credit Support Annex (Bilateral Form – Transfer) (the “1995 Annex”); and
• 2016 Credit Support Annex for Variation Margin (VM) (Bilateral Form – Transfer) (the “2016 VM Annex”).

Following consultation with members on their requirements, ISDA chose not to proceed with an earlier proposal to publish additional Irish and French law security interest credit support documents, in the case of the Irish law document, based on the English law 1995 ISDA Credit Support Deed (Bilateral Form – Security Interest).

Reflecting the approach taken to the Irish law version of the 2002 Master Agreement, the Irish law versions of the 1995 Annex and 2016 VM Annex differ from the English law versions on which they are based in very limited respects:

• changes have been made to the header and footer to identify the document as governed by Irish law and for use with an Irish law governed ISDA Master Agreement;
• as the Irish law version of the 1995 Annex is intended for use solely in conjunction with the ISDA 2002 Master Agreement (Irish Law), whereas the English law version was prepared for use with, and incorporates terms used in, the 1992 ISDA Master Agreement, the amendments designed by ISDA to adapt that English law version for use with a 2002 ISDA Master Agreement (set out in ISDA 2002 Master Agreement Protocol), have been incorporated;
• as the Irish law version of the 2016 VM Annex is intended for use solely in conjunction with the ISDA 2002 Master Agreement (Irish Law), provisions included in the English law version of the 2016 VM Annex that are specific to the 1992 ISDA Master Agreement have been deleted; and
• an EU legislative reference contained in the elections and variables section of the 2016 VM Annex has been updated.  

ISDA first circulated draft Irish and French 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.  McCann FitzGerald issued the Irish law netting opinion.  Netting opinions, and netting opinion updates, commissioned by ISDA after publication of the Irish and French law versions of the 2002 Master Agreement will encompass those versions; at the date of this briefing ten jurisdictions’ opinions encompass those versions, in addition to the French and Irish opinions. 

ISDA has at this stage chosen not to publish 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.

ISDA will now extend the ambit of its collateral opinion exercise to encompass the new French and Irish credit support documents.

Comment                           

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.