As described in the previous blog existing domestic legislation in the remaining 27 Member States of the EU (“EU 27”) would need to be reconsidered by domestic legislators and be amended, depending on both domestic needs and any requirements arising under the negotiations between the UK and the remaining EU27 Member States.
First of all domestic legislators of EU 27 would need to review and analyse domestic legislation in respect of any references contained therein to a person or a product being situated in or originated from a “Member State of the European Union” or a “Member State of the European Economic Area”. References to “European Economic Area” (EEA) need to be identified and analysed because if the UK would cease to be a Member State of the European Union it would also automatically cease to be a Member State of the EEA (unless the UK joins the EEA once it has left the EU).
Such analysis would need to be made alongside any negotiations with the UK since domestic legislative procedures in each of the 27 Member States of EU27 would need to be started as early as possible in order to ensure that any results achieved in the negotiations between the EU and the UK could be implemented into the domestic legislation of EU27 in time. Such “parallel legislative procedures” can be seen in Member States from time to time (e.g. in Germany) where national domestic legislation procedures are started even though the relevant EU Directives which it targets to implement have not yet been finally adopted.
Such domestic analysis in the EU27 Member States would not only have to cover domestic legislation which is the result of implementing EU Directives or EU Regulations, but which otherwise relates to general principles of EU law, in particular the general principle of equality and equal treatment.
For example, Section 13 of the German Mortgage Bond Act (Pfandbriefgesetz) provides that mortgages are eligible for cover purposes of a German Mortgage Bank if the relevant real estate is situated in the EU, the EEA, Switzerland, the US, Canada, Japan, Australia, New Zealand or Singapore. That rule is not derived from EU Directives or EU Regulations but has been triggered by the principle of equality and equal treatment within the EU. If, or as long as, the UK is not added to that list by the German legislator after the UK ceased to be a Member State of the EU (and one might assume that such adding of the UK by the German legislator would be quite likely in order to protect German Pfandbriefbanken), any loans secured by real estate situated in the UK would no longer be eligible for Covered Bond purposes of German Mortgage Banks and would need to be removed from the cover-pool and be replaced by alternative cover assets. Similar rules may apply under the domestic covered bond legislation of other Member States.
An example for domestic legislation of an EU27 Member State which refers to EEA rather than EU and which does not deal with mutual recognition or passports, but nevertheless is of high importance for the UK, is Section 46e of the German Banking Act. Section 46e of the German Banking Act has been implemented into the German Banking Act as a consequence of Article 3 of Directive 2001/24/EC on the reorganisation and winding-up of credit institutions and provides that insolvency proceedings in respect of credit institutions whose home member state is another member state of the EEA can only be commenced in such home member state. In other words: Insolvency proceedings in respect of UK credit institutions cannot (currently) be commenced in Germany but only in the UK. In case of a Brexit the UK would – after the 2 year sunset period and subject to such Directive 2001/24 not being identified in the negotiations between the UK and the EU as a rule which shall continue to apply – be automatically “out” (without any need to amend or repeal Section 46e of the German Banking Act) and German courts could commence German insolvency proceedings in respect of UK credit institutions in case that they are insolvent from the German perspective. In this respect the slight nuance between the perspective of the EU27 Member States and the perspective of the UK should be noted. The corresponding provision in the UK is Section 3 of the Credit Institutions (Reorganisation and Winding up) Regulations 2004 which provides that a court in the United Kingdom may not make a winding up order in relation to an EEA credit institution. Of course a Brexit would not mean that Germany leaves the EU but Germany would continue to be “in” and accordingly German credit institutions would remain to be EEA credit institutions. Consequently even after the 2 year sunset period English courts would still be barred from making winding up orders against German credit institutions – unless the English legislator has identified Section 3 of the Credit Institutions (Reorganisation and Winding up) Regulations 2004 as an issue and has actively amended or repealed it.