ACT Spear Heads End-user Response on Financial System Disruption

The ACT, focusing on the impact on corporates, urge the government not to impose new legislation to deal with major market disruption.

The ACT does not consider it necessary for new legislation to be introduced to confer new powers on government to intervene in the financial markets or in contracts arising from them. The case for such legislation would be strengthened if it were part of a concerted multinational (e.g. EU/G10) approach to the market disruption risk. However, even in such a case the potential negative consequences of such legislation may outweigh the advantages.

The ACT, in its response points out that:

• Legislation along the lines of the Green Paper could introduce extra political risk in doing business in UK financial markets
• Foreign courts may not recognise the UK legislation unless it was part of a concerted EU/G10 approach
• Legislation would raise the possibility of a new form of systemic risk, again reducing the attractions of UK financial markets.

The authorities do have a role, however, in encouraging market participants to undertake reviews to ensure that standard contract terms, the rules of exchanges, clearing and settlement systems, etc., and the terms of other contracts provide for the consequences of severe market disruption. The ACT will encourage corporates in particular to review their relevant bi-lateral contracts.

The ACT has commented in detail on the Green Paper in case legislation is considered. Regarding proposed powers of suspension of obligations, the ACT believes that suspensions:

• Should apply only to obligations arising out of financial market dealings
• Should only suspend the basic obligations (payment/delivery) of contracts arising from such dealings
• Should not override any express terms of the contract dealing with this type of market disruption
• Should not change the contractual consequences of non-delivery, other than making it no longer a breach.

Notes to editors

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