Post‐‘Brexit’ Financial Governance: Which Dispute Settlement Framework Should Be Utilised?
| Author | Elizabeth Howell |
| Date | 01 January 2020 |
| DOI | http://doi.org/10.1111/1468-2230.12483 |
| Published date | 01 January 2020 |
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Modern Law Review
DOI: 10.1111/1468-2230.12483
Post-‘Brexit’ Financial Governance: Which Dispute
Settlement Framework Should Be Utilised?
Elizabeth Howell∗
This contribution to the ongoing Brexit discussions addresses topical legal and regulatory issues
in the post-Brexit policy debate, especially the questions surrounding the important area of
financial governance and dispute resolution. Specifically, a number of future UK/EU legal
disputes with respect to financial services may emerge post-Brexit. The article examines the
UK’s track record at the Court of Justice of the European Union, and discusses some likely
future challenges. It then considers which institutional framework should be used for resolving
disagreements. The article assesses the strengths and weaknesses of three potential models
(the proposed Swiss/EU institutional framework; the EFTA ‘docking’ option; and the WTO
system) and provides an original cross-model evaluation. It also discusses the associated design
challenges that EU and UK negotiators may encounter in the attempt to devise a post-Brexit
dispute settlement system.
INTRODUCTION
In the field of financial governance (the mechanisms that support the regulation
and supervision of the financial markets) a number of UK/EU legal disputes
may emerge post-‘Brexit’. This article examines the UK’s current track record
at the Court of Justice of the European Union (CJEU), and discusses some
likely future challenges. In light of this, it considers which institutional frame-
works should be used for resolving them. The article assesses the strengths
and weaknesses of three potential models and provides an original cross-model
evaluation. It also discusses the associated design challenges that EU and UK
negotiators may encounter in the attempt to devise a post-Brexit dispute set-
tlement system. This timely contribution to the ongoing Brexit discussions
addresses topical legal and regulatory issues in the UK/EU post-Brexit policy
debate, especially the questions surrounding the important area of financial
governance and dispute resolution.
The article’s analysis is qualified by the following observation; it proceeds on
the basis that rational and functional interests and concerns should win out in
the Brexit dispute settlement negotiations. Be that as it may, it is acknowledged
that Brexit is not a rational endeavour and that the withdrawal negotiations
∗Slaughter and May Lecturer in Corporate Law, University of Cambridge. From September 2019,
Assistant Professor of Law, London School of Economics and Political Science. I am grateful to
the two anonymous referees for their valuable comments. The paper also benefitted from feedback
received following a presentation at a Cambridge-LMU Workshop on a ‘Post-Brexit Europe’. The
usual disclaimers apply. (Law is stated as of 31 August 2019.)
C2019 The Author.The Moder n Law Review C2019 The Modern Law Review Limited. (2020) 83(1) MLR 128–162
Elizabeth Howell
witnessed to date do not necessarily point to such interests offering a reliable
guide to the future Brexit arrangements.
At the time of writing, both the date for the UK’s departure from the EU,
and the future nature of the UK/EU relationship remain uncertain. Although
the Draft UK/EU Withdrawal Agreement and the Future Political Declaration
have been endorsed by the leaders of the EU-27 and the UK’s Prime Minister
(at the time), they have repeatedly failed to make it through the UK parlia-
mentary process.1Regardless of their final status, however, the Draft UK/EU
Withdrawal Agreement’s dispute resolution system merits examination. The
provisions amount to a cautious compromise, embracing a quasi-judicial sys-
tem of arbitration plus the involvement of the CJEU in relation to EU law
issues.2The approach in the Draft UK/EU Withdrawal Agreement is not so
surprising g iven the EU’sstronger position in the negotiations, although the UK
did secure a key concession with the inclusion of the arbitration mechanism.
Over the longer term, however, although the CJEU must remain the ultimate
arbiter on EU law within the EU order, as a matter of principle, it may
not be the appropriate forum for dispute resolution between the UK and
the EU. Rather, a standard feature of many international agreements is the
use of an institutional forum that is independent of both jurisdictions and
which can offer impartial oversight. Dispute resolution systems can also vary
depending on the substance of the agreement in question, as well as the levels
of mutual trust and cooperation that exist between the parties. Applying this
to the field of UK/EU financial governance, it is possible that a close future
partnership may be the objective, taking account of the long shared history
of the UK and the EU in this highly regulated and dynamic area.3Given the
continually evolving nature of financial governance, a close future partnership
may also heighten the probability of future legal challenges. Indeed, during
the UK’s time as a Member State, it has challenged the EU’s competency in
this area on a number of occasions. Taken together, a robust future UK/EU
institutional framework could help to monitor both sides’ compliance with
the terms of a future agreement as well as offering effective dispute resolution
when required. However, given the unpredictable state of the Brexit situation,
the precise level of any future UK/EU collaboration remains a matter of on-
going speculation. Yet in the event there is either no agreement (whether
with respect to financial governance or more generally), or only a light-touch
1 ‘Agreement on the withdrawal of the United Kingdom of Great Britain and Northern
Ireland from the European Union and the European Atomic Energy Community, as en-
dorsed by leaders at a special meeting of the European Council on 25 November 2018’
(Draft UK/EU Withdrawal Agreement); ‘Political Declaration setting out the framework
for the future relationship between the European Union and the United Kingdom’ (Draft
Political Declaration on the Future UK/EU Relationship) both at https://www.gov.uk/
government/publications/withdrawal-agreement-and-political-declaration(last accessed 23 Au-
gust 2019).
2 As discussed further below, one of the EU’s ‘red lines’, see for example, Opinion 1/92
ECLI:EU:C:1992:189.
3 To chart the history, see for example, E. Ferran, Building an EU Securities Market (Cambridge:
Cambridge University Press, 2004); for a comprehensive and incisive analysis of this area, see
for example, N. Moloney, EU Securities and Financial Markets Regulation (Oxford: O UP, 3rd ed,
2014).
C2019 The Author. The Modern Law Review C2019 The Modern Law Review Limited.
(2020) 83(1) MLR 128–162 129
Post-‘Brexit’ Financial Governance
future association materialises, a dispute settlement system will still be required,
although this will inevitably be somewhat different in its form compared to
that associated with a close regulatory partnership.
More generally, there are broader issues that may also impact upon the even-
tual design of a UK/EU dispute resolution mechanism. A full examination of
such issues exceeds the scope of the article; nonetheless, such variables should
be borne in mind when surveying the potential institutional models as these
could also affect the shape of a new dispute settlement system. Firstly, financial
governance is only one, albeit vital, issue in the wider Brexit dispute settlement
endeavour. For instance, how the Brexit financial settlement plays out could
influence the nature of any post-Brexit system. In brief, the Brexit financial
settlement sets out how the UK and EU will settle their outstanding financial
commitments to one another and currently forms part of the Draft UK/EU
Withdrawal Agreement. In the event that a so-called ‘no deal’ scenario mate-
rialises, however, it is probable that a combination of political considerations
and the level of appetite that emerges for a future UK/EU relationship will
then dictate the extent to which financial commitments are settled and vice
versa. Particularly in the situation where the UK leaves the Union without
making any payment whatsoever, this could have profound consequences on
the structure of a future UK/EU arrangement.4
In addition, the EU Guidelines on the framework for future EU/UK rela-
tions (published in March 2018) may also impact upon the design of the new
relationship. Particularly given EU concerns that UK businesses could gain
unfair competitive advantages post-Brexit (for example, because of regulatory
divergence), the EU Guidelines makeany future agreement dependent on there
being sufficient guarantees for a ‘level playing field’ for EU and UK businesses,
accompanied by adequate dispute settlement mechanisms. The Guidelines also
note that designing the governance of the future relationship will necessitate
taking into account the content and depth of the future relationship as well as
the requirements of the autonomy of the EU legal order, including the role
of the CJEU.5Again, these Guidelines suggest that what may be considered
acceptable from the EU’s point of view (including with respect to the role of
the CJEU) will likely depend on what is appropriate given the depth of the
relationship that emerges.
These are all examples of variables arising in the wider context of Brexit that
may also influence the final form of a financial governance dispute settlement
system. Accordingly, such elements should be kept in mind in relation to the
frameworks under examination in this article.
With this in mind, the overall thesis will be developed as follows: the first
section below examines the UK’s recent legal challenges at the CJEU with
respect to financial governance disputes. This section highlights the propen-
sity for disagreements to emerge in this swiftly evolving area. It also paves
the way for the following section, which turns to explore the potential for
4 House of Commons, Brexit: The Financial Settlement Briefing Paper No 8039 (July 2019) 26-30.
5 European Council, Guidelines for Future EU-UK Relations: 20001/18 (23 March 2018), Arts 12
and 15; House of Commons, Brexit: New Guidelines on the Framework for Future EU-UK Relations
Briefing Paper No 8289 (19 April 2018) section 9.
130 C2019 The Author. The Modern Law Review C2019 The Modern Law Review Limited.
(2020) 83(1) MLR 128–162
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