BRUSSELS (Reuters) - The euro zone rescue fund will stop issuing euro-denominated bonds under English law from October, after repeated calls from EU regulators to shift financial contracts away from London to reduce legal uncertainty after Brexit.
Regulators have warned that some financial contracts may not be fully valid in the event of Britain leaving the European Union without a divorce deal and have urged the bloc's banks and financial firms to stop issuing bonds under English law.
The European Stability Mechanism (ESM) is one of the largest issuers of bonds in the euro zone and uses the funds it raises on markets to lend at low interest rates to euro zone countries in financial trouble.
"As a Luxembourg-based institution, the ESM has decided to begin using Luxembourgish law instead of English law as the governing law for all its new euro-denominated bonds and bills," its chief financial officer Kalin Anev Janse said in a newsletter to investors released on Thursday.
English law has traditionally been the preferred option for European bond and derivatives contracts because of the legal guarantees it provides. But uncertainty over Brexit has pushed EU regulators to advise financial firms to use the law of one of the remaining EU states for new contracts.
The ESM's decision will be operational from Oct. 1, before the Oct 31 deadline for Britain to leave the EU. It said its bonds denominated in dollars will remain under English law.
(Reporting by Francesco Guarascio; Editing by Alexander Smith)
