Making sense of MAC and force majeure clauses in the time of tariffs

RegCORE – Client Alert | Banking Union | Capital Markets Union | Insurance Union | EU Digital Single Market

QuickTake

Turbulent market conditions, in particular as a result of uncertainty around tariffs and geopolitical tensions in 2025, are causing significant complexities in contractual performance and risk allocation. Many financial services firms but equally their counterparties and in turn the underlying counterparties and clients are likely to be reviewing their relationships and exposures to counterparties as well as in turn the relationships and exposures of such counterparties. In many instances this means turning to terms in existing agreements and assessing available contractual options to mitigate risks from tariffs, trade and other geopolitical tensions affecting the real economy as well as those that are rolling over into financial markets.

While financial services firms may have a wide range of differing types of relationships and contracts, parties often turn to material adverse change (also sometimes referred to material adverse effect) (collectively MAC), force majeureFrom the French for “greater force”.Show Footnote (FM) clauses and/or the doctrine of frustration/hardship for relief during difficult times – particular in finance documents from everything from bilateral loans to letters of credit as well as other financial services (non-lending based products/solutions). Like with all clauses, the effect of the terms will largely depend on how such clauses are drafted, how they are interpreted and how they may be enforced.

Such reviews are not new. As in more recent times, be it the COVID-19 pandemic, the re-invasion of Ukraine and/or respective sanctions that followed, any review of whether a MAC, FM or a range of other clauses with analogous effect can be relied upon or whether a counterparty can attempt to trigger it, requires careful assessment of whether on-going events (such as tariffs, trade and/or geopolitical tensions) can be qualified as falling under such clauses.Some of those considerations as applicable in light of prolonged pandemic considerations were examined in a Client Alert (available here) in the section “Identifying, mitigating and managing risks in the known and unknown” including as it applies to assessing the inventory of their relationships and contractual terms (including MAC and FM clauses).Show Footnote Whether that is the case is not only down to the drafting of a specific clause but equally the contracts’ governing law provisions as well as, in certain limited circumstances, mandatory overriding provisions applicable to the jurisdiction of the parties and/or any assets.

This Client Alert highlights, in a jurisdiction as well as financial product-agnostic manner, some of the key legal principles and respective issues that financial services firms may want to consider with respect to their own reviews (including when using AI or LLM tools) of both existing clauses and when drafting new clauses.

A recap on key legal principles

MAC and FM clauses (as well as those with analogous effect) are typically (at times also quite heavily) negotiated prior to parties entering into a contract. They may also be heavily litigated when a contractual dispute (of whatever nature) arises.

MAC and FM clauses are two separate contract provisions with differing definitions. If one of the parties’ assets, business operations, or financial situation significantly deteriorates, the other party may terminate the agreement or renegotiate it under a MAC clause. A FM clause, on the other hand, excuses performance (but does not terminate the contract) in specific situations that are out of either part’s control, like strikes, natural disasters, and war. Crucially both of types of clauses may not absolve parties from taking reasonable steps to mitigate risks associated with unforeseeable events falling outside their control that could impact contractual obligations outlined within an agreement.

Importantly, as with all contractual clauses generally there is often an interplay specifically between MAC and FM clauses. While there may be a perception that a contract that contains both such clauses offers double protection against unanticipated circumstances, this is only the case if there are no misunderstandings and/or conflicts when the two clauses overlap or contradict one another.

Moreover, in a financial services context, MAC, FM and clauses with analogous effect come in different forms – even in standard as well as bespoke finance documents, where the existence of both such clauses is common. They are also subject to differing legal principles that are very much counterparty, transaction type and asset class specific. Furthermore, as explored below, there may be some specific legal issues that arise in how these clauses operate both within the same agreement as well as across multiple agreements forming an overall contractual relationship – specifically where there is no established hierarchy. Moreover, further issues may arise when there are differences between the governing law applicable to the contractual relationship as well as, in certain circumstances, the laws applicable to the jurisdiction relevant to a counterparty, its location and that of any of its assets. Importantly, where respective legal systems permit, a further doctrine of frustration/hardship may apply regardless of what is documented contractually i.e., even where an agreement contains no MAC nor FM clause, a doctrine of frustration/hardship in circumstances may apply.

In all instances timely notification and timely action is key. Failure by one or more parties to properly identify the applicable clause, whether it can be invoked, when, by whom and how, may result in a dispute over the validity above a claim for a MAC or FM event applying. The same is true in action and conduct. Many MAC, FM or other clauses with analogous effect may require a party to take measures to prevent an adverse impact on their ability to perform their contractual obligations.

Such measures are then subject to differing, contractually negotiated standards including, in some instances, a specific duty of care. These standards vary and so too does their interpretation in different legal systems. As an example, the standard of applying “reasonable efforts” versus “commercially reasonable” versus “best efforts” (or any permutation of such wording) is subject to a long list of principles established by case law in common law jurisdictions inasmuch as different statutory principles in civil law jurisdictions. That standard also differs between different individual jurisdictions and may also evolve over time i.e., including after parties sign a contract. Many firms may want to review how such standards evolve and how they apply, i.e., how a common law standard applies and is to be interpreted for example as applicable to a party located in a civil law jurisdiction, as well as to how a party can evidence that it is complying with that contractual standard.

In unpacking the above further, the following general principles as set out below are relevant points to consider. The discussion on these principles below are, as already mentioned, presented in a jurisdiction- and product-agnostic manner. As highlighted above, each legal system and in certain instances, individual jurisdictions (both common law and civil law or hybrid-based jurisdictions) may have further specific legal principles and attributes – including those that may cut across the governing law of a contract as chosen by the parties to it.

1.  MAC provisions

MAC provisions can be distinguished between (i) MAC language (usually in representations and warranties clauses) and (ii) MAC clauses. They are used in multiple ways in contracts but with the same common aims. MAC language may be used in representations and warranties that confirm no “MAC event” has occurred or is likely to occur. Usually such confirmation i.e., the representation and warranty is given at time of signature of a contract and/or at time of the performance of obligations (in the context of a loan, a drawdown and/or interest payment date for example). MAC language may also be subject to a materiality threshold.Such as to certain (typically factual) covenants, representations or warranties made by one party to the other (for example, by qualifying that a default will occur only if the breach is likely or reasonably likely to have a material adverse effect).Show Footnote Where there is a breach of representations and/or warranties relating to the MAC (and where drafted as being not capable of cure within a given time period) this breach, if not waived, may lead to an event of default that can be called by the non-defaulting party.

A MAC clause is a contractual provision that allows the party affected by the MAC event to invoke the clause and to (immediately) terminate or renegotiate the agreement (or action pre-agreed adjustments) if there are significant negative changes to it. A MAC clause essentially protects the parties from events (not just unforeseen) that could drastically impact the value or feasibility of the commercial deal and/or performance of contractual obligations. In many instances, a well drafted MAC clause may actually incentivise contractual parties to work together to preserve the commercial deal rather than to call a termination event or event of default or otherwise use a FM clause or doctrines of frustration or hardship to achieve a termination event or an event of default.

Well drafted MAC provisions aim to clearly define what qualifies as a ‘material adverse change’ including specific trigger events (i.e. MAC events) such as significant financial losses, adverse regulatory changes, geopolitical or any other defined events. Such MAC events may also have agreed exemptions as to what is not considered by the parties to be material nor adverse. Once those aspects are drafted and agreed, the parties may decide to include further terms as to what standard of subjective judgement is to be applied by the non-affected party as to whether a MAC event has arisen in respect of the affected party.

In contrast to a FM clause or the doctrine of frustration, a MAC provision does not require the performance of a contract to be impossible following a MAC event. Rather, depending on the drafting, a MAC event may be capable of being triggered where circumstances have made the obligations only onerous or impractical to perform. The degree of steps a party has to take (if at all) to mitigate the adverse impacts of a MAC event is also point that parties may agree contractually. As discussed above, the issue of what standard of reasonableness may apply will come into play.

Finally, the enforceability of a MAC clause often depends (in particular in the context of disputes) on how specifically it is drafted. Vague or overly broad clauses may be difficult to enforce and may lead to disputes (and indeed further costs). The affected party invoking the MAC clause typically bears the burden of proving that a material adverse change has actually (or indeed was deemed likely to have) occurred.

2.  FM clauses

In contrast to a MAC clause, which may ultimately end in an (immediate) termination event or event of default of the contract, a FM clause temporarily excuses (but does not exempt) parties from performing their contractual obligations due to extraordinary events beyond their control, with such events typically being a defined list (such as but not limited to: natural disasters, war, civil unrest, terrorism, strikes, pandemics) and with some clauses also including a narrow catch-all provision for unforeseen events not specifically listed.

Force majeure events are often narrowly defined and there is a strong emphasis of the unforeseeability of the event/circumstances being beyond the control of the parties that make it impossible to perform under a contract. That being said, parties may have (despite drafting) different interpretations of what constitutes an unforeseeable circumstance. In contrast, MAC clauses typically do not have the same emphasis on unforeseeability.

Contracts often require the party invoking force majeure (the affected party) to notify the other party (the non-affected party) promptly and by no later than within a certain timeframe. The affected party is usually required to take all reasonable steps to mitigate the impact of the force majeure event. The FM clause will typically specify that the burden of proof lies with the affected party to demonstrate that the force majeure event directly caused the inability to perform the contractual obligations and that all reasonable mitigation efforts have been undertaken.

FM clauses typically require the affected party to be actually (and not merely potentially) “prevented” from performing its obligations as a direct result of the events set out in the defined list. In other words, performance must be rendered objectively impossible or significantly impossible. Mere difficulty (or relative increased difficulty to when the contract was entered into) by a party to perform its obligations will not usually equate to such party being prevented from being able to perform its obligations so that a FM clause may not always capable of being relied on.

Where a FM clause is capable of being relied on, the contract continues however the affected party will be temporary excused from its obligations for such period as the force majeure event is continuing. Such period may however be time-bound and may also ultimately lead to termination events and/or rights arising.

Finally, FM clauses should outline the consequences of a force majeure event, such as suspension or reduction of obligations, extension of time to perform, or right to terminate (whether immediately or following an expiry of a period of time) or any combination thereof will apply and in what conditions such rights may be exercised and by whom.

3.  Other clauses with analogous effect

In particular in finance documents, parties may seek to negotiate bespoke clauses that address the adverse effects of change in law and/or increased costs. The latter is conceptually completely different to price adjustment clauses. It should be noted that these types of clauses are heavily bespoke and have been heavily litigated in a number of jurisdictions in particular as for financial services firms both changes in law and increased costs are viewed as being the cost of doing business in the financial services sector.

Change in law clauses are provisions in finance documents that address the impact of new laws or changes to existing laws on the parties’ obligations. When trade and economic tariffs are announced, they can be considered a change in law if they (materially) alter the legal or regulatory landscape in which the parties operate.

Increased costs clauses are designed to shift costs between parties where one is subject to an increase in costs that (materially) alters the original commercial bargain. In finance documents such clauses are typically drafted so as to protect lenders from additional costs incurred due to changes in law or regulation that has an adverse impact, usually on the prudential capital requirements of the lender. When tariffs are imposed, they can lead to increased operational costs for financial services firms but it remains to be seen whether this could hold in the scope of how most increased costs clauses are defined in finance documents.

4.  Doctrine of frustration or hardship

In addition to the above, certain legal systems, particularly common law jurisdictions, may have legal doctrines that may apply regardless of whether a clause is included to that effect or not. Legal doctrines are not static, they evolve and adapt as legal thinking and societal values change (especially in legal systems which in equally apply precedent-based law making through judicial decisions, such decisions that might influence existing and/or shape new doctrine).

The doctrine of frustration (although it may not always be named as such, and in civil law systems it may be denoted as a doctrine of “hardship”)In civil law jurisdictions within the EU, similar concepts exist, though they may not be explicitly termed “frustration.” For example, in Germany, the concept of “Störung der Geschäftsgrundlage” (disruption of the basis of the transaction) under the German Civil Code (BGB) allows for contract modification or termination if circumstances change significantly.Show Footnote may apply to a contractual relationship. This doctrine applies when an unforeseen event fundamentally changes the nature of the contractual obligations, making performance impossible, illegal, or radically different from what was originally agreed. Where the doctrine of frustration/hardship is included contractually as a clause, such drafting should specify the conditions under which frustration or hardship can be invoked and the legal consequences, such as automatic termination or the right to renegotiate the contract.

Where frustration is capable of being relied upon (whether as a matter of law or contract) the contract may be brought to an end, and the obligations will be seen as discharged. Crucially, frustration will generally not be available where obligations are simply difficult or onerous to perform. Accordingly, for such period as performance is possible, frustration is unlikely to be permissible. 

In summary and as explained above, frustration is a narrow common law principle that leads to automatic termination, whereas force majeure (whether under a common law or a civil jurisdiction) is a broader contractual provision that can be tailored to the parties’ needs and may result in suspension or termination based on the contract’s terms.

In civil law jurisdictions that recognise a doctrine of hardship to contractual relationships, this may apply in addition to a contractual MAC or FM clause and where such clauses do not exist, may operate to provide relief. The precise conditions of when the doctrine of hardship may be relied upon varies between civil law jurisdictions. Across all of these though, there is a central concept of the materiality and impact of an unforeseen event.

In certain civil law jurisdictions in the European Union (EU) the doctrine of hardship may cover situations where changed circumstances have rendered performance excessively onerous so that the insistence upon performance on the original agreed terms would impose (undue) hardship. The consequences of applying such doctrine will however depend on the governing law provisions of the contract and whether it can void the contract along with performance obligations and compensation rights in respect of losses, or instead merely trigger a right to renegotiate or alternatively modify the terms of the contract.

In both common law and civil law systems the application of the doctrine of frustration or hardship, whether contractually included in a clause or not, the party seeking to rely upon the doctrine (and thus relief) must notify the other party without delay.

Crucially, it is important to note that in the EU, the enforceability and interpretation of MAC clauses are primarily determined by national contract law (including where judicial precedent applies, by such (largely national) cases, and in certain aspects by relevant EU Regulations and Directives. In contrast, while force majeure is recognised in the legal systems of all EU Member States, the specific rules and requirements may vary in the interpretation as to how it may be applied.

Many EU countries however do have provisions in their civil codes (such as Germany, France, Italy, Spain and the Netherlands to name few) that address force majeure in statute. Judicial decisions in various EU jurisdictions do provide (limited) guidance on the interpretation and application of force majeure clauses. While the specific provisions and terminology may differ, common elements such as unforeseeability, impossibility and externality are consistently emphasised.These codes ensure that parties have a clear understanding of their rights and obligations in the event of force majeure, and they provide a basis for judicial interpretation and enforcement. It is essential for parties to be aware of the specific provisions in the relevant national civil code when drafting and negotiating contracts that include force majeure clauses, including when the governing law is that of a common law jurisdiction (whether within or outside of the EU).Show Footnote Moreover, courts in different EU Member States may interpret MAC and FM clauses differently, taking into account the specific circumstances and the intent of the parties.

Contracts involving consumers must also comply with EU and national consumer protection laws, which may impose mandatory rules that cannot be derogated from. Respective clauses in contracts (not just MAC and FM clauses) are required to be drafted so as to ensure compliance with these regulatory and mandatory legal requirements and consider the impact of consumer protection principles on the enforceability of MAC and FM clauses.

In cross-border situations (or where a law other than that of the jurisdiction in which the parties are present is used in the EU) it is important to recall that, since 2009, both the Rome I Regulation on the law applicable to contractual obligations and Rome II Regulation, on the law applicable to non-contractual obligations, are of relevance and are applied in all EU Member States (other than Denmark).

The Rome I Regulation provides that, subject to exclusions, a contract will be governed by a law chosen by the parties to the contract. This choice must be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case. This includes the laws (and thus principles) of non-EU Member States (i.e. third countries) as well as non-state body of laws or international conventions. That being said, there are certain specific types of contracts, such as consumer contracts and/or insurance contracts (but not reinsurance contracts) where mandatory rules of the law of the country in which say a consumer has their habitual residence cannot be derogated from i.e., cannot be overridden.

The provisions of the Rome II Regulation, applies, subject to exclusions, to non-contractual obligations arising in civil and commercial matters. In general, but also subject to considerations to the drafting of MAC and FM clause, once the applicable law is ascertained under Rome II, that law governs not only the basis and extent of a party’s liability but also factors such as the grounds for exemption from and limitation of liability, limitation periods and, importantly, the existence, nature, and assessment of damages. In most instances, certainly in finance related contracts, the governing law clause will address governing law and place of jurisdiction as it applies to contractual and non-contractual obligations – subject of course to the application of any overriding mandatory rules/provisions that cannot be derogated from and/or principles afforded by, where relevant consumer protection laws – including on unfair contract terms.

In summary, the Rome I Regulation will primarily govern the application of MAC clauses, force majeure clauses, and the doctrine of frustration in contracts where the governing law is that of Member State/Jurisdiction X. The chosen law will apply (this includes also the body of statutory provisions as well as body of jurisprudence) but overriding mandatory provisions from say EU Member States A and B may influence the application if they are deemed crucial for the public interest. The Rome II Regulation will be relevant for any non-contractual claims arising from the non-performance of contractual obligations. Finally, it is important to note that in the context of validly choosing a common law jurisdictions laws (whether in the EU or outside of the EU) to govern a contract, the civil law jurisdictions’ laws and relevant remedies thereunder may still apply as mandatory laws/provisions at the place of contractual performance.

Key considerations for financial services firms

Importantly when it comes to reviewing (but equally amending existing and drafting new contracts), depending on the type of commercial arrangements, a financial service firm may have to not only assess (i) its own rights but (ii) that of its contractual counterparty as well as (iii) the rights of parties with whom the direct counterparty has exposures (and respective MAC, FM and other clauses) that might impact the financial services firm’s exposure and what laws govern, what, where and when with respect to whom. This assessment applies not only within the confines of individual agreements but across multiple agreements where these collectively serve to form the respective contractual relationship.

Moreover, financial services firms may need to weigh up the likelihood of whether another party in a chain of contractual relationships may make use of various (MAC/FM clause) rights that could impact the financial services firms’ rights directly and/or indirectly, including what applies, where, when and with respect to whom. In some instances, contractual assurances may be requested by the financial services firm from its direct counterparty that such direct counterparty has not become subject to or has in place suitable provisions to prevent an adverse impact (or a cascade of events that cause an adverse impact) on the financial services firm’s exposures if the counterparties of the financial services firm’s direct counterparty exercise any MAC or FM clauses (or doctrine of frustration) that adversely impacts the financial services firm’s exposure.

While these considerations are relevant, the bigger issue is (regardless of choice and application of law) whether potential and/or actual tariff or government actions of analogous effect are capable of triggering a MAC or a FM clause or the doctrine of frustration in what is included in the contractual drafting to begin with. This in many instances is largely contingent upon the precise drafting of the specific clause, namely whether there is:

a.  For MAC clauses, sufficient clarity on:

1.  Triggering events: The announcement of tariffs or government actions can potentially trigger a MAC clause if it leads to a substantial deterioration in a party’s financial health or business operations over a set period of time. For instance, increased costs due to tariffs might reduce profitability or disrupt supply chains.

2.  Interpretation: The interpretation of what constitutes a “material” adverse change is often subjective and can lead to disputes. Courts typically look at the specific language of the clause and the overall context.

3.  Burden of proof: The financial services firm usually bears the burden of proving that a material adverse change has occurred. This can be challenging, especially if the impact of the tariffs is not immediately quantifiable.

b.  For FM clauses, sufficient clarity on:

1.  Scope of events: Whether the imposition of tariffs qualifies as a force majeure event depends on the specific wording of the clause and whether it specifically includes tariffs and equivalent government actions.

2.  Causation and impact: The party invoking the force majeure clause must demonstrate that the tariffs directly caused the inability to perform the contractual obligations. This can be complex, as the impact of tariffs might be indirect or gradual or only indirect at first and then only later culminating in a direct impact. It is also, in a number of legal systems, including in the EU, a contention that tariffs may not make performance impossible, simply (much) more expensive and that they are not unexpected as they have been announced by respective jurisdictions for a persisting period of time.

3.  Mitigation: The affected party is generally required to take reasonable steps to mitigate the impact of the force majeure event. This could involve finding alternative suppliers or adjusting business operations to cope with the tariffs.

c.  For change in law clauses, whether the following is catered for with sufficient clarity:

1.  Definition of change in law: Finance documents typically define what constitutes a change in law less so when it comes to a change in interpretation of a law. It is crucial to determine whether the announced tariffs fall within this definition. Parties may be required to notify each other of the change in law and its impact on their obligations.

2.  Adjustment of terms: Finance documents typically may allow for adjustments to the terms, such as interest rates or repayment schedules, to account for the financial impact of the tariffs.

3.  Termination rights: In some cases, a significant change in law may give one or both parties the right to terminate the agreement.

d.  For increased costs clauses, which in most finance documents may not mention and thus will not include tariffs per se, whether the following issues are sufficiently catered for:

1.  Scope of increased costs: Well drafted clauses should clearly define what constitutes increased costs, including direct and indirect costs resulting from tariffs. Lenders may need to provide documentation and evidence of the increased costs to justify the adjustments.

2.  Pass-through mechanism: The clause may allow lenders to pass on these increased costs to borrowers, typically through adjustments to interest rates or fees.

3.  Negotiation and dispute resolution: Borrowers may typically negotiate the extent of the cost pass-through or seek to resolve disputes through agreed mechanisms.

e.  For doctrines of frustration/hardship (or such other analogous concepts), whether there is sufficient clarity on:

1.  Threshold for frustration/hardship: A threshold for invoking frustration/hardship is typically high. The event must be so significant that it destroys the foundation of the contract. Mere increased costs or inconvenience due to tariffs typically do not meet this threshold.

2.  Legal consequences: If a contract is deemed frustrated or subject to hardship, it may be automatically terminated, and the parties may be discharged from their future obligations. This can have significant financial and operational implications for both parties.

3.  Risk allocation: Contracts often include specific provisions to allocate risks, such as MAC and FM clauses. The presence of these clauses might limit the applicability of the doctrine of frustration/hardship, as courts may view the parties as having already contemplated and allocated the risk of such events.

Key considerations when using GenAI and LLMs

The use of generative artificial intelligence (GenAI) as well as large language models (LLMs) can help cut down contractual review times considerably. Needless to say, the use of GenAI and LLMs do not always cut out the complexity discussed above. While useful, these tools may require some careful thought in how and when they are applied, detailed prompt engineering and continuous sample cases and logic training for the GenAI and LLM being uses so as to improve their efficacy. Based on our own experiences (as at the time of writing hereof) we note the following GenAI and LLM-specific considerations when it comes to conducting MAC and FM clause reviews both generally as well as in light of tariffs, trade and geopolitical tensions.

• Limited contextual awareness – unless prompted otherwise: GenAI an LLMs may struggle to fully grasp the specific context and nuances of a single agreement. While they can analyse the language used, they may miss the subtleties that a human lawyer would catch, such as industry-specific implications or the historical context of the parties’ relationship.
• Handling large volumes of data: Reviewing multiple agreements involves managing and analysing large volumes of data. While GenAI and LLMs can process significant amounts of text, they may not always effectively prioritise or highlight the most critical issues across all documents.
• Difficulty in ensuring consistency – unless prompted otherwise: When reviewing multiple agreements, GenAI and LLMs may struggle to ensure that MAC and FM clauses are consistent across all documents. This is crucial to avoid conflicts and ensure that the clauses work harmoniously together. 
• Complex interdependencies: Multiple agreements often have interdependencies and cross-references that GenAI and LLMs might not fully understand. This can lead to an incomplete or incorrect analysis of how a MAC or FM event in one agreement affects the others.
• Lack of holistic view – unless prompted otherwise: GenAI and LLMs may not be able to provide a holistic view of the contractual relationship across multiple agreements. They might miss how the clauses interact with each other and the overall impact on the parties’ obligations and rights.
• Ambiguity in legal language: Legal terms often have specific meanings that can vary based on jurisdiction and context. GenAI and LLMs might not always (fully) accurately interpret these terms, leading to potential misinterpretations of the MAC or FM clauses.
• Inability to assess practical risks: GenAI and LLMs can identify potential issues in the language of the clauses but may not effectively assess the practical risks or implications for the parties involved. This includes understanding the likelihood of a MAC event or the practical enforceability of a FM clause.
• Absence of professional judgement: GenAI (in particular agentic AI) and LLMs lack the professional judgment and experience that human lawyers bring to the table. They cannot provide the same level of strategic advice or foresee potential future disputes and how they might be resolved.
• Need for continuous updates: Legal standards and interpretations evolve over time – particularly in the case of tariffs. GenAI and LLMs require continuous updates and training to stay current with the latest legal developments, which may not always be feasible.

In summary, GenAI and LLMs provide a lot of useful tools that work well on a lawyer-led, tech powered approach to cut down time in reviewing and processing options, in particular as relevant developments in tariffs, trade and geopolitical tensions continue to change daily.

Outlook and next steps

The evolving landscape of tariffs and geopolitical tensions in 2025 may necessitate that some financial services firms take a more proactive approach in identifying and managing their own contractual obligations and rights. It also means that some financial services firms may need to improve their efforts on the monitoring and mitigating of contractual risk applicable to their counterparties exercise of rights as well as actions of persons with whom such counterparties maintain their own further relationships.

The complexities surrounding MAC and FM clauses, as well as the doctrine of frustration/hardship, underscore the importance of precise and clear contractual drafting and robust monitoring through the lifecycle. A number of firms may want to carefully assess their existing contracts to ensure that they are adequately protected against potential adverse impacts. This includes a thorough review of triggering events, the scope of their definition, the scope of force majeure events, and the thresholds for invoking frustration or hardship. By doing so, firms may certainly better navigate the uncertainties and mitigate risks associated with these clauses.

About us

PwC Legal is assisting a number of financial services firms and market participants in forward planning for changes stemming from relevant related developments. We have assembled a multi-disciplinary and multijurisdictional team of sector experts to support clients navigate challenges and seize opportunities as well as to proactively engage with their market stakeholders and regulators.

Moreover, we have developed a number of RegTech and SupTech tools for supervised firms, including PwC Legal’s Rule Scanner tool, backed by a trusted set of managed solutions from PwC Legal Business Solutions, allowing for horizon scanning and risk mapping of all legislative and regulatory developments as well as sanctions and fines from more than 2,500 legislative and regulatory policymakers and other industry voices in over 170 jurisdictions impacting financial services firms and their business.

Equally, in leveraging our Rule Scanner technology, we offer a further solution for clients to digitise financial services firms’ relevant internal policies and procedures, create a comprehensive documentation inventory with an established documentation hierarchy and embedded glossary that has version control over a defined backward plus forward looking timeline to be able to ensure changes in one policy are carried through over to other policy and procedure documents, critical path dependencies are mapped and legislative and regulatory developments are flagged where these may require actions to be taken in such policies and procedures.

The PwC Legal Team behind Rule Scanner are proud recipients of ALM Law.com’s coveted “2024 Disruptive Technology of the Year Award”.

If you would like to discuss any of the developments mentioned above, or how they may affect your business more generally, please contact any of our key contacts or PwC Legal’s RegCORE Team via de_regcore@pwc.com or our website.