Set-off and netting

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This Overview signposts practice area content on set - off and netting, with links to analysis and precedents.

Set - off and netting are central to credit risk mitigation, default management and prudential and regulatory capital in banking and derivatives markets. Practitioners must distinguish legal, equitable and contractual set - off, combination of accounts, and close - out netting under master agreements. Key insolvency interactions include automatic insolvency set - off under the Insolvency Rules 2016, the anti - deprivation rule and pari passu principle, and protections for payment and securities systems under the Financial Markets and Insolvency (Settlement Finality) Regulations 1999.

Close - out and collateral netting rely on documentation (for example, the ISDA Master Agreement and credit support annexes) and are supported by the Financial Collateral Arrangements (No. 2) Regulations 2003. Recognition of netting for capital and large exposure purposes engages the UK Capital Requirements Regulation and PRA/FCA expectations. For cleared and bilateral derivatives, EMIR clearing, margin and segregation requirements affect composition of netting sets and enforceability.

Resolution and stays may affect termination and set - off: the Banking Act 2009 resolution regime, PRA contractual recognition...

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