Key provisions of the financial collateral regulations

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Key provisions of the financial collateral regulations
  • Rationale
  • Application
  • Easier creation/registration of security
  • Disapplication of insolvency law
  • Enforcement of security over shares
  • Replacement of collateral/re-hypothecation
  • Cross-border aspects
  • Bank Recovery and Resolution Directive (EU BRRD)
  • Practical effects

Key provisions of the financial collateral regulations

Rationale

The Financial Collateral Directive was first implemented in the UK under the Financial Collateral Arrangements (No 2) Regulations 2003, SI 2003/3226 first amended by the Financial Collateral Arrangements (No 2) Regulations 2003 (Amendment) Regulations 2009, SI 2009/2462 and subsequently amended by the Financial Markets and Insolvency (Settlement Finality and Financial Collateral Arrangements) (Amendment) Regulations 2010 which came into force on 6 April 2011. The main changes made by the 2010 Regulation include widening the definition of financial collateral to include credit claims. There is now also more clarity as to what constitutes possession and control of financial collateral and specifically, where financial collateral can be substituted by the collateral-provider. Following Brexit, The Financial  Markets and Insolvency (Amendment and Transitional Provision) (EU Exit) Regulations 2019, SI 2019/341 also amend Financial Collateral Arrangements (No 2) Regulations 2003, SI 2003/3226 to strip out references to European law. In this note, the Financial Collateral Regulations refers to the Financial Collateral Arrangements (No 2) Regulations 2003 as amended.

The EC Financial Collateral Directive (the Directive), by its very nature, left individual member states free to implement it as they choose.

The implementing regulations have been in force in the UK since 26 December 2003 and aim to simplify the way security over shares and cash is: (i) created and (ii) enforced. The Directive also provides more certainty

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