Elgar Financial Law and Practice series
Chapter 1: PURPOSE OF THE FINANCIAL COLLATERAL DIRECTIVE, THE LEGISLATIVE BACKGROUND AND KEY ISSUES ADDRESSED BY THE DIRECTIVE
The objective of Directive 2007/47/EC on financial collateral arrangements (‘FCD’) is to establish a minimum Community regime for the provision of collateral so as to contribute towards the integration and cost efficiency of the financial markets as well as the stability of the financial system in the Community. It seeks to provide a simple, speedy, effective and uniform means of enforcing security over cash, financial instruments and credit claims throughout the European Union (‘EU’). To this end it requires EU Member States to disapply certain provisions of national insolvency law which inhibit the realisation of financial collateral in the event of the insolvency of the collateral-provider; to eliminate formality requirements on the creation or enforcement of collateral imposed by national law; and to dispense with any requirement under national law that notice of an intention to realise the collateral should be given to the collateral-provider or that the terms of the realisation should be approved by the court. The FCD is binding, as to the result to be achieved, on the UK and other Member States. The choice of form and method of implementation is left to national authorities. In applying the UK regulations implementing the FCD, UK courts are required to follow the principles explained in Chapter 2. This Chapter 1 focuses on the background to the FCD and the key issues it seeks to address. By the late 1990s, the volume of transactions executed in the European financial markets had grown hugely.
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