Table of Contents

Yeowart and Parsons on the Law of Financial Collateral

Yeowart and Parsons on the Law of Financial Collateral

Elgar Financial Law and Practice series

Geoffrey Yeowart, Robin Parsons, Edward Murray and Hamish Patrick

This book is the first of its kind to offer a systematic examination of the whole law relating to financial collateral. It does so in two parts. First, it explains the law created by the Financial Collateral Arrangements (No 2) Regulations 2003, the Directive it implemented and related legislation. Second, it examines how financial collateral is used in practice in a range of different markets. It will be an essential reference point for all legal practitioners operating in financial markets.

Chapter 5: IMPACT OF UK INSOLVENCY LAW AND BANK RESOLUTION MEASURES AND THE EXTENT TO WHICH THESE ARE DISAPPLIED IN RELATION TO FINANCIAL COLLATERAL ARRANGEMENTS

Geoffrey Yeowart, Robin Parsons, Edward Murray and Hamish Patrick

Subjects: law -professional, finance and banking law

Extract

The single greatest benefit offered to collateral-takers by Directive 2002/47/EC on financial collateral arrangements (‘FCD’) is being able to enforce financial collateral arrangements swiftly (if the need arises) without interference under insolvency law of EU Member States. The extent to which UK insolvency law is disapplied by the Financial Collateral Arrangements (No. 2) Regulations 2003 (‘FCARs’) (which implement the FCD) in relation to financial collateral arrangements is examined in this chapter. The potential impact of the special resolution regime (including ‘bail-in’) under the Banking Act 2009 (‘BA 2009’), and of foreign insolvency proceedings, is also considered. The FCD states in Recital (5) that: In order to improve the legal certainty of financial collateral arrangements, Member States should ensure that certain provisions of insolvency law do not apply to such arrangements, in particular, those that would inhibit the effective realisation of financial collateral or cast doubt on the validity of current techniques such as bilateral close-out netting, the provision of additional collateral in the form of top-up collateral and substitution of collateral. The recitals go on to state that the FCD does not address a person’s rights in respect of assets provided as financial collateral, where these rights arise: (i) otherwise than under the terms of the financial collateral arrangement; and (ii) otherwise than on the basis of a legal provision or rule of law arising by reason of the commencement or continuation of winding-up proceedings or reorganisation measures. It gives the example of restitution arising from mistake, error or lack of capacity.

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