Elgar Financial Law and Practice series
Chapter 7: SECURITY FINANCIAL COLLATERAL ARRANGEMENTS
‘Financial collateral arrangements’ are either ‘title transfer financial collateral arrangements’ or ‘security financial collateral arrangements’. This chapter deals with the second of these types of arrangements. A ‘security financial collateral arrangement’ is defined by the Financial Collateral Arrangements (No. 2) Regulations 2003 (‘FCARs’) as: … an agreement or arrangement, evidenced in writing, where – (a) the purpose of the agreement or arrangement is to secure the relevant financial obligations owed to the collateral-taker; (b) the collateral-provider creates or there arises a security interest in financial collateral to secure those obligations; (c) the financial collateral is delivered, transferred, held, registered or otherwise designated so as to be in the possession or under the control of the collateral-taker or a person acting on his behalf; any right of the collateral-provider to substitute financial collateral of the same or greater value or withdraw excess financial collateral or to collect the proceeds of credit claims until further notice shall no prevent the financial collateral being in the possession or under the control of the collateral-taker; and (d) the collateral-provider and the collateral-taker are both non-natural persons. As previously explained, there are important differences between a security financial collateral arrangement and a title transfer financial collateral arrangement. Under the laws of most jurisdictions, there are cumbersome rules governing the creation and perfection of a security interest (particularly if the security interest is non-possessory).
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