Chapter 8: ‘POSSESSION’ OR ‘CONTROL’ TEST TO BE SATISFIED WHEN CREATING A SECURITY FINANCIAL COLLATERAL ARRANGEMENT
There can be no security financial collateral arrangement unless ‘the financial collateral has been 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 its behalf’. This requirement does not apply in relation to title transfer financial collateral arrangements. The twin concepts of ‘possession’ and ‘control’ are for UK lawyers perhaps the most controversial aspect of the financial collateral regime. What do they mean? The Financial Collateral Directive (‘FCD’) and the Financial Collateral Arrangements (No. 2) Regulations 2003 (‘FCARs’) are not helpful in providing an answer, but they do provide guidance in three respects, each of which is relevant to ‘possession’ and ‘control’. First, they define the concepts in terms of ‘dispossession’. Secondly, there are special rules governing rights of substitution and withdrawal, etc. Thirdly, there is a partial definition of ‘possession’. Each of these will be dealt with in turn below. It should be noted at the outset that the concepts of ‘possession’ and ‘control’ derive from article 2.2 of the FCD: References in this Directive to financial collateral being ‘provided’, or to the ‘provision’ of financial collateral, are to the financial collateral being delivered, transferred, held, registered or otherwise designated so as to be in the possession or under the control of the collateral taker or of a person acting on the collateral taker’s behalf.
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