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Financial Collateral Directive: Difference between revisions
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— so you may see contractual stipulations that both parties agree their arrangement is intended to be one. | — so you may see contractual stipulations that both parties agree their arrangement is intended to be one. | ||
While this is no doubt intended to help, given that, in the final analysis, the person likely to challenge that analysis would be a competing creditor, and the person who would be arbitrating on it would be a | While this is no doubt intended to help, given that, in the final analysis, the person likely to challenge that analysis would be a competing creditor, and the person who would be arbitrating on it would be a liquidator, if an arrangement were not formally within the definition, then the fact that the parties agreed it was intended to be probably wouldn’t. | ||
===What it does=== | ===What it does=== | ||
The [[FCD]] divides [[financial collateral arrangement|financial collateral arrangements]] into two mutually exclusive categories | The [[FCD]] divides [[financial collateral arrangement|financial collateral arrangements]] into two mutually exclusive categories, title transfer financial collateral arrangements, and ''security'' financial collateral arrangements. This is a matter of legal form, not economic substance, so note that differing styles of agreement covering the same basic product may have a different status. An English-law Global Master Securities Lending Agreement for example, is a TTCA, whereas a New York law {{msla}} is a SCA, and so is in scope. Just to confuse matters, a 2018 Pledge GMSLA is a SCA because, by design, collateral is pledged and not outright title transferred. | ||
(In general, New York law collateral arrangements tend to be by way of pledge and therefore SCAs; English law ones tend to be title transfer and therefore TTCAs, unless there is a specific reason for doing otherwise, as there is for the Pledge GMSLA). | |||
=====Title transfer financial collateral arrangements===== | =====Title transfer financial collateral arrangements===== | ||
Under a [[TTCA]] a [[collateral-provider]] transfers full ownership of the [[financial collateral]] to the [[collateral-taker]] on terms that | [[TTCA]]s are not security arrangements of any kind, do not therefore require registration and so, while it defines them, the Financial Collateral Directive doesn’t really apply to them as such. Under a [[TTCA]] a [[collateral-provider]] transfers full ownership of the [[financial collateral]] to the [[collateral-taker]] on terms that it will transfer back [[equivalent]] assets when the obligations are discharged: | ||
{{quote| | {{quote| | ||
“'''title transfer financial collateral arrangement'''” means an agreement or arrangement, including a repurchase agreement, evidenced in writing, where— | “'''title transfer financial collateral arrangement'''” means an agreement or arrangement, including a repurchase agreement, evidenced in writing, where— | ||
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the collateral-provider and the collateral-taker are both non-natural persons;</ol>}} | the collateral-provider and the collateral-taker are both non-natural persons;</ol>}} | ||
=====Security financial collateral arrangements===== | =====Security financial collateral arrangements===== | ||
Under an [[SFCA]] the collateral provider provides [[financial collateral]] by way of security but retains full ownership of the financial collateral remains with the collateral- | Under an [[SFCA]] the collateral provider provides [[financial collateral]] by way of security, but retains full ownership of the financial collateral remains with the collateral-provide | ||
{{quote| | {{quote| | ||
“'''security financial collateral arrangement'''” means an agreement or arrangement, evidenced in writing, where— | “'''security financial collateral arrangement'''” means an agreement or arrangement, evidenced in writing, where— | ||
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the collateral-provider and the collateral-taker are both non-natural persons; </ol>}} | the collateral-provider and the collateral-taker are both non-natural persons; </ol>}} | ||
Security interest is defined widely: | |||
{{quote| | |||
“'''security interest'''” means any legal or equitable interest or any right in security, other than a title transfer financial collateral arrangement, created or otherwise arising by way of security including —{{l3}} | |||
a pledge; <li> | |||
a mortgage; <li> | |||
a fixed charge; <li> | |||
a charge created as a floating charge where the financial collateral charged 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 its behalf; any right of the collateral-provider to substitute equivalent financial collateral or withdraw excess financial collateral shall not prevent the financial collateral being in the possession or under the control of the collateral-taker; or <li> | |||
a lien;</ol>}} | |||
=== | ==== Appropriation ==== | ||
As well as disapplying certain formalities to effective security | As well as disapplying certain formalities to create effective security interests, the [[FCD]] creates a remedy of “[[appropriation]]”, a novel remedy certainly as regards shares, which was previously unknown to English law: | ||
:''Where a legal or equitable mortgage is the [[security interest]] created or arising under a [[security financial collateral arrangement]] on terms that include a power for the [[collateral-taker]] to appropriate the collateral, the [[collateral-taker]] may exercise that power in accordance with the terms of the [[security financial collateral arrangement]], without any order for foreclosure from the courts.'' | :''Where a legal or equitable mortgage is the [[security interest]] created or arising under a [[security financial collateral arrangement]] on terms that include a power for the [[collateral-taker]] to appropriate the collateral, the [[collateral-taker]] may exercise that power in accordance with the terms of the [[security financial collateral arrangement]], without any order for foreclosure from the courts.'' | ||
{{sa}} | {{sa}} | ||
*[[Registration of charges]] | *[[Registration of charges]] | ||
*{{casenote1|Re Lehman Brothers International}} - a long disquisition about the [[Financial Collateral Regulations]]. | *{{casenote1|Re Lehman Brothers International}} - a long disquisition about the [[Financial Collateral Regulations]]. | ||
*Helpful Clifford Chance article [http://www.cliffordchance.com/briefings/2012/11/financial_collateralremainsagrayarea.html here] | |||