Reducing legal risk within the financial sector: the European approach on financial collateral arrangements and its limits

Abstract

The article retraces the steps employed by the European Union to mitigate the risk arising across Member States from financial collateral arrangements, especially in a cross-border context. In this respect it draws attention to the rationale of the Financial Collateral Directive (FCD) and, after more than a decade, it analyses the extent to which the FCD has succeeded in achieving its objectives. In particular, the article studies the deadlocks in implementation of the FCD in the UK under the Financial Collateral Arrangements (No 2) Regulations 2003 in order to illustrate the unresolved legal uncertainties. The article draws attention also to the various strategies set forth and partially undertaken by the international community to overcome the lack of full harmonisation by stressing the importance of the flexible “place of the relevant intermediary approach” (PRIMA) rule on conflict of laws. Yet, despite the efforts, most of the legal flaws are far from being fixed at international, EU, and even domestic level.