On Friday 7 May, ISLA responded to the European Commission’s targeted consultation on the review of the Directive on financial collateral arrangements, with Clifford Chance as appointed counsel. This consultation is being reviewed alongside the targeted consultation on the review of the Directive on settlement finality in payment and securities settlement systems.
The EU Financial Collateral Directive (FCD) introduces a harmonised framework for the use of financial collateral to secure transactions, and thereby enhances the use of cross-border collateral. The FCD protects collateral takers by ensuring that financial collateral arrangements can be mobilised and realisable without delay, due to national formalities; providing for close-out netting provisions to be enforceable, in accordance with their terms and ring-fencing the operation of financial collateral arrangements, should one of the parties become insolvent.
ISLA in its response, emphasised the importance of the FCD’s functioning to recognise the value of netting mechanisms, and as such, has advocated for the scope to be kept as broad as possible to support the credit mitigation techniques that contribute to efficient markets. ISLA also recommends that divergence on applicability across Member States should be minimised where possible.
ISLA commission legal opinions that support the use of the Global Master Securities Lending Agreement (GMSLA) across several EU jurisdictions. These legal opinions consider in detail the effect of the Bank Recovery & Resolution Directive (BRRD) II, as implemented into applicable national law.