|Financial Collateral Directive (FCD)|
The Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (FCD) does not currently extend its legal protections to financial collateral arrangements relating to the provision of emission allowances as collateral.
Collateral arrangements may take different legal forms, the FCD recognises in that regard:
- “title transfer collateral arrangements”, and
A “title transfer collateral arrangement” (TTCA) is an arrangement under which a collateral provider transfers full ownership of financial collateral to a collateral taker for the purpose of securing or otherwise covering the performance of relevant financial obligations (for example repos).
“Security financial collateral arrangements” stand for an arrangement under which a collateral provider provides financial collateral by way of security in favour of, or to, a collateral taker, and where the full ownership of the financial collateral remains with the collateral provider when the security right is established (for example pledge).
Only some forms of collateral arrangements receive protection under the FCD.
The FCD does not set out a common insolvency law for Member States but, in order to improve the legal certainty of financial collateral arrangements, the legislation requires that EU Member States disapply certain provisions of national insolvency law to financial collateral arrangements falling under the scope of the FCD.
In particular, the FCD disapplies any national insolvency law that would inhibit the effective realisation of financial collateral (Recital 5, Article 4) or cast doubt on the validity of techniques contemplated under the FCD such as bilateral close-out netting, the provision of additional collateral in the form of top-up collateral and substitution of collateral.
Emission allowances‘ applicability
The MiFID II Directive envisages bringing spot emission allowances within the scope of financial regulation in the EU by classifying emission allowances as financial instruments within the meaning of MiFID.
However, separate legislative action will need to be taken to amend the FCD in order to bring EUAs within the scope of the FCD (Interplay between EU ETS Registry and Post Trade Infrastructure, Publications Office of the European Union, 2015, p. 15, 53, 55). It is argued that:
- while MiFID II envisages bringing spot emission allowances within the scope of financial regulation in the EU by classifying emission allowances as financial instruments within the meaning of MiFID II, the FCD does not link its own definition of “financial instruments” to the corresponding definition under MiFID,
- as a result, the extension of MiFID II to cover emission allowances will not be sufficient to bring emission allowances within the scope of the FCD,
- instead, legislative changes to the FCD will be required to broaden its scope to emission allowances.
Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (SFTR)
|Last Updated on Wednesday, 04 October 2017 22:28|