Miscellaneous Regulations about financial collateral arrangements
The Financial Collateral Arrangement (No.2) Regulations 2003 (S.I. 2003/3226) (FCARs) transposed Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (FCAD), which simplified the process of taking financial collateral. The Act introduces an amendment to ensure that the existing legislation is valid and fully effective.
	Financial collateral is provided by a borrower to a lender to minimise the risk of financial loss to the lender if the borrower fails to meet their financial obligations. The FCARs provide a regime for the taking of financial collateral, in the form of cash, financial instruments or credit claims. Typical arrangements which fall within the scope of the FCARs are charges over shares, charges over cash deposits, and stock lending and repo arrangements.
	Subsequent litigation, though it has not invalidated the FCARs, has raised the issue of whether the UK’s 2003 transposition went beyond the implementing powers in the ECA, given the provisions within the FCARs were applied to a broader class of persons than the underlying EU directive.
	The Act puts the issue beyond doubt and ensure that the FCARs stand on a sound statutory footing by stating that the FCARs are, and always were, valid and fully effective. The Act also introduces an amendment to the Banking Act 2009, to ensure that the appropriate Parliamentary procedure and levels of scrutiny are applied where HM Treasury makes future secondary legislation in this area.