On 25 October 2023, the Financial Markets Law Committee (FMLC) published a letter to HM Treasury (HMT) highlighting areas of legal uncertainty relating to the Financial Collateral Arrangements Regulations (FCARs) and asking for them to be addressed.
The FMLC notes that the interpretation of certain elements of the FCARs has remained an area of legal uncertainty for a number of years. The main issue with the FCARs relates to a lack of comfort that structures not involving title transfer (e.g. pledges, mortgages and other security interests) fall within scope of the FCARs and are therefore subject to its protections.
As the FCARs are listed in Schedule 1 of the Financial Services and Markets Act 2023, they will be revoked in due course as part of the government’s post-Brexit programme of repealing and replacing retained EU law. In the letter, the FMLC asks HMT to use this opportunity to ensure that the replacement legislation for the FCARs clarifies the areas of uncertainty.
The letter explains the FMLC’s view that addressing these issues could potentially free up large amounts of bank capital, whilst also allowing users of financial services to adopt structures which involve reduced counterparty risk, potentially providing a considerable boost to the UK economy.