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Reduced Protections for Holders of an English Floating Charge

May 3, 2017

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A recent decision of the European Court of Justice (“ECJ”), on a referral from the Latvian courts and which is binding on the English courts (although the UK has commenced steps to leave the EU, the UK’s formal exit is still some time away), will make it more difficult for the holder of an English floating charge to enjoy the benefit of the UK’s Financial Collateral Arrangements (No.2) Regulations 2003 (“FCARS”)

FCARS implement an EU directive whose purpose was to assist the taking of security over financial collateral, which includes securities and cash.  When the FCARS apply, the collateral taker has certain advantages: a number of insolvency law provisions as well as some formalities will not apply.  The FCARS can also permit the collateral taker to enforce its security by appropriating collateral without having to get a court order.  Thus for a holder of security over financial collateral the applicability of the FCARS to its security can be very useful.

The English floating charge is used widely.  It is a form of security whose creation in response to the needs of the emerging economic environment was endorsed by the English courts in the nineteenth century.  It allows companies to grant security whilst at the same time still being able to carry on their business.

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UK Must Get to Grips with Brexit and MiFID II

March 9, 2017

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Asset Managers Face Some Difficult Decisions

2017 is proving to be a stressful and costly year for asset managers. The terms of the UK’s exit from the EU will continue to be the subject of extensive debate, both politically and in the press. At the same time, MiFID II is just around the corner, coming into force in January 2018 after having been put back a year due to the complexity of its implementation.

MiFID II recasts and broadens MiFID (the EU’s Markets in Financial Instruments Directive) in response to the financial crisis. It will change the way asset managers operate and not just in terms of enhanced investor protection. The new rules affecting allocation of costs for research, the impact on the fixed income market, the prohibition on payments to financial advisers and the new significantly more onerous reporting requirements are all major issues for the industry players to deal with. One commentator has estimated that MiFID II will cost the financial services industry more than EUR 2.5 billion to implement. And smaller players will be hit hardest, having less ability to absorb these hefty costs.

As for the UK’s proposed exit from the EU (the UK has yet to formally pull that trigger) we can expect the UK’s financial services industry to be significantly impacted. However, quite what that impact will be is as yet unknown and will depend on what model is eventually negotiated for the relationship between the UK and the EU in place of the UK’s current position as a full member of the EU. Of particular relevance for asset managers will be what the UK’s access to EU markets will look like. Currently, asset managers along with other UK authorised firms have full access to EU markets under passporting rights, which allow them to carry on business in another EEA state whether or not through a branch.

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