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How to address the “possession or control” issue in the UK Financial Collateral Arrangements
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This article examines the legal uncertainties surrounding collateralisation in the UK, focusing on the Financial Collateral Arrangements (No.2) Regulations 2003, SI 2003/3226. It explores the challenges posed by the “provision” of collateral and the “possession or control” test, especially in practical portfolio management and derivatives markets. Through an analysis of key case law, the article identifies inconsistencies and recommends separate definitions for “possession” and “control”. These proposed reforms aim to align legal definitions with modern financial practice, thereby enhancing legal certainty, reducing systemic risk, and supporting the resilience of financial markets.
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