FINANCIAL SERVICES AND MARKETS PART 1 General Citation and commencement 1 1 These Regulations may be cited as the Financial Collateral Arrangements (No. 2) Regulations 2003. 2 Regulation 2 shall come into force on 11th December 2003 and all other Regulations thereof shall come into force on 26th December 2003. Revocation 2 The Financial Collateral Arrangements Regulations 2003 are hereby revoked. Interpretation 3 1 In these Regulations — “ book entry securities collateral ” means financial collateral subject to a financial collateral arrangement which consists of financial instruments, title to which is evidenced by entries in a register or account maintained by or on behalf of an intermediary; “ cash ” means money in any currency, credited to an account, or a similar claim for repayment of money and includes money market deposits and sums due or payable to, or received between the parties in connection with the operation of a financial collateral arrangement or a close-out netting provision; “ close-out netting provision ” means a term of a financial collateral arrangement, or of an arrangement of which a financial collateral arrangement forms part, or any legislative provision under which on the occurrence of an enforcement event, whether through the operation of netting or set-off or otherwise— the obligations of the parties are accelerated to become immediately due and expressed as an obligation to pay an amount representing the original obligation’s estimated current value or replacement cost, or are terminated and replaced by an obligation to pay such an amount; or an account is taken of what is due from each party to the other in respect of such obligations and a net sum equal to the balance of the account is payable by the party from whom the larger amount is due to the other party; “ credit claims ” means pecuniary claims which arise out of an agreement whereby a credit institution, as defined in Article 4(1)(1) of Regulation ( EU ) 575/2013 of the European Parliament and of the Council of 26 June 2013, and including the institutions listed in Article 2(5)(2) to (23) of Directive 2013/36/ EU of the European Parliament and of the Council of 26 June 2013, grants credit in the form of a loan; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . “ equivalent financial collateral ” means— in relation to cash, a payment of the same amount and in the same currency; in relation to financial instruments, financial instruments of the same issuer or debtor, forming part of the same issue or class and of the same nominal amount, currency and description or, where the financial collateral arrangement provides for the transfer of other assets following the occurrence of any event relating to or affecting any financial instruments provided as financial collateral, those other assets; and includes the original financial collateral provided under the arrangement; “ financial collateral arrangement ” means a title transfer financial collateral arrangement or a security financial collateral arrangement, whether or not these are covered by a master agreement or general terms and conditions; “ financial collateral ” means either cash, financial instruments or credit claims ; “ financial instruments ” means— shares in companies and other securities equivalent to shares in companies; bonds and other forms of instruments giving rise to or acknowledging indebtedness if these are tradeable on the capital market; and any other securities which are normally dealt in and which give the right to acquire any such shares, bonds, instruments or other securities by subscription, purchase or exchange or which give rise to a cash settlement (excluding instruments of payment); and includes units of a collective investment scheme within the meaning of the Financial Services and Markets Act 2000 , eligible debt securities within the meaning of the Uncertificated Securities Regulations 2001 , money market instruments, claims relating to or rights in or in respect of any of the financial instruments included in this definition and any rights, privileges or benefits attached to or arising from any such financial instruments; “ intermediary ” means a person that maintains registers or accounts to which financial instruments may be credited or debited, for others or both for others and for its own account but does not include— a person who acts as a registrar or transfer agent for the issuer of financial instruments; or a person who maintains registers or accounts in the capacity of operator of a system for the holding and transfer of financial instruments on records of the issuer or other records which constitute the primary record of entitlement to financial instruments as against the issuer; “ non-natural person ” means any corporate body, unincorporated firm, partnership or body with legal personality except an individual, including any such entity constituted under the law of a country or territory outside the United Kingdom or any such entity constituted under international law; ... “ relevant account ” means, in relation to book entry securities collateral which is subject to a financial collateral arrangement, the register or account, which may be maintained by the collateral-taker, in which entries are made, by which that book entry securities collateral is transferred or designated so as to be in the possession or under the control of the collateral-taker or a person acting on its behalf; “ relevant financial obligations ” means the obligations which are secured or otherwise covered by a financial collateral arrangement, and such obligations may consist of or include— present or future, actual or contingent or prospective obligations (including such obligations arising under a master agreement or similar arrangement); obligations owed to the collateral-taker by a person other than the collateral-provider; obligations of a specified class or kind arising from time to time; “ reorganisation measures ” means— administration within the meaning of the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 ; a company voluntary arrangement within the meaning of that Act or that Order ; administration of a partnership within the meaning of that Act or that Order or, in the case of a Scottish partnership, a protected trust deed within the meaning of the Bankruptcy (Scotland) Act 1985 ; a partnership voluntary arrangement within the meaning of the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 or, in the case of a Scottish partnership, a protected trust deed within the meaning of the Bankruptcy (Scotland) Act 1985; and the making of an interim order on an administration application; “ security financial collateral arrangement ” means an agreement or arrangement, evidenced in writing, where— the purpose of the agreement or arrangement is to secure the relevant financial obligations owed to the collateral-taker; the collateral-provider creates or there arises a security interest in financial collateral to secure those obligations; the financial collateral is delivered, transferred, held, registered or otherwise designated so as to be in the possession or under the control of the collateral-taker or a person acting on its behalf; any right of the collateral-provider to substitute financial collateral of the same or greater value or withdraw excess financial collateral or to collect the proceeds of credit claims until further notice shall not prevent the financial collateral being in the possession or under the control of the collateral-taker; and the collateral-provider and the collateral-taker are both non-natural persons; “ security interest ” means any legal or equitable interest or any right in security, other than a title transfer financial collateral arrangement, created or otherwise arising by way of security including— a pledge; a mortgage; a fixed charge; a charge created as a floating charge where the financial collateral charged is delivered, transferred, held, registered or otherwise designated so as to be in the possession or under the control of the collateral-taker or a person acting on its behalf; any right of the collateral-provider to substitute financial collateral of the same or greater value or withdraw excess financial collateral or to collect the proceeds of credit claims until further notice shall not prevent the financial collateral being in the possession or under the control of the collateral-taker; or a lien; “ title transfer financial collateral arrangement ” means an agreement or arrangement, including a repurchase agreement, evidenced in writing, where— the purpose of the agreement or arrangement is to secure or otherwise cover the relevant financial obligations owed to the collateral-taker; the collateral-provider transfers legal and beneficial ownership in financial collateral to a collateral-taker on terms that when the relevant financial obligations are discharged the collateral-taker must transfer legal and beneficial ownership of equivalent financial collateral to the collateral-provider; and the collateral-provider and the collateral-taker are both non-natural persons; “winding-up proceedings” means— winding up by the court or voluntary winding up within the meaning of the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989; sequestration of a Scottish partnership under the Bankruptcy (Scotland) Act 1985; bank insolvency within the meaning of the Banking Act 2009. 1A For the purpose of these Regulations— a “ enforcement event ” means an event of default, or (subject to sub-paragraph (b)) any similar event as agreed between the parties, on the occurrence of which, under the terms of a financial collateral agreement or by operation of law, the collateral taker is entitled to realise or appropriate financial collateral or a close-out netting provision comes into effect; b a crisis management measure or resolution measure or crisis prevention measure taken in relation to an entity ... shall not be considered to be an enforcement event pursuant to an agreement between the parties if the substantive obligations provided for in that agreement (including payment and delivery obligations and provision of collateral) continue to be performed; and c for the purposes of sub-paragraph (b) “crisis prevention measure” and “crisis management measure” have the meaning given in section 48Z of the Banking Act 2009 and “ resolution measure ” has the meaning given in paragraph 84 of Schedule 11 to the Financial Services and Markets Act 2023 . 2 For the purposes of these Regulations “possession” of financial collateral in the form of cash or financial instruments includes the case where financial collateral has been credited to an account in the name of the collateral-taker or a person acting on his behalf (whether or not the collateral-taker, or person acting on his behalf, has credited the financial collateral to an account in the name of the collateral-provider on his, or that person’s, books) provided that any rights the collateral-provider may have in relation to that financial collateral are limited to the right to substitute financial collateral of the same or greater value or to withdraw excess financial collateral. PART 2 Modification of law requiring formalities Certain legislation requiring formalities not to apply to financial collateral arrangements 4 1 Section 4 of the Statute of Frauds 1677 (no action on a third party’s promise unless in writing and signed) shall not apply (if it would otherwise do so) in relation to a financial collateral arrangement. 2 Section 53(1)(c) of the Law of Property Act 1925 (disposition of equitable interest to be in writing and signed) shall not apply (if it would otherwise do so) in relation to a financial collateral arrangement. 3 Section 136 of the Law of Property Act 1925 (legal assignments of things in action) shall not apply (if it would otherwise do so) in relation to a financial collateral arrangement, to the extent that the section requires an assignment to be signed by the assignor or a person authorised on its behalf, in order to be effectual in law. 4 Sections 859A (charges created by a company) and 859H (consequence of failure to register charges created by a company) of the Companies Act 2006 shall not apply (if they would otherwise do so) in relation to a security financial collateral arrangement or any charge created or otherwise arising under a security financial collateral arrangement or, in Scotland, to relation to any charge created or arising under a financial collateral arrangement . 5 Section 4 of the Industrial and Provident Societies Act 1967 (filing of information relating to charges) shall not apply (if it would otherwise do so) in relation to a ... financial collateral arrangement or any charge created or otherwise arising under a ... financial collateral arrangement. Certain legislation affecting Scottish companies not to apply to financial collateral arrangements 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . No additional formalities required for creation of a right in security over book entry securities collateral in Scotland 6 1 Where under the law of Scotland an act is required as a condition for transferring, creating or enforcing a right in security over any book entry securities collateral, that requirement shall not apply (if it would otherwise do so). 2 For the purposes of paragraph (1) an “act”— a is any act other than an entry on a register or account maintained by or on behalf of an intermediary which evidences title to the book entry securities collateral; b includes the entering of the collateral-taker’s name in a company’s register of members. Certain legislation affecting overseas companies not to apply to financial collateral arrangements 6A Any provision about registration of charges made by regulations under section 1052 of the Companies Act 2006 (overseas companies) does not apply (if it would otherwise do so) in relation to a security financial collateral arrangement or any charge created or otherwise arising under a security financial collateral arrangement or, in Scotland, to any charge created or arising under a financial collateral arrangement. Certain legislation affecting Northern Ireland companies and requiring formalities not to apply to financial collateral arrangements 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART 3 Modification of insolvency law Certain legislation restricting enforcement of security not to apply to financial collateral arrangements 8 1 The following provisions of Schedule B1 to the Insolvency Act 1986 (administration) shall not apply to any security interest created or otherwise arising under a financial collateral arrangement— a paragraph 43(2) (restriction on enforcement of security or repossession of goods) including that provision as applied by paragraph 44 (interim moratorium); ... aa paragraph 65(2) (distribution); b paragraphs 70 and 71 (power of administrator to deal with charged property); and c paragraph 99(3) and (4) (administrator’s remuneration, expenses and liabilities). 2 Paragraph 41(2) of Schedule B1 to the Insolvency Act 1986 (receiver to vacate office when so required by administrator) shall not apply to a receiver appointed under a charge created or otherwise arising under a financial collateral arrangement. 3 The following provisions of the Insolvency Act 1986 (administration) shall not apply in relation to any security interest created or otherwise arising under a financial collateral arrangement— a sections 10(1)(b) and 11(3)(c) (restriction on enforcement of security while petition for administration order pending or order in force); and b section 15(1) and 15(2) (power of administrator to deal with charged property); and c section 19(4) and 19(5) (administrator’s remuneration, expenses and liabilities). 4 Section 11(2) of the Insolvency Act 1986 (receiver to vacate office when so required by administrator) shall not apply to a receiver appointed under a charge created or otherwise arising under a financial collateral arrangement. 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certain Northern Ireland legislation restricting enforcement of security not to apply to financial collateral arrangements 9 1 The following provisions of the Insolvency (Northern Ireland) Order 1989 (administration) shall not apply to any security interest created or otherwise arising under a financial collateral arrangement— a Article 23(1)(b) and Article 24(3)(c) (restriction on enforcement of security while petition for administration order pending or order in force); ... b Article 28(1) and (2) (power of administrator to deal with charged property); c Article 31(4) and (5) (administrator’s remuneration, expenses and liabilities); and d Paragraphs 44(2), 45 (restriction on enforcement of security), 66(2) (distribution), 71, 72 (power of administrator to deal with charged property), 100(3) and (4) (administrator’s remuneration, expenses and liabilities) of Schedule B1 to the Order. 2 Article 24(2) of that Order (receiver to vacate office at request of administrator) shall not apply to a receiver appointed under a charge created or otherwise arising under a financial collateral arrangement. Certain insolvency legislation on avoidance of contracts and floating charges not to apply to financial collateral arrangements 10 1 In relation to winding-up proceedings of a collateral-taker or collateral-provider, section 127 of the Insolvency Act 1986 (avoidance of property dispositions, etc) shall not apply (if it would otherwise do so)— a to any property or security interest subject to a disposition or created or otherwise arising under a financial collateral arrangement; or b to prevent a close-out netting provision taking effect in accordance with its terms. 2 Section 88 of the Insolvency Act 1986 (avoidance of share transfers, etc after winding-up resolution) shall not apply (if it would otherwise do so) to any transfer of shares under a financial collateral arrangement. 2A Sections 40 (or in Scotland, sections 59, 60(1)(e)) and 175 of the Insolvency Act 1986 (preferential debts) shall not apply to any debt which is secured by a charge created or otherwise arising under a financial collateral arrangement. 2AA Section 174A of the Insolvency Act 1986 (moratorium debts etc. priority) shall not apply (if it otherwise would do so) to any charge created or otherwise arising under a financial collateral arrangement. 2B Section 176ZA of the Insolvency Act 1986 (expenses of winding up) shall not apply in relation to any claim to any property which is subject to a disposition or created or otherwise arising under a financial collateral arrangement. 3 Section 176A of the Insolvency Act 1986 (share of assets for unsecured creditors) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a financial collateral arrangement. 4 Section 178 of the Insolvency Act 1986 (power to disclaim onerous property) or, in Scotland, any rule of law having the same effect as that section, shall not apply where the collateral-provider or collateral-taker under the arrangement is subject to winding-up proceedings , to any financial collateral arrangement. 5 Section 245 of the Insolvency Act 1986 (avoidance of certain floating charges) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a security financial collateral arrangement. 5A Paragraph 64A of Schedule B1 to the Insolvency Act 1986 shall not apply (if it otherwise would do so) to any charge created or otherwise arising under a financial collateral arrangement. 6 Section 754 of the Companies Act 2006 (priorities where debentures secured by floating charge) (including that section as applied or modified by any enactment made under the Banking Act 2009) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a financial collateral arrangement. Certain Northern Ireland insolvency legislation on avoidance of contracts and floating charges not to apply to financial collateral arrangements 11 1 In relation to winding-up proceedings of a collateral-provider or collateral-taker, Article 107 of the Insolvency (Northern Ireland) Order 1989 (avoidance of property dispositions effected after commencement of winding up) shall not apply (if it would otherwise do so)— a to any property or security interest subject to a disposition or created or otherwise arising under a financial collateral arrangement; or b to prevent a close-out netting provision taking effect in accordance with its terms. 1A Article 50 of that Order (payment of debts out of assets subject to floating charge) shall not apply (if it would otherwise do so), to any charge created or otherwise arising under a financial collateral arrangement. 2 Article 74 of that Order (avoidance of share transfers, etc after winding-up resolution) shall not apply (if it would otherwise do so) to any transfer of shares under a financial collateral arrangement. 2A Articles 148A (moratorium debts etc. priority) and 149 (preferential debts) of that Order and 150ZA (expenses of winding up) shall not apply (if they would otherwise do so) to any charge created or otherwise arising under a financial collateral arrangement. 3 Article 152 of that Order (power to disclaim onerous property) shall not apply where the collateral-provider or collateral-taker under the arrangement is being wound-up, to any financial collateral arrangement. 4 Article 207 of that Order (avoidance of certain floating charges) shall not apply (if it would otherwise do so) to any charge created or otherwise arising under a security financial collateral arrangement. 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Close-out netting provisions to take effect in accordance with their terms 12 1 A close-out netting provision shall, subject to paragraph (2), take effect in accordance with its terms notwithstanding that the collateral-provider or collateral-taker under the arrangement is subject to winding-up proceedings or reorganisation measures. 2 Paragraph (1) shall not apply if at the time that a party to a financial collateral arrangement entered into such an arrangement or that the relevant financial obligations came into existence— a that party was aware or should have been aware that winding up proceedings or re-organisation measures had commenced in relation to the other party; aa in Scotland, that party had notice that a statement as to the affairs of the other party had been sent to the other party’s creditors under section 99(1) of that Act ... ; ab in England and Wales, that party had notice that a statement as to the affairs of the other party had been sent to the other party’s creditors under section 99(1) of that Act( c ); ac that party had notice that a meeting of creditors of the other party had been summoned under Article 84 of the Insolvency (Northern Ireland) Order 1989; b that party had notice ... that a petition for the winding-up of or, in Scotland, a petition for winding-up proceedings in relation to the other party was pending; c that party had notice that an application for an administration order was pending or that any person had given notice of an intention to appoint an administrator; or d that party had notice that an application for an administration order was pending or that any person had given notice of an intention to appoint an administrator and liquidation of the other party to the financial collateral arrangement was immediately preceded by an administration of that party. 3 For the purposes of paragraph (2)— a winding-up proceedings commence on the making of a winding-up order or, in the case of a Scottish partnership, the award of sequestration by the court; and b reorganisation measures commence on the appointment of an administrator, whether by a court or otherwise or, in the case of a Scottish partnership, when a protected trust deed is entered into . 4 The following provisions of the Insolvency (England and Wales) Rules 2016, or, in Scotland, any rule of law with the same or similar effect to the effect of these Rules, do not apply to a close-out netting provision unless paragraph (2)(a) applies— a in rule 14.24 (administration: mutual dealings and set-off), in paragraph (6), in the definition of “mutual dealings”, paragraphs (a) and (d); and b in rule 14.25 (winding up: mutual dealings and set-off), in paragraph (6), in the definition of “mutual dealings”, paragraph (c). 4A Rules 2.086(2)(a) and (d) and 4.096(2)(c) of the Insolvency Rules (Northern Ireland) 1991 (mutual credits and set off) do not apply to a close-out netting provision unless paragraph (2)(a) applies. 5 Nothing in this regulation prevents the Bank of England imposing a restriction on the effect of a close out netting provision in the exercise of its powers under Part 1 of the Banking Act 2009 or under Schedule 11 to the Financial Services and Markets Act 2023 . Financial collateral arrangements to be enforceable where collateral-taker not aware of commencement of winding-up proceedings or reorganisation measures 13 1 Where any of the events specified in paragraph (2) occur on the day of, but after the moment of commencement of, winding-up proceedings or reorganisation measures those events, arrangements and obligations shall be legally enforceable and binding on third parties if the collateral-taker can show that he was not aware, nor should have been aware, of the commencement of such proceedings or measures. 2 The events referred to in paragraph (1) are— a a financial collateral arrangement coming into existence; b a relevant financial obligation secured by a financial collateral arrangement coming into existence; or c the delivery, transfer, holding, registering or other designation of financial collateral so as to be in the possession or under the control of the collateral-taker. 3 For the purposes of paragraph (1)— a the commencement of winding-up proceedings means the making of a winding-up order or, in the case of a Scottish partnership, the award of sequestration by the court; and b commencement of reorganisation measures means the appointment of an administrator, whether by a court or otherwise or, in the case of a Scottish partnership, the date of registration of a protected trust deed . Modification of the Insolvency (England and Wales) Rules 2016 and the Insolvency Rules (Northern Ireland) 1991 14 Where the collateral-provider or the collateral-taker under a financial collateral arrangement goes into liquidation or administration and the arrangement or a close out netting provision provides for, or the mechanism provided under the arrangement permits, either— a the debt owed by the party in liquidation or administration under the arrangement, to be assessed or paid in a currency other than sterling; or b the debt to be converted into sterling at a rate other than the official exchange rate prevailing on the date when that party went into liquidation or administration; then rule 14.21 of the Insolvency (England and Wales) Rules 2016 (debts in foreign currency) , or rule 4.097 of the Insolvency Rules (Northern Ireland) 1991 (liquidation, debt in foreign currency), as appropriate, shall not apply unless the arrangement provides for an unreasonable exchange rate or the collateral-taker uses the mechanism provided under the arrangement to impose an unreasonable exchange rate in which case the appropriate rule shall apply. Modification of the Insolvency (Scotland) (Receivership and Winding up) Rules 2018 and the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules 2018 15 Where the collateral-provider or the collateral-taker under a financial collateral arrangement goes into liquidation or administration or, in the case of a partnership, sequestration and the arrangement provides for, or the mechanism provided under the arrangement permits, either— a the debt owed by the party in liquidation or sequestration under the arrangement, to be assessed or paid in a currency other than sterling; or b the debt to be converted into sterling at a rate other than the official exchange rate prevailing on the date when that party went into liquidation or sequestration; then rule 7.25 of the Insolvency (Scotland) (Receivership and Winding up) Rules 2018 and rule 3.114 of the Insolvency (Scotland) Company Voluntary Arrangements and Administration Rules 2018 , as appropriate, shall not apply unless the arrangement provides for an unreasonable exchange rate or the collateral-taker uses the mechanism provided under the arrangement to impose an unreasonable exchange rate in which case the appropriate rule shall apply. Insolvency proceedings in other jurisdictions 15A 1 The references to insolvency law in section 426 of the Insolvency Act 1986 (co-operation between courts exercising jurisdiction in relation to insolvency) include, in relation to a part of the United Kingdom, this Part of these Regulations and, in relation to a relevant country or territory within the meaning of that section, so much of the law of that country or territory as corresponds to this Part. 2 A court shall not, in pursuance of that section or any other enactment or rule of law, recognise or give effect to— a any order of a court exercising jurisdiction in relation to insolvency law in a country or territory outside the United Kingdom, or b any act of a person appointed in such a country or territory to discharge any functions under insolvency law, in so far as the making of the order or the doing of the act would be prohibited by this Part in the case of a court in England and Wales or Scotland, the High Court in Northern Ireland or a relevant office holder. 3 Paragraph (2) does not affect the recognition of a judgment required to be recognised or enforced under or by virtue of the Civil Jurisdiction and Judgments Act 1982 ... . PART 4 Right of use and appropriation Right of use under a security financial collateral arrangement 16 1 If a security financial collateral arrangement provides for the collateral-taker to use and dispose of any financial collateral provided under the arrangement, as if it were the owner of it, the collateral-taker may do so in accordance with the terms of the arrangement. 2 If a collateral-taker exercises such a right of use, it is obliged to replace the original financial collateral by transferring equivalent financial collateral on or before the due date for the performance of the relevant financial obligations covered by the arrangement or, if the arrangement so provides, it may set off the value of the equivalent financial collateral against or apply it in discharge of the relevant financial obligations in accordance with the terms of the arrangement. 3 The equivalent financial collateral which is transferred in discharge of an obligation as described in paragraph (2), shall be subject to the same terms of the security financial collateral arrangement as the original financial collateral was subject to and shall be treated as having been provided under the security financial collateral arrangement at the same time as the original financial collateral was first provided. 3A In Scotland, paragraphs (1) and (3) apply to title transfer financial collateral arrangements as they apply to security financial collateral arrangements. 4 If a collateral-taker has an outstanding obligation to replace the original financial collateral with equivalent financial collateral when an enforcement event occurs, that obligation may be the subject of a close-out netting provision. 5 This regulation does not apply in relation to credit claims. Appropriation of financial collateral under a security financial collateral arrangement 17 1 Where a security interest is created or arises under a security financial collateral arrangement on terms that include a power for the collateral-taker to appropriate the financial collateral, the collateral-taker may exercise that power in accordance with the terms of the security financial collateral arrangement, without any order for foreclosure from the courts (and whether or not the remedy of foreclosure would be available). 2 Upon the exercise by the collateral-taker of the power to appropriate the financial collateral, the equity of redemption of the collateral-provider shall be extinguished and all legal and beneficial interest of the collateral-provider in the financial collateral shall vest in the collateral taker. Duty to value collateral and account for any difference in value on appropriation 18 1 Where a collateral-taker exercises a power contained in a security financial collateral arrangement to appropriate the financial collateral the collateral-taker must value the financial collateral in accordance with the terms of the arrangement and in any event in a commercially reasonable manner. 2 Where a collateral-taker exercises such a power and the value of the financial collateral appropriated differs from the amount of the relevant financial obligations, then as the case may be, either— a the collateral-taker must account to the collateral-provider for the amount by which the value of the financial collateral exceeds the relevant financial obligations; or b the collateral-provider will remain liable to the collateral-taker for any amount whereby the value of the financial collateral is less than the relevant financial obligations. Restrictions on enforcement of financial collateral arrangements, etc. 18A 1 Nothing in regulations 16 and 17 prevents the Bank of England imposing a restriction— a on the enforcement of financial collateral arrangements, or b on the effect of a security financial collateral arrangement, close out netting provision or set-off arrangement, in the exercise of its powers under Part 1 of the Banking Act 2009 or under Schedule 11 to the Financial Services and Markets Act 2023 . 2 For the purpose of paragraph (1) “ set-off arrangement ” means an arrangement under which two or more debts, claims or obligations can be set off against each other . PART 5 Conflict of laws Standard test regarding the applicable law to book entry securities financial collateral arrangements 19 1 This regulation applies to financial collateral arrangements where book entry securities collateral is used as collateral under the arrangement and are held through one or more intermediaries. 2 Any question relating to the matters specified in paragraph (4) of this regulation which arises in relation to book entry securities collateral which is provided under a financial collateral arrangement shall be governed by the domestic law of the country , or territory, or where appropriate, the law of the part of the country or territory, in which the relevant account is maintained. 3 For the purposes of paragraph (2) “ domestic law ” excludes any rule under which, in deciding the relevant question, reference should be made to the law of another country or territory . 4 The matters referred to in paragraph (2) are— a the legal nature and proprietary effects of book entry securities collateral; b the requirements for perfecting a financial collateral arrangement relating to book entry securities collateral and the transfer or passing of control or possession of book entry securities collateral under such an arrangement; c the requirements for rendering a financial collateral arrangement which relates to book entry securities collateral effective against third parties; d whether a person’s title to or interest in such book entry securities collateral is overridden by or subordinated to a competing title or interest; and e the steps required for the realisation of book entry securities collateral following the occurrence of any enforcement event. Jim Murphy Derek Twigg Two of the Lords Commissioners of Her Majesty’s Treasury