Financial Collateral Arrangements Regulations, 2004

Suppliment tal-Gazzetta tal-Gvern ta’ Malta, Nru. 17,570, 20 ta’ April, 2004

L.N. 177 of 2004

SET-OFF AND NETTING ON INSOLVENCY ACT

(CAP. 459)

Financial Collateral Arrangements Regulations, 2004

IN exercise of the powers conferred by article 7 of the Set-off

and Netting on Insolvency Act, the Prime Minister and Minister of

Finance has made the following regulations>-

(1) The title of these regulations is the Financial Collateral Citation and date

of commencement.

Arrangements Regulations, 2004.

(2)

These regulations shall come into force on the 1st

May, 2004.

(3) The purpose of these regulations is to implement the

provisions of Directive 2002#47#EC on financial collateral

arrangements as currently in force and as may be amended from

time to time, and shall be interpreted and applied accordingly.

(4) In the event that there is a conflict between any of

these regulations and the provisions of the Directive mentioned in

subregulation (3) hereof, the provisions of the Directive shall prevail.

In these regulations, unless the context otherwise requires –

(Regulation 4 (c))

Entities which are considered as credit institution

(a)

central banks of Member States<

(b)

post office giro institutions<

(c) in Belgium, the “Institut de Réescompte et de Garantie#Herdiscontering-

en Waarborginstituut”<

(d) in Denmark, the “Dansk Eksportfinansieringsfond”, the “Danmarks

Skibskreditfond”, and “Dansk Landbrugs Realkreditfond”<

(e) in Germany, the “Kreditanstalt für Wiederaufbau”, undertakings which

are recognised under the “Wohnungsgemeinnützigkeitsgesetz” as bodies of State

housing policy and are not mainly engaged in banking transactions, and

undertakings recognised under that law as non-profit housing undertakings<

(f) in Greece, the “Elliniki Trapeza Viomichanikis Anaptyxeos”, the “Tamio

Parakatathikon kai Danion”, and the “Tachidromiko Tamieftirio”<

(g)

in Spain, the “Instituto de Crédito Oficial”<

(h)

in France, the “Caisse des dépôts et consignations”<

(i)

in Ireland, credit unions and the friendly societies<

(j)

in Italy, the “Cassa depositi e prestiti”<

(k) in the Netherlands, the “Netherlandse Investeringsbank voor

Ontwikkelingslanden NV”, the “NV Noordelijke Ontwikkelingsmaatschappij”, the

“NV Industriebank Limburgs Instituut voor Ontwikkeling en Financiering” and

the “Overijsselse Ontwikkelingsmaatschappij NV”<

(l) in Austria, undertakings recognised as housing associations in the public

interest and the “Österreichische Kontrollbank AG”<

(m) in Portugal, “Caixas Económicas” existing on 1 January 1986 with the

exception of those incorporated as limited companies and of the “Caixa Económica

Montepio Geral”<

(n) in Finland, the “Teollisen yhteistyön rahasto Oy#Fonden för industriellt

samarbete AB”, and the “Kera Oy#Kera Ab”<

B

(o)

in Sweden, the “Svenska Skeppshypotekskassan”<

(p) in the United Kingdom, the National Savings Bank, the Commonwealth

Development Finance Company Ltd, the Agricultural Mortgage Corporation Ltd,

the Scottish Agricultural Securities Corporation Ltd, the Crown Agents for overseas

governments and administrations, credit unions and municipal banks.

Mitbug[ fl-Istamperija tal-Gvern — Printed at the Government Printing Press

Interpretation.

“book entry securities collateral” means financial collateral

provided under a financial collateral arrangement which consists

of instruments, title to which is evidenced by entries in a register

or account maintained by or on behalf of an intermediary<

“cash” means money credited to an account in any

currency, or similar claims for the repayment of money,

including money market deposits<

“central counterparty” means an entity which is interposed

between institutions and which acts as the exclusive

counterparty of these institutions with regard to their transfer

orders<

“clearing house” means an entity responsible for the

calculation of the net positions of institutions, a possible central

counterparty and, or a possible settlement agent<

“close-out netting provision” means a provision of a

financial collateral arrangement, or of an arrangement of which

a financial collateral arrangement forms part, or, in the absence

of any such provision, any statutory rule by which, on the

occurrence of a specified event, whether through the operation

of netting or set-off or otherwise>

(a) the benefit of time for the performance of

relevant obligations by the collateral provider may no

longer be claimed and, or the relevant obligations become

immediately due and expressed as an obligation to pay an

amount representing their estimated current value, or are

terminated and replaced by an obligation to pay such an

amount< and, or

(b) 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<

“equivalent collateral” means>

(a) in relation to cash, a payment of the same amount

and in the same currency< and

(b)

in relation to instruments>

(i) 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

(ii) any other assets provided as financial

collateral where a financial collateral arrangement

provides for the transfer of other assets following the

occurrence of any event relating to or affecting any

instruments provided as financial collateral<

“European Union” means the European Union referred to

in the Treaty<

“financial collateral arrangement” means>

(a) in the case of a title transfer financial collateral

arrangement, an arrangement, including repurchase

agreements, under which a collateral provider transfers full

ownership of financial collateral to a collateral taker for

the purpose of securing or otherwise covering the

performance of relevant financial obligations< and

(b) in the case of a security financial collateral

arrangement, an arrangement under which a collateral

provider provides financial collateral by way of security

in favour of, or to, a collateral taker, and where the full

ownership of the financial collateral remains with the

collateral provider when the security right is established>

whether or not these arrangements are covered by a master

agreement, standard form contract or general terms and conditions<

“instrument” has the same meaning as is assigned to it by

article 2 of the Investment Services Act<

“master agreement” means an agreement that provides the

standard terms and conditions applicable to all or a defined

subset of transactions that may be entered into from time to

time, including the terms and conditions for close-out netting<

“Member State” means a State which is a member of the

European Union<

“the Minister” means the Minister responsible for financial

regulation<

“multilateral development bank” means the International

Bank for Reconstruction and Development, the International

Finance Corporation, the Inter-American Development Bank,

the Asian Development Bank, the African Development Bank,

the Council of Europe Resettlement Fund, the Nordic

Investment Bank, the Caribbean Development Bank, the

European Bank for Reconstruction and Development, the

European Investment Fund or the Inter-American Investment

Corporation or any other bank as may be determined from time

to time by the Minister by notice in the Gazette<

“provision” with reference to financial collateral means

the delivery, transfer, holding, registration or designation in any

other manner so as to be in the possession or under the control

of the collateral taker or of a person acting on the collateral

taker’s behalf, and “to provide” and any of its conjugations shall

be construed accordingly< and the right of substitution or

withdrawal of excess financial collateral in favour of the

collateral provider shall not prejudice the financial collateral

provided to the collateral taker as referred to in these regulations<

“relevant account” in relation to book entry securities

collateral means the register or account in which the entries are

made whereby such securities collateral is provided to the

collateral taker and made subject to a financial collateral

arrangement<

“relevant financial obligations” means the obligations

which are secured by a financial collateral arrangement and

which give a right to cash settlement and, or delivery of

instruments, including>

(a) present or future, actual or contingent or

prospective obligations (including such obligations arising

under a master agreement or similar arrangement)<

(b) obligations owed to the collateral taker by a

person other than the collateral provider< or

(c) obligations of a specified class or kind arising

from time to time<

“reorganisation measures” means measures which involve

any intervention by administrative or judicial authorities which

are intended to preserve or restore the financial situation and

which affect pre-existing rights of third parties, including but

not limited to measures involving a suspension of payments,

suspension of enforcement measures or reduction of claims.

Such measures shall be deemed to include the appointment of a

Special Controller in terms of article 329B of the Companies

Act or the appointment of an equivalent or similar officer or

controller under any other law<

“right of use” means the right of the collateral taker to use

and dispose of financial collateral provided under a security

financial collateral arrangement as the owner of it in accordance

with the terms of the security financial collateral arrangement<

“settlement agent” means an entity providing to institutions

and, or a central counterparty, settlement accounts through

which transfer orders are settled and, as the case may be,

extending credit to those institutions and, or central

counterparties for settlement purposes<

“specified event” means an event of default or any similar

event as agreed between the parties on the occurrence of which,

under the terms of a financial collateral arrangement 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<

“the Treaty” has the same meaning assigned to it by article

2 of the European Union Act, 2003<

“winding-up proceedings” means collective proceedings

involving realisation of the assets and distribution of the

proceeds among the creditors, shareholders or members as

appropriate, which involve any intervention by administrative

or judicial authorities, including where the collective

proceedings are terminated by a composition or other analogous

measure, whether or not they are founded on insolvency or are

voluntary or ordered by the court.

The provisions of these regulations shall apply solely and Financial

collateral.

exclusively to>

(a) financial collateral which consists of cash or

instruments<

(b) financial collateral which has been provided and

which can be evidenced in writing< and

(c) financial collateral arrangements which can be

evidenced in writing or in a legally equivalent manner>

Provided that the evidencing of the provision of financial

collateral shall allow for the identification of the financial collateral

to which it applies. For this purpose, it is sufficient to prove that the

book entry securities collateral has been credited to, or forms a credit

in, the relevant account and that the cash collateral has been credited

to, or forms a credit in, a designated account.

For the purposes of these regulations, both the collateral Collateral taker

and collateral

taker and the collateral provider shall be>

provider.

(a)

a public authority, including>

(i) public sector bodies of Member States charged

with or intervening in the management of public debt< and

(ii) public sector bodies of Member States authorised

to hold accounts for customers>

Provided that a public authority shall not include a public

guaranteed undertaking unless this falls under paragraphs (b) to (i)<

(b) a central bank, the European Central Bank, the Bank

for International Settlements, a multilateral development bank,

the International Monetary Fund and the European Investment

Bank<

(c) a credit institution licensed in terms of the Banking

Act, or an institution listed in the Schedule to these regulations<

(d)

a licence holder in terms of the Investment Services

Act<

(e) a financial institution licensed in terms of the

Financial Institutions Act<

(f) a company authorised to carry on business of

insurance other than business of reinsurance under the Insurance

Business Act<

(g) an undertaking for collective investment in

transferable securities (UCITS) in terms of the Investment

Services (Undertaking for Collective Investment in Transferable

Securities) Regulations<

(h) a management company in terms of the Investment

Services (Undertaking for Collective Investment in Transferable

Securities) Regulations< or

(i) a central counterparty, settlement agent or clearing

house and a person, other than a natural person, who acts in a

trust or representative capacity on behalf of any one or more

persons that includes any bondholders or holders of other forms

of securitised debt or any institution as defined in paragraphs

(a) to (i).

Without prejudice to the provisions of regulation 3, the

creation, validity, perfection, enforceability or admissibility in

evidence of a financial collateral arrangement or the provision of

financial collateral under a financial collateral arrangement shall not

be dependent on the performance of any formal act.

(1) On the occurrence of a specified event, the collateral Enforcement of

financial collateral

taker may realise any financial collateral provided under, and subject arrangements.

to the terms agreed in, a security financial collateral arrangement as

follows>

(a) in relation to cash, by setting off the amount

against or applying it in discharge of the relevant financial

obligations< or

(b) in relation to instruments, by sale or appropriation

and by setting off their value against, or applying their value

in discharge of, the relevant financial obligations.

(2) Appropriation shall only be possible if in the security

financial collateral arrangement the parties have specifically agreed

that appropriation may take effect and have agreed on the valuation

of the instruments.

(3) Unless the parties to a security financial collateral

arrangement otherwise agree, the manner of realising the financial

collateral in terms of subregulation (1) hereof shall not require that>

(a)

prior notice of the intention to realise be given<

(b) the terms of the realisation be approved by any

court, public officer or other person<

(c) the realisation be conducted by sale by auction

or in any other prescribed manner< or

(d)

any additional time period must have elapsed.

(4) Unless the parties otherwise agree, the operation of a

close-out netting provision shall not be subject to the requirements

listed in subregulation (3) hereof.

(5) The provisions of this regulation shall apply

notwithstanding the provisions of the Civil Code, the Companies Cap. 16.

Act or any other law.

(1) The collateral taker may exercise a right of use in Right of use of

financial collateral

relation to financial collateral provided under the security financial under security

financial collateral

arrangements.

collateral arrangement if and to the extent that the terms of such

arrangement so provide.

(2) Where the collateral taker makes use of the financial

collateral provided under a security financial collateral arrangement,

he shall>

(a) by due date of performance of the relevant financial

obligations, transfer equivalent collateral to replace the

original financial collateral. Such equivalent collateral shall

be subject to the same security financial collateral agreement

to which the original financial collateral was subject 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< or

(b) on the due date for the performance of the relevant

financial obligations, set off the value of the equivalent

collateral against or apply it in discharge of the relevant

financial obligations, if and to the extent that the terms of a

security financial collateral arrangement so provide.

(3) When, following the use of financial collateral,

equivalent collateral is transferred in terms of paragraph (a) of

subregulation (2) hereof, the rights of the collateral taker shall remain

valid and enforceable in relation to such equivalent collateral.

(4) Upon the occurrence of a specified event at a time

when the collateral taker has not as yet transferred equivalent

collateral in terms of paragraph (a) of subregulation (2) hereof, the

obligation to transfer such financial collateral may be the subject of

a close-out netting provision.

Upon the occurrence of a specified event at a time when

the collateral taker has not as yet, under a title transfer collateral

financial collateral

arrangement, transferred equivalent collateral, the obligation to

transfer such financial collateral may be the subject of a close-out

netting provision.

Regulations 6, 7 and 8 shall be without prejudice to any

requirement to obtain the fair value of securities under article 122

of the Companies Act.

(1) A financial collateral arrangement shall be valid and

Certain insolvency

enforceable in accordance with its terms notwithstanding the

commencement or continuation of winding-up proceedings or

reorganisation measures in respect of the collateral provider or

collateral taker.

(2) Such a financial collateral arrangement and the

provision of financial collateral under such arrangement, shall not

be declared invalid or void or be reversed on the sole basis that the

financial collateral arrangement has come into existence, or the

financial collateral has been provided>

(a) on the day of the commencement of winding-up

proceedings or reorganisation measures, but prior to the

order making that commencement< or

(b) in a prescribed period prior to, and defined by

reference to, the commencement of such proceedings or

measures or by reference to the making of any order or the

taking of any other action or occurrence of any other event

in the course of such proceedings or measures.

(3) Where on the day of, but after the moment of the

commencement of winding-up proceedings or reorganisation

measures>

(a) a financial collateral arrangement has come into

existence<

(b) a relevant financial obligation has come into

existence< or

(c)

financial collateral has been provided,

it shall be legally enforceable and binding on third parties if the

collateral taker can prove that he was not aware, nor ought to have

been aware, of the commencement of such proceedings or measures.

(4) Where a financial collateral arrangement contains an

obligation to provide financial collateral or additional financial

collateral in order to take account of changes in the value of the

financial collateral or in the amount of the relevant financial

obligations, or where such arrangement contains a right to withdraw

financial collateral on providing, by way of substitution or exchange,

financial collateral of substantially the same value, the provision of

financial collateral, additional financial collateral or substitute or

replacement financial collateral under such an obligation or right

shall not be declared invalid or void or be reversed on the sole basis

that>

(a) such provision was made on the day of the

commencement of winding-up proceedings or reorganisation

measures, but prior to the order making that commencement

or in a prescribed period prior to, and defined by reference to,

the commencement of winding-up proceedings or

reorganisation measures or by reference to the making of any

order or the taking of any other action or occurrence of any other

event in the course of such proceedings or measures< and, or

(b) the relevant financial obligations were incurred

prior to the date of the provision of the financial collateral,

additional financial collateral or substitute or replacement

financial collateral.

(5) Without prejudice to this regulation, the provisions of

Title II of Part V of the Companies Act shall not render invalid or void

the transactions entered into during the period referred to in paragraphs

(2) (b) and (4) (a) hereof.

(1) Any issue arising in relation to book entry securities

collateral with respect to>

(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 provision of book entry securities collateral under such

an arrangement, and the completion of the steps necessary to

render such an arrangement and provision effective against

third parties<

(c) 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, or a good faith acquisition has

occurred< and

(d) the steps required for the realisation of book entry

securities collateral following the occurrence of an

enforcement event<

shall be governed by the law of the country in which the relevant account

is maintained.

(2) For the purposes of this regulation, the law of a country

is a reference to its domestic law, disregarding any rule under which, in

deciding the relevant issue, reference should be made to the law of

another country.

B