Paper Titles & Abstracts

This paper will address the legal implications of the decision of international regulators to use collateral as a tool to mitigate systemic risks. Collateral refers to the provision of assets to minimise the risk of financial loss in the event the counterparty fails to properly perform its obligations. Several recent EU regulatory initiatives have - directly or indirectly - increased market demand for high-quality collateral. Market players have reacted to this development by re-using collateral, including through securities lending, repurchase agreements and prime brokerage. While the current EU legal framework allows for the re-use of collateral, this market practice entails significant risks. First, as a typical "shadow banking" activity, it falls outside of supervisors' radar. Second, the long and opaque holding chains of re-used assets create uncertainty as to the ownership of those assets - a risk that is accentuated if several national legal frameworks govern the individual contractual relationships. Third, the re-use of assets may violate consumer interests, as consumers lack sufficient information on the risk they are taking by agreeing to the use of their assets by financial institutions. The paper will discuss the available legal options to address these risks at the EU level, most likely in the context of the forthcoming Securities Law Legislation.