Custody, Collateral and Client Money Regulation in the post-crisis world: a comparative study.

PhD ThesisThe foundation of any capital market is its infrastructure, including its arrangements for the “collateral ecosystem” (the regulatory, institutional and operational arrangements for collateral, custody, client assets and client money). Capital market infrastructure should work in an integrated fashion so parties can transact seamlessly on a level playing field instead of a patchwork. That is not the case today. In particular, no uniform single EU-wide collateral ecosystem exists. While EU Directives and Regulations have improved individual aspects of the ecosystem, they have been applied unevenly across the EU and often unintegrated with one another. As Member States transposed EU Directives into national law, they did so in national terms and national institutions. This is even the case with the UK and Ireland, despite closely linked markets and legal systems, divergences do exist. Such divergences create “conceptual gaps” and “conceptual translation risks” in protection market participants receive, especially where they document, transact and/or hold assets in different jurisdictions. This creates risk, including those specific to collateral assets, as well as transaction costs. This thesis proposes new metrics to identify measure and manage risks specific to the collateral ecosystem including those stemming from conceptual gaps and conceptual translation risks. A comparative law analysis between respective rules, and divergences, at the EU, Irish and UK level demonstrates some of these issues and proposes policy options. Economically, the most effective measure would involve harmonising the laws and regulations affecting the EU’s collateral ecosystem, ideally along the lines of the most commonly used regime adapted on a “jurisdiction-agnostic” basis. Politically, however, such an approach is likely to encounter severe challenges. The question is whether EU-27 policymakers, given the UK's changing relationship with the remaining bloc, will move the discussion on fixing the plumbing from "too big to reform" to "too important to miss"