Practical issues with UK implementation of Basel II: Netting and financial collateral

The FSA issued its BIPRU Rulebook to implement Basel II in the UK at the end of October 2006. In this series of briefings we consider some of the practical issues which UK-regulated banks may have to examine in moving across to the Basel II framework. This briefing looks at netting and financial collateral.

Dermot Turing, partner, Clifford Chance LLP.

Navigation around the new rules

The new rules relating to netting and collateral are not conceptually very different from their predecessors. Unfortunately they are scattered about the new FSA BIPRU Sourcebook and located in chapters with confusing names, which makes navigation difficult. Our navigation chart sets out a location map to guide clients around the new rules. To identify the applicable rules, a bank first needs to categorise the transaction, then (if it is a repo, a securities loan or a commodities loan) determine which regulatory approach it is permitted to use, and finally it may be necessary to analyse whether the transaction falls into the trading or non-trading book. The navigation chart directs clients to the applicable rules which are identified and summarised in four boxes (the navigation chart and boxes are a simplified summary in order to assist navigation of the new rules and should not be used as a substitute for reading the rules themselves).