EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 24 February 2011 
on amendments to the legislation on settlement finality and on financial collateral arrangements 
(CON/2011/14) 
 
Introduction and legal basis  
On 11 January 2011, the European Central Bank (ECB)  received a request from the Lithuanian Ministry 
of Finance for an opinion on a draft law amending the Law on settlement finality in payment and securities settlement systems (hereinafter the ‘draft  law on settlement finality’) and a draft law amending 
the Law on financial collateral arrangements (herei nafter the ‘draft law on financial collateral 
arrangements’) (both draft laws hereinafter the ‘draft laws’). 
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the second, fift h and sixth indents of Ar ticle 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consulta tion of the European Central Bank by national 
authorities regarding draft legislative provisions
1, as the draft law contains provisions on means of 
payment, payment and settlement systems, as well as ru les applicable to financia l institutions insofar as 
they materially influence the stability of financial institutions and markets. In  accordance with the first 
sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council 
has adopted this opinion. 
 1.  Purpose of the draft laws 
1.1 The main objective of the draft laws is to  transpose Directive 2009/ 44/EC of the European 
Parliament and of the Council of 6 May 2009 am ending Directive 98/26/EC on settlement finality 
in payment and securities settlement systems and Directive 2002/47/EC on financial collateral 
arrangements as regards linked systems and credit claims
2. 
1.2 In addition to transposing Directive 2009/44/EC , the draft law on settlement finality provides for 
two new types of ‘institutions’ which participate in a system and are responsible for performing 
obligations according to transfer orders or paym ent instructions: (a) payment institutions licensed 
in Lithuania or in another Member State; a nd (b) electronic money institutions licensed in 
Lithuania or in another Member State. 
                                                 
1  OJ L 189, 3.7.1998, p. 42.  
2  OJ L 146, 10.6.2009, p. 37. 
2 1.3 In addition to transposing Directive 2009/44/EC, the draft law on financia l collateral arrangements 
provides a legal basis for close-out netting arrange ments, including their exemption from the scope 
of application of the general rules of Lithuani an insolvency law. As noted in the consulting 
authority’s consultation letter, this should, inter alia , mitigate the systemic risks inherent in the 
operation of payment systems that are subject to the netting of payments by minimising the disruption to a system caused by  insolvency proceedings agai nst any of its participants. 
 2.  New system participants: electronic mo ney institutions and payment institutions 
2.1 The draft law on settlement finality does not contai n a definition of the term  ‘payment institutions’. 
The ECB nevertheless understands th at, under Lithuanian law, a payment institution is considered 
to be a ‘financial institution’, but not a ‘credit institution’ since it cannot accept deposits or other 
repayable funds from non-professional market participants
3.  
2.2 The ECB understands that the term ‘electronic money institutions’, as used in the draft law on 
settlement finality, is intended to have the same meaning as the one attributed to it by Directive 
2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking 
up, pursuit and prudential supervision of the bus iness of electronic money institutions amending 
Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC4. On a more general 
note, the ECB stresses that Directive 2009/110/EC s hould be properly transposed in Lithuania to 
ensure the appropriate regulation and supe rvision of electronic money institutions. 
2.3 The definition of ‘participant’, for the purpo ses of Directive 98/26/EC, encompasses ‘institutions’ 
(whether credit institutions, invest ment firms or public authorities that participate in a system and 
are responsible for discharging financial obligati ons arising from transfer orders within that 
system), ‘central counterparties’, ‘settlement agents’, ‘clearing houses’ or ‘system operators’5. 
Neither payment institutions nor electronic money institutions6 qualify as ‘credit institutions’, nor 
as other entities falling within the definition of an ‘institution’ under Directiv e 98/26/EC. It follows 
that, for the purposes of the draft law on settleme nt finality, neither pa yment institutions nor 
electronic money institutions, subject to further clarification as to the meaning of the term ‘electronic money institutions’, would be eligible to participate as ‘institutions’ in a Lithuanian 
‘system’, designated under the draft law on settlement finality. However, they could participate in 
such designated Lithuanian ‘system’ in other cap acities, which are eligible for participation in 
designated systems, for instance, as operators of pa yment systems, if they fulfil the respective legal 
and technical requirements.  
2.4 In order to avoid any risk of confusion, the dr aft law on settlement finality should make clear that 
payment institutions and electronic money institutions  should fulfil the conditions referred to above 
                                                 
3  Article 4(5) of the Law on payment institutions ( Valstybės žinios , 2009, No 153-6887). 
4  OJ L 267, 10.10.2009, p. 7; see recital 16. 
5  Directive 98/26/EC, Article 2.  
6  See, e.g., Recital 25, Articles 6(2)  and 20(1) of Directive 2009/110/EC. 
3 so as to qualify as participants in a designated Lithuanian ‘system’. Consequently, the consulting 
authority is invited to review the definition of th e term ‘institution’, both in the interests of legal 
certainty and in order to remove the uncertainty surrounding the eligibility of payment institutions 
and electronic money institutions for particip ation in a designated Lithuanian ‘system’. 
 3. Use of credit claims as financial colla teral in Lietuvos bankas’s credit operations  
The ECB understands that Lietuvos bankas may, in th e future, allow the use of  credit claims as a new 
type of eligible financial collate ral in Lietuvos bankas’s credit operations, including as collateral for the 
provision of intraday credit in TARGET2. The ECB e xpects to be consulted by the relevant national 
authorities should any such proposal result in draft legislative provisions amending Lithuania’s monetary 
policy legal framework. 
 4. Legal basis for netting and close-out netting provisions 4.1 The ability to close out on a counterparty’s insolv ency is of critical importance in the financial 
markets. The issue of the enforceability of clo se-out netting is, therefore, not restricted to 
individual financial collateral arrangements, but is relevant to all kinds of arrangements aimed at 
reducing credit risk and exposure. 
4.2 The ECB welcomes the netting and close-out ne tting provisions of the draft law on financial 
collateral arrangements, especially as regards thei r exemption from the scope of application of 
general rules of national insolvency law. The E CB nevertheless underlines that the draft law on 
financial collateral arrangements should in no way prioritise financial collateral arrangements that 
include netting and close-out netting provisions ove r financial collateral arrangements that do not.  
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 24 February 2011. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET