Proposal for a European Parliament and Council Directive on settlement finality and collateral security

(96/C 207/08)

COM(96) 193 final - 96/0126(COD)

(Submitted by the Commission on 30 May 1996)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 100A thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the European Monetary Institute,

Having regard to the opinion of the Economic and Social Committee,

In accordance with the procedure laid down in Article 189b of the Treaty establishing the European Community,

Whereas the Lamfalussy report of 1990 to the Governors of the central banks of the Group of Ten Countries demonstrated the important systemic risk inherent in payment systems which operate on the basis of one or more legal types of payment netting be it bilateral or multilateral, on the one hand; whereas the reduction of legal risks associated with participation in real time gross settlement payment systems is of paramount importance, given the increasing development of these systems, on the other;

Whereas the reduction of systemic risk regards in particular the finality of settlement and the enforceability of collateral security; whereas collateral security is meant to comprise all means provided by a participant to the other participants in the payment system to secure rights and obligations in connection with that payment system including, among other means, repurchase agreements, insurance contracted by a participant in a payment system for the benefit of the other participants;

Whereas, by ensuring that payments and movement of capital may be made free of impediments in the internal market, the present Directive contributes to the efficient and the cost-effective operation of cross-border payment arrangements in the European Union; whereas the Directive thereby follows up the progress made towards completion of the internal market, in particular towards the freedom to provide services and liberalization of capital movements, with a view to the realisation of economic and monetary union;

Whereas the present Directive is intended to cover payment systems of a domestic as well as of a cross-border nature; whereas debit as well as credit transfers are covered; whereas the Directive is applicable to Community payment systems and collateral security constituted by their participants, be they Community or third country participants, in connection with participation in these payment systems; whereas the Directive also covers Community institutions which participate in third-country payment systems; whereas financial flows are increasingly taking place on a world-wide level; whereas Community institutions and Community payment systems thus are bound to establish and maintain close operational links with third-country payment systems and to participate in them; whereas it is essential, therefore, that the cross-border relations between Community institutions and Community payment systems on the one hand and third-country payment systems on the other are addressed and facilitated by this directive with a view to avoiding impediments for Community institutions to participate in third-country payment systems arising from a lack of legal security; whereas efficient Community payment systems are vital for the internal market and cannot operate properly without links to third-country payment systems because financial markets are inextricably connected with one another;

Whereas the Directive, by covering collateral security provided in connection with monetary policy operations, assists the EMI in its task of promoting the efficiency of cross-border payments with a view to the preparation of the third stage of economic and monetary union and thereby contributes to developing the necessary legal framework in which the future European central bank may develop its monetary policy;

Whereas the purpose of the present Directive is to ensure that netting is legally enforceable under all Member States' jurisdictions and binding on third parties; whereas the purpose of the Directive is also to ensure that payment orders cannot be revoked after a contractually agreed time; whereas the Directive aims at securing that insolvency proceedings do not have a retroactive effect on the rights and obligations of participants; whereas the present Directive furthermore aims at determining - in the event of insolvency proceedings against a participant in a payment system - which insolvency law is applicable to that part of the insolvency which the rights and obligations in connection with direct participation in that payment system are; whereas the present Directive finally intends to insulate collateral security from the effects of the insolvency law applicable to the failed participant;

Whereas the present Directive also applies to the relationship between an institution and a member of a payment system which transfers the payment orders of such institution to the payment system, given that this relationship can be considered in itself to be a separate payment system;

Whereas the adoption of the present Directive constitutes the most appropriate way of realising the above objectives; whereas the present proposal is necessary to realise these objectives and does not go beyond the goal of realising these objectives;

HAVE ADOPTED THIS DIRECTIVE:

TITLE I SCOPE AND DEFINITIONS

Article 1

Scope

The provisions of this directive shall apply to:

1. any Community payment system operating in any currency and the ecu and to collateral security provided in connection with participation in such a system.

2. any Community institution which participates directly in a third-country payment system and to collateral security provided in connection with participation in such a system.

3. collateral security provided in connection with monetary policy operations.

Article 2

Definitions

For the purpose of this Directive:

(a) institution means any undertaking as defined in Article 1 of Council Directive 77/780/EEC including the institutions set out in the list in Article 2 (2) thereof, which participates directly in a payment system, and any other undertaking which participates directly in a payment system;

(b) direct participation means participation in a payment system entailing responsibility for settlement;

(c) EC institution means any institution which has its registered office in a Member State;

(d) third country institution means any institution which is not a Community institution;

(e) payment order means any instruction to place at the disposal of a final recipient an amount of money by means of a book entry on the accounts of a credit institution or a central bank;

(f) insolvency proceedings means any measure which, for reasons of impending or actual inability to meet financial obligations, is pronounced by a judicial or administrative authority for the benefit of a collectivity of creditors, and which precludes from making payments or disposing of property;

(g) payment netting means the conversion into one net claim or one net obligation of claims and obligations resulting from payment orders which an institution either issues to one or more other institutions or receives from one or more other institutions, with the result that only the net claim can be demanded or the net obligation be owed;

(h) payment system means any written agreement between two or more institutions for executing payment orders;

(i) Community payment system means a payment system located in a Member State. A payment system shall be deemed to be located in the Member State the law of which has been chosen by the institutions which participate directly in that payment system. In the absence of choice, the payment system shall be deemed to be located in the Member State where the settlement takes place;

(j) third-country payment system means any payment system which is not a Community payment system;

(k) monetary policy operation means an outright (spot and forward) buying and selling operation in the financial markets or such an operation under a repurchase agreement, or lending or borrowing of claims and marketable instruments, whether in Community or in non-Community currencies or in precious metals, by a Member State central bank or by the future European central bank; it also means the conduct of credit operations, by a Member State central bank or by the future European central bank, with credit institutions or other market participants, with lending being based on adequate collateral;

(l) collateral security means all assets, provided for the purpose of securing rights and obligations potentially arising in a payment system or provided to Member State central banks or to the future European central bank in connection with monetary policy operations.

TITLE II FINALITY OF PAYMENT NETTING

Article 3

Payment netting

1. Payment netting is legally enforceable and shall, even in the event of insolvency proceedings against any institution which participates directly in a payment system, be binding on third parties, provided that the payment order was entered into the payment system before the opening of insolvency proceedings. The moment of entrance shall be defined by the rules of that payment system.

2. Any rule on the setting aside of contracts and transactions entered into before the opening of insolvency proceedings, shall not lead to the unwinding of the netting.

TITLE III REVOCATION OF PAYMENT ORDERS

Article 4

Revocation

1. A payment order may not be revoked either by an institution which participates directly in a payment system or a third party as against the other direct participants in that payment system after the moment defined by the rules of that payment system. This rule applies notwithstanding the opening of insolvency proceedings.

2. Any right which the originator of a payment order might have to a refund shall be exercised without prejudice to paragraph 1.

TITLE IV NON-RETROACTIVITY AND APPLICABLE INSOLVENCY LAW

Article 5

Non-retroactivity

Insolvency proceedings shall not have retroactive effects on the rights and obligations of an institution in connection with direct participation in a Community payment system. Any other rule or practice which has a retroactive effect shall be superseded.

Article 6

Applicable insolvency law

In the event of insolvency proceedings against an institution which participates directly in a payment system, the rights and obligations arising from or in connection with direct participation in that payment system, shall be determined by the insolvency law of the country where the payment system is located.

TITLE V INSULATION OF THE RIGHTS OF THE PLEDGEE FROM THE EFFECTS OF THE INSOLVENCY OF THE PLEDGER

Article 7

Insulation from the effects of insolvency

1. The rights of a pledgee in connection with liabilities of one participant to one or more other participants in a payment system or the rights of monetary authorities to whom collateral security has been pledged in connection with monetary policy operations, shall not be affected by the opening of insolvency proceedings against the pledger. The collateral security shall be realised for the satisfaction of rights in connection with participation in a payment system or with monetary policy operations with priority over all other creditors.

2. Where a third-country institution constitutes collateral security in a Member State in connection with participation in a Community payment system or in connection with monetary policy operations, the rights of the pledgee shall not be affected by the opening of insolvency proceedings against that third-country institution.

TITLE VI FINAL PROVISIONS

Article 8

Implementation

1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive before 31 December 1998 at the latest. They shall immediately inform the Commission.

2. When Member States adopt these measures, they shall contain a reference to this Directive or shall be accompanied by such reference at the time of their official publication. The procedure for such a reference shall be laid down by the Member States.

3. Member States shall communicate to the Commission the text of the laws, regulations and administrative provisions which they adopt in the field governed by this Directive. In this Communication Member States shall provide a table of correspondence showing the national provisions which exist or are introduced in respect of each article of this directive.

Article 9

Report to the European Parliament and the Council

No later than three years after the date mentioned in Article 8 (1), the Commission shall present a report to the European Parliament and the Council on the application of this Directive, accompanied where appropriate by proposals for its revision.

Article 10

This Directive is addressed to the Member States.