EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 4 August 2004 
at the request of the Belgian Ministry of Finance 
on a draft law on financial collateral and various tax provisions in relation to in rem collateral 
arrangements and loans fo r financial instruments 
(CON/2004/27)  
 1. On 22 June 2004 the European Central Bank (ECB)  received a request from the Belgian Ministry 
of Finance for an opinion on a draft law on fi nancial collateral and va rious tax provisions in 
relation to in rem collateral arrangements and loans for financ ial instruments (hereinafter the ‘draft 
law’). 
2. The ECB’s competence to deliver an  opinion is based on the second indent of Article 105(4) of the 
Treaty establishing the European Community and on the third, fifth and sixth indents of Article
 2(1) of Council Decision 98/415/EC of 29 Ju ne 1998 on the consultation of the European 
Central Bank by national authorities re garding draft legislative provisions1, as the draft law relates 
to (i) the Nationale Bank van Be lgië/Banque Nationale de Belgiq ue (NBB/BNB); (ii) settlement 
institutions and systems; and (iii) the stability of  financial institutions and markets. The ECB has 
no comments on the draft law’s tax provisions since these do not appear to have an impact on the ECB’s fields of competence. 
3. The ECB notes that the main purpose of the draft law is to implement Directive 2002/47/EC of the 
European Parliament and of the Council of 6 June 2002 on financial collateral arrangements 
(hereinafter the ‘Directive’)
2 in Belgium. As already stated in the past the ECB has an interest in 
the harmonised implementation of the Directive3 and welcomes the fact that the draft law does not 
use any of the opt-out possibilities provided in the Directive. The ECB also notes that, while 
national authorities are not legally obliged to consult the ECB on draft national laws aimed 
exclusively at implementing EU directives, th e draft law contains a substantial number of 
provisions that go beyond merely implementin g the Directive thus justifying the ECB’s 
competence referred to in paragraph 2. Indeed, the draft law addresses matters directly relevant to the Eurosystem’s core fields of competence and it will have an impact both on the efficient and 
                                                           
1 OJ L 189, 3.7.1998, p. 42.  
2 OJ L 168, 27.6.2002, p. 43.  
3 See paragraph 2 of ECB Opinion CON/2003/11 (text av ailable on the ECB’s website http://www.ecb.int).  
2 safe use of financial collateral arrangements in EU financial markets and on the Eurosystem’s 
collateralised operations. 
4. Furthermore, the ECB notes that, as regards both financial collateral and netting arrangements, the 
draft law’s scope is broader than that of the Dir ective. As regards financ ial collateral arrangements 
(see paragraph 11 as regards netting arrangements), the draft law applies, as a rule, to all financial 
collateral arrangements without restricting the categor ies of collateral takers or providers and, thus, 
also includes natural persons (Article 4(1)). The only exception relates to title transfer collateral 
arrangements, other than repurchase transactions (see  paragraph 10). The draft law also establishes 
uniform rules regarding,  inter alia , (i) the proof of conclusion of financial collateral arrangements 
(Article 6); (ii) the enforcement and use of any fi nancial collateral in the form of a pledge, which 
under Belgian law corresponds to the ‘security fina ncial collateral arrangement’ referred to in the 
Directive (Articles 8, 9 and 11); and (iii) any title transfer financial collateral arrangement in the 
form of a repurchase transaction (Article 13). The ECB emphasises that simple and reliable methods of collateralisation, which include effi cient enforcement methods, are of fundamental 
interest to the Eurosystem, as they help, inter alia , to ensure the smooth functioning of the 
Eurosystem’s single monetary policy
4. The ECB also emphasises that establishing different 
regimes for the creation and use of the same kind of collateral, depending on the type of parties 
involved, implies evaluating the status of the par ties to an arrangement and tends to disrupt the 
operation of collateralised transactions5. Subject to the statements in paragraph 10, the ECB 
therefore welcomes the broad scope and uniform ap proach to financial collateral arrangements in 
the draft law. In this context the ECB notes that the fact that the draft law’s scope covers natural 
persons is without prejudice to consumer protec tion provisions (Article 2). However, the ECB 
wonders whether, by harmonising the enforcemen t methods for pledges which specify the prior 
absence of any court involvement, the last subpa ragraph of Article 119nonies(2) of the Law of 
4 December 1990 concerning financial operations and financial markets has not been affected. In 
particular, this provision mentions involving the president of the commercial court to enforce a 
pledge on debt instruments granted by a coll ective investment institution. The ECB therefore 
recommends abolishing such involvement if the pl edged debt instruments are financial instruments 
or cash. 
5. The ECB notes that Article 3(1), of the draft law defines ‘financial instruments’ by reference to 
Article 2(1), of the Law of 2 A ugust 2002 concerning the supervision of  the financial sector and of 
financial services. The ECB welcomes the fact that th is definition is broader than the one provided 
in the Directive. However, in line with the ECB’s suggestion to the Council when the Directive 
was proposed, which remains relevant and which th e ECB maintains, the ECB suggests that it be 
considered whether the scope of the draft law could be extended to cover all types of assets that are 
                                                           
4 See paragraph 4 of CON/2003/11.  
5 See paragraph 5 of CON/2003/11.  
3 eligible for Eurosystem credit operations, including, inter alia , credit claims in the form of bank 
loans6. 
6. The ECB notes that the last subparagraph of Article  4(1) of the draft law provides legal certainty 
with regard to the fact that the general requi rement under Belgian law that a pledgor does not 
remain in possession of the pledged asset is satisfied if financial instruments are credited on a special account, including an account opened in the name of the pledgor (‘hold-in-custody pledge’). The ECB considers that, particularly wher e such a hold-in-custody-pledge is used and in 
order to satisfy the dispossession requirement, the pledgor should not be able to dispose of the 
pledged financial instruments. Th e ECB understands that similar reas ons of legal certainty underlie 
Article 5 of the draft law, which clarifies the validity and enforceability of financial collateral 
arrangements concluded by a representative of the beneficiaries of collateral acting in his own 
name but on behalf of these beneficiaries (‘security  agent’). In the same vein, the ECB notes that 
Article 20(2) and Article 25( 2) of the draft law clarify the protection of the pledgee if the pledgor is 
not the owner of dematerialised (book-entry) securities. Considering the overriding importance and benefits of legal certainty, especially in an ar ea where the volume of transactions and the possible 
systemic implications of a lack of legal certa inty are considerable, the ECB welcomes such 
clarifications. 
7. The ECB also welcomes the fact that the draft law’s provisions on (i) the proof of conclusion of 
financial collateral arrangements and of the provi sion of financial collatera l (Article 6), (ii) the 
ways of realising financial collateral provided under a security financial collateral arrangement 
(a
 pledge under Belgian law) and the absence of requirements for such realisation 
(Articles  8 and 9), and (iii) the right to use financ ial collateral under such arrangements 
(Article  11), comply with the relevant provisions in the Directive. With regard to the reference in 
Article 6 of the draft law to demonstrating the proof of conclusion of arrangements by any legal 
means accepted in commercial matte rs, the ECB notes that this kind of proof will apply to all 
financial collateral arrangements, including arra ngements that consist of a pledge on financial 
collateral that is governed by civil law. As rega rds Articles 8 and 9 of the draft law, the ECB notes 
that the uniform enforcement rules will also appl y to commercial pledges on financial collateral, 
which is the reason that the draft law also abroga tes existing Belgian legislation on the enforcement 
of such collateral, i.e. the third and fourth para graphs of Article 4 of the Law of 5 May 1872. In 
view of the fact that this legislation also a pplies to the commissioners’ statutory lien and their 
financial backers, the ECB wonders whether this ab rogation might not also affect the procedure for 
the enforcement of this lien where it re lates to financial instruments or cash. 
8. The ECB welcomes the abolition in Article 7(1)  of the draft law of the existing formal 
requirements under Belgian law for a civil pledge  on financial collateral. The ECB notes that 
Belgian law does not currently contain formal re quirements for the creation, validity and third-
party enforceability of the following: 
                                                           
6 See paragraph 10 of ECB Opinion CON/2001/13 (OJ C 196, 12.7.2001, p. 12). See also paragraph 6 of CON/2003/11.  
4 (i) commercial pledges on financia l collateral generally, and 
(ii) pledges on special kinds of financial collateral specifically (i.e. dematerialised securities and 
financial instruments subject to Royal Decree No. 62 of 10 November 1967), 
apart from the general requirement of dispossessi on of the pledge, which is confirmed in the 
second subparagraph of Article 4(1) of the draft law and which is permitte d under Article 3(2) of 
the Directive. 
Therefore, the ECB welcomes the fact that adopting of the draft law will ensure compliance with 
Article 3 of the Directive. 
9. The ECB notes that Article 10 of the draft law concerns the ranking betw een a pledge and two 
kinds of statutory liens on the same financial assets. These liens are (i) the lien of qualified 
intermediaries and of clearing and settlement ins titutions on financial collateral provided by their 
clients and participants, respectively; and ( ii) the NBB/BNB’s lien on securities booked in their 
owners’ name with the NBB/BNB or with the NBB/BNB’s securities clearing system. The ECB considers that the ranking issue is most likely to arise when the statutory lien’s beneficiary acts as 
the agreed third-party depositor of financial ass ets in execution of a pledge on these assets. The 
draft law states that, unless parties have agreed otherwise and provided that the beneficiary of the statutory lien either has agreed to credit the ple dged financial instruments or securities to a special 
account or, if cash is pledged, has recognised this pledge, priority should be  given to the pledge. 
For the same reasons provided in paragraph 6, the ECB welcomes this clarification. 
10. The ECB notes that Article 12 of the draft law, which deals with title transfer of collateral 
arrangements, other than repurchase transactions, is intended to implement Article 6 of the 
Directive. The ECB also notes that, contrary to the situation for pledges, repurchase transactions, 
and netting arrangements, Article 12 does not appl y to arrangements betw een or with natural 
persons. While the ECB acknowledges that the Dir ective does not apply to natural persons, the 
ECB underlines the similar economic and financial na ture of pledges and title transfer collateral 
arrangements (whether or not they are repurchase tr ansactions), as well as the benefit of having the 
same simple and reliable legal regime for all typ es of financial collateral arrangements, irrespective 
of the nature of the parties involved (see paragr aph 4). The ECB therefore recommends considering 
whether any concerns that underlie this outright exclusion might also be covered by the general 
reference to consumer protection in  Article 2 of the draft law. Re lying on this general reference 
would have the added benefit of enhancing the draft law’s uniformity, clarity and legal certainty. 
11. As regards netting arrangements, the ECB notes that  Article 14 of the draft law, which recognises 
any netting arrangement and close-out provision to  allow such netting, goes beyond the Directive 
as it is not restricted to (i) close-out netting provis ions of which a financial collateral arrangement 
forms part; or (ii) specific categories of parties to the arrangement. The ECB welcomes this broad approach, since it considers it critical to have a high degree of legal certainty regarding the 
enforceability of close-out netting provisions in th e event of counterparty default. By uniformly 
5 applying close-out netting provisions  to all financial transactions le gal certainty is ensured and the 
necessary level of legal protection for key financial instruments which play a vital role in financial 
markets is guaranteed. This will promote the certainty of transactions and the legitimate 
expectations of parties in an area where any doubt risks creating severe systemic damage and 
impairing market efficiency. Furthermore, the ECB understands Article 7(b) of the Directive as 
considering an assignment of rights to result in the same legal conseque nces for the enforceability 
of a close-out netting provision as, for instance, an at tachment or an insolvency situation. In order 
to adequately reflect this meaning Article 14 of the draft law could be rephrased as follows:  
‘Netting arrangements, as well as any resolution or early termination provisions and conditions that 
are established to allow novation or set-off, may, in the event of an assignment of the rights to 
which they apply , the opening of insolvency proceedings, an attachment, or any other concursus 
situation be enforced vis-à-vis the creditors (…).’   
In order to cater for situations where such assi gnments occur Article 14 of the draft law could 
usefully include a reference to the time at which th e debt and claim to be set off existed. Finally, 
the ECB notes that Article 14 of the draft law only deals with issues of the enforceability of netting 
arrangements in insolvency and similar situations . The ECB understands that Belgian law generally 
does not establish formal requirements that render netting arrangements effective and enforceable. The ECB nonetheless questions whether, in view of Article 7(2) of the Directive, the draft law should expressly state that, even if the netting arrangement does not contain an express provision to this effect, the arrangement will, when the netting event occurs, not require any formality, such as, 
for instance, a notice or default letter from the pa rty who intends to rely on the event, unless the 
parties agree otherwise. 
12. The ECB further notes that Articles 15 and 16 of the draft law specifically deal with the validity, 
enforceability and legal consequences of financial collateral and netting arra ngements, as well as 
with the protection of substitution and top-up collat eral (‘margin call’) arra ngements, in the event 
of insolvency or attachment proceedings. Th e ECB wonders whether the express reference in 
Article 15(1) of the draft law to Article 17(3) of the Bankruptcy Law is necessary in view of 
Article 8(3)(b)(ii) of the Directive. Such a refere nce might give the impression that other relevant 
provisions of the Bankruptcy Act, which do not  concern the zero-hour rule, do not apply to 
Article
 15 of the draft law. Article 17(3) of the Bankruptcy Law deals with the separate issue of 
prohibiting the granting of pledges for previously incurred debts during the suspect period prior to a bankruptcy. Moreover, Article 15(1) of the dr aft law – including the reference therein to 
Article
 17(3) of the Bankruptcy Law – is appli cable to substitution and top-up collateral 
(Article  15(2)), which, however, seems to conflict w ith Article 16(1) and (2) of the draft law, 
which expressly exclude the application of Article  17(3) of the Bankruptcy Law to substitution and 
top-up collateral. The ECB therefore raises the qu estion as to the appropriateness of a reference in 
Article 15(1) to Article 17(3) of the Bankruptcy Law. 
6 13. The ECB welcomes the fact that Article 17 of th e draft law, which deals with various private 
international law issues, mirrors Article 9 of the Directive, apart from the justifiable addition of a 
reference in Article 17 to the possible application of Article 8(2) of the Law of 28 April 1999. In 
line with what is stated in the draft law’s e xplanatory memorandum, the ECB notes that the draft 
law might be affected by the Hague Convention on th e law applicable to certain rights in relation to 
securities held with an intermediary (hereinafter  the ‘Convention’), the ratification of which is 
currently being considered by the Community and the Member States. Article 9 of the Directive, 
and consequently Article 17  of the draft law are not compatible with the Convention in so far as the 
Convention adopts a choice of law approach. The ECB wishes to stress that all parties involved in 
the legislative process should investigate closely the Convention’s potential impact on systemic 
stability and on the treatment of collateral transac tions to avoid undermining the current level of 
protection7. This might include, inter alia , limiting the choice of law applying to proprietary rights 
in respect of securities held on accounts with a systemically important system (in particular 
securities settlement systems evaluated and used by the Eurosystem) to the law governing that 
system, as well as other measures designed to safeguard systemic finality, certainty and 
transparency. 
14. The ECB notes that Article 18 of the draft law li mits the regulation of Belgian dematerialised 
public debt securities to institutions that are locat ed in Belgium and that are holding such securities 
on their accounts on behalf of third parties, instead of the current situation whereby this regulation 
also extends to Belgian dematerialised securities th at are held outside Belgium. Furthermore, the 
licensing of certain of these institutions will pass  from the Minister of Finance to the Belgian 
Banking, Finance and Insurance Commission (CBFA). The ECB notes that Article 22 of the draft law consequently puts the CBFA in charge of supe rvising compliance by these institutions with the 
rules governing the holding of dematerialised pub lic debt securities and provides for the possibility 
of the CBFA imposing sanctions on, and taking othe r measures vis-à-vis these institutions in the 
event of failure to comply. 
15. The ECB also welcomes the fact that Article 19 of  the draft law reinforces the NBB/BNB’s task as 
settlement entity in charge of holding public  debt securities and of settling transactions in such 
securities. It notes that the institutions having such securities on their accounts will no longer be 
obliged to only and/or directly book these secu rities on their accounts with the NBB/BNB. Indeed, 
Article 19 of the draft law provides for a multi-tiere d system of indirectly held dematerialised 
public debt securities. In this context, th e ECB underlines the importance of the periodic 
reconciliation of the securities settlement systems’ own records with those of th e entity in charge of 
the issuer’s accounts, in this case the NBB/BNB.  In order to facilitate transfer between 
international securities settlement systems, the Ar ticle also empowers the King to regulate the 
custody of dematerialised securities denominated in  foreign currency or in units of account; and the 
custody of securities.  
                                                           
7 See also paragraph 13 of CON/2003/11.  
7 16. For financial stability reasons, the ECB welcomes the fact that Articles 22bis and 23bis of the draft 
law extend the scope of the CBFA’s consolidated pr udential supervision to settlement institutions 
referred to in the Law of 2 August 2002 a nd to institutions carrying out the operational 
management of services provided by such settlement  institutions. The ECB also welcomes the fact 
that Article 26bis of the draft law extends the supervisory regime of the CBFA for settlement 
institutions and the oversight of the NBB/BNB for settlement systems to institutions established in 
Belgium carrying out such operational management  services. The ECB notes that these institutions 
will be designated by Royal Decree and that the inte ntion is to designate institutions that provide 
substantial and critical operational and intell ectual services to settlement institutions. The 
designated institutions will need a licence from th e CBFA and conditions regarding their licensing 
and operation will also be laid down in a Royal D ecree. The ECB also notes that this supervisory 
regime and oversight could exte nd to institutions established outside Belgium. The ECB welcomes 
in this respect the express requirement that such extension must comply with Belgium’s 
international obligations. The ECB trusts that it will be consulted on the abovementioned Royal 
Decrees since their subject matter falls w ithin the ECB’s fields of competence. 
17. The ECB confirms that it has no objection to the competent national authorities making this 
opinion publicly available at their discretion. This opinion will be published on the ECB’s website 
six months after the date of its adoption. 
  Done at Frankfurt am Main, 4 August 2004. 
 
[ signed ] 
 
The President of the ECB 
Jean-Claude TRICHET