Opinion of the European Monetary Institute on a consultation from the Council of the European Union under Article 109f(6) of the Treaty establishing the European Community (the Treaty) and Article 5.3 of the Statute of the EMI; on an amended Commission proposal for a European Parliament and Council Directive on the reorganisation and winding up of credit institutions
Date: 1996-11-21
Institutions: European Monetary Institute
Subjects: European Monetary Institute, closing of accounts, credit institution, validation of expenditure

30.10.98

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C  332/13

EUROPEAN  MONETARY  INSTITUTE

OPINION  OF  THE  EUROPEAN  MONETARY  INSTITUTE

on  a  consultation  from  the  Council  of  the  European  Union  under  Article  109f(6)  of  the  Treaty
establishing  the  European  Community  (the  Treaty)  and  Article  5.3  of  the  Statute  of  the  EMI;
on  an  amended  Commission  proposal  for  a  European  Parliament  and  Council  Directive  on  the
reorganisation  and  winding  up  of  credit  institutions

(98/C  332/04)

CON/96/2

1.(cid:217)The  present  consultation  was  initiated  by  means  of  a
letter  from  the  President  of  the  Council  of  the
European  Union,  received  on  30th  January  1996  and
relates  to  the  proposal  for  a  Directive,  prepared  by
the  Commission,  (COM(88)  4  final)  and  to  the  text
of  the  Directive  as  it  stands  following  the  discussions
in  the  Council  working  group  (SN(cid:216)4582/95).  It  is
noted 
in  document
SN(cid:216)4582/95  is  merely  a  preparatory  document  and
that  Member  States’  delegations  have  not  agreed  its
terms.

contained 

that 

text 

the 

It  is  understood  that  some  further  changes  have  been
made  to  the  text  of  the  proposal  since  document
SN(cid:216)4582/95.  The  present  consultation  was  expressly
limited  to  the  Council  of  the  European  Union  to
document  SN(cid:216)4582/95,  and  does  not  extend  to
cover  any  subsequent  documents.  However,  where
the  EMI  understands  that  changes  have  been  made
to  the  text  since  document  SN(cid:216)4582/95,  and  where
such  changes  may  impact  on  comments  made  in  this
opinion,  this  is  noted.

References  to  Article  numbers  in  this  opinion  refer
to  Article  numbers  in  document  SN(cid:216)4582/95  (not
(COM(88)  4  final)).

3.(cid:217)The  EMI  considers  that  it  is  competent  to  give  an
opinion  in  relation  to  the  proposal.  Article  109f(6)  of
the  Treaty  and  Article  5.3  of  the  EMI  Statute
provide  for  consultation  of  the  EMI  by  the  Council
on  any  proposed  Community  Act  which  is  within  the
field  of  competence  of 
the  EMI.  The  present
proposal  relates  to  several  areas  within  the  field  of
competence  of  the  EMI:  it  will  have  a  potential
impact  on  the  stability  of  financial  institutions  and
the  financial  markets  (Article  4.1,  fourth  indent  of
the  EMI  Statute);  it  relates  to  the  supervision  of
credit  institutions,  which  is  an  area  which  falls  within
the  competence  of  a  number  of  national  central
banks  (Article  4.1, 
the  EMI
fourth 
Statute);  and,  it  relates  to  the  level  of  efficiency  of
cross(cid:220)border  payment  systems  (Article  4.2,  fourth
indent  of  the  EMI  Statute).

indent  of 

Additionally,  by  providing  for  recognition  of  home
state  reorganisation  and  winding(cid:220)up  procedures,  the
proposal  will  introduce  a  greater  degree  of  certainty
as  to  which  procedures  will  be  applied  to  EU  credit
institutions.  This  will  be  very  valuable  to  members  of
the  ESCB,  in  common  with  other  participants  in  the
financial  markets,  to  allow  them  to  assess  the  risks  of
dealing  with  credit  institutions.  Comments  are  also,
therefore,  made  in  this  opinion  which  relate  to  this
issue.

and  winding(cid:220)up 

2.(cid:217)The  main  purpose  of  the  proposal  is  to  ensure  the
recognition  throughout  the  Community  of  reorgani(cid:220)
sation  measures 
procedures
applicable  in  the  home  Member  State  of  a  credit
institution  according  to  the  principles  of  unity  and
universality.  Other  provisions  within  the  proposal
to  coordination  between  competent  auth(cid:220)
relate 
orities,  public  information  on  the  initiation  of  such
measures  and  procedures,  and  non(cid:220)discrimination
between  creditors  based  on  residence.

4.(cid:217)The  EMI  welcomes  this  proposal.  Any  additional
in  the
level  of  certainty  which  can  be  achieved 
context  of  the  reorganisation  and  winding  up  of  any
types  of  entities  with  branches  in  a  number  of  juris(cid:220)
dictions  will  be  of  significant  benefit:  the  proposal  is
likely  to  assist  greatly  in  achieving  certainty  and
clarity  as  to  which  jurisdiction  will  apply  relevant
proceedings,  in  the  context  of  a  given  situation.  Due
to  the  obvious  potential  of  credit 
institutions  to
impact  on  the  stability  of  the  financial  markets,  such

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is 

in  turn, 
levels  of 

likely  to  have
clarity  and  certainty, 
beneficial  effects  on 
stability  among
financial  markets  and  institutions.  Such  proposals  are
also  likely  to  have  a  positive  impact  on  the  single
market  due  to  the  added  confidence  available  in
relation  to  cross(cid:220)border  financial  contracts.  In  turn,
the  EMI  notes  that  the  issue  of  multi(cid:220)jurisdictional
proceedings,  which  are  already  important,  are  likely
the  banking
to  become 
sector  with  an  increasing  trend  towards  branching
throughout  the  Community  having  been  facilitated
through  the  single  market  measures  in  the  banking
field.

increasingly  relevant 

to 

In  this  regard,  the  EMI  is  aware  of  the  parallel
project  concerning 
insurance  undertakings  and
understands  that  there  is  the  intention,  declared  by
the  EU  Council  and  the  Commission,  to  elaborate
separately  legislation  concerning  the  other  types  of
entities  which  fall  outside  the  scope  of  the  Bank(cid:220)
ruptcy  Convention.  These  initiatives  are  welcome.
The  EMI,  while  noting  the  necessity  of  restricting
the  current  proposal,  would  therefore  encourage
continued  work 
frame  additional  directives
covering  those  entities  outside  the  scope  of  both  the
Convention  and  the  present  proposal  (particularly
financial  institutions)  as  a  matter  of  priority.

to 

Therefore,  the  proposal  is  particularly  welcome  at
this  time.  As  noted  in  Paragraph  3,  the  additional
certainty  expected  to  result  from  this  proposal  will
also  be  of  benefit  to  the  ESCB  in  managing  its  risk
when  effecting  monetary  policy  through  entering
into  contractual  arrangements  with  credit 
insti(cid:220)
tutions.  Finally,  the  EMI  welcomes  that  the  proposal
will,  in  principle,  bring  in  line  the  winding(cid:220)up  and
the  principle  of
reorganisation  procedures  with 
home(cid:220)country  control  adopted  for  the  supervision  of
credit  institutions.

5.(cid:217)The  EMI  does  not  consider  that  it  would  be  appro(cid:220)
priate  for  it  to  make  comments  on  the  drafting  of
the  proposal.  However,  several  points  are  made  in
the  opinion  which,  if  taken,  might  necessitate  some
amendment  to  the  current  drafting  in  order  to  make
the
intent  of  particular  provisions  within 
the 
proposal  clearer.

6.(cid:217)The  scope  of  the  proposal,  specifically  relating  as  it
does  to  credit  institutions,  is  noted.  It  is  also  noted
that  agrement  has  now  been  reached  on  the  EU
Bankruptcy  Convention,  which  covers  most  EU
incorporated  legal  persons  but  specifically  excludes
from  its  scope  not  only  credit  institutions  but  also
investment  undertakings
insurance  undertakings, 
which  provide  services  involving  the  holding  of  funds
or 
collective
investment  undertakings.  The  EMI  notes  that  all  of
the  types  of  entity  which  are  excluded  from  the
scope  of  the  Convention  have  a  significant  potential
impact  on  the  stability  of  financial  institutions  and
markets  and  that  therefore  it  is  important  to  devise
suitable  proposals  covering  all  such  types  of  entity.

third  parties  and 

securities 

for 

From  a  central  banking  perspective,  the  EMI  would
particularly  welcome  any  further  proposal  providing
additional  certainty  in  relation  to  the  reorganisation
and  winding  up  of  any  entity  which  may  be  a
counterparty  to  the  European  Central  Bank  and/or
any  national  central  bank 
the
pursuance  of  monetary  policy.  This  may,  in  stage
three  of  EMU,  extend  to  cover  non(cid:220)credit  institution
investment  firms  within  the  scope  of  the  Investment
Services  Directive 
(93/22/EEC),  Article  18(1),
second  indent  of  the  Statute  of  the  ESCB  and  ECB
referring  to  the  ".(cid:216).(cid:216).  conduct  of  credit  operations
with  credit  institutions  and  other  market  participants
.(cid:216).(cid:216).’

relation 

to 

in 

7.(cid:217)The  EMI  further  notes  that  there  is  an  increasing
trend  for  suppliers  of  financial  services  in  Europe  to
diversify  into  a  number  of  finance(cid:220)related  activities.
For  regulatory  and  business  reasons,  this  diversifi(cid:220)
cation  is  often  effected  through  establishing  separate
subsidiaries  which  may,  or  may  not,  be  incorporated
in  the  same  jurisdiction  as  the  parent,  only  some  of
these  entities  being  credit  institutions.  In  view  of  the
significant 
intra(cid:220)group  exposure  which  generally
exists  within  such  groups,  it  is  usually  the  case  that
the  need  to  reorganise  or  wind  up  one  of  the  entities
in  such  a  group  will  require  similar  measures  to  be
taken  in  respect  of  all  other  members  of  the  group.
Failure  of  a  number  of  entities  in  such  a  multidisci(cid:220)
plinary  financial  group  has  the  potential  to  have  an
even  greater  impact  on  the  stability  of  financial  insti(cid:220)
tutions  and  the  financial  markets  as  a  whole  than  the
failure  of  a  single  entity  whose  activities  may  be
more  narrowly  defined  and  constrained.  In  view  of
this  phenomenon,  and  being  aware  of  the  efforts  to
enhace 
concerning
financial  conglomerates,  the  EMI  encourages  all

framework 

regulatory 

the 

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further  proposals  for  directives  relating  to  the  reor(cid:220)
ganisation  and  winding(cid:220)up  of  non(cid:220)credit  institution
financial  entities  to  take  this  point  into  account  with
due  regard  to  the  specific  problems  that  financial
conglomerates  may  raise  for  the  stability  of  financial
insitutions  and  markets.

a  number  of  subsidiaries.  In  view  of  this  fact,  the
EMI  encourages  further  proposals  for  Directives
touching  on  reorganisation  and  winding  up  to  take
into  account  the  impact  of  reorganisation  or  winding
up  of  a  branch  of  one  undertaking  on  other  entities
within  the  same  corporate  group.

systems 

in  ensuring 

8.(cid:217)Various  Articles  of  the  proposal  provide  for  the
competent  authorities  referred  to,  respectively, 
in
Annex  I  or  II  to  provide  information  on  proceedings
to  the  authorities  competent  to  supervise  credit  insti(cid:220)
tutions.  Examples  include  Articles  5,6,9  and  12.  The
is  to  allow  relevant
rationale  of  such  provisions 
supervisors  of  credit  institutions  to  take  appropriate
steps  in  relation  to  supervisees  at  an  early  stage.
Although  Council  Directive  95/26/EC  will  give  the
possibility  of  a  flow  of  information  between  super(cid:220)
visory  authorities  and  central  banks  and  payment
overseers,  the  EMI  believes  that,  in  view  of  the
pivotal  role  of  central  banks  and,  where  this  function
is  effected  through  a  separate  organisation,  overseers
the  continued
of  payment 
stability  of  the  financial  markets,  it  would  also  be
appropriate  that  information  on  reorganisation  and
winding(cid:220)up 
directly
communicated  to  these  entities  within  those  juris(cid:220)
dictions  where  the  relevant  credit  institution  has  a
presence.  However,  any  requirement  imposed  to  pass
on  information  to  central  banking  authorities  must
not  delay  action  being  taken  or  orders  being  granted
in  relation  to  the  reorganisation  or  winding(cid:220)up  of
credit  institutions.  The  EMI  therefore  recommends
extending  the  information  flows  from  the  competent
authorities  referred  to  respectively  in  Annexes  I  and
II  by  provisions  which  ensure  that  central  banks,  in
their  function  as  overseers  of  payment  systems  and
liquidity  providers,  are  informed  when  a  branch  in
their  jurisdiction  is  affected  by  the  measures,  but  that
the  measures  are  not  made  conditional  on  the  central
bank  being  informed.

procedures 

should 

be 

State 

the  relevant  arrangement  under 

10.(cid:217)Article  23(1)  of  the  proposal  refers  to  a  number  of
situations  where  the  effects  of  the  reorganisation  or
winding  up  are  to  be  modified  in  some  way.  The
EMI  understands  that  the  intention  of  this  provision
is  to  ensure  the  enforcement  of  the  rules  applicable
the  specific
to 
system  of  law  mentioned  in  Article  23(1)  and  that,
for  these  purposes,  the  provisions  of  the  home
Member 
or  winding(cid:220)up
reorganisation 
procedure  are  overridden.  The  EMI  welcomes  this
approach,  particularly  in  relation  to  those  of  the
arrangements  specified  which  have  an 
immediate
potential  impact  on  financial  institutions  and  markets
(e.g.  contractual  netting,  rights 
in  securities  and
payment(cid:220)system  arrangements)  and  which  will
therefore  have  particular  impact  in  relation  to  the
EMI’s 
the  EMI
understands  that  the  intent  of  Article  23(2)  is  to
ensure 
in
that 
law  of  the  Member  State
accordance  with  the 
applicable  to  the  failed  credit 
institution’s  claim
notwithstanding 
reorganisation  measure  or
winding(cid:220)up  procedure.  This  intent  is  also  supported
by  the  EMI.  However,  the  importance  of  the  legal
issues  dealt  with  in  Article  23  calls  for  great  care  in
the  drafting  with  a  view  to  ensuring  that  the  full
intended  effect  is  given  to  these  welcome  objectives.

field  of  competence.  Similarly, 

is  enforceable 

statutory 

set(cid:220)off 

the 

9.(cid:217)It  is  noted  that  the  proposal  will  only  relate  to  those
credit  institutions  the  head  office  of  which  is  outside
the  Community  where,  according  to  Article  1(2)  of
the  draft,  such  an  entity  has  branches  in  at  least  two
Member  States  of  the  Community.  The  reasoning
behind  such  a  limitation  is  clear.  However,  it  is
noted  that  there  are  a  number  of  very  large  non(cid:220)EU
banking  groups  which  have  a  significant  presence  in
the  Community  and  which  conduct  their  business  in
the  Community  through  a  mixture  of  branches  and
subsidiaries,  conceivably  having  only  one  branch  but

For  the  sake  of  clarity,  the  EMI  also  suggests  the
replacement  of  the  word  "creditors’  by  the  word
"counterparts’  in  Article  23(1),  third  indent.  It  is
acknowledged  that  the  existence  of  a  contractual
netting  arrangement  between  parties  implies  that  any
party  to  such  an  arrangement  will  be  the  creditor  in
relation  to  one  or  more  contracts  which,  in  the
absence  of  the  netting  agreement,  would  require  the
other  party  to  settle  obligations  on  a  gross  basis.
However,  it  is  the  nature  of  most  netting  contracts
that  either  party  may  be  the  net  creditor  or  the  net
debtor  and  this  position  may  change  over  time.  By
using  the  word  creditor  in  this  context  there  is  a
danger  that  this  provision  will  be  construed  as  only
applying  when  the  credit  institution  is  the  net  debtor
in  respect  of  a  contractual  netting  arrangement,
where,  on  the  commencement  of  reorganisation  or

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30.10.98

winding(cid:220)up  measures  the  credit  institution  is  the  net
creditor 
contractual  netting
arrangement  the 
implication  may  arise  that  this
provision  does  not  apply.

respect  of  a 

in 

to 

financial 

systematic 

in  relation 

institutions  and 

11.(cid:217)Article  26  aims  to  exclude  the  application  of  the
zero(cid:220)hour  rule  and  retroactivity  provisions  in  so  far
as  they  may  impact  on  the  validity  of  transactions
interbank
through  payment  system  and 
effected 
netting  systems.  This  provision  aims  to  add  further
certainty 
finality  within  payment
systems,  thereby  having  potential  benefits  for  the
financial
stability  of 
markets  and,  as  a  result,  having  the  potential  to
reduce 
the  EMI
welcomes  this  provision.  However,  to  be  effective,  it
is  vital  that  the  point  in  time  at  which  arrangements
or  payments  benefit  from  the  provision,  is  clearly
determinable 
the
the  drafting.  Therefore, 
Directive  might 
induce  rules  governing  national
payment  and  settlement  systems  to  make  clear  at
what  point 
the
the  processing  arrangements 
into
protections  provided  by  the  provision  come 
effect,  this  might  for  example  be  the  moment  when,
under  the  rules  of  the  relevant  system  and/or  under
the  relevant  law,  the  payment  becomes  irrevocable  or
final.

risks.  Therefore, 

from 

in 

12.(cid:217)The  EMI  notes 

that  Article  30  as  drafted 

in
document  SN  4582/96  of  the  proposal  sets  a  latest
date  by  which  Member  States  are  to  bring  into  force
the  laws,  regulations  and  administrative  provisions  to
comply  with  the  Directive.  The  EMI  understands
that  this  provision  has  been  changed  in  a  subsequent
draft  of  the  proposal  so  that  the  Directive  will  be
implemented  three  years  after  publication  of  the  text
in  the  Official  Journal  of  the  European  Communities
and  will  only  apply  to  reorganisation  measures  or
winding(cid:220)up  procedures  which  are  opened  or
commenced  after  this  date.  The  EMI  welcomes  this
and  any  other  moves  to  coordinate  further  the  date
of  implementation  of  this  proposal.  The  proposal  will
potentially  have  the  effect  of  clarifying  and  altering
the  result  of  certain  questions  of  private  international
law,  particularly  by  virtue  of  Article  23.  If  these
provisions  were  to  come  into  effect  at  different  times

in  different  Member  States,  however,  uncertainty
and  confusion  will  arise  during 
transitional
the  extent  possible,
period.  To  avoid 
therefore, 
amended
provisions  in  Article  30  and  any  other  moves  to
coordinate  further  the  dates  of  implementation  of
this  proposal.

this 
the  EMI  welcomes 

the 

the 

to 

13.(cid:217)One  national  central  bank  has  requested  that  the
following  comment  should  also  be  made,  in  relation
to  Article  29  of  the  draft:

"Article  29  provides  that  the  Member  States  shall
inform  the  Commission  of  any  amendments  to  the
legislative  provisions  listed  in  Annexes  I  and  II  and
that  the  necessary  amendments  to  those  Annexes
shall  be  adopted  in  accordance  with  the  procedure
laid  down  in  Article  22  of  the  Second  Banking
Coordination  Directive  (89/646/EEC)  (comitology).

Moreover,  measures  taken  pursuant  to  the  referred
amendments  shall  not  be  the  subject  of  mutual
recognition  until  the  amendments  have  been  adopted
by  the  aforementioned  procedure.

These  provisions  could  raise  a  rather  peculiar
situation  if  a  given  Member  State  adopts  new  legis(cid:220)
lation,  revoking  simultaneously  the  previous  regu(cid:220)
lations,  and  decides  to  implement  a  reorganisation
measure  or  open  up  a  winding(cid:220)up  procedure
concerning  a  credit  institution  with  branches  in  other
EU  countries,  before  the  latter  host  Member  States
recognise,  under  the  terms  of  the  Directive,  the  new
legislation.

In  these  circumstances,  even  though  the  Directive
does  not  attempt  to  apply  harmonisation  to  reor(cid:220)
ganisation  and  winding(cid:220)up  procedures,  the  Member
States  will  not  be  in  a  position  to  apply  their  laws
effectively  before  a  Community  act  is  adopted.’

14.(cid:217)The  EMI  agrees  that  this  opinion  may  be  made

public  by  the  consulting  authority.