Opinion of the European Central Bank at the request of the Director-General of the Treasury and Financial Policy of Spain, on a voluntary basis, concerning a draft law on the Payment and Securities Settlement Systems which constitutes the Spanish Implementation of Directive 98/26/EC of 19 May 1998 on Settlement Finality in Payment and Securities Settlement Systems (CON/99/01)
Date: 1999-05-26
Institutions: European Central Bank
Subjects: Spain, electronic banking, intra-EU payment, national law, payment system

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of the Director-General of the Treasury and Financial Policy of Spain, on a

voluntary basis, concerning a draft law on the Payment and Securities Settlement Systems

which constitutes the Spanish Implementation of Directive 98/26/EC of 19 May 1998 on

Settlement Finality in Payment and Securities Settlement Systems 

[CON/99/01]

1. 

On  13 January 1999  the  European  Central  Bank  (ECB)  received  a  request  from  the  Director-

General of the Treasury and Financial Policy of Spain for an ECB Opinion on a draft law on

the Payment and Securities Settlement Systems (the “draft law”) which is intended to constitute

the  Spanish  implementation  of  Directive  98/26/EC  of  the  European  Parliament  and  of  the

Council of 19 May 1998 on Settlement Finality in Payment and Securities Settlement Systems

(the  “Finality  Directive”  or  the  “Directive”).  The  draft  law  was  submitted  in  the  Spanish

language  only.  A  further  revised  Spanish  text  of  the  draft  law  dated  22nd  March  1999  was

subsequently received by the ECB. The ECB has produced an unofficial translation of the draft

law into English for the purposes of the present consultation. On May 6th the ECB has received

the  final  version  adopted  by  the  Spanish  Government  which  has  subsequently  been  sent  to

Parliament.

2. 

The purpose of the draft law is the implementation of the Finality Directive in the Spanish legal

system and, consequently, the Spanish authorities were not legally obliged to consult the ECB

under  Article  1.2  of  the  Council  Decision  98/415/EC  of  29 June 1998.  The  ECB  seeks  to

proactively  promote  a  harmonised  EU-wide  implementation  of  the  Finality  Directive  in  the

legislation of the Member States, in order to foster maximum transparency and legal certainty

for  the  closely  connected  payment  and  securities  settlement  systems  and  to  ensure  a  level

playing field throughout the European Union. In view thereof, the ECB very much welcomes

the opportunity to give advice on the draft law, which addresses matters pertaining directly to

the core fields of competence of the ESCB, considering that the draft law contains provisions

purported to ensure the smooth operation of payment systems, and the rights of central banks in

relation to collateral provided to them. 

3. 

Article 8 of the draft law enumerates the Spanish systems falling within the scope of the draft

law, pursuant to Articles 2 (a) and 10 of the Finality Directive, which enumeration includes the

Spanish  national  RTGS  system  connected  to  TARGET.  Accordingly,  this  provision  clarifies

that  the  Spanish  RTGS  system  will  be  a  “designated  system”,  as  defined  in  Article  1  of  the

Finality  Directive,  and  benefit  from  the  provisions  of  the  draft  law.  However,  the  Spanish

component  of  the  TARGET  system  is  linked  with  other  components  of  the  TARGET  system

outside  Spain  (through  the  “Interlinking”  component),  and  payments  effected  through  the

Interlinking  ought  to  fall  also  within  the  scope  of  the  provisions  of  the  draft  law.  Hence,  the

Spanish authorities are encouraged, in that respect, to ensure that Interlinking payments to and

from the Spanish component of TARGET do indeed fall within the protection of the draft law.

For instance, the fact that the Spanish RTGS system forms an integral part of TARGET may be

clarified when the system is notified to the Commission. 

In addition, the ECB would like to make the following further comments concerning the scope

of application of the draft law:

(i) 

the  reference  to  the  interbank  wholesale  net  clearing  system  “Servicio  Español  de

Pagos  Interbancarios”  (SEPI)  in  Article  8  should  mention  as  its  currency  unit  the

“euro”, and not its temporary non-decimal sub-division of the euro, i.e. the “peseta”;

(ii) 

the  definition  of  “participants”  in  Article  2(c)  of  the  draft  law  seems  to  exclude

“indirect participants” in a system; whilst this exclusion is possible under the Finality

Directive, inclusion of “indirect participants” (as defined in the Directive) is also an

option under the Directive which, to the extent it is followed, would contribute to the

objective of avoiding systemic risk in the integrated financial markets of Europe; 

4. 

Articles 2(b), 2(d), 14(2), 15(1), 15(2) of the draft law refer to “monetary policy transactions”

and to “those [transactions] associated with the settlement of a system carried out by the Bank

of  Spain,  the  ECB  and  other  central  banks  of  the  European  Union”.  The  Finality  Directive,

however,  envisages  more  generally  “operations  of  the  central  banks  of  the  Member  States

functioning as central banks, including monetary policy operations” (Recital 10 and Article 1(c)

of  the  Directive)  and,  therefore,  the  language  of  the  draft  law  seems  to  be  unduly  restrictive.

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Moreover, in Article 15.1 of the draft law the ECB has been omitted from the constellation of

central banks without justification.

5. 

Article  11.1,  first  sentence,  concerning  the  irrevocability  of  transfer  orders,  covers

irrevocability vis-à-vis the issuer of the transfer order in question, but should also address any

third party along the lines of Article 5 of the Finality Directive.

The drafting of Article 11-2 (a) of the draft law would suggest the following comment: Article

3-2  as  well  as  Recital  (13)  of  the  Directive  specifically  mention  that  actions  relating  to  the

underlying transactions may in no way lead “to the unwinding of netting [or] to the revocation

of  the  transfer  order  in  the  system”;  this  important  element  does  not  appear  in  the  current

drafting of Article 11-2 (a) of the draft law and should be expressly added. 

6.

The  scope  of  finality  is  addressed  in  Articles  11,  13,  14  and  16  of  the  draft  law.  In  this

connection, the following comments are warranted. 

(i) 

Article 13 of the draft law should ensure that finality is not only effective inter partes,

but also erga omnes; provided that transfer orders were entered into the system before

the  moment  of  opening  of  insolvency  proceedings  (or  the  provisions  of  Article  3.1,

second  paragraph,  of  the  Finality  Directive  apply),  insolvency  proceedings  should

have  no  effect  whatsoever,  neither  on  the  legal  position  of  the  insolvent  participant

(and  this  is  foreseen  in  the  first  paragraph  of  Article  13  of  the  draft  law),  nor  as

regards any other participant or third party (e.g. the liquidator or administrator of the

insolvent entity). This latter aspect (which in Article 3.1 of the Directive is provided

through  the  stipulation  that  “transfer  orders  and  netting  shall  be  legally  enforceable

and  […]  binding  on  third  parties”)  should  be  clearly  set  out  in  the  draft  law.  The

broad  wording  of  Article  11.1,  second  sentence  of  the  draft  law  may  be  taken  as  a

useful parallel to expressly broaden and clarify the scope of finality in the context of

Article 13. 

(ii) 

Article 14.1 of the draft law states the main effect of finality as a right to segregate

collateral  from  the  insolvency  proceedings.  However,  Article  9.1  of  the  Finality

Directive contains a more general formulation: the right of not being affected by the

insolvency.  The  ECB  notes  that  repurchase  operations  are  already  insulated  from

insolvency proceedings under Law 37/1998 amending the Securities Markets Law of

1988,  and  therefore  Article  14.1  of  the  draft  law  basically  addresses  other  kinds  of

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collateral.  It  is  for  the  Spanish  authorities  to  consider  whether  the  regime  resulting

from  the  two  Spanish  legal  acts  is  equivalent  to  the  Directive’s  rule  of  “not  being

affected” by the insolvency. 

7.

Article 15 of the draft  law  implements  Articles  8  and  9.2  of  the  Finality  Directive.  Here,  the

ECB would like to make the following comments:

(i) 

The  first  sentence  of  Article  15.1  of  the  draft  law  stipulates  that  “When  insolvency

proceedings  are  initiated  against  a  Spanish  organisation  which  is  a  member  of  a

system  recognised  in  another  member  State  of  the  European  Union  as  provided  for

under  Directive  98/26/EC,  the  rights  and  obligations  which  accompany  its

membership of said system shall be defined by the national legislation governing said

system”. However, it is also necessary to stipulate in the draft law that, conversely, in

case  of  insolvency  proceedings  against  a  foreign  entity  participating  in  a  Spanish

system,  the  rights  and  obligations  of  such  a  participant  within  the  system  will  be

governed by Spanish law. This is of particular importance regarding non-EU foreign

participants. 

(ii) 

Article  15.1  of  the  draft  law  seems  to  only  apply  “in  the  event  of  the  opening  of

insolvency proceedings”. It is not clear whether the second sentence of that paragraph

falls within the same proviso, and if this was not the case such second sentence might

usefully  be  set  as  a  different  paragraph.  It  is  clear  that  Article  9.2  of  the  Finality

Directive stipulates a general conflict-of-law rule which shall apply in all cases, and

not only in the event of commencement of insolvency proceedings. There are no legal

reasons to limit the scope of the Directive’s rules in the field of private international

law to situations of insolvency: the legal regime for collateral should be the same both

before  any  insolvency  occurs  and  after  the  opening  of  insolvency  proceedings.  The

opening  of  insolvency  proceedings,  which  is  basically  a  procedural  event,  does  not

and  cannot  change  the  content  and  substance  of  the  iura  in  rem.  From  a  policy

perspective, the achievement of the internal market in the area of securities following

the  introduction  of  the  euro,  would  be  better  served  by  clear  rules  harmonising  the

private international law rules in relation to the taking of collateral; if such rules were

only  applicable  in  the  case  of  insolvency  proceedings,  this  policy  objective  of  the

Community would not be properly served.  

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(iii) 

Article 15.1 of the draft law would only apply to collateral “constituted in favour of a

system”  in  relation  “with  the  settlement  of  said  systems”;  such  language  would

provide  an  overly  narrow  approach  to  Article  9  of  the  Directive,  and,  instead,  the

protection provided by Article 15.1 of the draft law should cover in general terms any

form  of  security  interest  in  favour  of  participants  irrespective  of  the  purpose

underlying the creation of such security interest. The conflict-of-law rule in Article 9

of the Directive makes no distinctions whatsoever, neither with regard to the purposes

of collateralisation nor with regard to the quality of the beneficiary of the collateral.

(iv) 

The rules, as stated in the draft law, are limited to the effects in rem (paragraphs 1 and

2 of Article 15 of the draft law read “en cuanto a sus efectos juridicos reales”). There

seems  to  be  no  legal  reason  to  limit  the  scope  of  the  rule,  and  Article  9.2  of  the

Finality Directive does not demand such limitation. The contractual aspects of taking

collateral  are  also  paramount:  the  regulation  of  the  formalities  involved  (iura  in

personam vis-à-vis counterparts, proper forum for disputes, etc.) requires a clear rule

determining which national laws govern such aspects of taking collateral. It is to be

borne in mind that the concept of collateral is not limited to pledges but encompasses

also the technique of repurchase transactions. Article 9.2 of the Finality Directive is

not limited in this respect. It is worth mentioning that the conflict-of-law rules in the

Finality Directive are consistent with (i) the rule of Article 8 of the U.S.A.’s Uniform

Commercial  Code,  (ii)  the  national  laws  already  in  place  in  several  Member  States,

and (iii) the current trend of academic authority on the complex matter of cross-border

trading of securities.

(v) 

The rule enshrined in Article 15.2 of the draft law should be reciprocal, in the sense

that it ought to apply, mutatis mutandis, to collateral registered in Spain in favour of

foreign systems. 

(vi) 

The  additional  formalities  required  by  Article  15.3  may  increase  the  bureaucratic

burden  and  hinder  the  rapidity  of  the  collateral-taking  process  without  any

justification.    Modern  rules  of  evidence  and  means  of  communication  would  not

appear to require the approach envisaged by this provision. Similar remarks in favour

of  a  more  stream-lined  procedure,  including  less  formalities,  can  be  made  also  in

respect of Article 14.5 of the draft law concerning the realisation of collateral.

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8.

The  ECB  confirms  that  it  has  no  objection  to  this  ECB  Opinion  being  made  public  by  the

competent national authorities at their discretion. In the light of the general application of the

observations  made,  and  the  importance  to  the  international  financial  markets  of  a  uniform

application of Community law in this field, the ECB is arranging for this Opinion to be copied

to the competent national authorities of Member States responsible for implementing Directive

98/26/EC  of  19  May  1998  on  Settlement  Finality  in  Payment  and  Securities  Settlement

Systems.

Done at Frankfurt am Main on 26 May 1999.

The President of the ECB

[signed]

Willem F. Duisenberg

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