Opinion of the Economic and Social Committee on the "Proposal for a Directive of the European Parliament and of the Council on financial collateral arrangements"
Date: 2001-11-28
Institutions: European Economic and Social Committee
Subjects: claim, contract, financial solvency, guarantee

21.2.2002

EN

Official Journal of the European Communities

C 48/1

II

(Preparatory Acts)

ECONOMIC AND SOCIAL COMMITTEE

Opinion of the Economic and Social Committee on the ‘Proposal for a Directive of the European
Parliament and of the Council on financial collateral arrangements’

(2002/C 48/01)

On 26 April 2001 the Council decided to consult the Economic and Social Committee, under Article 95
of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 21 November 2001. The rapporteur was
Mr Barros Vale.

At its 386th plenary session (meeting of 28 November 2001), the Economic and Social Committee
adopted the following opinion by 104 votes to two with one abstention.

1.

Introduction

cross-border use of collateral was therefore given top priority
in the Commission’s ‘Financial Services Action Plan’.

1.1.
The need for the proposed Directive arises from the
legal uncertainty faced by payment and securities settlement
systems, central banks and participants in the financial mar-
kets.

The proposed Directive is to apply to cash and

1.5.
securities accounts and short-term transactions.

To reduce this uncertainty and protect the various
1.2.
participants, several Member States have introduced netting
legislation or revised existing legislation in this area.

1.3.
The adoption of the Directive on Settlement Finality
was a milestone in establishing a sound legal framework for
payment and securities settlement systems.

1.6.
The Directive is to apply to only the following
operators: public authorities or central banks; financial insti-
tutions under prudential supervision; and persons other than
natural persons whose capital base exceeds EUR 100 million
or whose gross assets exceed EUR 1 000 million (at the time
when financial collateral is actually delivered, according to the
most recently prepared accounts published within a period no
greater than two years prior to that time).

According to the Commission, the objectives of the

1.7.
proposed Directive are:

This Directive is to date the only piece of European
1.4.
legislation regulating cross-border collateral in the context of
financial transactions. The adoption of a Directive on the

— to ensure that effective and reasonably simple regimes
exist for the creation of collateral under either title
transfer or pledge structures;

C 48/2

EN

Official Journal of the European Communities

21.2.2002

— to provide limited protection of collateral arrangements
from some rules of insolvency law, in particular those
that would inhibit the effective realisation of collateral or
cast doubt on the validity of techniques such as close-out
netting, the provision of top-up collateral and substitution
of collateral;

— to create legal certainty regarding the conflict of laws
relating to book entry securities used as collateral in a
cross-border context by extending the principle adopted
in Article 9(2) of the Settlement Finality Directive;

— to limit the financial burdens affecting the use of col-
lateral, when creating or enforcing collateral arrange-
ments;

— to ensure that agreements permitting the collateral taker
to re-use the collateral for its own purposes under pledge
structures are recognised as effective, as for repos.

2. General comments

2.1.
The ESC welcomes the existence of mechanisms which
speed up and facilitate the process of collateral provision.
However, it believes that greater attention must be given to
some aspects in order to ensure compliance with the principles
of market balance and equal treatment before the law.

2.2.
Under this proposal for a Directive, the collateral,
which currently functions as a pledge held on deposit,
effectively becomes the property of the collateral taker, subject
to agreement between the parties. This major change raises a
number of issues:

outset. Failure to do this may have serious consequences and
discredit the proposed system.

3. Specific comments

3.1.
It is necessary to specify what constitutes the ‘real
cause’ for enforcing collateral arrangements, thereby avoiding
abuses of the law. The lawfulness of the cause cited in such
cases must also be verified.

It is necessary to make it clearer whether the assets
3.2.
provided as a collateral under this Directive are restricted to
assets which the provider of the collateral actually owns or
may also be other assets held by them on behalf of third
parties.

3.3.
Bearing in mind the technical and legal complexities of
this subject, it is important to limit the scope of the Directive
to activities performed by bodies employing professionals/spe-
cialists so as not to undermine its objectives.

3.4.
It is vital to take account of this precedent, which may
be extended to other types of creditors and thus pervert the
principles of bankruptcy law and the corresponding protection
of creditors. Account must be taken of the principle of the
universality of creditors’ rights and whether they are affected
by the proposed provisions.

3.5. Measures to protect the collateral provider in the event
of the collateral taker’s insolvency must be guaranteed.

The Directive will have to be transposed into the
2.2.1.
national legislation of each Member State and may prove to be
incompatible with their existing legislation. Various Member
States have already expressed doubts on this matter at the
Council, and the requisite transposition may pose problems.

Also unclear are the conditions under which the
3.6.
provisions are to be applied in the event of the financial
restructuring — as opposed to the bankruptcy — of the
debtor. Such situations vary considerably and have different
consequences, and the application of the proposed principles
will have to be adapted accordingly.

2.2.2.
A real-time information system about the collaterals
provided by a given entity also needs to be set up for the
various operators and creditors,
in order for there to be
transparency regarding the assets at their disposal at any given
time. Since this is a new and unprecedented mechanism, a
high degree of
transparency will be required to give it
credibility.

2.2.3.
There is also a need for clarity regarding situations
that constitute non-compliance and require the enforcement
of collateral arrangements. All the situations in which collateral
arrangements may be enforced must be specified from the

4. Proposals for transparency mechanisms and general

protection of creditors

4.1.
The Committee thinks it unacceptable that this innova-
tive mechanism is going to be applied without a freely-
accessible mechanism for general consultation being set up at
the same time to provide real-time information on all the
collaterals of this type provided by the various operators
concerned.

21.2.2002

EN

Official Journal of the European Communities

C 48/3

4.2.
This mandatory data-base could be set up at the
European Central Bank or another independent and credible
institution/body and administered by the latter in accordance
with rules that are based on the general principles of prudential
supervision.

4.3.
Only a system which is generally accessible for consul-
tation and in which all collaterals of this kind are registered
for as long as they exist will be able to provide the requisite
transparency and security so that all creditors, suppliers and
shareholders, etc., can have a clear picture at any one moment
of the real situation regarding the collateral provider’s assets.

Brussels, 28 November 2001.

5.

Final consideration

5.1.
Because of its importance, particularities and conse-
quences for existing legislation, the proposal will have to be
amplified. It will be necessary to make changes which make
the proposal’s application more transparent and secure and
ensure that the principles of the general protection of creditors
and the universality of their rights are not perverted. The
Committee would like to give its views on a new Commission
proposal which addresses the concerns expressed in this
opinion.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on the ‘XXXth Report on competition policy
2000’

(2002/C 48/02)

On 10 May 2001 the Commission decided to consult the Economic and Social Committee, under Article
262 of the Treaty establishing the European Community, on the ‘XXXth Report on competition policy
2000’.

The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 21 November 2001. The rapporteur was
Mr Sepi.

At its 386th plenary session (meeting of 28 November 2001) the Economic and Social Committee
adopted the following opinion by 108 votes to one, with one abstention.

1.

Introduction: general background

the increasingly high profile of this policy in a period of
technological change and industrial mergers, have prompted
the Competition DG to make a number of
fundamental
changes to structures and practice.

1.1.
In addition to the regular review of the activities of the
Competition DG, the XXXth report on competition policy
includes a series of important pointers for the future of this
policy.

1.2. Major new developments at institutional level, such as
the advent of the Euro, and internationally, such as the growing
trend towards globalisation and imminent enlargement, and

1.3.
This makes it important that rather than just passing
judgment on the past, this opinion should use the past as a
starting point to highlight these changes and outline their
possible consequences.