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 for financial instruments (CON/2004/27)
Date: 2004-08-04
Institutions: European Central Bank
Subjects: Belgium, Eurosystem, financial instrument, financial stability, guarantee

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 for 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  financial  collateral  and  various  tax  provisions  in 

relation to in rem collateral arrangements and loans for financial 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 June 1998 on the consultation of the European 
Central Bank by national authorities regarding draft legislative provisions1, as the draft law relates 

to  (i)  the  Nationale  Bank  van  België/Banque  Nationale  de  Belgique  (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,  the  draft  law  contains  a  substantial  number  of 

provisions  that  go  beyond  merely  implementing  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 
2 
3 

OJ L 189, 3.7.1998, p. 42. 
OJ L 168, 27.6.2002, p. 43. 
See paragraph 2 of ECB Opinion CON/2003/11 (text available on the ECB’s website http://www.ecb.int). 

 
 
 
                                                           
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 Directive. As regards financial collateral arrangements 

(see paragraph 11 as regards netting arrangements), the draft law applies, as a rule, to all financial 

collateral arrangements without restricting the categories 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 financial collateral in the form of a pledge, which 

under Belgian law corresponds to the ‘security financial 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  efficient  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  policy4.  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  parties  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 approach 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  protection  provisions  (Article  2).  However,  the  ECB 

wonders  whether,  by  harmonising  the  enforcement  methods  for  pledges  which  specify  the  prior 

absence  of  any  court  involvement,  the  last  subparagraph  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  collective  investment  institution.  The  ECB  therefore 

recommends abolishing such involvement if the pledged 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 August 2002 concerning the supervision of the financial sector and of 

financial services. The ECB welcomes the fact that this 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 the 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 
5 

See paragraph 4 of CON/2003/11. 
See paragraph 5 of CON/2003/11. 

2 

                                                           
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  requirement  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 where 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. The ECB understands that similar reasons 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 area where the volume of transactions and the possible 

systemic  implications  of  a  lack  of  legal  certainty  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  provision  of  financial  collateral  (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  financial  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  matters,  the  ECB  notes  that  this  kind  of  proof  will  apply  to  all 

financial  collateral  arrangements,  including  arrangements  that  consist  of  a  pledge  on  financial 

collateral that is governed by civil law. As regards Articles 8 and 9 of the draft law, the ECB notes 

that  the  uniform  enforcement  rules  will  also  apply  to  commercial  pledges  on  financial  collateral, 

which is the reason that the draft law also abrogates existing Belgian legislation on the enforcement 

of such collateral, i.e. the third and fourth paragraphs of Article 4 of the Law of 5 May 1872. In 

view  of  the  fact  that  this  legislation  also  applies  to  the  commissioners’  statutory  lien  and  their 

financial backers, the ECB wonders whether this abrogation might not also affect the procedure for 

the enforcement of this lien where it relates 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  requirements  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. 

3 

                                                           
(i) 

commercial pledges on financial 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  dispossession  of  the  pledge,  which  is  confirmed  in  the 

second subparagraph of Article 4(1) of the draft law and which is permitted 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  between  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 institutions 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  assets  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 pledged 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  apply  to  arrangements  between  or  with  natural 

persons.  While  the  ECB  acknowledges  that  the  Directive  does  not  apply  to  natural  persons,  the 

ECB  underlines  the  similar  economic  and  financial  nature  of  pledges  and  title  transfer  collateral 

arrangements (whether or not they are repurchase transactions), as well as the benefit of having the 

same simple and reliable legal regime for all types of financial collateral arrangements, irrespective 

of the nature of the parties involved (see paragraph 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.  Relying  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 provisions 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  the  event  of  counterparty  default.  By  uniformly 

4 

applying close-out netting provisions to all financial transactions legal 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 consequences for the enforceability 

of a close-out netting provision as, for instance, an attachment 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  assignments  occur  Article  14  of  the  draft  law  could 

usefully include a reference to the time at which the 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 party 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 arrangements, as well as 

with the protection of substitution and top-up collateral (‘margin call’) arrangements, in the event 

of  insolvency  or  attachment  proceedings.  The  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 reference 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  draft  law  –  including  the  reference  therein  to 

Article 17(3)  of  the  Bankruptcy  Law  –  is  applicable  to  substitution  and  top-up  collateral 
(Article 15(2)),  which,  however,  seems  to  conflict  with  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 question as to the appropriateness of a reference in 

Article 15(1) to Article 17(3) of the Bankruptcy Law. 

5 

13.  The  ECB  welcomes  the  fact  that  Article  17  of  the  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 explanatory memorandum, the ECB notes that the draft 

law might be affected by the Hague Convention on the 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  transactions  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  limits  the  regulation  of  Belgian  dematerialised 

public debt securities to institutions that are located 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  that  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 supervising compliance by these institutions with the 

rules governing the holding of dematerialised public debt securities and provides for the possibility 

of the CBFA imposing sanctions on, and taking other  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 securities on their accounts with the NBB/BNB. Indeed, 

Article  19  of  the  draft  law  provides  for  a  multi-tiered  system  of  indirectly  held  dematerialised 

public  debt  securities.  In  this  context,  the  ECB  underlines  the  importance  of  the  periodic 

reconciliation of the securities settlement systems’ own records with those of the 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  Article  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. 

6 

                                                           
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 prudential supervision to settlement institutions 

referred  to  in  the  Law  of  2  August  2002  and  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 intention is to designate institutions that provide 

substantial  and  critical  operational  and  intellectual  services  to  settlement  institutions.  The 

designated institutions will need a licence from the CBFA and conditions regarding their licensing 

and operation will also be laid down in a Royal Decree. The ECB also notes that this supervisory 

regime and oversight could extend 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 within 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 

7