Opinion of the European Central Bank of 25 May 2005 at the request of the Ministry of Finance of Luxembourg on a draft law on financial collateral arrangements (CON/2005/12)
Date: 2005-05-25
Institutions: European Central Bank
Subjects: Luxembourg, financial legislation, financial stability, guarantee, national law, securities

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 25 May 2005 

at the request of the Ministry of Finance of Luxembourg on a draft law on financial collateral 

arrangements 

(CON/2005/12) 

1. 

On  16  March  2005  the  European  Central  Bank  (ECB)  received  a  request  from  the  Ministry  of 

Finance  of  Luxembourg  for  an  opinion  on  a  draft  law  on  financial  collateral  arrangements 

(hereinafter  the  ‘draft  law’).  The  draft  law  was  submitted  to  the  Chamber  of  Representatives  of 

Luxembourg on 25 November 2003. Subsequently the Government of Luxembourg amended the 

draft law on 16 April 2004. These amendments are also the subject of the present consultation. 

2. 

The  ECB’s  competence  to  deliver  an  opinion  is  based  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  Banque  centrale  du  Luxembourg  (BCL)  and  the  other  central  banks  in  the  European 

System  of  Central  Banks  (ESCB);  (ii)  securities  settlement  systems;  and  (iii)  the  stability  of 

financial institutions and markets. 

3. 

The  ECB  notes  that  the  main  purpose  of  the  draft  law  is  to  transpose  in  Luxembourg  Directive 

2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral 
arrangements (hereinafter the ‘Collateral Directive’)2. While national authorities are not obliged to 

consult the ECB on draft legislative provisions the exclusive purpose of which is the transposition 

of  Community  directives  into  the  law  of  Member  States,  under  Article  25.1  of  the  Statute  of  the 

European  System  of  Central  Banks  and  of  the  European  Central  Bank  (hereinafter  the  ‘ESCB 

Statute’)  the  ECB  may  offer  advice  to  and  be  consulted  by  the  competent  authorities  of  the 

Member States on the scope and implementation of Community legislation relating to the stability 

of the financial system. The draft law addresses matters directly relevant to the Eurosystem’s core 

fields  of  competence  which  will  have  an  impact  both  on  the  efficient  and  safe  use  of  financial 

collateral arrangements in EU financial markets and the Eurosystem’s credit operations.  

4. 

The  draft  law  also  contains  certain  provisions  that  go  beyond  merely  transposing  the  Collateral 

Directive, including provisions on the statutory lien granted to depositories principally operating a 

1 
2 

OJ L 189, 3.7.1998, p. 42. 
OJ L 168, 27.6.2002, p. 43. 

 
 
 
                                                           
securities settlement system (SSS) that have an impact on the BCL’s Statute and that relate to the 

incorporation  into  the  legal  framework  in  Luxembourg  of  certain  provisions  of  the  Hague 

Convention  on  the  Law  Applicable  to  Certain  Rights  in  respect  of  Securities  held  with  an 

Intermediary  (hereinafter  the  ‘Hague  Convention’).  Since  the  provisions  on  the  statutory  lien  of 

depositories principally operating an SSS have implications for the BCL’s lien under its Statute, the 

ECB addresses this matter first. 

Statutory lien granted to depositories principally operating a securities settlement system  

5. 

Under  the  current  law  in  Luxembourg3  a  statutory  lien  is  granted  to  depositories  principally 

operating  an  SSS  (hereinafter  the  ‘depositories’)  over  a  participant’s  own  assets  held  by  the 

depositories in relation to the system they operate where such assets are not affected by collateral 

duly  notified  to  or  accepted  by  the  depository.  For  this  purpose  ‘collateral’  is  defined  as  any 

realisable  asset,  including  money,  provided  in  the  context  of  a  pledge,  repurchase  agreement, 

fiduciary transfer or a similar agreement, or in another way, with the aim of guaranteeing the rights 

and obligations which may arise in the context of an SSS, or provided to Member States’ central 
banks or to the ECB vis-à-vis such realisable assets4. 

6. 

The  draft  law,  as  amended  by  the  Government  of  Luxembourg,  specifies  that  the  depositories’ 

claims vis-à-vis a participant arising from the transactions carried out by the participant on its own 

account, as well as on behalf of its clients, are guaranteed by the statutory lien of the depositories. 

The draft law also grants a lien to these depositories on the assets of a participant’s clients held by 

the depositories in relation to the system they operate, but this lien only guarantees a depository’s 

claims vis-à-vis a participant arising from the transactions carried out by a participant on behalf of 

its clients.  

7. 

Under the law in Luxembourg this statutory lien would supersede any general or special statutory 
lien5.  However,  it  is  unclear  whether  it  would  prevail  over  the  lien  granted  to  the  BCL,  which 

provides that claims of the BCL, the ECB or any other national central bank (NCB) in the ESCB 

resulting from operations in connection with common monetary or exchange rate policies will have 

priority over all debtor assets, whether held with the BCL or with an SSS or any other counterpart 
in Luxembourg, and that this lien ranks equally with that of a pledgee6. 

8. 

The statutory lien granted to the depositories on the assets of a participant’s clients held in relation 

to  the  system  which  they  operate  increases,  in  terms  of  scope,  the  risk  of  potential  conflicts 

3  

4  

5  

6  

Article  17  of  the  loi  du  1er  août  2001  concernant  la  circulation  de  titres  et  d’autres  instruments  fongibles  (Law  of 
1 August 2001 on the circulation of securities and other fungible instruments; hereinafter the ‘Securities Law’). 
Article 25(4)(b) of the draft law, amended by Governmental Amendment No 7 relating to the statutory lien granted to 
depositories,  repeats  the  provisions  of  Article  17  of  the  Securities  Law.  The  definition  now  refers  to  the  central  bank 
members of the ESCB. 
The  second  paragraph  of  Article  17  of  the  Securities  Law  (and  Article  25(4)(b)  of  the  draft  law,  as  amended  by 
Governmental Amendment No 7).  
Article 4(4) of the loi du 23 décembre 1998 relative au statut monétaire et à la Banque centrale du Luxembourg (Law of 
23  December  1998  on  the  monetary  status  and  the  Banque  centrale  du  Luxembourg),  under  the subheading  ‘Financial 
bases’. 

2 

                                                           
between the statutory lien of the depositories and the lien of the BCL and the ESCB central banks. 

It is noted in this respect that the lien of the BCL and the ESCB central banks has, in large part, 
been  introduced  into  the  law  in  Luxembourg  in  order  to  reinforce  the  BCL’s  financial  position7, 

thereby  assisting  the  BCL  and  the  Eurosystem  in  performing  their  central  banking  tasks.  In  this 

regard the ECB takes note of the particular situation of the BCL within the Eurosystem. The risks 
stemming from the BCL’s operations with the financial sector8 are of systemic relevance in view of 

the  relative  importance  of  the  financial  market  in  Luxembourg.  The  BCL  is  the  third  largest 
national central bank within the Eurosystem9 in terms of liquidity granted to credit institutions and 

the amount of collateral used for monetary policy operations. A substantial part of the assets used 

to  collateralise  Eurosystem  credit  operations  on  a  cross-border  basis  originates  in  Luxembourg. 

Furthermore,  the  Standards  for  the  use  of  EU  Securities  Settlement  Systems  in  ESCB  credit 

operations, published in 1998, are relevant from the perspective of the Eurosystem as a user of a 

central securities depository operating an SSS. Standard 1 states that an SSS must provide adequate 

protection of the rights of the NCBs and the ECB in respect of securities held on their accounts in 

such systems. Against this backdrop, the ECB would strongly prefer a statutory lien granted to the 

depositories that does not prejudice the legal position of the BCL and the ESCB central banks in 

performing their central banking functions. The ECB hopes that the relevant provisions of the draft 

law  can  be  amended  accordingly  in  order  to  fully  secure  the  legal  position  of  the  BCL  and  the 

ESCB central banks.  

9. 

The ECB notes that both the current law in Luxembourg and the provisions of the draft law exclude 

from  the  scope  of  the  statutory  lien  granted  to  the  depositories  any  own  assets  of  participants, 

which are affected by collateral duly notified to or accepted by the depository. The ECB is of the 

view that this exclusion should also apply to the assets of participants’ clients, which are affected 

by  collateral  duly  notified  to  or  accepted  by  the  depository.  Furthermore,  the  statutory  lien  of 

depositories,  including  the  lien  on  the  assets  of  a  participant’s  clients  intended  by  the  draft  law, 

should not cover the BCL’s assets or the assets provided as collateral to the BCL or another central 

bank member of the Eurosystem, regardless of any notification or acceptance requirement, which 

in any case should not affect the realisation and enforceability of such collateral. 

10.  The  comments  on  the  articles  of  the  draft  law  point  out  that  the  lien  over  the  assets  of  a 

participant’s  clients  is  very  limited  since,  as  mentioned  in  paragraph  6  above,  it  only  covers  the 
assets  of  a  participant’s  clients  in  respect  of  transactions  carried  out  on  behalf  of  those  clients10. 
The  statutory  lien  of  qualified  intermediaries  and  clearing  and  settlement  institutions11  under 

7  

8  
9 
10 
11  

Report of the Commission des Finances et du Budget (Commission of Finances and Budget in Luxembourg, 10.12.1998) 
on draft law No 4468/07, p. 2.  
Draft law No 4468/07, comments on the articles, comment on Article 4(4), p. 9. 
Comments on key figures of the 2004 BCL accounts are available on the BCL website (http://www.bcl.lu). 
See the comments on the articles, comment on Article 25(4), p. 23. 
Referred  to  in  Article  31  of  the  loi  du  2  août  2002  relative  à  la  surveillance  du  secteur  financier  et  aux  services 
financiers (Law of 2 August 2002 on the supervision of the financial sector and on financial services). 

3 

                                                           
Belgian  law12  also  covers  the  assets  of  clients  and,  in  the  case  of  clearing  and  settlement 

institutions,  the  assets  of  a  participant’s  clients.  However,  under  Belgian  law,  the  assets  of  a 

participant’s clients can only be credited to an account with the relevant intermediary or clearing 

and settlement institution (and therefore be covered by the statutory lien) if those clients give their 
written  consent13.  It  is  noted  in  this  respect  that  one  of  the  rules  set  out  in  the  ESCB-CESR 
Standards  for Securities  Clearing and Settlement in the European Union14 lays down that entities 

holding securities in custody must not use the customer’s securities for any transaction unless they 
have obtained the customer’s explicit consent. Under Directive 2004/39/EC15, the same principles 
apply to investment firms16. Furthermore, Belgian law expressly provides for criminal sanctions for 

those  who,  acting  on  behalf  of  an  intermediary,  use  the  financial  instruments  of  clients  without 

their written consent, whether this use is for their own profit, the profit of the intermediary or the 
profit of third parties17. Under Belgian law, there is also a requirement of segregation between the 
assets  of  participants’  clients  and  the  own  assets  of  a  participant18.  Finally,  there  is  a  solidarity 

mechanism between all the clients of a particular participant within the system under which, in the 

event of the participant’s insolvency, the clearing or settlement institution will enforce its lien on 

the assets of this participant’s clients taken as a whole, i.e. without taking into account the positions 
of the individual clients19. In the case of Luxembourg, the ECB notes that the draft law does not 

12  

13  

14  

15  

16  

17  
18  
19  

Article 10(1) of the loi du 15 décembre 2004 relative aux sûretés financières et portant des dispositions fiscales diverses 
en  matière  de  conventions  constitutives  de  sûreté  réelle  et  de  prêts  portant  sur  des  instruments  financiers  (Law  of 
15 December  2004  on  financial  collateral  and  various  tax  provisions  in  relation  to  in  rem  collateral  arrangements  and 
loans for financial instruments). Under Article 10(1) and (2) of this law, unless otherwise agreed between the parties, the 
lien of the pledgee prevails over the statutory lien of qualified intermediaries and clearing and settlement institutions as 
well as over the statutory lien of the Nationale Bank van België/Banque Nationale de Belgique (hereinafter the ‘NBB’), 
provided  that  the  intermediary,  the  institution  or  the  NBB,  as  the  case  may  be,  has  agreed  to  register  this  pledge  on 
financial instruments covered by the statutory lien to a special account in its books or has acknowledged that cash has 
been given as collateral. 
Article  148(3)  of  the  loi  du  6  avril  1995  relative  au  statut  des  entreprises  d'investissement  et  à  leur  contrôle,  aux 
intermédiaires et conseillers en placements (Law of 6 April 1995 on the legal status and supervision of investment firms, 
intermediaries and investment advisers), title as amended by the Law of 2 August 2002; and Article 31(5) of the Law of 
2 August 2002. 
Standard  12,  key  element  6  of  the  Standards  for  Securities  Clearing  and  Settlement  in  the  European  Union,  jointly 
published by the ESCB and the Committee of European Securities Regulators (CESR), October 2004; available on the 
CESR and ECB websites (http://www.cesr-eu.org and http://www.ecb.int). 
Article  13(7)  and  (8)  of  Directive  2004/39/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on 
markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of 
the  European  Parliament  and  of  the  Council  and  repealing  Council  Directive  93/22/EEC  (OJ  L  145,  30.4.2004,  p.  1; 
hereinafter the ‘MiFID’). 
Under  Article  13(7)  of  the  MiFID,  when  holding  financial  instruments  belonging  to  clients,  investment  firms  must 
safeguard clients’ ownership rights, especially in the event of the investment firm’s insolvency, and prevent the use of a 
client’s instruments on own account except with the client’s express consent. Article 13(8) of the MiFID provides that 
investment firms must also, except in the case of credit institutions, prevent the use of client funds for their own account. 
Article 148(3) of the Law of 6 April 1995. 
Article 26(16°) of the Law of 2 August 2002. 
Comments on the articles of the projet de loi modifiant la loi du 6 avril 1995 relative aux marchés secondaires, au statut 
des  entreprises  d’investissement  et  à  leur  contrôle,  aux  intermédiaires  et  conseillers  en  placement,  et  la  loi  du 
4 décembre  1990  relative  aux  opérations  financières  et  aux  marchés  financiers  (draft  law  amending  the  Law  of 
6 April 1995 on secondary markets, the legal status and supervision of investment firms, intermediaries and investment 
advisers, and the Law of 4 December 1990 on financial operations and financial markets), 5 December 1995, comment 
on Article 9, p. 7; and the comments on the articles of the projet de loi relative à la surveillance du secteur financier et 
aux  services  financiers  (draft  law  on  the  supervision  of  the  financial  sector  and  on  financial  services),  4  June  2002, 
comment on Article 31, p. 70. 

4 

                                                           
indicate whether the assets of participants’ clients would be treated on an individual basis and does 

not  have  any  requirement  to  obtain  the  client’s  consent  for  the  use  of  these  assets.  Against  this 

background,  the  ECB  is  of  the  view  that  the  authorities  of  Luxembourg  should  consider  the 

adoption of appropriate mechanisms ensuring both the protection of clients’ assets and the smooth 

operation of the clearing and settlement system.  

11.  Finally,  the  ECB  understands  that  if  a  lien  on  the  assets  of  a  participant’s  clients  is  granted  to 

depositories,  as  contemplated  by  the  draft  law,  the  assets  of  a  participant’s  clients  would  not  be 

available  to  collateralise  credit  extended  to  participants.  However,  it  should  be  ensured  that  the 

increased  opportunities  for  custodians  to  receive  (intraday)  credit,  in  cases  where  there  are 

insufficient financial assets to collateralise such credit, do not risk creating moral hazard. 

General comments regarding implementation of the Collateral Directive 

12.  As previously noted, the ECB has an interest in the harmonised implementation of the Collateral 
Directive20. In this regard, the ECB very much welcomes the fact that the draft law does not avail 

itself of any of the opt-out possibilities provided in the Directive. This will also help to ensure a 

broad  application  of  the  Directive’s  provisions  under  the  law  in  Luxembourg.  In  this  regard  the 

ECB would like to recall its position 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 policy’21. For this 

reason, the ECB supports the authorities of Luxembourg’s grouping into a single law the provisions 

on different kinds of financial collateral arrangements. 

Personal scope of the Collateral Directive 

13.  The draft law applies to operations transferring title to assets as collateral, including by fiduciary 

means, and to operations involving repurchase agreements on property, in which the assignor or the 
assignee  or  both  are  ‘finance  professionals’22.  The  recognition  of  the  validity  and  third  party 

enforceability  of  insolvency  netting  is  subject  to  the  condition  that  they  result  from  operations 

subject  to  agreements  or  bilateral  or  multilateral  netting  clauses  between  two  or  more  parties  of 
whom  at  least  one  is  a  ‘finance  professional’23.  This  concept  of  a  ‘finance  professional’  is  very 

wide  and  encompasses,  in  addition  to  various  public  authorities  and  financial  entities,  any 

commercial  or  industrial  establishment  with  professional  access  to  the  financial  market,  pension 

funds,  securitisation  bodies,  entities  or  bodies  participating  in  a  securitisation  operation  and  any 

20 

21  
22  
23  

See paragraph 2 of ECB Opinion CON/2003/11 of 26 June 2003 at the request of the Austrian Federal Ministry of Justice 
on a draft Federal law implementing Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 
on financial collateral arrangements. See also paragraph 3 of ECB Opinion CON/2004/27 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 
the  ECB’s  website 
(http://www.ecb.int). 
Paragraph 4 of ECB Opinion CON/2004/27. 
Articles 13 and 15 of the draft law. 
Article 18 of the draft law. 

instruments.  Both  are  available  on 

loans  for  financial 

5 

                                                           
other financial sector professional24. As emphasised by the ECB in previous opinions ‘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 transactions’25. The ECB welcomes the fact that the personal scope 

of the draft law goes beyond the Collateral Directive’s requirements. In this respect, the fact that 

the concept of ‘commercial or industrial establishment enjoying professional access to the financial 

market’,  includes  for  example,  the  finance  company  of  a  group  or  special  vehicle  enjoying  the 
support of a large group26, tends to indicate that the draft law would cover arrangements between 
two unregulated entities27. When implementing the Collateral Directive a comparable approach was 
also followed in Denmark28 and Germany29 with respect to transactions between corporates.  

14.  As  regards  pledges30,  the  draft  law  applies,  whatever  the  nature  of  the  parties  to  the  financial 
collateral  arrangements,  without  restricting  the  categories  of  collateral  takers  or  providers31.  The 

ECB notes in this respect that the Conseil d’Etat (the Council of State of Luxembourg), in a recent 
opinion32, suggests that, along the lines of the legislation adopted in Belgium33, there should not be 

any limitation in terms of personal scope on other types of financial collateral arrangements such as 

repurchase agreements or transfers of title as collateral. This would imply that the requirement for 

the  arrangements  to  be  concluded  with  one  finance  professional  would  be  abandoned,  except  for 
fiduciaries34. In line with its comments on the draft Belgian law on financial collateral35, the ECB 

would welcome a ‘broad scope and uniform approach to financial collateral arrangements’. 

Material scope of the Collateral Directive 

15.  The draft law applies to pledge contracts concerning assets (‘avoirs’)36, operations transferring title 
to  assets  as  collateral37  and  repurchase  operations  concerning  all  kinds  of  tangible  or  intangible 
property38. Assets are defined as financial instruments and claims. While the concept of claims is 

not  further  defined  in  the  draft  law,  financial  instruments  are  defined  in  the  broadest  sense.  The 

24  
25  
26  
27  
28  

29  

30  
31  
32  
33  
34  
35  
36  
37  
38  

Article 1(12) of the draft law. 
Paragraph 4 of ECB Opinion CON/2004/27. 
Comments on the articles of the draft law, comment on Article 1. 
See in this respect the opinion of the Chamber of Commerce of Luxembourg, 23 August 2004, p. 2. 
L  2003-12-19  nr  1171  Ændring  af  lov  om  værdipapirhandel  m.v.,  lov  om  finansiel  virksomhed  med  flere  love;  Act 
No 1171 of 19 December 2003, amending the law on trade in securities etc., the law on investment companies, and other 
legal acts. 
Gesetz  zur  Umsetzung  der  Richtlinie  2002/47/EG  vom  6.  Juni  2002  über  Finanzsicherheiten  und  zur  Änderung  des 
Hypothekenbankgesetzes  und  anderer  Gesetze  (Law  transposing  Directive  2002/47/EC  of  6  June  2002  on  financial 
collateral and amending the Mortgage Banking Law and other Laws). 
Articles 3 to 12 of the draft law. 
This is confirmed by Article 18 of the draft law. 
Council of State of Luxembourg opinion of 13 April 2005 on Articles 13, 14, 15 and 18. 
Law of 15 December 2004. 
Opinion of the Council of State of Luxembourg of 13 April 2005 on Articles 13 and 14, p. 10. 
Paragraph 4 of ECB Opinion CON/2004/27. 
Article 3 of the draft law. 
Article 13 of the draft law. 
Article 15 and Article 16(2) of the draft law. 

6 

                                                           
ECB understands that credit claims in the form of bank loans would be covered by the draft law. 

The ECB welcomes the approach proposed by the authorities of Luxembourg since it is in line with 

the ECB’s recommendation in its opinion on the proposed collateral directive, a recommendation 

which  the  ECB  still  supports.  In  particular,  the  ECB  proposed  extending  the  scope  to  ‘cover  all 

types of assets that are eligible for Eurosystem credit operations, including, inter alia, credit claims 
in the form of bank loans’39. To date, some Member States have chosen to go beyond the Collateral 

Directive’s  requirements  with  regard  to  the  definition  of  the  implementing  legislation’s  material 

scope,  as  the  Collateral  Directive  refers  to  the  more  narrowly  defined  concepts  of  ‘financial 

instruments’ and ‘cash’. For example, in France, the material scope of the legislation implementing 

the  Collateral  Directive  is  extended  to  claims,  bills  and  contracts,  and  different  forms  of  rights, 
provided that they are assignable40, while in Sweden the scope of the draft legislation transposing 
the Collateral Directive encompasses money loans41. 

Netting provisions 

16.  The draft law covers the ‘netting of assets’42 which includes both claims and financial instruments. 
Furthermore,  the  draft  law’s  definition  of  ‘close-out  netting  provision’43  is  very  similar  to  the 
corresponding definition in the Collateral Directive44. Title V of the draft law refers to the concepts 

of  ‘close  out  netting’,  ‘netting’,  ‘agreements  (‘conventions’)  or  bilateral  or  multilateral  netting 

clauses between two or more parties’, and also ‘netting agreements’ (‘contrats de compensation’). 

The ECB notes that other provisions of the law in Luxembourg refer to the concept of ‘conventions 
de compensation et de novation’45. The comments on the articles justify the separate reference to 

netting  agreements  by  the  fact  that  netting  may  be  either  (i)  a  means  of  realising  a  financial 

collateral  arrangement,  in  which  case  it  is  covered  by  this  term;  or  (ii)  an  independent  contract 

between  professionals  or  between  a  professional  and  a  non-professional,  with  this  latter  case 
covered by the use of the term ‘netting agreement’46. For the sake of clarity, it might be useful to 

define the concept of ‘netting agreements’ in the general provisions of the draft law and to ensure 

consistency in the use of the concepts of ‘contrat’ or ‘convention’ in relation to netting in both the 

draft law and other relevant provisions of the law in Luxembourg.  

39 

40  

41  

42  
43  
44  
45  
46  

Paragraph  10  of  ECB  Opinion  CON/2001/13  of  13  June  2001  at  the  request  of  the  Council  of  the  European  Union 
concerning a proposal for a Directive of the European Parliament and of the Council on financial collateral agreements 
(OJ C 196, 12.7.2001, p. 10). See also paragraph 6 of ECB Opinion CON/2003/11. 
Articles  L.431-7-1  and  following  of  the  Code  Monétaire  et  Financier  (the  French  Monetary  and  Financial  Code),  as 
amended by Ordinance No 2005-171 of 24 February 2005. 
See  the  Swedish  legislative  proposal  on  financial  collateral  (Regeringens  proposition  2004/05:30  om  finansiella 
säkerheter), adopted in April 2005, and the legislative amendments entering into force on 1 May 2005. 
Article 18 of the draft law. 
Article 1(2) of the draft law. 
Article 2(1)(n) of the Collateral Directive. 
Article 61-14 of the loi du 5 avril 1993 relative au secteur financier (Law of 5 April 1993 on the financial sector). 
Comment on Article 2, p. 15. 

7 

                                                           
Private international law issues  

17.  The draft law contains a specific title on private international law issues which aims in particular to 

transpose  the  conflict-of-law  rule  contained  in  the  Collateral  Directive.  In  this  respect,  the  ECB 

notes  that  the  draft  law  reproduces  almost  verbatim  the  conflict-of-law  provisions  of  the 
Directive47. However, the draft law departs slightly from the Directive since two paragraphs have 

been added to the list of matters that may arise in relation to book-entry securities collateral that, 

under  the  Directive,  are  governed  by  the  law  of  the  country  in  which  the  relevant  account  is 
maintained48. These two additional matters concern respectively: (i) the duties of the keeper of the 

relevant  account  towards  a  person  other  than  the  holder  of  the  relevant  account  who  claims 

concurrent rights on book-entry securities with this  keeper against the relevant account holder or 
any  other  person49;  and  (ii)  the  extension  of  the  financial  collateral  arrangement  for  book-entry 

securities to entitlements to dividends, income or other distributions, or to redemption, sale or other 
proceeds50. The ECB has, in principle, no objection to these additional matters being subjected to 

the  Collateral  Directive’s  conflict-of-law  rule,  although  this  goes  beyond  the  Directive’s 

requirements. 

18.  The comments on the articles of the draft law51 point out that these two matters are directly inspired 
by  the  Hague  Convention52  and  that  ‘since,  according  to  the  timetable  currently  planned,  the 

Convention  should  be  ratified  rather  rapidly  and  thus  replace  the  Directive,  it  appeared  useful  to 
harmonise  the  scope  of  [Luxembourg]  legislation  with  the  scope  of  the  Convention’53.  The  ECB 

stated  in  its  recent  opinion  on  a  proposal  for  a  Council  decision  concerning  the  signing  of  the 

Hague  Convention  that  it  ‘would,  in  view  of  the  Convention’s  possible  implications  and  current 

Community legislation, … welcome a comprehensive prior assessment of the Convention’s impact 

in the Community. […] In order not to pre-empt an open-ended outcome, this assessment should be 

undertaken prior to a discussion of the possible signature of the Convention, considering that the 

existing  Community  regime  is  sufficiently  satisfactory  and  does  not  require  an  urgent  or 
compelling  signature  of  the  Convention’54.  The  European  Commission  shares  this  view  and 
indicated in a recent Green Paper55 that it would prepare a legal assessment evaluating the concerns 

raised  by  the  end  of  2005,  enabling  it  to  decide  then  whether  changes  would  be  needed  to  the 

abovementioned proposal for a Council decision. 

47  
48  
49  
50  
51  
52  
53  
54  

55 

Article 23(1) and (2) of the draft law implementing Article 9(1) and (2) of the Collateral Directive. 
Article 9(1) of the Collateral Directive. 
Article 23(2)(d) of the draft law.  
Article 23(2)(f) of the draft law.  
Comment on Article 23, p. 22. 
Article 2(1)(e) and (g) of the Convention.  
Comment on Article 23, p. 22; November 2003. 
Paragraph 20 of ECB Opinion CON/2005/7 of 17 March 2005 at the request of the Council of the European Union on a 
proposal for a Council decision concerning the signing of the Hague Convention on the Law applicable to certain rights 
in respect of securities held with an intermediary (COM(2003) 783 final), (OJ C 81, 2.4.2005, p. 10). 
‘Green Paper on Financial Services Policy (2005-2010)’, COM(2005) 177, 3 May 2005, p. 10; available on the website 
of the European Commission (http://www.europa.eu.int). 

8 

                                                           
19.  The ECB doubts, as suggested in the explanatory text to the draft law, that the Hague Convention 

may serve as a basis for interpreting the conflict-of-law rule contained in the draft law. The essence 
of the Hague Convention’s conflict-of-law regime56 is that the law applicable to the issues covered 

by  the  Convention  is  the  law  in  force  in  the  State  that  the  relevant  intermediary  and  the  account 

holder  have  expressly  agreed  as  governing  their  account  agreement,  or  the  law  of  the  State  that 

their agreement expressly provides as applying to these issues. This primary rule is only tempered 

by the ‘reality test’ whereby the Convention also requires the relevant intermediary to have, at the 

time  of  the  agreement,  an  office  in  that  State  which  is  engaged  in  a  business  or  other  regular 

activity  of  maintaining  securities  accounts.  By  contrast,  the  conflict-of-law  rule  proposed  by  the 

draft law refers to the law of the country in which the relevant account is located. This location-

based conflict-of-law rule is inconsistent with the Hague Convention’s conflict-of-law rule, which 

is primarily based on the freedom of contract of the relevant intermediary and the account holder, 

subject  only  to  a  relevant  office  requirement  in  order  to  avoid  entirely  arbitrary  choices.  If  the 

Hague  Convention  were  to  be  ratified  by  the  Community,  it  would  not  therefore  be  possible  to 

apply the conflict-of-law rule established by the draft law in the light of the Convention. 

20.  This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 25 May 2005. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

56  

Article 4(1) of the Hague Convention. 

9