Proposal for a Directive of the European Parliament and of the Council amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims [SEC(2008)491] [SEC(2008)492]
Date: 2008-04-23
Institutions: European Commission
Subjects: European Monetary System, banking, bond, claim, contract, credit guarantee, financial legislation, intra-EU payment

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.4.2008 
COM(2008)213 final 

2008/0082 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Directive 98/26/EC on settlement finality in payment and securities settlement 
systems and Directive 2002/47/EC on financial collateral arrangements as regards linked 
systems and credit claims  

[SEC(2008)491] 
[SEC(2008)492] 

(presented by the Commission) 

EN 

   EN 

 
 
 
  
 
 
EXPLANATORY MEMORANDUM 

1. 

CONTEXT OF THE PROPOSAL 

1.1. 

Grounds for and objectives of the proposal 

The main purpose of the proposal is to bring the Directive on settlement finality in 
payment  and  securities  settlement  systems  (SFD)  and  the  Directive  on  financial 
collateral  arrangements  (FCD)  into  line  with  the  latest  market  and  regulatory 
developments. Firstly, this is done by extending the protection of the SFD to night-
time settlement and to settlement between linked systems, since pursuant to Directive 
2004/39/EC on markets in financial instruments1 (hereinafter referred to as MiFID) 
and the European Code of conduct for clearing and settlement (hereinafter referred to 
as "the Code") systems are expected to become increasingly linked and interoperable. 
Secondly,  this  is  done  by  broadening  the  scope  of  the  protection  provided  by  both 
directives  to  include  new  types  of  assets  (i.e.  credit  claims  eligible  for  the 
collateralisation  of  central  bank  credit  operations)  in  order  to  facilitate  their  use 
throughout  the  Community.  Lastly,  this  proposal  seeks  to  introduce  a  number  of 
simplifications and clarifications to facilitate the application of the FCD and SFD. 

The  recent,  and  still  ongoing,  financial  turmoil  provided  an  additional  argument  in 
favour  of  the  proposal,  since  the  solutions  that  it  puts  forward  would  make  an 
important contribution to strengthening the tools for managing instability and turmoil 
in  financial  markets.  For  example,  the  establishment  of  a  harmonised  legal 
framework  for  the  use  of  credit  claims  as  collateral  in  cross-border  transactions 
would help enhancing market liquidity, which has been severely hit in recent months. 
Furthermore,  ensuring  the  proper  functioning  of  settlement  systems  in  rapidly 
evolving markets is indispensable for the stability of financial markets, even more so 
in times of market turmoil. 

1.2. 

General context 

In  recent  years  new  types  of  assets,  such  as  bank  loans  or  "credit  claims",  have 
become  an  important  source  for  the  continuously  growing  collateral  operations  on 
financial  markets.  In  August  2004,  the  European  Central  Bank  Governing  Council 
decided to include credit claims as an eligible type of collateral for Eurosystem credit 
operations  as  of  1 January  2007.  However,  some  Member  States,  i.e.  France, 
Germany,  Spain,  Austria  and  the  Netherlands  already  accepted  credit  claims, 
although  operating  under  different  legal  regimes.  In  order  to  create  a  level  playing 
field  among  central  banks  and  to  stimulate  the  cross-border  use  of  collateral,  the 
relevant legal framework2 needs to be harmonised.  

Another  important  development  in  financial  markets  is  the  increasing  number  of 
linkages  between  systems.  This  trend  is  expected  to  continue  and  possibly  even  to 
accelerate  due  to  the  introduction  of  the  Code,  adopted  by  providers  of  central 

1 
2 

OJ L … 
Directive  2002/47/EC  on  Financial  Collateral  Arrangements,  OJ  L  168,  27.6.2002,  p.  43,  and 
Directive98/26/EC on Settlement Finality, OJ L 166, 11.6.1998, p. 45. 

EN 

2 

   EN 

 
                                                 
market  infrastructure  services  on  7  November  2006.3  The  aim  of  the  Code  is  to 
improve  the  efficiency  of  European  clearing  and  settlement  systems  by  making  the 
user choices enshrined by Articles 34 and 46 of MiFID a genuine option rather than 
just  a  theoretical  possibility.  The  general  principles  contained  in  Chapter  IV  of  the 
Code  and  the  detailed  rules  featured  in  the  Access  and  Interoperability  Guideline4 
presented by providers of infrastructure services in June 2007 enable user choice of 
service provider by making it easier for systems to set up links, i.e. gain access to and 
become interoperable with systems in foreign markets. To ensure that the objectives 
of the SFD are upheld in this new situation, the proposal adapts the SFD to this new 
market place which is characterised by an increased number of links.  

30 

1.3. 

Consistency with other policies and objectives of the Union 

The two Directives on Settlement Finality and Financial Collateral Arrangements are 
the  main  Community  instruments  in  the  area  of  financial  collateral,  clearing  and 
settlement. The proposed changes are consistent with provisions which can be found 
in the MiFID and, to some extent, with specific provisions on solvency ratios in the 
Capital Requirements Directives 2006/48/EC and 2006/49/EC5. Some provisions of 
Directive  2001/24/EC6  on  the  winding-up  of  credit  institutions  and  Regulation 
1346/20007 on insolvency also have a bearing on collateral arrangements. 

There  is,  however,  no  EU-wide  framework  for  dealing  with  interests  in  securities 
held by an intermediary. Recognising that this may constitute a potential legal risk in 
cross-border  transactions,  the  Commission  created  the  Legal  Certainty  Group  in 
January  2005  to  advise  on  the  appropriate  legal  framework.  The  final  report  of  the 
Group  is  due  by  the  end  of  2008  and  will  be  complementary  to  the  Financial 
Collateral  Arrangements  Directive  and  Settlement  Finality  Directive  and  to  the 
changes  envisaged  in  this  proposal.  Simultaneously,  at  the  international  level, 
UNIDROIT – the International Institute for the Unification of Private Law – intends 
to convene a Diplomatic Conference in September 2008 with a view to arriving at a 
convention on substantive rules regarding intermediated securities. The provisions in 
the  draft  convention  are  in  part  modelled  on  the  Financial  Collateral  Arrangements 
Directive and Settlement Finality Directive and should not give rise to any problems 
of incompatibility.  

Furthermore, the provisions relating to credit claims do not seek to encroach on the 
rights of consumers, and in particular the rights under the recently agreed Consumer 
Credit Directive […]. The scope of this proposal is limited to credit claims that are 
eligible for the collateralisation of central bank credit operations, which in principle 
excludes  credit  claims  by  individual  consumers.  For  instance,  according  to  the 
eligibility criteria applied by the Eurosystem, debtors or guarantors either belong to 
the  public  sector  or  are  non-financial  or  international/supranational  institutions. 
Furthermore, the threshold for all domestic operations will be fixed at €500.000 from 

3 

4 

5 
6 
7 

The Code of Conduct can be found on the European Commission's webpage:  
http://ec.europa.eu/internal_market/financial-markets/docs/code/code_en.pdf 
The Guideline is published on the Commission's website:  
http://ec.europa.eu/internal_market/financial-markets/docs/code/guideline_en.pdf  
OJ L … 
OJ L … 
OJ L … 

EN 

3 

   EN 

 
                                                 
 
2012, whereas the upper limit for consumer credit agreements is expected to be in the 
range  €50.000-100.000.  For  these  few  instances  where  consumers'  credit  claims 
might  be  involved,  which  at  present  does  not  seem  to  be  the  case  as  far  as  the 
Eurosystem is concerned, a specific provision is added that gives precedence to the 
Consumer Credit Directive. 

2. 

CONSULTATION OF INTERESTED PARTIES 

2.1. 

Consultation of interested parties 

Based  on  the  responses  to  a  questionnaire  addressed  to  Member  States,  the 
Commission  adopted  its  Evaluation  Report  on  the  application  and  transposition  of 
the  Settlement  Finality  Directive  on  15  December  20058.  The  report  found  that 
generally  the  SFD  was  working  well,  but  it  also  highlighted  ten  issues  concerning 
application and transposition that merited further analysis. Following reactions from 
the  Member  States  and  the  European  Central  Bank,  the  Commission  also  invited 
industry,  consumers  and  other  stakeholders  to  submit  further  views.  By  30  June 
2006, seven further reactions had been received. 

To prepare its Evaluation Report on the Financial Collateral Arrangements Directive 
of  20 December  20069  the  Commission  asked  the  Member  States,  the  European 
Central Bank and the EEA States at the beginning of 2006 to reply to a questionnaire 
on  the  implementation  and  application  of  this  Directive.  A  less  extensive 
questionnaire  was  created  for  the  private  sector.  In  addition  to  the  reactions  from 
Member  States  and  the  ECB,  the  Commission  received  27  replies  directly  from  a 
broad  spectrum  of  key  financial  market  players  and  organisations.  The  FCD  report 
likewise concluded that the Directive was working well and suggested extending its 
scope to include credit claims. Information on the two Directives, the consultations 
and the reports are published on the DG MARKT website10. 

Both reports were then thoroughly discussed with Member States and the ECB in the 
European Securities Committee (ESC) and with industry in the various stakeholders' 
groups (e.g. CESAME11). A working group with ECB and national central banks was 
also  activated,  to  specifically  consider  legislative  amendments  in  relation  to  credit 
claims.  

3. 

IMPACT ASSESSMENT 

The  Commission  has  carried  out  an  Impact  Assessment12  of  the  various  options  to 
facilitate  the  use  of  credit  claims  as  collateral,  to  ensure  the  stability  of  settlement 
systems and to enhance legal certainty. It considers that the most logical and efficient 
way to achieve these goals is to change these Directives by way of another amending 
directive.  

8 
9 
10 
11 
12 

COM(2005) 657 
COM (2006)833 
http://europa.eu.int/comm/internal_market/financial-markets 
Clearing and Settlement Advisory and Monitoring Expert Group 
See attached annex. 

EN 

4 

   EN 

 
                                                 
4. 

LEGAL ELEMENTS OF THE PROPOSAL 

4.1. 

Legal basis 

The  legal  basis  of  the  proposal  to  amend  Directive  1998/26/EC  on  Settlement 
Finality and Directive 2002/47/EC on Financial Collateral Arrangements is the same 
as for the two directives that are being amended, namely Article 95 of the Treaty.  

4.2. 

Subsidiarity principle 

According  to  this  principle,  there  should  only  be  legislative  action  at  Community 
level  when  the  aims  envisaged  cannot  be  sufficiently  achieved  by  Member  States 
alone. The Settlement Finality Directive has already demonstrated the importance of 
limiting the systemic risk inherent in such systems through common rules.  

As  regards  the  FCD,  the  proposed  changes  do  not  impinge  on  the  Member  States' 
decision  whether  or  not  to  allow  credit  claims  as  collateral;  this  decision  is  left 
entirely to Member States. What the proposal does is to grant to credit claims used as 
collateral the same level of protection enjoyed by other types of financial collateral. 
Furthermore, by applying a harmonised set or rules to credit claims used as collateral 
it facilitates their use in cross-border transactions. 

In view of the above the proposal complies with the subsidiarity principle. 

4.3. 

Proportionality principle 

The  proposal  complies  with  the  proportionality  principle,  as  it  is  strictly  limited  to 
the changes necessary to allow for the cross-border use of credit claims as collateral, 
interoperability of systems and some minor simplification measures. 

4.4. 

Simplification and clarification 

The  proposal  brings  some  useful  elements  of  simplification  and  clarification  to  the 
two directives. For example, the proposal seeks to facilitate the use of credit claims 
as collateral by suggesting a light regime for the evidencing of the provision of credit 
claims as collateral instead of a lengthy (and thus costly) procedure whereby proof of 
each individual credit claim would be required. The proposal also suggests to delete 
the unused opt-out provision in Article 4 (3) FCD and seeks to eliminate the outdated 
references  in  the  two  directives.  As  regards  the  SFD,  clarifying  its  provisions  will 
simplify its application. For example, the proposal clarifies the personal scope of the 
SFD by clearly including Electronic Money Institutions in Article 2. 

4.5. 

Choice of instruments 

The  proposed  instrument  is  a  Directive  because  the  purpose  of  the  measure  is  to 
amend  two  existing  Directives.  Only  this  instrument  can  achieve  the  desired  legal 
effect. 

EN 

5 

   EN 

 
5. 

BUDGETARY IMPLICATION 

The  proposal  has  no  implications  for  the  Community  budget  and  no  additional 
human and administrative resources are required. 

6. 

COMMENTS ON THE ARTICLES OF THE PROPOSAL 

This proposal for an amending Directive relates first of all to the provision of credit 
claims. Secondly, apart from technical changes, it seeks to extend the benefits of the 
Settlement  Finality  Directive  to  systems  that  are  increasingly  operating  on  a  cross-
border basis. 

6.1. 

Article 1: Changes to the Settlement Finality Directive ("SFD") 

6.1.1.  Article 1 SFD 

Point  (a)  replaces  "ecu"  by  "euro"  and  point  (c)  now  includes  a  reference  to  the 
European Central Bank in order also to cover its respective operations as well. 

6.1.2.  Article 2 SFD 

Point (b) contains several references to Community directives that have become out 
of  date  and  replaced  by  other  directives.  The  changes  suggested  for  this  paragraph 
are mainly editorial, but they also include two substantive changes.  

First, it clarifies the position of Electronic Money Institutions. As highlighted in the 
Commission's  evaluation,  there  have  been  divergent  interpretations  by  Member 
States  in  the  past  on  whether  to  consider  Electronic  Money  Institutions  as  credit 
institutions. By replacing the reference to Directive 77/780/EEC in Article 2(b) with 
a  reference  to  Article  4(1)  of  Directive  2006/48/EC  –  the  consolidated  recast  that 
succeeded  the  1977  Directive  –  it  is  now  made  clear  that  Electronic  Money 
Institutions fall within the scope of the Directive.  

The Code foresees a number of ways that systems can be linked to each other. Three 
of  these  are  relevant  for  the  SFD:  standard  access,  customised  access  and 
interoperability.  Systems  that  are  linked  by  means  of  access,  i.e.  one  system 
becoming  a  participant  of  the  other,  are  not  covered  by  the  SFD,  as  a  'system' 
currently cannot be a participant. This lack of access is problematic as the need for 
such access is likely to become more common as a result not only of the Code but 
also  MiFID.  Point  (f)  is  amended  accordingly  to  allow  a  system  also  to  become  a 
participant. 

Point (g) defines the notion of "indirect participant". The SFD allows Member States 
to extend the protection of the SFD to indirect participants, i.e. to consider an indirect 
participant as a participant, if they consider that this is justified from a systemic risk 
viewpoint.  However,  this  possibility  only  applies  to  credit  institutions  that  are 
members  of  payment  systems.  Others  -  such  as  central  counterparties,  settlement 
agents  (including  an  agent  of  another  system)  or  clearing  houses  -  cannot  be 
considered  as  participants.  Furthermore,  the  possibility  to  consider  an  indirect 
participant as a participant does not apply to settlement systems. There is no obvious 

EN 

6 

   EN 

 
reason for this discrimination and, consequently, the proposal extends the definition 
of indirect participants. 

Point  (h)  is  simply  a  technical  update,  replacing  the  reference  to  the  ISD  with  a 
reference to MiFID. 

Point  (m)  introduces  an  explicit  reference  to  credit  claims  eligible  for  the 
collateralisation  of  Eurosystem  credit  operations  within  the  definition  of  “collateral 
security” in order to avoid any possibility of uncertainty or differences of application 
in the Member States. 

In order to adapt the SFD to the likely increase in the number of interoperability links 
resulting from MiFID and the Code of Conduct, or to a multilateral payment system 
such  as  TARGET2, paragraph  (n) (new) introduces a definition  of an interoperable 
system  to  cover  situations  where  systems  (be  they  payment  systems,  securities 
settlement systems, clearing houses or central counterparties) are linked by means of 
interoperability  to  facilitate  cross-system  clearing,  settlement  and  delivery  versus 
payment (DVP) arrangements. 

Point (o) (new) introduces  a definition  of system  operator  in order to make it clear 
who is in charge of running the system and thus who bears the legal responsibility for 
its operation.  

6.1.3.  Article 3 SFD 

Paragraph 1: An amendment is introduced to remove any uncertainty about the status 
of  night-time  settlement  services.  Since  the  SFD  was  adopted,  more  and  more 
systems have introduced business days that start immediately after the closing of the 
business  day  on  T-1.  Such  systems  provide  night-time  settlement  services,  mainly 
designed to execute bulk and retail transactions. Currently, it is uncertain whether the 
SFD fully protects night-time settlement, as only transfer orders that are carried out 
on  the  same  calendar  day  ('day  of  the  opening  of  insolvency  procedures’)  are 
covered.  A  strict  reading  of  the  SFD  might  suggest  that  a  transfer  order  which  is 
entered into the system on T-1 is protected only if the batch processing is finalised 
before midnight, whereas such an order in a batch running after midnight is not. This 
would  leave  a  substantial  number  of  orders  outside  the  scope  of  the  Directive,  and 
therefore it is suggested to replace 'day' by a reference to 'business day, as defined by 
the rules of the system'. 

Furthermore,  a  reference  to  the  'system  operator'  is  inserted  to  clarify  who  is 
responsible  for  being  aware  of  the  opening  of  insolvency  proceedings  (settlement 
agent, central counterparty or clearing house). 

Paragraph 4 (new): To make the SFD up to date with the interoperability links that 
may materialise as a result of the Code, this paragraph seeks to clarify the moment of 
entry  in  the  case  of  interoperable  systems.  Unless  there  is  full  clarity  as  to  which 
system's rules apply, interoperability may expose participants in one system or even 
the system itself to the spill-over effects of a default in another system with which it 
has established interoperability. A lack of clarity as to which system’s rules apply is 
a growing problem as systems are increasingly requesting interoperability with each 
other (fuelled by MiFID and the Code). 

EN 

7 

   EN 

 
6.1.4.  Article 5 SFD 

As  with  the  'moment  of  entry',  it  is  suggested  that  it  should  be  made  clear  that,  in 
case of interoperable systems, the rules on the moment of revocation of one system 
shall not be affected by rules of the other systems with which it is interoperable. 

6.1.5.  Article 9 SFD 

Many  systems  operate  on  the  basis  of  collateralisation  mechanisms  whereby 
participants provide collateral, often on an automated basis, to the system or where a 
collateral  pool  is  established  to  safeguard  settlement  in  case  of  failures.  Under 
interoperability,  such  a  provision  of  collateral  is  not  expressly  protected  by  the 
current wording of the SFD. Therefore, it is suggested that a reference to a system be 
added in paragraph 1.  

Furthermore,  the  word  "future"  -  which  occurs  twice  in  relation  to  the  European 
Central Bank - is deleted.  

6.1.6.  Article 10 SFD 

Subsequent  to  the  changes  proposed  for  Article  2(o)  and  3(1)  it  is  suggested  that, 
when notifying systems to the Commission, Member States should also indicate the 
operator  of  the  system.  This  obligation  would  apply  to  both  existing  and  future 
systems. 

6.2. 

Article 2: Changes to the Financial Collateral Arrangements Directive ("FCD") 

6.2.1.  Article 1 FCD "Subject matter and scope" 

Paragraph  1  (2)  contains  several  references  to  Community  directives  that  have 
become out of date and been replaced by other directives. The changes suggested for 
this paragraph are merely technical updates. 

Paragraph 1 (4) (a): The financial collateral to be provided consists of either cash or 
financial instruments. In the implementation of the FCD, three Member States - the 
Czech  Republic,  France  and  Sweden  –  have  included  specific  kinds  of  receivables, 
such as credit or other claims, in the list of assets that may serve as collateral under 
the  FCD.  With  the  advent  of  this  Directive,  credit  claims  eligible  for  the 
collateralisation of central bank credit operations will be added as a third category for 
the entire Community. 

Paragraph 5: A different modus operandi is described for evidencing the provision of 
credit  claims  as  collateral.  The  means  of  evidence  already  in  place  concerning  the 
provision of book entry securities or cash as collateral are inadequate when applied 
to credit claims. Given the rather divergent practices and the interest of the financial 
markets in having simple procedures that operate smoothly, the inclusion in a list of 
claims submitted to the collateral taker must suffice, without specifying in details the 
mobilisation of credit claims provided as collateral or the methods of identification. 
This list may be submitted in writing or in a legally equivalent manner, including by 
electronic means, since some national central banks use electronic lists. 

EN 

8 

   EN 

 
Paragraph  6:  Unlike  cash  or  financial  instruments,  credit  claims  are  not  fungible. 
Thus,  a  collateral  taker  who  exercises  his  right  of  use  cannot  return  equivalent 
collateral to the collateral provider at the end of the transaction. Therefore, it would 
be appropriate to make it clear that the right of use as set out in Article 5 shall not 
apply to credit claims. 

6.2.2.  Article 2 FCD "Definitions" 

Article 2(1) (b): In the definition of "title transfer financial collateral arrangement", 
the words "or full entitlement to" are added to distinguish between ownership of cash 
or  financial  instruments  on  the  one  hand  and  "entitlement"  to  credit  claims  on  the 
other hand.  

Article 2(1) (o): Definitions of credit claim 

A new point 2(1) (o) is added to define the notion of "credit claims". This proposes a 
broad  definition  of  credit  claims,  taking  into  account  that  credit  claims  may  have 
different characteristics in the different EU jurisdictions and markets. 

Article 2(2): This paragraph clarifies that, in the case of credit claims, it is not only 
the  claim  itself  but  also  the  possibility  to  collect  the  proceeds  thereof  until  further 
notice that shall not prejudice the collateral being provided to the collateral taker. 

6.2.3.  Article 3 FCD "Formal requirements" 

One of the impediments to the efficient use of credit claims is the requirement that 
the  creation,  validity  or  admissibility  in  evidence  of  their  provision  as  financial 
collateral under a financial collateral arrangement be dependent on the performance 
of any formal act (such as the registration or the ex ante notification of the debtor of 
the credit claim provided as collateral). Several Member States (e.g. Finland, Greece, 
Ireland,  Italy,  Luxembourg,  the  Netherlands  and  Slovenia)  require  ex  ante 
notification,  and  others  (e.g.  Austria,  Belgium,  Greece,  Spain  and  Slovenia)  have  a 
registration  system.  Other  Member  States  (e.g.  France,  Germany,  Portugal  and  the 
United Kingdom) have neither. 

Article  3(1)(new  sentence)  seeks  to  ensure  that  the  mobilisation  of  credit  claims 
cannot be invalidated on the grounds that it was not registered or that the debtor was 
not notified. This is not to say that registration or notification of the debtor should be 
prohibited as such; rather the intention is to eliminate the risk of invalidation on that 
ground.  In  some  jurisdictions  it  might  be  considered  beneficial  to  maintain 
registration  and  notification  requirements  for  purposes  other  than  the  validity  of  a 
transaction (for instance opposability).  

Article 3(3) deals with two additional issues that are intended to facilitate the use of 
credit claims as collateral. The first issue relates to the possible exercise of set-off by 
the  debtor  of  the  credit  claim  provided  as  collateral.  This  possibility  might 
compromise  the  position  of  collateral  takers  in  certain  jurisdictions,  since  the 
collateral as such can disappear if the debtor exercises his set-off right vis-à-vis the 
creditors  of  the  credit  claim  and  vis-à-vis  persons  to  which  the  creditors  have 
assigned, pledged, or otherwise mobilised the credit claim as collateral. Therefore, it 
is stated that debtors, if they so wish, should be able to validly waive the right of set-

EN 

9 

   EN 

 
off vis-à-vis such persons by way of agreement (and this consent should prevail over 
any conflicting provisions of national law). 

The second issue concerns banking secrecy. In certain jurisdictions the provision of 
data  on  the  debtor  and  on  the  credit  claim  by  the  original  creditor  bank  to  the 
collateral  taker  might  breach  banking  secrecy  restrictions.  As  a  result,  either 
counterparties  would  be  reluctant  to  submit  credit  claims  as  collateral  or  collateral 
takers  would  be  unable  to  obtain  sufficient  information  on  the  credit  claim  or  the 
debtor.  Here  again,  debtors  should  be  able  to  validly  waive  their  banking  secrecy 
related rights vis-à-vis the creditor for the purposes of mobilising the credit claim by 
way of agreement. 

The above provisions should not affect in any way the rights of individual consumers 
as  reflected  in  the  proposed  Consumer  Credit  Directive.  For  consumer  protection 
reasons  the  latter  provides  that,  in  the  event  of  assignment  to  a  third  party  of  the 
creditor's  rights,  the  consumer  is  entitled  to  plead  against  the  assignee  any  defence 
which  was  available  to  him  against  the  original  creditor,  including  set-off.  In 
addition, the consumer shall be informed of the assignment except where the creditor 
continues to service the credit vis-à-vis the consumer. The consumer is not entitled to 
waive  the  rights  conferred  on  him  by  the  proposed  Directive.  In  order  to  maintain 
this  level  of  consumer  protection,  including  in  cases  where  credit  agreements  are 
eligible collateral, the above provisions are without prejudice to the future Consumer 
Credit Directive. 

6.2.4.  Article 4 FCD "Enforcement of financial collateral arrangements" 

Article 4(3) "appropriation": This provision allowed certain Member States to opt out 
of the right of appropriation for the collateral taker. Appropriation essentially means 
that  the  collateral  taker  may  -  under  certain  conditions  -  in  an  enforcement  event 
keep  the  assets  as  its  own  property  instead  of  selling  them.  However,  no  Member 
State  has  made  use  of  this  option.  Consequently,  all  Member  States  now  recognise 
appropriation for the collateral taker in the case of an enforcement event. Therefore, 
Article  4(3)  has  become  obsolete,  and  has  been  deleted  for  the  purposes  of 
simplification. 

EN 

10 

   EN 

 
2008/0082 (COD) 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL  

amending Directive 98/26/EC on settlement finality in payment and securities settlement 
systems and Directive 2002/47/EC on financial collateral arrangements as regards linked 
systems and credit claims  

(Text with EEA relevance) 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
95 thereof, 

Having regard to the proposal from the Commission13, 

Having regard to the opinion of the European Central Bank14, 

Having regard to the opinion of the European Economic and Social Committee 15,  

Acting in accordance with the procedure laid down in Article 251 of the Treaty16, 

Whereas: 

(1) 

(2) 

(3) 

13 
14 
15 
16 
17 
18 

Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on 
settlement finality in payment and securities settlement systems17 established a regime 
under which the finality of transfer orders and netting, as well as the enforceability of 
collateral security, are ensured in respect of both domestic and foreign participants. 

The  Evaluation  Report  from  the  Commission  to  the  European  Parliament  and  the 
Council  on  the  Settlement  Finality  Directive  98/26/EC18  concluded  that  Directive 
98/26/EC  in  general  is  functioning  well.  It  highlighted  that  some  important  changes 
may be underway in the area of payments and securities settlement systems and also 
concluded that there is some need to clarify and simplify Directive 98/26/EC.  

The  main  change,  however,  is  the  increasing  number  of  linkages  between  systems, 
which  at  the  time  when  Directive  98/26/EC  was  drafted,  used  to  operate  almost 
exclusively on a national and independent basis. This change is one of the results of 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 

OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ C , , p. . 
OJ L 166, 11.6.1998, p. 45. 
COM (2005) 657 final/2, 4.7.2006. 

EN 

11 

   EN 

 
                                                 
(4) 

(5) 

(6) 

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/EEC19,  and  the  European  Code  of 
conduct  for  clearing  and  settlement20.  In  order  to  adapt  to  those  developments,  the 
concept of an interoperable system and the responsibility of system operators should 
be clarified. 

Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 
on financial collateral arrangements21 created a uniform Community legal framework 
for the (cross-border) use of financial collateral and thus abolished most of the formal 
requirements traditionally imposed on collateral arrangements.  

The  European  Central  Bank's  Governing  Council  has  decided  to  introduce  credit 
claims as an eligible type of collateral for Eurosystem credit operations as of 1 January 
2007,  and  in  order  to  maximise  the  economic  impact  thereof,  the  European  Central 
Bank recommended an extension of the legal coverage of Directive 2002/47/EC. The 
Evaluation Report from the Commission to the European Parliament and the Council 
on the Financial Collateral Arrangements Directive 2002/47/EC22 addressed this issue 
and subscribed to the opinion of the European Central Bank. The use of credit claims 
will  increase  the  pool  of  available  collateral  and  the  harmonisation  of  the  legal 
provisions  in  Directive  2002/47/EC  would  further  contribute  to  a  level  playing  field 
among credit institutions in all Member States. If the use of credit claims as collateral 
were to be facilitated further, consumers/debtors would also benefit as the use of credit 
claims  as  collateral  could  ultimately  lead  to  more  intense  competition  and  better 
availability of credits. 

In order to facilitate the use of credit claims, it is important to abolish or prohibit any 
administrative rules, such as notification and registration obligations, that would make 
the assignments of credit claims impracticable. Similarly, in order not to compromise 
the  position  of  collateral  takers,  debtors  should  be  able  to  validly  waive  their  set-off 
rights vis-à-vis creditors. The same rationale should also apply to the need to introduce 
the possibility  for  the debtor to waive  bank secrecy rules, as  otherwise the collateral 
taker may have insufficient information to properly assess the value of the underlying 
credit  claims.  [These  provisions  are  without  prejudice  to  the  Consumer  Credit 
Directive [……].  

(7)  Member  States  have  made  no  use  of  the  option  under  Article  4(3)  of  Directive 
2002/47/EC  to  opt  out  of  the  right  of  appropriation  of  the  collateral  taker.  That 
provision should therefore be deleted.  

(8) 

Directives 98/26/EC and 2002/47/EC should therefore be amended accordingly. 

19 

20 
21 
22 

OJ L 149, 30.10.2004, p. 1. Directive as last amended by Directive 2007/44/EC (OJ L 247, 21.9.2007, 
p. 1). 
"http://ec.europa.eu/internal_market/financial-markets/docs/code/code_en.pdf" 
OJ L 168, 27.6.2002, p. 43. 
COM (2006) 833 final, 20.12.2006. 

EN 

12 

   EN 

 
                                                 
HAVE ADOPTED THIS DIRECTIVE: 

Article 1 

Amendments to Directive 98/26/EC 

Directive 98/26/EC is amended as follows: 

(1) 

Article 1 is amended as follows: 

(a) 

In point (a), the word "ecu" is replaced by the word "euro". 

(b) 

In point (c), the second indent is replaced by the following: 

“-  operations  of  the  central  banks  of  the  Member  States  or  the  European  Central 
Bank in their function as central banks.” 

(2) 

Article 2 is amended as follows: 

(a) 

In point (b), the first and second indents are replaced by the following: 

"-  a  credit  institution  as  defined  in  Article  4(1)  of  Directive  2006/48/EC  of  the 
European Parliament and of the Council23 including the institutions listed in Article 2 
of that Directive, 

-  an  investment  firm  as  defined  in  point  (1)  of  Article  4(1)  of  Directive 
2004/39/EC24, excluding the institutions set out in Article 2(1) thereof, or"  

(b) 

In point (f), the words 

" 'participant` shall mean an institution, a central counterparty, a settlement agent or a clearing 
house." 

are replaced by the following: 

" 'participant' shall mean an institution, a central counterparty, a settlement agent, a clearing 
house or a system." 

(c) 

Point (g) is replaced by the following: 

"(g)  'indirect  participant'  shall  mean  an  institution,  a  central  counterparty,  a 
settlement agent, a clearing house or a system with a contractual relationship with an 
institution  participating  in  a  system  executing  transfer  orders  which  enables  the 
indirect participant to pass transfer orders through the system;" 

(d) 

Point (h) is replaced by the following: 

23 
24 

O J L 177, 30.6.2006, p. 1. 
OJ L 145, 30.4.2004, p. 1. 

EN 

13 

   EN 

 
                                                 
"(h)  'securities'  shall  mean  all  instruments  referred  to  in  Section  C  of  Annex  1  to 
Directive 2004/39/EC;" 

(e) 

Point (m) is replaced by the following: 

"(m)  'collateral  security'  shall  mean  all  realisable  assets,  including  credit  claims 
eligible  for  the  collateralisation  of  central  bank  credit  operations,  provided  under  a 
pledge  (including  money  provided  under  a  pledge),  a  repurchase  or  similar 
agreement,  or  otherwise,  for  the  purpose  of  securing  rights  and  obligations 
potentially  arising  in connection with  a system, or provided to central  banks  of the 
Member States or to the European Central Bank;" 

(f) 

The following points (n) and (o) are added: 

"(n)  'interoperable  system'  shall  mean  a  system  that  enters  into  an  agreement  with 
one or more systems that entail the establishment of mutual solutions and not simply 
connecting to existing standard service offerings; 

(o) 'system operator' shall mean the entity in charge of the day to day operation of a 
system. A system operator may also act as a settlement agent, central counterparty or 
clearing house." 

(3) 

Article 3 is amended as follows: 

(a) 

Paragraph 1 is replaced by the following: 

"1. Transfer orders and netting shall be legally enforceable and, even in the event of 
insolvency  proceedings  against  a  participant  or  an  interoperable  system,  shall  be 
binding  on  third  parties,  provided  that  transfer  orders  were  entered  into  a  system 
before the moment of opening of such insolvency proceedings as defined in Article 
6(1). 

Where, exceptionally, transfer orders are entered into a system after the moment of 
opening  of  insolvency  proceedings  and  are  carried  out  within  the  business  day,  as 
defined  by  the  rules  of  the  system,  during  which  the  opening  of  such  proceedings 
occur, they shall be legally enforceable and binding on third parties only if, after the 
time of settlement, the system operator can prove that it was not aware, nor should 
have been aware, of the opening of such proceedings." 

(b) 

The following paragraph 4 is added: 

"4.  In  case  of  interoperable  systems,  each  system  determines  its  own  rules  on  the 
moment of entry in its system. One system's rules on moment of entry shall not be 
affected by any rules of the other systems with which it is interoperable." 

(4) 

In Article 5, the following subparagraph is added: 

"In  case  of  interoperable  systems,  each  system  determines  its  own  rules  on  the 
moment  of  revocation  in  its  system.  One  system's  rules  on  moment  of  revocation 
shall not be affected by any rules of the other systems with which it is interoperable." 

(5) 

Article 9(1) is replaced by the following: 

EN 

14 

   EN 

 
"1. The rights of a system or of a participant to collateral security provided to it in 
connection with a system, and the rights of central banks of the Member States or the 
European Central Bank to collateral security provided to them, shall not be affected 
by insolvency proceedings against the participant or counterparty to central banks of 
the  Member  States  or  the  European  Central  Bank  which  provided  the  collateral 
security. Such collateral security may be realised for the satisfaction of these rights." 

(6) 

Article 10 is replaced by the following: 

"Article 10 

Member States shall specify the systems, and the respective system operators, which 
are  to  be  included  in  the  scope  of  this  Directive  and  shall  notify  them  to  the 
Commission  and  inform  the  Commission  of  the  authorities  they  have  chosen  in 
accordance with Article 6(2).  

The system operator shall indicate to the Member State whose law is applicable the 
participants in the system, including any possible indirect participants, as well as any 
change in them." 

Article 2 

Amendments to Directive 2002/47/EC 

Directive 2002/47/EC is amended as follows: 

(1) 

Article 1 is amended as follows: 

(a) 

Point (b) of paragraph 2 is replaced by the following: 

"(b)  a  central  bank,  the  European  Central  Bank,  the  Bank  for  International 
Settlements,  a  multilateral  development  bank  as  referred  to  in  Annex  VI,  Part  1, 
Section 4 of Directive 2006/48/EC of the European Parliament and of the Council25, 
the International Monetary Fund and the European Investment Bank;" 

(b) 

In point (c) of paragraph 2, points (i) to (iv) are replaced by the following: 

"(i) a credit institution as defined in point (1) of Article 4 of Directive 2006/48/EC 
including the institutions listed in Article 2 of that Directive; 

(ii)  an  investment  firm  as  defined  in  point  (1)  of  Article  4(1)  of  Directive 
2004/39/EC of the European Parliament and of the Council26; 

(iii)  a  financial  institution  as  defined  in  point  (5)  of  Article  4  of  Directive 
2006/48/EC; 

25 
26 

OJ L 177, 30.6.2006, p. 1. 
OJ L 145, 30.4.2004, p. 1. 

EN 

15 

   EN 

 
                                                 
(iv) an insurance undertaking as defined in point (a) of Article 1of Council Directive 
92/49/EEC27  and  a  assurance  undertaking  as  defined  in  point  (a)  of  Article  1of 
Directive 2002/83/EC of the European Parliament and of the Council28; 

(c) 

Point (a) of paragraph 4 is replaced by the following: 

"(a)  The  financial  collateral  to  be  provided  must  consist  of  cash,  financial 
instruments  or  credit  claims  eligible  for  the  collateralisation  of  central  bank  credit 
operations;" 

(d) 

In paragraph 5, after the second subparagraph, the following sentence is added: 

"For  credit  claims,  the  inclusion  in  a  list  of  claims  submitted  in  writing,  or  in  a 
legally  equivalent  manner,  including  by  electronic  means,  to  the  collateral  taker  is 
sufficient  to  prove  the  mobilisation  and  the  identification  of  the  claim  provided  as 
collateral." 

(e) 

The following paragraph 6 is added: 

"6. Article 5 shall not apply to credit claims." 

(2) 

Article 2 is amended as follows: 

(a) 

Paragraph 1 is amended as follows: 

(i) 

Point (b) is replaced by the following: 

"(b) 'title transfer financial collateral arrangement' means an arrangement, including 
repurchase agreements, under which a collateral provider transfers full ownership of, 
or  full  entitlement  to,  financial  collateral  to  a  collateral  taker  for  the  purpose  of 
securing or otherwise covering the performance of relevant financial obligations;" 

(ii) 

The following point (o) is added: 

"(o)  'credit  claims'  means  pecuniary  claims  arising  out  of  an  agreement  whereby  a 
credit  institution,  as  defined  in  point  (1)  of  Article  4  of  Directive  2006/48/EC 
including the institutions listed in Article 2 of that Directive, grants credit in the form 
of a loan." 

(b) 

In paragraph 2, the second sentence is replaced by the following: 

“Any right of substitution or to withdraw excess financial collateral in favour of the 
collateral  provider  or,  in  the  case  of  credit  claims,  to  collect  the  proceeds  thereof 
until further notice, shall not prejudice the financial collateral having been provided 
to the collateral taker as mentioned in this Directive." 

(3) 

Article 3 is amended as follows: 

(a) 

In paragraph 1,the following subparagraph is added: 

27 
28 

OJ L 228, 11.8.1992, p. 1. 
OJ L 345, 19.12.2002, p. 1. 

EN 

16 

   EN 

 
                                                 
"When  credit  claims  are  provided  as  financial  collateral,  Member  States  shall  not 
require  that  the  creation,  validity  or  admissibility  in  evidence  of  their  provision  as 
financial  collateral  under  a  financial  collateral  arrangement  be  dependent  on  the 
performance  of  any  formal  act  such  as  the  registration  or  the  notification  of  the 
debtor of the credit claim provided as collateral.  

(b) 

The following paragraph[s] 3 [and 4] is[are] added: 

"3. Member States shall ensure that debtors of the credit claims may validly waive, in 
writing or in a legally equivalent manner:  

(i)  their  rights  of  set-off  vis-à-vis  the  creditors  of  the  credit  claim  and  vis-à-vis 
persons  to  which  the  creditor  assigned,  pledged  or  otherwise  mobilised  the  credit 
claim as collateral; and  

(ii)  their  rights  arising  from  banking  secrecy  rules  that  would  otherwise  prevent  or 
restrict  the  ability  of  the  creditor  of  the  credit  claim  to  provide  information  on  the 
credit claim or the debtor for the purposes of using the credit claim as collateral." 

[4. Paragraphs 1, 2 and 3 shall be without prejudice to the Consumer Credit Directive 
…/xxx/EC  

(4) 

Article 4(3) is deleted. 

Article 3 

Transposition 

1. 

Member  States  shall  adopt  and  publish,  by  1  October  2009  at  the  latest,  the  laws, 
regulations  and  administrative  provisions  necessary  to  comply  with  this  Directive. 
They  shall  forthwith  communicate  to  the  Commission  the  text  of  those  provisions 
and a correlation table between those provisions and this Directive. 

They shall apply those provisions from 1 October 2010. 

When  Member  States  adopt  those  provisions,  they  shall  contain  a  reference  to  this 
Directive  or  be  accompanied  by  such  a  reference  on  the  occasion  of  their  official 
publication. Member States shall determine how such reference is to be made. 

2. 

Member States shall communicate to the Commission the text of the main provisions 
of national law which they adopt in the field covered by this Directive. 

Article 4 

Entry into Force 

This Directive shall enter into force on the twentieth day following that of its publication in 
the Official Journal of the European Union. 

EN 

17 

   EN 

 
Article 5 

Addressees 

This Directive is addressed to the Member States. 

Done at Brussels, 

For the European Parliament 
The President 

For the Council 
The President 

EN 

18 

   EN