Opinion of the European Central Bank of 5 November 2010 on amendments to the legislation on financial collateral arrangements as regards credit claims (CON/2010/78)
Date: 2010-11-05
Institutions: European Central Bank
Subjects: Luxembourg, claim, financial stability, guarantee, money, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 5 November 2010  

on amendments to the legislation on financial collateral arrangements as regards credit claims  

(CON/2010/78) 

Introduction and legal basis 

On  23  September  2010  the  European  Central  Bank  (ECB)  received  a  request  from  the  Luxembourg 

Ministry of Finance for an opinion on a draft law transposing Directive 2009/110/EC of the European 

Parliament  and  of  the  Council  of  16  September  2009  on  the  taking  up,  pursuit  and  prudential 

supervision  of  the  business  of  electronic  money  institutions  amending  Directives  2005/60/EC  and 
EC/2006/48/EC  and  repealing  Directive  2000/46/EC1  and  Directive  2009/44/EC  of  the  European 

Parliament  and of  the  Council  of  6  May  2009  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  claims2  (hereinafter  referred  to  as  ‘the  draft  law’) 

which  amends  (a)  the  Law  of  10  November  2009  relating  to  payment  services,  the  business  of 

electronic money and settlement finality in payment and securities settlement systems, (b) the Law of 

5 August 2005 on financial collateral arrangements, (c) the Law of 12 November 2004 relating to the 

fight against money laundering and financing of terrorism, (d) the Law of 5 April 1993 relating to the 

financial sector and (e) the Law of 23 December 1998 establishing a commission for the supervision of 

the financial sector.  

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on 

the  Functioning  of  the  European  Union  and  the  second,  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  provisions3,  as  the  draft  law  contains  provisions  on 

means of payment, payment and settlement systems as well as rules applicable to financial institutions 

insofar as they materially influence the stability of financial institutions and markets. The scope of the 

draft  law  goes  beyond  the  transposition  of  Union  directives  into  national  law,  so  the  exception 

contained in Article 1(2) of Decision 98/415/EC does not apply. In accordance with the first sentence 

of  Article 17.5  of  the  Rules  of  Procedure  of  the  European  Central  Bank,  the  Governing  Council  has 

adopted this opinion.  

1  
2  
3  

OJ L 267, 10.10.2009, p. 7. 
OJ L 146, 10.6.2009, p. 37. 
OJ L 189, 3.7.1998, p. 42.  

 
 
 
                                                 
1.  

Purpose of the draft law 

In  addition  to  transposing  Directives  2009/110/EC  and  2009/44/EC,  the  draft  law  amends  as  follows 

Article  5(2)(a)  of  the  Law  of  5  August  2005  relating  to  financial  collateral  arrangements:  ‘Financial 

instruments that may be transferred by entering into an account may be validly dispossessed: 

(i) 

by entering into the pledge contract if the depositor of these financial instruments is the pledge 

creditor; 

(ii) 

by an agreement between the pledgor, the pledge creditor and the depositor or by an agreement 

between  the  pledgor  and  the  pledge  creditor  notified  to  the  depositor  according  to  which  the 

depositor  will  act  in  accordance  with  instructions  from  the  pledge  creditor  concerning  these 

financial instruments and without any other agreement by the pledgor; 

(iii)  by entering these financial instruments into an account of the pledge creditor; 

(iv)  by entering these financial instruments, without indicating the number, onto an account opened 

for a depositor in the name of the pledgor or a person to be agreed acting as a third party holder, 

the  financial  instruments  having  been  designated  in  the  depositor’s  accounts  individually  or 
collectively by reference to the relevant account in which they have been entered as pledged.’4. 

Article 2(2)(a) in fine of the draft law provides that the ‘dispossession [mechanisms] as provided under 

points (ii), (iii) and (iv) shall be considered as a waiver by the depositor of their pledge’s ranking over 

the  same  financial  instruments  unless  agreed  otherwise  or  merely  notified  to  the  depositor  in 

accordance with point (ii).’.  

2. 

The financial collateral arrangements as regards credit claims  

2.1  The  draft  law  amends  and  simplifies  the  regime  for  the  creation  of  collateral  arrangements  as 

regards  credit  claims.  Under  Article  5(3)  of  the  Law  of  5 August  2005  on  financial  collateral 

arrangements, the creation of a pledge over a credit claim is only valid and effective against third 

parties upon notification or acceptance by the debtor of the pledged credit claim. Under the draft 

law, a financial collateral arrangement regarding credit claims is to be valid and enforceable vis-

à-vis  all  third  parties,  provided  that  (a)  a  pledge  agreement  has  been  entered  into  between  the 
collateral  taker  and  the  collateral  giver5  and  (b)  the  said  claims  have  been  included  in  a  list  of 
claims submitted in writing to the collateral taker or by any other legally equivalent manner6. The 

debtor  of  the  pledged  credit  claims  may  also  waive  the  right  of  set-off  as  well  as  of  any  other 

exceptions in relation to the creditor of the claim provided as collateral and in relation to persons 

to whom the creditor has granted an assignment, pledge or any other mobilisation of the claim. 
Such waiver will be valid between the parties and against third parties7.  

4  
5  
6  
7  

Article 2(2)(a). 
Article 2(2)(c). 
Article 2(1)(a).  
Article 2(1)(c). 

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2.2 

In  order  to  avoid  the  abovementioned  notification  or  acceptance  conditions  provided  under 

Article  5(3)  of  the  Law  of  5  August  2005  on  financial  collateral  arrangements,  the  Law  of 

13 July 2007  had  introduced, in  Article  22(1) of  the  Organic  Statute of  the  Banque  centrale  du 

Luxembourg  (BCL),  a  regime  for  the  creation  and  enforceability  of  financial  collateral 

arrangements as regards claims in favour of the BCL, either acting on its own behalf or on behalf 

of  the  ECB  or  other  central  banks  forming  an  integral  part  of  the  European  System  of  Central 

Banks, within the context of the credit operations of monetary policy. Under that regime, which 
was  subject  to  a  previous  ECB  opinion8,  pledges  of  claims  were  enforceable  vis-à-vis  third 

parties  as  soon  as  they  were  entered  in  a  BCL register  and  made  accessible  to  third  parties  for 

this purpose.   

2.3  The  draft  law  would  significantly  simplify  the  rules  on  the  creation,  enforcement  and 

enforceability of financial collateral arrangements as regards credit claims and would strengthen 

the  overall  legal  soundness  of  the  relevant  mechanism,  especially  by  allowing  the  debtor  to 

waive  its  right  of  set-off  and  any  other  exceptions.  However,  the  ECB  recommends  that  the 

Luxembourg legislator address the interaction between the proposed new regime and the regime 

governing the pledging of claims in favour of the BCL. The ECB understands that, in the absence 

of any specific provisions to the contrary, the two regimes would simply co-exist. In the interests 

of transparency and legal certainty, the draft law should instead extend the possible contractual 

waiver by the debtor of the pledged claim of its right of set-off or any other exception also to any 

pledge of claims registered on the BCL register.   

3.  Waiver  by  the  depositor  of  the  ranking  of  its  pledge  over  the  underlying  financial 

instruments subject to financial collateral arrangements in favour of third parties  

3.1  The draft law also simplifies the possible conflict of rank between, on the one hand, a depositor9 

and,  on  the  other  hand,  the  pledge  creditor  in  respect  of  financial  instruments  that  have  either 

been entered into an account of the pledge creditor, or an account opended with a depositor in the 

name  of  the  pledgor,  or  that  are  governed  by  an  agreement  between  the  pledgor,  the  depositor 

and  the  pledge  creditor.  In  these  cases  the  depositor  would  act  in  accordance  with  the  pledge 

creditor’s  instructions  in  respect  of  such  instruments.  Unless  agreed  otherwise,  if  the  depositor 

registers  the  underlying  financial  instruments  on  a  separate  account  or  accepts  or  notifies  the 

agreement entered into between the pledgor and the pledge creditor as regards the management 

of  the  account  in  accordance  with  the  pledge  creditor’s  instructions,  this  implies  the  waiver  by 

the  depositor  of  its  pledge’s  ranking  over  such  financial  instruments.  In  this  case,  the 

Luxembourg legislator would simplify the rules enabling the creation of higher ranking pledges 

8  
9  

ECB Opinion CON/2006/56. All ECB opinions are available on the ECB’s website at www.europa.eu. 
The concept of depositor, under the draft law, is to be understood, in the light of Article 2 of the Law of 1 August 2001 
on the circulation of securities and other fungible instruments as encompassing the credit institutions, to be investment 
firms,  professional  depositories  of  securities  as  well  as  national  and  international  public  bodies  established  in 
Luxembourg and acting in the financial sector.   

3 

 
                                                 
over such financial instruments10, as the depositor’s consent would now no longer be required in 

this respect.  

3.2  Under  Article  18  of  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European 

Central Bank, credit operations conducted by the national central banks (NCBs) must be based on 

adequate collateral. Moreover, pursuant to Standard 1 of the ‘Standards for the use of EU Securities 

Settlement Systems in ESCB Credit Operations’ the NCBs’ rights in respect of securities held in 
their accounts in securities settlement systems must be adequately protected11. In this context, the 

financial  instruments  serving  as  collateral  for  monetary  policy  purposes  are  transferred  by  the 

BCL’s  counterparties  either  to  the  account  opened  in  the  name  of  the  BCL  with  the  domestic 

central securities depository (CSD) or, as regards new collateral management products offered by 

the BCL to counterparties, to the account opened in the counterparties’ names with such CSD. The 

ECB understands that, without prejudice to the earmarking operations that take place on the BCL’s 

books in the first scenario, such transfer will give effect to the dispossession mechanism described 

in  Article  2(2)(a)(iii)  of  the  draft  law  and  will  imply  the  waiver,  by  the  CSD  as  depositor,  of  its 

pledge’s  ranking  over  such  financial  instruments.  The  ECB  therefore  considers  that  the  BCL’s 

rights  as  first-rank  collateral  taker  will  be  reinforced  by  the  introduction  of  such  provision  into 

Luxembourg law. 

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

Done at Frankfurt am Main, 5 November 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

10  
11  

See Article 2(3)(b). 
See in this sense paragraph 8 of ECB Opinion CON/2005/12 and paragraph 1 of ECB Opinion CON/2006/40. 

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