Opinion of the European Central Bank of 29 April 2011 on amendments to the legislation on settlement finality and financial collateral arrangements (CON/2011/41)
Date: 2011-04-29
Institutions: European Central Bank
Subjects: Belgium, claim, credit guarantee, financial institution, financial stability, national law, payment system

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 29 April 2011 

on amendments to the legislation on settlement finality and financial collateral arrangements 

(CON/2011/41) 

Introduction and legal basis 

On  4  April  2011,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Nationale  Bank  van 

België/Banque Nationale de Belgique (NBB), acting on behalf of the Belgian Ministry of Finance, for an 

opinion on a draft law amending the law on settlement finality and the law concerning financial collateral 
arrangements (hereinafter the ‘draft law’)1.  

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  provisions2,  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.  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.  

Purpose of the draft law 

1.1  The main objective of the draft law is the transposition into Belgian law of Directive 2009/44/EC3. 

To  this  end,  the  draft  law  amends  the  Law  on  settlement  finality  in  payment  and  securities 
settlement systems4 and the law concerning financial collateral arrangements5.  

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Draft  law  transposing  Directive  2009/44/EC  of  the  European  Parliament  and  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 claims. 
OJ L 189, 3.7.1998, p. 42. 
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 claims (OJ L 146, 10.6.2009, p. 37). The ECB commented on an early 
draft of Directive 2009/44/EC in Opinion CON/2008/37 of 7 August 2008 (OJ C 216, 23.8.2008, p. 1).  
The  Law  of  28  April  1999  transposing  Directive  98/26/EC  of  19  May  1998  on  settlement  finality  in  payment  and 
securities settlement systems.  
The  Law  of  15  December  2004  on  financial  collateral  and  on  various  tax  provisions  in  relation  to  in  rem  collateral 
arrangements  and  loans  for  financial  instruments.  The  ECB  commented  on  an  early  draft  of  this  Law  in  Opinion 
CON/2004/27. All ECB opinions are available on the ECB’s website at www.europa.eu. 

 
 
 
 
                                                 
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1.2 

In addition to transposing Directive 2009/44/EC, the draft law6 will set aside the rules providing for 
a simplified realisation of certain financial collateral (i.e. pledges of cash and of banking claims)7 in 

the  event  of  judicial  reorganisation  proceedings  of  the  debtor.  This  exemption  to  the  regime 
currently in force in Belgium8 will not apply where the default9 consists in the non execution of an 

obligation,  i.e.  where  it  is  a  ‘payment  default’.  Under  the  amended  regime  all  creditors  will  be 

prevented from invoking the rules on the simplified realisation of pledges of cash and of banking 

claims,  as  well  as  those  ensuring  the  validity  and  enforceability  of  ‘netting  arrangements’,  in  the 

event of judicial reorganisation proceedings concerning a debtor who is not a ‘public or financial 
legal person’10. In the event of judicial reorganisation proceedings concerning a public or financial 

legal  person,  creditors  who  are  not  public  or  financial  legal  persons  will  be  prevented  from 

invoking  the  abovementioned  rules  on  realisation  and  netting  arrangements.  Similarly,  where  the 

King  adopts  an  act  disposing  of  property  with  regard  to  an  insurance  undertaking,  a  credit 
institution  or  a  settlement  institution11,  the  creditors  of  such  institution  who  are  not  public  or 

financial  legal  persons  will  be  prevented  from  invoking  the  abovementioned  rules  on  realisation 

and netting arrangements. However, the draft law will not affect the rules governing the realisation 

of pledges of financial instruments in the Law of 15 December 2004.  

1.3  Furthermore,  the  provisions  ensuring  the  validity  and  enforceability  of  netting  arrangements, 
(including  close-out  netting  clauses12)  in  case  of  insolvency,  will  be  set  aside  where  one  of  the 
parties  is  a  non-merchant  natural  person13.  This  amendment  in  the  draft  law  became  necessary 

following a decision of the Belgian Constitutional Court, which held that these provisions breach 

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Article 14, 4° and 5° of the draft law, introducing Article 4 § 3 and § 4 in the Law of 15 December 2004. 
The  simplified  realisation  procedure  for  pledges  of  banking  claims  provides  that  in  case  of  default,  the  pledgee  may 
realise  the  pledged  banking  claim  without  the  need  for a  prior notice  or a  Court  authorisation  and  notwithstanding  the 
existence  of  an  insolvency  procedure,  an  attachment,  or  any  other  situation  of  concourse  between  the  creditors  of  the 
debtor  or  of  the  third  party  who  provided  the  collateral  (Article  9(1)  of  the  Law  of  15  December  2004,  introduced  by 
Article 17 of the draft law). 
See ECB Opinion CON/2004/27, in particular paragraphs 4, 7 and 11. 
Under  general  Belgian  law,  the  concept  of  ‘payment’  refers  to  the  execution  of  a  counterparty’s  obligations.  Hence,  a 
‘payment default’ covers all cases of non-execution of an obligation, including notably an obligation to deliver securities. 
The  public  or  financial  legal  persons are:  (a)  credit  institutions,  (b)  investment  undertakings,  (c)  insurance  firms, 
(d) management companies of collective investment undertakings, (e) undertakings for collective investments, (f) central 
counterparties, settlement agents and clearing houses, (g) financial institutions, (h) Belgian or foreign legal persons acting 
in their own name but on behalf of the beneficiaries of securities, (i) public authorities except companies covered by a 
State  guarantee,  (k)  the  NBB,  the  ECB,  the  Bank  for  International  Settlements,  multilateral  development  banks,  the 
International  Monetary  Fund,  the  European  Investment  Bank,  (l)  any  other  foreign  legal  person  which  belongs  in  its 
home country to one of the categories referred to in Article 1(2)(a) to (d) of Directive 2002/47/EC (Article 13, 4° of the 
draft law, introducing an Article 3, 11° in the Law of 14 December 2004).  
The  ‘financial  institutions’  are  undertakings  that  are  not  credit  institutions  and  whose  principal  activity  consists  in  the 
acquisition  of  shares  or  which carry  out  one  or more  of  the  activities  for  which  credit institutions  benefit  from mutual 
recognition,  e.g.:  (a)  mortgage  companies,  (b)  consumer  credit  companies,  (c)  leasing  companies,  (d)  payment 
institutions or electronic money institutions.  
i.e. the transfer, sale or contributions of such institutions’ assets, liabilities or activities, or of the securities or shares they 
issue. These measures may be adopted by the King where the fact that such institution is not operated according to the 
applicable law presents a risk for financial stability. See ECB Opinion CON/2010/7. 
Articles 14 and 15 of the Law of 15 December 2004, respectively. 
Articles 19 and 20 of the draft law. 

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the  principles  of  non-discrimination  and  equal  treatment  enshrined  in  the  Belgian  Constitution, 
insofar as they apply to non-commercial natural persons14.  

2.   General observations 

2.1  The ECB notes that when transposing Directive 2002/47/EC, the Belgian legislator had first opted 
for a broader scope than required by the Directive15. The explanatory memorandum to the draft law 

underlines  that  the  proposed  amendment  to  this  regime  seeks  to  balance,  on  the  one  hand,  the 

protection of the collateral obtained by financial institutions and, on the other hand, the safeguard 
of the economic activity of non-financial companies when they encounter temporary difficulties16. 

The  rationale  of  these  amendments  lies  in  the  willingness  to  preserve  some  substance  in  the 

Belgian  judicial  reorganisation  procedure  for  natural  or  legal  persons  who  are  not  public  or 
financial legal persons in respect of transactions that do not concern financial instruments17.  

2.2  The  ECB  understands  that  the  exemption  introduced  by  the  draft  law  does  not  prejudice  the 

protection of settlement finality in payment and securities settlement systems (SSS) under the Law 
of  28 April  1999.  Hence,  when  an  entity  is  a  participant  in  such  system18,  its  operations  will 
continue  to  be  covered  by  the  settlement  finality  protection  under  the  Law  of  28 April  199919, 

regardless  of  whether  that  entity  is  a  public  or  financial  legal  person  within  the  meaning  of  the 

amended Law of 15 December 2004. 

3.  

Provisions relating to settlement finality in payment and securities settlement systems 

Definition of institutions and participants 

The Belgian legislator had already availed, in previous legislation20, of the possibility in the second 

subparagraph  of  Article  2(b)  of  Directive  98/26/EC  of  considering  as  ‘institutions’  certain 

undertakings participating in an SSS that do not fall within the categories of institutions listed in the 
Directive21,  provided  that  such  assimilation  is  warranted  on  grounds  of  systemic  risk  and  that  at 

least  three  other  participants  in  this  SSS  do  fall  within  one  of  these  categories.  Under  the  draft 
law22, the NBB will determine the existence of systemic risk grounds, in the context of its oversight 

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Explanatory memorandum, pages 1, 20 and 21. 
See ECB Opinion CON/2004/27, in particular paragraph 4.  
Explanatory memorandum, p. 14. 
Explanatory memorandum, p. 16, and the reference to the use by the French authorities of their opt out possibility. 
Also where a participant is assimilated to an institution for reasons of systemic risk (Article 3, 2° of the draft law). See 
paragraph 3. 
See also Article 6, 1° and 2° and Article 11 of the draft law. 
See the Royal Decree of 3 June 2007, inserting a last subparagraph in Article 2 §2 of the Law of 28 April 1999. The ECB 
commented on an early draft of this provision in Opinion CON/2006/34. 
The categories of institutions listed in Directive 98/26/EC are: credit institutions, investment firms, public authorities and 
third country undertakings performing similar functions. 
Article 3, 2°, penultimate subparagraph of the draft law, introducing a definition of ‘institution’ in the Law of 28 April 
1999. See also Article 4, 2° of the draft law, replacing Article 2 §2 of the Law of 28 April 1999. 

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competence23, and will establish and publish the criteria it uses. The NBB will also be competent to 

determine  the  existence  of  systemic  risk  warranting  considering  an  indirect  participant  as  a 
participant24. The ECB notes that the requirement related to the existence of systemic risks grounds 
is  now  explicitly  mentioned  in  the  draft  law25.  For  the  remainder,  all  comments  and 
recommendations made in ECB Opinion CON/2006/34 remain applicable to the draft law26. 

4. 

Provisions relating to financial collateral arrangements  

The introduction of credit claims as eligible collateral in financial collateral arrangements 

4.1  The application of the Law of 15 December 2004 on financial collateral is extended to agreements 
creating a security over banking claims pledged or transferred by contract27. The draft law defines 

‘banking  claims’  as  pecuniary  claims  arising  out  of  an  agreement  whereby  a  loan  or  a  credit  is 

granted  by  (i)  a  credit  institution,  (ii)  a  mortgage  company,  (iii)  a  consumer  credit  company,  or 

(iv) any  other  foreign  legal  person  which,  in  its  home  country,  belongs  to  one  of  the  preceding 
categories28. 

4.2  The  ECB  in  general  welcomes  the  proposed  amendment,  which  will  facilitate  the  use  of  credit 

claims as collateral for Eurosystem credit operations. The ECB notes that the Belgian definition of 

‘banking  claims’  is  wider  than  the  definition  of  credit  claims  in  Article  2  (5)(a)(ii)  of  Directive 

2009/44/EC, which only covers credit claims granted by credit institutions defined in Article 4(1) 
of Directive 2006/48/EC29, including the institutions listed in Article 2 of Directive 2006/48/EC. By 

contrast, the ‘banking claims’ in the draft law cover, in addition, pecuniary claims arising out of an 

agreement  whereby  a  loan  or  a  credit  is  granted  by  a  mortgage  company  or  a  consumer  credit 

company. The ECB understands that this difference aims at avoiding any discriminatory treatment 
between these different categories of lending institutions30.  

The  restriction  on  the  realisation  of  pledges  on  credit  claims  and  on  the  rules  ensuring  the 

enforceability and validity of netting arrangements 

4.3  As already mentioned, the draft law will set aside (i) the rules providing for a simplified realisation 

of pledges on cash and of banking claims, and (ii) the rules ensuring the enforceability and validity 

of netting arrangements, in the event of judicial reorganisation proceedings of a debtor that is not a 

‘public  or  financial  legal  person’,  unless  there  is  a  payment  default.  The  ECB  notes  that  by 

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Explanatory memorandum, p. 3. Where under the draft law, it is the parties who trigger the assimilation, the NBB could 
nevertheless issue a recommendation to that end in the context of its oversight tasks. 
Article 3, 6°, second subparagraph of the draft law, introducing a definition of ‘ participant’ in the Law of 28 April 1999.  
Article 3, 2°, penultimate indent of the draft law, introducing a definition of ‘institution’ in the Law of 28 April 1999. 
See CON/2006/34, in particular paragraph 2.1. 
Article 14, 2° of the draft law, introducing an Article 4 §1 3° in the Law of 15 December 2004. 
Article 13, 3° of the draft law, introducing an Article 3, 10° in the Law of 15 December 2004.  
Directive  2006/48/EC  of  the  European  Parliament  and  of  the  Council  of  14  June  2006  relating  to  the  taking  up  and 
pursuit of the business of credit institutions (recast) (OJ L 177, 30.6.2006, p. 1). 
Explanatory memorandum, p. 8. 

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introducing this provision, the Belgian legislator, similarly to other Member States31, will use the 

exemption provided for in Article 1(3) of Directive 2002/47/EC, under which Member States may 

exclude  arrangements  where  one  of  the  parties  is  a  person  other  than  a  natural  person,  including 

unincorporated firms and partnerships, provided that the other party is an institution as defined in 

points (a) to (d), which includes a central bank and the ECB.  

This  exemption  might,  in  certain  cases,  be  an  obstacle  to  the  swift  realisation  of  the  collateral 

provided for Eurosystem credit operations. This might notably be the case where the NBB accepts 
as collateral from a Eurosystem counterparty, a credit claim32 which is a debt obligation of a non-
financial  corporation33  that  is  not  a  ‘public  or  financial  legal  person’  and  where  both  the 

Eurosystem counterparty and the non-financial corporation default in their respective obligations. 

The ECB emphasises that in order to ensure that a valid security is created over credit claims, and 

that the credit claim can be swiftly realised in the event of a counterparty default, in general, there 

should be no restrictions regarding the realisation of the credit claim used as collateral. However, 

the ECB notes that the exemption provided by the draft law does not seem to represent major risks 

for the Eurosystem, as: (i) the exemption does not apply in case of a payment default; and (ii) the 

probability  is  low  that  a  double  default  would  occur  where  all  the  specific  conditions  for  the 

exemption to apply are fulfilled.  

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

Done at Frankfurt am Main, 29 April 2011. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

31  
32  

33  

See the explanatory memorandum, p. 16. 
To be eligible as collateral for Eurosystem credit operations, a credit claim must be a debt obligation of a debtor vis-à-vis 
a Eurosystem counterparty; the eligible debtors are non-financial corporations, public sector entities and international or 
supranational institutions (Section 6.2.2 of Annex I to Guideline ECB/2000/7of the ECB of 31 August 2000 on monetary 
policy instruments and procedures of the Eurosystem (OJ L 310, 11.12.2000, p. 1)). 
As  defined  in  the  ESA  95  (see  Section  6.2.2  of  Annex  I  to  Guideline  ECB/2000/7).  Under  Council  Regulation  (EC) 
No 2223/96  of  25  June  1996  on  the  European  system  of  national  and  regional  accounts  in  the  Community  (OJ L  310, 
30.11.1996,  p.  1),  the  sector  non-financial  corporations  (S.11)  consists  of  institutional  units  whose  distributive  and 
financial transactions are distinct from those of their owners and which are market producers …, whose principal activity 
is the production of goods and non-financial services. 

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