Opinion of the European Central Bank of 5 April 2013 on financial collateral arrangements (CON/2013/24)
Date: 2013-04-05
Institutions: European Central Bank
Subjects: Malta, claim, credit, credit guarantee, financial stability, money, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 5 April 2013 

on financial collateral arrangements 

(CON/2013/24) 

Introduction and legal basis 

On 13 February 2013, the European Central Bank (ECB) received a request from the Ministry of Finance, 

the  Economy  and  Investment  of  Malta  for  an  opinion  on  draft  regulations  amending  the  Financial 
Collateral Arrangements Regulations of 20041 (hereinafter the ‘draft law’). 

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  and  sixth  indents  of  Article 2(1)  of  Council 

Decision 98/415/EC  of  29 June 1998  on  the  consultation  of  the  ECB  by  national  authorities  regarding 
draft legislative provisions2, as the draft law concerns means of payment and 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 ECB, the Governing 

Council has adopted this opinion. 

1.  

Purpose of the draft law 

1.1  The Financial Collateral Arrangements Regulations (hereinafter the ‘Regulations’), issued pursuant 
to Article 7 of the Set-off and Netting on Insolvency Act3, transposed Directive 2002/47/EC of the 
European  Parliament  and  of  the  Council  of  6  June  2002  on  financial  collateral  arrangements4  as 
well  as  Directive  2009/44/EC  of  the  European  Parliament  and  of  the  Council  of  6  May  20095 

insofar as it amends Directive 2002/47/EC as regards linked systems and credit claims.  

1.2  The  draft  law  amends  the  definitions  of  ‘credit  claims’,  ‘instrument’,  ‘non-natural  person’  and 

‘recognised  jurisdiction’  in  Section  2(1)  of  the  Regulations.  It  also  inserts  a  new  provision  in 

Section 2(2), providing for an interpretation of ‘control’ where financial collateral is held by a third 

party.  In  addition,  the  draft  law  extends  the  list  in  the  Regulations  of  who  may  constitute  a 

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2  
3  
4  
5    

Legal Notice 177 of 2004. 
OJ L 189, 3.7.1998, p. 42.  
Chapter 459 of the Laws of Malta. 
OJ L 168, 27.6.2002, p. 43. 
OJ L 146, 10.6.2009, p. 37. 

 
 
 
 
                                                 
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collateral taker and a collateral provider to include ‘a corporation or other legal person established 

by statute’, ‘non-natural persons’ and ‘securitisation vehicles’.  

1.3  Furthermore,  the  draft  law  amends  the  existing  notification requirements  where  credit claims  are 

provided  as  collateral  as  well  as  the  provisions  on  the  enforcement  of  financial  collateral 

arrangements.  Finally,  it  clarifies  that  in  certain  situations  the  Regulations  shall  prevail  over  the 
Companies Act (Investment Companies with Variable Share Capital) Regulations of 20066.  

2. 

General observations 

Subject to the specific observations on the points mentioned below, the ECB welcomes the amendments 

to the Regulations and notes that they generally constitute implementation or clarification measures.  

3.   Credit claims 

3.1  The ECB notes the proposed extension of the definition of ‘credit claim’ in Section 2(1) of the draft 

law,  to  include  ‘pecuniary  claims  due  to  a  non-natural  person,  provided  that  the  debtor  of  the 

claims  granted  as  collateral  is  also  a  non-natural  person’.  This  amendment  goes  beyond  the 

definition of credit claim set out in Directive 2002/47/EC, i.e. ‘pecuniary claims arising out of an 
agreement  whereby  a  credit  institution,  as  defined  in  Article  4(1)  of  Directive  2006/48/EC7, 

including the institutions listed in Article 2 of that Directive, grants credit in the form of a loan’.  

3.2  The ECB has no objection to this extension of the definition of credit claims, currently restricted in 

the  Regulations  to those  claims  where  the  creditor  of  a  claim  is  a  bank  or  credit  institution.  The 

ECB  understands  that  the  proposed  extension  of  the  definition  of  credit  claims  is  intended  to 

include  within  the  ambit  of  the  Regulations  further  categories  of  credit  claims  which  may  be 

provided  as  collateral.  The  ECB  notes  that  credit  claims  due  to  or  owed  by  individuals  are  not 

included  in  the  proposed  amendment.  In  this  context,  the  ECB  notes  that  the  definition  of  ‘non-

natural  person’  in  the  draft  law  as  ‘any  legal  person,  unincorporated  firm  or  body  of  persons  or 

partnership not being an individual’ was included as a consequential amendment of the proposed 

amendment to the definition of ‘credit claims’.  

4. 

Definition of instrument 

The ECB understands that the current definition of ‘instrument’ in the Regulations could generate doubts 
about whether Article 2 of the Investment Services Act8  includes  financial  instruments  for  which  the 

Regulations are intended to cater. In this regard, it notes the revision of the definition of ‘instrument’ in 

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7  
8  

Also known as the SICAV Regulations. Legal Notice 241 of 2006. 
OJ L 177, 30.6.2006, p. 1. 
Chapter 370 of the Laws of Malta. 

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Section 2(1) of the draft law and welcomes the closer alignment achieved with the wording in Directive 

2002/47/EC. 

5. 

Recognised jurisdiction 

The ECB notes that the amended definition of ‘recognised jurisdiction’ in Section 2(1) of the draft law is 

a definition already used in Maltese law and welcomes the further clarification of this concept through its 

proposed inclusion. 

6. 

Control 

6.1  The  new  provision  in  Section  2(2)  of  the  draft  law  provides  that  a  collateral  taker  shall  also  be 

deemed  to  have  control  over  financial  collateral  when  ‘this  is  held  by  a  third  party,  non-natural 

person,  who  acts  on  the  instructions  of  the  collateral  taker  or  of  a  person  acting  on  his  behalf, 

whether throughout the duration of the financial collateral arrangement or upon the occurrence of 

an  event  of  default  under  the  financial  collateral  arrangement’.  The  ECB  understands  that  this 

provision  is  being  introduced  to  provide  clarity  in  cases  where  financial  collateral  is  held  by  a 

custodian on behalf of the collateral taker. 

6.2  The  ECB  acknowledges  that  the  concept  of  control  set  forth  in  Directive  2002/47/EC  seeks  to 

maintain  a  balance  between  market  efficiency  and  transactional  security,  but  notes  that  any 

clarification  of  the  term  ‘control’  must  be  aligned  with  Directive  2002/47/EC.  The  ECB 

understands  that the  new  provision  in  Section  2(2)  of  the  draft law  is  added  for  reasons  of  legal 

certainty,  to  further  clarify  the  validity  and  enforceability  of  financial  collateral  arrangements 

concluded in the circumstances referred to.  

7. 

Collateral taker and collateral provider 

As regards the proposed amendments to Section 4(1) of the Regulations on the list of collateral takers and 

collateral  providers,  specifically  paragraphs  (a),  (k),  (m)  and  (n),  the  ECB  has  no  objection  to  the 

inclusion of ‘a corporation or other legal person established by statute’ in paragraph (a), the inclusion of 

‘securitisation vehicles’ in paragraph (k), and that of ‘non-natural persons’ in paragraphs (m) and (n).   

8. 

Enforcement of financial collateral arrangements 

The ECB notes the inclusion of the new paragraph (c) in Section 6 of the draft law, which refers to the 

enforcement of financial collateral arrangements and provides that ‘in relation to instruments consisting 

of securities of a SICAV, the financial collateral may also be realised in the manner and in accordance 

with  the  value  as  contemplated  in  Regulation  14(6)(iii)  of  the  Companies  Act  (Investment  Companies 

with  Variable  Share  Capital)  Regulations’.  The  ECB  notes  that  the  Companies  Act  (Investment 

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Companies with Variable Share Capital) Regulations already provide for the scenario where the collateral 

taker may realise any financial collateral provided in relation to instruments consisting of the securities of 

a  SICAV.  In  this  context,  the  process  of  realisation  of  financial  collateral  is  clarified  by  including  a 

reference to the relevant provision in these Regulations. 

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

Done at Frankfurt am Main, 5 April 2013. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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