REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT on the appropriateness of Article 3(1) of Directive 2002/47/EC on financial collateral arrangements
Date: 2016-06-29
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU Member State, approximation of laws, banking, claim, credit, credit guarantee, financial legislation, guarantee, national implementing measure, principle of legal certainty

EUROPEAN 
COMMISSION 

Brussels, 29.6.2016  
COM(2016) 430 final 

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN 
PARLIAMENT 

on the appropriateness of Article 3(1) of Directive 2002/47/EC  
on financial collateral arrangements  

EN 

   EN 

 
 
 
 
  
 
1. 

INTRODUCTION 

Collateral is given by a borrower to a lender to minimise the risk of financial loss to the 
lender if the borrower defaults on its obligations. Since the financial crisis, collateral has 
become  increasingly  important,  driven  by  a  market  need  for  more  secured  funding  and 
regulatory requirements. 

Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on 
financial collateral arrangements as amended by Directive 2009/44/EC (FCD) creates a 
harmonised EU legal framework for the creation and enforcement of collateral, i.e. ‘title 
transfer  financial  collateral  arrangementsʼ  (where  the  full  title  to  the  collateral  is 
transferred to the collateral taker) or ‘security financial collateral arrangementsʼ (where 
the collateral taker receives a security right, e.g. a pledge or a charge). 

The  FCD  originally  covered  only  cash  and  financial  instruments  used  as  collateral.  It 
abolished  formal  requirements  imposed  by  Member  States  on  financial  collateral 
arrangements or the provision of collateral, e.g. requirements on the form of the relevant 
contractual documentation, registration or other notification. Given that the consequence 
of failing to comply with such requirements was often the invalidity or unenforceability 
of  the  collateral  against  third  parties,  the  removal  of  those  obstacles  facilitated  the 
movement  of  cash  and  financial  instruments  across  the  EU.  In  2009,  the  FCD  was 
amended to introduce ‘credit claims’ as collateral. 

A ‘credit claim’ is defined in the FCD as a pecuniary claim arising from an agreement 
where  a  credit  institution  grants  credit  in  the  form  of  a  loan.  Figure  1  shows  the 
mobilisation of a credit claim as collateral where the collateral provider (B) transfers his 
credit  claim  against  its  debtor  (A)  to  the  collateral  taker  (C).  More  complex  scenarios 
involving a third party (D) arise when the same credit claim is mobilised multiple times 
(e.g.  if  C  transfers  the  claim  onwards)  or  when  the  insolvency  administrator  questions 
whether the claim has been validly transferred out of B’s estate. 

Figure 1: 

Legal relationships in the mobilisation of credit claims as collateral 

The 2009 revision of the FCD1 prevents Member States from requiring that the creation 
or validity of financial collateral arrangements relating to credit claims be dependent on 

1  Article 3(1) subparagraph 2 sentence 1, FCD. 

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the  performance  of  a  formal  act,  e.g.  registration  or  the  notification  of  the  debtor.  This 
aims  to  ensure  that  the  financial  collateral  arrangement  relating  to  a  credit  claim 
(relationship 2 in Figure 1) is not invalidated because the arrangement was not registered 
with a public authority or the debtor was not notified about the collateral arrangement. It 
also  grants  Member  States  an  option2  to  require  formal  acts,  e.g.  registration  or 
notification,  relating  to  credit  claims  used  as  collateral  for  purposes  of  perfection, 
priority, enforceability or admissibility in evidence against the debtor (relationship 3 in 
Figure 1) or third parties (relationship 4 in Figure 1). 

Under the 2009 revision, the Commission was asked to report to the European Parliament 
and  the  Council  on  the  continuing  appropriateness  of  the  Member  State  option3.  This 
report  assesses  how  Article  3(1)  of  the  FCD  was  implemented,  its  results  and  whether 
amendments to the Directive are needed. 

2.  OBJECTIVES AND METHODOLOGY 

The report focuses on the implementation of Article 3(1) of the revised FCD. Its scope is 
whether the Directive works effectively and efficiently as regards formal acts required to 
provide credit claims as collateral.  

To  prepare  this  report,  the  Commission  sent  Member  States,  the  ECB  and  European 
Economic Area States (EEA) a questionnaire on the implementation of Article 3(1) of the 
FCD. 25 Member States replied4. This evaluation draws mainly from that material. The 
report  also  takes  into  account  replies  received  to  the  public  consultation  on  Building  a 
Capital Markets Union5. 

Some background information on Member States’ law is derived from an external study 
carried  out  for  the  European  Commission  on  the  effectiveness  of  an  assignment  of  a 
claim against third parties and the priority of the assigned claim over a right of another 
person6. 

3. 

IMPLEMENTATION AND RESULTS 

3.1.  Economic relevance of credit claims 

Figure  2  shows  the  rise  in  the  use  of  credit  claims  in  Eurosystem  credit  operations.  In 
2004, they represented 4% of total collateral. By the end of 2015, this had grown to 21%. 
The sharpest rise was between 2006 and 2007 which may be attributed to the Eurosystem 
decision to include credit claims in the list of collateral accepted for credit operations in 
the  category  of  non-marketable  assets  from  1  January  20077.  This  created  uniform 
conditions,  including  criteria  determining  the  eligibility  of  credit  claims  being  used  as 

2  Article 3(1) subparagraph 2 sentence 2, FCD. 
3   Article 3(1) subparagraph 3, FCD. 
4  No  reply  was  received  from  EL,  PL,  SK  or  EEA  States.  Replies  to  the  questionnaire  of  those 
respondents  that  have  agreed  to  their  publication  are  at:  http://ec.europa.eu/finance/financial-
markets/collateral/index_en.htm 
http://ec.europa.eu/finance/consultations/2015/capital-markets-union/index_en.htm 
Study  by  the  British  Institute  of  International  and  Comparative  Law  [hereafter,  ‘BIICLʼ]: 
http://ec.europa.eu/justice/civil/files/report_assignment_en.pdf 
The use of credit claims as collateral for Eurosystem credit operations, K. Tamura, E. Tabakis, ECB 
Occasional Paper Series No 148, June 2013 [hereafter, ‘Tamura/Tabakisʼ].  

5 
6 

7 

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collateral,  for  such  operations8.  The  replies  of  Eurozone  Member  States  confirm  that 
credit  claims  are  broadly  accepted  by  their  central  banks9  or  commonly  used  as 
collateral10. 

Figure 2: ECB data on credit claims in Eurosystem credit operations 

EUR bn, after valuation and haircuts, averages of end of month data over each time period 

Year 

2004 

2005 

2006 

2007 

2008 

2009 

2010 

2011 

2012 

2013 

2014  

2015 

Use of Credit 
Claims: 

Total 
Collateral: 

Credit Claims 
as % of total Collateral Used: 

33.5 

35.4 

36.3 

109.3 

190.1 

294.8 

358.5 

418.7 

633.4 

439.4 

372.8 

368.2 

817 

900 

959 

1 148 

1 579 

2 035 

2 010 

1 824 

2 457 

2 348 

1 949 

1 737 

4% 

4% 

4% 

10% 

12% 

14% 

18% 

23% 

26% 

19% 

19% 

21% 

Source: https://www.ecb.europa.eu/paym/coll/charts/html/index.en.html 

Note:  Credit  claims  figures  from  2004-2011  are  the  aggregate  data  for ‘non-marketable  assetsʼ  (prior  to 
2012, credit claims were not recorded separately. They show the bulk of assets under the non-marketable 
assets category, the rest is fixed-term and cash deposits). 

Outside  the  euro  area,  the  situation  differs  and  data  is  scarce.  The  acceptance  of  credit 
claims as collateral outside the euro area seems low. The Czech Republic and Lithuania 
confirmed that they are used as collateral in their markets. Bulgaria and Hungary stated 
that  they  are  not  widely  used.  Only  Denmark  reported  that  their  central  bank  accepts 
credit  claims  as  collateral.  Other  reports  suggest  that  the  Bank  of  England  also  accepts 
them but in a limited way11. 

Market conditions and global regulatory changes mean credit institutions are facing many 
demands for collateral12. The EU has traditionally relied on bank financing13. End-2013 
data shows that non-financial corporations rely on bank loans for about 15% of their total 

8  Article 89–105, Guideline (EU) 2015/510  of the European Central Bank of 19 December 2014 on the 
implementation  of  the  Eurosystem  monetary  policy  framework  (ECB/2014/60)  [hereafter,  ‘ECB 
General Documentationʼ]. 
9  BE, DE, FI, IT, IR, MT, NL, PT. 
10   AT, FR. 
11  Tamura/Tabakis, p. 17-21, 25.  
12  Collateral eligibility and availability. Follow-up to the report on »Collateral eligibility requirements – 
a comparative study across specific frameworks« dated July 2013 by the ECB contact group on euro 
securities infrastructures (COGESI), July 2014 [hereafter, ‘ECB COGESIʼ], p. 18. 

13  Commission  Staff  Working  Document  accompanying  the  document  Green  Paper  Building  a  Capital 

Markets Union, SWD(2015) 13 final, p. 11.  

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financing  needs  (compared  to  10%  in  the  US14).  As  such,  EU  credit  institutions  hold 
credit  claims  which,  if  appropriate,  could  be  used  as  collateral.  Estimates  put  credit 
claims  in  the  euro  area  at  almost  EUR 4.4  trillion,  i.e.  one  third  of  the  total  value  of 
eligible marketable assets for the Eurosystem15. 

This shows the relevance of the FCD in enhancing legal certainty where necessary and 
appropriate for credit claims to be used as collateral. 

3.2.  Implementation of Directive 2009/44/EC 

Directive 2009/44/EC revising the FCD was adopted on 6 May 2009. It was implemented 
in  most  Member  States  in  2011  and  all  had  transposed  it  by  2012.  The  FCD  is  also 
subject to the EEA Agreement16 with Lichtenstein, Norway and Iceland all implementing 
it. 

3.2.1. 

Implementation of the option in Article 3(1)  

To reduce administrative burden and increase market efficiency, Article 3(1) of the FCD, 
prevents  Member  States 
‘formal  requirementsʼ  on  collateral 
arrangements17 and making the provision of collateral dependant on the performance of a 
‘formal  act’.  These  notions  are  not  defined  but  examples  are  given  in  recitals18. 
Article 1(5) clarifies that the inclusion in a list of claims submitted to the collateral taker 
should be considered as evidence of the provision of collateral and not as a formal act. 

imposing 

from 

The replies of Member States to the questionnaire reveal four issues.  

First,  as  allowed  by  Article  1(5),  some  Member  States19  require  that  the  use  of  credit 
claims  as  collateral  is  evidenced  by  the  inclusion  in  a  list  of  claims  submitted  to  the 
collateral taker. 

Second,  Member  States  appear  to  have  divergent  interpretations  on  what  is  a  ‘formal 
act’. Most seem to view physical acts required outside the book-entry system related to 
the provision of collateral as formal acts, but some exclude certain acts20. It is difficult to 
conclude therefore which Member States have actually used the option to require formal 
acts  for  purposes  of  perfection,  priority,  enforceability  or  admissibility  in  evidence 
against the debtor (relationship 3 in Figure 1) or third parties (relationship 4 in Figure 1).  
Third,  based  on  their  own  assessment,  half  of  the  Member  States21  have  not  used  the 
option. In these Member States there may be no formal requirement to notify the debtor, 

14  2014 Q2 Financial Accounts of the US (Federal Reserve). The data relied upon by Tamura/Tabakis, p. 
10, chart 1, shows the importance of credit claims as a stable funding source for the euro area economy 
even more: 40% in the euro area compared to 10% in the US.  

15  ECB COGESI, p. 9. 
16  Directive  2009/44/EC  was  incorporated  into  the  EEA  Agreement  by  the  Joint  Committee  Decision 

50/2010. 

17  Article 1(5) subparagraph 1 and 4, FCD. 
18  C.f. Recital 10. 
19  BG, CZ, DK, EE, LV, PT (if credit claims are provided as collateral to the central bank), ES, RO, SI.  
20  E.g. the notification of the debtor in case of security financial collateral arrangements or the transfer of 

the credit claim supporting documentation to the collateral taker.  

21  CZ, DK, FR, IR, LV, RO, SI and SE. EE and DE, who did not answer Question 4, seem to belong to 

this group as well.  

5 

 
 
 
                                                 
but debtor protection rules continue to apply. If the debtor is not aware of the financial 
collateral arrangement and pays off the credit claim, the debtor will be discharged22. As 
such,  those  payments  may  be  deducted  from  the  value  of  the  claim  given  as  collateral 
posing a risk to the collateral taker that the collateral may disappear. Notification of the 
debtor  may,  thus,  be  seen  as  being  required  for  the  purpose  of  enforceability  and/or 
evidence  against  the  debtor,  unless  the  debtor  protection  can  be  waived  in  the  credit 
agreement23. 

Fourth, half of the Member States24 used the option. All but one Member State require 
the notification of the debtor25. But national laws differ on the nature of this condition. 
Bulgaria, Belgium26, Estonia, Finland and Portugal require notification of the debtor as a 
single  mandatory  formal  act.  Hungary  also  requires  the  transfer  of  the  supporting 
documentation to the collateral taker. Other Member States leave the choice between the 
notification  of  the  debtor  and  another  formal  act  to  the  counterparties.  Austria  requires 
the notification of the debtor or an entry in the books of the collateral provider. Lithuania 
and  Malta  require  the  notification  of  the  debtor  or  a  public  notice  in  a  newspaper.  The 
Netherlands requires the notification of the debtor or registration in a non-public register 
held by tax authorities27. 

There  are  also  differences  in  the  purpose  of  the  notification  requirement.  In  most 
Member States, the notification makes the collateral arrangement enforceable against the 
debtor  of  the  credit  claim  (relationship  3  in  Figure  1).  In  Austria,  Bulgaria,  Finland, 
Lithuania28, Malta and the Netherlands the notification of the debtor makes the collateral 
arrangement enforceable against third parties (relationship 4 in Figure 1). Those Member 
States  view  the  requirement  as  an  act  of  publicity29  that  ensures  legal  certainty,  the 
protection  of  the  rights  of  all  parties30  and  helps  to  combat  fraud  (i.e.  collateral 
arrangements  created  after  the  opening  of  insolvency  proceedings  but  are  backdated  to 
defraud  other  creditors)31.  In  some  jurisdictions  notification  of  the  debtor  is  a  factor 
determining which of a number of collateral takers may have priority. Under English32, 
Dutch33,  Italian34  and  Portuguese35  law,  priority  would  be  given  to  the  title  transfer 
collateral arrangement first notified to the debtor. 

22  E.g. this is expressly stated in the CZ (§ 1882 of Czech Civil Code), DE (§ 407 German Civil Code), 
EE (§ 317 Estonian Law of Property Act), ES (Article 1526 Spanish Civil Code), LU (Article 14.2 of 
Luxembourg  Law  on  Financial  Collateral  Arrangements),  SE  (Sections  10  and  29  of  the  Swedish 
Promissory Notes Act) and PL (Article 512 Polish Civil Code). 

23  BIICL, p. 221, § 404 et seq. of the German Civil Code do not constitute mandatory law, i.e. these rules 
may be waived by a contractual agreement. In other jurisdictions, the issue is subject to interpretation.  
Directive 2008/48/EC of 23 April 2008 on credit agreements for consumers allows not informing the 
debtor (consumer)  but  the  lack  of  notification  cannot  put  the  consumer  in  a  less  favourable  position 
(Article 17, Recital 41).  

24  AT, BE, BG, FI, HU, IT, LT, MT, NL, PT, UK.  
25  AT, BE, BG, HR, FI, HU, IT, LT, MT, NL, PT. CY requires registration by the companies registrar. 
26  For collateral takers other than the National Bank of Belgium. 
27  NL reply and BIICL, p. 270. 
28  Article 6.109 of the Lithuanian Civil Code.  
29  AT reply. 
30  BG reply.  
31  FI reply. 
32   UK reply and BIICL, p. 337, 344–345.  
33   BIICL, p. 272.  

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3.2.2.  Other implementation issues  

Member States identified two situations where different formal acts may be required. 

Five Member States stated there are special rules on formal acts when credit claims are 
used as collateral to their central banks. In Belgium, registration instead of notification of 
the debtor is required if the collateral taker is the central bank. This enforces the claim 
towards third parties and gives the central bank priority. In Lithuania, when credit claims 
are used as collateral to EU central banks, a  public notice on the website of the Bank of 
Lithuania  is  needed.  Slovenia  requires  the  notification  of  the  debtor  to  restrict  the 
debtor’s  set-off  rights  if  credit  claims  are  given  to  EU  central  banks.  In  contrast,  in 
Portugal  and  (temporarily)  in  Italy  no  registration  or  debtor  notification  is  required  if 
credit claims are given to the central bank. In both cases, the central bank's rights prevail 
over any other rights over the same claims, even if they are notified to the debtor after the 
collateral arrangement. 

Four  Member  States  reported  that  special  formal  acts  are  required  when  credit  claims 
secured by a mortgage are used as collateral. In Germany, in addition to a title transfer 
financial  collateral  arrangement  relating  to  a  credit  claim  secured  by  mortgage,  the 
mortgage certificate needs to be given or the transfer of the claim registered in the land 
register.  In Lithuania, the transfer of a claim secured by mortgage must be registered to 
be  enforceable  against  third  parties.  In  Portugal,  pledges  over  mortgage  credit  claims 
need to be registered. With regard to credit claims in the form of residential mortgages 
backing  (special)  mortgage-backed  promissory  notes,  the  Irish  central  bank  requires 
collateral arrangements to be the form of a deed and the details to be registered. 

3.3.  Effectiveness  

Directive  2009/44/EC  aimed  to  facilitate  the  use  of  credit  claims  as  collateral36.  This 
section  examines  if  this  objective  was  achieved  and  whether  the  option  in  Article  3(1) 
influenced the outcome.  

Any quantitative assessment of the impact of Directive 2009/44/EC on the mobilisation 
of credit claims is challenging37. Eurosystem data (Figure 2) shows that between 2011–
2012, i.e. when Directive 2009/44/EC was implemented in all Member States, the use of 
credit  claims  as  collateral  rose  from  23%  to  26%  of  total  collateral  used.  However,  it 
declined between 2012–2013 from 26% to 19%. 

A  number  of  factors  could  have  affected  the  use  of  credit  claims  as  collateral  in 
Eurosystem  credit  operations.  The  implementation  of  Directive 2009/44/EC  coincided 
with  the  financial  crisis  and  changes  in  the  Eurosystem  collateral  framework.  The 
increased use of credit claims as collateral with the Eurosystem may thus be explained by 
an increased demand for central bank credit and market participants' incentives to submit 
relatively  illiquid  assets,  e.g.  credit  claims,  while  keeping  more  liquid  assets  for  other 
transactions38. There were also technical and operational adaptations at individual central 
banks, e.g. Deutsche Bundesbank and Banque de France (both with counterparties with 

34   IT reply. 
35   Article 584 of Portuguese Civil Code.   
36   Recital 6 of Directive 2009/44/EC.  
37   Tamura/Tabakis, p. 27, footnote 41. 
38   Tamura/Tabakis, p. 13.  

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large  outstanding  amount  of  credit  claims)  implemented  automated  communication 
interfaces, which enable the efficient mobilisation of credit claims39. 

Five Member States40 indicated that the FCD aided the use of credit claims as collateral. 
Assessment differs though on whether the Article 3(1) option reduced or increased legal 
risk.  One  view  is  that  the  option  is  indispensable  for  legal  certainty  as  the  lack  of  any 
formal  act  made  it  costly  and  not  always  possible  to  ascertain  if  the  credit  claim  was 
posted as collateral or not41. A second view argues that the removal of divergent formal 
requirements between Member States would enhance legal certainty42.  

The  Green  Paper  on  Building  a  Capital  Markets  Union43  asked  what  measures  could 
improve the cross-border flow of collateral. Replying to the consultation one stakeholder 
argued  that  the  removal  of  all  formal  requirements,  e.g.  notification  and  registration 
obligations,  is  needed  to  facilitate  the  use  of  credit  claims  as  collateral44.  Two  replies 
backed  harmonisation  of  conflict  of  laws  rules  to  enhance  the  protection  of  collateral 
takers by the ability to determine the law governing the formal requirements that need to 
be complied with to render the mobilisation of credit claims collateral effective against 
third parties45. The ECB suggested excluding the debtor's right to set-off with respect to 
credit claims mobilised as collateral with central banks, but this is beyond the scope of 
this report. 

Overall, the objective of the FCD to facilitate the use of credit claims has been achieved. 
There is evidence that the inclusion of credit claims within the harmonised framework for 
collateral  has  facilitated  their  use  in  certain  jurisdictions.  For  example,  a  title  transfer 
financial collateral arrangement for credit claims used to be forbidden under Dutch law46 
but  the  implementation  of  the  FCD  changed  this,  with  the  use  of  credit  claims  in  the 
Netherlands  growing.  The  FCD  also  removed  formal  requirements  for  the  creation  or 
validity  of  collateral  arrangements.  In  effect,  the  risk  of  invalidation  of  such 
arrangements has been eliminated, aiding the mobilisation of credit claims. 

As the overview of implementation showed, differences in the formalities and techniques 
available to collateralise credit claims still persist between Member States. Nevertheless, 
even  when  credit  claim  collateral  remains  subjected  to  national  formal  requirements, 
once  they  are  complied  with,  the  collateral  benefits  from  the  ease  of  enforcement 
introduced  by  the  FCD  (e.g.  credit  claims  collateral  can  be  realised  by  sale  or 
appropriation  and  set-off  and  no  formalities  as  to  prior  notice  or  prescribed  manner  of 
realisation or the elapsing of a period of time will apply).  

In terms of the extent to which the objective has been achieved, it cannot be concluded 
that all legal obstacles to the use of credit claims as collateral within the EU have been 
removed. In particular, the cross-border use of credit claims collateral is still subject to 
legal uncertainty due to the effect of different national requirements and the incomplete 

39   Tamura/Tabakis, p. 22. 
40   DK, NL, PT and the UK. 
41   Replies from LT, BE, BG, NL and the UK. 
42  DE reply. 
43  COM(2015) 63 final, p. 26, Question 27. 
44  BNP Paribas reply to Question 27.  
45  ECB reply p. 24; Reply of the Treasury and Financial Policy General Secretariat (Spain) to Question 

27.  

46  BIICL, p. 281.  

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harmonisation of conflict of laws rules at EU level. Although harmonised conflict of laws 
rules exist for the law applicable to the relationship between the debtor and the creditor 
of  a  credit  claim  (relationship  1  in  Figure  1),  the  collateral  provider  and  the  collateral 
taker (relationship 2 in Figure 1) and the collateral taker and the debtor (relationship 3 in 
Figure 1)47, the law applicable to the effectiveness of the provision of a credit claim as 
collateral  against  third  parties,  e.g.  which  formal  acts  are  required  to  ensure 
enforceability against other claimants and the order of priority between multiple transfers 
of  the  same  credit  claim  (relationship  4  in  Figure  1),  is  still  determined  by  national 
conflict of laws rules in the Member States48. As such, the collateral taker may assume he 
has priority because formal requirements of Member State A have been complied with, 
while the third party relies on formal requirements of Member State B and also believes 
that it has priority over the rights of the other. 

3.4.  Efficiency 

Balancing the challenges in using credit claims as collateral with the importance of bank 
loans in the real economy, the Commission considers that the objective of the FCD has 
been achieved at the least expense to all the parties involved.  

Persistent formal requirements place additional costs on the collateral provider. Even if 
compliance  with  the  requirement  to  notify  the  debtor  is  not  costly,  from  a  credit 
institution's perspective, the requirement could indirectly adversely affect client relations. 
Some  evidence  suggests  that  the  notification  requirement  may  pose  an  obstacle  to 
mobilising bank loans49. This may affect the amount of capital on banks’ balance sheets 
that is not put to more efficient use in the economy. It should, however, be born in mind 
that there are alternative legal means that allow banks to put their dormant assets to better 
use,  e.g.  issuing  securities  backed  by  credit  claims,  and  thus  to  obtain  funds  to  use  to 
create additional loans.  

From the collateral taker’s perspective, the observance of formal requirements may help 
reducing costs arising out of legal risk involved in accepting credit claims as collateral. 
Unlike  marketable  securities,  credit  claims  are  normally  tailored  to  the  debtor’s  needs. 
Thus, in case the collateral needs to be realised, credit claims are usually not convertible 
into  cash  quickly  but  rather  the  debtor  needs  to  be  first  addressed.  A  crucial  factor 
determining the value of the collateral is therefore the enforceability of the credit claim 
against the debtor (relationship 3 in Figure 1). In order to ensure that the credit claim can 
be  swiftly  realised  in  the  event  of  a  counterparty  default,  the  eligibility  criteria  of  the 
Eurosystem require the notification of the debtor in any case50. 

In  addition  to  their  limited  liquidity,  credit  claims  differ  from  marketable  securities  as 
they  are  not  generally  recorded  in  electronic  accounts,  but  evidenced  only  by  a  credit 
agreement.  As  such,  there  is  higher  risk  that  the  same  credit  claim  may  be  posted  as 
collateral  to  a  third  party.  The  idea  behind  the  notification  requirement  is  that  if  the 

47  Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (Rome 
I). The concept of ʻassignmentʼ in Article 14 Rome I applies to all ʻfinancial collateral arrangementsʼ 
under  the  FCD  including  outright  transfers  of  claims,  transfers  of  claims  by  way  of  security  and 
pledges or other security rights over claims.  

48  BIICL, p. 12-13 et seq. shows that Member Statesʼ conflict of laws rules have different solutions for 

the law applicable to relationship 4 in Figure 1.  

49  DE reply. 
50   Point (b) of Article 99(1) and Article 103, ECB General Documentation.  

9 

 
 
                                                 
debtor  is  required  to  know  about  the  collateral  arrangement,  they  can  function  as  a 
possible  information  source  regarding  the  existence  of  the  credit  claim  collateral51.  As 
shown by stricter rules on formal requirements in some jurisdictions, if the central bank 
takes credit claims as collateral52, formal acts protect the collateral taker from exposure 
to potential disputes with third parties on the enforceability and priority (relationship 4 in 
Figure  1).  Thus,  the  option  in  the  FCD  that  allowed  Member  States  to  keep  formal 
requirements can be beneficial for collateral takers in the jurisdictions concerned.  

As far as the debtor is concerned, it is normally irrelevant whether they repay the loan to 
the bank or the collateral taker, so in principle his position is not adversely effected by a 
collateral  arrangement.  It  is  necessary  though  to  protect  the  debtor  against  the  risk  of 
paying twice (to the original creditor and to the collateral taker as the new claim owner). 
There are various ways to do this, e.g. formal requirements for the creation or validity of 
the collateral agreement, or for the perfection, priority, enforceability or admissibility in 
evidence against the debtor or third parties. The options available are framed by the FCD. 
Given  that  bank  loans  are  the  most  important  source  of  financing  for  non-financial 
corporations in the EU53, it has a positive social impact that the FCD has not affected the 
rules  to  discharge  the  debtor,  if  he  pays  off  the  loan  to  the  original  creditor  not  being 
aware of the collateral arrangement.  

In  terms  of  Member  States,  the  option  reduced  the  implementation  costs  of  the  FCD. 
There are also no signs that Member States faced any costs arising from legal difficulties 
as  no  evidence  was  given,  e.g.  court  decisions  rendered  in  application  of  national 
legislation transposing Article 3(1)54. 

To conclude, the FCD works efficiently for formal acts required to mobilise credit claims 
as collateral in a domestic environment. There seem to be valid reasons for certain formal 
requirements.  Where  all  the  elements  relevant  to  the  situation  are  located  in  one 
jurisdiction,  compliance  is  not  difficult.  In  cross-border  settings,  the  problem  is  not  so 
much  the  existence  of  different  formal  requirements,  but  the  difficulty  in  establishing 
which national requirement applies. The costs of finding the law applicable to formal acts 
required  for  ensuring  enforceability  or  priority  against  third  parties  (relationship  4  in 
Figure 1) and due diligence may be high55. The lack of harmonised conflict of laws rules 
also increases the number of substantive laws potentially applicable to the mobilisation 
of  credit  claims  as  collateral  which  may  make  it  more  difficult  to  fulfil  the  eligibility 
criteria of the Eurosystem56. 

4.  APPROPRIATENESS OF ARTICLE 3(1) 

In relation to Article 3(1) of the FCD, several policy choices could be considered. 

51  Tamura/Tabakis, p. 20. 
52  Section 3.2.2. 
53   ECB/EC Survey on the access to finance of enterprises in the euro area, November 2014, p. 8, chart 6. 
54   Replies to Question 2. 
55  BIICL,  p.  57-58.  Legal  costs  for  cross-border  transactions  involving  assignments  can  amount  to 

several hundreds of thousands of Pounds/Euros.  

56  Article 97 of the ECB General Documentation requires no more than 2 governing laws applicable to 
(a) the counterparty; (b) the creditor; (c) the debtor; (d) the guarantor (if relevant); (e) the credit claim 
agreement; (f) the mobilisation agreement.  

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First, the status quo could be kept. This is explicitly favoured by twelve Member States57 
that  argue  the  opt-out  provision  allows  for  a  reasonable  balance  of  the  interests.  They 
believe  that  national  publicity  requirements  are  needed  to  protect  the  debtor  and  third 
parties, to combat fraud, at least as long as there is no EU harmonisation of third party 
effect  and  priority.  In  their  view,  this  option  offers  the  chance  to  address,  at  national 
level,  the  legal  risk  that  the  market  faces  with  verification  of  credit  claims.  It  was 
understandable that one encourages the absence of any formal requirements to foster the 
mobilisation  of  credit  claims.  However,  if  the  formal  requirements  are  not  weighty,  it 
would be legally preferable to provide for them to ensure priority of the collateral taker. 
This  may  continue  to  create  legal  uncertainty  where  transfers  of  claims  have  a  cross-
border  element.  This  could  be  mitigated  by  uniform  conflict  of  laws  rules  on  the 
effectiveness  of  a  credit  claim  against  third  parties  and  the  order  of  priority  between 
multiple transfers of the same claim. 

Second, the Article 3(1) option could be removed. This would oblige Member States to 
remove  all  national  provisions  for  credit  claims  used  as  collateral  that  require  the 
performance  of  formal  acts,  e.g.  registration  or  notification  of  the  debtor.  This  is 
advocated by four Member States58 arguing that a deletion of the option would create an 
EU  level  playing  field  and  enhance  legal  certainty,  fostering  the  cross-border  use  of 
credit  claims.  Opposing  views  hold  that  deleting  the  option  would  expose  debtors  and 
collateral takers to risks that are currently addressed by national requirements.  

Third, a review of the FCD could be considered. This could reflect on the harmonisation 
of  substantive  law  issues,  e.g.  formal  acts  required  for  the  perfection,  priority, 
enforceability or admissibility in evidence against the debtor or third parties, when credit 
claims are used as collateral as well as on the appropriateness of ensuring that set-off is 
fully  excluded  with  respect  to  credit  claims  mobilised  as  collateral  with  central  banks. 
The  review  could  also  examine  the  shortcomings  of  the  FCD  relating  to  other  types  of 
collateral  identified  by  respondents  to  the  public  consultation  on  Capital  Markets 
Union59.  

5.  CONCLUSION 

Action at the EU level must respect the principle of proportionality. Formal requirements 
can fulfil a useful purpose and requiring their complete removal would therefore not be 
appropriate.  Leaving  the  choice  of  such  requirements  to  Member  States  creates 
difficulties  in  cross-border  situations,  but  harmonising  them  may  interfere  with  other 
interrelated  provisions  of  national  law.  The  costs  and  benefits  of  any  harmonisation 
would  need  to  be  balanced  very  carefully  and  should  only  be  considered  as  part  of  a 
broader reform after a thorough evaluation of the FCD. In this context, Article 3(1) of the 
FCD seems to continue to be appropriate.  

As  announced  in  the  ‘Action  Plan  on  Building  a  Capital  Markets  Unionʼ,  the 
Commission has launched a broad review on the progress in removing barriers to cross-
border  clearing  and  settlement  with  a  view,  amongst  other  things,  to  improving  legal 
certainty  in  the  cross-border  exchange  of  collateral.  To  this  end,  the  Commission  has 
established  an  expert  group,  the  European  Post-Trade  Forum,  to  identify  the  remaining 

57  AT, BE, BG, EE, FI, HR, LT, NL, PT, SE, SI and UK. 
58  DE, FR, LV, RO. 
59  SEC(2015) 184 final, p. 57. 

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barriers. Furthermore, by 2017 the Commission will take forward early targeted work with 
view  to  reducing  the  uncertainty  surrounding  securities  ownership  as  well  as  propose 
uniform  rules  to  determine  with  legal  certainty  which  national  law  shall  apply  to  third 
party effects of the assignment of claims60. This will contribute to achieving greater legal 
certainty  also  in  cases  of  cross-border  mobilisation  of  credit  claims  as  collateral  and 
correct the drawbacks of the existing situation. 

60  COM(2015) 468 final, p. 23. 

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