REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the review of settlement finality in payment and securities settlement systems including its application to domestic institutions participating in third-country systems and of financial collateral arrangements under Directives 98/26/EC and 2002/47/EC
Date: 2023-06-28
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU Member State, capital markets union, financial institution, financial legislation, financial risk, financial solvency, payment system, third country

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 28.6.2023  COM(2023) 345 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the review of settlement finality in payment and securities settlement systems including its application to domestic institutions participating in third-country systems and of financial collateral arrangements under Directives 98/26/EC and 202/47/EC   
 
 
REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT 
AND THE COUNCIL 

on the review of settlement finality in payment and securities settlement systems 
including its application to domestic institutions participating in third-country 
systems and of financial collateral arrangements under Directives 98/26/EC and 
202/47/EC 

1.  INTRODUCTION 

The CMU is the EU’s plan to create a truly single market for capital across the EU. Well-
functioning payment systems such as TARGET21 and securities settlement systems such 
as  central  counterparties  (CCPs)  and  central  securities  depositories  (CSDs)  ensure  that 
payments and securities transactions can be made safely and with certainty and this is an 
important foundation for the financial sector and thus for the Capital Markets Union.  
The Settlement  Finality  Directive (SFD)2  aims to  reduce systemic  risk arising from  the 
insolvency  of  participants  in  payment  and  securities  settlement  systems  (‘systems’).  It 
was adopted in 1998 and has since been amended five times. The most recent amendment 
to  the  SFD,  introduced  via  the  second  Bank  Recovery  and  Resolution  Directive 
(BRRD2)3  in  2019,  requires,  under  Article  12a  of  the  SFD,  the  Commission  to  review 
how  Member  States  apply  the  SFD  to  their  domestic  institutions4  which  participate 
directly in systems governed by the law of a third country (i.e. non-EU country) and to 
collateral  security  provided  in  connection  with  participation  in  such  systems.  In 
particular, the Commission was asked to assess the need for any further amendments to 
the  SFD  with  regard  to  systems  governed  by  the  law  of  a  third  country  (‘third-country 
system’).  

Taking  into  account  their  mutual  links,  the  review  of  both  the  SFD  and  the  Financial 
Collateral Directive (FCD)5 assessed the developments since the last review of the SFD, 
which took place in 2008/2009, and their potential impact on the business, technological 
and regulatory environment to ensure the SFD and FCD continue to function as intended.   

To inform  these reviews, a meeting  with  Member States was held  on 27  October 2020 
and targeted consultations on both Directives were launched6 (the consultations). 

This  report  recalls  the  objectives  of  the  SFD  and  FCD.  It  explains  how,  and  to  what 
extent,  Member  States  exercise  the  discretion  to  extend  the  protection  under  SFD  to 
domestic institutions participating in third-country systems, as referred to in Recital 7 of 

(1)  TARGET2 is the real-time gross settlement system owned and operated by the Eurosystem. 
(2)  Directive 98/26/EC (OJ L 166, 11.6.1998, p. 45). 
(3)  Article 12a SFD, introduced via Directive (EU) 2019/879 (OJ L 150, 7.6.2019, p 296). 
(4)  The  definition  of  ‘institution’  in  Article  2(b)  SFD  includes  credit  institution  (domestic  and  third-
country),  investment  firm  (domestic  and  third-country),  public  authorities  and  publicly  guaranteed 
undertakings. 

(5)  Directive 2002/47/EC (OJ L 168, 27.6.2002, p. 43). 
(6)  With a feedback period from 12 February to 7 May 2021; https://finance.ec.europa.eu/regulation-and-
and 

supervision/consultations/2021-settlement-finality-review_en 
https://finance.ec.europa.eu/regulation-and-supervision/consultations/2021-review-directive-financial-
collateral-arrangements_en   

1 

 
 
 
 
                                                      
the SFD7, and summarises  the main areas  that  may  warrant  further reflection to  ensure 
that the SFD and FCD continue to serve its intended purpose.  

2.  THE SETTLEMENT FINALITY DIRECTIVE (SFD) 

Reduction  of  systemic  risk  requires  the  finality  of  settlement  and  the  enforceability  of 
collateral security. Hence, the SFD protects systems as well as participants thereof falling 
within  the  scope  of  the  SFD  by  ensuring  transfer  orders  and  netting  are  legally 
enforceable under all Member States’ jurisdictions and binding on third parties and that 
transfer orders cannot be revoked after a moment defined by the rules of the system. In 
other words, the SFD protects systems by disapplying certain national insolvency rules to 
ensure  that  payments  and  security  transfer  orders  become  final,  even  if  the  instructing 
party becomes insolvent.  
The SFD applies to systems designated as such by a Member State8 and participation in 
SFD-designated  systems  is  mainly  limited  to  banks,  investment  firms  and  system 
operators9.  

2.1.  Application of SFD to systems governed by the law of a third country  

The SFD does not apply to third-country systems, however, as referred to above, 
Member States are free to adopt legislation to extend the protections contained in the 
SFD to domestic institutions participating directly in third-country systems and to any 
relevant collateral security (‘extension for third-county systems’)10.  

Given  the  global  size  of  and  activities  within  some  third-country  systems  and  the 
increased  participation  of  entities  established  in  the  EU  in  such  systems11,  the  review 
clause in Article 12a of the SFD tasked the Commission to assess “how Member States 
apply  this  Directive  to  their  domestic  institutions  which  participate  directly  in  systems 
governed by the law of a third country and to collateral security provided in connection 
with participation in such systems.”. 

There are different practices on how to undertake an extension for third-county systems 
among  the  Member  States.12  By  applying  the  SFD  protections  to  such  domestic 
participants  the  national  law  is  disapplied  for  orders  that  are  entered  into  the  third-
country system thereby contributing to the settlement finality of those orders.  
13 Member States13 indicated that they do not have in place a regime for an extension 
for third-county systems. Of those Member States: 

  5 explicitly indicated their preference for a harmonised approach at EU level; 
  3  stated  that  their  national  institutions  had  not  asked  for  access  to  third-country 

systems; 

  2  noted  that  no  further  harmonisation  was  needed  and  1  of  them  noted  that  third-
country systems did not pose substantial risk for the financial stability of the EU. 

(7)  Please  see  Recital  7 

in 

the  SFD  as  adopted 

in  1998 

(https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:31998L0026) 

(8)  Article 2(a) of SFD. 
(9)  For more details see Article 2(f) SFD and section 2.2. of this report. 
(10)  Recital 7 states “Whereas Member States may apply the provisions of this Directive to their domestic 
institutions  which  participate  directly  in  third  country  systems  and  to  collateral  security  provided  in 
connection with participation in such systems”. 

(11)  See Recital 34 of the BRRD2. 
(12)  23 Member States replied to the Commission survey, with the exception of the following four (EL, IE, 
LV, MT). The number of Member  States quoted in the sections below are based on the  23 Member 
States who replied to the consultation. 

(13)  AT, BG, CY, CZ, ES, HR, HU, LT, PT, SI, SK, RO, PL 

2 

 
                                                      
10  Member  States14  have  a  regime  in  place  for  a  possible  extension  for  third-county 
systems and have implemented national legislation applying the provisions of the SFD to 
their  domestic  institutions  that  participate  in  third-country  systems  to  ensure,  in 
particular, EU banks are able to continue participating in third-country systems after the 
UK’s departure from the EU. Of those Member States: 

  615 indicated they applied substantive provisions of the SFD in their entirety16 in the 
event of insolvency proceedings against a participant in the third-country system (i.e. 
rights and obligations under or in connection with participation in a system are solely 
determined by the law governing that system); 

  none  of  the  Member  States  indicated  that  they  apply  the  extension  under  the 
condition of reciprocity, i.e. they do not apply the extension only if the third country 
provides similar protections to its entities participating in SFD-designated systems. 

7  Member  States17  with  a  regime  in  place  for  a  possible  extension  for  third-county 
systems  assess  a  third-country  system’s  compliance  on  a  case-by-case  basis  with 
certain criteria and if they are satisfied that those criteria are met, the system is granted 
an extension for third-county systems 18 19. Of those Member States: 

  420  have  only  decided  on  an  extension  for  third-county  systems  for  domestic 

participants participating in UK-based systems;  

  1 has in place a regime for an extension for third-country systems but has not done an 

assessment for any system yet, as no specific request to do so was received; 

  2 21 require that the system is based in a country whose central bank is a member of 

the Bank for International Settlements; 

  5 22 consider the adequacy of the rules of the system and require a protection of the 

third-country law similar to the SFD. Of those Member States: 
-  223  indicated  the  need  for  an  equivalence  decision  by  the  Commission  and  a 
recognition  decision  for  the  CCP  by  ESMA  under  Regulation  (EU)  No 
648/201224 for the SFD protection to be extended for participants in third-country 
CCPs; 

-  225  highlighted  that  they  applied  the  regime  to  systems  that  they  considered  of 

systemic importance; 

-  1  demands  that  the  system  operator  is  adequately  supervised  by  an  authority  or 
other competent  body, and that the system needs to  be organised in  such a way 
that the financial status of the participants in the system can be overseen; 

(14)  BE, DE, DK, EE, FI, FR, IT, LU, NL, SE 
(15)  BE, DE, FI, LU, NL, SE 
(16)  Excluding SFD provisions concerning EU specific procedures such as  Article 6(3) and Article 10(1) 

SFD. 

(17)  DK, EE, FR, IT, LU, NL, SE 
(18)  Recital 7 states “Whereas Member States may apply the provisions of this Directive to their domestic 
institutions  which  participate  directly  in  third  country  systems  and  to  collateral  security  provided  in 
connection with participation in such systems”. In order to ensure easier readability, this report refers 
to ‘Recital 7 designation’ when a Member State exercises the discretion as referred to in Recital 7 of 
the SFD in national law. 

(19)  This decision is made publicly available afterwards in 5 Member States (DK, FR, IT, LU, SE). 
(20)  DK, FR, IT, SE 
(21)  LU, NL 
(22)  DK, EE, FR, IT, SE 
(23)  FR, IT 
(24)  Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC 

derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1). 

(25)  FR, SE 

3 

 
                                                      
-  326  require  the  system  operator  to  provide  necessary  information,  including  the 
rules  of  the  system,  the  participants  in  the  system  and  important  changes  to  the 
third country’s laws affecting the system; 

-  1  requires  system  operators  of  third-country  systems  to  provide  a  legal  opinion 
certifying  that  the  level  of  regulatory  security  is  equivalent  to  that  of  systems 
governed by the law of that Member State. 

3  Member  States27  with  a  regime  in  place  for  a  possible  extension  for  third-county 
systems do not assess the compliance of a third-country system upfront. Instead, only 
third-country systems that correspond to the definition of a system under the SFD can be 
subject to such extension and where this is the case, then in an insolvency proceeding of 
a domestic participant, the rules governing the third-country system apply to the domestic 
participant  to  such  third-country  system.  Of  those  Member  States,  128  indicated  that  it 
also assessed the equivalence of third-country systems, in connection with the insolvency 
proceedings  of  a  domestic  participant,  and  the  law  of  the  third-country  would  only 
become applicable where the third-country system is equivalent to the systems within the 
scope of the SFD. 

Third-country  systems  have  an  interest  in  legal  certainty  and  settlement  finality 
protection in the case of the insolvency of their EU participants. Hence there is a risk that 
participants  from  Member  States,  that  have  not  extended  the  SFD  protections  to  such 
participation in third-country systems, might be refused access to third-country systems. 
Because  not  all  Member  States  have  extended  the  SFD  protections  to  participants  in 
third-country systems, and because those Member States that have done it apply different 
criteria  and different  procedures to  grant  the  extension, there is  a  lack of  a harmonised 
treatment  of  participation  in  those  systems  in  the  EU.    This  has  an  impact  on  both, 
third-country systems and EU interests.   

2.2.  Participants in SFD designated systems 
Today, the SFD applies to a specific list of participants29 (mainly EU banks, investment 
firms  and  operators  of  systems).  For  this  reason,  payment  institutions  (PIs)  and  e-
money  institutions  (EMIs)  have  to  rely  on  banks  to  get  access  to  designated  systems. 
The  large  majority  of  the  respondents  to  the  consultation  were  in  favour  of  adding  PIs 
and EMIs to the list of participants. Banks generally noted that those entities do not face 
as  strict  prudential  requirements  as  banks,  and  as  such  their  direct  participation  could 
pose risks that should be addressed by specific requirements to protect the system and its 
participants. PIs and EMIs ask to be allowed to be direct participants, claiming to incur 
additional costs for indirect access and pointing to the need to create a level playing field 
with banks.  As part of the review of the PSD230 the Commission is proposing to extend 
the scope of the SFD to include PIs and EMIs. In addition, the Commission also notes the 
support  for  adding  CSDs  to  the  SFD  list  of  eligible  direct  participants  where  they 

(26)  SE, EE, FR 
(27)  BE, DE, FI 
(28)  FI 
(29)  See  Article  2(f)  SFD  for  the  definition  of  ‘participant’.  Participants  include  ‘institutions’  (‘credit 
institutions’ or ‘investment firms’ headquartered in or outside the EU, public authorities and publicly 
guaranteed  undertakings,  and  any  other  undertaking  participating  in  a  national  securities  settlement 
system as determined by a Member State on the grounds of systemic risk (the latter discretion does not 
extend to payment systems)), ‘CCPs’, ‘settlement agents’, ‘clearing houses’, clearing members of an 
EMIR authorised CCP and ‘system operators’. 

(30)  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  payment  services  and 
electronic  money  services  in  the  Internal  Market  amending  Directive  98/26/EC,  and  repealing 
Directives 2015/2366/EU and 2009/110/EC 

4 

 
                                                      
participate  in  a  system  in  the  function  other  than  that  of  ‘settlement  agent’  or  ‘system 
operator’ to provide clarity and transparency. 

2.3.  Systems based on Distributed Ledger Technology (DLT) 

The SFD is intended to be technologically neutral. Current SFD concepts seem to work 
for centralised/permissioned DLT31 systems. However, such concepts seem not to work 
for  permission-less  DLT32  systems  as  there  is  no  centralised  operator,  unidentified 
participants can enrol without restriction and functions can be attributed simultaneously 
to several participants.  

With  regards  to  centralised/permissioned  DLT  systems  where  current  SFD  concepts 
seem  to  work,  targeted  adaptations  might  potentially  provide  further  clarity  on  how 
certain  concepts  apply,  e.g.  on  the  definition  of  ‘transfer  order’33  and  the  concept  of 
‘book-entry’, as well as the definitions of ‘settlement account’34 and ‘settlement agent’35. 
However, as the Regulation for a pilot regime on DLT market infrastructures (EU DLT 
Pilot  Regime36)  was  only  recently  adopted,  there  is  not  yet  enough  experience  on  the 
benefits and risks associated with the use of DLT in trading and settlement37. Hence, any 
considerations on potential amendments to the SFD would be premature. The results of 
the EU DLT Pilot Regime can be expected to provide further insights to help with such 
considerations.  

2.4.  Additional aspects identified 

The  consultation,  identified  some  issues  for  consideration,  including  the  need  for  a 
requirement  in  the  SFD  that  also  a  system  operator  should  be  immediately  notified 
about the insolvency of a participant (in addition to an authority chosen by the Member 
State,  the  ESRB,  ESMA  and  other  Member  States38)  to  bring  legal  certainty  to  the 
practises  of sharing such  information to the system. Another important  question, which 
raised  opposing  views  by  the  respondents  to  the  consultation,  was  whether  settlement 
finality  moments  should  remain  specified  by  the  system  operator  in  the  rules  of  the 
system, as currently provided for by the SFD, or if such moments should be specified in 
the SFD to increase legal certainty for market participants.  

(31)   A network in which only those parties that meet certain requirements are entitled to participate to the 
validation and consensus process (see footnote 4, Call for evidence, DLT Pilot Regime and review of 
MiFIR regulatory technical standards on transparency and reporting,  4 January 2022, ESMA70-156-
4957). 

(32)   A network in which virtually anyone can become a participant in the validation and consensus process 
(see  footnote  3,  Call  for  evidence,  DLT  Pilot  Regime  and  review  of  MiFIR  regulatory  technical 
standards on transparency and reporting, 4 January 2022, ESMA70-156-4957). 

(33)  Article 2 point (i) of the SFD. 
(34)  Article 2 point (l) of the SFD. 
(35)  Article 2 point (d) of the SFD. 
(36)  Regulation (EU) 2022/858 (OJ L 151, 2.6.2022, p. 1). 
(37)  Article 6 of the EU DLT Pilot Regime. In relation to DLT SS (Article 5 of the EU DLT Pilot Regime), 
there  is  for  example  an  exemption  for  CSDs  operating  a  DLT  SS  in  the  sense  that  the  term 
‘participant’  in  the  SFD  is  deemed  to  include,  under  certain  conditions,  persons  other  than  those 
referred to in that Directive where such DLT SS ensure that the persons to be admitted as participants 
fulfil certain conditions. In addition, the EU DLT Pilot Regime allows a CSD to operate a DLT SS that 
does not qualify as a securities settlement system designated under the SFD, and an exemption from 
the  rules  on  settlement  finality  in  the  CSDR  is  available,  subject  to  certain  compensatory  measures, 
including to mitigate risks arising from insolvency, as insolvency protection measures under the SFD 
do not apply. However, such an exemption would not preclude a DLT SS, which complies with all the 
requirements  of  the  SFD,  from  being  designated  and  notified  as  a  securities  settlement  system  in 
accordance  with  that  Directive.  In  addition,  the  EU  DLT  Pilot  Regime  contains  similar  exemptions 
where an investment firm or market operator operates a DLT TSS.  

(38)  Article 6 of the SFD. 

5 

 
                                                      
3.  THE FINANCIAL COLLATERAL DIRECTIVE (FCD) 

The  smooth  and  safe  exchange  of  collateral  is  essential  for  the  well-functioning  and 
stability of financial markets and the Capital Markets Union. The FCD was adopted on 6 
June 2002 and introduced a harmonised framework for the use of financial collateral to 
secure  transactions  and  it  contributed  to  enhancing  cross-border  use  of  financial 
collateral.  Such  a  more  comprehensive  approach,  covering  over-the-counter  (OTC) 
transactions,  was  deemed  necessary  because  of  divergent  national  rules  applicable  to 
financial collateral were frequently impractical and often opaque. 

The FCD does not aim to fully harmonise national laws applicable to financial collateral 
arrangements. Rather, it aims to remove barriers to the timely cross-border creation and 
operation of such collateral arrangements.  This aim is achieved by providing protection 
to collateral takers notably by: (i) ensuring that financial collateral arrangements can be 
mobilised and are usable without delay due to national formalities; (ii) ensuring close-out 
netting39 provisions are enforceable in accordance with their terms and (iii) ring-fencing 
the  operation  of  financial  collateral  arrangements  should  one  of  the  parties  become 
insolvent.  

While  these  protections  constitute  exceptions  to  the  principles  of  equal  treatment  of 
creditors  upon  the  opening  of  insolvency  proceedings  and  universality  of  insolvency 
proceedings they are needed to help to avoid systemic contagion risks throughout the EU.  

3.1.  Who should benefit from FCD protection? 

To  benefit  from  the  FCD’s  protections,  the  collateral  taker  and  the  collateral  provider, 
must be one of the entities listed in Article 1(2) of the FCD40.  Respondents noted that the 
FCD  should  cover  all  systemically  important  market  participants.  While  CSDs  were 
generally  considered  as  systemically  important,  the  views  differed  to  greater  extent  on 
PIs  and  EMIs.  Consequently,  to  extend  the  scope  of  the  FCD  to  additional  market 
participants  such  as  PIs  and  EMIs  warrants  further  consideration  and  monitoring,  in 
particular  in  relation  to  the  level  of  supervision  and  the  need  to  align  FCD  and  SFD 
considering the proposed changes under PSD II to include PIs and EMIs under the SFD.  

3.2.  Which types of financial collateral should benefit from FCD protections? 

Currently, cash, financial instruments and credit claims are eligible as financial collateral 
under  the  FCD41.  To  keep  up  with  market  and  regulatory  developments  affecting 
financial collateral that is currently used, or may be used in future by market participants, 
the  current  list  of  eligible  financial  collateral  under  the  FCD  could  be  reviewed,  for 
example,  to  consider  whether  to  include,  if  the  scope  of  financial  collateral  would  be 
considered  to  be  extended,  bank  guarantees,  emission  allowances,  commodities  and 
commodities  instruments.  Any  such  extension  would  have  to  meet  the  requirements 
under  FCD,  including  key  concepts  such  as  ‘possession’  and  ‘control’  of  the  financial 
collateral to ensure, for example, that the collateral provider is prevented from disposing 
of the collateral.  

(39)  Close-out  netting  is  an  arrangement  commonly  used  in  financial  markets,  to  set  off  and  replace  all 
agreed  but  not  yet  due  liabilities  and  claims  vis-à-vis  a  counterparty  by  one  single  claim/liability.  It 
ordinarily covers instances where a counterparty defaults or becomes insolvent. 

(40)  The  list covers  public authorities, central banks,  financial  institutions (such as credit institutions and 
investment firms), CCPs, settlement agents and clearing houses. A person other than a natural person 
(including  unincorporated  firms  and  partnerships)  can  also  be  within  the  FCD’s  personal  scope, 
provided  that  the  other  party  to  the  financial  collateral  arrangement  is  one  of  the  aforementioned 
entities. 

(41)  Article 1(4), point (a) of the FCD.  

6 

 
                                                      
The  FCD  is  intended  to  be  technologically  neutral.  Accordingly,  it  can  apply  to  DLT 
based  collateral  if  the  latter  complies  with  the  conditions  set  out  in  that  Directive. 
However, for crypto-assets to qualify as financial instruments, the ownership provision, 
possession  and  control  requirements  of  the  FCD,  might  potentially  raise  issues42. 
Questions remain how these  issues  could  be  addressed  and whether the  FCD would be 
the right place to do so. The results of the EU DLT Pilot Regime might provide further 
insights on this issue.   

3.3.  Additional aspects identified 

It  was  noted  in  the  consultation  that  the  diverging  implementation  of  the  FCD  by 
Member States,  especially  concerning the scope  and opt-out  provisions43, have  resulted 
in  legal  uncertainties  and  risks  for  market  participants,  in  particular  in  the  context  of 
netting arrangements. Some respondents claimed in particular that there were legal issues 
related  to  the  application  of  national  avoidance  actions  affecting  close-out  netting 
provisions  that  might  lead  to  challenges  in  the  application  of  such  provisions.  There 
were  also  suggestions  to  improve  the  coherence  of  EU  legislation  on  netting  and  to 
expand  the  material  scope  beyond  the  collateral  arrangements.  As  the  FCD  deals 
primarily with financial collateral and only peripherally with netting (only as one of the 
methods that can be used to enforce collateral arrangements), the Commission remains44 
of the view that an amendment of the FCD is  likely  not  the right  place  to  improve the 
general EU framework for netting. 

Furthermore,  industry  respondents  asked  for  a  clarification  and  high-level  guidance 
regarding  the  FCD  concepts  of  ‘possession’  and  ‘control’  noting  that  whilst  those 
aspects have been subject to a judgement of the Court of Justice of the European Union45 
it  remains  appropriate  for  detailed  guidance  to  be  provided  at  a  national  level,  as  each 
jurisdiction has  its own  laws on security and insolvency procedures. Other respondents 
considered that further high-level guidance could be usefully provided at the EU level. 

4.  CONCLUSIONS 

In general, both Directives have worked well and no major overhaul of the SFD and the 
FCD seems warranted for the time being. Still, stakeholders have raised issues that could 
warrant  further  investigation  and  monitoring.    For  one  of  the  aspects  raised,  namely 
extending the scope of the SFD to PIs and EMIs, the Commission decided to propose an 
amendment as part of the review of the PSD246. 

Overall,  the  Commission  notes  the  possible  impacts  of  new  technology  as  well  as  the 
lack  of  legal  certainty  in  certain  areas  conducive  to  potential  additional  costs  for  the 

(42)  For example, dispossession and control can be challenging in the context of DLT as, in many models, 
what might constitute legal ownership in a DLT may be unclear. This is primarily a matter for national 
securities, corporate, contract and/or property law. Furthermore, enforcement of rights  might rely on 
the  actions  of  others  (e.g.  where  private  keys  from  different  parties  are  needed  to  transfer  an 
instrument and/or validation of transfer requires consensus from different nodes). 

(43)  For  example,  a  Member  States  can,  pursuant  to  Article  1(3)  of  the  FCD,  opt  to  disapply,  i.e.  can 
exclude  situations  from  the  scope  of  the  FCD  financial  collateral  arrangements  where  one  of  the 
parties  is  a  person,  including  unincorporated  firms  and  partnerships  (Article  1(2),  point  (e)  of  the 
FCD). 

(44)  Commission  Report  ‘Evaluation report on the Settlement Finality Directive 98/26/EC’, COM (2005) 

657 final/2. 

(45)  Court  of  Justice  of  the  European  Union;  case  C-156/15  of  10  November  2016;  where  the  Court 
specified that "the taker of collateral (...) may be regarded as having acquired ‘possession or control’ 
of the monies only if the collateral provider is prevented from disposing of them ". 

(46)  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  payment  services  and 
electronic  money  services  in  the  Internal  Market  amending  Directive  98/26/EC,  and  repealing 
Directives 2015/2366/EU and 2009/110/EC. 

7 

 
                                                      
financial  market  participants.  It  is  noted  that  a  lower  level  of  harmonisation  leaves  a 
considerable discretion for transposition and implementation to Member States and may 
create difficulties in cross-border situations, some of which have also been identified in 
this  review.  However,  any  further  harmonisation  of  SFD  and  FCD  provisions  should 
carefully consider the costs and benefits.   

8