Brussels, 30/03/2001 (Agence Europe) - The European Commission adopted on Friday a draft Directive to harmonise and simplify the rules on collateral in the European Union. It pursued the two fold objective to increase the liquidity of the collateral markets, due to administrative burdens, and to reinforce the legal security of creditors by reducing the risks linked to the coexistence of fifteen different systems. This proposal is part of the action plan for financial services adopted by the Lisbon Summit in March 2000 to establish an integrated financial market by 2005. Only in the Eurosystem, the European Central Bank and the Central Banks held at the beginning of 2000 guarantees valued to around EUR 550 billion, of which close to 160 correspond to cross border contracts. Commissioner Frits Bolkestein, responsible for the Internal Market, stated that this proposal is "the first step towards integration of the financial market for collateral in the EU and so tackling a major disincentive to cross border transactions". The Commission feels that its proposal should be adopted, according to the codecision procedure, in 2003 and be transposed around 2004.
Collateral is a right on a debtors assets, for an equivalent value to that of the loan, which allows the lender to pay himself when the debtor does not respect his obligations. This concerns a right above the simple right to recover the amount due (creditor right). For example, it takes the form of an asset that represents the creditors right (netting), which it can liquidate if the debt is not reimbursed. This can concern a dematerialise asset, that is to say included on the register. The market operators use this to generate and reduce the credit risk to which they expose a whole series of operations, from derivative contracts to standard banking loans. Confronted with the traditions of each Member States in this matter, these operators are slowed by different national legislation, especially in terms of bankruptcy, validity and implementations conditions for guarantees, whose rules sometime date back several centuries, and the law applicable to contracts. Since Roman law, the law applicable to the location were the guarantee is found in virtue of the lex rei situae principal. In the case of dematerialised securities, increasingly common due to the development of computer systems, the Directive specifies that the law enforced is that of the last financial institution where the asset is registered.