The European Commission has issued its evaluation report on the Financial Collateral Arrangements Directive (2002/47/EC). The report concludes that the Directive has made the use of financial collateral and the enforcement of collateral obligations simpler and more efficient. Overall, Member States have adequately implemented the Directive. The Commission proposes an extension of the Directive’s scope to include certain credit claims that, as of 1 January 2007, will be eligible as collateral for Eurosystem credit operations.
Internal Market and Services Commissioner McCreevy said: “The past few years have seen a spectacular increase in the cross-border use of financial collateral, making EU financial markets even more liquid and integrated. Investors can now access funds more efficiently, and credit institutions can provide lending more efficiently. The introduction of the Financial Collateral Directive three years ago has contributed to this success, which is why I am now open to extending its scope to include other types of collateral.”
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About the evaluation report
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This Financial Collateral Directive (FCD) creates a uniform EU legal framework for the cross-border use of financial collateral and thus abolishes most of the formal requirements traditionally imposed on collateral arrangements. Under Article 10 of the Directive, the Commission had to present a report on the application of the Directive before 27 December 2006.
Most Member States implemented the FCD provisions in their national laws after the deadline for implementation set by the Directive, while nine Member States did so only in the course of 2005. As a result, market experience with the use of the Directive is relatively recent and it is premature to make a final assessment of the impact of the Directive. However, the overall impression is that the FCD is functioning well and has made the use of financial collateral and the enforcement of collateral obligations simpler and more efficient.
As of 1 January 2007, the European Central Bank will introduce certain credit claims as an eligible type of collateral for Eurosystem credit operations. The Commission considers that this contributes to further liquidity of EU financial markets and is therefore open to extending the material scope of the Directive. The report also addresses the three opt-out provisions contained in the Directive and the need to improve the provisions on close-out netting and conflicts of law.
