When securities are exchanged across borders, it's not always easy for investors, credit providers and other market participants to know which national law applies to these transactions. In this situation, ownership rights cannot be determined with legal certainty.
The same may occur when a creditor transfers a debt claim to someone else in a cross-border situation. Different national rules about third party effects of assignment of debt claims complicate the use of these instruments as collateral and make it difficult for investors to price the risk of debt investments.
Removing legal uncertainties about cross-border transactions in securities and claims is not only important for buyers and sellers; it is also essential for market participants who are not a party to the transaction but who interact with any of the parties and need certainty about who has a right to the securities or claims.
The action plan on building a capital markets union, adopted by the Commission in September 2015, envisaged a targeted action on securities ownership rules and third party effects of assignment of claims.
In April 2017 the Commission launched a public consultation (consultation on conflict of laws rules for third party effects of transactions in securities and claims) and established an Expert group on conflict of laws regarding securities and claims. The group assisted the Commission by providing specialist advice from experts on private international law and financial markets as a sound basis for policymaking.
In order to consult all interested parties, in February 2017 the Commission published an inception impact assessment providing an overview of the problems to be addressed and the possible solutions. The impact assessment was finalised in 2018.
In March 2018 the Commission proposed the adoption of common conflict-of-laws rules on the third-party effects of assignments of claims. The proposal complements the Rome I Regulation. It provides that, as a rule, the law of the country where the assignor has its habitual residence will govern the third-party effects of the assignment of claims. By introducing legal certainty, the new measures will contribute to promote cross-border investment, enhance access to credit and contribute to market integration.
The Commission's proposal is accompanied by a communication clarifying conflict-of-law rules for securities. In this area, different EU directives (the settlement finality, the winding-up and the financial collateral directives) lay out specific provisions on which national law is applicable to the proprietary effects of cross-border transactions in securities. While broadly similar, these provisions sometimes differ when it comes to details. The communication seeks to clarify the Commission's views on these specific provisions.
Previous work in relation to securities and claims
Previous work of the Commission in this area focused on the harmonisation of substantive securities law. Two expert groups were established by the Commission to
- analyse the areas of legal uncertainty that make it difficult to hold and transfer securities both domestically and cross-border (Legal Certainty Group)
- discuss possible ways to improve legal certainty of securities holding and transactions at EU level (Securities Law Member States Working Group)
In this context, the Commission also carried out two public consultations to get feedback from EU governments, investors and other stakeholders on possible legislative proposals.
With regard to claims, the question of third party effects of assignment of claims was raised when the Rome Convention was transformed into Regulation (EC) No 593/2008 (also known as the 'Rome I Regulation'). The regulation did not address the issue, but it required the Commission to prepare a report on the matter with a view to completing the gap. The Commission asked the British Institute of International and Comparative Law (BIICL) to carry out a study on the issue and presented its report in September 2016.
- Commission report on the question of the effectiveness of an assignment or subrogation of a claim against third parties and the priority of the assigned or subrogated claim over the right of another person
- BIICL study on the question of the effectiveness of an assignment or subrogation of a claim against third parties and the priority of the assigned or subrogated claim over the right of another person
Expert group set up by the European Commission to analyse legal certainty issues in EU securities clearing and settlement systems.
Summaries of responses to consultations on the harmonisation of securities law carried out by the European Commission in 2009 and 2011.