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Brussels, 5th March 2002

Financial services: Commission welcomes Council's Common Position on collateral Directive

The European Commission has welcomed the Common Position on the Commission's proposal for a Directive on collateral agreed unanimously, without discussion, by the 5th March Council of Finance Ministers. The Directive will create a clear and uniform EU legal framework to limit credit risk in financial transactions through the provision of securities and cash as collateral. The Commission's proposal was presented on 27 March 2001 (see IP/01/464 and MEMO/01/108). The Directive is a priority measure under the Financial Services Action Plan (see IP/00/1269), endorsed by the Lisbon and Stockholm European Councils as a key element in the making Europe's economy the most competitive in the world by 2010. Collateral is already a huge market in the EU, with the total value of outstanding contracts on the market for repurchase agreements ('repos') alone estimated to be worth around 2 trillion euros.

Internal Market Commissioner Frits Bolkestein, said: "I am very pleased that the Council has reached a Common Position on the collateral proposal and I hope the European Parliament will now support swift adoption of this long-awaited Directive. The lack of a clear framework of rules for collateral has been a major disincentive to cross-border transactions. The Directive will contribute to the greater integration and cost-efficiency of European financial markets by determining which law governs cross-border collateral arrangements and by making it possible for market participants to conclude such arrangements in the same manner throughout the EU. It will therefore result in improved financial stability and help create better borrowing conditions to the benefit of the European economy."

Collateral is the property (such as securities) provided by a borrower to a lender to minimise the risk of financial loss to the lender in the event of the borrower failing to meet in full their financial obligations to the lender. Market operators in the European Union currently face fifteen different legal regimes for the provision of collateral, which leads to uncertainty over the effectiveness of collateral as protection in cross-border transactions.

The Council's Common Position will now be transmitted to the European Parliament, for its second reading.

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