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Brussels, 15th May 2002

Financial services: Commission welcomes European Parliament's approval of collateral Directive

The European Commission has welcomed the European Parliament's definitive approval of the proposal for a Directive on collateral. 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 in 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. The Council of Ministers had already unanimously approved the text on 5 March (see IP/02/361).

Internal Market Commissioner Frits Bolkestein, said: "I would like to express my appreciation of the quick and effective way both the European Parliament and the Council have worked to adopt this Directive. We will now at last have a clear framework of rules for collateral and that will boost cross-border transactions and help integrate EU financial markets. By determining which law governs cross-border collateral arrangements and by allowing market participants to set up such arrangements in the same way all over the EU, the Directive will reinforce financial stability and make borrowing easier and cheaper. Along with the other measures in the Financial Services Action Plan, it will contribute to economic growth".

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 new Directive is due to be implemented by Member States within 18 months of its forthcoming publication in the EU's Official Journal (i.e. around the end of 2003).

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