Today, ECSDA responded to the EU conflicts of law consultation. The legal certainty of securities settlement and holdings is of utmost importance for the resilience of CSDs’ ecosystems and the safety of their operations. For this reason, European CSDs have contributed to the creation of conflict of laws rules carefully crafted to address the special needs of securities settlement systems. ECSDA would like the legislators to ensure that the certainty provided by these rules is not altered in any new pieces of law.
ECSDA does not see an urgent need for an overarching reform of conflict of laws rules on third party effects of transactions in book-entry securities for legal certainty in the European Union for the following reasons:
- European CSDs believe that the legal environment in which they operate is sufficiently secure. It recognises the unique role played by Securities Settlement Systems and generally allows CSDs to adequately deal with conflict of laws, including if any would arise in a situation of a default of a large participant.
- The European legislators have already proposed the conflict of laws rules in the Settlement Finality and the Financial Collateral Directives (SFD and FCD, as they are amended by the Directive 2009/44/EC) and the Winding up Directive (2001/24/EC). We believe that they help to ensure sufficient legal certainty for securities transfers and collateral movements involving European Securities Settlement Systems.
This applies even more to certificated securities, as the relevance of certificated securities in respect of cross-border transactions is continuously decreasing.
Therefore, ECSDA would prefer to discourage the legislators from reviewing pieces of legislation that are well-functioning. We perceive that the result would be an increase in legal uncertainty, in the event that the CSD legal environment is changed.
If the EU moves ahead with an EU legislative action, a fine-tuning of the current framework in the areas where it is needed would be preferable to an over-arching reform. If ever European legislators would still conclude that an overarching reform is needed for legal certainty, it should provide for a solution that addresses all types of securities movements, including collateral or other portfolio management-related movements. In our view, the most plausible connecting factor is the PRIMA approach. We believe that it would be the most optimal compromise because historically the EU conflict of laws rules for CSDs have been based on the PRIMA approach. The rules have proved to function well for the CSDs in the past and do not require a change.