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The Financial Law Reform Committee was formed in 1999 to promote and monitor improved legislation, initially in the European Union. This Committee published a critique of the current situation in the 15 EU member states, together with recommendations for legislation, which appeared in March 2000 under the title 'Collateral Arrangements in EU Financial Markets'. This is available from the ISDA web site (summary, country reports). The EU efforts resulted in the official publication of the EU Collateral Directive in June 2002 (Directive 2002/47/EC of 6 June 2002 on financial collateral arrangements; click here for the official version). In June 2009, the Directive 2009/44/EC of 6 May 2009 amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims has was officially published in the EU Official Journal.

ISDA welcomes the European Parliament's final approval of the EU directive on collateral. The Directive is aimed to allow all participants in the financial markets to use collateral to support cross-border payment and security transactions. Collateral is the property (such as securities) provided by a borrower to a lender to minimize the risk of financial loss to the lender. The directive will clear up current uncertainty over the effectiveness to collateral in cross-border transactions by harmonizing the legal regimes throughout the fifteen EU member states. The Directive has been adopted without amendments after having been fast-tracked through the legislative process as a priority of the Financial Services Action Plan, which aims to create a single European capital market in late 2003. Its implementation in the member states should take 18 months after official publication (June 2002).

As during the drafting process, ISDA will continue to monitor and contribute to the implementation process of the Directive in EU member states. For information on the implementation status of the Collateral Directive in EU member states, please click here.

In 2001, the Collateral Law Reform Group initiated a working group on the Hague Conference on Private International Law, which is engaged on a project to develop a working 'Place of the Relevant InterMediary Approach' (PRIMA) to deal with conflicts of law as they touch on cross-border collateral arrangements. In October 2001, ISDA submitted a comment letter responding to the Conference's 'Annotated Draft of July 2001'. ISDA subsequently attended the January 2002 'Experts' meeting of the Conference and in March submitted comments on the January and April 2002 draft Conventions arising from that meeting. ISDA has also commented on the "June 2002 draft" and participated in the Diplomatic Session that on December 13, 2002 adopted the Convention on the Law Applicable to Certain Rights in Respect of Securities Held with an Intermediary. (Please also see the ISDA submission to MAS Singapore of April 9, 2003).

The International Institute for the Unification of Private Law (UNIDROIT) has constituted a Study Group on the Harmonised Substantive Rules for the Use of Securities Held with Intermediaries as Collateral. This project will deal with substantive issues relating to the creation, perfection, and pre- and post-insolvency enforcement of collateral arrangements. The Study Group is scheduled to meet two to three times a year after its inaugural meeting in September 2002. ISDA has submitted comment letters to Unidroit in September 2002, November 2003, September 2004, March 2005, February 2006, October 2006 and April 2007. On 9 October 2009 the convention was adopted as the Geneva Securities Convention. The United Nations Commission on International Trade Law (UNCITRAL) is currently working on a legislative guide on secured on transactions. ISDA has commented on the draft version March 2007 (Reference A/CN.9/631). The final version of the Legislative Guide has been adopted in December 2007.

Last Updated: March 3, 2011