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Financial collateral directive to be implemented

05.04.2004

The government has approved a draft law which amends a number of statutes concerning transactions between domestic financial institutions and other parties. The draft law is based on the provisions of the EU Financial Collateral Directive (2002/47/EC).

The Law of Property Act 1993 will be supplemented with a provision which defines financial collateral' and related terms. 'Financial collateral' is defined as security provided between the parties specified in the draft law where the object in question is money or securities. Financial collateral agreements must be drawn up according to the specified format.

The Estonian Central Register of Securities Act 2000 will impose an additional obligation on holders of nominee accounts with respect to such securities which have been registered with the Estonian Central Securities Depository, but which are held on the basis of a nominee account. If these securities are proposed as financial collateral, the holder of the nominee account must secure the segregation thereof from the other securities of the collateral provider. The nominee account holder must also ensure that the nominee account holder follows the instructions of the pledgee as regards the securities from the time when the right to dispose of the securities provided by the pledgor to the pledgee enters into force.

The Law of Obligations Act 2001 will outline a procedure to be followed by the account holder where funds are pledged as financial collateral within the meaning of the Law of Property Act. The account holder must ensure that pledged funds or deposits are segregated from the other assets of the financial collateral provider. Furthermore, the act will stipulate a procedure for the proposal of electronic securities that are not registered with the Estonian Central Securities Depository as financial collateral.

Currently, the Private International Law Act 2002 lacks a special provision on the law applicable to securities maintained in an electronic register. An amendment to the law will specify the country whose substantive law provisions are to be applied to electronically registered securities.

The Credit Institutions Act, the Insurance Activities Act and the Bankruptcy Act will also be amended.

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