Aleksandar Dorich[1]



The current article unfolds three main stages of analysis on the EU and national legislation regulating the matter of financial collateral agreements, as well as examination on the legal characteristics of the financial collateral agreements themselves. The first stage relates to the questions: (i) what is the meaning of the term opt-out (or the right not to participate in certain European Union policy areas) in the light of the Financial Collateral Directive (FCD)? and (ii) which is the lowest threshold for harmonization of national legislations? The second stage provides an analysis on the legal characteristics of the financial collateral agreements in the light of European Union law and the Bulgarian national law. It unveils certain collisions between the European Union law and the Bulgarian national law. In this context the problems that arise from different official language versions of EU legislation are discussed and therefore an approach for resolving the said problems is proposed. In the third and final stage an analysis of the characteristics of the credit claims as a new form of security is provided. In addition to that the article aims to make up for the legislative deficiencies related to the liability of the collateral provider.

Given that the FCD is a legal instrument for partial, but not full harmonization, minimum standards in accordance with the principles of subsidiarity and proportionality are introduced in the legal systems of the EU Member States. Considering the foregoing the Member States are provided with legislative discretion and choice whether to (and if they do – how to) upgrade beyond those minimum standards set out in the FCD. This legislative freedom should not be confused with the opt-out mechanisms provided by the European legislator. From the perspective of the European Union law opt-outs are a threat to the proper legal harmonization. They lead to an imperfect attainment of the objective for harmonization and to inhomogeneity of integration. For these reasons they should be formulated in a clear, precise and unambiguous way. On the other hand, from the perspective of the Member States, opt-outs are considered as a protection tool of their independence and sovereignty. In the field of regulation of the financial collateral the opt-outs provided by the European legislator are regarded as a liberty tool through which lawful exclusion of the application of certain legal options is achieved. This liberty tool is provided in secondary EU law. This is not an opt-out specifically requested by the Member States. It is provided at the will of the European legislator. For this reason, the article argues that the opt-out is in fact the harmonization minimum of the FCD.

The different types of opt-out mechanisms are analysed. The article differentiates and classifies four main categories of legal opt-out options: (i) the personal reach of the FCD (ratione personae); (ii) the substantive scope of the FCD (ratione materiae); (iii) the legal institute of “appropriation” of securities; (iv) the option to exclude from the scope of the FCD all credit claims as defined in Article 1, paragraph 4, item c) of FCD.

As a separate aspect of the opt-out, the consequences of this mechanism are examined. The most significant consequence is divergence in the legal regimes, governing the area of financial collateral in the legal systems of the Member States. Such inconsistencies are present due to the discretion provided to Member States to determine different minimum standards of “harmonization” (i.e. the purpose and essence of the synchronization of laws is distorted).

The next major topic discussed in the article is the one concerning the legal characteristics of the financial collateral agreements. Along with the said issue the question regarding the contradictions between the Bulgarian law and the FCD is addressed, as well as the issue of improper transposition and implementation of the FCD, resulting from the different official language versions of the FCD.

An emphasis is put on one hand on the real character of the financial collateral agreements and on the other – on the question whether a legislative discretion to establish the financial collateral agreements as a consensual type of agreement exists. An analysis of the contradictions between the Bulgarian national legislation and the FCD is carried out. The necessity of such analysis derives from the real character of the financial collateral agreements which was adopted by the Bulgarian legislator. In particular, a review of the set of facts which are necessary for the conclusion of financial collateral agreements having as a collateral book-entry securities is made. The examination establishes a conflict between the provisions of the FCD and paragraphs 17 and 18 of Appendix 12 to the Central Depository Rules. Thus, the requirement of the Central Depository Rules that a notarized copy of the financial collateral agreement is to be submitted for the purposes of registration of the transfer or for the purposes of indicating that financial collateral is established on the respective account is inherently an unlawful administrative burden. This requirement per se interrupts the lawful development and presence of the necessary set of facts indispensable for the conclusion of any such financial collateral agreements. The requirement is therefore in contradiction with the real nature of the financial collateral agreements.

The issue of lexical differences in European Union law and the interpretative techniques and approaches in the light of the case law of the Court of Justice of the European Union (CJEU) is also discussed. In particular, the question related to the improper transposition of the FCD and therefore the imperfect attainment of its objectives is examined. The manner in which the issue of opposability of the financial collateral agreements is established in the Bulgarian version of the FCD actually creates a necessity for corrective interpretation. For these reasons the following questions are examined: (i) how should the EU legislative acts be interpreted in the presence of lexical differences in the respective language versions? and (ii) what is the approach of the CJEU when such collisions are present? The article argues that the literal interpretation of recital 10 and Article 3 of the FCD /the Bulgarian version/ creates the false impression that the national legislator does not have the discretion to determine the requirements for opposability of financial collateral agreements.

The article’s closing stage deals with the analysis of the credit claims as a newly identified type of collateral. Examination of the definition on a national level and of the improper transposition of the FCD (because of the incorrectly defined range of entities whose claims may be considered as collateral) is provided.

A comparative review of the requirements for eligibility of the credit claims and accordingly the applicable law on the eligibility requirements is conducted. This review is necessary because of the difference between the eligibility criteria established for the Members States which form part of the Eurosystem and the eligibility criteria established in the Member States that are not part of it. In addition the presence of numerous cross-border transactions which are secured through a financial collateral in the form of credit claims is also calling for such a comparative review.

Furthermore, the deficiencies in the legal framework are examined and thus the need for application of the rules regulating the assignment of rights /cessio/ is identified. The deficiency regarding the liability of the collateral provider to the collateral taker is examined as the article aims to answer the following questions: (i) Does the collateral provider bear responsibility towards the collateral taker for the existence of the collateral on one hand, and for the solvency of the debtor whose debt is being secured on the other? (ii) If yes – to what extent?

The article draws the reader’s attention to the issue of proving delivery of the credit claims and the issue of ceding of rights. Finally the article provides a de lege ferenda legislative suggestion for exclusion of the ordinary consumer credits from the scope of the financial collateral.






[1]Practising lawyer, graduate from the Law Faculty of Sofia University “St. Kliment Ohridski”, graduated with merit from the British Law Centres in partnership with Cambridge University, Faculty of Law – Diploma in English Law and European Union Law, head of the Sofia University’s European Union Law team, member of the of International Moot Court Competition Association.