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The European Commission proposed a Directive on Financial Collateral Arrangements that would create a uniform EU legal framework, limiting credit risk in financial transactions by providing securities and cash as collateral.

Collateral is property (such as securities) provided by a borrower to a lender to minimise the risk of financial loss to the lender if the borrower defaults on his financial obligations.

Current rules on using collateral throughout the EU are complex and impractical, causing uncertainty about the effectiveness of collateral as protection in cross-border transactions. Creating a clear, uniform, EU-wide legal framework for collateral use would contribute to greater integration and cost-efficiency within European financial markets by encouraging cross-border business and competition.

The proposal will be transmitted to the Council and Parliament for adoption under the codecision procedure.

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