There are challenges in relation to the law applicable to transactions in securities and claims, particularly as regards the acquisition or disposal of such assets. Whether such transactions are effective vis-à-vis third parties is significant not only for the parties to the transaction in question, but also for other market participants who interact with any of the parties. For example, the effectiveness of proprietary rights to securities or claims may be disputed by others not party to the transaction. Matters can get more complicated where several subsequent transactions take place and certain actors call previous transactions into question (e.g. registration requirements were not complied with, securities were not acquired in good faith, or bulk assignments of future claims were not effective in the assignor's insolvency). Questions of priorities may also arise where competing transfers occur since the same assets were wrongfully assigned multiple times to different recipients. If a transaction takes place domestically, there is usually no problem in answering these questions based on national substantive law. However, if there is a cross-border situation, e.g. when the issuer and the investor are located in different Member States and/or securities are held through intermediaries based in different countries, it is frequently unclear which national substantive law applies.
Within the EU, where there is automatic recognition of judgements in civil and commercial matters and insolvency proceedings, the lack of uniform conflict of laws rules gives room for forum shopping which might lead to potentially different substantive results for the parties depending on which Member State’s courts are seised and which conflict of laws rules applied. The Rome I Regulation covers contractual aspects of transactions in securities and claims but does not designate the applicable law to the effects of such transactions against third parties. As a result, parties to a cross-border transaction have to do their due diligence based on a set of potentially applicable laws. This inflates the costs of legal opinions required for due diligence, regulatory and capital adequacy purposes and the workarounds needed.
The Commission services will carefully evaluate the responses to this consultation and produce a summary feedback statement. In parallel to the consultation, the Commission services have set up a high level group of experts to assist the Commission with its work on conflict of laws rules on third party effects of transactions in securities and claims.
Interested parties are invited to reply between 7 April and 30 June 2017 at the latest to the online questionnaire available here: http://ec.europa.eu/info/finance-consultations-2017-securities-and-claims_en
Full consultation
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