Securities Law Harmonisation – EC Proposal on Laws Applicable to Assignments of Claims

The European Commission tabled a proposal yesterday for a Regulation on the law applicable to the third-party effects of assignments of claims (here + communication), specifying that, barring situations for which caveats exist, the law of the assignor’s, that is the person or company transferring a claim, their habitual residence governs third party effect of an assignment of claims.

Although as part of the initial Capital Markets Union Action Plan – and the subsequent mid-term review – the EC had signalled an ambition for a more horizontal harmonisation of securities law in the EU – including on securities ownership provisions – in order to facilitate cross-border investments and reduce legal uncertainty for cross-border transactions, today’s proposal only focuses on the assignment of third party claims. This reflects the difficulties – as a result of the intrinsic links to Member State civil law – legislators have previously found themselves confronted with in respect of harmonising securities law across the EU. The issue of harmonising the assignment of third party claims had been deliberately left out under the Rome I Regulation (here) in favour of an enabling clause for the EC to take subsequent legislative action in this area.

With this regulation, the EC is recognising the need for uniform EU conflict of law provisions with respect to third-party effects of assignments of claims. Inconsistencies in this area result in legal uncertainty and risks that can lead to financial losses for entities who obtain the right to these claims. These uncertainties contribute in the EU towards a reduced appetite for firms and natural persons to access liquidity and credit across borders.

It is clear that the EC is adopting a very cautious approach in tackling this problem to avoid triggering Member State sensitivities due to perceived infringements on their civil law codes. It is clearly a strategic choice by the EC to limit this proposal to the harmonisation of laws governing the assignment of claims (rather than also covering securities ownership provisions) in order to advance as much of the original CMU agenda before Brexit and the end of the current EC mandate (Spring 2019), without significant hold-ups by Member States. This sense of pre-empting lengthy discussions and disagreement between Member States is apparent in the way the proposal includes carve outs for overriding public policy interests that Member States can apply when it comes to identifying the law applicable to assigned claims.

The specific focus of the proposal on laws applying to claims also means that the work is being driven solely out of DG JUST, rather than jointly with DG FISMA as was originally planned.

Finally, in keeping with the CMU objective of reviving the EU market for securitisation, the proposed rules allow for the parties to a claim assignment involving securitisation to choose the law applicable to the assigned claim.

The key provisions of the regulation are outlined below.


  • Applicable law to third party effects of claim assignment – in alignment with the Insolvency Regulation, the law of the assignor’s habitual residence governs third party effect of an assignment of claims related to cash credited to an account in a credit institution or claims arising from financial instruments. The Regulation defines “habitual residence”:
    • for companies and other bodies, corporate or unincorporated, the place of central administration;
    • for a natural person acting in the course of their business activity, their principal place of business.
  • Carve out for securitisation – for securitisation the assignor and the assignee can choose the law applicable to the assigned claims.
  • Overriding public policy interests or applicable international conventions – the provisions in respect of the law applicable to third party claims is without prejudice to national provisions of public interests that are of overriding legal character. Similarly, international conventions can take precedence over this regulation, so long as they are not only agreed between two or more Member States. Member States are also to notify the Commission of any international conventions they view as superseding this regulation.
  • Scope of application – the regulation will only apply ex-post to assignment of claims concluded after the date of application of the regulation.
  • Time of application – the regulation is meant to apply from 18 months after entry into force.

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