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ISDA supports the approach taken by the Commission in the Claims Proposal, which it understands is intended to apply the law of the assigned claim to (a) cash credited to an account in a credit institution and (b) claims arising out of financial market transactions. This is reflected in Article 4(2) of the draft Regulation appended to the Claims Proposal. ISDA supports this approach in relation to the assignment of claims arising in the derivatives market for the reasons set out in some detail in our response to the 2017 Consultation Document, in particular in response to Question 25.
ISDA notes that the Commission’s clear view in its discussion of the proposed Regulation in the Claims Proposal is that intermediated securities are not “claims” within the scope of the Commission Proposal and that there is, therefore, no overlap between the proposed rules for the voluntary assignment of claims and the conflict of laws rules relating to the transfer of intermediated securities. It agrees with this in principle, but it thinks that the definition of “claim” should be amended to put this point beyond doubt.
The Commission, in its discussion of the relationship between the Claims Proposal and the Securities Communication, refers to a lack of “tangible evidence of material risk in respect of securities”, but this is, with respect, not the right way to approach the problem. Major financial institutions are currently spending significant amounts of money on legal due diligence to address the legal uncertainty caused by the lack of a uniform rule across Europe in relation to the third-party effects of a transfer of intermediated securities, and it was this substantial legal uncertainty which motivated the development of the Hague Securities Convention. Moreover, it would not be beneficial for the financial markets or the wider economy to wait until “material evidence” emerges as a result of substantial losses incurred due to substantial uncertainty as to the relevant governing law during a future financial crisis.