The Polish Parliament has voted to adopt the Financial Collateral Act which establishes basic ground rules for both collateral and cash providers in financing transactions, paving the way for the development of the repo market there.
The growth of a borrowing and lending market will be critical to enhancing liquidity and volume in the capital markets in Poland as the country looks ahead to its entrance into the EU on May 1, when its adoption of the Financial Collateral Act takes effect.
The act lays down the rules for establishing and executing collateral on cash or other financial instruments, such as securities, against the receipt of cash. Counterparties to the transaction must be financial institutions and not consumers, the Act stipulates.
The Financial Collateral Act contains Directive 2002/47/EC of the European Parliament and of The Council of June 6, 2002 which addresses the subject of financial collateral agreements. Definitions of eligible counterparties are mentioned in Article 1.1 and Article 1.2a-d of the Directive.
The Act sets forth the basic characteristics and rules of financial collateral agreements. These include permitting counterparties to use the close-out netting provision on transactions in accordance with the master repo agreement widely used in Europe; and “to render the creation, validity, perfection, enforceability or admissibility in evidence of a financial collateral agreement independent from any special legal form or entry in a register.
The three kinds of acceptable collateral in the Act are those in which title is transferred (repos) to the lender of cash; a “security financial collateral agreement” in which securities are used as collateral against a borrowing of a security; and where establishing a “blockade on a securities account or securities deposit account.”
The Act also allows for substitutions of collateral and introduces changes to the Bankruptcy Law, The Law on Public Trading of Securities and the Civil Code.
At the beginning of April, the Parliament also loosened rules requiring the obligatory use of the Polish language in legal transactions and in public life.