Collateral becomes more lender-friendly in Spain

Author: | Published: 1 Jun 2005

On March 11 2005 the Spanish Government enacted Royal Decree Law 5/2005 and implemented the EU Directive on Financial Collateral Arrangements.

The Decree establishes an effective and simple regime to create, perfect and enforce pledge and title transfer securing financial transactions. It also protects those market practices that have been recognized as sound techniques to manage credit risk and increase market liquidity. This includes long-standing practices, for example, the collateral-provider's covenant to provide additional collateral upon variations of the value of the secured obligations or of the collateral itself, or the right of the parties to use the collateral while the secured obligations are outstanding.

In general terms, the Decree has taken a liberal approach to the implementation of the Directive. The Spanish Government not only refused to exercise any significant opt-out right granted by the Directive, such as the right granted to member states to narrow the...