France eases restrictions on collateral and netting

Author: | Published: 1 Jun 2005

Changes to French law to implement the EU's Directive on financial collateral arrangements introduce remarkable innovations for taking collateral by way of security interest while extending netting possibilities. Order 2005-171 of February 24 2005 removes all formalities for the taking and realization of financial collateral among qualifying parties. This is a remarkable exception to the prohibition under French law of any agreement that provides for the sale or appropriation of pledged asset without a court order and/or a public auction. Furthermore, the Order introduces into French law a right for the collateral taker to use the collateral provided under a financial collateral arrangement. This right of use is expected to considerably change the financial aspects of taking collateral by way of security interest. The Order entered into force on February 25 2005 and a draft law ratifying the Order was submitted to the French Parliament on May 18 2005.