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Amendments to the Financial Collateral Act

Andrej Kirm

On June 30 2011 the latest amendment to the Financial Collateral Act (FCA) will come into force, with its main objective to assist the economy in tackling the credit crunch, thus creating new jobs and incentives for economic growth.

The underlying reasons for the amendments to the FCA may be attributed to the European Commission's conclusion that the range of collateral assets need to be extended to bank loans, especially since the importance of bank loans as collateral assets in the EU is growing. At the same time, it was necessary to facilitate and remove national barriers to the creation of such collaterals, and to unify the rules for transactions between central banks in order to promote cross-border use of the said collaterals.

The amendments to the FCA therefore provide for an extended range of eligible collateral. In addition to cash and financial instruments (shares and other securities, and bonds), a bank loan is now also a possible form of collateral. A guarantee may be performed through either a transfer of bank loan as collateral, or by the creation of a lien on the loan.

The Ministry of Justice of the Republic of Slovenia contends that this will give way to increased market competition in this area and consequently improve the availability of loans both nationally and at the EU level. As a result, the benefits of these amendments will be passed on indirectly to consumers and debtors.

Moreover, the amendments to the Act facilitate the process of setting up a financial guarantee, by removing obstacles such as the obligation of compulsory registration of a bank loan, and the obligation to inform the debtor of the establishment of financial assurance with regards to the bank loan.

The amendment further expands the scope of entities that have the possibility of establishing such financial security, to medium and small companies (under current legislation, only big companies have had this possibility). Medium and small companies will be obliged to conclude the aforementioned financial securities only with the so-called controlled financial institutions. The said measure is intended to ensure that medium- and small-sized business have adequate access to financing measures, thus assisting them in tackling the financial crisis.

Andrej Kirm

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