The Ministry of Justice has proposed to amend the Act on Certain Terms in Securities and Currency Trading (Netting Act). The bill, effective as of January 1 1999 is part of the implementation of the Directive 98/26/EC on settlement finality in payment and securities settlement systems.
The bill extends the scope of the Netting Act to payments executed in a payment system maintained by a central bank or by another entity providing clearing and settlement services. Until now the Netting Act has governed only the aggregation of payments and delivery obligations connected with:
- trading in investment instruments as set out in the Finnish
Investment Firms Act or trading in other equivalent securities
and derivatives instruments;
- trading in currencies or currency units; and
- the payment of consideration connected to
Under the bill, the bankruptcy estate of a Finnish credit institution or a Finnish branch of a foreign credit institution or another party participating in a payment system may not revoke a payment message which has been entered into the payment system for processing before the start of the bankruptcy, provided that the party (absent the bankruptcy) would not have been entitled to revoke the payment message under the rules of the payment system.
Also under the bill, payment obligations created (ie no longer revocable under the rules of the payment system) before the start of insolvency proceedings may be netted regardless of the insolvency proceedings. The netting will be binding in the insolvency proceedings of a party.
So far Finnish law has been lacking express provisions governing payment systems. The operations of the systems have been based on agreements and established banking practices. The increasing importance of international payment systems sets out requirements to be fulfilled by national legislation governing payment systems. According to the bill, the credibility of payment transfers is emphasized, for example, by the introduction of the Target (Trans-European Automated Real-time Gross Settlement Express Transfer) system operating as of the beginning of 1999. Also the Euro System of the Euro Banking Association, which will begin its operations on January 1 1999, is emphasized in the bill as a system falling within the scope of the Netting Act (see IFLR, September 1998, page 3).