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LEGAL ACTS OF THE REPUBLIC OF LATVIA
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Text consolidated by Valsts valodas centrs (State Language Centre) with amending laws of:

31 March 2011 [shall come into force from 1 July 2011];
14 September 2017 [shall come into force from 13 October 2017].

If a whole or part of a section has been amended, the date of the amending law appears in square brackets at the end of the section. If a whole section, paragraph or clause has been deleted, the date of the deletion appears in square brackets beside the deleted section, paragraph or clause.

The Saeima1 has adopted and
the President has proclaimed the following law:

Financial Collateral Law

Section 1. Terms Used in this Law

The following terms are used in this Law:

1) financial collateral - cash, financial instruments, or credit claims which, on the basis of a financial collateral arrangement, are used as a collateral in the fulfilment of financial obligations;

2) financial collateral arrangement - an arrangement for a financial collateral with title transfer or a financial pledge arrangement;

3) title transfer financial collateral arrangement - an arrangement (also a financial instrument purchase arrangement with repurchase or resale conditions) or other transaction deed under which the ownership rights or claim rights to the financial collateral of the collateral provider are transferred to the collateral taker for ensuring the fulfilment of the relevant financial obligations;

4) financial pledge arrangement - an arrangement or other transaction deed under which the collateral provider pledges financial collateral to the collateral taker (a financial pledge), retaining the ownership rights or claim rights to the financial collateral;

5) cash - money (except banknotes and coins) credited to an account in any currency (also all types of deposits);

6) secured financial obligations - obligations the fulfilment of which is guaranteed by a financial collateral and which allow to request the receipt of cash and financial instruments or take over credit claims (also existing or contingent obligations, obligations with suspensive or resolutory conditions, as well as obligations between a collateral taker and a third party which is not a collateral provider);

7) relevant account - a financial instrument account or register, or an account of cash, in which an entry (record) is made that confirms the provision of financial collateral regardless of whether such account is maintained by the collateral taker or an authorised third person thereof (hereinafter also - the authorised person);

8) equivalent financial collateral:

a) in relation to cash - payment of the same amount and in the same currency,

b) in relation to financial instruments - financial instruments of the same issuer or debtor and of the same type, issue and class which have the same nominal value in the same currency, or other instruments (assets) if a financial collateral arrangement specifies that a transfer of other instruments (assets) in lieu of financial instruments is allowable if any event has occurred that is related to the financial instruments which are used as financial collateral, or is affecting such financial instruments;

9) winding-up proceedings - process in which the instruments (assets) and acquired resources owed by a person are alienated in accordance with the provisions of laws and regulations and the actual circumstances, and distributed among the creditors, shareholders or participants of such person [regardless of whether decisions in such proceedings are taken by a court, State administrative institution, local government institution, or an agency (administrative body) in accordance with the competence thereof, as well as of whether the proceedings have been initiated voluntarily or by forced execution];

10) measures of insolvency proceedings - reorganisation, composition, as well as other legal measures which are performed during insolvency proceedings and which are aimed at a renewal or preservation of the solvency of a person;

11) enforcement event - a default on financial obligations or another similar event as agreed between the contracting parties on the occurrence of which, under the provisions of a financial collateral arrangement or laws and regulations providing for such possibility, the collateral taker is entitled to alienate (also for its own benefit) the financial collateral or a close-out netting provision comes into effect;

12) right of use of financial pledge - the right of a financial collateral taker to alienate or otherwise act with the financial pledge as the owner thereof in accordance with the provisions of the financial collateral arrangement;

13) provision of financial collateral - all the required legal actions (also cession or pledge of credit claims, transfer, holding, registration, or blockage of cash or financial instruments in the relevant account) which guarantees that credit claims to a financial collateral are transferred to a financial collateral taker or financial collateral comes in the possession of the financial collateral taker or an authorised person thereof;

14) Member State - a European Union Member State, a state of the European Economic Area, or a state of the Organisation for Economic Co-operation and Development;

15) financial instrument purchase arrangement with repurchase or resale conditions - an arrangement by which a person sells or purchases financial instruments with a condition to repurchase or resell such financial instruments or financial instruments equivalent thereto for a pre-determined price on a pre-determined day in the future;

16) credit claims - claims arising from an arrangement or another transaction deed according to which the credit institution or savings and loan association has issued a loan.

[31 March 2011]

Section 2. Purpose of this Law

The purpose of this Law is:

1) to promote the stability of the financial system, guaranteeing the safety and efficiency of the provision and use of a financial collateral;

2) to ensure the protection of rights of the contracting parties - subjects of the financial collateral arrangements - if winding-up proceedings or measures of insolvency proceedings of a contracting party are implemented.

Section 3. Subjects of the Law

(1) This Law shall govern procedures for the provision, acceptance, and use of financial collateral only in such cases when the contracting parties are:

1) the Republic of Latvia and a derived public person thereof, a direct and indirect State administrative institution, a local government institution or persons of another Member State equivalent thereto (also institutions responsible for the administration of public debt or participating in its administration, and institutions entitled to hold money accounts or financial instruments on behalf of a client);

2) the Bank of Latvia, central banks of other Member States, the European Central Bank, the Bank for International Settlements, the International Monetary Fund, and the European Investment Bank;

3) the following multilateral development banks:

a) the International Bank for Reconstruction and Development;

b) the International Finance Corporation;

c) the Inter-American Development Bank;

d) the Asian Development Bank;

e) the African Development Bank;

f) the Council of Europe Resettlement Fund;

g) the Nordic Investment Bank;

h) the Caribbean Development Bank;

i) the European Bank for Reconstruction and Development;

j) the European Investment Fund;

k) the Inter-American Investment Corporation;

4) the following financial institutions that are supervised by the competent financial and capital market supervisory authorities of the Republic of Latvia or other Member States:

a) credit institutions;

b) investment brokerage companies;

c) insurance companies;

d) investment funds or collective investment undertakings equivalent thereto;

e) investment management companies;

f) other financial institutions;

5) the central securities depository, the central counterparty, or the settlement agent.

(2) This Law prescribes the procedures for the provision, acceptance, and use of financial collateral also in such case when one of the contracting parties is the person referred to in Paragraph one of this Section, but the other - a natural, legal or another person or an association of such persons.

[14 September 2017]

Section 4. Certification on the Conclusion of a Financial Collateral Arrangement and Provision of Financial Collateral

(1) The requirements provided in other laws and regulations for the conformity to a specific form, registration (entering) in public registers, announcement to the borrower, or registration (entering) with supervisory authorities, and other requirements comparable to the announcement or registration (entering) in terms of legal consequences shall not be applicable to the drafting, entering into, validity, and fulfilment of the financial collateral arrangements.

(2) In conformity with the provisions of Paragraph one of this Section, the provisions of this Law are only applicable to such financial collateral the provision of which can be certified:

1) by a list of credit claims submitted to the financial collateral taker and the confirmation of provision of which allows exact identification of the sum of each credit claim given for financial collateral, the time of providing the financial collateral, as well as it is possible to confirm the fact that a financial collateral arrangement on the basis of which the financial collateral is provided has been entered into;

2) by an entry (booking) of financial instruments or cash in an account that has been opened with the financial collateral taker or an authorised person thereof and the confirmation of the provision of which allows to identify exactly the time of provision thereof, as well as it is possible to confirm the fact that a financial collateral arrangement on the basis of which the financial collateral is provided has been entered into.

(3) The certification referred to in Paragraph two of this Section must be in written form. Any certification that is stored in electronic or other type of durable information (data) media shall be recognised as a written certification.

(4) A financial collateral taker shall be obliged to ensure the entry of cash or financial instruments in the account so that the amount of the cash or the number of the financial instruments provided in the financial collateral could be unmistakeably identified at any time.

(5) The initiation or continuation of the measures for winding-up proceedings or insolvency proceedings of a financial collateral taker or financial collateral provider shall not amend and terminate the validity and fulfilment of the financial collateral arrangement and individual provisions and conditions thereof. An administrator, liquidator, or another performer of the measures for winding-up proceedings or insolvency proceedings specified in laws and regulations shall be obliged to ensure a timely and proper fulfilment of the financial collateral arrangement in accordance with all the provisions and conditions of the financial collateral arrangement.

(6) In addition to the conclusion of a financial collateral arrangement, the only required provision for the validity of the financial collateral is:

1) if the financial collateral is credit claims - the transfer of the documents justifying such credit claim, including documents of the credit collateral, to the collateral taker or an authorised person thereof, without depriving the collateral provider of the right to substitute the initially provided financial collateral with an equivalent financial collateral or of the right to receive a refund of the surplus of the financial collateral;

2) if the financial collateral is cash or financial instruments - the transfer of such collateral into the possession of the collateral taker or an authorised person thereof, with the collateral taker or the authorised person thereof holding, registering, or otherwise governing such collateral, without depriving the collateral provider of the right to substitute the initially provided financial collateral with an equivalent financial collateral or of the right to receive a refund of the surplus of the financial collateral.

(7) Upon pledging credit claims and in conformity with the certification form specified in Paragraph three of this Section:

1) a borrower who is not a consumer within the meaning of the Consumer Rights Protection Law has the right to waive his or her rights of set-off towards the lender and persons whom the lender might assign, pledge, or use the credit claim as a collateral in another way;

2) a borrower has the right to consent that information regarding the client which, in accordance with the Credit Institution Law, is deemed non-disclosable is disclosed to the financial collateral taker.

(8) Credit claims may not concurrently be financial collateral for several financial collateral takers.

[31 March 2011]

Section 5. Priority Right to Financial Collateral

(1) Other laws and regulations shall govern the legal relations which arise from a financial collateral arrangement insofar as it is not in contradiction with the provisions of this Law.

(2) If cash or financial instruments which have been provided as financial collateral in accordance with the provisions of this Law have been pledged also in accordance with the provisions of laws and regulations governing other types of pledge, the person to whom the financial collateral has been provided in accordance with the provisions of this Law has the priority right to satisfaction of claims with such cash and financial instruments.

(3) The right of a financial collateral taker to the financial collateral specified in a financial collateral arrangement and this Law shall not be amended, terminated, nor limited by neither court rulings and rulings of other authorities (officials) which must be executed in accordance with the procedures specified in other laws and regulations, nor the submission of the execution documents issued to the financial collateral taker or an authorised person thereof on the basis of such enforcement order.

(4) The financial collateral provider has the right to substitute the financial collateral with another equivalent financial collateral, to receive the surplus of the financial collateral, or - in case of credit claims - to receive payments from credit claims. Exercise of such right shall not affect the legal relations arising from the financial collateral arrangement.

[31 March 2011]

Section 6. Right to Use a Financial Pledge

(1) During the validity period of a financial pledge arrangement, the financial pledge taker is entitled to use the financial pledge only if it is specified in the provisions of the financial pledge arrangement and only in accordance with the provisions and conditions of the abovementioned arrangement and this Law.

(2) If a financial pledge taker uses the financial pledge during the validity period of the financial pledge arrangement, he or she has the obligation to substitute the initially provided pledge with an equivalent pledge not later than on the day that has been specified as a time period for the fulfilment of the relevant financial obligations secured by the financial pledge.

(3) On the day of fulfilling the obligations specified in a financial pledge arrangement or another transaction deed that includes an agreement between the contracting parties on a financial pledge, the pledge taker shall return the financial pledge to the pledge provider or, if such has been specified in the arrangement or another transaction deed, use his or her right laid down in the arrangement or another transaction deed in the specified amount to decrease the obligations of the pledge provider by the amount of the financial pledge or to fully amortise such obligations with the financial pledge.

(4) If in the case referred to in Paragraph two of this Section a financial pledge taker substitutes the initially provided financial pledge with an equivalent pledge, then all the provisions and conditions of the financial pledge arrangement that governed the initially provided financial pledge shall be applied to the equivalent financial pledge. In such case, it shall be considered that the equivalent financial pledge is provided in accordance with the provisions and conditions of the initially concluded financial pledge arrangement at the same time when the initial financial pledge was provided.

(5) The fact that a financial pledge taker uses the right specified in Paragraph one of this Section shall not influence the rights and obligations of the financial pledge provider and financial pledge taker specified in the financial pledge arrangement.

(6) If an enforcement event occurs prior to the initially specified day of fulfilling the obligations and a financial pledge taker cannot fulfil the provisions specified in Paragraph two of this Section, he or she is entitled to fulfil the obligations towards the financial pledge provider by close-out netting.

(7) The provisions of this Law shall not be applicable to future components of a financial pledge, unless it has been clearly provided otherwise in the financial collateral arrangement.

(8) If the financial collateral is credit claims, the financial pledge taker is not entitled to use the financial pledge during the validity period of the financial pledge arrangement.

[31 March 2011]

Section 7. Enforcement of a Financial Pledge

(1) On the occurrence of an enforcement event, a financial pledge taker is entitled, complying with the provisions and conditions of the financial pledge arrangement, to act with the financial pledge freely, without the performance of any additional procedures, as follows:

1) if the financial pledge is financial instruments - to alienate such instruments for a third person or to his or her own benefit, to decrease the amount of the secured financial obligations accordingly by the received sum, or to fully amortise such obligations;

2) if the financial pledge is cash - to decrease the amount of the secured financial obligations or to fully amortise such obligations by using such cash;

3) if the financial pledge is credit claims - to fully or partially alienate them for a third person or to his or her own benefit, and to decrease the amount of the secured financial obligations accordingly by the received sum, or to fully amortise such obligations;

(2) On the occurrence of an enforcement event, an immediate transfer of financial instruments into the possession of a financial pledge taker shall be permitted only if the contracting parties have explicitly agreed thereon and have agreed on the procedures for determining the price of the financial instruments or credit claims.

(3) Unless it has been provided otherwise in a financial pledge arrangement, the following obligations or obligations equivalent thereto in terms of legal consequences shall not be binding to the financial pledge taker as regards the actions with the financial pledge specified in Paragraph one of this Section:

1) provision of an advance notification to the financial pledge provider on the alienation of the financial pledge;

2) approval of the provisions for the alienation of the financial pledge in court, co-ordination with a person appointed by a court or a capital share holder of a commercial company, an administrator of insolvency proceedings, a State administrative institution, a local government institution or agency or with clerks, employees of the referred to institutions and agencies or persons appointed thereof;

3) sale of the financial pledge at an auction or in some other way specified only in a law or regulation;

4) awaiting the arrival of a specific deadline after the occurrence of an enforcement event or after the notification of the enforcement event has been sent.

[31 March 2011]

Section 8. Validity of Title Transfer Financial Collateral Arrangement

(1) A title transfer financial collateral arrangement shall be valid and the provisions of this Law shall be applicable thereto if the provision regarding title transfer is clearly included in the financial collateral arrangement and the financial collateral has been provided by fulfilling all the provisions of Section 4, Paragraphs two and four of this Law.

(2) The financial instruments and cash, which have been transferred into the possession of a collateral taker on the basis of a financial instrument purchase arrangement with repurchase or resale conditions and other type of arrangement or transaction deed in which the financial instrument repurchase or resale conditions have been included, shall be considered as transferred into the possession of the collateral taker in accordance with the title transfer financial collateral arrangement, and provisions of this Law shall be applicable thereto also if the cash and financial instruments transferred to the collateral taker have not been clearly stated as the financial collateral in the text of the arrangement or the other transaction deed.

(3) If an enforcement event occurs on the day when a financial collateral taker has not yet fully fulfilled the obligations specified in a title transfer financial collateral arrangement for the return of an equivalent collateral, such obligation may be fulfilled by close-out netting.

Section 9. Close-out Netting

(1) Close-out netting means the provisions included in a financial collateral arrangement or other arrangement (transaction deed) which provides for the provision of financial collateral, in accordance with which, upon the occurrence of an enforcement event, whether through set-off, netting or other activities comparable in terms of legal consequences:

1) the mutual obligations of the contracting parties are amended so that they become immediately due, and the amounts payable by the contracting parties are specified by taking into account the current value of the initial obligations of the contracting parties, or the mutual obligations of the contracting parties are terminated and replaced with a reciprocal duty to pay the amounts which are determined by taking into account the current value of the initial obligations of the contracting parties;

2) an account of the amounts which one contracting party must repay to the other contracting party on the basis of their mutual obligations shall be prepared, and such contracting party whose payable sum is higher shall repay to the other contracting party only the excess of the payable sum of such other contracting party (net balance).

(2) Close-out netting shall be applied also if the provisions thereof are not included in a financial collateral arrangement or other arrangement (transaction deed) which provides for the provision of financial collateral, but the application thereof is specified in laws and regulations.

(3) Close-out netting may be applied and the enforcement thereof shall not be influenced by:

1) the winding-up proceedings or measures of insolvency proceedings of a financial collateral provider or financial collateral taker;

2) cession, attachment, arrest of financial collateral performed on the basis of a court ruling or in some other way, or any other legal activity that is directed towards alienation of financial collateral to fulfil the claims of such person who is not a financial collateral taker.

(4) Unless otherwise agreed upon by the contracting parties, the provisions of Section 7, Paragraph three of this Law shall be applicable to close-out netting.

Section 10. Misapplication of Certain Legal Norms Governing Winding-up Proceedings and Measures of Insolvency Proceedings

(1) A financial collateral arrangement, as well as the provision of financial collateral performed in accordance with the provisions thereof, may not be declared invalid or cancelled only because the financial collateral arrangement has entered into effect or the financial collateral has been provided:

1) in the case of winding-up proceedings of a collateral provider in accordance with a decision of the participants thereof on the termination of operation (voluntary liquidation) - within any time period prior to the day when the announcement of the Enterprise Register regarding the termination of operation and initiation of the winding-up proceedings of the collateral provider is published;

2) in the case of winding-up proceedings of a collateral provider, on the basis of a decision of an administrative institution or a court ruling - within any time period prior to the day when the announcement of the Enterprise Register regarding the termination of operation and initiation of the winding-up proceedings of the collateral provider is published;

3) in the case of measures of insolvency proceedings - within any time period prior to the publication of the announcement regarding the insolvency of a collateral provider made in accordance with the procedures specified in laws and regulations;

4) within the time period specified in the law or regulation governing the winding-up proceedings or measures of insolvency proceedings of commercial companies (also credit institutions) prior to the day of initiation of such proceedings and measures within which it may be requested to declare the entered into transactions null and void.

(2) A financial collateral arrangement and the financial obligations secured in accordance with the provisions thereof or the provision of financial collateral shall be valid and binding to third persons also in cases when the financial collateral arrangement is entered into and financial obligations secured in accordance with the provisions thereof have arisen, or financial collateral has been provided after the setting in of the time periods referred to in Paragraph one of this Section if the financial collateral taker proves that he or she did not know and could not have known of the initiation of the winding-up proceedings or measures of insolvency proceedings.

(3) If a financial collateral arrangement provides for the obligation to provide financial collateral or additional financial collateral, taking into account changes in the value of the financial collateral or in the value of the secured financial obligations, or the right to withdraw the financial collateral, replacing or exchanging such collateral with other equivalent financial collateral, the provision of financial collateral, the provision of additional financial collateral or the provision of an equivalent financial collateral replacing the withdrawn financial collateral may not be declared invalid or cancelled only because:

1) the financial collateral, the additional financial collateral or the equivalent financial collateral replacing the withdrawn financial collateral has been provided in the time period referred to in Paragraph one, Clauses 1, 2, 3, and 4 of this Section;

2) the financial obligations guaranteed by the financial collateral have been incurred prior to the day of the provision of the financial collateral, additional financial collateral or the equivalent financial collateral, replacing the withdrawn financial collateral.

Section 11. Conflict of Legal Norms

(1) If financial collateral is financial instruments which are to be transferred with an entry (booking) into an account or in a register and the relevant account or register is located in Latvia, the legal matters referred to in Paragraph two of this Section shall be negotiable only in accordance with Latvian law, disregarding any provisions which provide for the application of any law of a foreign country.

(2) The negotiable legal matters referred to in Paragraph one of this Section shall be:

1) the legal status of financial collateral and the ownership rights thereto;

2) the requirements for the conclusion of a financial collateral arrangement, the requirements for the provision of financial collateral, which must be complied with in order for the relevant arrangement and the financial collateral provided on the basis thereof to be binding to third persons;

3) the possible subordination of the rights of a person to financial collateral in relation to the rights of third persons to financial instruments which have been provided to a collateral taker as the financial collateral;

4) the determination of the good faith of a financial collateral acquirer;

5) the provisions for the use of financial collateral to be complied with upon the occurrence of an enforcement event.

(3) In relation to crediting of consumers within the meaning of the Consumer Rights Protection Law the legal norms included in this Law shall be applicable insofar as they are not in contradiction with the legal norms governing crediting of consumers.

[31 March 2011]

Informative Reference to Directives of the European Union

[31 March 2011]

This Law contains norms arising from:

1) Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements;

2) Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the business of credit institutions;

3) Directive 2009/44/EC of the European Parliament and of the Council of 6 May 2009 amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims.

This Law was adopted by the Saeima on 21 April 2005.

President V. Vīķe-Freiberga

Rīga, 11 May 2005

 


1 The Parliament of the Republic of Latvia

Translation © 2019 Valsts valodas centrs (State Language Centre)

 
Document information
Title: Finanšu nodrošinājuma likums Status:
In force
in force
Issuer: Saeima Type: law Adoption: 21.04.2005.Entry into force: 25.05.2005.Theme: Banks, finances, budgetPublication: Latvijas Vēstnesis, 74, 11.05.2005.; Latvijas Republikas Saeimas un Ministru Kabineta Ziņotājs, 11, 09.06.2005.
Language:
LVEN
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