Part 5 – Criteria to verify that the collateral is unencumbered by any third-party rights

Point (13) of Article 2(1) of Directive 2014/49/EU provides that the collateral must be unencumbered by any third-party rights. Accordingly, the DGSs and the designated authorities should not accept any low-risk assets which are already encumbered or collateralised by means of pledges or other security arrangements.

The assets provided under a financial collateral arrangement must be legally realisable without prior claims over the assets concerned. It should not be possible for third parties to intervene and successfully claim the assets pledged or any rights attached to them.

For that purpose, the financial collateral arrangement should provide that credit institutions undertake and warrant that no low-risk asset provided as collateral is being simultaneously encumbered or used as collateral in favour of any third party or to secure another already existing obligation towards the DGS, and undertake that no asset used under the security financial collateral arrangement will be given as collateral to any third party.