What The Financial Collateral Act In Serbia Brings To The Table

The Serbian Parliament adopted the Financial Collateral Act ("FCA") on 8 June 2018 (published in the Official Gazette of the Republic of Serbia, no. 44/2018). The FCA bill was proposed by the Serbian Central Bank (National Bank of Serbia, "NBS") on 22 May 2018 and the FCA will apply as of 1 January 2019. Financial contracts which have not been enforced by 1 January 2019 will be enforced pursuant to the existing rules that were in force before the FCA started to apply.

The FCA should transpose the EU Directive on Financial Collateral Arrangements into Serbian law. Its main features are as follows:

Title transfer type of collateral. Under the FCA, the financial collateral arrangement is an arrangement whereby, for the purpose of securing the performance of its or another entity's financial obligation, the collateral provider undertakes to transfer title to collateral to the collateral taker or to establish a security interest (pledge) on the collateral in favour of the collateral taker, and the collateral taker undertakes to return to the collateral provider the collateral received or equivalent collateral upon and/or concurrently with the discharge of the financial obligation. The FCA finally introduced the title transfer type of collateral into Serbian law and removed re-characterisation risks (though not for corporates as counterparties, see below). Types of collateral. The collateral may be: (i) cash, (ii) financial instruments/securities, and (iii) credit claims. Eligible counterparties. Eligible entities under Article 4 FCA are the Republic of Serbia, National Bank of Serbia, banks, broker-dealers, investment funds, insurance firms and other domestic financial sector entities, the EU, EU member states, ECB, IMF and other financial institutions. Corporates are not eligible to enter into financial collateral arrangements (and other financial contracts - financial derivatives and repo transactions) regulated by the FCA. The FCA draft published by the NBS in September 2016 was wider in terms of eligible counterparties. It provided that any other entity and a natural person may also be a party to a financial collateral arrangement (and other financial contracts) as long as they enter into this arrangement with an eligible entity counterparty listed in the FCA. Regrettably, this provision has been removed from the final text of the FCA. Exchange control restrictions. Very restrictive Serbian foreign exchange law and regulations override the...