New Financial Security Act
Jan Kotous
Wolf Theiss
Prague
Jan Kotous (Bio)
A new Financial Security Act (the Act) has been passed, with effect as of January 1 2011. The Act implements the EC directive, amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and Directive 2002/47/EC on financial collateral arrangements. The new legislation replaces the previous statutory provisions regulating financial security, contained in the Commercial Code, which were considered insufficient in many respects.
Compared to the former legislation, the Act increases the number of subjects who are entitled to provide or accept financial security. According to the relevant provisions of the Act, financial security can now also be provided or accepted by a natural person, if the financial security is arranged in relation to their business activities and the other contractual party is a person listed in the relevant provisions of the Act. In addition, if the acceptor of financial security is a bank and further statutory conditions are concurrently met, such financial security can even be provided by a natural person beyond the scope of their business activities.
In general, the actual subject of financial security can only be one of the financial collaterals listed in the Act (e.g. a financial instrument, a separately convertible right connected to a financial instrument, etc.). According to this list and in comparison with previous legislation, credit receivables can now also be the subject of financial security.
In conclusion, the new regulation on financial security under Czech law provides more detailed and compact rules relating to the application of this type of security.
Amendment of the Act on Business Activities on the Capital Market relating to the EU regulation on credit rating agencies
With effect as of June 7 2010, the Act on Business Activities on the Capital Market was amended in view of Regulation 2009/1060/EC on credit rating agencies.
The amended act designates the Czech National Bank as the competent authority for the purpose of the Regulation. A legal person may issue a credit rating in the Czech Republic on a professional basis, provided that they have applied for and obtained a license (registration) for such activity from the Czech National Bank.
Accordingly, the Czech National Bank is responsible for registering credit rating agencies, if it concludes from an examination of the application that the credit rating agency complies with the conditions for the issuing of credit ratings set out in the Regulation.
Central Securities Depository
Pursuant to the Act on Business Activities on the Capital Market, all dematerialised securities must be recorded in a central register, which, since July 7 2010, has been administrated by the Central Securities Depository (Centrální depozitáy cennych papíru), a joint stock company and a subsidiary of the Prague Stock Exchange. Its activities are regulated by the Czech National Bank.
The commencement of operation of the Central Securities Depository introduced, among other things, a 'two-stage' system of evidencing the ownership of securities. Under this system, the Central Securities Depository keeps a general record of securities, while other entitled legal subjects, usually securities dealers, are in charge of keeping follow-up records of the relevant securities.
Apart from the operation of a central register of securities, the Central Securities Depository also operates a settlement system for the settlement of exchange and OTC transactions involving investment instruments, assigns investment instrument identification numbers (ISIN), manages guarantee instruments, etc.
Amendment of the Securities Act
With effect as of January 1 2011, the Securities Act has set out the possibility of creating a security interest over a securities account. The security interest comes into existence by being recorded in the official system of evidence of securities (by the Central Securities Depository).
Such security interest applies to all book-entered securities that are registered on the relevant securities account at the time of recording of the security interest, as well as to all securities that are assigned to the securities account in the future, if the security interest has not ceased to exist by the time of assignment of the new security to the securities account.
If the beneficiary of the security interest agrees on the assignment of a security registered on their relevant securities account to a third party, the security interest ceases to exist in relation to such security when the assignment becomes effective.