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Annex:ownershipandfinalityoftransfer

Article37andArticle88(7)

IETArecognisesandappreciatestheattemptbytheCommissiontoprovideclarityinrelationto

thedeterminationofownershipandpreventionoftheunwindingoftransactionsenvisagedby

these two provisions. However, IETA is concerned that, in pursuit of this objective, the

provisions have the potential to cause a number of unintended consequences and yet not

provideadefinitiveoutcometotheissuesfacingthemarketonallegedlystolenallowances.

There appears to be inconsistency with the intention expressed at recital (12) of the draft

RegulationwherebyitisexpressedthattheRegulationshouldnot"preventanaccountholderor

a thirdparty fromexercisingany rightorclaimresultingfromtheunderlying transactionthat

theyhaveinlawtorecoveryorrestitutioninrespectofatransaction...".Thisimpliesthata

victim of a theft of allowances may nonetheless seek remedies against someone who may

currentlybetheholderoftheallegedlystolenallowancesbutthatsuchremedydoesnotextend

tothereturn(i.e.restitution)oftheallegedlystolenallowances.Asweunderstandtheeffectof

thesecondparagraph of theabove-mentioned provisions, thismeans theinnocent holderof

suchallowancesmaynonethelessfacea potential claim from thevictimforcompensationor

other equitable remedy available in law. Additionally, paragraph (3) expressly recognises

exceptions against the unwinding of transactions in circumstances where insolvency

proceedingshavebeen formally commenced.This exception fails torecognisethatunder the

laws of many jurisdictions, transactions can be unwound that were entered into incircumstancesearlierthantheformalcommencementofinsolvencyproceedings(forexample

wherethecounterpartyknewatthetimeofthetransactionthattheentitywasunabletopayits

debts). Thecarve-outsmay therefore be unduly restrictive in their applicationandhave the

effectofchangingtheinsolvencylawsofsomeMemberStates.

Thereareotherissuesthatarisefromthescopeandthelanguageoftheprovisionsthatare

worthfurtherconsideration.Forexample:

(a)Theeffectofparagraph(1)oftheprovisions,thatcitesthatownershipofanallowance

changesupontransfer,mayhavetheeffectofpreventingallowancesandKyotounits

from beingused as ameans of raising finance(for example, bypreventa security

interesttobetakenovertheallowancesinathirdpartyaccount).Wecannotseewhy

suchalimitationofthecommercialuseofanallowanceorKyotounitshouldarise

withoutmoredetailedconsultationwiththeMemberStatesandindustryfirst.

(b)Similarly,byparagraph(1)statingthatownershipisconclusiveupontransfer,thismay

havetheinadvertenteffectofpreventingcustodyserviceprovidersinallowancesand

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 Kyotounitsfrombeingabletoholdingsuchcreditsforthebeneficialinterestoftheir

customers. This tooappears tobeanunnecessarydevelopment further restricting

thescopeoftheEUETStogrowasamarket.

(c)Paragraph1oftheprovisionsonlyapplytotheholdingofallowancesorKyotounitsin

theUnionRegistry.AsweunderstandthescopeoftheRegistriesRegulation,AAUs

will continue to be held by Member States in KP Registries. As a result of the

limitationoftheprovisionstotheUnionRegistryonly,theresultwouldbeonesetof

lawswouldapplytotransfersofCERsandERUs(heldintheUnionRegistry)anda

differentsetoflawsapplyingtothetransferandholdingofAAUs(inaKPRegistry)in

aMember State. Is this desirable, even in circumstances where the only persons

transferringAAUsfromtheKPRegistriesaretobeMemberStatesthemselves?

Asyouwill appreciate theimpact(inadvertent orotherwise)oftheseprovisions isworthyof

further consideration. Given the short timeframe in which these comments have been

submitted,amorecompleteconsiderationhasnotbeenpossible.However,anumberofIETA's

legalmembersareoftheviewthatanalternativeprovisioncouldbecraftedthatwoulddeliver

theCommission'sobjectiveandhavetheeffectofreducinganyunintendedconsequences.IETA

would be happy to, if given sufficient time, to reachout to its legalmembers to assist the

Commissionwithsuchsuitableamendmentstotheprovisions.