The EU has MiCAR, MiFID II, CSDR, yet you argue there is still a fundamental gap. What is missing?
The gap isn’t in market conduct or prudential oversight — Europe has done excellent work there. The problem sits deeper, in property law itself.
We have no harmonised EU-wide framework for how security interests in financial instruments and digital assets are created, perfected, or prioritised across borders.
Think about it practically: if a German bank takes collateral over tokenised bonds held by a French investor on a distributed ledger technology (DLT) platform, which country’s property law governs whether that security interest is valid against third parties? How do you prove perfection? Who ranks first if there are competing claims?
Currently, every Member State answers these questions differently. That’s not a theoretical problem — it’s a commercial barrier that inflates haircuts, forces over-collateralisation, and makes cross-border transactions unnecessarily expensive and risky.
To understand the scale of the problem, consider the three different holding models we now have. Traditional dematerialised securities flow through intermediated chains: issuer to central securities depository (CSD), then global custodian, sub-custodian, broker, and finally investor.
Tokenised financial instruments create a hybrid structure: issuer to DLT market infrastructure acting as registrar, then custodian or crypto-asset service provider (CASP), then investor. And native digital assets under Markets in Crypto-Assets Regulation (MiCAR) have no central registrar at all — ownership and transfer rely entirely on private-key control. Each model raises different questions about how to create, perfect, and enforce security interests, and currently each Member State answers those questions differently.
How does the Financial Collateral Directive fall short in this area?
The Financial Collateral Directive (FCD) was groundbreaking when introduced, and it does provide functional convergence for certain market actors and specific assets. But its scope remains limited — it only covers defined financial collateral arrangements between certain counterparties, and in some Member States it excludes retail clients and small and medium-sized enterprises (SMEs) entirely.
More critically, it was designed for a world of centralised securities depositories and paper certificates. It doesn’t adequately address tokenised instruments, crypto-assets under MiCAR, or modern custody arrangements involving private keys, smart contracts, and distributed ledgers. For digital assets that are Markets in Financial Instruments Directive (MiFID) II financial instruments, FCD application is largely untested. For native crypto-assets, it simply doesn’t apply.
The result? Legal certainty exists in narrow corridors but fragments the moment you step outside traditional intermediated securities or deal with digital-native assets.
You have proposed something called SIFIDAR — the Security Interests in Financial Instruments and Digital Assets Regulation. What is this and what would it do?
The Security Interests in Financial Instruments and Digital Assets Regulation (SIFIDAR) would establish four fundamental things the EU currently lacks:
First, a unified taxonomy. Right now, Member States recognise different forms of security interests — pledges, charges, assignments, title-transfer collateral, fiduciary structures — each with varying formalities and publicity requirements. SIFIDAR would create a simple, functional definition of ‘security interest’ that works regardless of the domestic label, focusing on economic substance rather than legal tradition.
Second, uniform perfection and priority rules. The regulation would establish clear methods for making security interests effective against third parties: registry-based perfection via entries in recognised systems — CSDs, DLT market infrastructures, licensed CASPs — and control-based perfection for both intermediated accounts and onchain assets.
Priority would follow a predictable ladder: control beats registration, registration beats time, with bright-line timestamps eliminating jurisdictional disputes.
Third, a comprehensive conflict-of-laws framework. For intermediated securities, we’d adopt a place of the relevant intermediary approach (PRIMA)-style rule — the law governing third-party effects is the law of the relevant intermediary’s jurisdiction.
For DLT-native assets, the primary connecting factor would be the law of the recognised registry or system. This eliminates the current conflict trap where perfection in one state means nothing in another.
Fourth, SIFIDAR would establish an EU-level electronic notice-filing registry for non-possessory security interests.
Entries would include debtor and secured party identifiers (using Legal Entity Identifiers), collateral class, unique asset identifiers such as token ISINs, type of security interest, and perfection timestamps.
The registry would be publicly searchable via API to enable automated diligence, settlement and collateral workflows across CSDs, DLT market infrastructures and custodians. Filing wouldn’t be mandatory where control-based perfection is used, but it provides an alternative method and determines priority among registrants lacking control.
The European Commission just published its Market Integration Package in December. Does that solve any of this?
The package makes important progress, particularly the proposed Settlement Finality Regulation, which would replace the Settlement Finality Directive with a directly applicable rulebook and explicitly accommodate DLT-based settlement. The targeted amendments to the FCD would also confirm that cash, financial instruments, and credit claims issued or recorded on DLT are within scope.
But — and this is crucial — the Settlement Finality Regulation (SFR) and FCD changes expressly stop short of establishing EU-wide uniform concepts of possession, control, or priority for security interests. They clarify settlement finality and operational aspects but don’t harmonise the proprietary law mechanics underneath. National divergences in perfection and ranking persist, particularly for on-chain control, multi-signature custody, and registry-versus-control priority contests.
In fact, the Market Integration Package (MIP) strengthens the case for SIFIDAR. As the EU moves toward T+1 settlement by October 2027 and DLT-native assets routinely settle at T+0, the margin for legal ambiguity collapses.
Operational finality risks outpacing proprietary certainty, creating avoidable enforcement and insolvency traps. SIFIDAR would align secured transactions law with the MIP’s infrastructure reforms.
You mentioned T+1 and T+0 settlement. Why do shorter settlement cycles make this more urgent?
Under T+2, intermediaries had two business days to verify ownership, complete transfers, and resolve documentation issues. T+1 halves that window. T+0 eliminates it entirely. Any legal uncertainty about perfection or priority becomes an instant settlement-risk factor.
Without harmonised rules, a security interest might be perfected in one jurisdiction but void in another at the moment of delivery. In a T+0 environment, that translates directly into failed settlement.
You can’t resolve a legal dispute about who owns collateral when the transaction settles in real time.
Shorter cycles also require intraday collateral mobility across borders. Fragmented perfection standards impede rapid substitution or reuse of collateral, forcing firms to pre-fund or over-collateralise. Harmonised, registry-based perfection would allow immediate legal recognition of collateral movements, potentially releasing billions in trapped liquidity annually.
The UK passed the Property (Digital Assets etc) Act 2025, which received Royal Assent on 2 December 2025. How does that compare to what the EU needs?
The UK took a minimalist but effective approach. The Act provides statutory clarity that digital assets aren’t excluded from property rights merely because they don’t fit traditional categories. It removes doctrinal obstacles so courts can treat crypto-tokens and digital representations as property where facts justify it.
It’s a foundational private-law reform that clears legal fog around ownership, remedies, and insolvency treatment. From a financial services perspective, it’s striking because it provides baseline certainty: digital assets can be objects of personal property rights even if they don’t fall into traditional civil-law categories.
It’s worth noting that the US has also moved in this direction. The 2022 Uniform Commercial Code (UCC) Amendments introduced Article 12 on controllable electronic records, recognising control as the perfection method for digital assets. SIFIDAR’s control-based perfection mirrors this logic, though with stronger public-law supervision. Similarly, the Basel Committee’s work on crypto-asset exposures relies on legal certainty of collateral enforceability — SIFIDAR would meet that condition for EU banks.
Alignment across these frameworks could enable mutual legal-opinion recognition and reduce transatlantic collateral friction.
The EU operates within a different constitutional framework — property law remains largely a Member State domain.
But we can achieve equivalent certainty through a functional approach: define control, transfer, priority, and minimum insolvency protections without doctrinally redefining property categories.
That’s precisely what SIFIDAR would do — focus on effects and evidentiary standards rather than conceptual taxonomy. This approach draws on UNIDROIT’s Principles on Digital Assets and Private Law and the European Law Institute (ELI) Principles, adapting their functional concepts to the EU’s market-infrastructure ecosystem.
It has been argued that property law belongs to Member States. Could SIFIDAR be considered overreach?
I understand that concern, but SIFIDAR’s scope is deliberately limited to financial instruments and digital assets — areas where internal market objectives and financial stability clearly justify EU intervention. We’re not attempting to harmonise all property law, just the specific proprietary mechanics needed for modern collateral markets to function cross-border.
Several objections to SIFIDAR can be anticipated. Some may resist an EU notice registry as duplicative, but it would be light-touch and optional where control is used, serving primarily to unlock cross-border transparency. Others cite GDPR concerns — but the registry would store only pseudonymised identifiers with access based on legitimate-interest criteria. Some invoke technology neutrality as a reason to avoid DLT-specific concepts, but neutrality cannot mean blindness to operational realities; codifying control in functional terms ensures legal effects reflect how assets are actually held. Finally, concerns about displacing market practice under the FCD are addressed by SIFIDAR codifying and modernising those practices while extending clarity to assets the FCD never anticipated.
The constitutional justification is strong. The EU already legislates extensively on securities markets, settlement systems, and financial collateral. SIFIDAR simply completes that framework by ensuring the proprietary effects match the operational and prudential rules.
Without it, you have regulatory integration undermined by private-law fragmentation — a structural mismatch that defeats the purpose of harmonised market infrastructure.
Moreover, the approach is functional, not doctrinal. We’re not telling Member States to abandon their civil codes. We’re establishing uniform rules for third-party effects, priority, and enforcement in a specific, clearly defined domain where cross-border certainty is essential.
What is the cost of not doing this?
Substantial and growing. The European Commission estimates the EU needs approximately €620 billion annually to finance green and digital transitions.
If harmonised collateral rules could unlock even 5–10 per cent of additional private capital, that’s €30-62 billion per year in incremental mobilisation.
The EU’s capital-market financing gap compared to the US is estimated at €300–600 billion annually.
Fragmentation adds basis-point costs — European Securities and Markets Authority (ESMA) analysis suggests spreads and margin add-ons increase corporate funding costs by 10–50bpsin less-integrated segments.
Across roughly €10 trillion of outstanding corporate debt, that’s €10-50 billion per year in excess costs.
Banks are forced to hold larger liquidity buffers because unperfected or unrecognised collateral can’t count toward high-quality liquid assets under Capital Requirements Regulation (CRR) rules.
ECB working papers estimate harmonised frameworks could reduce required buffers by two to three per cent of balance-sheet assets — releasing hundreds of billions in usable liquidity.
There’s also the systemic dimension. Uniform perfection rules reduce contagion risk during market stress by ensuring collateral enforceability across borders. In 2008 and again in 2020, uncertainty over national perfection rules delayed collateral liquidation and forced central-bank interventions. A SIFIDAR-based system would allow automated enforcement without jurisdictional disputes, improving resilience.
Then there’s the innovation drain. Legal uncertainty over digital-asset custody has driven European tokenisation platforms to domicile in the UK, US, Switzerland, or the UAE. Consultancy data suggests over 60 per cent of EU-origin tokenisation projects are legally structured outside the EU. We’re exporting intellectual capital and platform revenues.
How would this be implemented without disrupting existing markets?
Using a three-phase rollout over 36 months. Year one: establish ESMA-European Banking Authority (EBA) joint technical committee, draft standards on registry data and control verification, launch pilot registry nodes with selected CSDs and DLT infrastructures.
Year two: extend registry connectivity across Member States, require new security interests to be perfected via recognised methods, begin transitional filing of legacy arrangements.
Year three: full legal effect, automatic cross-border recognition, integration with MiFIR reporting and ECB settlement modules.
It’s worth emphasising that SIFIDAR should also address insolvency protections comprehensively. It would articulate uniform avoidance and suspect-period rules for security in financial instruments and digital assets, including protections for margining and close-out netting. Transfers made to maintain collateralisation under pre-existing master agreements should benefit from a safe harbour. Critically, client asset and client money protections would be harmonised — assets held in custody under MiFID II and MiCAR must be segregated and excluded from the custodian’s insolvency estate, with express recognition that functionally cash-equivalent instruments such as tokenised fiat and stablecoins recognised under MiCAR are treated as client money for segregation purposes.
Legacy collateral arrangements perfected under national law would remain effective for 24 months. During that transition, counterparties could register notices to preserve priority under SIFIDAR. Title-transfer arrangements entered before would continue benefiting from FCD safe-harbours. This balanced grandfathering avoids retrospective invalidation while promoting convergence.
There’s also a critical human element. Courts must be equipped to interpret registry and control evidence in digital form. Training for commercial judges, insolvency administrators, and notaries will be essential. Uniform evidentiary presumptions should be inserted into the Brussels I Recast Regulation and Insolvency Regulation by amendment, ensuring consistent treatment of SIFIDAR-perfected interests across jurisdictions.
Member States operating existing collateral registries could maintain them, provided they interoperate with the SIFIDAR network via standard APIs. The goal isn’t to abolish national systems but to federate them into a coherent EU-wide framework with predictable cross-border effects.
Looking further ahead, once registry-based perfection is operational, it could anchor broader digital legal infrastructure. Integration with the EU Digital Identity Wallet would allow automated authentication of pledgors and secured parties, further reducing settlement latency and fraud risk. Future delegated acts could even recognise smart-contract execution as a form of self-help enforcement under SIFIDAR, provided it complies with proportionality and consumer-protection standards.
If you could get one message across to policymakers, what would it be?
The EU has built sophisticated regulatory architecture for digital finance — MiCAR, the DLT Pilot Regime, the Market Integration Package.
But we’ve built a skyscraper on fragmented foundations. Without harmonised proprietary law, all that regulatory infrastructure risks delivering less than it should. Note that since March 2025, the Capital Markets Union has been rebranded as the Savings and Investments Union-this reflects the EU’s commitment to mobilising retail and institutional capital. SIFIDAR would directly support these objectives.
This isn’t incremental, it’s foundational. The choice is clear: act now while the EU still leads in digital asset regulation, or watch legal uncertainty undermine everything we’ve built and push innovation elsewhere.
The opportunity cost of inaction is measured in hundreds of billions annually and the erosion of Europe’s competitive position in global capital markets.
SIFIDAR isn’t a nice-to-have. It’s the missing piece that makes everything else work.
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The Digital Asset Association Austria
Walter Mösenbacher
Image: PwC 
