Governing Law of the Instruments under Article 66.4.(a) of the BRRD

What governing law is meant by the reference to the governing law of a capital instrument under Article 66.4 (a) of the BRRD? Should the governing law of the capital instrument be the law governing law of the liability (obligations) arising under such instrument or the law applicable to the proprietary (rights in rem; ownership) issues with respect to the relevant instrument or the law of the issuer of such instrument or any other law?

Article 66.4.(a) of the BRRD refers to the governing law of the (capital) instruments as one of the conditions for the effective exercise of the conversion and write down tools of one Member State with respect to another Member State. The term governing law of the instruments is ambiguous and unclear particularly with respect to the debt instruments in the form of debt securities that likely form the bulk of the capital instruments (governing law of liabilities generally is separately covered by the same Article 66.4.(a) of the BRRD) . There is namely no uniform governing law of the (capital) instruments in the form of securities such as debt instruments. The governing law of a debt security is normally divided with respect to contractual and proprietary (rights in rem) issues, whereas different conflicts of law rules (this means different governing laws) may govern such issues with respect to one instrument. To make it simple: in the cross border context that the BRRD aims to coordinate, there is normally no single governing law of a (financial) instrument, but different sets of governing laws that govern different issues arising from the same financial instrument. For example, whereas the law of Slovenia may govern the transfer or pledge on the bearer debt security that is located or (in case of registered securities) registered at account in Slovenia, the obligation from such debt security may be governed by the law of another country. In addition, with respect to characterization of the financial instruments (for example, whether it is a bond or some other instrument) again different sets of the conflicts of law rules may apply. In this regard, it appears that the most relevant aspect of a capital instrument in connection to the conversion and write down power should indeed be the governing law applicable to the liability (obligation) arising from the relevant capital instrument, however in such case the reference to the governing law of the instrument is already covered by the reference to the governing law of the liability under the same Article 66.4.(a) of the BRRD, which in turn makes the reference to the governing law of the instrument in the same Article redundant. The issue is important not only for the authorities but also holders of such instruments because of the legal certainty in the cross border context. Merely the reference to the governing law of an instrument may raise application of different sets of conflicts of laws rules, particularly among different Member States authorities, therefore clarification of the term is in the opinion of the contact necessary.