text: OJ L 189, 3.7.1998, p. 42. 2 Directive

text: of the European Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the business of credit institutions (OJ L 126, 26.5.2000, p. 1), recently recast as Directive

text: (OJ L 177, 30.6.2006, p. 1). 3 See Annex VII to the Act concerning the conditions of accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the Treaties on which

text: the European Union is founded (OJ L 236, 23.9.2003, p. 819) entitled ‘List referred to in Article 24 of the Act of Accession: Cyprus’, which provides under Title 2 (FREEDOM TO PROVIDE SERVICES) as follows: ‘In Cyprus, Directive

text: shall not apply to the Cooperative Credit and Savings Societies, in so far as they are not in conformity with the provisions of this Directive, until 31 December 2007. As from the date of accession and until the end of the above period the Cypriot authorities shall inform the Commission at the beginning of each year about the number of non-conforming Cooperative Credit and Savings Societies which continue to be excluded, as well as the market share that they represent’. 4 Under Article 3 of the recast Banking Directive, credit institutions situated in the same Member State and permanently affiliated to a central body which supervises them and which is established in that same Member State may be exempted from the requirements of Articles 7 and 11(1) of the recast Banking Directive. Moreover such affiliated credit institutions may also be exempted from the provisions of Articles

text: and

text: and also Title V, Chapter 2, Sections 2 to 6 and Chapter 3 of the Directive provided that, without prejudice to the application of those provisions to the central body, the whole as constituted by the central body together with its affiliated institutions is subject to those provisions on a consolidated basis. In case of exemption, Articles

text: to 25,

text: Article 26(1)

text: to (3), and

text: Articles 28

text: to 37 apply to the whole as constituted by the central body together with its affiliated institutions. 5 To enjoy certain exceptions from the recast Banking Directive several cumulative conditions of permanent affiliation of the credit institution to its central body need to be fulfilled. First, both the central body and affiliated credit institution supervised by that body are to be placed in the same Member State. Second, the national law of that Member State must provide that (1) the commitments of the central body and affiliated institutions are joint and several liabilities or the commitments of its affiliated institutions are entirely guaranteed by the central body; (2) the solvency and liquidity of the central body and of all the affiliated institutions are monitored as a whole on the basis of consolidated accounts; and (3) the management of the central body is empowered to issue instructions to the management of the affiliated institutions. 6 The framework underlying such affiliation has already been defined by the Cooperative Societies’ (Amending) Rules of 2004 (Regulatory Act No 874/2004, Episimi Efimerida tis Dimokratias No 3940, 31.12.2004), adopted pursuant to Section 53 of the Cooperative Societies Law.

text: See draft law amending the Law on the Central Bank of Cyprus of 2002 to 2003 inter alia providing for the incorporation of CCIs into the Central Bank of Cyprus’ minimum reserve regime on which the ECB adopted Opinion

text: of 27 January 2006 at the request of the Central Bank of Cyprus on a draft law amending the Central Bank of Cyprus Laws of 2002 and 2003. 8 See Section 6.3 of the draft decision, read in conjunction with proviso (1) to Section 6.8(b)(iii) thereof, where the solidarity fund is expressly mentioned. 9 The Deposit Protection Fund established under the terms of the Cooperative Societies’ (Establishment and Operation of the Deposit Protection Scheme) Rules of 2000 and 2004.

title: Opinion of the European Central Bank of 23 August 2006 at the request of the Cypriot Cooperative Societies’ Supervision and Development Authority on a draft regulatory decision on the terms and conditions of affiliation of cooperative credit institutions with the Cooperative Central Bank (CON/2006/42)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 23 August 2006 at the request of the Cypriot Cooperative Societies’ Supervision and Development Authority on a draft regulatory decision on the terms and conditions of affiliation of cooperative credit institutions with the Cooperative Central Bank (

text: ) Introduction and legal basis

text: On 19 July 2006 the European Central Bank (ECB) received a request from the Cypriot Cooperative Societies’ Supervision and Development Authority (hereinafter the ‘YEASE’) for an opinion on a draft regulatory decision on the terms and conditions for the affiliation of cooperative credit institutions with the Cooperative Central Bank (hereinafter the ‘draft decision’). The ECB’s competence to deliver an opinion is based on the sixth indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the rules contained in the draft decision materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft decision

text: 1.1 The purpose of the draft decision, adopted by the YEASE in accordance with Section 41Z of the Cooperative Societies Law of 1985 to (Νο 3) 2005 (hereinafter the ‘Cooperative Societies Law’), is to harmonise the domestic legal framework governing the establishment and operation of cooperative credit institutions (CCIs) with the Directive on the taking up and pursuit of the business of credit institutions (the ‘recast Banking Directive’), that will apply to CCIs from 1 January 2008 . The ECB notes that, whilst the recast Banking Directive does not elaborate on the

text: procedure for the affiliation of cooperative societies with their respective central bodies,

text: Article 3

text: of the recast Banking Directive exempts, subject to certain conditions, credit institutions affiliated

text: to a central body from some of their Community banking law obligations . In accordance with

text: CCIs will be entitled to pursue their business either on a stand-alone basis or through affiliation

text: with the Cooperative Central Bank (hereinafter the ‘SKT’) as the central body.

text: 1.2 In line with its stated purpose, the draft decision inter alia lays down (i) the procedure for the

text: affiliation of CCIs with the SKT ; and (ii) the implications of such affiliation; and (iii) the

text: conditions and procedures for terminating the affiliation of CCIs to the SKT; and (iv) the

text: framework for the the SKT to instruct its affiliated CCIs.

text: 2. General observations

text: 2.1 CCIs are autonomous, mutually owned entities engaging providing core banking services to their

text: members and specialising in mortgage lending and small retail loans. According to the information

text: provided by the consulting authority, CCIs represent a quantitatively important component of the

text: domestic financial system, jointly accounting for about one third of the total loans and deposits in

text: local currency. The subdivision of the domestic banking sector into a commercial banking and a

text: cooperative credit sub-sector resulted in a parallel regulatory and supervisory regime for CCIs,

text: based on the Law on Cooperative Societies, the YEASE being the independent authority

text: responsible for the authorisation, prudential supervision and regulation of CCIs. The CCIs’ sector is

text: currently undergoing a consolidation process to help the merged entities improve their efficiency and the quality of their services. 2.2 The ECB welcomes the draft decision as a further step towards full conformity between the regime governing the establishment and operation of CCIs and the harmonised framework for the pursuit of the business of credit institutions, noting that the Cypriot authorities have already addressed other aspects of the on-going harmonisation of CCIs with Community law .

text: 3. Specific observations

text: 3.1 Section 6.2 of the draft decision provides that the SKT must guarantee in full the repayment of all liabilities of its affiliated CCIs, including all off-balance-sheet liabilities and commitments excluding, subject to conditions, liabilities secured by charges on a CCI’s assets. The draft decision regulates in detail the scope and limits of such guarantee, which will be activated at the Commissioner’s initiative. Moreover, the fifth recital to the draft decision and Section 6.8(a) and (b) thereof refer to the parallel establishment, by a YEASE regulatory decision, and operation of a ‘solidarity’ or ‘support fund’ to supplement the SKT’s intervention in any CCI and in general to support all the SKT’s activities . Furthermore, the draft decision provides that the Deposit Protection Fund may be also activated for the protection of deposits with CCIs and the SKT. 3.2 First, the ECB understands that, when established, the solidarity fund would be made up of contributions from the CCIs only, thus avoiding any cross-sector subsidisation by other credit institutions that are not CCIs. Second, an appropriate involvement of the Central Bank of Cyprus (CBC) in decisions on the SKT’s support of CCIs might be warranted, considering both its role as the SKT’s supervisory authority and the need to assess the possible financial stability implications of any intervention. This would require providing for an adequate exchange of information mechanism between the CBC and the YEASE. 3.3 As stated above, Section 6.2 of the draft decision provides that the SKT must guarantee in full the repayment of all liabilities of its affiliated CCIs, including all off-balance-sheet liabilities and commitments excluding, subject to conditions, liabilities secured by charges on a CCI’s assets. Section 11.1 of the draft decision provides that the operation of the SKT guarantee shall be no substitute for the company law obligations of the affiliated CCIs’ committee, secretary, management and staff. In the interests of legal certainty, the relationship between these two provisions should be clarified.

text: 3.4 Sections 6.8(a) and (b)(ii) of the draft decision inter alia provide that the SKT shall provide affiliated CCIs services, facilities and support, in its capacity as ‘central banker and lender of last resort of all CCIs’. The ECB understands that the SKT’s role and powers under Sections 6.8(a) and (b)(ii) are without prejudice to the role and powers of the CBC in this regard, under the terms of the Laws on the Central Bank of Cyprus of 2002 and 2003 and of the Laws on banking of 1997 to (No 2) 2004. Some further clarification in this regard is thus warranted.

text: Done at Frankfurt am Main, 23 August 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: Zakon o Banki Slovenije, Uradni List RS No 72/06 – official consolidated version.

text: See paragraph 3.20 of ECB Opinion

text: of 13 March 2006 at the request of the Slovenian Ministry of Finance on a draft law amending the Law on Banka Slovenije and paragraph 4.3 of ECB Opinion

text: of 12 June 2006 at the request of the Slovenian Ministry of Finance on a draft law on the introduction of the euro.

text: Referred to in ‘Evaluation of the 2002 cash changeover’, April 2002. Available on the ECB’s website at www.ecb.int. 7 Ibidem. 8 Ibidem.

text: See

text: Article 14

text: (Consequences of breaches) and

text: Article 16

text: (Contract on sub-frontloading) of the draft decision.

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 25 August 2006 at the request of Banka Slovenije on a draft decision on the cash changeover  (CON/2006/43)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 25 August 2006 at the request of Banka Slovenije on a draft decision on the cash changeover (

text: ) Introduction and legal basis

type: rubrik

text: On 2 August 2006 the European Central Bank (ECB) received a request from Banka Slovenije for an opinion on a draft decision on the cash changeover (hereinafter the ‘draft decision’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the first and second indents of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft decision relates to currency matters and means of payment. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

type: stycke

text: 1. Purpose of the draft decision

text: The main objective of the draft decision is to regulate the procedures and method for exchanging banknotes and coins denominated in tolars for banknotes and coins denominated in euro, and the conditions for transport, storage, security, provision of collateral and statistical monitoring in this respect. The draft decision also establishes the regime for frontloading and sub-frontloading of euro banknotes and coins in Slovenia before the introduction of the euro on 1 January 2007. Pursuant to the draft decision, Banka Slovenije will begin frontloading euro coins to banks from the draft decision’s entry into force, but not before 1 September 2006, and euro banknotes on 11 December 2006.

text: 2. General observations

text: 2.1 The ECB welcomes the draft decision as part of preparations for the adoption of the euro in Slovenia. The draft decision is intended to complement other draft or already adopted legislation on the introduction of the euro, in particular the Law on Banka Slovenije and the draft law on the

text: introduction of the euro on which the ECB already expressed its opinion, including the provisions on frontloading . 2.2 Furthermore, the draft decision is intended to ensure compliance of the Slovenian regime with Guideline ECB/2006/9 of 14 July 2006 on certain preparations for the euro cash changeover and on frontloading and sub-frontloading of euro banknotes and coins outside the euro area , and provide the national legal basis for frontloading and sub-frontloading of euro coins. Following

text: Council Decision 2006/495/EC of 11 July 2006

text: in accordance with Article 122(2) of the Treaty on the adoption by Slovenia of the single currency on 1 January 2007 which abrogated the derogation in favour of Slovenia, these efforts are in line with Article 10 of the Treaty according to which the Member States take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of the Treaty or resulting from action taken by the institutions of the Community. In addition to the above, Banka Slovenije exercises its power to establish the framework for issue of euro coins in accordance with Article 106(2) of the Treaty. By adopting the draft decision, Banka Slovenije also acts in accordance with Article 19 of Guideline ECB/2006/9 pursuant to which the rules in relation to euro coins laid down in Guideline ECB/2006/9 are recommendations to be applied by the national central banks within the framework for the issue of euro coins to be set up by the competent national authorities of the future participating Member States. Banka Slovenije also introduces some solutions not found in Guideline ECB/2006/9. 2.3 In the ECB’s view, the envisaged possibility of starting frontloading euro cash well ahead of 1 January 2007 should contribute to a smooth euro changeover on that date.

text: 3. The definition of indirect recipients

text: Indirect recipients are defined in the tenth indent of Article 2 of the draft decision as natural persons that pursue business activities, State authorities, local government authorities and legal persons that in accordance with the law governing the introduction of the euro are obliged to return exclusively in euro cash the difference between the amount charged for goods or services and the amount received, and other persons that transact business in cash. The ECB would recommend supplementing this definition with an additional requirement that the indirect recipients must be located in Slovenia. This element is expressly included in the corresponding definition of ‘professional third parties’ in Guideline ECB/2006/9 to avoid any potential misuse of frontloaded euro cash.

text: 4. Diligence of a good expert

text: Article 10 of the draft decision provides that banks must store frontloaded euro cash in their vaults with the ‘diligence of a good expert’. The ECB understands that this concept represents a national legal standard that must be assessed in every individual case, but emphasises that the diligence of a good expert must in any event include compliance with security standards that are expected from and normally applied by banks for cash handling.

text: 5. Costs of transport and security for frontloaded euro cash

text: 5.1 According to Article 11 of the draft decision, Banka Slovenije must cover the costs of transport and security for frontloaded euro cash to the site designated by banks for accepting euro cash. Such acceptance sites will be designated in the contract on euro cash frontloading referred to in Article 4(2) of the draft decision. 5.2 The ECB notes in this context the position of the Eurogroup at its meeting on 16 October 2000 when they considered requests by a number of business sectors for compensation for costs related to the euro changeover in 2002 . Ministers acknowledged the existence of these costs, but held a view that the costs were relatively low compared with future gains for all business sectors and should be considered as an investment for the common good. Ministers agreed that changeover costs should in principle be borne by the sectors where they arise. Taking this agreement into account, the Governing Council also stressed that the Eurosystem should in no way become involved in compensating banks for the operational costs of the changeover . 5.3 Notwithstanding the above, Banka Slovenije could take measures to compensate the costs provided that certain conditions are fulfilled. To this end, the compensation schemes would in particular have to: (i) be implemented to ensure smooth logistics for the cash changeover; and (ii) comply with the equal treatment principle and avoid significant cross-border spillover effects .

text: 6. Return of surplus quantities of euro cash

text: Articles 8 and 9 of the draft decision provide that frontloaded euro cash may be returned to Banka Slovenije in the period between 15 and 31 January 2007, whereby the payment of any such returned frontloaded cash will be offset against banks’ liabilities arising from the application of the linear debiting model described in Article 12 of the draft decision. Given that all frontloaded euro banknotes become legal tender and are treated as ‘banknotes in circulation’ as of the date of the introduction of the euro in Slovenia (pursuant to Article 4(7) of Guideline ECB/2006/9), and in order not to undermine the linear debiting model set out in

text: Article 15(1)

text: in conjunction with Article 15(3) of Guideline ECB/2006/9, which

text: has been developed to support a smooth cash changeover, the ECB recommends that the possibility of offsetting returned euro banknotes against banks’ liabilities is omitted. To this end: (i) Article 9 of the draft decision should be reworded to refer only to the return of surplus quantities of frontloaded euro cash in accordance with the rules for standard cash returning; and (ii) the second sentence of the first paragraph of Article 12 of the draft decision should be deleted.

text: 7. Storage of frontloaded euro cash

text: The draft decision refers to the requirement that frontloaded and sub-frontloaded cash has to be stored ‘correctly’ . This should be understood as storage in accordance with the conditions laid down in Article 10 of the draft decision. For reasons of legal clarity, the ECB would suggest amending the wording so as to refer to storage being in accordance with the conditions laid down in Article 10 of the draft decision rather than it being ‘correct’.

text: 8. Use of the term ‘sub-frontloading’

text: Article 5 of the draft decision provides that frontloaded euro cash may only be frontloaded onwards by banks and that banks may frontload euro cash onwards only to indirect recipients. It appears that ‘frontload onwards’ in this context should be understood as ‘sub-frontload’. If this is the case, the ECB would suggest using the terminology consistently to avoid any misinterpretation of the draft decision.

text: This opinion will be published on the ECB’s website.

text: Done at Frankfurt am Main, 25 August 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET

type: vagledning

utgivare: ecb


text: OJ L 189, 3.7.1998, p. 42.

text: See ECB Opinion

text: of 11 May 2004 at the request of the Italian Ministry of Economic Affairs and Finance on a draft law on the protection of savings.

text: See ECB Opinions

text: of 6 October 2005 at the request of the Italian Ministry of Economy and Finance on an amendment to the draft law on the protection of savings concerning the Banca d’Italia and

text: of 23 December 2005 at the request of the Italian Ministry of Economy and Finance on an amendment to the draft law on the protection of savings concerning the Banca d’Italia.

text: See paragraph 10 of ECB Opinion

text: and paragraph 4 of ECB Opinion

text: See paragraph 13 of ECB Opinion

text: See paragraph 14 of ECB Opinion

text: and paragraph 3 of ECB Opinion

text: See paragraph 10 of ECB Opinion

text: See paragraph 5 of ECB Opinion

text: See paragraphs 5 to 7 of ECB Opinion

text: of 2 September 2002 at the request of the Swedish Ministry of Finance on a draft legislative proposal establishing the National Audit, including proposed amendments to the Sveriges Riksbank Act (1988:1385), paragraph 2.3 of ECB Opinion

text: of 27 January 2006 at the request of the Central Bank of Cyprus on a draft law amending the Central Bank of Cyprus Laws of 2002 and 2003, and paragraph 2.3 of ECB Opinion

text: of 28 June 2006 at the request of the Cypriot Ministry of Finance on a draft provision amending the draft law amending the Central Bank of Cyprus Laws of 2002 and 2003 and ECB Convergence Report, May 2006, p. 66, available at http://www.ecb.int.

text: ECB Convergence Report, May 2006, 3.1.4, ‘Distribution of profits, NCBs’ capital and financial provisions’, p. 66. See also paragraph 10 of ECB Opinion

text: Paragraph 8 of ECB Opinion

text: As further explained in the ECB Convergence Reports of 2004 and 2006 (October 2004, 2.3.1, ‘Central bank independence’, p. 27 and May 2006, 3.1.3, ‘Personal independence’, p. 64).

text: ECB Opinion

text: , ECB Opinion

text: of 4 November 2004 at the request of the Hungarian Ministry of Finance on a draft law amending the Law on Magyar Nemzeti Bank and ECB Opinion

text: of 22 June 2006 at the request of the French Senate on a draft law on the Banque de France.

text: Article 46 of the amended Statute.

text: Article 47 of the amended Statute.

title: Opinion of the European Central Bank of 25 August 2006 at the request of the Banca d’Italia on the amended Statute of the Banca d’Italia (CON/2006/44)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 25 August 2006 at the request of the Banca d’Italia on the amended Statute of the Banca d’Italia (

text: ) Introduction and legal basis

text: On 7 August 2006 the European Central Bank (ECB) received a request from the Banca d’Italia for an opinion on its amended Statute (hereinafter the ‘amended Statute’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the amended Statute relates to a national central bank (NCB). In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the amended Statute

text: The revision of the Banca d’Italia’s Statute is required by the first sentence of Article 19(9) of Law N. 262 of 28 December 2005 on the protection of savings (hereinafter ‘Law 262/05’), according to which the Statute must be adjusted to take account of paragraphs 1 to 7 of the same article, within two months of entry into force of the law. The Italian Government consulted the ECB in 2004 on draft law 262/05, which broadly modified the institutional framework for the regulation and supervision of financial markets and intermediaries in Italy. Following the first opinion on this matter , the ECB was consulted twice in 2005 on certain amendments to Law 262/05 regarding specifically

text: Article 19

text: thereof, dedicated to the Banca d’Italia .

text: 2. General comments

text: 2.1 The ECB notes with satisfaction that most of the comments made in previous consultations have been endorsed. 2.2 In particular, the ECB welcomes: - Article 17 of the amended Statute, expressly providing that the Banca d’Italia’s Governor is appointed, reappointed and removed in accordance with Article 14.2 of the Statute of European System of Central Banks and of the European Central Bank (hereinafter the ‘ESCB Statute’) , and - Article 21 of the amended Statute, expressly excluding decisions falling under the ESCB’s authority from the measures of external significance that the Directorate may adopt in exercising the public functions entrusted by law to the Banca d’Italia or to its Governor, to fulfil the former’s institutional purposes , and - Article 22 of the amended Statute introducing the principle of collegiality for the Directorate’s meetings, according to which its decisions are to be adopted by a majority of the votes of those present . 2.3 It is nevertheless considered that some of the provisions of the amended Statute, in connection with which previous ECB opinions had already stressed the need for more clarity and transparency , might benefit from further simplification in view of the changes in the shareholders’ composition and the Banca d’Italia’s new structure. These provisions, in particular, relate to the way in which shareholders’ meetings are organised vis-à-vis the subdivisions in the Banca d’Italia’s branches and the related procedure for the appointment of the Board of Directors’ members.

text: 3. Specific comments

text: Transfer of the Banca d’Italia’s shares

text: 3.1 According to Article 3 of the amended Statute, the Banca d’Italia’s shares will be transferred only with the Board of Directors’ prior consent, preserving at all times the Banca d’Italia’s independence and ensuring a balanced distribution of the shares. In order to increase this provision’s effectiveness as regards the safeguard of the Banca d’Italia’s independence, the ECB would recommend introducing additional safeguards, including the Directorate’s involvement, at least in a consultative capacity. Moreover, regarding the Banca d’Italia’s ownership structure, which is governed by law, in its previous opinions on this matter the ECB has already expressed its concern that transfers must comply with the principles established by the Treaty as regards

text: monetary financing and fiscal policies . The ECB is aware that this provision is transitional and stands ready to provide a further assessment of its compliance with these principles in the future.

text: Board of Auditors

text: 3.2 Once the amended Statute enters into force, a new auditing and controlling structure will be in place to strengthen the Banca d’Italia’s corporate governance. This will be shared by three entities as follows. The first is the Board of Directors which will henceforth be in charge of the Banca d’Italia’s management supervision and internal control, in compliance with the ESCB Statute and the provisions adopted by the ECB (Article 18 of the amended Statute). The second is the Board of Auditors, which will not only exercise control on the legality of the Banca d’Italia’s acts, but will also conduct accounting checks, examine accounts and express its opinion on the annual dividend (Article 19 of the amended Statute). While the attribution of these new tasks to the Board of Auditors is, in principle, compatible with central bank independence, it should be noted that such controlling activities should be subject to safeguards. Such safeguards should, in particular, include guarantees that the Board of Auditors’ activities will not interfere with the review of the ESCBrelated tasks of the Banca d’Italia to be undertaken by the Banca d’Italia’s independent external auditor and that these activities may not jeopardise its independence . The third is the independent external auditor who will audit the accounts of the Banca d’Italia, in accordance with Article 27 of the Statute (Article 38 of the amended Statute).

text: Directorate

text: 3.3 The ECB takes note that Articles 25 and 26 of the amended Statute provide that members of the Directorate may have to deputise for the Governor in case both the Governor (

text: Article 25

text: ) and the Director General (

text: Article 26

text: ) are absent or unable to act. Therefore, the ECB would suggest that Article 17 of the amended Statute also contains an explicit provision concerning the grounds for dismissal of members of the Directorate other than the Governor, comparable to those applicable to the Governor, under Article 14.2 of the ESCB Statute.

text: Allocation of profits and reserve

text: 3.4 Article 39 of the amended Statute provides that the Board of Directors determines the allocation to be made in the ordinary reserve for an amount of up to 20% of the net profit for the year. The remaining sum will be transferred to the State. 3.5 The ECB refers to its previous opinion concerning the importance of the Banca d’Italia’s financial independence and, in particular, the need to maintain a sufficient amount of ordinary reserves, and,

text: if needed, also extraordinary reserves to ensure that it has the financial means necessary for the performance of its statutory tasks .

text: Transitional provisions

text: 3.6 As the ECB noted in an earlier opinion , a transitional regime should be compatible with Article 14.2 of the ESCB Statute. 3.7 In general, the principle of personal independence, as laid down in Article 14.2 of the ESCB Statute , also requires that the same rules for the security of tenure of the office of governor apply to other members of NCB decision-making bodies involved in the performance of ESCB-related tasks. This applies in particular where a governor is first among equals between colleagues with equivalent voting rights or where such other members may have to deputise for the Governor. Thus, any NCB reorganisation affecting the tenure of office of the members of its decision-making bodies involved in the performance of ESCB-related tasks should foresee that they continue to perform their duties until the end of their term for which they have been appointed, in accordance with Article 14.2 of the Statute . 3.8 The transitional provisions of the amended Statute provide that the members of the Board of Directors and the Board of Auditors , as well as the councillors of local branches of the Banca d’Italia , remain in office until the completion of their current term of office and raise no issue of personal independence. 3.9 Concerning the transitional regime for all the Directorate members in office on 12 January 2006, other than the Governor, the amended Statute provides for expiry of their appointment precisely on the completion of 12 years as members of the Directorate, thereby also coinciding with the maximum mandate length in Article 26 of the amended Statute. The ECB takes note in particular of the following aspects: (i) the members of the Directorate specifically affected by Article 48 of the amended Statute have been appointed for an indefinite term of office and are subject to no retirement age requirement; and (ii) Article 48 of the amended Statute aims to ensure a transition to an entirely new institutional and organisational set up for the Banca d’Italia, and is only a one-off arrangement. In the light of these considerations, the ECB has no comments on Article 48 of the amended Statute.

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 25 August 2006. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: Decree of Česká národní banka No 36/1994 Coll., on the terms and conditions under which it is possible to reproduce banknotes, coins, cheques, securities and payment cards and to produce objects imitating them. 3 New

text: Article 46

text: c concerning administrative offences in reproducing money symbols and their imitations was recently inserted into the Law on Česká národní banka No 6/1993 Coll., as amended, providing for a substantially increased penalty as compared to a previously applicable provision of the Law on offences No 200/1990 Coll., as amended. 4

text: Council Regulation (EC) No 2182/2004 of 6 December 2004

text: concerning medals and tokens similar to euro coins (OJ L 373, 21.12.2004, p. 1) and

text: Council Regulation (EC) No 2183/2004 of 6 December 2004

text: extending to the non-

text: participating Member States the application of

text: Regulation (EC) No 2182/2004

text: concerning medals and tokens similar to euro coins (OJ L 373, 21.12.2004, p. 7).

text: Article 2(1)

text: (d) of the draft decree allows ‘one-sided reproductions and imitations of banknotes on which the longer and shorter sides form an angle differing from a right angle by at least 20 degrees’.

title: Opinion of the European Central Bank of 28 August 2006 at the request of Česká národní banka on a draft decree on the terms and conditions under which it is possible to reproduce banknotes, coins, cheques, securities and payment cards and to produce objects imitating them (CON/2006/45)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 28 August 2006 at the request of Česká národní banka on a draft decree on the terms and conditions under which it is possible to reproduce banknotes, coins, cheques, securities and payment cards and to produce objects imitating them (

text: ) Introduction and legal basis

text: On 14 July 2006 the European Central Bank (ECB) received a request from Česká národní banka (ČNB) for an opinion on a draft decree on the terms and conditions under which it is possible to reproduce banknotes, coins, cheques, securities and payment cards and to produce objects imitating them (hereinafter the ‘draft decree’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the first and second indents of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft decree relates to currency matters and means of payment. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the ECB, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft decree

text: The terms and conditions under which banknotes, coins, cheques, securities and payment cards (‘money symbols’) may be reproduced or imitated in the Czech Republic are currently laid down in ČNB Decree No 36/1994 Coll . The purpose of the draft decree, which will replace Decree No 36/1994, is to adapt the existing rules to the relevant Community legislation, reflect developments in national administrative offences law , and take into account new methods of reproduction of money symbols, i.e. intangible reproductions. In particular, it is necessary to exclude euro coins from the scope of the draft decree since this area is now subject to directly applicable Community regulations . Furthermore, the draft decree is

text: aimed at aligning Czech banknote reproduction rules to those applicable to euro banknotes pursuant to Decision ECB/2003/4 of 20 March 2003 on the denominations, specifications, reproduction, exchange and withdrawal of euro banknotes .

text: 2. Banknote reproduction rules

text: 2.1 In order to protect the integrity of euro banknotes as a means of payment, the general public must be able to distinguish genuine euro banknotes from reproductions. The ECB would therefore like to emphasise the importance of the rules on the reproduction of euro banknotes laid down in Decision ECB/2003/4 (hereinafter the ‘euro banknote reproduction rules’). Article 2 of the draft decree lays down the terms and conditions under which it is possible to reproduce banknotes and to produce objects imitating them in the Czech Republic. Since Decision ECB/2003/4 is not yet applicable in the Czech Republic, the above provision of the draft decree effectively provides for the protection of euro banknotes on the national level. In general terms, the ECB welcomes the banknote reproduction rules under the draft decree, as they draw on the euro banknote reproduction rules. However, the ECB notes that certain provisions of the draft decree differ from those of Decision ECB/2003/4. In view of preparations for the future adoption of the euro by the Czech Republic, the ECB would recommend that the euro banknote reproduction rules are taken into account in national legislation as far as possible at this stage. The Czech legislator could consider including a statement in the draft decree that euro banknote reproductions will be governed by the euro banknote reproduction rules, and rules on the enforcement of measures to counter non-compliant reproductions of euro banknotes. 2.2 The ECB also notes that the draft decree does not reflect

text: Article 2(3)

text: (c) of Decision ECB/2003/4, which allows the reproduction of individual design elements of euro banknotes provided that they are not depicted on a background that resembles a banknote. The ECB would also propose aligning the content of

text: Article 2(1)

text: (e) in conjunction with Article 4 of the draft decree with

text: Article 2(3)

text: (e) of Decision ECB/2003/4 as regards the concept of ‘material that cannot be mistaken for the original material’. 2.3 Furthermore, the ECB observes that

text: Article 2(1)

text: (c) of the draft decree, which provides for reproductions of parts of banknotes along the lines of

text: Article 2(3)

text: (d) of Decision ECB/2003/4, contains an additional criterion, namely that such parts must be ‘produced in a way that does not allow the whole banknote to be assembled from the individual parts’. The ECB welcomes this provision as it further clarifies the conditions under which parts of banknotes may be reproduced in the Czech Republic. 2.4 As far as the conditions under which intangible reproductions can be made are concerned, the ECB points out that

text: Article 2(3)

text: (f) of Decision ECB/2003/4 requires, inter alia, the word ‘SPECIMEN’ to be printed across the reproduction. Under Article 2(2) of the draft decree, other words of similar

text: meaning may be used instead of the word ‘SPECIMEN’. The ECB welcomes this provision as it makes the concept easily understandable to the general public. 2.5 Finally, the ECB notes that under

text: Article 2(1)

text: (d) of the draft decree it is permissible to produce reproductions of visually distorted banknotes . While this criterion is not explicitly provided for in Decision ECB/2003/4, the ECB considers that reproductions meeting the criteria specified in

text: Article 2(1)

text: (d) of the draft decree can be considered as sufficiently distorted to eliminate the risk of the general public mistaking them for genuine banknotes. Such distorted reproductions would accordingly also be considered lawful under the ECB banknote reproduction rules in application of Article 2(4) of Decision ECB/2003/4.

text: 3. Other comments

text: 3.1 Exclusion of euro coins from the scope of the draft decree Article 1 of the draft decree defines the scope of application of the draft decree ‘with reference to directly applicable Community legislation’. The ECB understands that this reference relates to the application of

text: Council Regulation (EC) No 2182/2004

text: and

text: Council Regulation (EC) No 2183/2004

text: . The ECB considers that

text: Article 1

text: could be further clarified to explicitly provide that euro coins are excluded from the scope of the decree.

text: This opinion will be published on the ECB’s website.

text: Done at Frankfurt am Main, 28 August 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: Directive

text: of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45).

text: See

text: Council Regulation (EC) No 1103/97 of 17 June 1997

text: on certain provisions relating to the introduction of the euro (OJ L 162, 19.6.1997, p. 1),

text: Council Regulation (EC) No 974/98 of 3 May 1998

text: on the introduction of the euro (OJ L 139, 11.5.1998, p. 1) and

text: Council Regulation (EC) No 2866/98 of 31 December 1998

text: on the conversion rates between the euro and the currencies of the Member States adopting the euro (OJ L 359 31.12.1998, p. 1), all three of which were amended in 2000 for the introduction of the euro in Greece. See also the Community legislation on euro coins in 1998 and 1999, as well as

text: Council Regulation (EC) No 2169/2005 of 21 December 2005

text: amending

text: Regulation (EC) No 974/98

text: on the introduction of the euro (OJ L 346, 29.12.2005, p. 1).

title: Opinion of the European Central Bank of 30 August 2006 at the request of Magyar Nemzeti Bank on a draft regulation on carrying out payment transactions and the Hungarian Ministry of Finance on a draft government regulation on payment services and electronic payment instruments (CON/2006/46)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 30 August 2006 at the request of Magyar Nemzeti Bank on a draft regulation on carrying out payment transactions and the Hungarian Ministry of Finance on a draft government regulation on payment services and electronic payment instruments (

text: ) Introduction and legal basis

text: On 27 July 2006 the European Central Bank (ECB) received a request from Magyar Nemzeti Bank (MNB) for an opinion on an MNB draft regulation on carrying out payment transactions (hereinafter referred to as the ‘draft MNB regulation’). On 3 August 2006, the ECB received a request from the Hungarian Ministry of Finance for an opinion on a draft government regulation on payment services and electronic payment instruments (hereinafter referred to as the ‘draft government regulation’) (draft MNB regulation and draft government regulation are hereinafter referred to jointly as ‘draft regulations’). Since the draft regulations cover closely related subjects, the ECB has joined both consultations above in a single consultation procedure. The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the fifth indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft regulations relate to payment and settlement systems. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft regulations

text: According to their statements of reasons, the draft regulations will bring Hungarian law into line with Directive

text: of the European Parliament and of the Council of 27 January 1997 on cross-border credit transfers , Directive

text: of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in respect of distance contracts , Directive

text: of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer

text: financial services and amending Directive

text: and Directives

text: and

text: and

text: Commission Recommendation 97/489/EC of 30 July 1997

text: concerning transactions by electronic payment instruments and in particular the relationship between issuer and holder . In addition to the implementing provisions: (i) the draft MNB regulation provides detailed rules for identifying bank accounts, execution of payment orders and payment methods and standard forms for domestic payment instructions; and (ii) the draft government regulation regulates opening of the bank accounts, disposal over accounts and limitations on disposal over accounts (bankruptcy, winding-up and debt settlement procedures and the queuing of payment orders). In light of the above, the scope of the draft regulations goes beyond the mere implementation of the relevant Community directives.

text: 2. General observations

text: 2.1 The ECB welcomes the draft regulations, as they will foster transparency and legal certainty for the execution of cross-border and domestic payments and help achieve a level playing field throughout the European Union. 2.2 The ECB understands that the draft regulations prejudice neither (i) the application of the national law implementing the Settlement Finality Directive ; nor (ii) the powers of system operators to lay down the criteria for participants; nor (iii) any oversight standards applied to systems by the competent authorities.

text: 3. Specific observations on the draft MNB regulation

text: 3.1 The draft MNB regulation contains an exhaustive list of domestic payment methods. This legal technique of exhaustive listing is appropriate when the legislator intends to exclude any other possibilities. However, in light of rapid innovation and technological progress in payment methods, the ECB recommends listing the payment methods in an exemplificative way. 3.2 Article 55(1) of the draft MNB regulation refers to credit institutions authorised to provide ‘payment services’. In the interests of clarity instead a reference could be made to ‘direct participants in the domestic payment system’.

text: 4. Specific observations on the draft government regulation

text: 4.1 According to Article 6(5) of the draft government regulation, credit institutions may enforce their claims ‘before having cognisance as defined in Article 7(12) of the opening of liquidation

text: proceedings’. The ECB is of the view that instead of the general reference to

text: Article 7(12)

text: Article 6(5)

text: could refer expressly to the receipt of notification under

text: Article 29

text: (g) of the Law XLIX of 1991 on bankruptcy proceeding, liquidation proceeding and voluntary dissolution and the publication of the relevant court decision in the case of client account keepers not keeping a bank account for an account holder. 4.2 The ECB notes that in spelling the name of the single currency as ‘euró’, Article 9 of the draft government regulation does not comply with the spelling rules for the word ‘euro’. To make the euro’s singleness apparent, Community law requires a single spelling of the word ‘euro’ in the nominative singular case in all Community and national legislative provisions. On the basis of these considerations and in view of the Community’s exclusive competence to determine the name of the single currency, any deviations from this rule are incompatible with the Treaty and should be eliminated. 4.3 Article 13 of the draft government regulation will exempt institutions from the legal consequences under the draft government regulation of late execution in case of force majeure. According to Law XV of 2003 on preventing and combating money laundering (Money Laundering Law), service providers must suspend any transactions where there is a suspicion of money laundering and police action should be taken. Such suspension required under national law may result in late execution. Therefore, for reasons of clarity the ECB recommends referring to the relevant national legal provisions, including the Money Laundering Law, in addition to the exemptions already provided for in the draft government regulation.

text: Done at Frankfurt am Main, 30 August 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42. 2 OJ L 364, 9.12.2004, p. 1. Regulation as amended by Directive

text: (OJ L 149, 11.6.2005, p. 22). 3 OJ L 271, 9.10.2002, p. 16. Directive as amended by Directive

text: See

text: Articles 54

text: a – 54d, Section Five of the Law No 40/1964 Coll., Civil Code, as amended. 5 These obligations include obligations to provide consumers, well in advance before concluding a distance contract on financial services, with certain specific information on: (i) the supplier; (ii) the financial service provided; (iii) the distance contract on financial services, in particular as regards the possibility of withdrawing from the contract; and (iv) on possible remedies in cases of breach of the obligations under the distance contract on financial services. 6 Pursuant to Article 44 of the Law No 6/1993 Coll., on Česká národní banka, as amended, these entities include banks, cooperative banks, electronic money institutions, capital market entities, insurance corporations and pension funds. 7 See also ECB Opinion

text: of 25 July 2006 at the request of the Bank of Greece on a draft provision on the Bank of Greece’s powers in the field of consumer protection.

text: See the ECB’s Convergence Report of May 2006, p. 65.

title: Opinion of the European Central Bank of 13 September 2006 at the request of the Czech Ministry of Industry and Trade on an amendment to the Law on Česká národní banka (CON/2006/47)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 13 September 2006 at the request of the Czech Ministry of Industry and Trade on an amendment to the Law on Česká národní banka (

text: ) Introduction and legal basis

text: On 18 August 2006 the European Central Bank (ECB) received a request from the Czech Ministry of Industry and Trade for an opinion on an amendment to the Law on Česká národní banka (hereinafter the ‘draft amendment’), which forms part of the broader draft Government law amending certain laws in connection with

text: Regulation (EC) No 2006/2004

text: of the European Parliament and of the Council on consumer protection cooperation and the Law on general product safety (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to a national central bank (NCB). In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: The purpose of the draft law is to lay down the conditions necessary to ensure the full application in the Czech Republic of

text: Regulation (EC) No 2006/2004

text: of the European Parliament and of the Council on cooperation between national authorities responsible for the enforcement of consumer protection laws (the Regulation on consumer protection cooperation) . The consumer protection laws covered by

text: Regulation (EC) No 2006/2004

text: include Directive

text: of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending

text: Council Directive 90/619/EEC

text: and Directives

text: and

text: , as transposed into the national legal order of the Member States. In the Czech Republic, however, Directive

text: was largely transposed into Czech law through amendments to the provisions on consumer contracts in the

text: Civil Code without explicitly designating an authority responsible for the enforcement of such consumer protection-provisions, as required under

text: Regulation (EC) No 2006/2004

text: . In order to ensure the application of the Regulation in this area, the draft amendment: (i) expressly entrusts Česká národní banka (ČNB) with the task of supervising compliance with the obligations set forth in the Civil Code concerning distance contracts on financial services by entities that are subject to ČNB’s supervision ; (ii) establishes ČNB’s competence to act under the Regulation in cases of crossborder cooperation; and (iii) authorises ČNB to prohibit the supervised entities from continuing to commit infringements of collective interests of consumers on the territory of a Member State of the European Communities or in another state forming part of the European Economic Area.

text: 2. General observations

text: 2.1 The new tasks entrusted to ČNB under the draft amendment are not listed among the functions of the NCBs specified in the Statute of the European System of Central Banks and of the European Central Bank. However, without prejudice to the Governing Council’s powers under Article 14.4 of the Statute, the ECB does not consider that these new tasks would interfere with the objectives and tasks of the European System of Central Banks (ESCB) . It should also be noted that pursuant to Article 14.4 of the Statute, these new tasks would have to be performed on the responsibility and liability of ČNB, and would not be regarded as being part of the ESCB’s functions. 2.2 In general terms, the ECB considers that the allocation of consumer protection-related tasks to ČNB under the draft amendment might helpfully complement ČNB’s existing supervisory powers, since following the recent integration of financial market supervision in the Czech Republic, the majority of entities that normally conclude distance contracts on financial services with consumers are already subject to ČNB’s prudential supervision. The ECB is therefore of the view that ČNB’s new consumer protection-related tasks might contribute to the preservation of confidence in the marketplace.

text: 3. Specific observations

text: Financial implications for ČNB

text: The ECB notes that ČNB will be required to commit additional resources, both human and financial, to carrying out the tasks referred to in paragraph 1 above. In this context, the ECB would like to emphasise that ‘Member States may not put their NCBs in a position where they do not have sufficient financial

text: resources to carry out their ESCB- or Eurosystem-related tasks, as applicable.’ . Therefore, the Czech Republic will need to ensure that the performance of these additional tasks will not affect ČNB’s operational capacity to carry out ESCB-related tasks. This opinion will be published on the ECB’s website.

text: Done at Frankfurt am Main, 13 September 2006. [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42.

text: OJ L 177, 30.6.2006, p. 1.

text: OJ L 177, 30.6.2006, p. 201.

text: Official Gazette of the Republic of Slovenia, No 104/2004 – official consolidated version.

text: Under Article 7 of the draft law, the banking services are receiving deposits from the public and granting credits for own account.

text: Pursuant to the specific rules in Chapter 11 of the draft law, savings banks: − may have a lower initial capital than banks (EUR 1 million instead of EUR 5 million); − are prohibited from providing pension fund management services in accordance with the law governing pension and disability insurance as defined in point 3 of Article 11(1) of the draft law; − may only perform foreign exchange transactions with prior Banka Slovenije authorisation for such transactions; − may contractually transfer internal audit tasks to a person not employed by the savings bank but fulfilling the conditions for carrying out such tasks.

text: Such exceptions must be justified on grounds of public policy, public security or public health; in addition, employment in the public service is exempt from the free movement of workers provisions. 8 This concept has its origins in the Court of Justice’s judgment in

text: Case 120/78

text: Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein [1979] ECR 649 (‘Cassis de Dijon’), in particular paragraph 8. National measures which are liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions: they must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it (see, for example, paragraph 37 of the Court of Justice’s judgment in

text: Case C-55/94

text: Reinhard Gebhard v Consiglio dell'Ordine degli Avvocati e Procuratori di Milano [1995] ECR I-4165). 9

text: Article 3 of Regulation (EEC) No 1612/68

text: of the Council of 15 October 1968 on freedom of movement for workers within the Community allows conditions relating to ‘linguistic knowledge required by reason of the nature of the post to be filled’. 10 In

text: Case C-379/87

text: Anita Groener v Minister for Education and the City of Dublin Vocational Educational Committee [1989] ECR 3967, the Court of Justice held at paragraph 19 that although there was no Treaty ban on a policy for the protection and promotion of a language of a Member State which is both the national language and the first official language, such a policy must not in any circumstances be disproportionate to the aim pursued and the manner in which it is applied must not bring about discrimination against nationals of other Member States.

title: Opinion of the European Central Bank of 19 September 2006 at the request of the Slovenian Ministry of Finance on certain provisions of a draft law on banking (CON/2006/48)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 19 September 2006 at the request of the Slovenian Ministry of Finance on certain provisions of a draft law on banking (

text: ) Introduction and legal basis

text: On 23 August 2006 the European Central Bank (ECB) received a request from the Slovenian Ministry of Finance for an opinion on certain provisions of a draft law on banking (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the sixth indent of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft provisions in question relate to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: 1.1 The main objective of the draft law is to comprehensively regulate the banking sector and transpose relevant Community directives into Slovenian law, in particular Directive

text: of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) (hereinafter the ‘Recast Banking Directive’) and Directive

text: of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) . 1.2 The ECB has only considered those provisions of the draft law that are covered by the scope of the consultation request received from the Slovenian Ministry of Finance and has in general not assessed the other provisions. The consultation request only applies to those provisions of the draft law that: (i) do not implement Community directives; (ii) are new in substance compared to the

text: current Law on banking ; and (iii) potentially influence the stability of financial institutions and markets. These provisions are contained in various parts of the draft law and cover the following: definitions of relevant terms, the corporate structure of banks, the provision of banking and financial services, risk management and internal audit, business books and annual reports, the supervision of banks, guaranteed deposits and e-money institutions.

text: 2. General observations

text: The ECB welcomes this general revision of the existing Slovenian Law on banking, which is the main law regulating the banking sector in Slovenia. The draft law is expected to achieve its main objective of ensuring consistent implementation of financial Community directives in national law.

text: 3. Definition of credit institutions

text: 3.1 In Article 13(3) of the draft law, the term ‘credit institution’ is used as a generic term for banks and companies issuing e-money. The ECB notes that savings banks are not included in the category of credit institutions. A savings bank is defined in Article 13(5) of the draft law as a legal person with its seat in the Republic of Slovenia performing banking services on the basis of Banka Slovenije’s authorisation and which is subject to the same rules that apply to banks, unless stated otherwise in Chapter 11 of the draft law . 3.2 Under Article 4 of the Recast Banking Directive, the term ‘credit institution’ comprises, in addition to e-money institutions, undertakings whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account. In order to bring the draft law into line with the Recast Banking Directive, the ECB would recommend that the consulting authority includes savings banks under the definition of credit institutions.

text: 4. Bank management system

text: 4.1 Pursuant to Article 60 of the draft law, a bank may choose either a two-tier bank management system with a management board and a supervisory board, or a one-tier bank management system with a board of directors. In the latter case, certain provisions referring to the management board will also apply mutatis mutandis to the executive directors, including Article 62 of the draft law

text: law states that at least one member of the management board must have a perfect command of the

text: Slovenian language and that at least one member of the management board must have ‘their centre

text: of vital interests in the Republic of Slovenia’.

text: 4.2 These two requirements may constitute a breach of the principle of free movement of workers, as

text: they limit the access of citizens of other Member States to membership of Slovenian banks’

text: management boards. According to Community law, such requirements could be justified as

text: (i) exceptions permissible under Article 39 of the Treaty ; or (ii) exceptions concerning ‘general

text: justified, the ECB would recommend abolishing them.

text: to impose such a requirement in certain circumstances ; however, the level of linguistic knowledge

text: must be proportionate to the objective to be achieved and should not result in discrimination

text: against citizens of other Member States . Therefore, if the language requirement is to be retained,

text: the phrase ‘perfect command of the Slovenian language’ should at least be replaced by different

text: wording, which can perhaps refer to a ‘satisfactory command of the Slovenian language

text: commensurate with performing the duties of a member of the bank’s management board’, since

text: this would be more in line with Community law. Moreover, it is recommended that the language

text: requirement is waived if it is not necessary for prudential supervision reasons.

text: 5. References to the European Commission

text: The ECB would like to make the following editorial comment. Article 22(2) of the draft law states that the term ‘EU Commission’ means the Commission of the European Communities. The ECB would recommend simply referring to the ‘Commission’, which is more accurate (as it is an institution of the European Communities and not the EU) and is also an established term in Community legislation.

text: This opinion will be published on the ECB’s website.

text: Done at Frankfurt am Main, 19 September 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42.

text: ‘The implementation of monetary policy in the euro area: General Documentation on Eurosystem monetary policy instruments and procedures’ annexed to Guideline ECB/2000/7 of 31 August 2000 on monetary policy instruments and procedures of the Eurosystem, OJ L 310, 11.12.2000, p. 1. Guidelines as amended by Guideline ECB/2005/2 (OJ L 111, 2.5.2005, p. 1).

title: Opinion of the European Central Bank of 23 October 2006 at the request of Latvijas Banka on a draft regulation for the use of Latvijas Banka’s monetary policy instruments (CON/2006/49)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 23 October 2006 at the request of Latvijas Banka on a draft regulation for the use of Latvijas Banka’s monetary policy instruments (

text: ) Introduction and legal basis

text: On 28 September 2006 the European Central Bank (ECB) received a request from Latvijas Banka for an opinion on a draft regulation for the use of Latvijas Banka’s monetary policy instruments (hereinafter the ‘draft regulation’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the

text: Article 2(2) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft regulation relates to monetary policy instruments. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft regulation

text: The main objective of the draft regulation is to implement similar valuation and operational principles for all Latvijas Banka’s monetary policy instruments and to achieve further harmonisation between the monetary policy operations of Latvijas Banka and the Eurosystem. The draft regulation will replace and consolidate a number of current regulations governing Latvijas Banka’s monetary policy operations.

text: 2. General observations

text: 2.1 Although non-participating Member States retain their powers in the field of monetary policy, it is nevertheless beneficial for them to gradually achieve consistency with Eurosystem standards so that credit institutions operating in their territories can become acquainted with the requirements that will apply once these Member States have adopted the euro. Such gradual harmonisation prior to the adoption of the euro will assist a smooth integration of the national central bank into the

text: Eurosystem. In this regard, the draft regulation will contribute to the alignment of the Latvian framework for the use of monetary policy instruments with that of the Eurosystem. 2.2 Nevertheless, the ECB would like to draw Latvijas Banka’s attention to some important remaining differences between the Eurosystem’s requirements and Latvia’s monetary policy framework that will need to be eliminated before Latvia adopts the euro.

text: 3. Specific observations

text: 3.1 The Latvian definition of ‘counterparties’ is narrower than that used in the Eurosystem. This is due to the inclusion of certain operational criteria as a requirement for all counterparties in Latvia, such as the requirement for counterparties to participate in the securities settlement system, whereas the Eurosystem allows different operational criteria to apply for different types of monetary policy operations. Participation in the securities settlement system, or the requirement to have an own safecustody/pledge/securities account, are important operational criteria, but might not be necessary for participation in certain operations, such as having access to a deposit facility or for participation in tenders for fixed-term deposits etc. 3.2 With regard to plausibility checks for bids submitted by counterparties,

text: Article 2.1

text: .10 of the draft regulation provides that where the aggregate amount of a counterparty's bid for a tender exceeds the total allotment established by Latvijas Banka, Latvijas Banka will discard all the counterpart’s bids for that tender. Section 5.1.4 of the Eurosystem’s General Documentation states that national central banks may also discard any bid which is below the minimum bid amount or which is below any minimum or above any maximum accepted interest rate/price/swap point. Furthermore, the national central banks may discard bids which are incomplete or which do not follow the pro forma example.

text: 3.3 At present, Latvijas Banka accepts only fixed income securities as collateral for its monetary policy operations. The Eurosystem, however, recognises a wider circle of assets as eligible collateral: asset-backed securities, credit claims and retail mortgage-backed debt instruments are also included in the Eurosystem’s single list of eligible collateral. The ECB stresses the importance of preparing the legal and operational framework necessary to enable Latvijas Banka to admit such assets as collateral by the time Latvia adopts the euro.

text: Done at Frankfurt am Main, 23 October 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42.

text: The inconsistencies of Section 60 of the CBC Law with the Statute are identified on p. 222 of the 2004 ECB Convergence Report.

text: ECB Opinion

text: of 27 January 2006 at the request of the Central Bank of Cyprus on a draft law amending the Central Bank of Cyprus Laws of 2002 and 2003; ECB Opinion

text: of 28 June 2006 at the request of the Cypriot Ministry of Finance on a draft provision amending the draft law amending the Central Bank of Cyprus Laws of 2002 and 2003.

text: The personal independence of the Auditor General is guaranteed under Article 115.3 of the Cypriot Constitution, according to which he or she is not to retire or to be removed from office except on the same grounds and in the same manner as a judge of the Supreme Court.

text: Under Article 116(1) of the Cypriot Constitution, ‘The Auditor General assisted by the Deputy Auditor-General shall, on behalf of the Republic, control all disbursements and receipts and audit and inspect all accounts of moneys and other assets administered, and of liabilities incurred, by or under the authority of the Republic and for this purpose he shall have the right of access to all books, records and returns relating to such accounts and to places where such assets are kept’.

text: Paragraphs 2.1 and 2.2 of Opinion

text: As expressed in paragraphs 5 to 7 of ECB Opinion

text: of 2 September 2002 at the request of the Swedish Ministry of Finance on a draft legislative proposal establishing the National Audit, including proposed amendments to the Sveriges Riksbank Act (1988:1385).

text: Paragraph 2.3 of Opinion

text: See, generally, ECB Convergence Report, May 2006, page 66, available at: http://www.ecb.int/pub/pdf/conrep/cr2006en.pdf. For specific examples of such safeguards, see page 74 of the ECB Convergence Report of May 2006 (Appointment of Independent External Auditors), ibid.

text: Opinion

title: Opinion of the European Central Bank of 26 October 2006 at the request of the Cypriot Ministry of Finance on a draft provision amending the draft law amending the Central Bank of Cyprus Laws of 2002 and 2003 (CON/2006/50)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 26 October 2006 at the request of the Cypriot Ministry of Finance on a draft provision amending the draft law amending the Central Bank of Cyprus Laws of 2002 and 2003 (

text: ) Introduction and legal basis

text: On 13 October 2006 the European Central Bank (ECB) received a request from the Cypriot Ministry of Finance for an opinion on a draft provision (hereinafter the ‘draft provision’) amending the draft law amending the Central Bank of Cyprus Laws of 2002 and 2003 (hereinafter the ‘CBC Law’) in respect of the appointment of independent external auditors for the Central Bank of Cyprus (CBC). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third indent of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to a national central bank. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1 Subject matter and background

text: 1.1 The subject matter of this opinion is a draft provision amending Section 60 of the CBC Law on the audit of the annual financial statements of the CBC in line with Article 27.1 of the Statute of the European System of Central Banks and of the European Central Bank . The ECB has been consulted in the past on two earlier versions of draft provisions amending Section 60 of the CBC Law and refers to its previous opinions on these provisions .

text: 1.2 In Opinion

text: , the ECB concluded that, notwithstanding the Auditor General’s 4 5 independence as enshrined in the Cypriot Constitution , the Audit Office (of which the Auditor General is the Head) is not an external auditor within the meaning of Article 27.1 of the Statute and cannot, for that reason, be appointed as the CBC’s independent external auditor . Reaffirming its view on this matter , the ECB also concluded that the appointment of an independent external auditor, in accordance with Article 27.1 of the Statute, to audit the CBC’s annual financial statements once Cyprus has adopted the single currency, ‘will not prevent the Audit Office from continuing to perform a control function, provided that its auditing activities: (i) do not interfere with the review of European System of Central Banks (ESCB) related tasks of the CBC to be undertaken by the CBC’s independent external auditors to be approved by the Council of the European Union in accordance with Article 27 of the Statute; and (ii) do not jeopardise the CBC’s independence’ . 1.3 In Opinion

text: , the ECB reiterated the conclusions reached in Opinion

text: , also drawing attention to its May 2006 Convergence Report, according to which the powers of auditors, other than those appointed under Article 27.1 of the Statute, are compatible with central bank independence only when the necessary safeguards are in place .

text: 2 Assessment of the draft provision

text: 2.1 Subsection 1(a) of the draft provision now under consideration provides that the financial statements of the CBC shall be audited in accordance with Article 27 of the Statute and that the CBC shall provide the auditors appointed in accordance with

text: Article 27

text: with full information, books and other records that are necessary for the exercise of their duties. The ECB welcomes this subsection. 2.2 Subsection 1(b) of the draft provision provides that the Auditor General may carry out financial and management audits of those activities of the CBC that are not related to its ESCB tasks and competences, provided that his reports and audit activities do not impinge on the CBC’s

text: independence. The ECB also welcomes subsection 1(b) and the draft provision’s definition of management audit, which preclude any interference with the audit to be carried out by the CBC’s independent external auditors. 2.3 The ECB thus considers the draft provision to be consistent with its earlier opinions in this matter and recommends (as an alternative to the initial wording on which the ECB was consulted by the CBC ) its incorporation in the draft law amending the CBC Law as the appropriate means of adapting, in this particular case, national audit arrangements to the requirements of Article 27 of the Statute and, in particular, to the principle of central bank independence.

text: Done at Frankfurt am Main, 26 October 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42. 2 See ECB Opinions:

text: of 11 May 2004 at the request of the Italian Ministry of Economic affairs and Finance on a draft law on the protection of savings;

text: of 6 October 2005 at the request of the Italian Ministry of Economy and Finance on an amendment to the draft law on the protection of savings concerning the Banca d’Italia;

text: of 23 December 2005 at the request of the Italian Ministry of Economy and Finance on an amendment to the draft law on the protection of savings concerning the Banca d’Italia; and

text: of 25 August 2006 at the request of the Banca d’Italia on the amended Statute of the Banca d’Italia.

text: See Article 3 of the draft legislative decree.

text: See Article 1 of the draft legislative decree.

text: See paragraph 14 of Opinion

text: and paragraphs 7 and 8 of Opinion

text: See paragraph 8 of Opinion

text: Introduced by Article 2 of the draft legislative decree.

text: See also paragraph 4 of ECB Opinion

text: of 25 July 2006 at the request of the Bank of Greece on a draft provision on the Bank of Greece’s powers in the field of consumer protection.

text: Available on the website of the Bank for International Settlements at www.bis.org.

title: Opinion of the European Central Bank of 3 November 2006 at the request of the Italian Ministry of Economic Affairs and Finance on a draft legislative decree exercising powers delegated under the Law on the protection of savings (CON/2006/51)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 3 November 2006 at the request of the Italian Ministry of Economic Affairs and Finance on a draft legislative decree exercising powers delegated under the Law on the protection of savings (

text: ) Introduction and legal basis

text: On 25 September 2006 the European Central Bank (ECB) received a request from the Italian Ministry of Economic Affairs and Finance for an opinion on a draft legislative decree (hereinafter the ‘draft legislative decree’), which is to be adopted in exercise of powers delegated under Article 43 of Law No 262 of 28 December 2005 on the protection of savings (hereinafter ‘Law 262/2005’). The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing the European Community and the third and sixth indents of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft legislative decree relates to the Banca d’Italia and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft legislative decree

text: 1.1 Article 43 of Law 262/2005 requires that coordination measures between Law 262/05 and the consolidated Law on banking (TUB), the consolidated Law on finance (TUF) and other relevant special legislation be issued within one year of the entry into force of Law 262/2005. 1.2 The ECB was consulted on an early draft of Law 262/2005, which extensively modified the institutional framework for the regulation and supervision of financial markets and intermediaries in Italy, as well as on later amendments and certain implementation measures . 1.3 According to the explanatory memorandum, one of the main aims of the draft legislative decree is to ‘restore coherence to the system’ on the basis of the founding principles of the 2005 reform, in particular the principle of allocating regulatory and supervisory tasks between the various

text: authorities in accordance with those authorities’ objectives. The draft legislative decree does in fact further clarify and improve the allocation of supervisory powers between the Banca d’Italia, the financial markets regulator (Commissione nazionale per le Società e la Borsa, CONSOB) and the insurance supervisory authority (Istituto per la Vigilanza sulle Assicurazioni Private e di Interesse Collettivo, ISVAP), in accordance with their specific supervisory purposes. 1.4 The draft legislative decree also amends certain provisions regarding listed companies to enhance corporate governance mechanisms. 1.5 Finally, in amending Law No 287 of 10 October 1990 on competition and fair trading (hereinafter ‘Law 287/1990’) and Article 19 of Law 262/2005, the draft legislative decree also revises the institutional arrangements for coordination between the Banca d’Italia and the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato, AGCM).

text: 2. Refinement of the supervisory model

text: 2.1 The ECB welcomes the draft legislative decree as it further refines the Italian supervisory model. By eliminating possible operational problems arising from overlapping competences, the draft legislative decree aims to enhance the efficiency and effectiveness of the overall supervisory activity. 2.2 The Banca d’Italia will remain responsible for safeguarding financial stability and for the prudential regulation and supervision of credit institutions and other financial intermediaries. CONSOB will be responsible for the overall transparency of financial markets, including conduct of business regulation of all financial intermediaries and corporate disclosure practices. The draft legislative decree rightly clarifies that bank deposits do not constitute financial products, which are subject to CONSOB’s transparency competence pursuant to the TUF, and streamlines the application of investor protection rules for insurance products of a financial nature. Furthermore, Article 129 of the TUB is amended in accordance with the aim of giving CONSOB full powers in relation to investor protection and the transparency of financial instruments. Under the new provision, Banca d’Italia’s current task of authorising the issue or offer of financial instruments in Italy or abroad by Italian entities will be replaced by the power to seek information, for the sole purpose of monitoring financial markets. 2.3 In particular, the ECB welcomes Article 1 of the draft legislative decree, which contains several important amendments to the TUB. First, it provides that the Chairperson of the Interdepartmental Committee for Credit and Savings (Comitato Interministeriale per il Credito ed il Risparmio, CICR) may invite the chairpersons of supervisory authorities to take part in CICR meetings when topics within their competence will be discussed. This amendment is consistent with the requirement under Law 262/2005 to coordinate between the various supervisory authorities in the financial sector. However, the operational independence of supervisory authorities, which is an

text: essential and internationally recognised standard, should be safeguarded by avoiding any interference by political authorities in day-to-day supervisory activity. In this respect, the role of the CICR might need to be further clarified, given that regulation is to a large extent determined at Community level and that coordination with the Government is subject to the requirement of professional secrecy of banking supervision authorities. Second, the Banca d’Italia is given extensive regulatory powers, in accordance with CICR resolutions, to lay down the conditions and limits for banks’ assumption of risk activities in cases of possible conflicts of interest. Such cases are no longer explicitly described in the TUB and this will enhance the flexibility of the regulatory framework, making it possible to take future developments into account, and ultimately the effectiveness of supervisory action.

text: 3. Relationship between the Banca d’Italia and the AGCM

text: 3.1 Articles 2 and 4 of draft legislative decree contain amendments to Article 20 of Law 287/1990 and Article 19 of Law 262/2005 which affect the powers of the AGCM and its relationship with the Banca d’Italia. These provisions are welcome as they comply with the general principles of Community law in this area and follow the recommendations previously made by the ECB on this issue . The draft legislative decree confirms that, for operations which constitute a bank merger requiring prior notification, the AGCM is responsible for the assessment of market competition, while the Banca d’Italia retains the responsibility for assessing the compatibility of the merger with sound and prudent management. More specifically, the draft legislative decree clarifies two aspects relating to coordination between the two authorities. 3.2 First, Article 4 of the draft legislative decree repeals paragraphs 12 to 14 of Article 19 of Law 262/2005, which provided that the authorisations of the AGCM and the Banca d’Italia concerning mergers and acquisitions involving banks should be adopted as a single measure. This clarification is welcome as it follows an ECB recommendation to maintain a clear distinction between the two procedures . 3.3 Second, the new paragraph 5bis of Article 20 of Law 287/1990 provides that, notwithstanding competition concerns, the AGCM may, at the Banca d’Italia’s request, authorise: (a) an agreement, on the basis of the operational requirements of the payments system and provided that the authorisation is for a limited period; and/or (b) a banking merger which creates or reinforces a dominant position, for reasons of the stability of one or more of the parties involved. However, the draft legislative decree contains an additional safeguard as

text: Article 2

text: requires that such exceptional authorisations by the AGCM do not unduly restrain competition. The ECB welcomes the proposed arrangements, which balance the potentially conflicting objectives of market competition and

text: financial stability by introducing safeguards similar to those which apply under Community law and follow previous ECB recommendations on this important subject.

text: 4. Liability regime

text: The ECB takes note of the new liability regime introduced by Article 4 of the draft legislative decree. This provision states that, in exercising their own control functions, the relevant supervision authorities and the members of their decision-making bodies and their employees will be liable for losses caused by wilful misconduct or gross negligence (dolo o colpa grave), but not for losses caused by simple negligence (colpa) . The provision is welcome as it is fully in line with the Core Principles for Effective Banking Supervision adopted by the Basel Committee on Banking Supervision .

text: This opinion will be published on the ECB’s website.

text: Done at Frankfurt am Main, 3 November 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET


text: OJ L 189, 3.7.1998, p. 42. 2 The standards are available on the ECB’s website at www.ecb.int.

text: Directive

text: of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and securities settlement systems (OJ L 166, 11.6.1998, p. 45).

title: Opinion of the European Central Bank of 14 November 2006 at the request of Latvijas Banka on a draft regulation on Latvijas Banka’s securities settlement system (CON/2006/52)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 14 November 2006 at the request of Latvijas Banka on a draft regulation on Latvijas Banka’s securities settlement system (

text: ) Introduction and legal basis

text: On 28 September 2006 the European Central Bank (ECB) received a request from Latvijas Banka for an opinion on a draft regulation on Latvijas Banka’s securities settlement system (hereinafter the ‘draft regulation’). The ECB’s competence to deliver an opinion is based on the third and fifth indents of

text: Article 2(1) of Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft national provisions , as the draft regulation relates to a national central bank and payment and settlement systems. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft regulation

text: As explained by Latvijas Banka, the main objective of the draft regulation is to optimise the operation of the securities settlement system operated by Latvijas Banka (hereinafter the ‘VNS’). The draft regulation will replace an existing regulation on the VNS. The ECB also understands that the draft regulation would come into force simultaneously with the Regulation on the use of Latvijas Banka’s monetary policy instruments since the draft regulation chiefly concerns the settlement of securities transactions for Latvijas Banka’s monetary policy and intraday credit operations in the VNS.

text: 2. General observations

text: 2.1 ECB notes that, on adoption of the euro in Latvia, and provided that the VNS will be selected to provide securities settlement of central bank credit operations, the VNS will be assessed against the Eurosystem standards for the use of EU securities settlement systems in ESCB credit operations .

text: For that reason, this opinion is without prejudice to a future ECB assessment of the VNS against the abovementioned standards. 2.2 The ECB expects Latvijas Banka to ensure that the VNS complies with the Latvian Law on settlement finality in payment and security settlement systems (hereinafter the ‘SFD Law’).

text: 3. Specific comments

text: 3.1 According to the explanatory memorandum submitted to the ECB, the main purpose of the VNS is securities settlement for Latvijas Banka’s monetary policy and intraday credit operations. Although it can be derived from Article 2.7 of the draft regulation, the clarity and transparency provided through the draft regulation could be enhanced by explicitly specifying this main purpose already in the provision defining the VNS (

text: Article 1.1

text: ), especially in view of the existence of another securities settlement system operated by the Latvian Central Depository (LCD). 3.2 According to Article 1.2 of the draft regulation, a VNS participant is defined as a bank, the Financial and Capital Market Commission (hereinafter the ‘Commission’) and Latvijas Banka. Furthermore, Article 1.3 of the draft regulation defines a bank as a ‘bank or a branch of a foreign bank registered in the Republic of Latvia, as well as a bank and a branch of a bank of another Member State, entitled to deliver financial services in the Republic of Latvia and having a cash account for settlements in lati with Latvijas Banka’. This is in line also with Article 3 of the Law on credit institutions which provides that in Latvia, credit institutions registered in Latvia, branches of credit institutions of a foreign State, credit institutions registered in another Member State or the branches of credit institutions registered in Member States may perform credit institution activities. However, Article 1 of the SFD Law provides that a credit institution registered in Latvia or a Member State of the European Union or the European Economic Area, and a commercial company whose head office is located outside the European Economic Area and whose tasks correspond to those of credit institutions in Latvia and Member States of the European Union and the European Economic Area are eligible to participate in the system. The ECB notes that, according to the SFD Law, only entities covered by

text: Article 1(2)

text: may participate in a settlement system. The ECB further notes that, although a branch of a foreign bank does not have the legal entity status in Latvia, a number of provisions on credit institution insolvency in the Law on credit institutions apply also to branches of foreign banks in accordance with Article 6 of the Law on credit institutions. Thus, in the absence of an express reference to the foreign bank branches in Article 1(2) of the SFD Law, and considering the different insolvency proceedings applicable to foreign bank branches and banks established in Latvia, respectively, the ECB advises Latvijas Banka to carry out an assessment as to whether foreign bank branches fall within the scope of application of the SFD Law. If that is not the case, foreign bank branches should be excluded from the scope of Article 1.3 of the draft regulation.

text: 3.3 Article 2.5 of the draft regulation foresees three different types of accounts: (1) a bank’s securities account where Latvijas Banka records securities that are held and used by the bank as collateral in transactions with Latvijas Banka; and (2) the Commission’s securities account where Latvijas Banka records securities of a fund managed by the Commission that are transferred from the LCD; and (3) Latvijas Banka’s securities account where Latvijas Banka records securities held by itself. The draft regulation on the use of Latvijas Banka’s monetary policy instruments, however, also refers to a collateral account which is defined as a securities account opened for the counterparty in the VNS in accordance with the draft regulation where securities are posted as collateral. The ECB understands that another Latvijas Banka’s Regulation provides that all securities registered on a bank’s securities account are posted as collateral for monetary policy operations. However, the ECB invites Latvijas Banka to consider clarifying this also in the draft regulation now under preparation. The ECB also notes that Article 17(9) of the SFD Law requires the system rules to include the procedure for creating and managing collateral security. 3.4 The wording of Article 2.13 of the draft regulation on Latvijas Bank’s acceptance of security transfers and their VNS entry point needs clarification. In particular, it provides that (i) ‘Latvijas Banka shall transfer securities in the sequence of receiving securities transfer orders’; and (ii) ‘after receiving and examining each securities transfer order, Latvijas Banka shall accept it by conducting the respective securities transfer’; and (iii) ‘a securities transfer order shall be deemed entered in the VNS from the moment it is accepted, i.e. when Latvijas Banka debits the deliverer’s securities account’. The concepts of receipt and acceptance of transfer orders needs further clarification. The ECB understands that this aspect of the draft regulation is still under consideration and that Latvijas Banka envisages clarifying that reservation of securities in the respective securities account equals the entry of transfer orders in the VNS. 3.5 The ECB notes that Article 2.1 of the draft regulation provides that the VNS will operate in accordance with Latvian laws and regulations. The ECB also notes that Article 15 of the SFD Law provides that if insolvency proceedings are initiated against a system participant, the rights and obligations arising from, or in connection with, that participant’s participation in the system will be determined in accordance with the law of the country where that system operates. Although Article 15 of the SFD Law in conjunction with Article 2.1 of the draft regulation in principle should ensure that the rights and obligations arising from, or in connection with, participation in the VNS will be governed by Latvian law also in the event of opening insolvency proceedings against a participant, in the interests of transparency and legal certainty, and given that Article 8 of the Settlement Finality Directive (implemented by Article 15 of the SFD Law) is one of the Directive’s most important provisions, the ECB suggests clarifying in the draft regulation that all rights and obligations arising from participation in the VNS are governed by Latvian law also in the event of opening insolvency proceedings against a participant. Furthermore, in view of the need for

text: such transparency and legal certainty, the ECB suggests further clarifying paragraphs 10 to 12 of Annex 1, which currently appear to designate only the law applicable to the dispute settlement (lex fori), without designating the substantive law governing the rights and obligations of parties arising from their contractual relationship (lex contractus). 3.6 On Latvia’s adoption of the euro, and provided that the VNS will be selected to provide securities settlement for central bank credit operations, the VNS will need to comply with the operating days and hours of the successor to the TARGET system. The ECB understands that Latvijas Banka intends to introduce such amendments to the draft regulation in a timely manner, thereby ensuring compliance with these rules. 3.7 With regard to the VNS operation in the event of technical problems or other contingencies, disaster procedures for critical functions should be in place in the event of a total failure of the telecommunication networks. The business continuity arrangements should also provide for a second processing site which should not depend on the same critical infrastructure components used by the primary site, such as telecommunications and electric power. In this regard, the ECB has been informed that Latvijas Banka has adopted the requisite regulations and procedures to ensure all necessary business continuity arrangements for Latvijas Banka’s payment and settlement systems, including a second processing site, although these regulations and procedures do not form part of the draft regulation submitted to the ECB in the present consultation.

text: Done at Frankfurt am Main, 14 November 2006.

text: [signed]

text: The President of the ECB

text: Jean-Claude TRICHET