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

text: The ECB also previously adopted Opinions

text: and

text: regarding the Law on recapitalisation. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.

text: Following the commitment to bolster the resilience of the banking sector as agreed on September 2011 under the Economic and Financial Adjustment Programme for Portugal (1st Review, MoU, paragraph 2.3 and MEFP, paragraph. 18), the existing recapitalization law was extensively amended in 2011 in order to introduce a new recapitalization scheme.

text: Communication from the Commission on the application, from 1 August 2013, of State aid rules to support measures in favour of banks in the context of the financial crisis (‘Banking Communication’) (OJ C 216/1, 30.7.2013). 5 See

text: Article 8

text: -B(6) of the draft law. 6 See section 3.1.2. of the Banking Communication and

text: Articles 8

text: -B(2)(b) and (4), 8-D, 8-I and 16(8)(d) of the draft law.

text: See paragraph 19 of the Banking Communication. 8 See paragraph 45 of the Banking Communication. 9 See paragraph 54 of the Banking Communication. 10 See

text: Article 15

text: -A(2)(3) of the draft law and paragraphs 38 and 39 of the Banking Communication. 11 See

text: Article 4

text: -A(5) of the draft law.

title: Opinion of the European Central Bank of 6 December 2013 on the recapitalisation of credit institutions (CON/2013/87)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 6 December 2013 on the recapitalisation of credit institutions (

text: ) Introduction and legal basis

text: On 17 October 2013, the European Central Bank (ECB) received a request from the Portuguese Minister of State and for Finance for an opinion on a draft law (hereinafter the ‘draft law’) amending Law No 63- A/2008 of 24 November 2008 establishing measures to strengthen the financial soundness of credit institutions (hereinafter the ‘Law on recapitalisation’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and on 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 law relates to the Banco de Portugal and 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 draft law introduces changes to the Law on recapitalisation, as amended and republished by Law No 48/2013 of 16 July 2013, on which the ECB adopted its Opinion

text: on 19 March 2013. The Law on recapitalisation was one of the actions considered necessary under the Economic Adjustment Programme for Portugal with a view to restoring confidence in the banking 3 sector and financial stability in the economy . It aims at reinforcing the resilience of the banking sector by establishing the conditions and procedures for providing temporary public support to viable credit institutions having their head office in Portugal. 1.2 The Portuguese Government undertook, under Section 2.14 of the Memorandum of Understanding th th on Specific Economic Policy Conditionality agreed after the combined 8 and 9 Review, to

text: propose amendments to the Law on recapitalisation to reflect the recent Communication from the Commission on the application, from 1 August 2013, of State-aid rules to support measures in favour of banks in the context of the financial crisis (‘Banking Communication’) . 1.3 The amendments now introduced by the draft law aim mainly at adapting it to the principles, rules and guidelines enshrined in the Banking Communication, in particular regarding: (a) establishing a plan containing measures that credit institutions may utilise to raise capital, as well as the possible means for burden-sharing among the shareholders and subordinated creditors of a credit institution which applies for State aid; (b) schemes for the recapitalisation and restructuring of small credit institutions; and (c) restrictions to the remuneration of staff, including board members and senior management. In addition, the draft law contains new criteria for the return on public investment with regard to instruments that are eligible for inclusion as capital for purposes of the capital adequacy requirements of the credit institution.

text: 2. General observations

text: The ECB welcomes the draft law, which in the context of the current economic and financial crisis generally should contribute to reduce the amount of State aid that the beneficiary credit institutions may require and more effectively safeguards and protects the taxpayers’ interests.

text: 3. Capital-raising plan and burden-sharing measures

text: 3.1 The ECB welcomes the fact that the draft law includes measures requiring a thorough asset quality review and a forward-looking capital adequacy assessment, which are both intended to reduce a capital shortfall with regard to the capitalisation of a credit institution with access to public investment. The ECB is of the view that the Banco de Portugal is the institution best placed to: (a) assess whether there is a residual shortfall in capital; (b) determine the appropriate mechanisms to make up for that shortfall; (c) approve a capital-raising plan with public funds for a given credit institution that also includes measures relating to burden-sharing; and (d) prevent the outflow of funds prior to a restructuring decision. This includes, notably, the State’s expected return on its investment, in line with Union State Aid rules, and the terms and conditions of public divestiture. 3.2 The ECB also welcomes the new provisions in the draft law establishing the burden-sharing principle and the ‘no creditor worse off principle’ . These provisions lay down the necessary legal framework to ensure that shareholders and subordinated and hybrid debt holders of a credit institution benefiting from public funds contribute appropriately to the rescue of such credit

text: institution. They also aim to protect the integrity of the single market and ensure a level playing field as well as the State's fiscal strength. Nevertheless, in order to reflect Union State Aid rules and increase legal certainty, the ECB recommends to further clarify the way in which burden-sharing measures will be implemented recalling that, according to the Banking Communication , all capital generating measures should be exhausted before the State may recapitalise a credit institution, provided that fundamental rights are respected and financial stability is not put at risk. In this vein, exceptions to such principles can be made where implementing burden sharing and capital generating measures would endanger financial stability or lead to disproportionate results . 3.3 Although the ECB supports the adoption of a simpler procedure regarding public investment for small credit institutions with a balance-sheet totalling no more than EUR 100 million, it notes that the draft law does not set a time limit for this kind of public investment . Therefore, the ECB invites the consulting authority to clarify expressly in the draft law that authorised schemes for the recapitalisation and restructuring of small credit institutions are limited to a six-month period.

text: 4. Restrictions to the remuneration of staff

text: The ECB welcomes the changes introduced to the remuneration policy applicable to institutions that benefit from capitalisation operations with recourse to public investment, in particular those provisions that establish a cap on the total remuneration of the members of decision-making and of supervisory bodies and senior management, including all possible components of that remuneration and of discretionary pension benefits. Furthermore, the ECB supports the fact that, under the draft law, severance payments to employees of credit institutions should not be in excess of what is required by law or contract, that in no case can the total remuneration exceed the amount of the public investment in the credit institution at that time and that these restrictions will apply until either the credit institution has repaid all of the public investment or the end of the restructuring period, if later .

text: 5. Remuneration of the public investment

text: The ECB welcomes the fact that the degree of subordination, in the event of liquidation, of the instruments subscribed by the State, and the amount of the increase of capital with a higher degree of subordination, are the new criteria for the return on the public investment on instruments that

text: are eligible for inclusion as capital. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 6 December 2013. [signed]

text: The President of the ECB

text: Mario DRAGHI


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

text: Law CXXXIX of 2013 on the Magyar Nemzeti Bank.

text: Directive

text: of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms amending Directive

text: and repealing Directives

text: and

text: (OJ L 176, 27.6.2013, p. 338).

text: Regulation (EU) No 575/2013

text: of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending

text: Regulation (EU) No 648/2012

text: (OJ L 176, 27.6.2013, p. 1).

text: See Opinions

text: and

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.

text: See, e.g. Directive

text: of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives

text: and

text: and Directive

text: of the European Parliament and of the Council and repealing

text: Council Directive 93/22/EEC

text: (OJ L 145, 30.4.2004, p. 1); and

text: Article 9 of Regulation (EU) No 648/2012

text: of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1).

text: See, e.g.,

text: Article 35 of Directive 2009/138/EC

text: of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).

text: See, e.g. Title IV of a proposal for a regulation of the European Parliament and of the Council on markets in financial instruments and amending Regulation [EMIR] on OTC derivatives, central counterparties and trade repositories (COM(2011) 652 final).

text: See paragraph 3.1.9 of Opinion

text: Council Regulation (EC) No 2533/98 of 23 November 1998

text: concerning the collection of statistical information by the European Central Bank (OJ L 318, 27.11.1998, p. 8).

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 9 December 2013 on the data reporting obligations supporting supervisory tasks of the Magyar Nemzeti Bank (CON/2013/88)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 9 December 2013 on the data reporting obligations supporting supervisory tasks of the Magyar Nemzeti Bank (

text: ) Introduction and legal basis

type: rubrik

text: On 11 November 2013, the European Central Bank (ECB) received a request from the Magyar Nemzeti Bank (MNB) for an opinion on four draft decrees related to statistical data provisions to the MNB (hereinafter collectively referred to as the ‘draft decrees’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the fourth 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 decrees relate to the collection, compilation and distribution of monetary, financial, banking, payment systems and balance of payments statistics. 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 decrees

text: 1.1 Pursuant to the provisions of the new Law on the Magyar Nemzeti Bank , the Hungarian Financial Supervisory Authority (HFSA) was dissolved and its functions and responsibilities were transferred to the MNB on 1 October 2013. From this date, the MNB became the entity not only responsible for macro-prudential policy, but also for micro-prudential supervision of the entire financial market. As a result, the Governor of the MNB has been entrusted with adopting secondary legislation on subject matters relating to the MNB’s new supervisory functions. 1.2 The draft decrees regulate the data reporting obligations of certain supervised entities operating in the following markets: (a) the money market, e.g. credit institutions, financial enterprises, payment institutions; (b) the capital market, e.g. investment companies, investment funds, investment service providers; and (c) the insurance market, e.g. insurance companies, small and large associations, independent insurance agents and the Association of Hungarian Insurance Companies. One of the draft decrees also lays down data reporting obligations for pension funds and pension providers.

text: 1.3 The explanatory memorandum attached to the consultation request indicates that the main objectives to be achieved by imposing these reporting obligations on supervised institutions are to: (a) verify compliance with prudential and consumer protection rules applicable to these entities; (b) ensure the availability of institution-level monitoring and risk assessment; (c) provide the necessary data for macro-prudential analyses; and (d) prepare statistical analyses and publications. 1.4 The draft decrees also aim to transpose specific provisions of Directive

text: of the European Parliament and of the Council (hereinafter the ‘CRD IV Directive’) into Hungarian law, and effect changes and clarifications to Hungarian law made necessary by

text: Regulation (EU) No 575/2013

text: of the European Parliament and of the Council .

text: 2. The appropriate time to consult the ECB

text: The MNB has sought the ECB’s opinion on an urgent basis, given that the draft decrees are due to enter into force on 1 January 2014. In recent opinions the ECB has drawn the Hungarian legislator’s attention to the fact that the lacuna resulting from the general repeal of all legislation applicable to supervised entities adopted by the President of the HFSA on the dissolution of the HFSA and transfer of its responsibilities to the MNB would cause legal uncertainty for the supervised entities and hinder the MNB’s ability to adopt the regulations applicable to supervised entities in a timely manner. For reasons of legal certainty, the ECB also considered that, unless the decrees adopted by the President of the HFSA became obsolete from an operational rather than an institutional point of view, the legislation previously adopted by the President of the HFSA should continue to apply after the transfer of supervisory tasks from the HFSA to the MNB until the MNB is ready to adopt new decrees regulating the subject matter at hand. However, the Hungarian legislator has failed to introduce such a provision into the Law on the Magyar Nemzeti Bank. In the light of the above, the ECB reiterates that, in accordance with

text: Article 4 of Decision 98/415/EC

text: , it must be consulted ‘at an appropriate stage’ in the legislative process, which means that such a consultation should take place at a point in the legislative process that affords the ECB sufficient time to examine the draft legislative provisions and adopt its opinion. Pursuant to

text: Article 3(4) of Decision 98/415/EC

text: , Member States are obliged to suspend the process of adoption of draft legislative provisions pending submission of the ECB’s opinion to allow the relevant national authorities to meaningfully consider the ECB’s opinion prior to adoption of the provisions. Accordingly, the ECB stresses that, even in cases of particular urgency or where the legislation has reached an advanced stage, the national authorities are not relieved of their duty to consult the ECB at an appropriate stage in the legislative process that allows sufficient time for: (a) the ECB to examine the

text: draft legislative provisions and adopt its opinion in all required language versions; and (b) the national authorities to take into account the ECB’s views in accordance with Decision

text: . The ECB would appreciate the MNB honouring its obligation to consult the ECB in line with the provisions of Decision

text: in the future.

text: 3. General observations

text: 3.1 The ECB welcomes the fact that reference is made in the draft decrees to acts of Union law concerning the prudential supervision of the activities of credit institutions and investment firms that lay down the supervised entities’ reporting obligations. At the same, the ECB also notes that provisions of Union law also regulate supervised entities’ reporting obligations in the areas of 6 7 capital market regulation and insurance , and that there has been alignment of the draft decrees with these provisions. Further alignment will be necessary in view of upcoming Union legislative proposals . 3.2 Article 58 of the CRD IV Directive provides that Member States should take the appropriate measures to ensure that a competent authority is not prevented from transmitting information concerning monetary, deposit protection, systemic and payment aspects data to, inter alia, the members of the European System of Central Banks (ESCB) for the purposes of their tasks. The Hungarian legislator should therefore ensure that the applicable Hungarian confidentiality regime is aligned with the CRD IV Directive. 3.3 In relation to the statistical aspect of the reporting obligations the draft decrees impose on the supervised entities, the ECB observes that, when the ECB was consulted on the draft Law on the Magyar Nemzeti Bank, it pointed out that the Law on the Magyar Nemzeti Bank does not list the ECB and the ESCB among the organisations with which the MNB cooperates. Notwithstanding the provisions of Article 4(6) of the Law on the Magyar Nemzeti Bank providing for the MNB fulfilling its statistical reporting obligations towards the ECB, the MNB’s legal obligation to cooperate with the ESCB and the ECB in the field of statistics should be observed. Such cooperation is provided for in the first indent of Article 46.2 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter referred to as the ‘Statute of the ESCB’).

text: Although Regulations adopted under Article 34.1 of the Statute of the ESCB in the field of statistics do not confer any rights or impose any obligations on Member States that have not adopted the euro, Article 5 of the Statute of the ESCB, which concerns the collection of statistical information, applies to all Member States, regardless of whether they have adopted the euro. Furthermore,

text: Article 4 of Council Regulation (EC) No 2533/98

text: , which was adopted on the basis of Article 5.4 of the Statute of the ESCB, requires all Member States to ‘… organise themselves in the field of statistics and … fully cooperate with the ESCB in order to ensure the fulfilment of the obligations arising out of Article 5 of the Statute’. Accordingly, Member States whose currency is not the euro are under an obligation to design and implement, at national level, all measures they consider appropriate to collect the statistical information needed to fulfil the ECB’s statistical reporting requirements and to make timely preparations in the field of statistics in order for them to become Member States whose currency is the euro. The ECB expects the MNB to cooperate with the ESCB and the ECB in the field of statistics as provided for by the applicable Union legislation in relation to the data it collects.

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

text: Done at Frankfurt am Main, 9 December 2013.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI

type: vagledning

utgivare: ecb


title: Opinion of the European Central Bank of 17 December 2013 on the processing and distribution of banknotes, and their protection against counterfeiting in Hungary (CON/2013/89)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 17 December 2013 on the processing and distribution of banknotes, and their protection against counterfeiting in Hungary (

text: ) Introduction and legal basis

text: On 25 November 2013, the European Central Bank (ECB) received a request from the Magyar Nemzeti Bank (MNB) for an opinion on a draft decree amending the MNB decree regulating the processing and distribution of banknotes and on the technical tasks relating to the protection of banknotes against counterfeiting (hereinafter referred to as the ‘draft decree’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the second 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 decree relates to 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.

text: 1. Purpose of the draft decree

text: 1.1 The MNB has reviewed the operational risk of the Hungarian automated teller machine (ATM) network with regard to the methods ensuring business continuity in case of a cash-in-transit company’s failure. The review focused on ATMs located in credit institutions and the offices of the postal services, as in a critical situation the continued operation of the off-site ATMs is highly unlikely. Pursuant to the explanatory memorandum attached to the draft decree, the review carried out by the MNB found that credit institutions have outsourced their tasks related to the refilling of ATMs to cash-in-transit companies to such an extent that this outsourcing carries a systemic risk. The mitigation of this risk therefore requires intervention by the MNB as the competent authority adopting legislation on this subject matter. 1.2 The Hungarian Financial Supervisory Authority was dissolved and its functions and responsibilities were transferred to the MNB on 1 October 2013. This change in the institutional setup required the adoption of a new Law on the Magyar Nemzeti Bank , which, inter alia, regulates the MNB’s competence in issuing banknotes and coins, as well as its competence in providing for protection of

text: 1 OJ L 189, 3.7.1998, p. 42.

text: 2 Law CXXXIX of 2013 on the Magyar Nemzeti Bank. the Hungarian currency and currency denominated in euro against counterfeiting. An amendment to the MNB decree regulating the processing and distribution of banknotes and protection of banknotes against counterfeiting (hereinafter referred to as ‘the MNB Decree’) therefore became necessary to update the references to and implement the Articles of the new Law on the Magyar Nemzeti Bank, on the one hand, and to reflect the relevant Union legislation in this field, on the other hand. 1.3 Apart from providing updated references to the Law on the Magyar Nemzeti Bank in this field, the draft decree also provides new requirements that credit institutions and postal services have to adhere to in order to ensure that the ATMs continue to operate if critical events occur that expose ATMs to risk. With a view to improving business continuity, the draft decree, inter alia, requires the entities affected by the draft decree to set up a business contingency plan.

text: 2. General observations

text: 2.1 Since Hungary is a Member State with a derogation pursuant to Article 139 of the Treaty, the ECB’s requirements regarding the recirculation of euro banknotes in Member States that have adopted the euro do not apply to the MNB . These requirements will apply once Hungary adopts the euro and the MNB becomes a fully integrated member of the Eurosystem. 2.2 The ECB welcomes that the draft decree imposes requirements on credit institutions and postal services to develop a business contingency plan in relation to cash distribution disruptions and acknowledges that such a provision would address specific issues, as well as mitigate relevant risks to the national cash distribution cycle for the purpose of ensuring its continuity. 2.3 Furthermore, based on correspondence with the Hungarian authorities, the ECB understands that an amendment to the Law on the Magyar Nemzeti Bank is expected in the near future. In this respect, the ECB reiterates its earlier observations as regards the MNB’s currency-issuing operations , most of which were not taken into consideration when the draft Law on the Magyar Nemzeti Bank was finalised, and urges the Hungarian legislator to consider those observations with regard to any forthcoming amendments to the Law on the Magyar Nemzeti Bank. It is also important that any future amendments to the Law on the Magyar Nemzeti Bank are comprehensive and address all outstanding points with regard to the MNB identified by the ECB in past opinions and its Convergence Report , with a view to avoiding frequent changes to Hungarian legislation on the MNB .

text: 3 MNB Decree 11/2011 (IX. 26.).

text: 4 See Opinions

text: and

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.

text: 5 See paragraph 3.2.5 of Opinion

text: 6 See Opinions

text: and

text: , as well as the ECB’s Convergence Report of May 2012, p. 243-248.

text: 7 See, for example, Opinions

text: , CON2008/83,

text: and

text: 3. Specific observations

text: 3.1 The draft decree amends the provision on the scope of the MNB Decree . While recognising the technical character of this amendment, the ECB highlights that the amended provision sets out the instances where specific provisions of the MNB Decree applies to the processing and distribution of foreign banknotes, including euro banknotes. In this respect, Decision ECB/2010/14 specifically regulates any issue relating to cash handlers automatically or manually processing euro banknotes and putting those banknotes into circulation. Since Decision ECB/2010/14 applies to cash handlers by virtue of

text: Article 6(1) of Council Regulation (EC) No 1338/2001

text: , which refers to procedures defined by the ECB for checking euro banknotes, there is no strict need to implement Decision ECB/2010/14 into Hungarian law . In general, the ECB considers it essential for the draft decree and the MNB Decree to only deviate from Decision ECB/2010/14 where the Decision has expressly allowed such deviations. To ensure consistency, the ECB recommends including direct references in the MNB Decree to the relevant provisions of Decision ECB/2010/14, including its technical annexes . In this respect, the ECB understands that Annex 2 to the MNB Decree defines banknote handling machine types for processing forint banknotes without prejudice to the application in Hungary of the technical annexes to Decision ECB/2010/14 regulating similar aspects in the context of handling euro banknotes. 3.2 The ECB understands that the new definition of fit euro banknotes in the draft decree recognises the requirement for them to be checked for authenticity in accordance with Decision ECB/2010/14 based on the provision of Article 3(4) and 7(1) of the MNB Decree. However, the definition of unfit euro banknotes set out in the draft decree would benefit from aligning with the corresponding definition laid down in Decision ECB/2010/14, thereby ensuring the consistency of this definition with the implementation approach recommended under paragraph 3.1 above.

text: 8 See Article 4(1) of the draft decree amending

text: Article 1

text: (b) of the MNB Decree on the on processing and distribution of banknotes and on the technical tasks relating to the protection of banknotes against counterfeiting.

text: 9 Decision ECB/2010/14 of 16 December 2010 on the authenticity and fitness checking and recirculation of euro banknotes (OJ L 267, 9.10.2010, p. 1).

text: Council Regulation (EC) No 1338/2001 of 28 June 2001

text: laying down measures necessary for the protection of the euro against counterfeiting (OJ L 181, 4.7.2001, p. 6). The effects of this Regulation, in particular of the second subparagraph of

text: Article 6(1)

text: thereof, have been extended to Member States that have not adopted the euro as their single currency by way of

text: Council Regulation (EC) No 1339/2001 of 28 June 2001

text: extending the effects of

text: Regulation (EC) No 1338/2001

text: laying down measures necessary for the protection of the euro against counterfeiting to those Member States which have not adopted the euro as their single currency (OJ L 181, 4.7.2001, p. 11).

text: 11 See paragraph 2.1 of Opinion

text: 12 See paragraph 3.1 of Opinion

text: . 3.3 Finally, the ECB draws the attention of the Hungarian authorities to a recent amendment to Decision ECB/2010/14 , which has abolished the transitional period referred to in

text: Article 13(2)

text: thereof. To this end, the ECB recommends amending Article 7(3) of the MNB Decree in its upcoming recast, which was announced by the MNB in the explanatory memorandum attached to the consultation request. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 17 December 2013. [signed] The President of the ECB Mario DRAGHI

text: 13 Decision ECB/2012/19 amending Decision ECB/2010/14 on the authenticity and fitness checking and recirculation of euro banknotes (OJ L 253, 20.9.2012, p. 19).


title: Opinion of the European Central Bank of 18 December 2013 on public finances (CON/2013/90)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 18 December 2013 on public finances (

text: ) Introduction and legal basis

text: On 12 July 2013, the European Central Bank (ECB) received a request from the Luxembourg Ministry of Finance for an opinion on a draft law on coordination and governance of public finances (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union 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 the Banque centrale du Luxembourg (BCL). 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 purpose of the draft law is to improve Luxembourg’s legislation on public finances and budgetary framework in the light of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (hereinafter the ‘TSCG’),

text: Regulation (EU) No 473/2013

text: of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit in the Member States in the euro area and

text: Council Directive 2011/85/EU of 8 November 2011

text: on requirements for budgetary frameworks of the Member States . The draft law is scheduled to enter into force on 1 January 2014. 1.2 To this end, the draft law aims at reflecting the requirements laid down in Article 3(1) of the TSCG in respect of central and local government, as well as social security fund sub-sectors. These are, inter alia, that the budgetary position of the general government of a contracting party to the TSCG

text: 1 The full title of the draft law is ‘Law on the coordination and governance of public finances, amending the amended Law of 8 June 1999 on budget, accounting and treasury as well as the amended Law of 10 March 1969 setting up a general inspection of the public finances’.

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

text: 3 The TSCG was signed by 25 Member States on 2 March 2012. It entered into force on 1 January 2013, on the basis that 12 euro area Member States had deposited their ratification instruments by that date.

text: 4 OJ L 140, 27.05.2013, p. 11.

text: 5 OJ L 306, 23.11.2011, p. 41. shall be balanced or in surplus, and supported by a medium-term budgetary objective and an adjustment path, as well as a correction mechanism to be automatically triggered in case of significant deviation from the medium-term objective or the adjustment path towards it. 1.3 The BCL, without prejudice to its own tasks, will be entrusted with the tasks of monitoring compliance at national level with the abovementioned requirements, assessing macroeconomic and budgetary forecasts established for the purpose of general government fiscal planning, as well as conducting all other assessments required under

text: Article 5(2) of Regulation (EU) No 473/2013

text: . 1.4 In order to make Luxembourg’s legislation on public finances compliant with the abovementioned requirements and to implement Directive

text: , the draft law establishes that the mediumterm objective and adjustment path towards it be laid down in the multiannual financial planning law. This will cover the same period as the subsequent update of the stability and growth programme. In addition, the amended Law of 8 June 1999 on budget, accounting and treasury (hereinafter ‘the Budget Law’) will be further amended, with the effect that a budgetary procedure would enter into force if Parliament does not approve the national budget by 1 January of the year to which the budget applies.

text: 2. General observations

text: 2.1 In accordance with

text: , the relevant Member State authorities shall consult the ECB on any draft legislative provision within the latter’s field of competence pursuant to the Treaty, unless the exclusive purpose of such provisions is the transposition of Union legal acts into Member States’ national laws. The Luxembourg Ministry of Finance has accordingly sought the ECB’s opinion on the draft law, which, in the context of the implementation of the TSCG and of certain provisions of Directive

text: and

text: Regulation (EU) No 473/2013

text: , entrusts the BCL with new tasks and amends the Budget Law. The ECB welcomes the opportunity to give its opinion on this draft law, which aims to improve the national budgetary framework in terms of consistency with the reinforced Union governance framework and the sustainability of public finances. 2.2 Although Luxembourg is not subject to an excessive deficit procedure, enactment of the draft law is of the utmost importance in the light of the structural fiscal challenges it faces and of the urgent need to modernise its legal budgetary framework, which is still based on an annual budget exercise.

text: 3. Form of implementation of the balanced budget rule and correction mechanism

text: 3.1 Article 3(2) of the TSCG provides that the ‘balanced budget rule’ takes effect in national law through ‘provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary

text: 6 Mémorial, 11.06.1999, A, No. 68, p. 1448.

text: 7 See the BCL opinions on the draft budgetary laws in respect of the years from 2008 to 2012 inclusive, available on the BCL’s website at www.bcl.lu. processes’. In accordance with the Communication from the Commission on Common principles on national fiscal correction mechanisms (hereinafter the ‘Common Principles’) adopted in accordance with Article 3(2) of the TSCG, the legal status of the correction mechanism to be triggered in case of significant observed deviations , ‘should be such that their provisions cannot be simply altered by budgetary law’. 3.2 The ECB notes that the draft law has been designed as an ordinary legal act, which could be deviated from by any other ordinary law (including any budget laws). The ECB invites the consulting authorities to reconsider the form of the national legal act implementing the TSCG since the mere enactment of the draft law, while constituting a timely and necessary step towards implementing the TSCG, does not guarantee the primacy of the rule laid down in Article 3(1) of the TSCG in Luxembourg’s legal system. A possible way forward that the Luxembourg authorities may want to consider is to reflect the principle of a balanced budget in the Luxembourg Constitution.

text: 4. The nature of the correction mechanisms

text: Article 3(1)

text: (e) of the TSCG requires the automatic triggering of a correction mechanism in the event of significant observed deviations from the medium-term objective or the adjustment path towards it. This correction mechanism shall include the obligation to implement measures to correct the deviations over a defined period of time. Common Principle 4 further provides that predetermined rules shall frame the size and timeline of the correction, thereby limiting, though not entirely ruling out, the scope for discretion in devising the response to a significant budgetary deviation. In addition, a Member State is expected to restore the medium-term objective as fast as is reasonably possible, which generally means either in the year immediately following the occurrence of the deviation or the subsequent year. 4.2 While the draft law improves the medium-term budgetary framework in line with the requirements of the TSCG, the mechanism for correcting observed deviations lacks automaticity. Moreover, the draft law does not sufficiently detail the specificities of the correction mechanism. In particular, Article 6 of the draft law specifies only that the government shall include measures to re-establish the path provided for in the multiannual planning law, no later than in the draft budget for the coming year. In this context, it would be useful for the Luxembourg legislator to consider adopting a more stringent deadline for taking corrective measures, by which the pace of implementation would be quickened and the automaticity of the mechanism would be strengthened. Furthermore, the draft law fails to specify the nature of the measures to be taken and leaves it to the government’s discretion, which is not in line with the abovementioned provisions of the TSCG and Common Principle 4. Effective coordination across the different sublevels of government might be considered to achieve this purpose.

text: 8 COM(2012) 342 final.

text: 5. Assumption of new tasks by the BCL

text: 5.1 The draft law entrusts the BCL with new tasks: it designates the BCL as the independent institution monitoring compliance with Article 3(1) of the TSCG, and makes it responsible for assessing macroeconomic forecasts for the purpose of general government fiscal planning and for conducting all other assessments pursuant to

text: . These new tasks are not provided for in the Law of 23 December 1998 on monetary status and on the Banque centrale du Luxembourg (hereinafter the ‘BCL Law’). 5.2 Without prejudice to the Governing Council’s powers under Article 14.4 of the Statute of the European System of Central Banks (hereinafter the ‘Statute of the ESCB’), national central banks (NCBs) may perform functions other than those specified in the Statute of the ESCB provided that such functions do not interfere with the objectives and tasks of the ESCB and do not infringe upon the independent execution by the NCB of its ESCB tasks . 5.3 The BCL role provided for in the draft law pursuant to Article 3.2 of the TSCG would imply, in accordance with Common Principle 7, that the BCL, in order to support the credibility and transparency of the correction mechanism, would monitor compliance with the numerical fiscal rules incorporated in the national budgetary processes, as well as with the medium-term budgetary objectives included in the multiannual financial planning and provide public assessments with regard to: (a) the occurrence of circumstances warranting the activation of the correction mechanism; (b) whether the correction is proceeding in accordance with national rules and plans; (c) the occurrence of circumstances for triggering, extending and exiting escape clauses. Similarly, the BCL’s role provided for in the draft law pursuant to

text: would imply that the BCL, in addition to monitoring compliance with the fiscal rules identified in this Article, must provide assessments, inter alia, on fiscal matters broadly equal to those contained in Common Principle 7 . Furthermore, the draft law gives a general responsibility to the BCL to assess macroeconomic and budgetary forecasts established for the purpose of general government fiscal planning. 5.4 It is acknowledged that an NCB commonly monitors various types of information in order to properly assess current and prospective developments that are relevant for monetary policy. Monitoring fiscal developments is a task that an NCB carries out on a regular basis in order to properly assess the stance to be taken in monetary policy. Moreover, NCBs may present their views on relevant fiscal developments on the basis of their monitoring activity and the independence of

text: 10 Mémorial, 24.12.1998, A, No 112, p. 2980.

text: 11 See paragraph 2 of Opinion

text: 12 According to

text: Article 5(2)

text: , these assessments would cover ‘(a) the occurrence of circumstances leading to the activation of the correction mechanism for cases of significant observed deviation from the medium-term objective or the adjustment path towards it in accordance with

text: Article 6(2) of Regulation (EC) No 1466/97

text: ; (b) whether the budgetary correction is proceeding in accordance with national rules and plans; (c) any occurrence or cessation of circumstances referred to in the tenth subparagraph of

text: Article 5(1) of Regulation (EC) No 1466/97

text: , which may allow a temporary deviation from the medium-term budgetary objective or the adjustment path towards it, provided that such a deviation does not endanger fiscal sustainability in the medium term’. their advice, with a view to also contributing to the proper functioning of European Monetary Union. In this respect, the monitoring of fiscal developments by Eurosystem central banks for monetary policy purposes should be based on the full access to all relevant public finance data. Accordingly, the BCL should be granted unconditional, timely and automatic access to all relevant public finance statistics. The BCL’s current role in monitoring fiscal developments should be enhanced through obtaining unconditional, timely and automatic access to all relevant public finance statistics. In any event, the BCL should retain any role it may already have regarding the production and quality control of government finance statistics in accordance with

text: Council Regulation (EC) No 479/2009 of 25 May 2009

text: on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community , Guideline ECB/2013/23 on government finance statistics, and the memorandum of understanding on the cooperation between the members of the European Statistical System (ESS) and the members of the ESCB, dated 24 April 2013 . 5.5 However, as indicated by the ECB in a recent opinion, an NCB’s role should not go beyond monitoring activities that result from or are linked – directly or indirectly – to the discharge of their monetary policy mandate . The ECB is of the view that the monetary policy mandate as well as an NCB’s independence run the risk of being undermined if the NCB takes up the monitoring activities set out in

text: Article 5 of Regulation (EU) No 473/2013

text: and

text: Article 4 of Directive 2011/85/EU

text: . This would likely pose risks to the discharge of its monetary policy mandate, inter alia, for the following reasons. First, as regards involvement in macro-economic forecasting in accordance with Directive

text: , an NCB could become subject to guidelines or scrutiny by national or European authorities under

text: Article 4(5) of Directive 2011/85/EU

text: . As a result, an NCB might be required to disclose its view of the economic outlook according to principles and/or a schedule different from that for publishing the economic projection it deems relevant for monetary policy purposes. This would represent an impairment of the independence of the NCB. Second, as regards the provision of assessments of fiscal policy , the formal mandate to scrutinise government policies in the form of public opinions would put the NCB in a position that could regularly conflict with fiscal policy-making. The economic assessment of fiscal and macroeconomic developments is never entirely mechanical and always contains an element of judgement. It is thus easily subject to political controversy. This, in turn, could affect the working relations between the NCB and the government, affect the public perception of the NCB as well as possibly undermine

text: 13 OJ L 145, 10.06.2009, p. 1.

text: 14 Available on www.ecb.europa.eu. The Memorandum of Understanding facilitates close cooperation between the ESS and the ESCB in areas of shared responsibility or common interest, thereby increasing the potential synergies in the production inter alia of government finance statistics.

text: 15 See paragraph 4.3 of Opinion

text: 16 See also the Specifications on the implementation of the ‘two-pack’ and Guidelines on the format, content of draft budgetary plans, economic partnership programmes and debt issuance reports of 1 July 2013 (hereinafter the ‘Specifications’). Available on the European Commission website at www.ec.europa.eu.

text: 17 Particularly those provisions relating, inter alia, to circumstances arising that lead to the activation of the correction mechanism, the budgetary correction and medium-term objectives or adjustment path deviations. It also includes considerations provided for in the escape clause according to which the deviation from the balanced budget rule may surpass the anticipated limit in the case of extraordinary circumstances. its independence. More generally, a formal mandate for an NCB to assess forecasts and fiscal developments implies a function for the NCB in the fiscal policymaking process. As an NCB is thus entrusted with a share of the responsibility for fiscal policy, the institutional separation between fiscal and monetary policy becomes blurred. 5.6 The ECB therefore recommends that the consulting authority reconsiders the assignment by the draft law of the new tasks to the BCL. In this context, the ECB reiterates that the Specifications recommend the preparation of an all-encompassing code of practice, gathering all the relevant legal provisions and procedural elements that are part of the framework for the production and/or endorsement of independent macro-economic forecasts , including the timely provision of forecasts to support the relevant stages of the national budgetary process. In addition, the ECB notes that the institution(s) responsible for preparing, producing, monitoring and analysing the macroeconomic forecasts are to be designated by means of a grand-ducal regulation only after the draft law comes into force . The draft law and the grand-ducal regulation would therefore need to separate the responsibilities between the government, which is exclusively competent for compliance with the TSCG and

text: Regulation (EU) No 473/2013

text: , and the central bank, which should not go beyond what is necessary for monetary policy purposes as regards fiscal policy monitoring.

text: 6. Financial independence of the BCL and prohibition of monetary financing

text: 6.1 Without prejudice to the observations on the new tasks entrusted to the BCL by the draft law as concerns the BCL’s discharge of its existing monetary policy tasks, the ECB reiterates that, from an operational and financial point of view, any new task allocated to an NCB should not affect that NCB’s ability to carry out its ESCB-related tasks. Financial independence, which is an element of the principle of central bank independence referred to in Article 130 of the Treaty, requires an NCB to have sufficient means not only to perform its ESCB-related or Eurosystem-related tasks but also its national tasks, e.g. financing its own administration and operations. Such financial independence is assessed from the perspective of whether any third party is able to exercise either direct or indirect influence not only over an NCB’s tasks, but also over its ability to fulfil its mandate both operationally in terms of manpower and financially in terms of appropriate financial resources . 6.2 Further, it is important to safeguard compliance with the monetary financing prohibition pursuant to Article 123 of the Treaty. The prohibition is essentially designed to prevent central banks from providing overdraft facilities or any other type of credit facility to the public sector. National legislation should not require an NCB to finance the performance of tasks incumbent on the government, without stipulating that the government will compensate the NCB for the discharge of such tasks. The ECB notes that the draft law does not provide for such compensation and this

text: 18 See the Specifications, p. 41: ‘The national procedures should provide an important element, fostering accountability and transparency and defining the different tasks allocated to every actor in the forecasting exercise and the milestones to be met within the annual budgetary cycle. They should also set out practical steps leading to the production and/or endorsement of the forecast and principles of cooperation between the relevant institutional stakeholders’.

text: 19 See Article 8 of the draft law.

text: 20 See the ECB’s Convergence Report 2012, p. 26. aspect would need to be addressed if the national legislature decides to keep the draft law as currently drafted on this particular point.

text: 7. The requirements of independence under Common Principle 7

text: 7.1 Pursuant to Article 3(2) of the TSCG, which refers to the independence of the institutions responsible at national level for monitoring compliance with the rules set out in Article 3(1) of the TSCG, and under Common Principle 7, ‘national legal provisions ensuring a high degree of functional autonomy shall underpin [the monitoring institutions], including: i) a statutory regime grounded in law; ii) freedom from interference, whereby the above bodies shall not take instructions, and shall be in a capacity to communicate publicly in a timely manner; iii) nomination procedures based on experience and competence; iv) adequacy of resources and appropriate access to information to carry out the given mandate’. 7.2 Central banks and their decision-making bodies are independent in exercising tasks and duties under the Treaty and the Statute of the ESCB, such as ESCB-related tasks . The principle of central bank independence is, however, not automatically protected if a central bank is performing functions other than those laid down in the Treaty and the Statute of the ESCB. National law must provide for the independence of a central bank when the latter carries out non-ESCB-related tasks, if these tasks are required to be carried out by an independent institution. Therefore, for functions laid down in the TSCG, a national legislator has to ensure compliance with Common Principle 7 and extend the statutory regime of independence to the relevant specific tasks if such tasks are allocated to an NCB.

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

text: Done at Frankfurt am Main, 18 December 2013.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI

text: 21 See Article 130 of the Treaty and Article 7 of the Statute of the ESCB.


text: State Budget Law of 1999, State Gazette 1999 I, 55, 584, is being recast.

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

text: OJ L 306, 23.11.2011, p. 41.

text: The TSCG was signed by 25 Member States on 2 March 2012. It entered into force on 1 January 2013, on the basis that 12 euro area Member States had deposited their ratification instruments by that date. Estonia’s ratification law entered into force on 18 November 2012.

text: OJ L 140, 27.5.2013, p. 11.

text: OJ L 209, 2.8.1997, p. 1.

text: OJ L 209, 2.8.1997, p. 6.

text: Under Article 104 of the Estonian Constitution, there are a number of laws, which include the National Budget Act and the Bank of Estonia Act, that may only be passed and amended by a majority of the members of the Riigikogu. These laws are commonly referred to as constitutional laws.

text: See also Opinion

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.

text: COM (2012) 342 final.

text: See paragraph 2 of Opinion

text: According to

text: Article 5(2)

text: , these assessments would cover ‘(a) the occurrence of circumstances leading to the activation of the correction mechanism for cases of significant observed deviation from the medium-term objective or the adjustment path towards it in accordance with

text: Article 6(2) of Regulation (EC) No 1466/97

text: ; (b) whether the budgetary correction is proceeding in accordance with national rules and plans; (c) any occurrence or cessation of circumstances referred to in the tenth subparagraph of

text: Article 5(1) of Regulation (EC) No 1466/97

text: , which may allow a temporary deviation from the medium-term budgetary objective or the adjustment path towards it, provided that such a deviation does not endanger fiscal sustainability in the medium term’.

text: OJ L 145, 10.06.2009, p. 1. 15 Available on www.ecb.europa.eu. The Memorandum of Understanding facilitates close cooperation between the ESS and the ESCB in areas of shared responsibility or common interest, thereby increasing the potential synergies in the production inter alia of government finance statistics. 16 See paragraph 4.3 of Opinion

text: . 17 See also the Specifications on the implementation of the ‘two-pack’ and Guidelines on the format, content of draft budgetary plans, economic partnership programmes and debt issuance reports of 1 July 2013 (hereinafter the ‘Specifications’). Available on the European Commission’s website at www.ec.europa.eu. 18 Particularly those provisions relating to, inter alia, circumstances taking place that lead to the activation of the correction mechanism, the budgetary correction and medium term objectives or adjustment path deviations. It also includes considerations provided for in the escape clause according to which the deviation from the balanced budget rule may surpass the anticipated limit in the case of extraordinary circumstances.

text: See the Specifications, p. 41: ‘The national procedures should provide an important element, fostering accountability and transparency and defining the different tasks allocated to every actor in the forecasting exercise and the milestones to be met within the annual budgetary cycle. They should also set out practical steps leading to the production and/or endorsement of the forecast and principles of cooperation between the relevant institutional stakeholders’.

text: See the ECB’s Convergence Report 2012, p. 26. 21 The monetary financing prohibition is laid down in Article 123(1) of the Treaty and replicated in Article 21.1 of the Statute of the ESCB, which prohibits overdrafts or any other type of credit facility with the ECB or the NCBs in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States, and the purchase of debt instruments directly from these public sector entities by the ECB or NCBs. The precise scope of application of the monetary financing prohibition is further clarified by

text: Council Regulation (EC) No 3603/93 of 13 December 1993

text: specifying definitions for the application of the prohibitions referred to in Articles

text: and

text: b(1) of the Treaty, (OJ L 332, 31.12.1993, p. 1). 22

text: Council Regulation (EC) No 2223/96

text: on the European system of national and regional accounts in the Community (OJ L 310, 30.11.1996, p 1). 23

text: Regulation (EU) No 549/2013

text: of the European Parliament and of the Council of 21 May 2013 on the European system of national and regional accounts in the European Union (OJ L 174, 26.6.2013, p. 1).

title: Opinion of the European Central Bank of 18 December 2013 on public finances (CON/2013/91)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 18 December 2013 on public finances (

text: ) Introduction and legal basis

text: On 25 October 2013, the European Central Bank (ECB) received a request from the Estonian Ministry of Finance for an opinion on a draft law on the state budget (hereinafter the ‘draft law’). The draft law incorporates an amendment to the Law on Eesti Pank. The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union 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 Eesti Pank. 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 purpose of the draft law is to adopt the principles on sustainability of public finance as legislative provisions. The draft law transposes

text: Council Directive 2011/85/EU of 8 November 2011

text: on requirements for budgetary frameworks of the Member States and follows the legislative obligations arising from the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (hereinafter the ‘TSCG’) and

text: Regulation (EU) No 473/2013

text: of the European Parliament and of the Council of 21 May 2013 on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit in the Member States in the euro area . The draft law also aims at consistency with

text: Council Regulation (EC) No 1466/97 of 7 July 1997

text: on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies and

text: Council Regulation (EC) No 1467/97 of 7 July 1997

text: on

text: speeding up and clarifying the implementation of the excessive deficit procedure , as well as the European system of national and regional accounts in the European Union. The draft law is scheduled to enter into force on 1 January 2014.

text: Article 4(5) of Directive 2011/85/EU

text: obliges Member States to specify institutions responsible for producing macroeconomic and budgetary forecasts and

text: Article 4(6)

text: requires the macroeconomic and budgetary forecasts for fiscal planning to be subject to regular, unbiased and comprehensive evaluation. The draft law allocates the obligation to produce forecasts to the Ministry of Finance and the evaluation of macroeconomic and budgetary forecasts to Eesti Pank, which must give its evaluation in the form of a non-binding opinion. It must also give its opinion on the objectives of the budget strategy and the actual achievement of those objectives. The balanced budget had been the main guiding principle established in Estonia’s state budget strategy. In line with the TSCG, it will now be established by a constitutional law . The draft law also includes an automatic correction mechanism as required under

text: Article 3(1)

text: (e) of the TSCG. With regard to Directive

text: , the draft law provides for the minimum requirements for the budgetary framework. Fiscal aspects of the draft law cover the principles for drawing up a budget and strategic governance; it also sets the cost margins for the next four years and regulates the means by which the state may take credit risks. 1.2 The draft law also clarifies that the Special Drawing Rights (SDRs) allocated to the Republic of Estonia by the International Monetary Fund (IMF) belong to Eesti Pank .

text: 2. General observations

text: 2.1 In accordance with

text: , the relevant Member State authorities shall consult the ECB on any draft legislative provision within the latter’s field of competence pursuant to the Treaty, unless the exclusive purpose of such provisions is the transposition of Union legal acts into Member States’ national laws. In the context of the implementation of the TSCG and the transposition of Directive

text: , Eesti Pank will be given a task in relation to the macroeconomic and fiscal forecasts. The ECB welcomes the opportunity to give its opinion on this draft law, which aims to improve the national budgetary framework in terms of consistency with the reinforced Union governance framework and the sustainability of public finances. 2.2 Although Estonia is not subject to an excessive deficit procedure, enactment of the draft law is important in modernising the Estonian legal framework in relation to the budgetary process.

text: 3. Form of implementation of the balanced budget rule and correction mechanism

text: 3.1 Article 3(2) of the TSCG provides that the ‘balanced budget rule’ takes effect in national law through ‘provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes’. In accordance with the Communication from the Commission on Common principles on national fiscal correction mechanisms (hereinafter the ‘Common Principles’) adopted in accordance with Article 3(2) of the TSCG, the legal status of the correction mechanism to be triggered in case of significant observed deviations ‘should be such that their provisions cannot be simply altered by budgetary law’. 3.2 The ECB notes that the draft law has been designed as a constitutional legal act, which represents a ranking in the Estonian hierarchy of laws in line with the requirements of the TSCG.

text: 4. The nature of the correction mechanisms

text: Article 3(1)

text: (e) of the TSCG requires the automatic triggering of a correction mechanism in the event of significant observed deviations from the medium-term objective or the adjustment path towards it. This correction mechanism shall include the obligation to implement measures to correct the deviations over a defined period of time. Common Principle 4 further provides that predetermined rules shall frame the size and timeline of the correction, thereby limiting, though not entirely ruling out, the scope for discretion in devising the response to a significant budgetary deviation. In addition, a Member State is expected to restore the medium-term objective as fast as is reasonably possible, which generally means either in the year immediately following the occurrence of the deviation or the subsequent year. 4.2 The ECB welcomes that the draft law provides for an automatic correction mechanism to be triggered if there is a deviation from the balanced budgetary position requirement. It requires the Minister for Finance to send a report to the government, including the proposal for the correction. In the event of a minor deviation, this correction mechanism will be triggered at the government’s discretion. However, if there is a deviation of more than 0.5% of the GDP, the correction mechanism is mandatory. 4.3 The draft law also sets out an escape clause where the correction mechanism is not necessarily triggered if there are extraordinary circumstances, as provided for in the Stability and Growth Pact. Common Principle 6 defines 'exceptional circumstances' in line with the same definition in the Stability and Growth Pact. However, it makes clear that any suspension of the correction mechanism due to use of an escape clause shall only be temporary and once the escape clause no longer applies, the correction mechanism shall provide for a minimum of structural adjustments, with the Stability and Growth Pact‘s requirement being the lower limit. In addition, once the escape

text: clause no longer applies, Member States shall adopt a corrective plan over the budgets that must be adhered to during the correction period. In finalising the draft law, the requirements in Common Principle 6 need to be given more attention.

text: 5. Assumption of additional tasks by Eesti Pank

text: 5.1 The draft law entrusts Eesti Pank with the task of giving its opinion regarding the macroeconomic and budgetary forecasts. A corresponding article will be introduced in the Law on Eesti Pank, which states in more detail that Eesti Pank must give its opinion on national macroeconomic and budgetary forecasts within two weeks of their publication. Eesti Pank must also give its opinion on how the government aims to achieve its objectives, as reflected in the budget strategy and stability programme, taking into account the balanced budget rule established in the draft law. Eesti Pank must also give its opinion on how the government has achieved its structural budgetary objective after the national annual report has been finalised. The opinion published by Eesti Pank will not be legally binding; however, the government must justify any deviations from the opinion. 5.2 Without prejudice to the Governing Council’s powers under Article 14.4 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’), national central banks (NCBs) may perform functions other than those specified in the Statute of the ESCB provided that such functions do not interfere with the objectives and tasks of the ESCB and do not infringe upon the independent execution by the NCB of its ESCB tasks . 5.3 Eesti Pank’s role provided for in the draft law pursuant to Article 3.2 of the TSCG would imply, in accordance with Common Principle 7, that Eesti Pank, in order to support the credibility and transparency of the correction mechanism, would monitor compliance with the numerical fiscal rules incorporated in the national budgetary processes, as well as with the medium-term budgetary objectives included in the multiannual financial planning and provide public assessments with regard to: (a) the occurrence of circumstances warranting the activation of the correction mechanism; (b) whether the correction is proceeding in accordance with national rules and plans; (c) the occurrence of circumstances for triggering, extending and exiting escape clauses. Similarly, Eesti Pank’s role provided for in the draft law pursuant to

text: Article 5(2) of Regulation (EU) No 473/2013

text: would imply that Eesti Pank, in addition to monitoring compliance with the fiscal rules identified in this Article, must provide assessments, inter alia, on fiscal matters broadly equal to those contained in Common Principle 7 . Furthermore, the draft law gives a general

text: responsibility to Eesti Pank to assess macroeconomic and budgetary forecasts established for the purpose of general government fiscal planning. 5.4 It is acknowledged that an NCB commonly monitors various types of information in order to properly assess current and prospective developments that are relevant for monetary policy. Monitoring fiscal developments is a task that an NCB carries out on a regular basis in order to properly assess the stance to be taken in monetary policy. Moreover, NCBs may present their views on relevant fiscal developments on the basis of their monitoring activity and the independence of their advice, with a view to also contributing to the proper functioning of European Monetary Union. In this respect, the monitoring of fiscal developments by Eurosystem central banks for monetary policy purposes should be based on the full access to all relevant public finance data. Eesti Pank should retain any role it may already have regarding the production and quality control of government finance statistics in accordance with

text: Council Regulation (EC) No 479/2009 of 25 May 2009

text: on the application of the Protocol on the excessive deficit procedure annexed to the Treaty establishing the European Community , Guideline ECB/2013/23 on government finance statistics, and the memorandum of understanding on the cooperation between the members of the European Statistical System (ESS) and the members of the ESCB, dated 24 April 2013 . 5.5 However, as indicated by the ECB in a recent opinion, an NCB’s role should not go beyond monitoring activities that result from or are linked – directly or indirectly – to the discharge of their monetary policy mandate . The ECB is of the view that the monetary policy mandate, as well as an NCB’s independence, run the risk of being undermined, if the NCB takes up the monitoring activities set out in

text: Article 5 of Regulation (EU) No 473/2013

text: and

text: Article 4 of Directive 2011/85/EU

text: Article 4(5) of Directive 2011/85/EU

text: . As a result, an NCB might be required to disclose its view of the economic outlook according to principles and/or a schedule different from that for publishing the economic projection it deems relevant for monetary policy purposes. This would represent an impairment of the independence of the NCB. Second, as regards the provision of assessments of fiscal policy , the formal mandate to scrutinise government policies in the form of public opinions would put the NCB in a position that could regularly

text: conflict with fiscal policy-making. The economic assessment of fiscal and macroeconomic developments is never entirely mechanical and always contains an element of judgement. It is thus easily subject to political controversy. This, in turn, could affect the working relations between the NCB and the government, affect the public perception of the NCB, as well as possibly undermine its independence. More generally, a formal mandate for an NCB to assess forecasts and fiscal developments implies a function for the NCB in the fiscal policymaking process. As an NCB is thus entrusted with a share of the responsibility for fiscal policy, the institutional separation between fiscal and monetary policy becomes blurred. 5.6. The ECB notes that since the obligation to produce forecasts would be assigned to the Ministry of Finance under the draft law, it is unlikely that Eesti Pank would become subject to guidelines or scrutiny by national or European authorities under

text: Article 4(5) of Directive 2011/85/EU

text: . As far as other activities under

text: and

text: Article 4 of Directive 2011/85/EU

text: are concerned, the ECB considers that these tasks complicate the fulfilment of Eesti Pank’s primary mandate on the grounds referred to in the previous paragraph. 5.7 The ECB therefore recommends that the consulting authority reconsiders the assignment by the draft law of the new tasks to Eesti Pank. In this context, the ECB reiterates that the Specifications recommend the preparation of an all-encompassing code of practice, gathering all the relevant legal provisions and procedural elements that are part of the framework for the production and/or endorsement of independent macro-economic forecasts , including the timely provision of forecasts to support the relevant stages of the national budgetary process. The draft law would need to separate the responsibilities between the government, which is exclusively competent for compliance with the TSCG and

text: Regulation (EU) No 473/2013

text: , and the NCB, which should not go beyond what is necessary for monetary policy purposes as regards fiscal policy monitoring.

text: 6. Financial independence of Eesti Pank and prohibition of monetary financing

text: 6.1 Without prejudice to the observations on the new tasks entrusted to Eesti Pank by the draft law as concerns Eesti Pank’s discharge of its existing monetary policy tasks, the ECB reiterates that, from an operational and financial point of view, any new task allocated to an NCB should not affect that NCB’s ability to carry out its ESCB-related tasks. Financial independence, which is an element of the principle of central bank independence referred to in Article 130 of the Treaty, requires an NCB to have sufficient means not only to perform its ESCB-related or Eurosystem-related tasks but also its national tasks, e.g. financing its own administration and operations. Such financial independence is assessed from the perspective of whether any third party is able to exercise either direct or

text: indirect influence not only over an NCB’s tasks, but also over its ability to fulfil its mandate both operationally in terms of manpower and financially in terms of appropriate financial resources . 6.2 Further, it is important to safeguard compliance with the monetary financing prohibition pursuant to Article 123 of the Treaty. The prohibition is essentially designed to prevent central banks from providing overdraft facilities or any other type of credit facility to the public sector. National legislation should not require an NCB to finance the performance of tasks incumbent on the government, without stipulating that the government will compensate the NCB for the discharge of such tasks. The ECB notes that the draft law does not provide for such compensation and this aspect would need to be addressed, if the national legislature decides to keep the draft law as currently drafted on this particular point.

text: 7. Ownership of SDRs

text: SDRs are international reserve assets created by the IMF to supplement the existing reserve assets, which represent a right to purchase freely usable currency in exchange for SDRs. National laws and arrangements concerning IMF transactions need to comply with Union law, in particular with the monetary financing prohibition . Pursuant to

text: Article 7 of Regulation (EC) No 3603/93

text: , the financing by NCBs of obligations falling upon the public sector with regard to the IMF is not regarded as a credit facility within the meaning of Article 123 of the Treaty. If the payment of a Member’s quota is made from central bank resources pursuant to

text: Article 7 of Regulation (EC) No 3603/93

text: , the related SDRs become part of the foreign reserves held and managed by the central bank, and are therefore shown on the central bank’s balance sheet. Usually central banks record SDR allocation as a long-term liability.

text: 8. References to the European system of national and regional accounts in the European Union

text: The references in the draft law to

text: Council Regulation (EC) No 2223/96

text: should be replaced with references to

text: Regulation (EU) No 549/2013

text: of the European Parliament and of the Council .

text: This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 18 December 2013. [signed]

text: The President of the ECB

text: Mario DRAGHI


text: However,

text: Article 9

text: (27-quattuordecies) has been renumbered as

text: Article 1(201)

text: whereas Articles

text: and

text: have been renumbered as

text: Article 1(306)

text: to (326), respectively. 2 OJ L 189, 3.7.1998, p. 42. 3

text: Article 1(306)

text: to (326) of the draft law, as approved by the Senate, lay down provisions on contract renewal, remuneration, recruitment policies, termination benefits and pensions for civil servants, the aim of which is to reduce public expenditure.

text: 5 2.1. As underlined in the ECB’s Convergence Reports and several opinions on issues concerning autonomy in staff matters, which are an aspect of the financial independence of national central banks (NCBs), Member States may not impair an NCB’s ability to recruit and retain the qualified staff necessary for the NCB to perform independently the tasks conferred on it by the Treaty and the Statute of the European System of Central Banks and of the European Central Bank. Moreover, any amendment to the legislative provisions on the remuneration of members of an NCB’s decision-making bodies and its employees should be decided in close and effective cooperation with the NCB to ensure the ongoing ability of the NCB to independently carry out its tasks. Autonomy in staff matters extends to issues relating to staff pensions. 2.2 By virtue of Article 3(1) of Legislative Decree No 165 of 30 March 2001 on general rules for the organisation of employment by the public authorities, the rules and principles applying to the Italian civil service do not currently apply to the staff of the Banca d’Italia, and the draft amendment aims at extending the principles of containing public expenditure to the Banca d’Italia’s staff, with regard to recruitment, remuneration and pensions. Consequently, the Banca d’Italia will have to take these principles into account in relation to its own legal remit. 2.3 The ECB understands that the draft amendment requires the Banca d’Italia to (a) assess whether the draft amendment’s principles can be implemented without prejudice to the Banca d’Italia’s autonomy in staff matters; and (b) take measures in accordance with such principles only if and to the extent compatible with its ability to independently carry out its task . Since

text: Article 18(2)

text: , points 4 to 6 of the Statute of the Banca d’Italia remain unchanged, the ECB also understands that the Board of Directors retains its power to adopt the Banca d’Italia internal regulations, determine the staffing level, recruit and dismiss employees and approve agreements negotiated with trade unions. Based on these understandings, the draft amendment can be considered compatible with the principle of financial independence. The ECB trusts that it will be consulted on any future draft legislative provisions in this matter.

text: See, for example, the ECB’s Convergence Report, 2013, p. 27. 5 See, for example, Opinions

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 6 See Opinion

title: Opinion of the European Central Bank of 18 December 2013 on the containment of public expenditure as regards the Banca d’Italia (CON/2013/92)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 18 December 2013 on the containment of public expenditure as regards the Banca d’Italia (

text: ) Introduction and legal basis

text: On 25 November 2013, the European Central Bank (ECB) received a request from the Italian Ministry of Economy and Finance for an opinion on the proposed amendments to the draft law relating to the provisions for drawing up the annual and pluriannual budget of the State (hereinafter the ‘draft law’), and in particular to Article 9, paragraph 27-quattuordecies thereof (hereinafter the ‘draft amendment’). The draft law was approved by the Italian Senate on 27 November, without any material changes , and is currently under consideration by the Chamber of Deputies. This opinion is delivered on the basis of the draft amendment attached to the request. The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union 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 the Banca d’Italia. 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 draft law aims at, inter alia, stabilising the public finances by rationalising and reducing public expenditure relating to civil service recruitment, remuneration and pensions. The draft amendment provides that the Banca d’Italia will take into account, within its legal remit, the principles of public expenditure containment laid down in Articles 11 and 12 of the draft law . These principles will be implemented by means of collective agreements negotiated between the Banca d’Italia and the trade unions. In the absence of collective agreements, the Banca d’Italia will adopt appropriate implementing measures.

text: 2. Compliance with the central bank independence principle

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

text: Done at Frankfurt am Main, 18 December 2013. [signed]

text: The President of the ECB

text: Mario DRAGHI


text: OJ L 189, 3.7.1998, p. 42. 2 The ECB was consulted on the Law and issued Opinion

text: . All ECB opinions are available on the ECB’s website at www.ecb.europa.eu.

text: The ECB understands that the Latvian term ‘institutions’ used in Article 3 of the draft law encompasses any institutions, bodies and agencies.

text: Council Regulation (EU) No 1024/2013 of 15 October 2013

text: conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).

text: For example ECB legal acts complementing the Memorandum of Understanding on the exchange of information among national central credit registers for the purpose of passing it on to reporting institutions, published in April 2010 and available on the ECB’s website at www.ecb.europa.eu.

text: See Opinion

text: , paragraph 3.4, where a reference is made to the detailed regulation of Latvijas Banka on the content of data to be included in and provided from the credit register as well as the procedure for submitting and receiving data.

title: Opinion of the European Central Bank of 19 December 2013 on the credit register (CON/2013/93)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 19 December 2013 on the credit register (

text: ) Introduction and legal basis

text: On 22 November 2013, the European Central Bank (ECB) received a request from Latvijas Banka for an opinion on a draft law amending the Law on the credit register (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third indent of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates to Latvijas Banka. 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 Law on the credit register (hereinafter the ‘Law’) provides financial institutions with additional possibilities for assessing the creditworthiness of their customers and promotes responsible lending and borrowing. The Law enables: (a) the Financial and Capital Markets Commission (FCMC) to obtain data required for the supervision of financial market participants; (b) Latvijas Banka to use credit register data for statistical purposes; and (c) both institutions to obtain data for macroeconomic analysis. The Law also allows these institutions to share this data with domestic and foreign institutions. The credit register is operated by Latvijas Banka. 1.2 The purpose of the draft law is, inter alia, to broaden the objectives of the Law by ‘contributing to the fulfilment of the tasks of the European System of Central Banks’ (ESCB), and to allow Latvijas Banka and the FCMC to provide credit register data to the institutions of the European Union for the purposes stipulated in the Law.

text: 2. Specific observations

text: 2.1 The ECB welcomes the explicit authorisation for Latvian authorities to provide credit register data to, inter alia, institutions of the Union, and the fact that the draft law specifically provides that one

text: of the objectives of the Law is to contribute to the tasks of the ESCB. The ECB notes that these provisions will allow the data collected in the Latvian credit register to be shared with the ECB and other institutions of the Union listed in Article 13 of the Treaty on the European Union and, in this context, will support the ESCB tasks laid down in Article 127 of the Treaty on the Functioning of the European Union, including the task laid down in Article 127(5) of that Treaty, i.e. the ESCB’s contribution to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system. 2.2 The ECB understands that the draft law also allows data from the Latvian credit register to be shared with other bodies and agencies of the Union , such as the European Systemic Risk Board, the European Banking Authority and other relevant bodies established at Union level, such as the European Stability Mechanism and the future European Single Resolution Mechanism. 2.3 The reference to ESCB tasks in Article 2 of the draft law could be complemented with an explicit reference to the tasks conferred on the ECB in the area of prudential supervision, such as the tasks referred to in

text: Council Regulation (EU) No 1024/2013

text: . 2.4 Currently, Eurosystem central banks are examining the feasibility of introducing, in the longer term, harmonised arrangements for collecting and exchanging granular credit data within the Eurosystem. This may be achieved by way of specific ECB legal acts . Such arrangements will also apply to Latvijas Banka on its entry into the Eurosystem, and further adjustments of the Law might be required. 2.5 Finally, the ECB reiterates that other relevant national regulations already in force may also need to be amended in line with the above considerations .

text: Done at Frankfurt am Main, 19 December 2013. [signed]

text: The President of the ECB

text: Mario DRAGHI


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

text: Published in Monitorul Oficial al României, Part I No 571/2004.

text: Commission Regulation (EC) No 809/2004 of 29 April 2004

text: implementing Directive

text: of the European Parliament and of the Council as regards information contained in prospectuses as well as the format, incorporation by reference and publication of such prospectuses and dissemination of advertisements (OJ L 149, 30.4.2004, p. 1).

text: Directive

text: of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ L 302, 17.11.2009, p. 32).

text: 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 (OJ L 177, 30.6.2006, p. 1). After 1 January 2014, this directive will be replaced by a new framework, established by

text: Directive (EU) 2013/36

text: of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive

text: and repealing Directives

text: and

text: (OJ L 176, 27.6.2013, p. 338) and

text: Regulation (EU) No 575/2013

text: of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending

text: Regulation (EU) No 648/2012

text: (OJ L 176, 27.6.2013, p. 1).

title: Opinion of the European Central Bank of 23 December 2013 on covered bonds (CON/2013/94)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 23 December 2013 on covered bonds (

text: ) Introduction and legal basis

text: On 2 December 2013, the European Central Bank (ECB) received a request from Banca Naţională a României (BNR) for an opinion on a draft law on covered bonds (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and sixth 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 law relates to BNR and to rules applicable to the 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 purpose of the draft law is to set up a legal framework for the issuance of covered bonds by credit institutions that is in line with best European practices and to foster the development of the domestic capital market 1.2 The draft law defines: (a) the institutions allowed to issue covered bonds, i.e. banks and mortgage banks that are Romanian legal entities, and BNR’s authorisation procedures concerning issuers and issues of covered bonds; (b) the types of assets eligible for inclusion in the cover pool of covered bonds, i.e. mortgage loans, substitution assets and hedging derivatives, and the valuation and composition of the cover pool; (c) the structure of the cover pool, where issuers must ensure the quality of the cover pool during the entire lifetime of the bonds by replacing, if necessary, assets that no longer meet the eligibility criteria; (d) the rules regarding issuance and supervision of covered bonds and management of the cover pool; (e) the covered bond holders’ rights; (f) special provisions in case of an issuer’s bankruptcy; (g) transparency requirements.

text: 1.3 The draft law establishes a set of rules to protect covered bond holders’ rights. In particular, they have the right to satisfy their claims against the issuer by having priority as regards recourse to the cover pool and no other creditor of the issuer, regardless of the nature of its claim, may initiate a foreclosure on the entire cover pool or on a part of it prior to the covered bond holders. Such protection becomes particularly relevant in the event of a bankruptcy procedure with respect to covered bond issuers. Until and unless all the issuer’s obligations towards the covered bond holders have been fulfilled, the cover pool securing the covered bonds will not form part of the issuer’s estate undergoing a liquidation procedure and will not be affected by such a procedure. Moreover, the servicing of the cover pool continues during and after completion of bankruptcy proceedings until all claims in the cover pool have been realised. The draft law also provides the possibility to accelerate the fulfilment of the issuer’s obligations towards the covered bond holders by assigning the claims in the cover pool to a third party, with the bond holders’ prior consent. In such a case, to the extent the proceeds of the assignment are insufficient to satisfy in full the claims of the covered bond holders, they also have recourse to the issuer’s estate for the remainder of the claim, ranking pari passu with unsecured creditors. 1.4 Following the entry into force of the draft law, BNR is to adopt additional regulations for its implementation, inter alia, on: (a) the conditions regarding authorisation for the issuance of covered bonds; (b) the categories, eligibility criteria and maximum limits applicable to substitution assets; (c) the ratio between the total value of covered assets and the total value of the issuer’s assets; (d) the methodology used when assessing and managing the liquidity risk of covered bonds; (e) the methodology used when determining the weighted averages of maturities of covered bonds and claims securing the covered assets; (f) the rules regarding the internal cover register; and (g) the rules regarding quarterly reports to fulfil the transparency requirements. 1.5 When the covered bond issue is carried out by subscription in a public offer, this has to take place on the basis of a prospectus approved by the Financial Supervisory Authority, as the competent authority of the home Member State, in accordance with Law No 297/2004 on the capital market and

text: implementing Directive

text: 2. General observations

text: 2.1 The draft law aims to enhance legal certainty with regard to the legislative framework on covered bonds in Romania. A number of provisions in the draft law are targeted at ensuring the protection of bond holders, which may allow banks to issue covered bonds that comply with Directive

text: of the European Parliament and of the Council and with Directive

text: of the European Parliament and of the Council . Covered bonds play an important role in Union financial markets; therefore it is important to have sound legal rules in place, particularly with regard to financial stability. 2.2 In order to preserve the financial situation of banks and the quality of their assets, the ECB welcomes the provision stating that BNR may require an issuer to provide own funds at a level higher than that provided for under

text: Regulation (EU) No 575/2013

text: of the European Parliament and of the Council if the ratio between the total cover assets and the total assets of the issuer exceeds the one established by BNR. 2.3 Article 9(1) of the draft law states that the net present value of the cover pool has to exceed the net present value of the liabilities assumed through one covered bond issue with a certain collateralisation percentage.

text: Article 8

text: regulates a structure based on a single cover pool, which may secure various issues of covered bonds. Therefore, the above-mentioned provision may better refer to the aggregate value of all the issues plus the amount corresponding to the collateralisation percentage applicable to each of them, rather than to a single issue. 2.3 Article 9(2) of the draft law sets out a tool for monitoring and managing liquidity risk of the cover pool, by requiring the issuer to cover the largest difference between the cash flows generated by claims in the cover pool and the maturing covered bonds with liquid substitution assets, as determined on a daily basis for a 180-day period. The draft law should clarify from what date and how this 180-day period is to be calculated and whether it is intended to actually refer to consecutive periods of 180 days.

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

text: Done at Frankfurt am Main, 23 December 2013. [signed]

text: The President of the ECB

text: Mario DRAGHI


text: The draft law amends the rules on supervision of data processing centres allowing the FSA to supervise undertakings that carry out significant IT operations and development for the common payment infrastructure, regardless of the ownership of the data processing centre. The draft law introduces a special supervisory provision in the Law on alternative investment fund managers, which allows the FSA to supervise depositories for an alternative investment fund. Finally, the draft law implements an inflation adjustment regarding the minimum capital requirements of reinsurance companies based on the European Commission's notice of 23 July 2013 regarding the adaptation in line with inflation of certain amounts laid down in the Reinsurance Directive (OJ C 208, 23.7.2013, p. 4). 2 OJ L 189, 3.7.1998, p. 42. 3 See Section 1(3) of the draft law which introduces a new Section 77(e) in the Law on financial business. 4 See the explanatory memorandum of the draft law, p. 13. The draft law is based on a recommendation from the Committee on the Causes of the Financial Crisis prohibiting such variable remuneration.

text: See point 2.1.1 of the explanatory memorandum of the draft law, p. 6. 6 See the explanatory memorandum of the draft law, p. 13.

title: Opinion of the European Central Bank of 23 December 2013 on variable remuneration for employees of securities traders (CON/2013/95)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 23 December 2013 on variable remuneration for employees of securities traders (

text: ) Introduction and legal basis

text: On 5 December 2013, the European Central Bank (ECB) received a request from the Danish Financial Supervisory Authority (FSA) for an opinion on a draft law amending the Law on financial business, the Law on securities trading and the Law on alternative investment fund managers (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the sixth indent of

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions , as the draft law relates 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: The draft law introduces a prohibition on variable remuneration for employees of securities traders who provide advice on or sell financial instruments directly to retail customers . The prohibition will only apply to that part of the variable pay component that is dependent on the employee achieving a certain sales volume of financial instruments to retail customers . The prohibition is intended to reduce the risk of conflicts of interest for the advisers and sellers of financial instruments referred to in the draft law. Securities traders are already subject to an obligation to

text: minimise the risk of conflicts of interest and address any conflicts which occur . The draft law provides for further measures that should be taken in those cases where there is a link between the sales targets and the variable pay components for employees who are in direct contact with retail customers. The prohibition underlines that a pay structure that makes it possible to receive a variable pay component based on sales to retail customers is incompatible with a sound policy addressing conflicts of interest in an undertaking that has a licence to operate as a securities trader .

text: 2. General observations

text: The ECB notes the potential benefits of prohibiting variable remuneration that is dependent on employees reaching certain sales volumes of financial instruments to retail customers in contributing to sound and effective risk management applied by securities traders. The ECB also notes the potential gains of the prohibition in terms of avoiding conflicts of interest, establishing sound incentives and constraining procyclicality in the financial system.

text: Done at Frankfurt am Main, 23 December 2013.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI