title: Opinion of the European Central Bank of 27 February 2019 on a draft law for the protection of primary residences (CON/2019/9)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 27 February 2019 on a draft law for the protection of primary residences (

text: ) Introduction and legal basis

text: On 19 and 22 February 2019 the European Central Bank (ECB) received requests from the Greek Ministry of Finance for an opinion on a draft law for the protection of primary residences of natural persons in financial difficulty (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: , as the draft law relates to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets and the specific tasks conferred upon the ECB concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. 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 Objectives of the draft law The stated objectives of the draft law are fourfold: first, to protect targeted groups of society from the repossession of their primary residence; second, to contribute to the deleveraging of the stock of non-performing exposures (NPEs) in the banking system by converting them into performing loans, thereby contributing to more robust bank balance sheets; third, to strengthen social cohesion; and fourth, to encourage a good repayment culture by incentivising debtors to make prompt repayments and avoid re-defaulting. 1.2 Eligible applicants and eligible debt The draft law entitles all natural persons who have a right in rem over real estate property used as their primary residence in Greece to protect this property from compulsory sale by restructuring, in accordance with the draft law, debt of any kind owed to credit institutions (including those that are subject to a special liquidation procedure) that has been in arrears for at least 90 days as from 31 December 2018 and is secured on the property. Applicants can be natural persons with or without the capacity to be declared bankrupt, i.e. both merchants and non-merchants. An applicant can

text: 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 (OJ L 189, 3.7.1998, p. 42). also request the restructuring of debt owed to credit institutions by a third person (i.e. not the applicant him or herself) if such debt is secured on the applicant’s primary residence. The applicant’s in rem right over the real estate property may comprise full or bare ownership, or the right to use, and may be exclusive or based on a notional share (e.g. co-ownership). 1.3 Eligibility thresholds An applicant is eligible to apply for debt restructuring provided that the following conditions, set out in the draft law, are met: (a) the tax value of the primary residence to be protected does not exceed EUR 250,000 at the time of the submission of the application; (b) a mortgage or pre-notation of a mortgage is registered on the primary residence prior to the submission of the application; (c) the applicant’s family income in the last year in which a tax return could be filed was no more than 170% of reasonable living expenses ; (d) the total outstanding debt (including principal and compound interest) on the debt that is eligible to be restructured under the draft law on the date of submission of the application does not exceed EUR 130,000; (e) the total value of the applicant’s deposits and securities does not exceed 50% of the total debt brought under restructuring at the time the application is submitted; (f) the total value of the real estate property owned by the applicant other than his or her primary residence does not exceed 200% of the total amount of debt brought under restructuring at the time the application is submitted. 1.4 Application through online platform As a first step, applicants will submit their application via an online platform that is to be developed and operated by the Special Secretariat for Private Debt in collaboration with the General Secretariat for Computer Systems of the Greek Ministry of Finance. An applicant who has already benefitted from a restructuring procedure under the draft law the draft law cannot submit a second application, even if this second application seeks the restructuring of different debts than under the first application or if the applicant has forfeited the restructuring arrangement resulting from the first application. An applicant who has already benefitted from a restructuring procedure under the draft law may request the restructuring of debt that has fallen in arrears for at least 90 days after the final submission of the first application where, following submission of the application, the applicant or the applicant’s spouse or dependent becomes subject to a specified disability or is registered with the Registry for Unemployed Persons of the Labour Employment Office. However, an applicant who has already submitted an application may submit a second application if the first was withdrawn prior to completion of the restructuring through the platform procedure or if the previous application was not successful vis-à-vis any of the creditors (i.e. where no debt restructuring took place). Eligible applicants may apply within one year of the entry into force of the draft law, while people who are registered with the Registry for Unemployed Persons may apply within three years from the entry into force of the draft law and people with a specified disability may apply at any

text: 2 The property value is determined by the tax base of the real estate tax owed or, where no such tax is owed, by the objective value of the property as determined under Law 1249/1982 and Ministerial Decision 1310/1998.

text: 3 “Reasonable living expenses” are defined by the draft law as the household’s most basic living expenses plus additional catering costs as determined by the Secretariat for Private Debt. The draft law further provides that until such time as they are set, the reasonable living expenses determined from the annual economic budgets survey conducted by the Hellenic Statistical Authority shall be taken as reasonable living expenses. point in time. 1.5 Pre-screening of eligibility The platform does not allow the final submission of an application if the documentation uploaded does not allow it to conclude that the eligibility requirements or the deadlines for submitting an application have been met. An applicant may request permission from the Secretary for Private Debt for the final submission of his/her application if he/she can prove that the platform wrongly classified him/her as ineligible or wrongly deemed that his/her application was not submitted within the deadline set. The Secretary decides on the matter within 30 days of the applicant’s relevant request. This decision may be appealed, within two months of its issuance, to the head for the first instance administrative courts of the region where the primary residence is located . 1.6 Restructuring proposals Once the application has been submitted in a final way as set out above, the platform notifies the creditors whose claims are covered by the application. The creditors are required to submit restructuring proposals, on a stand-alone basis or jointly, within one month from such notification. A creditor who can establish that the applicant is ineligible or that the creditor’s claim is ineligible to be restructured may refuse to submit a restructuring proposal but must substantiate this by uploading the relevant documentation to the platform. The applicant must state which of the creditors’ restructuring proposals he or she accepts or rejects within one month of their submission. 1.7 Restructured amount payable and mandatory debt write-off To protect his or her primary residence, an applicant must pay in monthly amortising instalments either 120% of the commercial value of the primary residence at the time of the application plus interest calculated on the basis of the three-month Euribor interest rate plus 2%; or, if 120% of the commercial value of the primary residence exceeds the total amount of debt included in the restructuring application, then such latter amount. In each case, payments are to be made over a th period of 25 years, which may not extend beyond the applicant’s 80 birthday. Any debt exceeding this amount is mandatorily written off. 1.8 State subsidy Upon the application of either the applicant or any creditor participating in the restructuring process, the State subsidises the restructured monthly instalments, provided that all debt eligible to be restructured under the draft law has been restructured through the platform or the courts, and that the restructuring complies with the relevant requirements. Subsidisation by the State lasts for the duration of the restructuring. The conditions applicable to, and the amount of, the State subsidy will be reviewed by the State every three years. After one year from the first determination or the latest adjustment of the amount of the State subsidy, the applicant may request a change to such amount, if changes in the applicant’s income or reasonable living expenses or changes in the benchmark interest render compliance with the terms of the restructuring impossible for the

text: 4 The hearing date for ruling on the appeal is set within two months of submission of the appeal. The ruling is irrevocable, is published within two months from the hearing date, and is notified within two months from the publication (i.e. within four months from the hearing date) to the Secretary for Private Debt, who has to implement it within one month of such notification. applicant. The State subsidy will be discontinued if the applicant delays payment of his or her portion of the restructured instalment such that a creditor establishes a right to declare the applicant to be in default, even if this right is not exercised. The joint ministerial decision determining the amount and conditions for granting the State subsidy must comply with Union legislation on State aid and ensure that the State subsidy is granted to applicants who are unable to pay the restructured monthly instalments and that the amount of the subsidy must be such that the applicant will be in a position to repay such instalments from income alone after taking into account reasonable living expenses. 1.9 Judicial restructuring The applicant may apply to the courts for the protection of his or her primary residence within 30 days from the termination of the platform restructuring process if this restructuring process is unsuccessful in respect of one or more creditors. The petition to the court must be uploaded to the platform, which notifies it to the creditors who participated in the restructuring. The court determines the monthly instalments in line with the requirements of the draft law, namely the amount to be mandatorily written off and the 25-year mandatory duration of the restructuring scheme, deducting whatever amount the applicant has paid in the interim. 1.10 Stay on enforcement All pending enforcement measures in relation to the applicant’s primary residence, whether of a permanent or temporary, individual or collective nature, are automatically suspended as from the notification of the application to the creditors through the platform, until the expiration of the 30-day deadline set for the applicant to have recourse to the courts. This automatic stay of enforcement is binding on all creditors participating in the process and applies only for the applicant’s first application under the scheme. At any point in time during the hearing procedure at first or second instance the court may order, on its own initiative or the applicant’s request, an extension of the stay on enforcement until it issues its ruling on the merits of the case. Such extension is granted where the judge has reasonable grounds to believe that the applicant’s petition has merits and that the applicant’s primary residence will have been liquidated before the issuance of the court’s ruling on the merits, and on condition that the applicant pays a sum amounting to 30% of the last instalment payable before the submission of the restructuring application to each creditor who is a party to the court proceedings. However, the court may reduce or even waive such interim instalment in its entirety, and in some cases it is required to grant an extension of the stay on enforcement . The court may revoke the extension order at any point. The stay on enforcement outlined above does not prevent enforcement on the applicant’s primary residence by an unregulated private sector creditor whose claims have not been restructured and who has registered a lien (i.e. a mortgage or pre-notation of mortgage) before submission of the finalised application by the applicant. In such a case, all creditors may lodge all their claims in their

text: 5 For example, where a creditor failed to submit a restructuring proposal without having alleged that the applicant’s debt, or the relevant claim, was ineligible for restructuring, or where the applicant requested an interim order in the petition to the court outlined in paragraph 1.9. entirety. The stay on enforcement does not prevent the taking of enforcement measures over the applicant’s other assets, or the filing of petitions or orders of payment for claims covered by the restructuring application. 1.11 Consequences of restructuring through the platform or the courts After a successful restructuring agreement has been reached involving at least one creditor, a stay of enforcement on the applicant’s primary residence applies and is binding on all creditors whose claims were restructured through the platform or through the courts and for all creditors whose claims were not eligible for restructuring, except for (a) private sector creditors whose claims against the applicant were not eligible for restructuring under the draft law and who had registered a mortgage or a mortgage pre-notation against the applicant’s primary residence before the final submission of the application, and (b) creditors whose claims against the applicant were eligible for restructuring under the draft law but were ultimately not restructured. These two categories of creditors may launch their claims against the applicant in their entirety, but only after the auctioning of the property. Notwithstanding the above, private sector creditors whose claims against the applicant were not eligible for restructuring under the draft law may only enforce their claims if the court grants them permission to do so. Such permission is granted only if the applicant’s remaining liquidable property is insufficient to satisfy the claims of all creditors. However, even in this situation the applicant may still request a period of up to three years to pay the amount enforcing creditor would receive if the residence were auctioned; the creditor may only enforce if the applicant (re)defaults on these payments and by following the procedure outlined in paragraph 1.12 below. If the applicant consents, a creditor may register a mortgage over the primary residence for a claim which comes into existence during the restructuring period. No stay of enforcement applies to that creditor. After a successful restructuring and upon full compliance of the applicant, the portion of the restructured claims exceeding the restructuring amount payable by the applicant (see paragraph 1.7 above), as well as all liens on the primary residence that secure the restructured debt, are extinguished. 1.12 Applicant’s (re)default during the restructuring period If the applicant delays payment of restructured monthly instalments such that the total amount that is in arrears exceeds the sum of three monthly instalments, the relevant creditor whose debt is in arrears must notify the applicant and request compliance with the repayment schedule within 30 days. If the applicant does not comply, the creditor may apply to the court for the applicant to be taken out of the scheme by submitting a statement to the platform, and thereafter enforce on the applicant’s primary residence, in which case all creditors may launch their claims against the applicant in their entirety. The applicant may still challenge this by proving that the delay in payment was due to force majeure events, or that the creditor abused his or her rights.

text: 2. General observations

text: 2.1 Appropriate time to consult the ECB In cases of particular urgency that do not allow for a normal consultation period, the consulting authority may indicate urgency in the consultation request and ask for a shorter time limit for the ECB’s opinion to be adopted. However, the ECB has emphasised on several occasions in its opinions 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 under Articles 127(4) and 282(5) of the Treaty to consult the ECB at an appropriate stage in the national legislative process that allows sufficient time for: (a) the ECB to examine the draft legislative provisions, and (b) the relevant national authorities to take the ECB’s opinion into consideration before the provisions are adopted. In this respect, it is worth recalling that, as noted by the European Court of Justice, the obligation to consult the ECB under the Treaty is intended ‘essentially to ensure that the legislature adopts the act only when the body has been heard which, by virtue of the specific functions that it exercises in the Union framework in the area concerned and by virtue of the high degree of expertise that it enjoys, is particularly well placed to play a useful role in the legislative process envisaged’ . 2.2 Secondary legislation under draft law The ECB underlines that this opinion is based only on the latest version of the draft law that was provided to it on 22 February 2019. In this respect, the draft law delegates the regulation of significant aspects of the new scheme to secondary legislation, most notably ministerial decisions to be issued jointly by four ministries. Given the critical nature of these aspects and their bearing on the overall scheme, and given the fact that no secondary legislation was submitted to it, it is difficult for the ECB to assess the scheme in a comprehensive way. 2.3 Basic principles governing debt restructuring schemes Any private debt restructuring scheme should be formulated in a manner that safeguards financial stability, promotes market efficiency and liquidity and solvency of banks, and supports the adequate flow of credit to the economy. While partial write-down of debt can sometimes offer a solution in cases where the borrower’s solvency can be restored, and where creditor losses can be minimised, it is important to ensure that any such scheme should: (a) not result in blanket debt forgiveness, without taking both the debtors’ repayment capacity and banks’ loss absorption capacity into account; (b) promote a prompt payment culture and prevent moral hazard, namely the creation of incentives not to service debt in a timely manner; (c) be geared towards minimising the risk of abuse, ensuring the bona fide conduct of debtors; and (d) preserve financial stability and the soundness of credit institutions. Any relevant measures, including primary and secondary legislation, and the supportive administrative and IT infrastructure that is necessary for the

text: 6 See, e.g., paragraph 2.2 of Opinion

text: , paragraph 2 of Opinion

text: , paragraph 2.1 of Opinion

text: , paragraph 2 of Opinion

text: , paragraph 2.1 of Opinion

text: and paragraph 2 of Opinion

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

text: 7 See second sentence of

text: Article 4 of Council Decision 98/415/EC

text: 8 Judgment of the Court of Justice of 10 July 2003, Commission of the European Communities v European Central Bank,

text: , ECLI:EU:C:2003:395, paragraphs 110 to 111. implementation of such measures, should above all prove workable and efficient in the long term, increase the efficiency and speed of both out-of-court and court restructurings, while at the same time mitigating moral hazard and maintaining credit discipline . 2.4 Swift and proper implementation Proper and swift implementation of the envisaged scheme, both by all authorities administering and/or involved in the scheme and by credit institutions and other entities affected by it, is of crucial importance for ensuring the balance described in paragraph 2.3 above and thereby preventing serious adverse consequences for banks’ asset quality and capital positions. Proper implementation of the envisaged framework involves, inter alia, devoting sufficient resources and ensuring the establishment of efficient procedures and infrastructures for facilitating the conclusion of restructurings, whether through the platform or through the courts. 2.5 Need for impact assessment The draft law is being introduced without the benefit of any financial and economic impact assessment. The ECB stresses the critical importance of thoroughly assessing beforehand the impact of the draft law on the capital adequacy and financial position of credit institutions in the short and medium term as well as its effects on the functioning of the financial system and the economy as further described in paragraphs 3.1 to 3.3 below, also taking into account moral hazard risks and the interaction of the draft law with existing legislation as further described in paragraphs 3.4 to 3.5 below. It is only by making such a prior assessment that it may be possible to mitigate potential negative implications . In the absence of such impact assessments or other background information explaining the underlying rationale for the specific parameters of the scheme, for example the proposed thresholds for eligibility and mandatory restructuring parameters, and illuminating the comparative advantages of the proposed scheme as opposed to other ways of protecting primary residences, it is difficult for the ECB to be confident that the stated objectives of the draft law will be achieved .

text: 3. Specific observations

text: 3.1 Effects on banking sector 3.1.1 In the context of its direct responsibility for the supervision of significant credit institutions in the euro area, the ECB directly supervises four significant credit institutions in Greece. The elevated level of nonperforming loans in Greece has been one of the key areas of focus in recent years and is being closely monitored from a supervisory perspective. The four significant Greek credit institutions have committed to achieve certain NPE reduction targets by 2021. The Greek authorities have also committed to ‘implement reforms aimed at restoring the health of the banking system, including NPL resolution efforts by ensuring the continued effectiveness of the relevant

text: 9 See paragraph 2.4 of Opinion

text: , paragraph 2.4 of Opinion

text: , paragraph 2.3 of Opinion

text: , paragraph 3.1 of Opinion

text: , and paragraph 2.2.2 of Opinion

text: 10 See paragraph 3.4 of Opinion

text: , paragraph 2.2 of Opinion

text: , paragraph 2.1 of Opinion

text: , paragraph 2.3 of Opinion

text: , and paragraph 2.2.2 of Opinion

text: 11 See paragraph 2.2 of Opinion

text: , paragraph 2.3 of Opinion

text: , paragraph 2.3 of Opinion

text: , and paragraph 2.2.2 of Opinion

text: . legal framework’ . It is suggested that the draft law, including the parameters set out by related secondary legislation, gives due consideration to these commitments. 3.1.2 The proposed scheme appears to be a far-reaching initiative, with an extensive scope of application and a mandatory nature. The draft law may have negative implications for credit institutions, especially for their capital adequacy, provisioning needs and asset quality, as they may have to adjust the valuation of their loan books. This could have a potentially significant impact on their provisioning levels and capital given the uncertainty introduced by the draft law in terms of, for example, the number of debtors that will eventually apply to the scheme, the amount of debt to be included, the level of haircuts to be applied, and the valuation that may need to be performed for supervisory and accounting reasons upon the introduction of the scheme. 3.1.3 The draft law may also have an adverse effect on loan sales and securitisations as it allows for debt securitised under the Law 3156/2003 on bond loans, securitisation of claims and other 13 14 provisions , and debt transferred under the Law on servicing of non-performing loans , also to be restructured under its provisions, and affords legal protection to a wide range of debt, including business debt . There is a risk that these provisions may disincentivise future NPL sales and securitisations and also impact already concluded NPL sales and securitisations. In this respect the draft law may encumber credit institutions’ access to securitisation markets in order to transfer nonperforming loan portfolios and obtain liquidity and, consequently, the extension of credit to the economy. 3.1.4 The ability of credit institutions to effectively manage credit risk depends on a reliable, predictable and stable legal framework that adequately balances the interests of both creditors and debtors. However, the draft law introduces changes that may affect the ability of lenders to give effect to the agreed terms of secured credit in Greece, which could undermine legal certainty and the adequate management of credit risk in credit institutions. In this respect, it is important to carefully consider the impact of the draft law on credit agreements in order to ensure legal certainty and avoid undue interference with the contractual and property rights of credit institutions, and to prevent moral hazard from arising in the relationship between creditors and debtors . 3.2 Effects on financial stability 3.2.1 Given the wide scope of the types of debt covered by the draft law, including business debt, and the importance of portfolios collateralised by primary residences in total bank assets, the draft law may have a potentially significant negative impact on the credit institutions affected and implications for financial stability. Potential concerns impacting on credit institutions that need to be assessed from the outset stem particularly from the mandatory haircut imposed on all debt exceeding the relevant amounts described, the mandatory 25-year duration of the restructuring period, the stay on enforcement for potentially long periods of time, and the interaction of the draft

text: 12 See Annex to the Eurogroup Statement on Greece of 22 June 2018, available on the Council’s website at https://www.consilium.europa.eu.

text: 13 Government Gazette Issue A 157/25.6.2003.

text: 14 Government Gazette Issue A 176/16.12.2015.

text: 16 See paragraph 2.2 of Opinion

text: and paragraph 2.2.3 of Opinion

text: . law with existing legislation, most notably the household insolvency law. To resolve some of these concerns, it is suggested to refine the scope of the debt and debtors covered by the draft law, and set the relevant parameters only after a thorough assessment of their likely impact on creditors has been undertaken. 3.2.2 Given the above, the ECB suggests that the consulting authority engages in meaningful and timely consultations with all relevant stakeholders, including with the Bank of Greece as the national macroprudential authority, as such consultations might shed light on aspects of the draft law which are not immediately apparent. 3.3 Effects on Greek economy As noted above, the scope of possible mortgage debt restructuring under the draft law is extensive. The draft law gives rise to risks of deterioration in the payment culture, moral hazard risks and risks that the new scheme will be abused by strategic defaulters, as also described in paragraph 3.4 below. As a result, the draft law may adversely affect the future supply of credit and the pricing of mortgages. Credit institutions could respond by unduly tightening lending conditions, in particular to compensate for credit losses resulting from the application of the draft law, and thus increase the cost of financing for the economy generally, in particular for those firms and households that may be in financial distress but continue to service their debt. The implications of the draft law for the real economy are therefore uncertain. In addition, the potential for interference with the ability of lenders to give effect to the agreed terms of secured credit in Greece might render the secured lending market less attractive, discouraging new entrants. This could stifle competition in financial services in Greece, due to a perceived increase in legal uncertainty. It might also possibly hinder, rather than support, the flow of credit in the economy. 3.4 Moral hazard risks and overall impact on payment culture The automatic stay of enforcement which starts upon notification of the application to the creditors through the platform, and can be extended to cover the procedure at the court, could encourage strategic defaulters to apply, especially where court proceedings are not swift. Moreover, the fact that a court may grant at first or second instance an order extending the automatic stay on enforcement granted at the platform stage of the restructuring, coupled with the option afforded to applicants under the draft law to submit any number of restructuring applications if previous applications were unsuccessful or the applicant withdrew them, could also encourage strategic defaulters to apply, if these two elements lead in practice to a suspension of all enforcement measures over the primary residence for protracted periods of time. It is also understood that there are currently no provisions covering the interim period between the entry into force of the draft law and the date on which the platform becomes operational. In addition, even assuming that the stay on enforcement starts after the pre-screening of eligibility of the applicant by the platform , it is not clear whether enforcement will in practice take place during the period between the filing of the application by the applicant and the notification of such filing to the relevant creditors through the

text: 17 See Article 6 of the draft law. platform, as the final decision on eligibility lies with the administrative court and thus any enforcement measures taken by creditors until such final decision might be overturned. Suspension of enforcement for long periods of time is detrimental for the overall payment culture, as the application of the household insolvency law has shown since 2010, and endangers the path of the four significant credit institutions towards their NPE reduction targets, as it curtails their ability to collect under their loans. This detrimental effect is increased by the fact that the new scheme is intended to apply in parallel with the household insolvency law, which also provides automatic stays on enforcement over all assets of the debtor for very long periods of time until the relevant court cases are ruled upon. In addition to the above, certain provisions of the draft law bear the risk of being open to manipulation by applicants. Considering all the above, a risk of contamination for currently performing loans and a further undermining of the overall payment culture cannot be excluded . 3.5 Interaction of draft law with existing legislation 3.5.1 The draft law is not being introduced in a legal and judicial vacuum. The following laws are of particular relevance to the draft law: Law 3869/2010 on restructuring of debt of overindebted individuals also provides for debt write-off and restructuring through court proceedings, allows for a stay on enforcement over all assets of the debtor for very long periods of time, and sets out State subsidisation options ; Law 4469/2017 on out of court workout mechanism allows for out-of-court restructuring of debt for a different category of borrowers ; the Code of Civil Procedure sets out auctioning and foreclosure procedures ; the laws regulating bankruptcy, special administration and other collective proceedings ; the Bank of Greece’s Code of Conduct, which lays down rules and procedures to be followed by banks when dealing with borrowers whose debt is in arrears ; laws that provide for benefits related to housing, particularly for low-income households ; and various tax and accounting rules are also relevant to the draft law. 3.5.2 No explanatory memorandum has been submitted alongside the draft law explaining why a completely new scheme which will apply on top of, and in parallel with, existing legislation is needed in order to achieve the objectives of the draft law, or what the envisaged consequences of the interaction of the draft law with existing legislation are expected to be. Harmonising existing and new legislation and aligning its implementation enhances regulatory consistency and limits opportunities to strategic defaulters to exploit potential gaps in the regulatory framework or in the way it is applied. In addition, new legislation that affords protection to borrowers should not unduly impede the process of NPE restructuring and the ability of banks to pursue strategic defaulters, for

text: 18 See also paragraph 3.7 below.

text: 19 Law 3869/2010, Government Gazette Issue A 130/3.8.2010.

text: 20 Law 4469/2017, Government Gazette Issue A 62/3.5.2017.

text: 21 Presidential decree 503/1985, Government Gazette Issue A 182/24.10.1985.

text: 22 Law 3588/2007, Bankruptcy Code, Government Gazette Issue A 153/10.70.2007 and Section D of Law 4307/2014 on measures to deal with the consequences of the financial crisis and to enhance employment: incentives to settle debt of small businesses and professionals to credit institutions and special procedures to settle debt of corporates, Government Gazette Issue A 246/15.11.2014.

text: 23 Decision of the Credit and Insurance Committee of the Bank of Greece 195/29.7.2016.

text: 24 Article 3 of Law 4472/2017 on housing benefit, Government Gazette Issue A 74/19.5.2017 and Ministerial Decision D13/oik.33474/1934, Government Gazette issue B/2282/15.6.2018. example by facilitating misuse of the framework to block the carrying out of already scheduled and notified auctions. 3.5.3 It is understood that the new scheme is intended to apply in parallel with the existing household insolvency law, debtors will be allowed to apply under either or both frameworks, and this option is also open to debtors with an application that is pending under one of the two frameworks. Debtors who have already benefited from debt restructuring and write-off under the household insolvency law may benefit from a second restructuring and write-off of debt under the draft law. Payments made by a debtor under one framework will be deducted from those payable by the debtor under the other framework. The stay of enforcement over all assets of the borrower applicable under the household insolvency law will remain in place for all other assets except for the primary residence until the court issues a ruling on a case under the draft law. Even debtors who have been deemed by the courts to be ineligible under the Law on household insolvency because of fraudulent behaviour will be eligible to apply under the draft law if they meet the relevant thresholds. An eligibility criterion under the household insolvency law is that the debtor must be ‘cooperative’ as such term is defined in the Code of Conduct adopted by the Bank of Greece. It is not clear why this criterion has not been included in the draft law as well. Lastly, it is understood that the courts designated by the draft law as competent to deal with the restructuring and write-off process under the draft law are the same as those currently competent for household insolvency petitions. 3.5.4 Allowing the two frameworks to interact in such a way gives rise to a number of risks. First, there is a risk of further delaying household insolvency proceedings currently pending and creating additional backlogs in the courts. Court backlogs coupled with stays on enforcement affect the ability of banks to collect on their loans and thus ultimately their ability to lend. In addition, measures taken or planned by the authorities to gradually reduce and eliminate the household insolvency backlog might be undermined . Second, there is a risk of increasing (re)defaults of debtors who have already benefited from debt restructuring and write-off under the household insolvency law. Third, there is a risk of allowing debtors to benefit twice from debt restructuring and write-off. All of these risks in turn increase moral hazard risks. 3.6 Valuation of security and property under the draft law The draft law introduces two different methods for valuing security and property , leaves undefined the method for valuing assets that are relevant in order to determine negative eligibility , and does not determine how the ‘commercial’ value of property will be determined, when this term is used. This aspect of the draft law may give rise to increased litigation between creditors and applicants regarding the value of the property, which may in turn lead to longer stays on enforcement. In addition, the fact that the draft law leaves the means of determining the commercial value of the property undefined may open the door to the use of non-expert witnesses in the courts, thus

text: 25 In June 2018 the Greek Ministry of Justice produced an action plan containing measures to gradually reduce and ultimately eliminate the household insolvency backlog of cases by the end of 2021, in accordance with the relevant policy commitment. See Annex to the Eurogroup Statement on Greece of 22 June 2018, available on the Council’s website at https://www.consilium.europa.eu. 26 See Articles 3(1) and 3(2) of the draft law. 27 See

text: Articles 1(2)

text: (e) and 1(2)(f) of the draft law. encouraging strategic defaulters to apply under the scheme. Legal certainty for the valuation of security and assets is of central importance for the entire scheme as well as for the protection of secured creditors’ rights since the draft law determines eligibility to participate in the scheme based on the value of the primary residence collateralising such debt and on the value of certain other assets of the applicant . 3.7 Legal certainty 3.7.1 Clear formulations of the rights and obligations created by the draft law, as well as a careful consideration of the impact of the draft law on existing legal relationships between creditors and debtors, are necessary in order to ensure legal certainty and prevent moral hazard. There are provisions in the draft law that suffer from legal uncertainty and could be helpfully reformulated in order to enhance clarity and reduce risks . Legal uncertainty arising out of the draft law may lead to further delays in the restructuring process, necessitating an increased involvement of the courts in the application of the draft law. Legal uncertainty may also provide an incentive for strategic defaulters to exploit this uncertainty by bringing court proceedings under the draft law in order to benefit from the stay on enforcement. 3.7.2 Added uncertainty arises from the wide range of discretions conferred on executive bodies involved in the restructuring process under the draft law. The draft law assigns to the Secretary for Private Debt the competence to decide, where the platform rejects an application, on eligibility under the new scheme, subject to judicial review. The following issues may be addressed by means of ministerial decisions: the operating parameters of the online platform and details pertaining to the platform restructuring process; the contents of the application, the list of documents required to support it and the deadlines for the submission of each; the conditions governing and the method for calculating the amount of the State subsidy; the State body responsible for deciding on the State subsidy and any other specific matter pertaining to such subsidy. The way in which secondary legislation will determine the operating parameters of the platform and the documentation required by applicants is crucial because the draft law appears to base the restructuring and write-off of debt through the platform on these two elements without giving creditors the opportunity to contest the amount of debt as declared by the applicant, or to justify their refusal to offer a restructuring proposal (which they can do only if the applicant or the debt covered by the application is ineligible) on the basis of documentation of their own. This is expected to lead to increased litigation regarding the exact amount of debt to be restructured and/or the eligibility of the debtor or the debt covered by the application, with the implications described in the previous paragraph. This also increases the necessity to safeguard the duty of disclosure at the application stage but also throughout the duration of the restructuring period. Lastly, given that the amount of the State subsidy will determine the collections made by credit institutions under the scheme during the restructuring period together with payments made by the applicants, it is important to have legal certainty as to the elements related to the subsidy.

text: 28 See Article 7 of the draft law and paragraph 4 of Opinion

text: . 29 See

text: Articles 1(2)

text: (c), 1(2)(d), 1(2)(f), 3(2) and 8(1), 9(2), 10(1), 12(2), 12(3), 11(3) of the draft law. 3.8 Compliance with basic legal principles and State aid rules It is for the Greek authorities to assess whether the draft law complies with applicable principles of Greek constitutional law, including the basic legal principles of fairness, equal treatment and proportionality. It is for the Commission to assess the draft law’s compliance with Union state aid rules. 3.9 Regular reviews In order to ensure the effectiveness of the framework, an independent body should regularly review and assess the effectiveness of the scheme by reference to its objectives, its impact on Greek credit institutions and the overall payment culture in the short and medium term, and its interaction with other laws. One year following its introduction might be a reasonable point at which to review the overall operation of the new scheme . This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 27 February 2019. [signed] The President of the ECB Mario DRAGHI

text: 30 See also Opinion


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

text: Regulation (EU) No 1092/2010

text: of the European Parliament and of the Council of 24 November 2010 on European Union macro-prudential oversight of the financial system and establishing a European Systemic Risk Board (OJ L 331, 15.12.2010, p. 1).

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: This provision is intended to confer on the Banco de España an authority that had been previously only granted on a transitional basis.

text: Law 10/2014, of 16 June, on the organisation, supervision and solvency of credit institutions, BOE no. 156, 27.06.2014, p. 49412.

text: Recommendation of the European Systemic Risk Board of 22 December 2011 on the macro-prudential mandate of national authorities (

text: ) (OJ C 41, 14.2.2012, p.1).

text: Recommendation of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macro-prudential policy (

text: ) (OJ C 170, 15.6.2013, p. 1).

text: See Opinion

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

text: Royal Decree-law 22/2018, of 14 December, on the establishment of macroprudential tools, BOE no. 304, 18.12.2018, p. 124062.

text: This is in line with

text: recital 24

text: of

text: Regulation (EU) No 1092/2010

text: . This is also reflected, for example, in the fact that under

text: Article 6(1) of Regulation (EU) No 1092/2010

text: the members of the General Board of the ESRB with voting rights include the President and the Vice-President of the ECB and the Governors of the national central banks of the ESCB. As previously noted by the ECB, given their central role in macro-prudential policy, the General Board should include representatives from all ESCB central banks. See paragraph 2.1 of ECB Opinion

text: . Recommendation

text: envisages that the national macroprudential authority can be either a single institution or a board of authorities, but also recommends to Member States to ensure that central banks play a leading role in the macroprudential policy. See ESRB Recommendation on the macro-prudential mandate of national authorities (

text: ): Follow-up Report – Overall assessment published on the ESRB website at https://www.esrb.europa.eu; see also paragraph 5.2 of Opinion

text: and paragraph 2.3 of Opinion

text: See

text: Regulation (EU) No 1024/2013

text: of the Council of 15 October 2013 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).

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 28 February 2019 on the establishment of a macroprudential board (CON/2019/10)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 28 February 2019 on the establishment of a macroprudential board (

text: ) Introduction and legal basis

type: rubrik

text: On 18 February 2019 the European Central Bank (ECB) received a request from the Banco de España, on behalf of the State Secretary for Economic Affairs and Support for Business, for an opinion on a draft royal decree on the creation of a macroprudential authority financial stability board, and on the development and notification of the macroprudential tools which may be adopted by the Banco de España, the National Securities Market Commission and the Directorate General for Insurance and Pension Funds (hereinafter the ‘draft royal 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 third and sixth indents of

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

text: , as the draft royal decree relates to the Banco de España and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

type: stycke

text: 1. Purpose of the draft decree law

text: 1.1 The draft royal decree creates Autoridad Macroprudencial Consejo de Estabilidad Financiera (AMCESFI, the Macroprudential Authority Financial Stability Board) and (among other things) lists the macroprudential tools that may be used by the competent macroprudential authorities. 1.2 The objective of AMCESFI is to contribute to the stability of the financial system as a whole through the identification, prevention and mitigation of circumstances or actions which could cause systemic risk in the financial sector. AMCESFI is to pursue this objective in cooperation with the Banco de España, the National Securities Market Commission and the Directorate General for Insurance and Pension Funds (hereinafter collectively referred to as ‘the sectoral authorities’). However, each of the sectoral authorities retains its supervisory competences, including the power to adopt macroprudential tools. 1.3 The tasks of AMCESFI include the identification, prevention and mitigation of the circumstances or actions which may give rise to systemic risk in the financial sector. For these purposes AMCESFI is to monitor and analyse the factors that could affect systemic risk. Based on the results of this work,

text: AMCESFI may issue opinions, warnings and recommendations, specifying, wherever possible, the systemic risk factor it means to address and the level of severity of that risk factor. After it receives notification from any of the sectoral authorities of their intention to activate, recalibrate or deactivate any of their macroprudential tools, AMCESFI will issue its opinion thereon. AMCESFI may direct communications to the financial system as a whole, or to a particular financial authority or a group or subgroup of financial sector participants, warning about activities or issues that could constitute systemic risk factors. AMCESFI may also recommend that the sectoral authorities take measures to prevent or mitigate systemic risk factors. 1.4 AMCESFI will take into account the European Union and European Economic Area objectives on financial stability and cooperate with the macroprudential authorities in other Member States and with the competent European authorities. AMCESFI will inform the Secretariat of the European Systemic Risk Board (ESRB) of any recommendations issued, and will also inform the ECB where the recommendation issued affects institutions under the ECB’s direct supervision. AMCESFI may adopt recommendations of the ESRB at the national level in cases where it is the competent authority for these purposes, or provide a justification for lack of action, as applicable, under the provisions of

text: Regulation (EU) No 1092/2010

text: . 1.5 The two main bodies of AMCESFI are the Board, which is AMCESFI’s decision-making body, and the Technical Committee, which prepares the matters to be decided by the Board. The Board is composed of seven members, including the Minister for Economy and Enterprise (as Chair), the Governor of the Banco de España (as Vice-Chair), the Deputy Governor of the Banco de España, the President and Vice-President of the National Securities Market Commission, the State Secretary for Economic Affairs and Support for Business, and the Director General for Insurance and Pension Funds. The Technical Committee is composed of nine members, including the Deputy Governor of the Banco de España (as Chair), the Secretary-General of the Treasury and International Finance (as Vice-Chair), the Director General of Financial Stability, Regulation and Resolution of the Banco de España (as Secretary), the Director General of Banking Supervision of the Banco de España and five other high-level officials of the Treasury and the sectoral authorities. 1.6 AMCESFI will be a collegiate body, formally established within the Ministry of Economy and Enterprise. Each of the bodies that form part of AMCESFI will contribute its own members of staff and the material resources needed for the operation of AMCESFI. AMCESFI will not have a specific budget. 1.7 The draft royal decree also lists the macroprudential tools which may be adopted by the sectoral authorities for the purpose of preventing systemic risks and seeking a sustainable contribution from the financial system towards economic growth. These include the tools – such as capital buffer requirements, limits on sectoral concentrations, conditions on loan provisions and other transactions, higher risk weightings for real estate exposures, and any of the measures set out in

text: Article 458 of Regulation (EU) No 575/2013

text: – that may be adopted by the Banco de España in respect of credit institutions. The Banco de España is also explicitly designated under the draft royal decree as the competent authority for the implementation of

text: . 1.8 The draft royal decree also authorises the Banco de España to use macroprudential tools concerning capital buffer requirements in relation to exposures to specific sectors or categories, and to establish limits on sectoral concentrations and conditions on loan provisions and other transactions. Where these tools and limits are only required in relation to exposures to a specific sector or category, as envisaged by Law 10/2014 on the organisation, supervision and solvency of credit institutions , the draft royal decree provides that the following points, amongst others, may be taken into account: (1) the quantitative importance of the different categories or sectors to which credit institutions have exposures (in order to determine the potential limits on sectoral or category concentration and the potential countercyclical buffer to be established); (2) the relevant factors for setting the limits and conditions on lending and the acquisition of fixed-income securities and derivatives by credit institutions, for transactions with agents in the private sector based in Spain, including but not limited to (i) the relationship between the volume of credit provided to borrowers and their disposable income or the guarantees provided by them; (ii) the financial burden occasioned by repayment; (iii) the duration of these agreements; (iv) the fixed, variable or mixed nature of the agreed interest rate; and (v) the currency of the credit transactions; (3) the credit dynamics in each category/ sector of credit exposure; and (4) the criteria established in this regard by European and international authorities relating to macroprudential objectives, instruments and indicators. The draft royal decree provides that the sectoral authorities, including the Banco de España, will establish internal procedures for using macroprudential tools. Any potential use, recalibration or deactivation of a macroprudential tool, including those tools applicable to credit institutions adopted by the Banco de España, must be notified to AMCESFI at least seven working days in advance of the planned date of adoption of the measures.

text: 2. General observations

text: 2.1 The ECB welcomes the fact that the draft royal decree establishes a national macroprudential board which ensures that all the relevant authorities and institutions involved in macroprudential policy are represented on the board, and defines the board’s objectives, mission and powers in line with the guiding principles expressed in Recommendation

text: and Recommendation

text: 2.2 The ECB also welcomes the fact that the draft royal decree lists the macroprudential tools that the sectoral authorities, including the Banco de España, may use, and in particular gives the Banco de España the authority to use macroprudential tools concerning capital buffer requirements for exposures to specific sectors or categories, and to establish limits on sectoral concentrations and conditions on loan provisions and other transactions, as envisaged by Law 10/2014 on the organisation, supervision and solvency of credit institutions. The draft royal decree also refers to the possibility of applying a countercyclical capital buffer for exposures to a specific sector or category, which was also envisaged by Law 10/2014 on the organisation, supervision and solvency of credit institutions. The ECB has previously stated its views with respect to this specific application of the sectoral buffer in its opinion on Royal Decree–law 22/2018 on the creation of macroprudential tools , which amended Law 10/2014 on the organisation, supervision and solvency of credit institutions.

text: 3. Role of Banco de España as macroprudential authority

text: 3.1 The ECB considers that central banks should play a leading role in macroprudential oversight, given their expertise and existing responsibilities in the area of financial stability . This is particularly so in the case of the Banco de España, which retains the powers to use macroprudential tools as provided in Law 10/2014 on the organisation, supervision and solvency of credit institutions, holds the position of Vice-Chair on the Board and of Chair on the Technical Committee, and will act as the secretariat of the Technical Committee. The ECB therefore welcomes the role envisaged for the Banco de España as set out in the draft royal decree. 3.2 The ECB understands that the Banco de España shall continue to be the concerned authority in Spain for the purposes of notification to the ECB by the national competent or designated authorities of requirements for capital buffers to be held by credit institutions in addition to own funds requirements and any other measures aimed at addressing systemic or macroprudential risks under

text: Article 5 of Council Regulation (EU) No 1024/2013

text: 4. Procedure for activation of macroprudential tools

text: 4.1 The draft royal decree provides that the sectoral authorities have an obligation to notify AMCESFI at least seven days in advance of the activation, recalibration or deactivation of macroprudential tools. This notification period may be shortened where advisable under market circumstances or where the measure must be used immediately. In view of the short time frame in which AMCESFI is to issue its opinion, the ECB understands that the issuance of such an opinion, or the lack of it, does not preclude the adoption of the macroprudential tool by the relevant sectoral authority in order to safeguard the independence of that sectoral authority’s actions. 4.2 The draft royal decree stipulates that AMCESFI must inform the ESRB of recommendations issued by AMCESFI to the sectoral authorities. In order to ensure that AMCESFI’s actions complement the ESRB’s actions taken at Union level, it is suggested that the requirement to inform contained in Article 18(2) of the draft royal decree be amended to also include warnings addressed to the financial system or financial authorities, in particular if significant cross-border effects are to be expected.

text: 5. Warnings addressed to a group or sub-group of financial sector stakeholders

text: The draft royal decree envisages that AMCESFI may issue warnings addressed to a group or subgroup of financial sector stakeholders about activities or issues that could constitute systemic risk factors. The issue of such warnings allows AMCESFI to directly address stakeholders from different sub-sectors within the financial sector. However, directly addressing warnings to groups of financial sector stakeholders could interfere with the macroprudential supervision conducted by the sectoral authorities. Furthermore, it is more consistent with the coordinating role of AMCESFI that those warnings are issued through the relevant sectoral authorities. It is therefore suggested that Article 12 of the draft royal decree be amended so that warnings to groups of financial sector stakeholders are channelled through the relevant sectoral authorities.

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

text: Done at Frankfurt am Main, 28 February 2019.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI

type: vagledning

utgivare: ecb


text: EUT C 60, 15.2.2019, s. 1.

sprak: sv

title: ECB-rådets yttrande av den 6 mars 2019 om en rekommendation från rådet om utnämning av en ledamot i Europeiska centralbankens direktion (CON/2019/11)

text: Inledning och rättslig grund

text: Den 20 februari 2019 mottog Europeiska centralbanken (ECB) en begäran från Europeiska rådets ordförande om ett yttrande över ett förslag till rådets rekommendation av den 12 februari 2019 om utnämning av en ledamot Europeiska centralbankens direktion.

text: ECB-rådets behörighet att avge ett yttrande grundar sig på

text: artikel 283.2 i fördraget om Europeiska unionens funktionssätt

text: Allmänna kommentarer

text: 1. I rådets rekommendation, som överlämnats till Europeiska rådet och som Europaparlamentet och ECB-rådet nu ska yttra sig över, föreslås att Philip R. LANE utnämns till direktionsledamot i Europeiska centralbanken för en tid av åtta år från och med den 1 juni 2019.

text: 2. ECB-rådet anser att den förslagna kandidaten är en person som besitter den allmänt erkända auktoritet och yrkeserfarenhet inom den finansiella sektorn som krävs enligt artikel 283.2 i fördraget.

text: 3. ECB-rådet har ingen invändning mot rådets rekommendation att utnämna Philip R. LANE till ledamot i Europeiska centralbankens direktion.


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

text: “Loi fixant le statut organique de la Banque Nationale de Belgique”/“Wet van 22 februari 1998 tot vaststelling van het organiek statuut van de Nationale Bank van België”, as published in the annexes to the Belgian Official Gazette (“Moniteur Belge”/” Belgisch Staatsblad”) on 28 March 1998 , and as amended from time to time.

text: Article 19.1

text: ° of the Law of 22 February 1998.

text: Article 20.1

text: ° of the Law of 22 February 1998. 5 Article 19 of the Law of 22 February 1998. 6

text: Article 23.2

text: ° of the Law of 22 February 1998. They are appointed for a renewable term of six years, and may be relieved from office by the King only if they no longer fulfil the conditions required for the performance of their duties

text: or if they have been guilty of serious misconduct. 7

text: Article 20.2

text: ° of the Law of 22 February 1998. 8

text: Article 20.2

text: ° of the Law of 22 February 1998. 9

text: Article 20.3

text: ° of the Law of 22 February 1998. 10

text: Article 20.4

text: ° of the Law of 22 February 1998. 11

text: Article 20.4

text: ° of the Law of 22 February 1998. 12

text: Article 23.3

text: ° of the Law of 22 February 1998. 13

text: Article 23.3

text: ° of the Law of 22 February 1998. The methods of proposing candidates for these appointments are laid down in the Regent Decree of 5 October 1948 (“Arrêté du Régent du 5 octobre 1948 déterminant les modalités de présentation des candidats aux fonctions de régent de la Banque Nationale de Belgique”/ “Besluit van de Regent van 5 oktober 1948 houdende vaststelling van de voordrachtsmodaliteiten der kandidaten tot de functies van regent in de Nationale Bank van België”), as published in the annexes to the Belgian Official Gazette (“Moniteur Belge”/” Belgisch Staatsblad”) on 8 October 1948, and as amended from time to time. 14 Members of the Legislative Chambers, the European Parliament, the Councils of the Communities and the Regions, persons who hold the position of Minister or Secretary of State or of member of the Government of a Community or Region and members of the staff of a member of the Federal Government or of the Government of a Community or Region may not hold the office of Regent. The Regents may not be a member of the administrative, management or supervisory bodies of an institution subject to the supervision of the NBB or in an institution incorporated under Belgian law or foreign law established in Belgium or in a subsidiary of these institutions and subject to the supervision of the ECB, nor may they perform management duties in such an institution. 15

text: Article 21.1

text: ° the Law of 22 February 1998. 16

text: Article 21.2

text: ° of the Law of 22 February 1998.

text: Article 21

text: bis.1° of the Law of 22 February 1998. 18

text: Article 21

text: bis.2° of the Law of 22 February 1998. 19

text: Article 21

text: bis.1° of the Law of 22 February 1998. 20 In the sense of

text: Article 526

text: ter of the Law on companies (“Code des sociétés”/ “Wetboek van vennootschappen” - as published in the annexes to the Belgian Official Gazette (“Moniteur Belge”/” Belgisch Staatsblad”) on 6 August 1999, and as amended from time to time).

text: See paragraph 5 of EMI Opinion CON/96/10. All opinions of the EMI are published on the ECB’s website at www.ecb.europa.eu. 22 Article 19 of the Law of 22 February 1998. 23 See the NBB’s FAQ’s on ‘Independence and prohibition on monetary financing’ available on the NBB’s website at www.nbb.be. 24 See the NBB’s FAQ’s on ‘Independence and prohibition on monetary financing’ available on the NBB’s website at www.nbb.be. 25 See paragraph 6 of Opinion

text: See the ECB Convergence Report (May 2018), p. 25. 27 See the ECB Convergence Report (May 2018), p. 26. 28 See the ECB Convergence Report (May 2018), p. 27; paragraphs 6 and 8 of ECB Opinion

text: ; paragraph 3.1.13 of ECB Opinion

text: ; paragraphs 3.1.12 and 3.1.14 of ECB Opinion

text: ; and paragraph 3.2.2 of ECB Opinion

text: . 29 See paragraph 1 of ECB Opinion

text: ; paragraph 1 of ECB Opinion

text: . 30 See the ECB Convergence Report (May 2018), p. 27. 31 See also paragraphs 7-8 of ECB Opinion

text: ; paragraph 3 of ECB Opinion

title: Opinion of the European Central Bank of 26 March 2019 on changes to the governance structure of the Nationale Bank van België/Banque Nationale de Belgique (CON/2019/12)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 26 March 2019 on changes to the governance structure of the Nationale Bank van België/Banque Nationale de Belgique (

text: ) Introduction and legal basis

text: On 26 February 2019 the European Central Bank (ECB) received a request from the Belgian Minister for Finance for an opinion on a draft law amending the Law of 22 February 1998 establishing the Organic Statue of the Nationale Bank van België/Banque Nationale de Belgique (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

text: , as the draft law relates to the Nationale Bank van België/Banque Nationale de Belgique (NBB). 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 amendments to the Law of 22 February 1998 establishing the Organic Statue of the Nationale Bank van België/Banque Nationale de Belgique (hereinafter the ‘Law of 22 February 1988)’ with a view to improving the governance structure of the NBB and creating a more balanced representation of both genders in the NBB’s Council of Regency. Current composition of the NBB’s Council of Regency and Board of Censors 1.2 The NBB currently consists of a Governor, the Board of Directors, the Council of Regency and the Board of Censors. The General Meeting of Shareholders is not addressed in this Opinion. 1.3 The NBB Council of Regency is composed of a Governor, who presides over the Council, the other 3 4 (maximum five ) Directors from the NBB’s Board of Directors and ten Regents . The King appoints the members of the Board of Directors, which is the NBB’s main decision-making body , on a proposal of the Council of Regency .

text: 1.4 The Council of Regency is responsible for: (i) exchanging views on general issues relating to the NBB, monetary policy and the economic situation of the country and the EU; supervisory policy with regard to each of the sectors subject to the NBB's supervision; Belgian, European and international developments in the field of supervision; as well as, in general, any developments concerning the financial system subject to the NBB's supervision, without however having any competence to intervene at an operational level or take note of individual dossiers ; (ii) laying down the Rules of Procedure, containing the basic rules for the operation of the NBB's bodies and the organisation of its departments, services and outside offices on the proposal of the Board of Directors ; (iii) setting the individual salaries and pensions of the members of the Board of Directors ; (iv) approving the expenditure budget and the annual accounts submitted by the Board of Directors ; and (v) determining the distribution of profits as proposed by the Board . 1.5 The Regents are elected for a renewable three-year term by the General Meeting of the NBB . Two Regents are chosen upon the proposal of the most representative labour organisations; three Regents upon the proposal of the most representative organisations from industry and commerce, agriculture and small firms and traders; and five Regents upon the proposal of the Minister of Finance . The Regents are subject to various incompatible activities rules which are aimed at, inter alia, guaranteeing their independence towards the Belgian State and the public authorities . They are also subject to rules relating to the prevention and handling of conflict of interest situations. 1.6 The NBB Board of Censors is currently composed of ten members . The Board of Censors acts as the NBB’s audit committee and supervises the preparation and implementation of the NBB’s budget . The Board of Censors is entrusted with the following advisory tasks, as a minimum: (i) to

text: monitor the financial reporting process; (ii) to monitor the effectiveness of the internal control and risk management systems, and of the NBB's internal audit; (iii) to monitor the statutory audit of the annual accounts, including compliance with the questions and recommendations formulated by the statutory auditor; and (iv) to review and monitor the independence of the statutory auditor, in particular the provision of additional services by the statutory auditor to the NBB . In this latter respect, the Board of Censors proposes the appointment of the statutory auditor to the Board of Directors . All audit functions of the Board of Censors are exercised without prejudice to the responsibilities of the bodies of the NBB and without prejudice to the execution tasks and transactions within the domain of the European System of Central Banks (ESCB) and their review by the statutory auditor . Amendments to the role and composition of the NBB Council of Regency under the draft law 1.7 Under the draft law, the Board of Censors is abolished and its advisory tasks in the field of audit and budget is exercised by the Audit Committee of the Council of Regency. The Audit Committee, in a restricted composition, advises the Council of Regency in the execution of its powers with regard to the budget and the preparation of financial information. A Remuneration and Appointments Committee is established to provide its opinions to the Council of Regency. As a result of the integration of the Board of Censors’ advisory functions into the Council of Regency, the number of Regents is increased from 10 to 14. Hence, under the draft law, the Council of Regency is composed of the Governor, the Directors and 14 Regents. 1.8 Subject to certain exceptions set out below, the Council of Regency is no longer chaired by the Governor, but by an independent Regent appointed by Royal Decree as President of the Council of Regency. When appointing a new Governor, the King confirms the designation of the current President of the Council of Regency or designates a new president. The Governor continues to chair the meetings of the Council of Regency when the Council considers general issues relating to the NBB; monetary policy and the economic situation of the country and the European Union; supervisory policy with regard to each of the sectors subject to the NBB's supervision; Belgian, European and international developments in the field of supervision; as well as, in general, any development concerning the financial system subject to the NBB's supervision. 1.9 Under the draft law, at least one-third of the members of the Council of Regency must be of a different gender than the other members. This requirement has been carried over from a similar provision for listed companies under

text: Article 518

text: bis of the Law on companies. This provision does not apply to the NBB given its specific governance structure, which differs from that of an ordinary public limited company. However, it is considered that the arguments underlying the introduction of

text: Article 518

text: bis also apply to the NBB. Consequently, a gender quota is introduced and applied to the Council of Regency. For the same reasons, the draft law provides that the President of the Council of Regency must be of the opposite sex and linguistic background from the Governor.

text: 2. Observations

text: 2.1 In November 1995, the former European Monetary Institute (EMI) established a list of features of central bank independence (later described in detail in its 1998 Convergence Report) which were the basis for establishing the national legislation of the Member States at that time and in particular the national central banks’ statutes. The concept of central bank independence includes various types of independence that must be assessed separately, namely functional, institutional, personal and financial independence. Over the past few years there have been further refinements of the analysis of these aspects of central bank independence in the opinions adopted by the ECB. 2.2 On the independence of the NBB, the EMI noted with satisfaction that features of central bank independence of an institutional, personal, functional and financial nature were accomplished through various provisions, including the provision on the role of the Council of Regency, which is partly composed of representatives of different sectors of society and is restricted to advisory tasks without an ex ante right of consultation on ESCB-related tasks . The EMI also noted that whereas under the Law on the Nationale Bank van België/Banque Nationale de Belgique the Council of Regency was competent to take certain monetary policy decisions, the draft law restricts the Council of Regency’s involvement to an advisory role without an ex ante right of consultation. 2.3 The ECB understands that the NBB Board of Directors is responsible for the performance of its ESCB-related tasks , and therefore qualifies as a decision-making body within the meaning of Article 130 of the Treaty . The ECB further understands that the Council of Regency does not intervene in the performance of ESCB-related tasks, nor in the decisions concerning those tasks, and that it therefore cannot be considered as a decision-making body within the meaning of Article 130 of the Treaty . Under Article 130 of the Treaty, when exercising the powers and carrying out the tasks and duties conferred upon it by the Treaty and the ESCB Statute, neither a national central bank (NCB), nor any member of its decision-making bodies shall seek or take instructions from, inter alia, any government of a Member State ‘or from any other body’, which includes a statutory body such as the Council of Regency. Having regard to the structure of the Council of Regency as a constituent part of the NBB, the Council should not seek to influence the Board of Directors, in its capacity as the NBB’s decision-making body responsible for the performance of the NBB’s ESCB tasks . 2.4 As noted by the ECB, even if an NCB is fully independent from a functional, institutional and personal point of view, which is guaranteed by the NCB’s statutes, its overall independence would be jeopardized if it could not autonomously avail itself of sufficient financial resources to fulfil its mandate and perform the ESCB-related tasks required of it under the Treaty and the ESCB

text: Statute . 2.5 Regarding the Council of Regency’s competence to approve the expenditure budget and to determine the final distribution of profits, the ECB has noted that a third party having the power to determine or influence an NCB’s budget is incompatible with financial independence unless the law provides a safeguard clause so that such a power is without prejudice to the financial means necessary for carrying out the NCB’s ESCB-related tasks . 2.6 With regard to profit allocation, an NCB’s statutes may prescribe how its profits are to be allocated. In the absence of such provisions, decisions on the allocation of profits should be taken by the NCB’s decision-making bodies on professional grounds, and should not be subject to the discretion of third parties unless there is an express safeguard clause stating that this is without prejudice to the financial means necessary for carrying out the NCB’s ESCB-related tasks as well as national tasks . In this respect, there are a number of important statutory safeguards protecting the role of the Board of Directors in its capacity as the NBB’s decision-making body responsible for the performance of the NBB’s ESCB tasks. Firstly, it is the Board which submits the expenditure budget and proposes the distribution of profits to the Council of Regency . Secondly, the members of the Board are also members of the Council of Regency. Thirdly, the ECB understands that under the draft law, the Governor continues to preside over the Council of Regency for all exchanges of views relating to ESCB-related matters, including general issues relating to the NBB such as any matter impacting the financial independence of the NBB within the meaning of Article 130 of the Treaty. 2.7 Regarding the Council of Regency’s competence to approve the annual accounts, the ECB has noted that the annual accounts should be adopted by the NCB’s decision-making bodies, assisted by independent accountants, and may be subject to ex post approval by third parties (e.g., the government or the parliament) . This requirement is materially satisfied by an arrangement whereby the annual accounts are submitted by the Board of Directors to the Council of Regency, with the Council, as a constituent body of the NBB in which the Governor and the other Board members are represented, approving the accounts . 2.8 As noted above, the ECB understands that under the draft law, the Governor continues to preside over all exchanges of views by the Council of Regency relating to ESCB-related matters. In this respect, the ECB welcomes the provision which states that the Governor continues to preside over the Council of Regency whenever the Council holds exchanges of views on general issues relating to the NBB; monetary policy and the economic situation of Belgium and the EU; supervisory policy with regard to each of the sectors subject to the NBB's supervision; Belgian, European and international developments in the field of supervision; as well as, in general, any development

text: concerning the financial system subject to NBB's supervision. 2.9 The ECB also welcomes the addition of four Regents to the Council of Regency under the draft law to allow the Council to perform the newly appointed tasks previously executed by the Board of Censors. This increase in the number of Regents should optimize and enhance the quality of the Council of Regents’ advisory role and its new Audit and Remuneration and Appointments Committees.

text: Done at Frankfurt am Main, 26 March 2019.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI