title: Opinion of the European Central Bank of 2 September 2015 on bank resolution (CON/2015/31)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 2 September 2015 on bank resolution (

text: ) Introduction and legal basis

text: On 21 May 2015 the European Central Bank (ECB) received a request from the German Federal Ministry of Finance for an opinion on a draft law adapting the national banking resolution law to the Single Resolution Mechanism (SRM) and the Union provisions on the bank levy (hereinafter the ‘draft law’). The draft law also delegates certain competences to the Federal Ministry of Finance related to the issuing of regulations in the areas of internal governance, risk management, outsourcing and recovery plans of credit institutions. 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. 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 principal purpose of the draft law is to align the German regime for the resolution of credit institutions with Directive

text: of the European Parliament and of the Council (hereinafter the ‘BRRD’) and to clarify the scope of application of the Law on recovery and resolution in light of

text: Regulation (EU) No 806/2014

text: of the European Parliament and of the Council (hereinafter the ‘SRM Regulation’). The draft law amends several laws, in particular the Law on recovery and resolution, the Law on banking and the Law on a resolution fund, and provides for: (a) the adaptation of national provisions on recovery and resolution to the SRM Regulation; (b) the adaptation of the Law on a resolution fund to the BRRD and the SRM Regulation; (c) the use of bank contributions collected between 2011 and 2014; and (d) the clarification from the point of view

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: 2 Directive

text: of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending

text: Council Directive 82/891/EEC

text: , and Directives

text: and

text: , and Regulations

text: (EU) No 1093/2010

text: and

text: (EU) No 648/2012

text: , of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190).

text: Regulation (EU) No 806/2014

text: of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending

text: Regulation (EU) No 1093/2010

text: (OJ L 225, 30.7.2014, p. 1). of German law of the interaction between the Law on recovery and resolution and the SRM Regulation, which is directly applicable, by incorporating certain practical measures, notably regarding the implementation by the national resolution authority of decisions of the Single Resolution Board (SRB). 1.2 The draft law delegates certain competences to the Federal Ministry of Finance to issue regulations relating to the internal governance, risk management, outsourcing and recovery plans of credit institutions . Such regulations, where issued, would replace the existing administrative guidelines issued by the Federal Financial Supervisory Authority, notably the Minimum Requirements for Risk Management (MaRisk) and the Minimum Requirements for Designing Recovery Plans. 1.3 Moreover, the draft law provides for the statutory subordination in bank insolvency proceedings of certain senior unsecured debt instruments issued by credit institutions. In particular, such debt instruments would be subordinated under statute to interbank deposits, corporate deposits, money market instruments, certain claims under derivative transactions, and structured notes with derivative-linked features . This subordination is intended to facilitate the application of the bail-in tool in the course of the resolution of a credit institution. 1.4 The draft law also sets out how national contributions are to be transferred to the Single Resolution Fund (SRF) and provides that contributions to the German resolution fund collected between 2011 and 2014 may be used during the build-up of the SRF for financing the resolution of national credit institutions. In addition, the mechanisms for the financing of the national resolution authority are specified.

text: 2. Scope of the opinion

text: This opinion focuses on: (a) the potential impact on the ECB’s responsibilities in the context of the Banking Union of the delegation of competence to the Federal Ministry of Finance to issue binding regulations; (b) the subordination of certain senior unsecured debt instruments issued by a credit institution to that institution’s other senior debt in bank insolvency proceedings, in light of the proposals of the Financial Stability Board (FSB) on total loss-absorbing capacity (TLAC) for global systemically important banks (G-SIBs) and of the Eurosystem’s collateral eligibility requirements; and (c) the transfer of the contributions from the German resolution fund to the SRF including the use of the contributions accumulated by means of the bank levy between 2011 and 2014.

text: 3. Specific observations

text: 3.1 Competences of the Federal Ministry of Finance to issue regulations 3.1.1 The ECB understands that by means of the abovementioned delegation of competences to the Federal Ministry of Finance the German legislator transposes certain provisions of Directive

text: 4 Sections 25a and 25b of the Law on banking and Section 21a of the Law on recovery and resolution, as amended by the draft law.

text: 5 Section 46f(5) of the Law on banking, as amended by the draft law.

text: 6 Available on the FSB’s website: http://www.financialstabilityboard.org/wp-content/uploads/TLAC-Condoc-6-Nov- 2014-FINAL.pdf

text: of the European Parliament and of the Council (hereinafter ‘CRD IV’), particularly relating to risk management and governance of credit institutions, and the BRRD, including provisions relating to the incorporation of several guidelines of the European Banking Authority (EBA). These provisions are currently implemented by means of administrative guidelines and take effect through the individual supervisory decisions of the national competent authority (NCA). 3.1.2 Indeed, CRD IV provides Member States with the scope to accommodate in their legislation national specificities of the banking sector, legal requirements and supervisory practices. Pursuant to

text: Article 4(3) of Council Regulation (EU) No 1024/2013

text: (hereinafter the ‘SSM Regulation’), the ECB shall apply all relevant Union law and, where such Union law is composed of Directives, the national legislation transposing those Directives. 3.1.3 While the ECB fully acknowledges the scope granted by CRD IV (and also the BRRD) to Member States to make such accommodation in their legislation, this needs to be in line with the objectives of the Banking Union. It has to take into account its potential impact on the effectiveness of the Single Supervisory Mechanism (SSM) and on the ECB’s mandate to carry out prudential supervision with full regard for the unity and integrity of the internal market with a view to preventing regulatory arbitrage, as stipulated in Article 1 of the SSM Regulation. In accordance with these objectives, and pursuant to Article 6(1) of the SSM Regulation, the ECB is responsible for the effective and consistent functioning of the SSM, which shall ensure that the Union’s policy relating to the prudential supervision of credit institutions is implemented in a coherent and effective way and that the single rulebook for financial services is applied in the same manner to credit institutions in all Member States concerned . 3.1.4 Binding national prudential legislation that leads to fragmentation of the prudential rules applicable to credit institutions within the Banking Union has an impact on the ECB’s exercise of its responsibilities within the SSM, with respect to both direct supervision and the SSM’s effectiveness and consistency. Member States should acknowledge that the advent of the SSM means that the ECB’s new responsibilities have to be adequately considered in the context of the adoption of any future banking or prudential legislation with a view to facilitating the harmonisation of supervisory practices in the Banking Union. Indeed, fragmentation would result in a considerable additional burden not only on the SSM, which would have to consider and enforce at worst 19 different prudential regimes for credit institutions, but also on bank groups themselves, which would have to implement such different regimes for each group entity in other Member States participating in the Banking Union. 3.1.5 In addition, national mandatory diverging provisions will have an impact on the level playing field for credit institutions that the ECB seeks to ensure across the Banking Union. The establishment of uniform conditions of competition could be hampered significantly.

text: 7 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 regulation of credit institutions and investment firms, amending Directive

text: and repealing Directives

text: and

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

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: 9 Recital (12) of the SSM Regulation. 3.1.6 In addition to the above considerations, the ECB notes the following. The BRRD and CRD IV require the EBA, in certain areas, to issue guidelines in order to establish consistent, efficient and effective supervisory practices within the European System of Financial Supervision, and to ensure the common, uniform and consistent application of Union law . Competent authorities are subject to a ‘comply or explain’ procedure in relation to these guidelines, pursuant to

text: Article 16(3) of Regulation (EU) No 1093/2010

text: of the European Parliament and of the Council (hereinafter the ‘EBA Regulation’). In this regard, it should be noted that the ECB is the competent authority as regards matters relating to the tasks conferred on it by the SSM Regulation. Therefore, regulations issued by the Federal Ministry of Finance under the competences delegated under the draft law may conflict with the ECB’s discretion under the EBA Regulation to incorporate the guidelines into its supervisory practices: the regulations, which would qualify as national legislation transposing directives, could vitiate the measure of discretion available to the ECB under the ‘comply or explain’ procedure. 3.1.7 At the same time, the regulations would bind the NCA concerned and the ECB would be deprived, on the matters subject to the regulations, of the capacity to establish a consistent, harmonised and effective approach across the SSM to the supervision of credit institutions subject to the SSM. The alleged benefit resulting from converting non-binding guidelines into binding legal acts – namely, that infringements can be sanctioned directly – should therefore be balanced against the objectives of the Banking Union and the abovementioned capacity of the ECB. An administrative guideline that contains provisions on governance and risk management and incorporates EBA guidelines, such as the MaRisk in its current form, already allows the NCA concerned to issue supervisory decisions enforcing the objectives of the guideline in individual cases, without unduly limiting the ECB in the performance of its tasks or depriving it of its capacity to establish consistency across the SSM. 3.1.8 To summarise, banking legislation adopted by the Member States after the establishment of the SSM should facilitate the exercise by the ECB of its responsibilities within the SSM including its capacity to enhance the consistency of the supervision of credit institutions across the SSM. Member States should refrain from setting obstacles both to uniform supervisory practice and to the exercise of supervisory discretion by the ECB within the SSM. In view of the principle of supremacy of Union law and the ECB’s status as an independent institution, the ECB will not be bound by any governmental regulations or similar measures which may affect its independence or the smooth functioning of the SSM, for which the ECB is responsible. 3.2 Statutory subordination: effects on bail-in and TLAC eligibility 3.2.1 The ECB notes that the proposed statutory subordination of certain senior unsecured debt instruments of credit institutions to other senior debt of those institutions is expected to facilitate resolution action and the implementation of the FSB’s forthcoming TLAC proposals.

text: Regulation (EU) No 1093/2010

text: of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No

text: and repealing

text: Commission Decision 2009/78/EC

text: (OJ L 331, 15.12.2010, p. 12).

text: 12 As set out in the explanatory memorandum to the draft law. 3.2.2 Changing the statutory creditor hierarchy in bank insolvency proceedings is expected to enhance the implementation of the bail-in tool in resolution. By means of the subordination, which can be achieved statutorily, contractually or structurally, the resolution authority may apply the bail-in tool to liabilities under unsecured bank debt instruments prior to operational liabilities such as corporate deposits and derivatives while minimising the risk of compensation claims under the ‘no creditor worse off’ principle. The bail-in of such unsecured bank debt instruments is perceived to carry a lower contagion risk than that of operational liabilities. 3.2.3 The ECB also notes that, due to the statutory subordination, the bail-in of unsecured bank debt instruments is likely to be more effective and credible to market participants. It will allow losses in resolution to be allocated to holders of such instruments, who would be bailed-in ahead of other senior unsecured creditors, thus fostering effective resolution action and reducing the need to have recourse to the resolution fund, which is expected to promote adequate pricing of risk on the side of investors. Such statutory subordination is therefore expected to improve the resolvability of credit institutions under the Union resolution regime and enhance market discipline. 3.2.4 In addition, the statutory subordination may facilitate the implementation of the FSB’s forthcoming proposals for G-SIBs which will, in particular, require TLAC-eligible debt instruments to be contractually, statutorily or structurally subordinated to operational liabilities . Under the draft law, German banks will be able to use some of their already-issued debt instruments to meet the TLAC requirements as the statutory subordination applies to existing senior unsecured bank debt instruments. This will assist in reducing the possible disadvantages faced by German credit institutions with an operating parent company model, in comparison with credit institutions that have issued TLAC-eligible debt instruments via their holding company, which is a common model in some third countries. Moreover, statutory subordination avoids the need to issue a larger volume of contractually subordinated debt, which may be difficult to achieve in a short timeframe. In summary, the legislator introduces a legal feature (statutory subordination) to make existing debt instruments TLAC-eligible, without the need for any action by the issuer. 3.2.5 The ECB notes that the introduction of such statutory subordination will not be without an impact in particular on: (a) pricing and capital requirements for holding senior unsecured bank bonds; (b) investment mandates; and (c) the ratings and therefore refinancing costs of the German credit institutions, which should be ascertained. It is assumed that this is also clear to the legislator. Nonetheless, the ECB welcomes the effective removal of the implicit ‘State guarantee’ by the draft law and acknowledges that these impacts result in principle from the efforts to facilitate resolution in accordance with the BRRD and SRM. 3.2.6 With regard to senior unsecured debt instruments issued under the law of a non-European Economic Area (EEA) country, credit institutions should in future, in accordance with Article 55 of the BRRD, and as stipulated in Section 55 of the Law on recovery and resolution, contractually

text: 13 It should be noted that the TLAC proposals are still under discussion, notably in light of the ongoing impact assessment.

text: 14 In this context, the implicit state guarantee refers to the fact that, in the absence of a credible resolution option which ensures the allocation of losses to creditors, the market will assume that losses will be borne by taxpayers and will therefore not adequately reflect the insolvency risk relating to the investment. ensure that recognition of the bail-in tool is included in the contractual terms and conditions of these instruments. There is, however, significant uncertainty as to the treatment of existing debt instruments issued under the laws of third countries in the event that there is no contractual provision acknowledging the bail-in mechanism and/or the statutory subordination. The crossborder implications of the bail-in tool are a matter of substantial legal complexity, with discussions currently underway in international fora, including the FSB. 3.3 Statutory subordination: effects on eligibility of debt instruments as collateral for Eurosystem credit operations. Guideline

text: (EU) 2015/510

text: of the European Central Bank (ECB/2014/60) sets out a single framework that applies in the Eurosystem for assets that can be submitted as eligible collateral for the purpose of participating in Eurosystem monetary operations. In order to be eligible as collateral for such operations, marketable assets must be debt instruments fulfilling the eligibility criteria laid down in Guideline

text: (EU) 2015/510

text: (ECB/2014/60). In accordance with Article 64 of Guideline

text: (EU) 2015/510

text: (ECB/2014/60), eligible debt instruments shall not give rise to rights to the principal and/or the interest that are subordinated to the rights of holders of other debt instruments of the same issuer. Therefore, bank debt instruments subject to a statutory subordination of the kind proposed in the draft law would currently no longer be eligible as collateral for Eurosystem credit operations. Furthermore, Article 141 of Guideline

text: (EU) 2015/510

text: (ECB/2014/60) already sets a limit for the use of unsecured debt instruments issued by a credit institution or by any other entity with which the credit institution has close links. 3.4 Fragmentation A common framework at Union level on the degree of subordination of senior unsecured bank debt instruments to other senior unsecured bank liabilities in bank resolution and/or insolvency proceedings may help to avoid fragmentation of the market within the Union market for these instruments and to avoid complicating the tasks of the ECB both with regard to monetary policy and to supervision within the SSM.

text: 4. Use of the contributions to the German resolution fund between 2011 and 2014

text: The ECB welcomes the German legislator’s intention to provide for the use of contributions to the German resolution fund collected between 2011 and 2014 as an alternative funding measure pursuant to Article 73(1) of the SRM Regulation, albeit only for the German compartment. The ECB welcomes the fact that the draft law does not make use of the possibility, provided for in Article 70(5) of the SRM Regulation, to compensate institutions for their ex ante contributions by using contributions from the existing German resolution fund collected prior to the entry into force of the BRRD, which helps to

text: 15 Guideline

text: (EU) 2015/510

text: of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60) (OJ L 91, 2.4.2015, p. 3). reinforce the SRF, even if limited to the German compartment. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 2 September 2015. [signed] The President of the ECB Mario DRAGHI


text: These amendments comprise amendments to the Law on Consumer Credit adopted on 23 January 2015 and amendments to the Law on Credit Institutions adopted on 6 February 2015 fixing the instalments with regard to loans made to natural persons who professionally engage in freelance activities, craftsmen, sole traders and owners of private family farms. 2 For further information on lending in foreign currencies in the Union see the Annex to Recommendation

text: of 21 September 2011 on lending in foreign currencies (OJ C 342, 22.11.2011, p.1).

text: See paragraph 2.2 of Opinion

text: , and paragraph 2.1 of Opinion CON/2015.26. All ECB opinions are available on the ECB website at www.ecb.europa.eu.

text: Calculations are based on the data published on the website of Hrvatska Narodna Banka (HNB).

text: As HNB noted (see http://www.hnb.hr/priopc/2015/hrv/hp15092015_CHF.pdf), in itself the conversion of housing loans from loans denominated in, or linked to, CHF into loans denominated in, or linked to, euro does not lead to an automatic fall in international reserves. However, the write-off of a part of the principal of the converted Swiss franc loans may lead to a fall in the international reserves of the Republic of Croatia. The writing off of receivables in euro would indeed lead to shorter positions of banks in that currency. The efforts of banks to fully compensate for the shortening of their currency position by purchasing foreign exchange on the domestic market would in turn result in increased demand of banks for foreign exchange, which could lead to a weakening of the exchange rate of the kuna against the euro. In such a situation, HNB would be forced to intervene, given the absence of sufficient foreign exchange on the domestic market to meet such demand. As a result, HNB would have to intervene by using international reserves.

text: Directive

text: of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives

text: and

text: and

text: Regulation (EU) No 1093/2010

text: (OJ L 60, 28.2.2014, p. 34).

text: See paragraph 3.2 of Opinion

text: and paragraph 2.2 of Opinion

text: See http://www.hnb.hr/priopc/2015/hrv/hp15092015_CHF.pdf

text: See in particular the ECB Financial Stability Review of June 2010 and, in respect of the foreign currency loans in Hungary, Opinions

text: and

text: , and in respect of the foreign currency loans in Poland, Opinion

text: Recommendation

text: See paragraph 3.4 of Opinion

text: , paragraph 3.3 of Opinion

text: and paragraph 3.3.4 of Opinion

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 18 September 2015 on the conversion of Swiss franc loans (CON/2015/32)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 18 September 2015 on the conversion of Swiss franc loans (

text: ) Introduction and legal basis

type: rubrik

text: On 10 September 2015 the Croatian Government formally forwarded to the Croatian Parliament, for adoption under urgent parliamentary procedure, amendments to the Law on Consumer Credit and to the Law on Credit Institutions (hereinafter the ‘draft law’). The European Central Bank (ECB) has not been consulted by the Croatian authorities on the draft law. The ECB’s competence to deliver an opinion is based on the last paragraph of Article 127(4) and Article 282(5) of the Treaty on the Functioning of the European Union, as the draft law concerns currency matters, and also contains 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 law

text: 1.1 The draft law facilitates the conversion of (1) loans denominated in Swiss francs (CHF) into loans denominated in euro and (2) loans denominated in Croatian Kuna (HRK) which contain a currency clause linking payments to CHF (both types of loans hereinafter referred to as the ‘CHF loans’) into loans denominated in HRK which contain a currency clause linking payments to euros (hereinafter referred to as ‘converted loans’). The amendments are the same in substance; however, where amendments to the Law on Consumer Credit refer to consumers, the amendments to the Law on Credit Institutions refer to natural persons who professionally engage in freelance activities, craftsmen, sole traders and owners of private family farms. The draft law is intended to come into effect on 30 September 2015. 1.2 The purpose of the draft law is to place borrowers of CHF loans in the same position that they would have been in had their loans, from inception, been denominated in euros (or denominated in HRK with currency clauses linking payments to euros). Reflecting this basic purpose, the draft law sets out detailed conversion mechanics: (i) The original principal amount of the CHF loans will be converted into euros or loans denominated in HRK which contain a currency clause linking payments to euros at the exchange rate applicable at the date the CHF loans were made to the borrowers. This exchange rate will be equal to the exchange rate that the lender applied at that date to loans denominated in or linked to euros of the same type and duration. The relevant original principal amount will be the amount registered in the accounts of the lender;

text: (ii) Instead of the interest rate initially agreed upon for the CHF loans, the interest rate on the converted loans will be equal to the interest rate that would have been charged by the lender in respect of a loan denominated in or linked to euros that was made at the date of entry into the loan agreement; (iii) The original loan repayment schedule will be replaced by a new repayment schedule calculated in accordance with the principles set out in (i) and (ii) above. The new repayment schedule will be the basis for the calculation of new instalments in euros (or linked to euros), taking into account all necessary modifications of the terms and conditions (e.g., changes of interest rates) to reflect loans denominated in or linked to euros; (iv) The amounts already paid by the borrower according to the old repayment schedule (except default interest and costs) will be converted into euros (or into HRK with a currency clause linking payments to euros) at the exchange rate, applicable at the date of payment of each instalment, that the lender applied at that date to loans denominated in or linked to euros of the same type and duration; (v) If the total amount already paid by the borrower and converted (i.e. the amount referred to in (iv) above) is higher than the total amount of converted instalments calculated according to the new repayment schedule referred to in (iii) above, this amount will be considered an “overpayment”. Depending on the amount of this overpayment, it will be treated as follows: - If the amount of the overpayment does not exceed the sum of converted instalments remaining to be paid as at 30 September 2015 according to the new repayment schedule, the overpayment will be used to settle such future instalments, provided that only 50% of each future instalment may be settled using the overpayment until the overpayment is used up in full; if the amount of the overpayment exceeds 50% of the total sum of these future converted instalments, the lender and the borrower will agree how to use this amount exceeding 50%; - If the amount of the overpayment exceeds the sum of converted instalments remaining to be paid as at 30 September 2015 according to the new repayment schedule, the lender will return such overpayment to the borrower within 60 days from the date the borrower accepted the conversion; (vi) If the total amount already paid by the borrower (calculated in accordance with (iv) above) is below the total amount of instalments from the new repayment schedule, the difference will be settled as agreed by the lender and the borrower, and the borrower will continue to pay instalments according to the new repayment schedule (although it is not clear what is intended by this provision); (vii) The new remaining principal amount will be the difference between the new repayment schedule and the amounts already paid and calculated in accordance with (iv) above; the amount of the overpayment cannot reduce the remaining unpaid principal, and the difference referred to in (vi) above will be settled as agreed by the lender and the borrower. 1.3 The effects of the conversion will be the difference between the unpaid principal in CHF registered in the lender’s accounts as at 30 September 2015 and converted into euros (or into HRK with a

text: currency clause linking payments to euros) at the exchange rate on that day and the amount of the new remaining principal calculated in accordance with paragraph 1.2(vii) above. If the borrower accepts the conversion, the effects of the conversion will be borne by the lender, and will be registered as a value adjustment due to a change in the exchange rate (i.e., as an expense due to the return of the overpayment). The effect of the conversion resulting in expenses in the accounts of the creditor will be treated as a tax deductible expense. The text of the draft law further states that the difference in the initial principal due to the purchase of foreign currency, the amount of charged statutory interests and costs referred to in paragraph 1.2(iv) above and the interest and currency difference regarding the overpayment will be borne by the borrower (although it is not clear what interest and currency difference of the overpayment the draft law refers to). 1.4 Within 45 days from the date the draft law enters into force, lenders are required to deliver by registered mail to borrowers the calculation of the loans so converted, together with a proposal for a new/modified loan agreement. Borrowers have the option to accept the conversion within 30 days of receipt of such notification. Lenders will also be required to publish on their websites a loan calculator, accessible to each borrower through their PIN, and an opinion of an expert or auditor confirming that the calculator complies with the requirements of the draft law. Within six months from the date the draft law enters into force, the lenders are required to deliver to the Ministry of Finance a report on the results of conversion (including the number of borrowers who accepted conversion and/or agreement, etc.). 1.5 If the borrower accepts the conversion, the lender will not request further collateral or additional conditions. No costs pertaining to conversion may be charged to borrowers. 1.6 The draft law also provides for a transitional period and the rights of guarantors and other persons from whom the lender is entitled to request payment. 1.7 If the borrower does not accept the conversion and/or a proposal for a new/modified loan agreement, he or she will continue to pay instalments according to the loan conditions in effect and taking into account the CHF exchange rate fixed for instalments in respect of the CHF loans in accordance with certain legislative amendments adopted earlier this year and in force for one year .

text: 2. General observations

text: 2.1 Prior to the global financial crisis, borrowing in foreign currencies by households and non-financial 2 3 corporations was popular in several Member States . As previously noted by the ECB , inter alia, the lower interest rates applicable to foreign currency loans compared to loans in the domestic currency increased the demand for such loans. In Croatia, CHF loans accounted for approximately

text: HRK 23bn (EUR 3bn), or 9% of banks’ total loan portfolios, as at the end of March 2015, with the majority of these loans (95%) residing with the household sector. 18.6% of total loans to households, or 35.6% of total housing loans, were denominated in, or linked to, CHF as at the end of March 2015. The asset quality of the CHF loan portfolio is below the average, with a nonperforming loan (NPL) ratio of 19.2% as of June 2015 as compared to the NPL ratio of 17.3% for the total credit portfolio. 2.2 The ECB notes that the draft law anticipates that the conversion of the CHF loans to loans denominated in, or linked to, euro will be voluntary only for borrowers.

text: 3. Specific observations

text: 3.1 Effects on the Croatian economy 3.1.1 The conversion of the loans as envisaged by the draft law may result in a decline in the international reserves of the Republic of Croatia, which may in turn have undesired consequences on the country’s macroeconomic stability. Moreover, a lower level of international reserves as a result of the conversion might impair the functional independence of Hrvatska Narodna Banka (HNB), in particular the central bank’s ability to set its policy instruments with the aim of achieving its objectives. 3.1.2 The draft law might also have some negative effects if it were to lead to a deterioration of foreign investor sentiment due to a perceived increase in legal uncertainty and country risk. Consequently, the ECB suggests that the Croatian authorities carry out a thorough analysis of the possible effects on the economy of introducing the proposed measures. 3.2 Retroactivity 3.2.1 Acknowledging that Directive

text: of the European Parliament and of the Council does not apply to credit agreements existing before 21 March 2016, as previously noted by the ECB , the retroactive effect of the draft law is not in line with the general aim and principle of

text: Article 23(5) of Directive 2014/17/EU

text: . This Directive allows Member States to further regulate foreign currency loans, on the condition that such regulation is not applied with retroactive effect. 3.2.2 It is for the Croatian authorities to assess whether the retroactive character of the draft law complies with Croatian legal and constitutional principles. However, the ECB notes that introducing

text: measures with retroactive effect such as the draft law will undermine legal certainty and is not in line with the principle of legitimate expectations. 3.3 Eligibility criteria The ECB notes that the draft law does not prescribe specific criteria for borrowers eligible to participate in the conversion, which raises some concerns with regard to the purpose of the draft law. In particular, the ECB notes that the application of certain targeted eligibility criteria such as, for example, linking the right to convert to the borrower’s actual income position or the loan-tovalue (LTV) ratio may be appropriate. 3.4 Effects on banking sector 3.4.1 The ECB notes that the implementation of the draft law is expected to entail financial costs for the banking sector. This, in turn, may have a negative impact on the profitability, capitalisation and the future lending capacity of the affected credit institutions. The impact assessment by HNB suggests that the conversion costs for the banks could reach around HRK 8bn or EUR 1.1bn, imposing losses for the banking sector equalling to around three years of expected profits. The envisaged measures will mostly affect eight of the largest banks in Croatia, most of them foreign-owned. In fact, foreign banking groups have a dominant market position in Croatia, holding about 90% of banking sector assets in Croatia, with Italian, Austrian and French banks among the largest institutions. 3.4.2 It should also be noted that the restructuring will lead to a one-off increase in operational costs for the affected credit institutions in Croatia, in particular, due to the unwinding of existing hedges and additional refinancing and hedging needs in euro, and to the costs associated with the obligation to notify each borrower individually, which will strain banks’ resources. 3.5 Effects on financial stability 3.5.1 The ECB has pointed out on several occasions the risks associated with foreign currency loans . In particular, they represent a major risk to financial stability in several Member States, where the share of foreign currency loans is relatively high. The ECB points in this respect to the analysis of such risks made by the European Systemic Risk Board (ESRB) and to the ESRB recommendations for addressing such risks, made in Recommendation

text: of 21 September 2011 on lending in foreign currencies . 3.5.2 Indeed, in the case of Croatia, foreign exchange lending predominates, with almost 70% of banks’ loan portfolio denominated in or linked to foreign currencies, in particular the euro. That said, substantial capital buffers underpin the Croatian banking sector’s shock-absorbing capacities. In fact, at the sector level, HNB’s impact assessment suggests a drop of the capital adequacy ratio from 23.5% to 19.7% which would remain well above the regulatory minimum (even though individual institutions may be affected to different degrees).

text: 3.5.3 As regards the longer-term effects on financial stability, the ECB remains of the opinion that, when introducing measures in relation to settling and converting foreign currency loans, due consideration should always be given to fair burden sharing among all stakeholders, thus also avoiding moral hazard in the future . This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 18 September 2015. [signed]

text: The President of the ECB

text: Mario DRAGHI

type: vagledning

utgivare: ecb


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). 2 Directive

text: of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending

text: Council Directive 82/891/EEC

text: , and Directives

text: and

text: , and Regulations

text: (EU) No 1093/2010

text: and

text: (EU) No 648/2012

text: , of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190). 3 Nr. IX-205, 2001 03 13, Žin., 2001, Nr. 28-890 (2001 03 30).

text: Regulation (EU) No 806/2014

text: of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending

text: Regulation (EU) No 1093/2010

text: (OJ L 225, 30.7.2014, p. 1). 5 Valstybės žinios, 2009, No 93-3985. 6 Directive

text: of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes (OJ L 173, 12.6.2014, p. 149).

text: See Opinion

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 8 See the ECB’s 2014 Convergence Report, p. 30.

text: See the ECB’s 2014 Convergence Report, p. 25. 10 See Article 4 of the draft law. 11 Article 42(12) of the draft Law on financial sustainability provides that the resolution authority and the resolution fund must seek to recover all reasonable expenses incurred when performing resolution actions in any of the established means

text: See, e.g., paragraph 2.3 of Opinion

text: , paragraphs 2.1 and 3.2.4 of Opinion

text: , paragraph 4.1 of Opinion

text: , paragraph 2.1 of Opinion

text: , paragraph 2.3 of Opinion

text: , paragraph 2.2 of Opinion

text: , paragraph 2.2 of Opinion

text: , paragraph 2.2. See also in the UK the role of the Bank of England in the Special Resolution Regime under the Banking Act 2009. 13 Article 8(4) of the Law on Lietuvos bankas. 14 For example, see paragraph 4.3 of Opinion

text: , paragraphs 5.1 and 5.2 of Opinion

text: , and paragraph 3.3 of Opinion

text: . 15 See the second subparagraph of

text: Article 3(3) of Directive 2014/59/EU

text: . 16 See

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) and 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: See Article 70 of the draft Law on financial sustainability. 19 See Article 6.271 of the Civil Code. 20 See Article 2(4) of the Law on Lietuvos bankas. 21 See the ECB’s 2014 Convergence Report, p. 29. 22 See paragraph 3.2.9.3 of Opinion

text: See Articles 66(1) and 72 of the draft Law on financial sustainability. 24 See paragraph 3.4.3 of Opinion

text: . 25

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). 26 See the ECB’s 2014 Convergence Report, p. 25. 27 Ibid. 28 See Articles 5(3) and 13(3) of the draft Law on financial sustainability. 29 See

text: Articles 5(2)

text: (2) and13(2)(17) of the draft Law on financial sustainability.

text: See paragraph 3.2 of Opinion

text: , paragraph 3.3 of Opinion

text: and paragraph 3.4 of Opinion

title: Opinion of the European Central Bank of 22 September 2015 on the designation of Lietuvos bankas as a resolution authority (CON/2015/33)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 22 September 2015 on the designation of Lietuvos bankas as a resolution authority (

text: ) Introduction and legal basis

text: On 13 August 2015, the European Central Bank (ECB) received a request from the Lithuanian Ministry of Finance (hereinafter the ‘consulting authority’) for an opinion on a draft law amending the Law on Lietuvos bankas (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

text: , as the draft law relates to Lietuvos bankas and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. For elements of the draft law the exclusive purpose of which is the implementation of Union law, the ECB’s competence to deliver an opinion is based on Article 25.1 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB ’). 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 implement in Lithuanian law

text: Article 3(1) of Directive 2014/59/EU

text: of the European Parliament and of the Council that requires each Member State to designate one or, exceptionally, more resolution authorities empowered to apply the resolution tools and exercise the resolution powers under that Directive. In particular, the draft law amends the Law on Lietuvos bankas to provide that Lietuvos bankas will carry out the functions assigned to the resolution authority for financial sector entities subject to Lithuanian law (including credit institutions, the Central Credit Union, certain financial brokerage firms, financial holding companies, mixed financial holding companies and mixed activity holding companies, branches established in Lithuania by credit institutions and financial brokerage firms established in third countries and certain specific financial institutions). This does not apply where the Single

text: Resolution Board carries out these functions pursuant to

text: Regulation (EU) No 806/2014

text: of the European Parliament and of the Council . The draft law also specifies that Lietuvos bankas will carry out the functions assigned to the national resolution authority under

text: Regulation (EU) No 806/2014

text: . The draft law further provides that, according to the Law on financial sustainability , Lietuvos bankas will make decisions with regard to the resolution of financial sector entities. In this respect, the draft law is a part of a package of draft legislation that has been prepared in order to transpose Directive

text: and Directive

text: of the European Parliament and of the Council into Lithuanian law, as well as to ensure the effective application of

text: Regulation (EU) No 806/2014

text: and to ratify the intergovernmental Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund. However, the draft Law on financial sustainability which amends the existing law, transposes in detail the provisions of Directive

text: and further defines resolution tools, powers and processes, has not been submitted for consultation to the ECB. 1.2. The draft law also states that financial market supervision and the activities of the resolution authority will be financed from financial market participants’ contributions and other Lietuvos bankas funds. The basis for calculating contributions and the maximum contribution rates are set out in annexes to the draft law, while the contribution level for each year will be established by Lietuvos bankas after consultation with the relevant financial market participants. The draft law clarifies that if the sum of contributions paid by financial market participants under supervision during a particular year is insufficient to cover the expenses related to financial market supervision and the functions of the resolution authority in relation to financial sector entities, Lietuvos bankas will increase the contributions to be paid the following year by the necessary amount and use part of the contributions to cover the shortfall from the previous year.

text: 2. General observations

text: 2.1. The ECB welcomes the draft law, as it strengthens the tools and procedures available to Lietuvos bankas for carrying out effective preventive measures, early intervention and effective resolution in line with the common framework of intervention powers, rules and procedures laid down in Directive

text: . The ECB stresses that its opinion concerns the provisions of the draft law that may impact on the role and tasks of Lietuvos bankas as a central bank and member of the European System of Central Banks (ESCB). With this in mind, the ECB must also examine the provisions related to the new tasks of Lietuvos bankas under the draft Law on financial sustainability, cross-referenced in the text of the draft law, and approved by the Lithuanian Government on 2 September 2015 for submission to the Lithuanian Parliament. The ECB

text: stresses, however, that its opinion does not constitute an assessment whether Lithuania has effectively discharged its obligations to implement Directive

text: in Lithuanian law. 2.2. The ECB underlines that, in the context of a proposed conferral of tasks on an ESCB member, it is necessary to assess such conferral against the monetary financing prohibition laid down in Article 123 of the Treaty. The ECB has developed guidance, in the form of general and specific considerations, on the basis of which it may decide whether a new task conferred on an ESCB national central bank (NCB) is to be considered a central banking task or a government task for the purposes of assessing such conferral against the monetary financing prohibition. 2.2.1. General considerations First, the systematic categorisation of tasks assigned to NCBs as central banking or government tasks applies to genuinely new tasks that did not exist in the past or did not form an integral part of the central banking tasks already assigned to the NCB. In recognition of the different Member States’ legal frameworks, central banking traditions and national set-ups, the tasks currently discharged by an NCB as central banking tasks are not reviewed and re-categorised, but may be reassessed if they are subject to legislative amendments of substance. Second, the principle of financial independence requires that the Member States may not put their NCBs in a position where they have insufficient financial resources to carry out their ESCB or Eurosystem-related tasks. Third, central banking tasks comprise in particular those tasks that are related to the tasks listed in

text: Article 127(2)

text: , (5) and (6) of the Treaty. Fourth, new tasks conferred on an NCB which are atypical of NCBs’ tasks, or which are clearly discharged on behalf of and in the exclusive interest of the government or of other public entities, should be considered as government tasks. In that context, a distinction should be drawn between liquidity and solvency-related tasks of NCBs. While, for purposes of the monetary financing prohibition, solvency support is a government task, liquidity-related tasks, the ultimate objective of which are to finance the economy, are central banking tasks. 2.2.2. Specific considerations Resolution tasks discharged by central banks are considered central banking tasks provided that they do not undermine an NCB’s independence in accordance with Article 130 of the Treaty and Article 7 of the Statute of the ESCB . However, the discharge of these tasks by central banks may not extend to the financing of resolution funds or other resolution financial arrangements as these are government tasks. This is without prejudice to the following: (i) the possibility that central banks may provide short-term financing to deposit guarantee schemes under certain conditions and (ii) the possibility that NCBs may provide emergency liquidity assistance to solvent credit institutions. An important criterion for qualifying a new task as a government task is therefore the impact of the task on the institutional, financial and personal independence of the NCB. In particular, the following should be taken into account.

text: First, it should be assessed whether the performance of the new task creates inadequately addressed conflicts of interests with existing central banking tasks, and does not necessarily complement those existing central banking tasks. If a conflict of interest arises between existing and new tasks, there should be sufficient mitigation in place to adequately address that conflict. Complementarity between the new task and existing central banking tasks should not, however, be interpreted extensively, so as to lead to the creation of an indefinite chain of ancillary tasks. Complementarity should also be examined from the point of view of the financing of those tasks. Second, it should be assessed whether without new financial resources the performance of the new task is disproportionate to the financial or organisational capacity of the NCB and may negatively impact on its capacity to properly perform existing central banking tasks. Third, it should be assessed whether the performance of the new task does not fit into the institutional set-up of the NCB in the light of central bank independence and accountability considerations. Fourth, it should be assessed whether the performance of the new task harbours substantial financial risks. Fifth, it should be assessed whether the performance of the new task exposes the members of the NCB’s decision-making bodies to political risks which are disproportionate and may also impact on their personal independence and, in particular, the guarantee of the term of office under Article 14.2 of the Statute of the ESCB. 2.3. Any final assessment on the qualification of a task given to an NCB as either falling within the scope of a central banking task or a government task will be guided by the objective of ensuring the consistent application of the monetary financing prohibition within the Eurosystem and the ESCB.

text: 3. Specific observations

text: 3.1. Conferral of resolution tasks on Lietuvos bankas The draft law designates Lietuvos bankas as the resolution authority, broadening its current functions and activities to include placing obliged entities under resolution and taking resolution measures in respect of such entities. By virtue of this designation, Lietuvos bankas carries out resolution tasks and exercises resolution powers. In the light of the guidance set out in paragraph 2.2, it must be assessed carefully whether Lietuvos bankas’ new tasks and responsibilities in this field could constitute a breach of the monetary financing prohibition. 3.1.1. New tasks Whilst Lietuvos bankas already has a role with regard to handling distressed financial institutions, the draft Law on financial sustainability assigns a new role to Lietuvos bankas and makes specific resolution tools available, such as the bail-in mechanism, which in their proposed form do not currently exist in Lithuanian law, and gives Lietuvos bankas new resolution-related powers. The

text: draft laws introduce substantial legislative amendments to Lietuvos bankas’ existing tasks, and should therefore be assessed as new tasks in the light of the monetary financing prohibition. 3.1.2. Principle of financial independence The principle of financial independence requires NCBs to have sufficient means to carry out not only their ESCB-related tasks from an operational and financial point of view, but also their national tasks . In this regard, the draft law provides for the financing of costs related to Lietuvos bankas’ functions as a resolution authority from financial market participants’ contributions and other Lietuvos bankas funds . While the ECB understands from the consultation request that this provision is only intended to refer to the administrative costs related to the functions of Lietuvos bankas as a resolution authority, the wording of the draft law is not limited in this way. Therefore, it could be interpreted more widely to cover the costs related to financing resolution actions. For example, in accordance with Article 43(5) of the draft Law on financial sustainability, Lietuvos bankas could be required to pay the salary and other costs of a special manager in the event that an institution under resolution fails to pay the special manager on time. In order to avoid a wide interpretation of what is meant by the costs to be financed by the financial market participants’ contributions and other Lietuvos bankas funds, the ECB recommends expressly limiting these contributions to financing Lietuvos bankas’ administrative costs as a resolution authority. Any other expenses beyond the scope of administrative costs that are related to financing resolution actions cannot be financed under any circumstances by Lietuvos bankas. The ECB would welcome a clarifying provision to this effect. Furthermore, the ECB understands that, as a general principle, all expenses related to the fulfilment of the functions of the resolution authority by Lietuvos bankas will be fully covered by the contributions of financial market participants. The other funds of Lietuvos bankas will only be used to cover for a limited period any shortfalls related to expenses arising during a particular year, and Lietuvos bankas will increase the contributions to be paid the following year to cover this indebtedness. Finally, the draft Law on financial sustainability requires Lietuvos bankas, acting as a resolution authority, to recover any reasonable expenses actually incurred as a result of resolution action . Against this background, the new tasks assigned to Lietuvos bankas would not affect the resources it currently allocates to the performance of its monetary policy tasks provided that the clarifying provision referred to above is introduced. 3.1.3. Links to tasks listed in

text: Article 127(2)

text: , (5) and (6) of the Treaty Administrative resolution tasks are considered tasks related to the tasks referred to in Article 127(5) of the Treaty, based on the understanding that administrative resolution tasks and supervisory tasks complement each other, particularly where, as in this case, an NCB has a mandate for the stability of the financial system and the designated resolution authority already

text: carries out certain tasks relating to the supervision of financial markets, including the supervision of credit institutions, payment institutions, securities and insurance markets. 3.1.4. Atypical tasks A number of Member States have conferred on their NCBs a significant role in the resolution of financial institutions, whether as the resolution authority or as a competent authority in the decision-making process for resolution. The ECB has generally welcomed the allocation of such tasks to NCBs provided they do not interfere financially and operationally with the performance of the NCB’s ESCB-related tasks . The resolution tasks of an NCB can therefore be regarded as being tasks not atypical of a central bank, particularly if, as in the case of Lietuvos bankas, it has a statutory responsibility for maintenance of financial stability and the reliability of the financial system . 3.1.5. Discharge of tasks on behalf of and in the exclusive interest of the government or of other public

text: entities

text: Lietuvos bankas is designated as the sole resolution authority and takes resolution measures acting as an administrative authority in the exercise of public functions in its own name, and not on behalf of any other authority. In line with Directive

text: , Lietuvos bankas is under the legal obligation to obtain prior approval from the Ministry of Finance before implementing decisions that have a direct fiscal impact or systemic implications. There is no indication that in discharging its resolution function Lietuvos bankas acts exclusively in the interests of the Ministry of Finance or another public entity. 3.1.6. Extent to which conflicts of interests with existing Lietuvos bankas tasks are addressed 14 15 3.1.6.1. The ECB has repeatedly noted that, in line with Directive

text: , staff involved in carrying out the functions of a resolution authority in accordance with the Directive must be structurally separate and subject to separate reporting lines from the staff involved in carrying out prudential banking supervision tasks pursuant to the relevant Union legislation or with regard to the other functions of the relevant authority. The ECB observes that Directive

text: ‘exceptionally’ allows one authority to carry out both resolution and supervisory functions on the condition that adequate structural arrangements are put in place in order to ensure operational independence and to avoid conflicts of interest between that authority’s resolution function and its other functions.

text: 3.1.6.2. Pursuant to the draft Law on financial sustainability, Lietuvos bankas is required to ensure the operational and organisational independence, including separate reporting lines, of the unit carrying out resolution functions to ensure there is no conflict of interest between the resolution tasks and other tasks assigned by law to Lietuvos bankas . Furthermore, the draft Law on financial sustainability requires Lietuvos bankas to adopt and make public internal rules specifying the separation of these functions, including rules regarding the protection of professional secrecy and exchange of information between the different functional areas. The ECB welcomes these provisions, as they appear to adequately address potential conflicts of interests between resolution and Lietuvos bankas’ other tasks and functions. The ECB would appreciate being provided in advance, for information purposes, with the internal rules implementing these provisions. 3.1.7. Extent to which the performance of tasks is proportionate to Lietuvos bankas financial and operational capacity and its ability to perform its ESCB-related tasks As noted above, in order to remain financially independent, NCBs must have sufficient means to carry out not only their ESCB-related tasks from an operational and financial point of view, but also their national tasks. In this regard, provided that the necessary amendments clarifying the draft law’s intention are introduced, the ECB welcomes the fact that Lietuvos bankas may recover administrative expenses incurred in carrying out its resolution tasks from the institutions concerned. 3.1.8. Extent to which the performance of tasks fits into Lietuvos bankas institutional set-up in the light of central bank independence and accountability considerations As noted above, before implementing decisions that have a direct fiscal impact or systemic implications, Lietuvos bankas is required to obtain prior approval from the Ministry of Finance. Furthermore, Lietuvos bankas has a duty to notify, inter alia, the Ministry of Finance when it determines that the conditions for resolution are met and after taking a resolution action. The ECB considers that the resolution tasks that Lietuvos bankas is to assume under the draft law will involve much closer cooperation with the Ministry of Finance when fiscal funds or systemic implications are at stake than for the exercise of its supervisory or other functions. 3.1.9. Extent to which the performance of tasks harbours substantial financial risks 3.1.9.1. With regard to the provisions on the liability of Lietuvos bankas, the draft Law on financial sustainability does not contain provisions excluding or limiting the liability of Lietuvos bankas as resolution authority for any negligent act when applying the resolution tools or exercising resolution powers. Instead, the general liability regime governing Lietuvos bankas applies for any damage incurred as a result of Lietuvos bankas or its staff acting unlawfully in its capacity as resolution authority. Lietuvos bankas will be held liable if the person who has suffered damage proves fault on the part of Lietuvos bankas or its staff. This is in marked contrast to the express

text: exclusion of liability for publicly-owned resolution vehicles – for example, the bridge institution – whose liability is limited to wilful misconduct and gross negligence . 3.1.9.2. The ECB notes that, under the Lithuanian Civil Code, the State is primarily liable for any damage caused by an unlawful decision or improper administrative action by a legal entity or person in the course of exercising public authority on the State’s behalf . The carrying out of resolution functions clearly constitutes the exercise of public authority on the State’s behalf. For this purpose the entity or person exercising public authority in this situation is Lietuvos bankas. Notwithstanding this provision, the Law on Lietuvos bankas expressly provides that the State shall not be liable for the obligations of Lietuvos bankas, and that Lietuvos bankas shall not be liable for the State’s obligations . This would seem to indicate, contrary to the rule established by the Civil Code, that Lietuvos bankas would be fully liable in its own right for carrying out its resolution functions. It is not obvious why Lietuvos bankas should assume the sole burden of those potential liabilities when the draft law requires it to obtain prior approval from the Ministry of Finance before implementing resolution decisions that have a direct fiscal impact or systemic implications. In this context, the ECB observes that by reason of the monetary financing prohibition laid down in the Treaty, national legislation may not require an NCB to finance the public sector’s obligations in relation to third parties . Given that potential liability issues represent substantial financial risks for Lietuvos bankas , this should be taken into account in determining the body that is liable to pay damages to third parties and in assessing Lietuvos bankas’ ability to recover its resolution-related expenses. The ECB considers that it would be useful to expressly clarify this point. 3.1.10. Conclusion The ECB considers that there are grounds for regarding Lietuvos bankas’ resolution tasks as central banking tasks, in the sense that they complement Lietuvos bankas’ existing supervisory functions. The fact that Lietuvos bankas’ administrative resolution functions will be financed by financial market participants should also impact positively on its financial capacity to assume those tasks. However, the ECB considers that the draft laws potentially create significant financial risks for Lietuvos bankas because they do not limit its liability for negligent acts in its role as resolution authority. Moreover, it is not clear who should pay damages to third parties in the event of Lietuvos bankas or its staff acting unlawfully. Finally, insofar as Lietuvos bankas would appear to be exclusively liable for carrying out its resolution functions under the Law on Lietuvos bankas, there is no obvious reason why Lietuvos bankas should assume the sole burden of those potential liabilities when Lietuvos bankas is under the legal obligation to obtain the prior approval of the Ministry of Finance before implementing decisions that have a direct fiscal impact or systemic implications.

text: 3.2. Establishment of bridge institution and asset management vehicles With regard to the bridge institution tool and the asset separation tool, the draft Law on financial sustainability provides that the bridge institution or asset management vehicle will be established by the resolution authority or the Government of Lithuania . Although the State is the owner of such an entity, the resolution authority will in all cases control the entity. In situations where a central bank acts as resolution authority, it should be made clear, for the avoidance of doubt, that the central bank will in no circumstances assume or finance any of these entities’ obligations . A central bank’s role as the founder of such an entity must remain consistent in all cases with the monetary financing prohibition laid down in Article 123 of the Treaty and supplemented by

text: Council Regulation (EC) No 3603/93

text: . This prohibits any financing by a central bank of the public sector’s obligations in relation to third parties. Moreover, this role as founder of such an entity must be performed without prejudice to central bank independence, in particular financial and institutional independence. The principle of financial independence requires NCBs to have sufficient means to carry out not only their ESCB-related tasks from an operational and financial point of view, but also their national tasks . For that reason, it should be ensured that if Lietuvos bankas, as resolution authority, decides to become the founder of such an entity, it will be provided with sufficient financial and human resources to address the associated operational burden. 3.3. No role for Lietuvos bankas to provide liquidity to the Resolution Fund The ECB understands, based on the package of draft legislation including the draft law, that Lietuvos bankas is not authorised to provide any loan or financing under any circumstances to the Resolution Fund established under the draft Law on financial sustainability. The provision of such financing to the Resolution Fund would constitute a government task, and any such loan or financing by Lietuvos bankas would therefore breach the monetary financing prohibition laid down in the Treaty . 3.4. Resolution planning The draft Law on financial sustainability provides that recovery plans and resolution plans drawn up shall not assume any public financial support beyond that granted by the Resolution Fund . However, they shall include, where applicable, a forward-looking analysis of how and when an institution may apply for the use of central bank liquidity in stressed conditions and the collateral to be used in those circumstances . While these provisions appear to be in line with the requirements of Directive

text: , the ECB emphasises that they do not in any way affect the competence of the Eurosystem to decide independently and at its full discretion on the provision

text: of central bank liquidity, based on the existing legal framework and within the limitations imposed by the monetary financing prohibition laid down in the Treaty . This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 22 September 2015. [signed]

text: The President of the ECB

text: Mario DRAGHI


text: Zakon o trgu finančnih instrumentov (official gazette of the Republic of Slovenia, no. 108/10 – official consolidated version, 78/11, 55/12, 105/12 – ZBan-1J and 63/13 – ZS-K).

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: The Union Directives concerned are: 1) 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), as regards the investment firms (mainly to correct the cross-references to the Slovenian Law on Banking which implements this Directive and to which the Law on the Financial Instruments Market refers); 2) Directive

text: of the European Parliament and of the Council of 22 October 2013 amending Directive

text: of the European Parliament and of the Council on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, Directive

text: of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading and

text: Commission Directive 2007/14/EC

text: laying down detailed rules for the implementation of certain provisions of Directive

text: (OJ L 294, 6.11.2013, p. 13); and 3) Directive

text: of the European Parliament and of the Council of 16 April 2014 amending Directives

text: and

text: and Regulations

text: (EC) No 1060/2009

text: (EU) No 1094/2010

text: and

text: (EU) No 1095/2010

text: in respect of the powers of the European Supervisory Authority (European Insurance and Occupational Pensions Authority) and the European Supervisory Authority (European Securities and Markets Authority) (OJ L 153, 22.5.2014, p. 1), to the extent that the amendments relate to the amendments made by the latter to Directive

text: , in particular regarding the duty of the national financial market supervisor to transmit final information about prospectuses to ESMA.

text: The Union Regulations concerned are: 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), as regards investment firms/services; and 2)

text: Regulation (EU) No 909/2014

text: of the European Parliament and of the Council of 23 July 2014 on improving securities settlement in the European Union and on central securities depositories and amending Directives

text: and

text: and

text: Regulation (EU) No 236/2012

text: (OJ L 257, 28.8.2014, p. 1) (the ‘Central Securities Depositories Regulation’ or ‘CSDR’).

text: Directive

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

text: See Section 6.1.3 of the explanatory memorandum to the proposal for a Directive of the European Parliament and of the Council amending Directive

text: on settlement finality in payment and securities settlement systems and Directive

text: on financial collateral arrangements as regards linked systems and credit claims (COM(2008)213 final).

title: Opinion of the European Central Bank of 28 September 2015 on a draft law on the financial instruments market (CON/2015/34)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 28 September 2015 on a draft law on the financial instruments market (

text: ) Introduction and legal basis

text: On 29 July 2015 the European Central Bank (ECB) received a request from the Slovenian Ministry of

text: Finance for an opinion on the draft law amending the Law on the Financial Instruments Market

text: (hereinafter the ‘draft law’).

text: , as the draft law relates to Banka Slovenije, settlement systems and rules applicable to

text: financial institutions insofar as they materially influence the stability of financial institutions and markets.

text: For those elements of the draft law with the exclusive purpose of transposing Union law, the ECB’s

text: competence to deliver an opinion is based on Article 25.1 of the Statute of the European System of

text: Central Banks and of the European Central Bank. In accordance with the first sentence of

text: Article 17.5

text: of

text: 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 transposes certain provisions from a number of Union Directives in the financial area

text: into Slovenian law, and adjusts Slovenian legislation to certain Union Regulations in the financial

text: area .

text: 1.2 As regards Banka Slovenije, it is noted that the draft law removes the provisions regulating the supervisory competences of the Securities Market Agency and Banka Slovenije over the central securities depository. These competencies will be regulated in a separate legal act implementing the Central Securities Depositories Regulation. 1.3 The draft law also amends the Law on the Financial Instruments Market in order to: (i) clarify the bankruptcy procedure for investment firms, (ii) amend certain conditions for the establishment of small investment firms, (iii) amend the provisions regarding liability for the accuracy of the information contained in prospectuses, (iv) define the conditions for the removal of debt instruments from trading on an organised market, (v) supplement the provisions on the performance of investment services, where the client has been referred by another investment firm, (vi) introduce amendments, as regards the stock exchange and stock market, to clarify the application, mutatis mutandis, of certain provisions of the Law on Banking, (vii) regulate cooperation between the Securities Market Agency and other competent third-country financial market authorities and (viii) align certain provisions of the Law on the Financial Instruments Market with other national laws. 1.4 Article 95 of the draft law corrects certain inconsistencies in the provisions of Slovenian law transposing Directive

text: (the ‘Settlement Finality Directive’ or ‘SFD’), in particular regarding the implementation of Article 3 of the SFD. These inconsistencies concern

text: Article 450

text: .a of the current Law on the Financial Instruments Market, which governs the finality of transfer orders entered into the securities settlement system in the event of the insolvency of a system participant (or other proceeding or measures of a competent authority of the Republic of Slovenia, or of any other country, against a settlement system participant, excluding or limiting the execution of the orders of such participant, as referred to in

text: Article 450

text: , and hereinafter referred to as ‘insolvency proceedings’). In particular,

text: Article 450

text: .a, as amended by Article 95 of the draft law, now (i) clearly distinguishes between the use of the terms ʻentryʼ and ʻenteredʼ to differentiate between the ʻmoment of entry of a transfer order into a systemʼ (which is to be defined in the rules of the system, as required by Article 39(2) and 48(8) of the CSDR and Article 3 of the SFD) and the ʻsendingʼ of the transfer order by the system participant. Furthermore, Article 95 of the draft law corrects the reference to the timeframe within which the execution of a transfer order, if it has been entered into the system after the opening of insolvency proceedings against a participant, must occur in order for it to be valid, which is understood to mean legally enforceable and binding on third parties.

text: Article 450

text: .a now stipulates that a settlement order that was entered into the system after the opening of such a proceeding, will be valid if it was executed in the system within the same day. A further correction is made to clarify that the system operator must be able to prove that he was not aware, or could not have been aware, of the opening of the insolvency proceedings

text: against the participant at the point in time when the transfer order became irrevocable. Finally, the abovementioned inconsistencies are addressed by rewording point 2 of paragraph 1 of

text: Article 450

text: .b, which governs the effects of insolvency proceedings against a settlement system participant on the validity of the rights arising from collateral security provided in connection with the system.

text: 2. Observations

text: 2.1 The ECB takes note of the draft law. 2.2 The ECB welcomes the fact that Article 95 and 96 of the draft law remove previous shortcomings in the text of

text: Articles 450

text: .a and 450.b of the current Law on the Financial Instruments Market, implementing the SFD. In this respect, it is noted that the reference in the amended second paragraph of

text: Article 450

text: .a to the execution of a transfer order within the ʻdayʼ should be replaced by a reference to ʻbusiness day, as defined by the rules of the systemʼ, to remove any uncertainty about the status of any night-time settlement services .

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

text: Done at Frankfurt am Main, 28 September 2015.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI