title: Opinion of the European Central Bank of 3 January 2019 on the legal framework for covered bonds (CON/2019/1)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 3 January 2019 on the legal framework for covered bonds (

text: ) Introduction and legal basis

text: On 27 November 2018 the European Central Bank (ECB) received a request from the Estonian Ministry of Finance for an opinion on a draft law on a covered bonds framework (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 the rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets and to the basic task of the European System of Central Banks (ESCB) to implement monetary policy pursuant to the first indent of Article 127(2) 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 The purpose of the draft law is to set up a legal framework for the issuance of covered bonds by credit institutions and to foster the Estonian capital markets and increase financial stability. 1.2 The draft law: (a) defines the institutions permitted to issue covered bonds, i.e. credit institutions with an additional authorisation for the issuance of covered bonds; (b) outlines the additional authorisation procedures concerning issuers and applicable additional requirements including the powers of the cover pool monitor; (c) outlines the general conditions for issuing covered bonds and specifies when the term covered bonds may be used; (d) specifies the types of covered bonds, i.e. mortgage covered bonds and mixed asset covered bonds, and the assets eligible for inclusion into the cover pool; (e) sets out rules on valuation, composition and structure of the covered bond portfolio; (f) sets forth special provisions for the separation of the covered bond portfolio, e.g. in the event of an issuer’s insolvency, the requirements for a cover pool administrator and the liquidation and transfer of a separated covered bond portfolio; (g) sets out transparency and disclosure requirements; and (h) establishes rules regarding supervision of covered bonds. 1.3 According to the draft law, in order to issue covered bonds, the issuer must be authorised as a credit institution and have an additional authorisation for the issuance of covered bonds. The

text: 1 Pandikirjaseadus, eelnõu.

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). additional authorisation must be obtained from the Estonian Financial Supervision Authority (EFSA) prior to the first issuance of covered bonds and is granted for an indefinite period. The additional authorisation may be revoked, inter alia, where the issuer has provided false or misleading information or documents, has repeatedly or significantly breached the requirements of the draft law, is unable to meet its obligations under the covered bonds, its activities endanger the interests of the investors or other clients of the issuer, or the issuer has not issued covered bonds within five years from receiving the additional authorisation or since the last redemption of previous covered bonds . 1.4 The draft law lists the following assets as primary assets eligible for inclusion into the cover pool: (a) for mortgage covered bonds: loans issued to natural persons, secured by mortgages over residential real estate located in the European Union; (b) for mixed asset covered bonds: loans issued to natural or legal persons, secured by mortgages over residential and commercial real estate located in the European Union, as well as credit to or debt securities of Member States of the European Union, their regional or local authorities and bodies governed by public law . These assets are regarded as primary assets of the cover pool and must represent at least 80% of the total value of the cover pool; the remaining part of the cover pool may be composed of substitute assets . 1.5 In addition to primary assets, the cover pool may include substitute assets. The draft law lists which assets may be used as substitute assets. These assets are (a) claims against or claims backed by members of the ESCB or central governments, public sector institutions, regional governments or local municipal government units of Union member states; (b) claims against or claims backed by third-country central banks, central, regional and municipal governments and various public institutions, multilateral development banks and international organisations – the draft law does not impose any additional quantity restrictions if the assets correspond to credit quality step 1 and imposes a limit of 20% of nominal value of the outstanding covered bonds for assets corresponding to credit quality step 2; (c) claims against credit institutions and investment firms that meet credit quality step 1, provided that such claims do not exceed 15% of the nominal value of the outstanding covered bonds; (d) claims against Union credit institutions and investment firms that meet the credit quality step 2, which have a maturity date of up to 100 days, provided that such claims do not exceed 15% of the nominal value of the outstanding covered bonds; and (e) net claims arising from derivative agreements, provided that such claims do not exceed 12% of the nominal value of the outstanding covered bonds. 1.6 The quality of the cover pool must be ensured by the issuer throughout the entire lifetime of the covered bonds by monitoring and updating the valuation of the covered assets secured by mortgages. At all times the cover pool must exceed the sum of the present value of the covered bonds and the net obligations arising from derivatives by at least 2% . This requirement is

text: 3 See Section 6 of the draft law. considered to be fulfilled if the aggregate nominal value of assets in the cover pool exceeds the aggregate nominal value of the covered bonds by at least 5%. In any case the nominal value of the cover pool must at all times at least equal or exceed the nominal value of the covered bonds. 1.7 To mitigate the liquidity risk of the covered bonds portfolio, a liquidity reserve must be formed which may consist only of level 1 and 2A assets and certain exposures to credit institutions as listed in the draft law which meet specified additional criteria. The minimum amount of liquidity reserves must be calculated for the following 180 days based on the difference in daily cash flow between the payments for the covered bonds and derivatives entered in the covered bond register and the revenue from underlying assets. Thereafter, the sum of such accumulated daily differences is calculated for the next 180 days and the largest negative result of such calculations must be covered by the liquidity buffer. The liquidity reserve should be at least 2% of the nominal value of the assets in the cover pool. 1.8 The draft law allows the issuer to mitigate risks arising from covered bonds with derivative instruments and to include such agreements in the cover pool subject to certain requirements, including that derivative transactions are made under a framework agreement that allows for netting and that derivative transactions do not automatically terminate upon the insolvency of the issuer. The primary and substitution assets, the liquidity reserves and the derivative instruments must be entered in a cover pool register maintained by the issuer. 1.9 For the purposes of ensuring sufficient collateral and compliance with applicable requirements, the draft law obliges the issuer to appoint an independent cover pool monitor whose responsibilities include, among others, ensuring that covered bond portfolio stress tests are conducted in compliance with applicable regulations and that there are sufficient cover assets and that these cover assets comply with the requirements . Under the draft law, the authorisation to issue covered bonds can be sought only if the name and approval of a person to act as a cover pool monitor have been included in the application for authorisation. 1.10 The draft law pre-defines situations where the covered bond portfolio is separated from the issuer and specifies that in such cases the right to manage the covered bond portfolio is transferred to a cover pool administrator. One such circumstance is the insolvency of the issuer. Separation of the covered bond portfolio is intended to segregate the cover pool from the issuer, including from the bankruptcy estate of the issuer. After segregation, the cover pool will constitute a pool of assets, which, together with the income received therefrom, may be used only for the satisfaction of the claims of the respective covered bondholders and claims arising from derivative instruments, and to cover the costs of managing the cover pool . To the extent that the proceeds of the cover pool are insufficient to satisfy in full the claims of covered bondholders, covered bondholders have recourse to the issuer’s bankruptcy estate for the balance of the claim, ranking pari passu with unsecured creditors .

text: 9 See Sections 12 to 14 of the draft law.

text: 10 See Section 33 and 34 of the draft law. 1.11 The draft law allows, with the approval of the EFSA, the whole covered bond portfolio to be transferred to another Estonian credit institution that has been granted a licence to issue covered bonds and which has not during the last five years repeatedly or materially breached requirements applicable to it as an issuer. The covered bond portfolio may also be transferred, with the approval of the EFSA, to a credit institution incorporated in another Member State. A transfer to a credit institution incorporated in another Member State is allowed if that credit institution proves that it meets certain conditions: (a) the credit institution fulfils the requirements applicable to a credit institution and to an issuer and has not during the last five years repeatedly or materially breached such requirements; (b) the rights of bondholders and derivative counterparts are secured at least to the same extent as they are in Estonia; (c) the rights of the debtors of claims in the cover pool are protected at least to the same extent as they are in Estonia and the transfer would not cause additional costs or other burden to the debtors; (d) the acquirer’s home state law permits the acquisition of the covered bonds portfolio; and (e) the acquirer has all the required approvals and licences. The acquirer must present a legal opinion in order to satisfy conditions (b), (c) and (d). 1.12 The EFSA is tasked with supervising the issuer of the covered bonds and the activities of the cover pool administrator to ensure compliance with the standards of the draft law and requirements stipulated in other applicable legal acts. The supervisory powers of the EFSA are the same as envisaged in other relevant legal acts. The EFSA specifically has the additional right to request transfer of additional assets into the cover pool, the removal from the cover pool of assets that do not meet the requirements of the law, the conduct of a stress test, the change of cover pool monitor, etc. 1.13 For the draft law to take effect, several delegated regulations still need to be adopted.

text: 2. General observations

text: 2.1 The ECB welcomes the aim of the draft law to establish a legal framework for issuing covered bonds, thereby diversifying the sources of potential financing for credit institutions and further developing the financial markets in Estonia. As previously noted, the ECB is in favour of a developed, harmonised, high-quality and transparent covered bond market in the Union. The Eurosystem accepts covered bonds which fulfil the eligibility criteria for collateral in Eurosystem monetary policy operations. The ECB has issued several opinions expressing its views on covered bonds legislation in various Members States with the aim of ensuring further convergence towards common high standards in covered bonds in all Member States. 2.2 The Union is taking considerable steps to ensure harmonised and common high standards regarding covered bonds across Members States. To this end, the Commission has published a legislative proposal for the Union framework on covered bonds on 12 March 2018 including a

text: 13 See paragraph 2.1 of the Opinion

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

text: 14 See Opinion

text: , Opinion

text: , Opinion

text: , Opinion

text: , Opinion

text: , Opinion

text: , Opinion

text: , Opinion

text: , Opinion

text: . proposal for a directive of the European Parliament and of the Council on the issue of covered bonds and covered bond public supervision and amending Directive

text: and Directive

text: (hereinafter the ‘proposed directive’) and a proposal for a regulation of the European Parliament and of the Council on amending

text: Regulation (EU) No 575/2013

text: as regards exposures in 16 17 the form of covered bonds , on both of which the ECB has opined . Also, the European Banking Authority (EBA) has identified best practices in relation to covered bonds. Nevertheless, Union legislative proposals are still developing. The Estonian authorities are invited to continue to follow the ongoing drafting of the proposed directive and to take this into account in the Estonian legislative process, including as regards the various delegated regulations that are to be introduced under the draft law, as appropriate.

text: 3. Specific observations on the draft law

text: 3.1 In order to ensure a continuously high level of supervision over the issuers of covered bonds, an appropriate oversight system should be in place. Thus, the ECB welcomes the additional licencing and supervisory regime to be introduced in relation to credit institutions intending to issue covered bonds. The ECB notes that the draft law’s provisions regarding the right to both issue and revoke additional general authorisations for the issuance of covered bonds must be interpreted in line with

text: Council Regulation (EU) No 1024/2013

text: . In particular,

text: Article 4(1)

text: (a) of

text: Regulation (EU) No 1024/2013

text: gives the ECB the exclusive task of authorising credit institutions and withdrawing authorisations of credit institutions. In accordance with

text: Article 6(4) of Regulation (EU) No 1024/2013

text: , the ECB exercises this responsibility both for significant and less significant institutions. The ECB understands that this task is exercised for all banking activities listed in Annex I of the Directive

text: of the European Parliament and of the Council as well as for any additional activity allowed under national law, such as the general authorisation to issue covered bonds as provided for under the draft law. Furthermore, the ECB is competent to ensure that the prudential risks arising from covered bond issuances as well as from investments in covered bonds are adequately managed and assessed by credit institutions. For the sake of clarity, any possible authorisation for a specific covered bond programme or supervision of covered bonds as a financial product would be considered as a product-specific regulation and, as such, to fall under the supervision of a national competent authority.

text: 15 COM(2018) 94 final.

text: 16 COM(2018) 93 final.

text: 17 Opinion

text: 18 See the EBA Report on Covered Bonds: Recommendations on harmonisation of covered bond frameworks in the EU of 20 December 2016 (EBA-Op-2016-23), available on the EBA’s website at www.eba.europa.eu.

text: 19 See Section 3 et seq. of the draft law.

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: 21 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). 3.2 As regards publication requirements in relation to the granting of the covered bonds authorisation, the ECB understands that these will be duly exercised in line with the ECB’s confidentiality and data protection regime. 3.3 It is the understanding of the ECB that the referred licencing regime would require an application prior to the first issuance of covered bonds and that no obligation to give the EFSA an ex ante notification prior to the issuance of subsequent covered bonds or prior to the establishment of a new covered bond programme will be introduced. The attention of the Estonian legislature is drawn to the best practices and recommendations identified by the EBA; an ex ante approval obligation prior to any new covered bond programme and a notification obligation for subsequent issuances are recommended even in cases where a special licencing regime exists for credit institutions aiming to issue covered bonds. 3.4 The ECB welcomes the mandatory appointment of the cover pool monitor and its specified duties which include, among others, to ensure that the stress tests conducted on portfolios of covered bonds comply with applicable regulations and that there are sufficient cover assets and that these cover assets comply with the requirements set out in the law. In order to further facilitate investor due diligence and enhance transparency, consideration should be given to making the results of the portfolio stress tests, including the parameters used, publicly available. 3.5 The draft law does not include any statutory maturity extension triggers and allows for contractual maturity extension triggers if they meet specific conditions. Moreover, the draft law does not specify those circumstances which the issuer cannot control which would be a pre-condition for maturity extension. In the ECB’s experience, it is not possible to fully exclude discretionary triggering of a maturity extension. By allowing the extension triggers to be contractually defined, the proposed directive could result in significant heterogeneity across covered bonds, which hinders harmonisation . Since the proposed directive will be a minimum harmonisation directive, Member States are free to go further when transposing the proposed directive into national law. The Estonian legislature is therefore invited to consider further limiting the conditions under which a maturity extension of covered bonds can occur, and to allow only statutory maturity extension triggers with a set of specific conditions as proposed by the EBA. These measures strengthen the high quality of the cover pool and harmonisation. According to the EBA’s proposal, the maturity extension may only be effected upon the following triggers taking place (both triggers must occur simultaneously): (i) the covered bond issuer must have defaulted and (ii) the covered bond breaches certain pre-defined criteria/tests, indicating a likely failure of the covered bond to be repaid at the scheduled maturity date. The Estonian legislature could consider replacing the

text: 23 See the EBA Report on Covered Bonds: Recommendations on harmonisation of covered bond frameworks in the EU of 20 December 2016 (EBA-Op-2016-23), page 72 and 131.

text: 25 The ECB understands that under Section 17(4) the contractual maturity extension triggers are severely limited, the triggers must not be influenceable by the issuer and it must be possible to determine the maturity date at all times.

text: 26 See paragraph 4 of Opinion

text: 27 See the EBA Report on Covered Bonds: Recommendations on harmonisation of covered bond frameworks in the EU of 20 December 2016 (EBA-Op-2016-23), page 137. See also paragraph 4.3 of Opinion

text: . condition requiring an ‘issuer default’ with a condition which refers to the circumstances in which the covered bond portfolio is considered to be separated (as specified in Section 33(1) of the draft law). Alternatively, it could consider requiring that any extension of maturity must have the permission of the cover pool administrator. 3.6 The ECB welcomes the detailed specification of the requirements for the cover pool assets including the primary cover pool assets, the substitution assets and the liquid assets – this should help ensure that the covered bonds are of high quality. 3.7 The proposed directive specifies that a Member State shall ensure investor protection by providing for a sufficient level of homogeneity of the assets in the cover pool so that they shall be of a similar nature in terms of structural features, lifetime of assets or risk profile . The need to ensure homogeneity has been emphasised by both the ECB and the EBA and therefore primary cover assets consisting of one asset class are preferable. The draft law introduces two different types of covered bonds: (a) mortgage covered bonds, whereby the primary assets in the cover pool must be only residential mortgage loans, i.e. credit provided to natural persons which is secured by mortgages over residential real estate; and (b) mixed asset covered bonds, whereby the primary assets in the cover pool may be residential mortgages as well as other assets listed in the draft law, such as commercial mortgages and public sector assets. Although primary cover assets consisting of one asset class are preferable for mixed asset covered bonds, the Estonian legislature should consider including further provisions to ensure that the assets in the cover pool are of a sufficiently similar nature and that the composition of the cover pool does not materially change over time. The legislature is also invited to introduce requirements to better ensure the homogeneity of the cover pool over time. 3.8 The ECB notes that the cover pool liquidity buffer should cover the entire net liquidity outflow for 180 calendar days, as liquidity buffers should also cover potential issuer insolvency scenarios. Therefore, it is suggested that Section 21(3) of the draft law be clarified to make it clear that the cover pool liquidity buffer covers the full net liquidity outflow of the covered bond programme for 180 days, and not just the largest negative result on a daily basis over the next 180 days. The ECB appreciates the introduction of a minimum cover pool liquidity buffer of at least 2% of the nominal value of the cover pool assets. The ECB welcomes the fact that the Estonian legislature has not resolved to use the option under the proposed directive that would enable disapplication of the covered bond portfolio liquidity requirements for certain periods, subject to rules on liquidity specified in other Union legal acts and understands that under the draft law, liquid assets in the form of securities may be held on the account of the issuer in a manner that these assets are deemed to be unencumbered in accordance with Commission Delegated Regulation (EU)

text: 28 See Article 10 of the proposed directive.

text: 29 See paragraphs 2.3, 3.1 and Amendment 21 of Opinion

text: ; the EBA Report on Covered Bonds: Recommendations on harmonisation of covered bond frameworks in the EU of 20 December 2016 (EBA-Op-2016- 23), page 36.

text: 30 Section 25 of the draft law.

text: 31 Section 30 of the draft law.

text: 32 See paragraph 3.3 of Opinion

text: . 2015/61 to avoid potential double liquidity requirements. In this respect it should be clarified that such liquid assets may only contribute towards those liquidity requirements up to the amount of the net liquidity outflow of the covered bond programme. 3.9 Consideration should be given to clarifying that for the calculation of the cover pool liquidity buffer in the case of principal redemptions for covered bonds with extendable maturity structures, the scheduled maturity date instead of extended maturity date is to be used, unless the maturity date has been extended. 3.10 The ECB welcomes the fact that level 2B assets are not permitted as contributions to the cover pool liquidity buffer and that assets cannot be own-issued. In order to enable a rapid liquidation if necessary, the Estonian legislature may consider provisions ensuring a sufficient level of diversification of the cover pool liquidity buffer. 3.11 The high quality of assets in the cover pool is one of the key elements in ensuring confidence in the whole asset class and ensuring the dual-recourse nature of the claims by bondholders. The draft law specifies that claims should not be in default at the time of inclusion in the cover pool. The ECB would suggest that the Estonian legislature should also consider obliging issuers to exclude on an ongoing basis from the calculation of coverage any claims already in default or likely to default. 3.12 Under the proposed directive, Member States are to lay down rules for derivative contracts that could be included in the cover pool. This would include at least the eligibility criteria applicable to hedging counterparties. The draft law lays down general conditions for eligible counterparties. The drafting notes to the draft law specify that the aim of these conditions is to ensure that a counterparty of any hedging arrangement is also sufficiently solvent during turbulent market conditions. The ECB welcomes the consideration given to this issue, but more specific qualitative and quantitative conditions could be introduced to ensure that the hedging counterparty used is sufficiently solvent and that potentially costly re-hedging would not have to be undertaken. These could include triggers related to the creditworthiness of the hedging counterparty (i) for collateralising the derivative exposure or (ii) for the replacement of the hedging counterparty. 3.13 For an instrument such as a covered bond to be effective, the title over the assets in the cover pool must be transferable following the separation of the covered bond portfolio from the originator (e.g. to enable the transfer of the entire covered bond portfolio under the draft law ). The assets in the

text: 34 Commission Delegated

text: Regulation (EU) 2015/61 of 10 October 2014

text: to supplement

text: Regulation (EU) No 575/2013

text: of the European Parliament and the Council with regard to liquidity coverage requirement for Credit Institutions (OJ L 11, 17.1.2015, p. 1).

text: 36 See paragraph 3.1 of Opinion

text: 37 Under Section 23(1)(2) of the draft law the following entities are considered to be suitable counterparties: (i) credit institutions, investment firms, management companies, investment funds, insurance undertakings and other financial institutions subject to financial supervision; (ii) the Republic of Estonia, foreign states, regional governments or the central banks of Estonia or a foreign state; (iii) international institutions or organisations, including the International Monetary Fund, the ECB, and the European Investment Bank; and (iv) financial institutions whose only business activity is investment in securities, market traders in commodities and commodity derivatives.

text: 38 Page 40 of Seletuskiri. Pandikirjade Eelnõu juurde. 14. november 2018, available at www.riigikogu.ee.

text: 39 See Section 45 et seq. of the draft law. cover pool consist of credit agreements. In general, national contractual laws require approval to be obtained from the counterparty to the agreement prior to transferring it to a third party. The ECB understands that for Estonian law-governed agreements such counterparty approvals are excluded by the draft law . For agreements governed by other national laws than Estonian law it is unclear, and perhaps unlikely, that an obligation to seek approval from the counterparty can be overridden by Estonian national law. Hence, the issuer of covered bonds must itself ensure that the transfer of non-Estonian law-governed agreements in the cover pool is valid and enforceable. It is suggested that the Estonian legislature includes a specific obligation to this effect in the draft law. In addition, the legislature is invited to consider encouraging issuers to obtain pre-approvals from all debtors under the credit agreements it wishes to include in the cover pool, in order to ensure legal certainty regarding the transferability of the covered bond portfolio after separation of the portfolio from the originator. 3.14 The ECB welcomes the fact that the draft law clarifies the cases in which the right to manage the covered bond portfolio is transferred to a separate cover pool administrator. The draft law could clarify that in the event of transfer of the entire covered bond portfolio this transfer of the right to manage covers all forms of overcollateralisation, as well as overcollateralisation provided on a voluntary basis. 3.15 The existence in any covered bond law of obligations that require sufficient information to be provided to investors to facilitate adequate due diligence by investors is a key feature in encouraging investor confidence. The ECB welcomes the disclosure obligations introduced into the draft law but considers that the issuers should be obliged to include further information in their reports. This could include in addition various levels of overcollateralisation, separate lists of international securities identification numbers (ISINs) for covered bonds issued, loan-to-value distributions and the valuation and indexation method, an overview of transaction parties and in addition a glossary with definitions. In addition, the disclosure standards are still evolving in the Union and it is important to ensure that the level of disclosure remains sufficient over time and in keeping with market practices. This requires that the national authorities monitor the type and level of detail of information that must be disclosed as a minimum requirement. To enable flexible amendments to these provisions of the draft law, the Estonian legislature could consider introducing a right for an appropriate national body to modify the specific scope of disclosure obligations, for example by authorising such a body to issue a disclosure template in the form of a delegated regulation under the draft law. 3.16 The draft law envisages the adoption of several delegated regulations which have not been provided to the ECB. These includes regulations on (i) maintaining the covered bonds register; (ii) the calculation of the present value of collateral assets; (iii) the methodology of stress testing the covered bond portfolios; and (iv) the additional requirements relating to the independent value of real estate securing a mortgage loan, including the reporting, methodology and procedure for

text: 41 See paragraph 4.3 of Opinion

text: 42 Section 55 of the draft law. valuation . The use of delegated regulations would provide an effective means to ensure the flexibility of the draft law in this respect. The national authorities should remain mindful of regulatory developments in the Union when drafting such regulations. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 3 January 2019. [signed] The President of the ECB Mario DRAGHI


publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 21 January 2019 on the Central Bank of Malta’s supervision of credit reference agencies and its oversight of payment services (CON/2019/2)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 21 January 2019 on the Central Bank of Malta’s supervision of credit reference agencies and its oversight of payment services (

text: ) Introduction and legal basis

type: rubrik

text: On 7 November 2018 the European Central Bank (ECB) received a request from the Central Bank of Malta (CBM) for an opinion on a draft law amending the Central Bank of Malta Act (the ‘draft law amending the CBM Act’) and on a draft directive No 15 on the supervision of credit reference agencies (the ‘draft directive on credit reference agencies’). The CBM also informed the ECB that it intends to amend Directive No 14 on the Central Credit Register (the ‘draft amendments to the Directive on the Central Credit Register’), together with the draft law amending the CBM Act and the draft directive on credit reference agencies, collectively referred to as the ‘draft law’. On 23 November 2018, the ECB received a revised version of the draft law. The ECB’s competence to deliver this opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the second, third and fourth indents of

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

text: , as the draft law relates to means of payment, the CBM, the collection, compilation and distribution of financial and balance of payment statistics and the ECB’s tasks 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.

type: stycke

text: 1. Purpose of the draft law

text: 1.1 The draft law has three main purposes. First, it extends the oversight powers of the CBM with regard to the provision of payment services by credit institutions and financial institutions . Second, it confers on the CBM new supervisory powers with respect to credit reference agencies. Third, it extends access to the Central Credit Register operated by the CBM to credit reference agencies

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: 2 The CBM Act defines the term ‘financial institution’ as having the same meaning as that assigned to it by Article 2 of the Financial Institutions Act (Act XXII of 1994, Chapter 376 of the Laws of Malta), and including any branch in Malta of an institution not incorporated in Malta. A ‘financial institution’ as defined in the Financial Institutions Act means any person who regularly or habitually acquires holdings or undertakes the carrying out of any activity listed in First Schedule to the said Act, for the account and at the risk of the person carrying out the activity, and includes payment institutions within the meaning of

text: Directive (EU) 2015/2366

text: of the European Parliament and of the Council, as well as electronic money institutions within the meaning of Directive

text: of the European Parliament and of the Council. and to other institutions to which the CBM decides to grant access. 1.2 Oversight of payment services 1.2.1 The CBM Act currently authorises the CBM to issue, amend or revoke directives on the provision of payment services in order to promote the stable and sustainable development and provision of payment instruments . The draft law amending the CBM Act extends (i) the scope of the CBM’s activity to cover the provision of payment services, payment applications, payment card schemes and payment transactions by credit and financial institutions; and (ii) the CBM’s oversight and regulatory powers in this regard (see paragraph 1.2.2 below). For this purpose, a payment service is defined in accordance with

text: Directive (EU) 2015/2366

text: of the European Parliament and of the Council . A payment application is defined as computer software or equivalent, loaded on a device enabling payment transactions to be initiated and allowing the payer to issue payment orders. A payment card scheme is defined as a single set of rules, practices, standards and/or implementation guidelines for the execution of card-based payment transactions. Finally, a payment transaction is defined as an act, initiated by the payer or on his behalf or by the payee, of placing, transferring or withdrawing funds, irrespective of any underlying obligations between the payer and the payee. 1.2.2 Pursuant to the draft law amending the CBM Act, no credit or financial institution may provide a payment service in Malta unless it notifies the CBM. The CBM would have the power to review the rules and procedures of any payment service, payment application, payment card scheme and payment transaction in Malta. It would be authorised to make an order restraining a credit or financial institution from engaging in activities which it deems to go against the stable and sustainable development of the payments landscape in Malta. The CBM would also be authorised to suspend the provision of any payment service, payment application, payment card scheme or payment transaction where the credit or financial institution fails to comply with a lawful order or requirement of the CBM. Finally, it would be empowered to publicise non-compliance with its order or requirements and to impose administrative penalties. 1.2.3 Pursuant to the draft law amending the CBM Act, the CBM would be required to discuss with the competent authority the promotion of the stable and sustainable development of the payments landscape in Malta. A competent authority is defined as any authority or authorities nominated to regulate the business of credit institutions, financial institutions or financial services institutions under any law listed in the Schedule to the CBM Act. In the context of the provision of payment services by credit or financial institutions, the competent authority under the Banking Act and the Financial Institutions Act is the Malta Financial Services Authority (MFSA). 1.3 Supervision of credit reference agencies 1.3.1 Under the draft law amending the CBM Act, the CBM is designated as the supervisory authority of

text: 3 See

text: Article 34

text: A(1) of the CBM Act.

text: Directive (EU) 2015/2366

text: of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives

text: and

text: and

text: Regulation (EU) No 1093/2010

text: , and repealing Directive

text: (OJ L 337, 23.12.2015, p.35). In particular, a payment service is defined as any business activity set out in Annex I thereof.

text: 5 Banking Act, Act XV of 1994, Chapter 371 of the Laws of Malta. credit reference agencies solely for the purpose of overseeing and regulating the task of issuing a credit score, defined as a measure of creditworthiness derived from credit information which must, under pain of nullity, include data derived from the Central Credit Register operated by the CBM. A credit reference agency is defined for this purpose as an undertaking licenced by the Trade Licensing Unit the main business of which is to prepare, assemble and evaluate credit information and related credit and risk management services on legal and natural persons for the purpose of issuing credit scores to be furnished to third parties, provided that a credit reference agency is not precluded from carrying out other related tasks. 1.3.2 Under Legal Notice 213 of 2018 , on which the ECB was not consulted, further provision is made for the application for a trading licence to the Trade Licensing Unit in order to carry out the business of a credit reference agency. The assessment and determination of such applications is made by the Trade Licensing Unit in consultation with the CBM, whereby the CBM is required to give its recommendation for the issue of such a licence to the Trade Licensing Unit. Such a licence may be suspended or cancelled by the Trade Licensing Unit on the recommendation of the CBM. Any director, manager, administrator, trustee or principal officer of a credit reference agency may be removed by the Trade Licencing Unit on the recommendation of the CBM. Any other restrictions may be imposed on a credit reference agency by the Trade Licensing Unit as the CBM, as the supervisory authority, may stipulate. 1.3.3 Under the draft law amending the CBM Act, the CBM is entrusted with levying supervision fees on licensed credit reference agencies. As part of its supervisory duties, the CBM may conduct on-site and off-site inspections. 1.3.4 The draft law amending the CBM Act empowers the CBM to issue directives for the carrying into effect of its supervisory duties in relation to credit reference agencies. In this context, the draft directive on credit reference agencies lays down detailed rules concerning the supervision of licensed credit reference agencies. In particular, it establishes specific obligations of credit reference agencies with regard to the issue of credit scores, notification requirements, the obligation to establish a complaints resolution unit, maximum periods of retention of central credit register data and credit scores, and obligations with regard to conflicts of interest and confidentiality. The rules set out in the draft directive on credit reference agencies also relate to the powers of the CBM as supervisor of credit reference agencies. In particular, they provide for the imposition of an annual supervisory fee, powers relating to the CBM’s on-site and off-site inspections, powers in relation to accessing documentation held by the agencies, powers with respect to the governance of the agencies and the power to impose penalties on agencies. 1.4 Access to Central Credit Register 1.4.1 The draft amendments to the Directive on the Central Credit Register predominantly cater for the modalities of access to the Central Credit Register by the main parties involved, notably credit institutions, natural or legal persons whose credit is being rated and credit reference agencies. The

text: 6 See Part VIIA, Regulations 47A to 47H of the Trading Licences Regulations, Legal Notice 420 of 2016.

text: 7 Trading Licences (Amendment) Regulations, 2018, which added Part VIIA to the Trading Licences Regulations. draft amendments also regulate the modalities of access to the Register by the Malta Development Bank and by other institutions to which the CBM grants access. 1.4.2 The existing provisions of the CBM Act provide that the CBM may grant access to the Central Credit Register on the basis of reciprocity arrangements to central banks and other institutions of Member States of the European Union that create databases comparable to the Register . The draft law amending the CBM Act amends this provision by laying down that access to the Register will be extended to: (i) Union institutions that create databases comparable to the Register and which conclude reciprocity arrangements with the CBM; (ii) the Listing Authority; (iii) the Malta Stock Exchange; and (iv) any other institution as the CBM may consider necessary. 1.4.3 Furthermore, the draft law amending the CBM Act introduces a new provision to cater for instances where the carrying out of the CBM’s statistical functions under the CBM Act necessitates the transfer of statistical and other information by the CBM to any person in general or any entity which is licensed, authorised or registered by a competent authority.

text: 2. Scope of the opinion

text: This opinion focuses on the following areas of the draft law of interest to the ECB: the oversight of payment services by the CBM (Section 3); the CBM’s new supervisory powers with respect to credit reference agencies (Section 4); and access to the Central Credit Register (Section 5). Finally the opinion examines the new tasks conferred on the CBM against the prohibition of monetary financing (Section 6). This opinion does not address the question of whether the draft law, if adopted as proposed, would represent an effective means of implementing

text: Directive (EU) 2015/2366

text: or other relevant Union legal acts in Malta.

text: 3. Oversight of payment services provided by credit and financial institutions

text: 3.1 The oversight of payment services provided by credit and financial institutions is already carried out by the CBM under the provisions of the CBM Act . 3.2 In Malta, the CBM and the MFSA are both competent authorities under

text: Directive (EU) 2015/2366

text: . The MFSA is, with a few exceptions, largely responsible for Title II (Payment service providers) thereof, whereas the CBM is, with a few exceptions, largely responsible for Titles III (Transparency of conditions and information requirements for payment services) and IV (Rights and obligations in relation to the provision and use of payment services). Furthermore, some provisions of

text: Directive (EU) 2015/2366

text: , such as those relating to incident reporting, as well as more general provisions such as those on, inter alia, data protection and penalties, fall within the remit of both the CBM and the MFSA. In practical terms, the MFSA is, under the Directive, responsible for the granting and withdrawal of authorisation of payment institutions, the supervision of payment institutions and issues relating to, inter alia, shareholding, own funds, safeguarding requirements and

text: 9 See

text: Article 34

text: A of the CBM Act. governance . On the other hand, the CBM, as the overseer and regulator of the operation of, and participation in, domestic payment systems, is responsible for, inter alia, the Directive’s provisions on the authorisation and execution of payment transactions, authentication, framework contracts, information requirements and applicable charges in relation to, inter alia, credit institutions and payment institutions . 3.3 The ECB notes that the draft law proposes to extend the CBM’s existing oversight and regulatory powers in relation to payment services providers, including credit and financial institutions. Under the draft law the CBM is required to discuss with the ‘competent authority’ the promotion of the stable and sustainable development of the payments landscape in Malta. The definition of ‘competent authority’ under the CBM Act does not, however, include the ECB. Furthermore, it should be noted that, with regard to the oversight of international payment card schemes that provide services on the Maltese market, there is no reference in the draft law to the distribution of oversight responsibilities within the Eurosystem. 3.4 Pursuant to relevant Union law the ECB is competent to carry out specific tasks for the purpose of prudential supervision of credit institutions established in the Member States. In view of its competence in this area, the ECB considers that the CBM should inform the ECB and the MFSA, within their respective fields of competence for the prudential supervision of credit institutions, on an ex ante basis, whenever the exercise of the CBM’s oversight and regulatory powers in relation to payment service providers which are credit institutions could risk pre-empting the powers that the ECB and the MFSA may have for the purposes of carrying out the prudential supervision of credit institutions, including the power to restrict or limit their business and operations. Furthermore, the ECB understands that any powers exercised by the CBM in this regard are without prejudice to such powers of the ECB and the MFSA . Similarly, the ECB wishes to recall the pre-agreed distribution of oversight responsibilities within the Eurosystem with regard to payment schemes , and that the extended powers of the CBM should not affect in any way the powers that the ECB or the other Eurosystem central banks have as overseers of payment card schemes.

text: 4. Supervisory powers with respect to credit reference agencies

text: 4.1 The definition of credit reference agencies pursuant to the draft law falls outside the scope of

text: Regulation (EC) No 1060/2009

text: of the European Parliament and of the Council particularly because this regulation does not apply to credit scores, credit scoring systems or similar assessments related to obligations arising from consumer, commercial or industrial relationships .

text: 10 See the Financial Institutions Act.

text: 11 See Central Bank of Malta Directive No 1 on the provision and use of payment services, available at: www.centralbankmalta.org.

text: 12 In particular, Article 127(6) of the Treaty concerning policies relating to the prudential supervision of credit institutions and

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: 13 See

text: Regulation (EU) No 1024/2013

text: 14 See Eurosystem oversight policy framework, July 2016, section 5.2 ‘Allocation of roles within the Eurosystem’.

text: Regulation (EC) No 1060/2009

text: of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (OJ L 302, 17.11.2009, p.1). As credit reference agencies fall outside the scope of this regulation, the European Securities and Markets Authority would not have supervisory powers over such entities. 4.2 In the vast majority of Member States, credit reference agencies remain unregulated except for data protection aspects . As the subjects of data protection are normally only natural, and not legal, persons , this implies that in most Member States credit reference agencies remain entirely unregulated so far as the credit scoring of legal persons is concerned. Moreover, it seems that it is only in a few Member States that credit reference agencies are regulated with regard to the way their credit scoring is made . 4.3 Credit reference agencies are currently one of the four accepted credit assessment sources on which the Eurosystem bases its eligibility assessment of assets eligible as collateral for Eurosystem credit operations. Credit reference agencies accepted as credit assessment systems are referred to as third-party rating tool providers and their acceptance and monitoring follows the applicable provisions of Guideline

text: (EU) 2015/510

text: (ECB/2014/60) . The use of third-party rating tools’ credit assessments in Eurosystem monetary policy operations is however very limited, particularly when compared to the other three accepted credit assessment sources.

text: 5. Access to the Central Credit Register and to other information held by the CBM

text: 5.1 The ECB welcomes the provisions of the draft law extending access to the Central Credit Register to (i) Union institutions that create databases comparable to the Register and which conclude reciprocity arrangements with the CBM; and (ii) any other institution as the CBM may consider necessary. 5.2 As previously noted by the ECB , as the ECB does not currently have a comparable register, it cannot be provided with information in the Register on the basis of reciprocity. The draft law does not contain an explicit provision allowing the information on the Register to be accessed by the ECB or the MFSA, even though the ECB has previously identified channels through which it or the MFSA could obtain access to data contained in the Central Credit Register . 5.3 The ECB welcomes that the draft law provides that the CBM may provide access to the information held in the Central Credit Register to any other institutions as the CBM may consider necessary.

text: 17 A January 2011 report of the European Credit Research Institute indicates that the principal national regulators of credit bureaus in many Union Member States are the national data protection offices. See M. Rothemund and M. Gerhardt, European Credit Research Institute, The European Credit Information Landscape: An analysis of a survey of credit bureaus in Europe, January 2011, p. 7.

text: 18 See the definition of ‘personal data’ in

text: Regulation (EU) 2016/679

text: of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive

text: (OJ L 119, 4.5. 2016, p. 1), which is confined to natural persons.

text: 19 In the UK the Financial Conduct Authority is designated as the competent authority in this respect. See Briefing Paper Number 04070, House of Commons Library, of 17 March 2014 on credit reference agencies, pp. 5-6. In Hungary, the Magyar Nemzeti Bank is designated as the competent national authority for the supervision of financial institutions, inter alia credit reference agencies. See Act CXXII of 2011 on the Central Credit Information System.

text: 20 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).

text: 21 See paragraph 3.1 of Opinion

text: 22 See paragraphs 3.1 to 3.2 of Opinion

text: . The ECB considers that, if necessary for the fulfilment of its tasks, this provision could give the ECB an additional legal basis for accessing the Register.

text: 6. New tasks conferred on the CBM

text: 6.1 In relation to the oversight of the provision of payment services by credit and financial institutions, the ECB notes that the draft law does not confer genuinely new tasks on the CBM, but rather extends the CBM’s powers to facilitate the exercise of a task already assigned to it. By contrast, the supervision of credit reference agencies is a new task entrusted to the CBM by the draft law as currently the CBM does not perform the function of supervisory authority for the purpose of overseeing and regulating the issuing of credit scores by credit reference agencies. 6.2 The ECB underlines that a proposed conferral of new tasks on a national central bank (NCB) of the European System of Central Banks (ESCB) must be assessed against the criteria for determining what constitutes a government task from the perspective of the monetary financing prohibition laid down in Article 123 of the Treaty. 6.3 For the purposes of that prohibition,

text: Article 1(1)

text: (b)(ii) of

text: Council Regulation (EC) No 3603/93

text: defines ‘other type of credit facility’, inter alia, as ‘any financing of the public sector’s obligations visà-vis third parties’. To determine what might be assimilated with the financing of the public sector’s obligations vis-à-vis third parties, which can be interpreted as the financing provided by an NCB outside the scope of central bank tasks, it is necessary to assess whether the new task to be undertaken by that NCB is a government task, i.e. a task within the responsibility of the public sector of Member States, rather than a central bank task. In other words, adequate safeguards against circumventions of the objective of the monetary financing prohibition of maintaining a sound budgetary policy of Member States must be put in place. 6.4 As part of its discretion in the exercise of its duty, on the basis of

text: Article 271

text: (d) of the Treaty and Article 35.6 of the Statute of the European System of Central Banks and of the European Central Bank (the ‘Statute of the ESCB’), to ensure that NCBs honour the obligations laid down by the Treaty, the Governing Council has endorsed safeguards of that kind in the form of criteria for determining what may be seen as falling within the scope of a public sector’s obligation within the meaning of

text: Article 1(1)

text: (b)(ii) of

text: Regulation (EC) No 3603/93

text: or, in other words, what constitutes a government task as follows: First, central bank tasks are in particular those tasks that are related to the tasks that have been conferred on the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks are mainly defined in

text: Article 127(2)

text: , (5) and (6) and 128(1) of the Treaty, as well as Article 22 and 25.1 of the Statute of the ESCB. Second, as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘other functions’, new tasks that are not related to tasks that have been conferred on the ECB and the NCBs are not precluded per se. However, new tasks which are atypical of NCB tasks or which are clearly

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). discharged on behalf of and in the exclusive interest of the government or of other public sector entities should be considered government tasks. Third, an important criterion for qualifying a new task as atypical of an NCB task or as being clearly discharged on behalf of and in the exclusive interest of the government or other public sector entities is the impact of the task on the institutional, financial and personal independence of that NCB. In particular, the following aspects should be taken into account: (i) whether the performance of the new task would create conflicts of interest with existing central bank tasks which are not adequately addressed and does not necessarily complement those existing central bank tasks. If a conflict of interest arises between existing and new tasks, sufficient safeguards to mitigate that conflict should be in place. The complementarity between a new task and the existing central bank tasks should be interpreted narrowly, so as to avoid leading to the creation of an indefinite chain of ancillary tasks. Such complementarity should be examined also in relation to the financing of those tasks; (ii) whether without new financial resources the performance of the new task is disproportionate to the NCB’s financial or organisational capacity and may have a negative impact on the capacity to perform properly the existing central bank tasks; (iii) whether the performance of the new task fits into the institutional set-up of the NCB in the light of central bank independence and accountability considerations; (iv) whether the performance of the new task harbours substantial financial risks; (v) whether the performance of the new task exposes the members of the NCB decision-making bodies to political risks which are disproportionate and may also have an impact on their personal independence and, in particular, on the guarantee of term of office set out in Article 14.2 of the Statute of the ESCB. 6.5 On the basis of the criteria set out above, the following paragraphs assess whether the new task conferred upon the CBM constitutes a government task in the context of the monetary financing prohibition. 6.5.1 New tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB The supervision of credit reference agencies is not among the basic tasks listed in

text: Article 127(2)

text: and (5) of the Treaty or otherwise conferred upon the NCBs by the Statute of the ESCB. Furthermore, while the proper operation of credit reference agencies may be valuable for credit institutions as they would be able to make a better assessment of the financial situation of the natural or legal persons to whom they are lending, this new task is not related to the specific tasks conferred upon the ECB on the basis of Article 127(6) of the Treaty concerning policies relating to the prudential supervision of credit institutions within the context of the single supervisory mechanism. 6.5.2 Tasks which are atypical of NCB tasks The ECB notes that in the vast majority of Member States, credit reference agencies remain unregulated except for data protection aspects . However, there are also Member States in which either the NCB is designated as the competent national authority responsible for the supervision of credit reference agencies or in which the systems for the exchange of data concerning creditworthiness is a matter regulated by the NCB . In addition, a number of NCBs have functions in relation to the collection and use of credit risk data, including in connection with the operation of central credit registers . Furthermore, credit reference agencies may play a role in the Eurosystem’s credit operations, as they are one of the four sources which may be accepted for the eligibility assessment of assets eligible as collateral. Consequently, although the direct supervision of credit reference agencies by NCBs as such remains rare among Member States, it is common for NCBs to be involved in activities relating to the management of credit risk. It follows that the new task proposed to be conferred on the CBM in relation to the supervision of credit reference agencies is not atypical for a central bank in those Member States which have chosen to regulate and supervise credit reference agencies with respect to their credit scoring. 6.5.3 Tasks clearly discharged on behalf of and in the exclusive interest of the government The ECB understands that the supervision of credit reference agencies in Malta is being introduced on the one hand to protect the interests of the legal and natural persons being scored to ensure that their credit scoring is fair and transparent and, on the other, to ensure that credit reference agencies rely on correct data, particularly data contained in the Central Credit Register, to ensure that their scoring is fair and reliable. In view of the credit risk-related activities of central banks, including in the operation of central credit registers, the new task proposed to be conferred on the CBM does not appear as a task clearly discharged on behalf of and in the exclusive interest of the government.

text: 24 A January 2011 report of the European Credit Research Institute indicated that the principal national regulators of credit bureaus in many EU Member States are the national data protection offices See M. Rothemund and M. Gerhardt, European Credit Research Institute, The European Credit Information Landscape: An analysis of a survey of credit bureaus in Europe, January 2011, p. 7.

text: 25 In Hungary the Magyar Nemzeti Bank is responsible for the supervision of financial institutions, inter alia credit reference agencies under Act CXXII of 2011 on the Central Credit Information System as regards the authorisation for the setting up and operation of a financial enterprise operating the central credit information system, the supervision and withdrawal of authorisation, the obligation of confidentiality concerning trade secrets, banking and payment secrets and any exemptions from the obligation of confidentiality imposed by Act CCXXXVII of 2013 on credit institutions.

text: 26 In Cyprus the Central Bank of Cyprus (CBC) is assigned with the task of supervising such systems with a view to ensuring the proper management of the data they possess (section 28(E) of Law 66(I)/1997 on the business of credit institutions).The CBC is empowered to issue secondary legislation to regulate the conditions and processes for the functioning of such systems, and may impose sanctions on the operators of such systems (sections 28(E), 41(6) and 42(3) of Law 66(I)/1997). This concept is closer to the notion of a credit register than to that of credit bureaus, in the sense that it presupposes the participation of credit institutions and some other categories of institutions (mainly credit providers) and no other persons are allowed to participate or benefit from its services except for the CBC.

text: 27 See, e.g., Opinion

text: (Belgium), Opinion

text: (Latvia), Opinion

text: (Ireland), Opinion

text: (France), Opinion

text: (Slovenia) and Opinion

text: (Bulgaria). Central credit registers are operated by NCBs in other Member States, including, e.g., Italy. 6.5.4 Extent to which performance of the new task creates conflicts of interest with existing central bank tasks The new task of supervising credit reference agencies does not create any conflicts of interest with existing central banking tasks performed by the CBM. On the contrary, it appears to be rather complementary to the existing task of maintaining a central credit register. 6.5.5 Extent to which performance of the new task is disproportionate to the financial or organisational capacity of the CBM With regard to the principle that Member States may not put their NCBs in a position where they have insufficient financial resources to carry out not only their ESCB-related but also their national tasks, the ECB understands that the new task would not require the allocation of significant resources. However, as the ECB understands that the annual supervisory fees to be levied on credit reference agencies would not entirely cover the CBM’s expenditure for carrying out its new task, the CBM should take the necessary measures to ensure it has sufficient resources for the performance of this task. 6.5.6 Extent to which performance of the new task fits into the institutional set-up of the CBM, in the light of central bank independence and accountability considerations As already noted, the new task conferred on the CBM appears to be complementary to its task of maintaining a central credit register. The performance of this task would therefore appear to fit into the existing institutional set-up of the CBM. 6.5.7 Extent to which the performance of tasks harbours substantial financial risks The ECB notes that the performance of this new task would not entail substantial financial risks for the CBM or its officials. Thus, pursuant to Article 15 of the CBM Act, the CBM, its directors, officers and servants may not be liable in damages for anything done or omitted to be done in the discharge or purported discharge of its functions unless the act or omission is shown to have been done or omitted to be done in bad faith. Furthermore, in relation to the supervision of credit reference agencies, paragraph 4(1) of Directive No 14 on the Central Credit Register provides that the CBM is not responsible for the integrity and correctness of data that a credit institution provides to the Register. Moreover, credit reference agencies are fully responsible in respect of the public and non-public credit information that they possess, other than data in the Central Credit Register. 6.5.8 Extent to which performance of the new task exposes members of the decision-making bodies of the CBM to disproportionate political risks and impacts on their personal independence The new supervisory task in relation to credit reference agencies does not appear to expose the members of the decision-making bodies of the CBM to disproportionate political risks, or to otherwise have an impact on their personal independence. 6.6 Conclusion While the new task conferred on the CBM regarding the supervision of credit reference agencies is not among the tasks conferred on the ECB and the NCBs by the Treaty and the Statute of the ESCB, this task is not atypical of NCB tasks in those Member States which have chosen to regulate and supervise credit reference agencies with respect to their credit scoring. Moreover it is common for NCBs to be involved in activities relating to the management of credit risk. As the CBM’s new task is furthermore not discharged on behalf of and in the exclusive interest of the government, the CBM’s new supervisory task in relation to credit reference agencies does not constitute a government task. This opinion will be published on the ECB’s website. Done in Frankfurt am Main, 21 January 2019. [signed] The President of the ECB 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 Ustawa z dnia 29 sierpnia 1997 r. o Narodowym Banku Polskim (Dz.U. z 2017 r., poz. 1373).

text: Ustawa z dnia 21 sierpnia 1997 roku o ograniczeniu prowadzenia działalności gospodarczej przez osoby pełniące funkcje publiczne (Dz.U. z 2017 r., poz. 1393).

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

text: . All ECB opinions are published on the ECB’s website at

text: See paragraph 6 of Opinion

text: , paragraph 3.3 of Opinion

text: and paragraph 2.2 of Opinion

text: See the ECB’s Convergence Report 2018, 2.2.3 (‘Autonomy in staff matters’). See also paragraph 2.1 of Opinion

text: . 8 See the ECB’s Convergence Report 2018, 2.2.3 (‘Autonomy in staff matters’) and paragraph 4.2.2 of Opinion

text: At the ECB and in several Member States, such information is public or can be disclosed upon request.

title: Opinion of the European Central Bank of 30 January 2019 on remuneration for executives and senior management in Narodowy Bank Polski (CON/2019/3)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 30 January 2019 on remuneration for executives and senior management in Narodowy Bank Polski (

text: ) Introduction and legal basis

text: On 28 January 2019 the European Central Bank (ECB) received a request from the Polish Sejm (Parliament) for an opinion on three draft laws amending various laws on remuneration policies at Narodowy Bank Polski (NBP). Each of the three draft laws has been introduced by members of the Parliament drawn from different political parties in the Parliament. 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 laws relate to NBP. 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 laws

text: 1.1 Law amending the Law on Narodowy Bank Polski and the Law on restricting business activities for

text: public officials (hereinafter the ‘first draft law’)

text: 1.1.1 The first draft law, proposed by members of Parliament from the Prawo i Sprawiedliwość (Law and Justice party), introduces, inter alia, a provision that requires the NBP management board to set the remuneration for individual categories of senior management positions at NBP, provided that the maximum remuneration for a position must not exceed 60% of the NBP Governor’s total remuneration (including any applicable awards, bonuses and other benefits). Under the current version of the Law on Narodowy Bank Polski , the NBP management board takes into account salary levels in the banking sector when establishing the amount of funds available for remuneration of NBP staff members. 1.1.2 Additionally, the first draft law proposes to make public the remuneration of persons occupying senior managerial positions at NBP and of NBP management board members, as well as the NBP management board’s resolution on the rules of remuneration of NBP staff members. The publication would include the specific position and its remuneration for each month, including any applicable awards, bonuses and other benefits paid in the calendar year preceding the year in which the information is published.

text: 1.1.3 The first draft law also proposes publishing certain historical data. In particular, within 30 days of the entry into force of the draft law, the NBP Governor would be required to publish, on the NBP’s website, the NBP management board’s resolutions on the rules of remuneration of NBP staff members and levels of remuneration of NBP management board members and other senior management from 1995 to 2018. 1.1.4. Finally, the first draft law proposes to amend the Law on restricting business activities for public officials by requiring NBP management board members and other senior management to make declarations of their financial interests. This requirement is similar to requirements for the NBP Governor and certain other public administration officials in Poland. The draft law also has a provision that puts restrictions on the type of business activities in which NBP management board members and other senior management are able to participate. 1.2 Law amending the Law on restricting business activities for public officials (hereinafter the ‘second

text: draft law’)

text: Similarly to the first draft law, the second draft law, proposed by members of Parliament from the Platforma Obywatelska (Civic Platform party), aims to impose a requirement on NBP management board members and other senior management to make declarations of their financial status. Additionally, in this case, much of the information disclosed in these declarations of financial interests would be public, including the name of the individuals submitting the declaration. Addresses, information on the location of real estate property and information that would allow the identification of personal property owned by the person submitting the declaration would not be made public. 1.3 Law amending the Law on Narodowy Bank Polski (hereinafter the ‘third draft law’) The third draft law, proposed by members of Parliament from the Kukiz‘15 movement, introduces a new mechanism under which the Marshall of the Sejm, acting upon the proposal of the NBP Governor, is to issue an ordinance specifying the qualification requirements, remuneration rules and position bands applicable to NBP staff members. This ordinance is to be made public. Accordingly, under the third draft law the rules for NBP staff remuneration would no longer be laid down by the NBP management board and salary levels in the banking sector will no longer be taken into account when establishing the amount of funds available for remuneration of NBP staff members.

text: 2. Specific observations

text: 2.1 Central bank independence As all of the three draft laws apply to and directly affect the NBP’s decision-making bodies and its employees, they should be examined from the perspective of central bank independence requirements under Article 130 of the Treaty, in particular financial independence, as well as that of the personal independence of the members of the NBP’s decision-making bodies .

text: 2.2 Financial independence 2.2.1 The ECB has a well-established doctrine that autonomy in staff matters is an integral aspect of the principle of financial independence of national central banks (NCBs) in the European System of Central Banks. According to this principle, Member States may not impair an NCB’s ability to employ and retain the qualified staff necessary for the NCB to perform independently the tasks conferred on it by the Treaty and the Statute of the European System of Central Banks and of the European Central Bank (hereinafter referred to as the ‘Statute of the ESCB’). Also, an NCB may not be put into a position where it has limited control or no control over its staff, or where the government of a Member State can influence its policy on staff matters . 2.2.2 In order to protect NBP’s autonomy in staff matters, the Polish legislator is under an obligation to ensure that a decision on any legislative proposal is taken in close and effective cooperation with NBP, taking due account of its view, to ensure the ongoing ability of the NCB to independently carry out its tasks . 2.2.3 Amendments included in any legislative proposal that lead to reductions in remuneration are not compatible with the principle of financial independence if NBP’s ability to employ and retain staff to perform independently the tasks conferred on it by the Treaty and the Statute of the ESCB is affected. The ECB notes that the explanatory memoranda accompanying the draft laws do not analyse this issue, including the effects of a possible reduction of remuneration on NBP’s ability to employ and retain the necessary staff. In order to be compatible with the principle of financial independence, any adopted legislative solution should provide for a cooperation mechanism with NBP, to ascertain if NBP considers that an exception to a cap on remuneration is required. Such a deviation should be decided upon in close and effective cooperation with NBP, taking due account of NBP’s views, to ensure the ongoing ability of NBP to independently carry out its tasks . Any amendments that lead to reductions in the remuneration for an NCB’s staff members should not interfere with that NCB’s powers to administer its own financial resources, including the funds resulting from any reduction in salaries that it pays . 2.2.4 Personal independence The ECB notes that any sanctions which are imposed by the Law on restricting business activities for public officials (under the first or the second draft laws) due to the NBP Governor’s and other members of the NBP management board’s non-compliance with the obligation to submit declarations of their financial interests should be compatible with Article 14.2 of the Statute of the ESCB, and should not establish new grounds for dismissal of the NBP Governor or other members of the NBP management board, contrary to that Article. 2.3 Transparency

text: The doctrine of autonomy in staff matters does not prevent the publication of information on the method by which remuneration is determined and the remuneration of NCB staff members and the members of the NCB’s decision-making bodies. Such disclosure principally promotes transparency and good governance and constitutes best practice in public administration . However, to the extent that the provisions included in any of the draft laws might lead to the publication of personal information, the relevant data protection legislation and related case-law would need to be considered prior to the draft law being adopted.

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

text: Done at Frankfurt am Main, 30 January 2019.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI


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: Law 7/2012 of 29 October 2012 amending tax and budget rules and adapting financial rules for the intensification of action for the prevention of and fight against fraud. See also Opinion

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

text: Commission Recommendation 2010/191/EU of 22 March 2010

text: on the scope and effects of legal tender of euro banknotes and coins (OJ L 83, 30.3.2010, p 70).

text: , and paragraph 2.2 of Opinion

text: . 6

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

text: on the introduction of the euro (OJ L 139, 11.5.1998, p. 1). 7 See, for example, Opinions

text: and

text: See paragraph 2.1 of Opinion

text: . 9 See, for example, paragraph 2.3 of Opinion

text: , paragraph 2.3 of Opinion

text: , paragraphs 2.6 and 2.7 of Opinion

text: and paragraphs 2.5 and 2.6 of Opinion

text: and paragraph 2.7 of Opinion

text: . 11

text: Directive (EU) 2015/849

text: of the European Parliament and of the Council of 29 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending

text: Regulation (EU) No 648/2012

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

text: of the European

text: Parliament and of the Council and

text: Commission Directive 2006/70/EC

text: (OJ L 141, 5.6.2015, p. 73). 12 See paragraph 3.2 of Opinion

text: and paragraph 2.10 of Opinion

text: See Article 16 of the draft law.

title: Opinion of the European Central Bank of 1 February 2019 on limitations to cash payments (CON/2019/4)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 1 February 2019 on limitations to cash payments (

text: ) Introduction and legal basis

text: On 28 November 2018 the European Central Bank (ECB) received a request from the Banco de España, on behalf of the Spanish State Secretary for Finance, for an opinion on a draft law on measures for the prevention of and fight against fiscal fraud, transposing

text: Council Directive (EU) 2016/1164

text: of July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market and

text: Council Directive (EU) 2017/1852 of 10 October 2017

text: on tax dispute resolution mechanisms in the European Union, and on the amendment of specific tax rules (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 second indent of

text: , as the draft law relates to means of payment. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: 1.1 The draft law intends to reinforce the prevention of and fight against fiscal fraud. One of the measures it provides for is an amendment to Law 7/2012 further limiting the amounts that can be paid in cash in transactions where at least one of the parties acts in a professional or business capacity. 1.2 It is proposed that the existing cash payment limit be lowered from EUR 2 500 to EUR 1 000 in the case of transactions where at least one of the parties acts in a professional or business capacity. The existing cash payment limit is also lowered from EUR 15 000 to EUR 10 000 where the payer is a natural person not having their tax residence in Spain and not acting in a professional or business capacity. The existing limit of EUR 2 500 for payments made by natural persons not acting in a professional or business capacity and having their tax residence in Spain will not be modified, to minimise the draft law’s collateral effects on households. For the purpose of calculating the applicable limits, where payment for the delivery of goods or the performance of services which comprise one transaction has been divided into more than one transaction or payment, those transactions or payments will be added together. Moreover, it will continue to be the case that these

text: limitations do not apply to transactions between parties not acting in a professional or business capacity, or to payments and deposits made with credit institutions. The draft law also modifies certain procedural aspects of the cash payment limitation regime’s sanctioning procedure. These provisions are intended to apply to all payments made following the entry into force of the draft law, including payments which relate to transactions agreed prior to the introduction of the proposed limitations.

text: 2. General observations

text: 2.1 The ECB understands that, under the draft law, a) a limit of EUR 1 000 applies to cash payments in transactions where the payer acts in a professional or business capacity, regardless of the location of the parties’ tax residence; b) a limit of EUR 2 500 applies to cash payments from natural persons not acting in a professional or business capacity who are tax residents in Spain to parties acting in a professional or business capacity; c) a limit of EUR 10 000 applies to cash payments from natural persons not acting in a professional or business capacity who are not tax residents in Spain to parties acting in a professional or business capacity; d) no limit applies to cash payments in transactions where none of the parties are acting in a professional or business capacity; and e) no limit applies to cash payments and deposits made with credit institutions. 2.2

text: Commission Recommendation 2010/191/EU

text: states that the acceptance of payments in cash should be the rule, but acknowledges that cash may be refused for reasons related to the ‘good faith principle’, without this constituting a breach of the legal tender status of cash. Neither Union law nor Recommendation

text: explicitly addresses whether, nor to what extent, it may be permissible to introduce a more general limitation to the obligation to accept euro cash payments. Therefore, Union law must be interpreted in order to ascertain the conditions that a limitation on payments in euro notes and coins should fulfil, including the conditions that should be fulfilled to comply with the legal tender status of euro banknotes and coins when general limitations to the obligation to accept cash payments are introduced . 2.3 Without prejudice to the specific considerations in paragraphs 3.1 to 3.4, the draft law, in its general provisions, must comply with Union law; in particular, any limitation to cash payments needs to comply with the legal tender status of euro banknotes . In this context, recital 19 of Council Regulation (EC) No 974/984 states that ‘limitations on payments in notes and coins, established by Member States for public reasons, are not incompatible with the status of legal tender of euro banknotes and coins, provided that other lawful means for the settlement of monetary debts are available’ . Additionally, these limitations should also be effective and proportionate to the objectives pursued and not go beyond what is necessary to achieve such objectives, in order to comply with

text: the legal tender status of euro banknotes. 2.4 The ECB acknowledges that the draft law’s objective of preventing and combating tax evasion may, in general, constitute a ‘public reason’ justifying the establishment of limitations on cash payments. The ECB also considers that other lawful means for the settlement of monetary debts are available in Spain . However, these other means may have different characteristics compared to cash and are not in all cases fully equivalent alternatives to cash payments. 2.5 Limitations on cash payments should, additionally, fulfil the proportionality requirement described in paragraph 2.3 above, especially in view of the fact that the measures set out in the draft law affect transactions between natural persons and involve payments of relatively small amounts. Any negative impact of the proposed limitations should therefore be carefully weighed against the anticipated public benefits. When considering whether a limitation is proportionate, the adverse impact of the limitation in question should always be considered, as well as whether alternative measures could be adopted that would fulfil the relevant objective and have a less adverse impact . 2.6 Furthermore, it should be borne in mind that the ability to pay in cash remains particularly important for certain groups in society that, for various legitimate reasons, prefer to use cash rather than other payment instruments. Cash is generally also appreciated as a payment instrument because it is widely accepted, fast and facilitates control over the payer’s spending. Moreover, it is a means of payment that allows citizens to instantly settle a transaction and is the only method of settlement in central bank money and at face value which does not carry the legal possibility of imposing a fee for the use of this means of payment. Also, cash payments do not require a functional technical infrastructure and related investment, and are always available; this is of particular relevance in the case of outage of electronic payments. Additionally, cash payments facilitate the inclusion of the entire population in the economy by allowing it to settle any kind of financial transaction in this way .

text: 3. Specific observations

text: 3.1 The explanatory memorandum to the draft law mentions that for transactions where the payer is a natural person (not acting in a professional or business capacity) with a tax residence in Spain, no change in the threshold of EUR 2 500 is proposed in order to minimise the draft law’s collateral effects on households. Apart from this one exception, the explanatory memorandum does not address the social impact of the proposed substantial lowering of the limits on cash payments. 3.2 The proposed EUR 1 000 limit on cash payments needs to take into account the advantages of having limits on cash payments in place and the potential inconvenience thereof for regular transactions in certain market segments. In this regard, it should be noted that

text: Directive (EU) 2015/849

text: of the European Parliament and of the Council , while confirming the vulnerability of large

text: cash payments to money laundering and terrorist financing, requires that persons trading in goods, who are otherwise not obliged entities under that Directive, be classified as obliged entities and apply customer due diligence measures only to the extent that payments are made or received in cash in amounts of EUR 10 000 or more. This implies that the draft law should establish a proportionate threshold for limits on cash payments, taking into account the objectives of such limits . Against this background, the ECB considers the lowering of the limit on cash payments in transactions where the payer is acting in a professional or business capacity to EUR 1 000 to be disproportionate, in the light of the potentially adverse impact on the cash payment system. Indeed, this limit makes it more difficult to settle legitimate transactions using cash as a means of payment, thus endangering the concept of legal tender enshrined in the Treaty . Moreover, as experience within the Union has shown, certain cashless payment instruments may be temporarily unavailable as they depend on the underlying technical infrastructure operated by payment service providers. In such contingencies transactions in cash above the cash payment limits may be required. 3.3 Regarding the limit of EUR 10 000 for cash payments made by natural persons not acting in a professional or business capacity who are not tax residents in Spain to parties acting in a professional or business capacity, there seems to be no justification as to why a different standard should be established for payments made by non-residents; this seems to discriminate against payments made by residents . 3.4 The sanctioning regime established by the draft law seems excessive and, in particular, the fine of 25% of the amount paid appears disproportionately high. The ECB reiterates that limitations on cash payments should not go beyond what is necessary to achieve their objectives, and that any negative impact of the proposed limitations should be carefully weighed against the anticipated public benefits. When considering whether a limitation is proportionate, the adverse impact of the limitation in question should always be considered. A sanction that would apply to any breach, regardless of the underlying situation, does not seem to comply with the proportionality requirement .

text: Done at Frankfurt am Main, 1 February 2019.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI