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: 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: Decision ECB/2014/5 of the European Central Bank of 31 January 2014 on the close cooperation with the national competent authorities of participating Member States whose currency is not the euro (OJ L 198, 5.7.2014, p. 7).

text: Regulation (EU) No 468/2014

text: of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation) (ECB/2014/17) (OJ L 141, 14.5.2014, p. 1).

text: Zakon o kreditnim institucijama (Narodne novine no 159/13, 19/15, 102/15 and 15/18).

text: Regulation (EU) No 575/2013

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

text: Regulation (EU) No 648/2012

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

text: Article 3 of the draft law (introducing

text: Articles 11

text: a(9), (10) and (13) of the Law on credit institutions).

text: Article 3 of the draft law (introducing

text: Article 11

text: a(12) of the Law on credit institutions).

text: See paragraph 3.2.1 of Opinion

text: Article 3 of the draft law (introducing

text: Article 11

text: a(2) of the Law on credit institutions).

text: Article 2 of the draft law (introducing item (103) in Article 3 of the Law on credit institutions).

text: See new

text: Article 11

text: a(2) of the Law on credit institutions.

text: In particular for the purpose of new

text: Article 11

text: a(2) of the Law on credit institutions.

title: Opinion of the European Central Bank of 8 July 2019 on national legislation to be adopted for the purpose of establishing close cooperation between the European Central Bank and Hrvatska narodna banka (CON/2019/25)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 8 July 2019 on national legislation to be adopted for the purpose of establishing close cooperation between the European Central Bank and Hrvatska narodna banka (

text: ) Introduction and legal basis

text: On 27 May 2019 the European Central Bank (ECB) received a request from Hrvatska narodna banka (HNB), on behalf of the Croatian Minister for Finance, for an opinion on a draft law on amendments to the Law on credit institutions (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 HNB and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets, 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.

text: 1. Purpose of the draft law

text: 1.1 Introduction The draft law was prepared in the broader context of the request filed on 27 May 2019 by the Republic of Croatia to establish close cooperation between the ECB and HNB, in line with the existing procedures established under

text: Article 7 of Council Regulation (EU) No 1024/2013

text: (hereinafter the ‘SSM Regulation’) and under Decision ECB/2014/5 of the European Central Bank . The draft law ensures the implementation of the SSM Regulation and

text: Regulation (EU) No 468/2014

text: of the European Central Bank (hereinafter the ‘SSM Framework Regulation’) . In this respect, the draft law introduces changes to the Law on Credit institutions to comply with the

text: prerequisites for the establishment of close cooperation between the ECB and the national competent authority (NCA) of a Member State whose currency is not the euro, in order to allow the ECB to carry out its tasks concerning the prudential supervision of credit institutions established in that Member State. The draft law focuses on two main issues: (a) ensuring that the NCA will abide by any guidelines or requests issued by the ECB; and (b) ensuring that all credit institutions established in Croatia will provide all information that the ECB may require for the purpose of carrying out a comprehensive assessment of those credit institutions. 1.2 Role of the ECB and HNB once close cooperation is established 1.2.1 For the purposes of close cooperation, the draft law includes definitions set out in the SSM Framework Regulation, in particular definitions for: (a) an NCA in close cooperation; (b) a supervised entity and significant supervised entity; (c) a supervised group and significant supervised group; and (d) a less significant supervised entity and less significant supervised group. The draft law also includes a definition for legal acts of the ECB. 1.2.2 Furthermore, the draft law puts an obligation on HNB to abide by any guidelines or requests issued by the ECB, and to adopt any measure in relation to credit institutions requested by the ECB. The draft law further provides that legal acts adopted by the ECB pursuant to the SSM Regulation shall be directly applicable in the Republic of Croatia. Additionally, the draft law specifies that whenever the ECB exercises its supervisory powers and performs its supervisory tasks referred to in Articles 4 and 5 of the SSM Regulation, in performing its supervisory tasks and exercising its supervisory powers or the powers of the designated authority, HNB shall adopt decisions in accordance with the instructions, requests or guidelines issued by the ECB. The draft law further specifies the following. Whenever the ECB exercises its supervisory powers and performs its supervisory tasks as referred to in

text: Article 4(1)

text: and (2) of the SSM Regulation in relation to significant supervised entities or significant supervised groups, in performing its supervisory tasks and exercising its supervisory powers, HNB shall adopt decisions only upon the request of and in accordance with the ECB's specific instructions, guidelines, requests and measures. In addition, whenever the ECB exercises its supervisory powers and performs its supervisory tasks referred to in

text: Article 4(1)

text: (a) and (c) of the SSM Regulation in relation to less significant supervised entities or less significant supervised groups, in performing its supervisory tasks and exercising its supervisory powers, HNB shall adopt decisions only upon the request of and in accordance with the ECB's specific instructions, guidelines, requests and measures. Finally, whenever the ECB exercises its supervisory powers and performs its supervisory tasks referred to in

text: Article 4(1)

text: (b), (d) to (g), and (i) of the SSM Regulation in relation to less significant supervised entities or less significant supervised groups, in performing its supervisory tasks and exercising its supervisory powers, HNB shall adopt decisions upon the request of and in accordance with the ECB’s instructions, guidelines, requests and measures. 1.2.3 The draft law also refers to the exercise of macroprudential tasks under Article 5 of the SSM Regulation and specifies that whenever the ECB exercises its supervisory powers and performs its supervisory tasks referred to in that Article, in exercising its powers as macroprudential authority, HNB shall adopt decisions in accordance with the instructions, requests or guidelines issued by the ECB. Additionally, where HNB acts as designated authority for the purposes of

text: Article 458(1)

text: of

text: Regulation (EU) No 575/2013

text: of the European Parliament and of the Council or adopts any other measures aimed at addressing systemic or other macroprudential risks, whenever the ECB exercises its supervisory powers and performs its supervisory tasks referred to in Article 5 of the SSM Regulation, in accordance with Article 7 of the SSM Regulation, HNB shall act in accordance with the instructions issued by the ECB. 1.2.4 The draft law further specifies a termination procedure in the event that termination is initiated under Article 7(8) of the SSM Regulation, whereby a Member State whose currency is not the euro disagrees with a decision of the ECB and may request the ECB to terminate the close cooperation with immediate effect. The draft law provides that in the event of termination of close cooperation, the legal acts of the ECB adopted pursuant to the SSM Regulation shall cease to be applicable in the Republic of Croatia. 1.3 Provision of information for the purpose of conducting a comprehensive assessment of credit

text: With regard to the comprehensive assessment of the credit institutions established in the Republic of Croatia to be carried out by the ECB pursuant to

text: Article 7(2)

text: (b) of the SSM Regulation, the draft law provides that the ECB or any person empowered by the ECB shall be directly provided with all necessary information, and that such provision of information shall not be considered a disclosure of a business or banking secret. Additionally, for the purposes of the comprehensive assessment, the ECB or any person empowered by the ECB may: (a) request credit institutions to submit documentation; (b) carry out a review of books and documentation of credit institutions, including obtaining copies of such documentation; (c) request written and oral explanations from credit institutions and from their employees; and (d) for the purpose of collecting information, interview any person it considers as having relevant information, provided such person provides their explicit consent. 1.4 Termination of close cooperation The draft law provides that the close cooperation provisions of the Law on credit institutions will cease to apply either: (a) from the date of termination of close cooperation pursuant to Article 7 of the SSM Regulation, or (b) from the date on which the derogation pursuant to Article 139 of the Treaty is abrogated in respect of the Republic of Croatia in accordance with Article 140(2) of the Treaty.

text: 2. General observations

text: 2.1 The ECB welcomes the draft law as part of the process leading to the establishment of close cooperation between the ECB and HNB pursuant to Article 7 of the SSM Regulation. The ECB notes that the request for and adoption of this opinion are necessary on the basis of

text: Article 2

text: and

text: Article 3(2)

text: (b) of Decision ECB/2014/5.

text: 2.2 It is important to emphasise that, pursuant to Article 7(2) of the SSM Regulation and

text: Article 3(2)

text: (b) of Decision ECB/2014/5, the scope of this opinion pertains to the national legislation to be adopted by the Republic of Croatia to ensure that legal acts adopted by the ECB pursuant to the SSM Regulation are binding and enforceable in the Republic of Croatia and to ensure that HNB is obliged to adopt any measure requested by the ECB in relation to the supervised entities in accordance with Article 7(4) of the SSM Regulation. 2.3 The ECB notes that this opinion is without prejudice to the assessment to be conducted by the ECB in accordance with Article 4 of Decision ECB/2014/5, which will include a broader assessment of the relevant national legislation, also taking into account the practical implementation of such legislation.

text: 3. Observations regarding close cooperation between ECB and HNB

text: 3.1 Establishment and termination of close cooperation 3.1.1 The ECB welcomes the introduction of new provisions into the Law on credit institutions aimed at addressing in a cohesive manner several aspects related to the establishment and operation of close cooperation with the ECB. The ECB understands that the new provisions will be read in accordance with the other provisions of the Law on credit institutions, so that the exercise of prudential supervision over credit institutions established in the Republic of Croatia will take place under the framework provided for in the SSM Regulation. 3.1.2 The ECB also welcomes that the application of the new provisions of the Law on credit institutions will be linked to the duration of the close cooperation between the ECB and HNB, starting from the date on which close cooperation will begin as indicated in the ECB decision establishing close cooperation, until termination of close cooperation either under Article 7 of the SSM Regulation or from the date on which the derogation pursuant to Article 139 of the Treaty is abrogated in respect of the Republic of Croatia in accordance with Article 140(2) of the Treaty. This approach will facilitate the transition from one system to the other and will ensure clarity with respect to the applicable legal framework before, during and after close cooperation. 3.1.3 With respect to the request to terminate close cooperation, the ECB understands that the draft law regulates the coordination between the HNB and the Government of the Republic of Croatia, and does not affect the application of

text: Article 7(6)

text: , (7) and (8) of the SSM Regulation. In this respect, it is noted that the draft law mirrors the scope of Article 7(7) of the SSM Regulation, which nevertheless remains the relevant applicable legal basis regulating the reasoned disagreement procedure. 3.2 Role of the ECB and HNB once close cooperation is established 3.2.1 In order to ensure that supervised entities and groups established in a Member State in close cooperation will be in a position comparable to supervised entities and groups established in euro area Member States, Article 7 of the SSM Regulation states as a precondition for the establishment of close cooperation that the requesting Member State ensures that its NCA abides by any

text: guidelines or requests issued by the ECB and that it adopts the relevant national legislation to ensure that its NCA will be obliged to adopt any measure in relation to credit institutions requested by the ECB. This requirement is further specified under

text: Article 3(2)

text: (a) of Decision ECB/2014/5, which provides that the relevant national legislation has to ensure that acts adopted by the ECB under the SSM Regulation are binding and enforceable . 3.2.2 Against this background, the ECB welcomes the provisions of the draft law that ensure that HNB will abide by any guidelines or requests issued by the ECB, and will adopt any measure in relation to credit institutions requested by the ECB, including adopting decisions in accordance with the instructions, requests or guidelines issued by the ECB. In particular, the ECB understands that the provisions of the draft law aim to ensure compliance with the abovementioned requirements and that the ECB is able to exercise its supervisory powers and perform its supervisory tasks under the framework of close cooperation. In this respect, the ECB highlights the importance of having in place a legal framework providing HNB with all necessary powers to comply with all instructions which the ECB may adopt under the SSM Regulation. 3.2.3 Lastly, the ECB welcomes the clarification in the draft law on the exercise of its supervisory powers and the performance of its supervisory tasks in respect of significant and less significant credit institutions, in particular that HNB will act only upon the ECB’s request for the supervision of significant credit institutions and in the context of common procedures. 3.3 Applicability of ECB legal acts 3.3.1 The ECB notes that the draft law provides that ECB legal acts adopted pursuant to the SSM Regulation will be binding and enforceable in the Republic of Croatia. The ECB therefore understands that such cross-reference will be sufficient to ensure applicability of ECB legal acts and that no additional primary or secondary provision will need to be adopted for each individual legal act. 3.3.2 The ECB also notes that the definition of “legal acts of the ECB” included in the draft law refers to “regulations, decisions, recommendations and opinions that European Central Bank adopts in accordance with Article 34 of the Statute of the European System of Central Banks and of the European Central Bank”. This definition would exclude from the scope of application of the draft law other legal acts which the ECB could adopt under the SSM Regulation, most importantly guidelines. For this reason, the ECB is of the view that, for the purpose of the draft law , it would be more opportune to either: (a) use in the definition the same wording as

text: Article 3(2)

text: (a) of the ECB decision establishing close cooperation, which refers to “legal acts adopted by the ECB pursuant to

text: Regulation (EU) No 1024/2013

text: ”, in which case the reference to

text: Regulation (EU) No 1024/2013

text: in Article 3 of the draft law, introducing

text: Article 11

text: a(2) of the Law on credit institutions, should be omitted; or (b) delete the definition of "legal acts of the ECB" in Article 2 of the draft law, introducing item (103) in Article 3 of the Law on credit institutions, since the legal acts that the ECB

text: may adopt pursuant to the SSM Regulation are already referred to in

text: Article 3

text: , introducing

text: Article 11

text: a(2) of the Law on credit institutions. 3.4 Provision of information for the purpose of a conducting comprehensive assessment of credit

text: 3.4.1 The ECB understands that the draft law aims to ensure compliance with the undertaking of the Republic of Croatia to provide the ECB with all information on credit institutions established in Croatia that the ECB may require for the purpose of carrying out a comprehensive assessment of those credit institutions, in line with

text: Article 7(2)

text: (b) of the SSM Regulation. In particular, it is understood that HNB, as the consulting authority, is fulfilling this undertaking by imposing obligations directly upon credit institutions. 3.4.2 Nonetheless, it is stressed that this approach should not be read as affecting the position of the ECB in relation to Croatian credit institutions or as conferring powers on the ECB which may go beyond what is provided for under the SSM Regulation. It is emphasised that even after the establishment of close cooperation, HNB will remain the authority responsible for adopting decisions addressed to Croatian credit institutions. It is understood that this will also be the case for the purpose of the assessments necessary to establish close cooperation, in line with the Treaty and the SSM Regulation.

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

text: Done at Frankfurt am Main, 8 July 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: 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: See ECB Convergence Report 2016, p.25.

text: See paragraph 2.5 of Opinion

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

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 9 July 2019 on the payment of funds to uninformed holders of subordinated bonds and minority shareholders who held shares in banks in which the Republic of Slovenia had a majority shareholding affected by Banka Slovenije’s extraordinary measures (CON/2019/26)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 9 July 2019 on the payment of funds to uninformed holders of subordinated bonds and minority shareholders who held shares in banks in which the Republic of Slovenia had a majority shareholding affected by Banka Slovenije’s extraordinary measures (

text: ) Introduction and legal basis

type: rubrik

text: On 10 May 2019 the European Central Bank (ECB) received a request from the President of the Slovenian National Assembly for an opinion on a draft law on payment of funds to uninformed holders of subordinated bonds and minority shareholders who held shares in banks in which the state had a majority shareholding affected by Banka Slovenije’s extraordinary measures adopted on 17 December 2013, 19 November 2014 and 16 December 2014 (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third indent of

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

text: , as the draft law relates to Banka Slovenije, as well as the specific tasks conferred upon the ECB pursuant to Article 127(6) of the Treaty concerning the prudential supervision of credit institutions. 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 purpose of the draft law is to compensate the minority shareholders of credit institutions in which the state had a majority shareholding for politically motivated, non-economical and ineffective governance of the relevant credit institutions by the Republic of Slovenia and to compensate the holders of qualified liabilities who were misled into investing in subordinated bonds by those credit institutions. 1.2 The draft law sets out the grounds and procedural rules for payment of compensation to the minority shareholders in the relevant credit institutions and holders of qualified liabilities in the relevant credit institutions which were written off as a consequence of the extraordinary measures concerning the recapitalisation of six Slovenian credit institutions adopted by Banka Slovenije on 17 December 2013, 19 November 2014 and 16 December 2014. Banka Slovenije ordered the

text: credit institutions to write-off all eligible liabilities, including equity capital, hybrid capital and subordinated debt, without offering compensation. 1.3 The beneficiaries under the draft law are natural persons who were: (1) minority shareholders of Nova Kreditna banka Maribor d.d. or Nova Ljubljanska banka d.d. on 17 December 2013 and registered in the central registry of dematerialised securities as such, and (2) holders of qualified liabilities in the credit institutions affected by the relevant extraordinary measures adopted by Banka Slovenije on 17 December 2013, 19 November 2014 and 16 December 2014. 1.4 The draft law regulates the calculation of payments and limits the amount of payments to be made to beneficiaries to a maximum of EUR 10 000 per shareholder and EUR 100 000 per qualified liability The amount to be paid to each shareholder is determined by multiplying the number of ordinary, registered, freely transferable shares with voting rights owned by each shareholder that was registered in the central registry of dematerialised securities on 17 December 2013 by the book value of such shares as on 31 December 2012. The basis for the compensation to be paid to the former holders of qualified liabilities is the principal amount increased by the amount of interest agreed between the creditor and the bank at the time the purchase agreement was concluded. The beneficiaries will be compensated within 30 days after the draft law enters into force. Moreover, the draft law specifies that in cases where beneficiaries are awarded damages in other court proceedings, any amounts paid under the draft law would be set off against such damages. 1.5 Banka Slovenije has an obligation under the draft law to gather information and data regarding each beneficiary who is a holder of qualified liabilities affected by the relevant extraordinary measures adopted by Banka Slovenije, including the name and address of such beneficiaries and the date and amount of their claims. Banka Slovenije must provide the detailed information to the relevant ministry within three working days after the adoption of the draft law. 1.6 The draft law provides that all costs related to the payments will be paid by the Republic of Slovenia.

text: 2. Observations

text: 2.1 The ECB understands that the information and data to be provided by Banka Slovenije under the draft law is limited to information and data relating to the holders of qualified liabilities that were affected by the relevant extraordinary measures adopted by Banka Slovenije. This information and data were obtained on the basis of Slovenian legislation before the Single Supervisory Mechanism was established pursuant to

text: Council Regulation (EU) No 1024/2013

text: and, in any case, will not be used under the draft law in a way that would affect the tasks conferred upon the ECB pursuant to that Regulation. 2.2 The ECB understands that the draft law constitutes a cooperation arrangement between Banka Slovenije and the relevant ministry responsible for the implementation of the draft law. The draft

text: law provides that Banka Slovenije must provide information and data relating to the holders of qualified liabilities that were affected by the relevant extraordinary measures adopted by Banka Slovenije to the authorities. In this respect, the ECB notes the principle of financial independence of national central banks which requires that Member States do not put their national central banks in a position where they have insufficient financial resources to carry out their Eurosystem-related tasks, both from an operational and a financial perspective . The ECB understands that the cooperation arrangement with the relevant ministry should not create any material financial risks for Banka Slovenije in this respect since the duty of Banka Slovenije is confined to providing the relevant information on a one-off basis to the relevant ministry within three working days after the draft law is adopted. Should the practical implications of the draft law cause a regular, lasting and substantial engagement of Banka Slovenije’s resources to the extent that such assistance constitutes a new task for Banka Slovenije, then the ECB must be informed in order to reassess the draft law and the obligations imposed on Banka Slovenije in relation to the prohibition on monetary financing under Article 123 of the Treaty.

text: Done at Frankfurt am Main, 9 July 2019.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI

type: vagledning

utgivare: ecb


text: Judgement of the Court of Justice of 20 September 2017, Andriciuc and Others,

text: , ECLI:EU:C:2017:703.

text: Council Directive 93/13/EEC of 5 April 1993

text: on unfair terms in consumer contracts (OJ L 95, 21.4.1993, p. 29).

text: See Opinion

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

text: For further information on lending in foreign currencies in the Union see the Annex to Recommendation of the European System Risk Board (

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

text: See, for example, paragraph 2.1 of Opinion

text: See, for example, paragraph 2.2 of Opinion

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). 9 See Article 43(1) of the Directive

text: See the paragraphs of the Opinions referred to in footnote 7. 11 See, for example, judgement of the Court of Justice of the European Union of 10 March 2009, Heinrich,

text: , ECLI:EU:C:2009:140. 12 See, for example, judgement of the Court of Justice of the European Union of 16 May 1979, Tomadini,

text: , ECLI:EU:C:1979:129. 13 See paragraph 2.2.3 of Opinion

text: . 14 See paragraph 3.1.1 of Opinion

text: . 15 See paragraph 3.2.1 of Opinion

text: . 16 See paragraph 3.2.2 of Opinion

text: 18 Europe , as the ECB has previously noted . As part of a comprehensive solution to NPL resolution, the development of secondary markets may contribute to reducing NPLs. Looking ahead, well-functioning secondary markets may also prevent stocks of NPLs building up in the future. Moreover, a well-functioning secondary market may have a positive effect on financial stability to the extent that it could facilitate the transfer of the risks of NPLs off credit institutions' balance sheets. The presence of significant volumes of NPLs on credit institutions' balance sheets reduces their ability to fulfil their function as providers of credit to the real economy and hampers the operational flexibility and overall profitability that are essential to a well-functioning banking sector. It is essential that the legal framework applicable to secondary markets enables the efficient transfer of NPLs off the balance sheet of credit institutions, an aspect with regard to which the draft law may introduce uncertainty . 3.2.5 As a consequence of the draft law, Slovenian credit institutions will incur new losses with regard to NPLs already removed from their balance sheets. As the ECB has pointed out on previous occasions , the ability of financial institutions to effectively manage credit risk depends on a reliable, predictable and stable legal framework that adequately balances the interests of both the creditor and the debtor. In this respect, it is important to carefully consider the impact of the draft law in order to ensure legal certainty, and to prevent moral hazard from arising in the relationship between creditor and debtor. If credit institutions are deprived of efficient tools to work out NPLs in an effective and timely manner, this could result in unnecessarily high levels of NPLs and private sector debt, which in turn have an adverse impact on financial stability and could undermine future credit supply. 3.2.6 Additionally, the Slovenian credit institutions that transferred their NPL portfolio to third parties, have also handed over all relevant documentation regarding the transferred loans to the new creditors who were fully aware of the nature of the loans prior to that transaction. The draft law could therefore interfere with the commercial agreements between the credit institutions and the purchasers of loans and cause disproportionate operational costs for credit institutions. 3.2.7 To conclude, the draft law must carefully balance the benefits of creating well-functioning secondary markets for NPLs against the impetus to protect debtors . In addition, the draft law would benefit from a thorough impact assessment. 3.3 Effects on the financial stability 3.3.1 The ECB has pointed out on several occasions the risks associated with foreign currency loans . In particular, foreign currency loans have constituted a major risk to financial stability in several

text: See the Council's press release of 11 July 2017 on the ‘Council conclusions on Action plan to tackle non-performing loans in Europe’, available on the Council's website at: http://www.consilium.europa.eu. 18 See paragraph 1.1. of Opinion

text: . 19 See paragraph 2.2.1 and 2.2.2 of Opinion

text: . 20 See, for example, paragraph 2.2.4 of the Opinion

text: . 21 See paragraph 2.2.3 of the Opinion

text: . 22 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: However this does not seem to be the case in Slovenia. 24 See, for example, paragraph 3.3.2 of Opinion

text: . 25 See, for example, paragraph 3.3.3 of Opinion

text: . 26 See, for example, paragraph 3.4.1 of Opinion

text: Article 380 of the Law of 2015 on banking. 28 See Law of 2016 on consumer credit. 29

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). 30 Article 123 of the Treaty also serves the objective of maintaining price stability and reinforces central bank independence.

text: See, for example, paragraph 4.2.1 of Opinion

text: See paragraph 4.3.1 of Opinion

text: . 33 See paragraph 4.3.2 of Opinion

text: . 34 The Central Bank of Cyprus was entrusted with sanctioning powers in relation to the compliance of credit institutions with restrictions regarding the variation of the interest rates on credit facilities imposed by Cypriot Law 160(I)/1999 and supervisory tasks relating also to civil law aspects in the area of payment services and mortgage credit. In connection with the performance of these tasks the Central Bank of Cyprus may also request and review privately negotiated contracts between credit institutions and their customers. 35 Magyar Nemzeti Bank has a supervisory role in connection with the compliance by credit institutions with legal requirements relating to the conversion of foreign currency denominated consumer loans, including loans denominated in Swiss francs, as defined in applicable laws (e.g. Law XXXVIII of 2014 and Law XL of 2014, both as amended by Law LXXVIII of 2014, Law XXVII of 2014, Law LII of 2015 (amending Law XL of 2014) and Law CXLV of 2015). The performance of these supervisory tasks involves the verification of compliance by credit institutions, which includes also the review of privately negotiated contracts between credit institutions and their customers. See Opinion

text: . 36 Hrvatska narodna banka carries out oversight over credit institutions’ compliance with the Law on credit institutions, which includes compliance with internal bylaws of credit institutions governing the relationship with their clients, contracts concluded and consumer protection provisions. 37 Česka Narodni Banka has been assigned tasks related to consumer protection, including supervision of compliance by supervised entities of the observance of the prohibition of unfair business practices and supervision of rules regarding consumer discrimination or the obligation to inform about prices. 38 See, for example, paragraph 3.4.2 of Opinion

text: . 39 Banca d'Italia has been assigned with tasks in relation to the supervision, from a transparency perspective, of the terms of banking and financial agreements between credit institutions and non-credit institution lenders. 40 Narodna Banka Slovenska has powers in the area of the protection of financial consumers, which include a preliminary assessment of unfair commercial practices of supervised entities and unacceptable conditions in contracts for the provision of financial services. The scope of this supervision does not include the adjudication of disputes between the supervised entities and their customers. 41 See for example, paragraph 3.4.2 of Opinion

text: . 42 See paragraph 4.3.2 of Opinion

text: See, for example, paragraph 4.4.1 of Opinion

text: . 44 See, for example, paragraph 4.5.1 of Opinion

text: . 45 See, for example, paragraph 4.6.1 of Opinion

text: . 46 See Article 79 of the Law on consumer credit (Zakon o potrošniških kreditih).

text: See paragraph 4.8.1 of Opinion

text: . 48 See paragraph 4.9.1 of Opinion

text: . 49 See paragraph 4.10.1 of Opinion

title: Opinion of the European Central Bank of 18 July 2019 on the conversion of Swiss franc loans (CON/2019/27)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 18 July 2019 on the conversion of Swiss franc loans (

text: ) Introduction and legal basis

text: On 15 May 2019 the European Central Bank (ECB) received a request from the National Assembly of the Republic of Slovenia (hereinafter the ‘National Assembly’) for an opinion on a draft law on relations between lenders and borrowers concerning credit agreements in Swiss francs (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: , as the draft law relates to Banka Slovenije and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: 1.1 The purpose of the draft law is to restructure consumer loans denominated in, or linked to, Swiss francs (hereinafter ‘Swiss franc loans’), by requiring credit institutions established in Slovenia to convert Swiss franc loans concluded between 28 June 2004 and 31 December 2010 into loans denominated in euro. 1.2 The draft law aims to place borrowers of Swiss franc loans in the same position that they would have been in had their loans been denominated in euro from inception. To this end, the draft law sets out the following conversion mechanisms: (i) the principal amount of the Swiss franc loans will be converted into euro at the exchange rate set out in the credit agreement applicable on the date the Swiss franc loans were drawn by the borrowers. In case the principal amount was paid out in euro at the time of drawdown then, for the purposes of the conversion, the actual amount as paid out in euro is to be taken into account; (ii) the agreed interest rate will be converted into another interest rate, comprising the interbank interest rate in the euro area at the date on which the loan was drawn and the same margin agreed in the loan agreement. The agreed period for recalculations of the interest rate remains unaltered. According to the explanatory memorandum on the draft law, using the interbank interest rate in the euro area in the conversion mechanism

text: protects the legitimate business interests of credit institutions by enabling the usual interest rates for euro denominated loans to be taken into account; (iii) the lender is required to prepare a new loan repayment schedule calculated in accordance with the measures set out above and using the same methodology as for the original repayment schedule; (iv) the instalments that have already been paid by the borrower in line with the original repayment schedule will be converted into euro at the exchange rate applicable on the date of payment of each instalment. In case the instalments were repaid in euro then, for the purposes of the conversion, the actual amount of the instalments as repaid in euro is to be considered. Paid instalments will serve as the basis for settling the amounts due under the new loan repayment schedule, whereby the same order for settling obligations as under the original loan agreement is to be used; (v) the creditor shall prepare a new amortisation plan for existing credits which have been repaid ahead of schedule, taking any overpayments into account; (vi) if the total amount of instalments already paid by the borrower and converted in euro (as described in point (iv) above) is higher than the total amount of converted instalments calculated according to the new loan repayment schedule (referred to in point (iii) above), this amount will be considered an ‘overpayment’. Depending on the amount of this overpayment, it will be treated as follows: a. if the amount of the overpayment does not exceed the sum of converted instalments that are still to be paid in line with the new repayment schedule, the overpayment will be proportionally distributed for the settlement of future outstanding instalments, and the loan agreement will remain in force; b. if the amount of the overpayment exceeds the total sum of a converted Swiss franc loan that the borrower has to repay in line with the new repayment schedule, then the lender must return this overpayment to the borrower within 30 days from the date the borrower confirms the conversion proposal and the loan agreement will be terminated. 1.3 The conversion of Swiss franc loans applies to loans concluded between 28 June 2004 and 31 December 2010, irrespective of the current credit balance. The draft law requires lenders to prepare new repayment schedules and sets out supplementary conversion rules. With respect to loans that were acquired by new creditors, the draft law provides that the original lenders are required to pay the new creditors the difference calculated by comparing the original amount to the amount a borrower would owe the new creditor had the amount transferred been calculated according to the new amortisation plan. 1.4 The lender must prepare a new repayment schedule and recalculate the existing Swiss franc loans and submit these to the borrower along with the conversion proposal within 30 days of the entry into force of the draft law. The borrower must confirm or reject the conversion proposal within 30 days of its receipt.

text: 1.5 The conversion procedures under the draft law are to be supervised by Banka Slovenije, which is also to act as the competent minor offence authority in case of breaches of the provisions of the draft law. 1.6 The draft law provides that the lender, although required to propose and perform the conversion of Swiss franc loans for the borrower, also has the right to challenge the conversion before a court within six months following the conversion. The creditor may challenge the conversion if the credit agreement or the documentation shows that certain criteria had been complied with at the time the relevant credit agreements were concluded. A creditor may challenge the conversion if, prior to concluding the credit agreement, the borrower signed all of the following documents: (i) a document stating a contractual condition governing the repayment of the obligation in a foreign currency, drawn up in clear and understandable language; (ii) a document stating he or she was informed of all elements that could affect the scope of his or her obligation; (iii) a document stating that he or she was given a warning on the possibility of exchange rate changes and of risks arising from a Swiss franc denominated transaction; (iv) a document stating that he or she was shown calculations on the economic effects of possible exchange rate fluctuations on his or her total obligation to repay under the agreement; (v) a document containing an example of an actual foreign currency credit in the past period showing risks associated with foreign currency credit; and (vi) a document showing that the creditor offered the borrower insurance for currency risks or used an upper limit risk, thereby preventing significant imbalance in the rights and obligations of the parties. Even if a creditor complies with the above criteria, the court shall also assess (i) the existence of a significant imbalance between the parties when a conversion is contested, and (ii) if the creditor should have known the agreement creates a significant imbalance between the parties as a result of which the condition is unfair and thus unlawful. The explanatory memorandum to the draft law sets out criteria for informed consent in relation to point (ii), which are based on, inter alia, the reasoning in a judgement of the Court of Justice of the European Union concerning the interpretation of

text: Council Directive 93/13/EEC

text: . 1.7 Additionally, the draft law addresses the issue of conversion of transferred credits. Creditors who have transferred their loans to third parties are required to pay the transferee the difference calculated by comparing the amount of the transferred credit to the amount a borrower would owe the transferee of the receivable had the amount transferred been calculated according to the new amortisation plan on the day the receivable was transferred. If the borrower’s debt to the transferee of the receivable is lower than that calculated difference, the creditor shall pay the borrower the difference. 1.8 According to the explanatory memorandum, the objective pursued by the draft law is to implement the constitutional principle of the ‘welfare state’ and to introduce sanctions for breaches of obligations arising under contractual relationships, thereby providing legal protection for consumers who have taken out Swiss franc loans. The explanatory memorandum questions the legality of linking credit agreements to Swiss franc, in particular in a euro area country with a stable currency, where loans were granted mainly in euro. The explanatory memorandum argues that the use of

text: currency clauses, the risk of which is predominantly borne by borrowers, is an unfair practice used by credit institutions, in particular combined with the lack of informed consent by the borrowers of Swiss franc loans.

text: 2. General observations

text: 2.1 The ECB issued an opinion on a similar Slovenian draft law [which was never enacted into law] in 2018 . 2.2 Prior to the global financial crisis, borrowing in foreign currencies by households and non-financial 5 6 corporations was popular in several Member States . As previously noted by the ECB , the lower interest rates applicable to foreign currency loans compared to loans in the domestic currency increased the demand for such loans. According to the documentation included in the explanatory memorandum and the draft law, the majority of Swiss franc loans were and still are mortgage loans and were granted by foreign-owned credit institutions. 2.2.1 The ECB notes that the draft law anticipates that the conversion of the outstanding and already terminated Swiss franc loans to loans denominated in euro will be voluntary only for the borrowers. The ECB also notes that the draft law provides for the possibility for credit institutions to challenge the conversion after it has been implemented, restoring the parties to the position they were in under the terms of the original Swiss franc loan, if they can prove in court that the borrower entered into the Swiss franc loan on the basis of informed consent, as defined in the draft law. 2.3 Legal aspects on retroactivity 2.3.1 As previously noted by the ECB, introducing measures with retroactive effect undermines legal certainty and is not in line with the principle of legitimate expectations , and may also interfere with acquired rights. 2.3.2

text: Article 23(1) of Directive 2014/17/EU

text: of the European Parliament and of the Council , which applies to credit agreements in existence from 21 March 2016 , stipulates that Member States shall ensure that an appropriate regulatory framework is in place for credit agreements in respect of foreign currency loans to ensure, at a minimum, that (a) the consumer has a right to convert the credit agreement into an alternative currency under specified conditions or (b) there are other arrangements in place to limit the exchange rate risk to which the consumer is exposed under the credit agreement.

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

text: allows Member States to further regulate foreign currency loans provided that such regulation is not applied with retroactive effect. The retroactive effect of the draft law is not in line with the general aim of Article 23(5) of Directive

text: , which reflects one of the general principles of Union law, namely the principle of 11 12 legal certainty that supports the limitation of retroactive laws . 2.3.3 It is for the Slovenian authorities to assess whether the retroactive character of the draft law also complies with Slovenian legal and constitutional principles .

text: 3. Specific observations

text: 3.1 Eligibility criteria 3.1.1 The draft law does not prescribe any specific criteria for borrowers to be eligible to participate in the conversion. For example, the draft law does not impose an upper limit to the amount of the credit extended which would limit the risk of moral hazard . 3.2 Effects on the banking sector 3.2.1 The implementation of the draft law is expected to entail financial costs for the Slovenian banking sector. Credit institutions may be affected to different degrees to the extent that they have concluded Swiss franc loans between 28 June 2004 and 31 December 2010. This, in turn, is expected to have a negative impact on the profitability, capitalisation and future lending capacity of the banking sector as a whole . It is worth mentioning that determining the extent of such impact is difficult since the draft law has not benefited from an impact assessment conducted by the competent national authorities. 3.2.2 It should also be noted that the conversion will lead to a one-off increase in operational costs for the affected credit institutions in Slovenia, in particular due to the restructuring of existing hedges, refinancing measures, and the costs associated with the obligation to recalculate the Swiss franc loans in order to notify each borrower individually thereof . 3.2.3 An additional concern is that the draft law puts the entire burden of conversion of Swiss franc denominated loans into euro denominated loans on the originator credit institutions even if, in the interim, originators had already transferred the loans (as non-performing loans, ‘NPLs’) to third parties, as is the case of numerous Slovenian credit institutions. Such provisions in the draft law represent an important impediment to the effective and resolution of NPLs as the originator credit institutions would not have been able to effectively transfer NPLs off their balance sheet. The reasoning behind NPL transfers is inter alia to remove uncertainty with regard to potential future losses associated with the transferred assets. 3.2.4 The ECB has been a strong proponent of the development of secondary markets for credit institution assets, particularly NPLs, as reflected in the EU Council’s action plan to tackle NPLs in

text: 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 ESRB in Recommendation

text: . 3.3.2 As regards the long-term effects on financial stability, 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 in order to avoid moral hazard in the future . The explanatory memorandum argues that the interests of credit institutions are taken into account in the draft law, for example, in the conversion process higher interest rates are to be used for the preparation of the new repayment schedules, reflecting common practices in euro denominated loans. However, the draft law provides for the replacement of the previously agreed interest rate with the interbank interest rate in the euro area for recalculation purposes, whereas the original loan-based margin remains the same, which appears to potentially deviate from the common practices of credit institutions which typically apply a higher loan-based margin for euro denominated loans than for Swiss franc denominated loans. 3.3.3 As the ECB has noted previously , given that Slovenia only joined the euro area in 2007, the conversion of any loans from Swiss franc into euro between 2004 and 2007 could result in an unequal treatment of other customers, depending on exchange rate developments between the Slovenian tolar and Swiss franc during this period. A reconciliation method may therefore be needed to reflect exchange rate developments between the tolar, Swiss franc and euro during this period. 3.4 Effects on the Slovenian economy 3.4.1 As the ECB has noted previously , the conversion of Swiss franc loans with retroactive effect, as envisaged by the draft law, could have negative effects if it were to lead to a deterioration of both foreign and domestic investor sentiment, and trust in the system, due to a perceived increase in legal uncertainty and country risk.

text: 4. Conferral of new tasks on Banka Slovenije

text: 4.1 New task of Banka Slovenije 4.1.1 The draft law confers the task of supervising the conversion procedures in relation to credit institutions on Banka Slovenije and designates Banka Slovenije as the competent minor offence authority in case of a breach of the provisions of the draft law. The draft law does not specify in detail the scope of this new task. The ECB understands that the Banka Slovenije’s supervisory task in this respect would essentially require Banka Slovenije to supervise the compliance of credit institutions with the requirements of the draft law in relation to the restructuring of their private contractual relationships with individual customers in the context of the conversion of Swiss franc denominated loans into euro denominated loans. Banka Slovenije has been designated as the competent minor offence authority in relation to breaches of the draft law, within the scope of the

text: performance of its prudential supervisory tasks over credit institutions , and also has, to a certain extent, an existing customer protection role . However, Banka Slovenije has no comparable responsibilities in respect of the supervision of the compliance of credit institutions with the legal requirements relating to the restructuring of privately negotiated loan contracts by credit institutions with their customers. The draft law therefore confers a new task upon Banka Slovenije. 4.1.2 The ECB underlines that a proposed conferral of new tasks on a national central bank (NCB) in the European System of Central Banks must be assessed against the prohibition on monetary financing under Article 123 of the Treaty. 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 vis-à-vis third parties’. 4.1.3 Ensuring that Member States implement a sound budgetary policy is one of the key objectives of the monetary financing prohibition, which may not be circumvented . Therefore, the task of financing measures, which are normally the responsibility of the Member States, and which are financed from their budgetary sources rather than by the NCBs, must not be entrusted to NCBs. To decide what constitutes financing of the public sector’s obligations vis-à-vis third parties, which can be translated as the provision of central bank financing outside the scope of central bank tasks, it is necessary to carry out, on a case-by-case basis, an assessment of whether the task to be undertaken by an NCB is a central bank task or a government task, i.e. a task within the responsibility of the Member States. In other words, adequate safeguards must be in place to ensure that circumventions of the objective of the monetary financing prohibition of maintaining a sound budgetary policy of Member States do not take place. 4.1.4 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 (hereinafter 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 upon 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 Article 128(1) of the Treaty, as well as

text: Article 22

text: and Article 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, i.e. tasks that are not related to tasks that have been conferred upon the ECB and the NCBs, are not precluded per se. However, new tasks that are undertaken by an NCB and which are

text: atypical of NCB tasks or which are clearly 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: (a) whether the performance of the new task creates 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 not be interpreted broadly, so as to lead to the creation of an indefinite chain of ancillary tasks. Such complementarity should be examined in relation to the financing of those tasks; (b) 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; (c) 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; (d) whether the performance of the new task harbours substantial financial risks; (e) 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. 4.1.5 On the basis of the criteria set out above, the following paragraphs assess whether the new task of Banka Slovenije is in line with the prohibition of monetary financing. 4.2 Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of

text: the ESCB

text: 4.2.1 As previously noted by the ECB , supervising the compliance of credit institutions with the requirements of the draft law in relation to the restructuring of privately negotiated loan contracts with their customers is not among the basic central banking tasks listed in

text: Article 127(2)

text: or (5) of the Treaty or otherwise conferred upon the NCBs by the Statute of the ESCB. The new task conferred on Banka Slovenije does not form part of the prudential supervisory tasks of Banka Slovenije. Thus, the new task conferred on Banka Slovenije under the draft law is not directly related to the tasks conferred on the ECB and the NCBs by the Treaty and the Statute of the ESCB. Consequently, a careful assessment of the conferral of this task on Banka Slovenije is required in order to determine whether it constitutes a government task, and whether the related funding gives rise to monetary financing concerns.

text: 4.3 Tasks which are atypical of NCB tasks

text: 4.3.1 As previously noted by the ECB , the new task conferred on Banka Slovenije by the draft law

text: relates to the supervision of the compliance by credit institutions with the requirements under the

text: draft law relating to the restructuring of privately negotiated loan agreements between credit institutions and their customers. Banka Slovenije’s new task can be seen, to a certain extent, as

text: being related to the protection of consumers.

text: 4.3.2 As previously noted by the ECB , it is necessary to analyse whether this new task is atypical of

text: NCB tasks. While the majority of NCBs do not appear to have been assigned tasks of this nature,

text: the ECB has identified two Member States where NCBs have been given similar tasks. In Cyprus

text: and Hungary , the NCBs have been given tasks relating to the supervision of the compliance by

text: credit institutions with the legal requirements in relation to the restructuring of private, contractual

text: loan agreements between credit institutions and their customers. In the case of Hungary, these

text: tasks are substantially similar to the tasks to be conferred on Banka Slovenije under the draft law.

text: In addition, the NCBs in Croatia , the Czech Republic , Ireland , Italy and Slovakia have been

text: given similar supervisory tasks relating more generally to consumer protection and the

text: transparency of loan arrangements. In this regard, also taking into account the consumer protection

text: roles which are currently fulfilled by numerous ESCB NCBs in the field of financial services , the

text: new task does not appear to be completely atypical of NCB tasks. However, the new task would be considered as atypical if Banka Slovenije’s supervisory role would extend to the resolution of

text: disputes between contractual parties, which is a matter that is usually handled by the courts .

text: 4.4 Tasks clearly discharged on behalf of and in the exclusive interest of the government

text: 4.4.1 According to the explanatory memorandum, the objective of the draft law is to implement the constitutional principle of the ‘welfare state’ and to introduce sanctions for breaches of obligations arising under contractual relationships, thereby providing legal protection to a number of consumers who have taken out Swiss franc loans. The draft law is therefore intended to provide protection to consumers of financial services. As previously noted by the ECB , the NCB ‘is best placed to assess the terms and conditions of loan contracts entered into by consumers and the impact of the new legal measures on financial institutions. Within the scope of its tasks, the [NCB] can contribute to the prevention and mitigation of systemic risks to financial stability’. Due to the retroactive application of the draft law, it is not clear whether the draft law would effectively guarantee the fulfilment of the objective of protecting consumers of financial services. Thus, there is a potential risk that, in carrying out its supervisory functions, Banka Slovenije would act exclusively in the interest of another public entity. 4.5 Extent to which performance of the new task creates conflicts of interest with existing central bank

text: tasks

text: 4.5.1 As previously noted by the ECB , it may be considered that the new task at least partially complements other similar existing supervisory and consumer protection tasks of Banka Slovenije. As with other consumer protection tasks, sufficient mitigation measures must be put in place to ensure that in the event of a conflict of interest supervisory considerations prevail. 4.6 Extent to which performance of the new task is disproportionate to the financial or organisational

text: capacity of Banka Slovenije

text: 4.6.1 As previously noted by the ECB , the principle of financial independence requires that Member States may not put their NCBs in a position where they have insufficient resources to carry out both their ESCB-related tasks and their national tasks, from an operational and financial perspective. Furthermore, when allocating specific new tasks to NCBs, each NCB concerned should have sufficient financial and human resources at its disposal to ensure that the tasks can be carried out without impacting on the NCB’s financial or operational capacity to perform its ESCB tasks. In order to ensure that Banka Slovenije’s capacity to perform its ESCB-related tasks is not impaired, Banka Slovenije must, therefore, be in a position to avail itself of the necessary resources to carry out its duties under the draft law. At this early stage, it is difficult to predict what additional resources Banka Slovenije will require in order to perform its new supervisory task under the draft law. However, it is likely that Banka Slovenije will have to dedicate additional human, technical and financial resources to implement this new supervisory task. This may impose an additional burden on existing central banking and supervisory tasks performed by Banka Slovenije. While supervised entities are required to pay fees to Banka Slovenije in respect of the performance of its supervisory tasks under the Law on consumer credit , the draft law does not provide for Banka Slovenije to be reimbursed for the costs of carrying out this new task. The ECB invites the consulting authority to consider the impact of the draft law on the resources of Banka Slovenije.

text: 4.7 Extent to which performance of the new task fits into the institutional set-up of Banka Slovenije, in the light of central bank independence and accountability considerations 4.7.1 The potential impact of the new task on the institutional, financial and personal independence of Banka Slovenije must also be taken into consideration. 4.8 Extent to which the performance of tasks harbours substantial financial risks 4.8.1 The draft law does not contain any specific provisions on liability in relation to the exercise of Banka Slovenije’s powers under the draft law or the failure to exercise such powers. Banka Slovenije’s potential liability in respect of the performance of the new task will thus be subject to the rules on liability for damages caused in the exercise of public authority pursuant to the Law on banking and the general liability regime under Slovenian law. As previously noted by the ECB , the general liability regime would also apply with respect to any potential damages in connection with decisions of Banka Slovenije delivered in supervisory proceedings pursuant to the draft law which are later declared to be invalid in the courts. 4.9 Extent to which the performance of the new task exposes members of the decision-making bodies of Banka Slovenije to disproportionate political risks and impacts on their personal independence 4.9.1 As previously noted by the ECB , due to the sensitivity of the subject matter and the high degree of public attention being given to the restructuring of Swiss franc loans in Slovenia, due consideration should be given to any disproportionate political risk or impact on the personal independence of the members of the decision-making bodies of Banka Slovenije that may arise in the performance of the new task. In this respect, consideration might be given to the possibility of conferring this task on a separate government agency to which Banka Slovenije could provide technical support in view of its expertise and experience in dealing with the Slovenian banking sector. 4.10 Conclusion 4.10.1 As previously noted by the ECB , the following should be noted as regards the compatibility of the draft law with the prohibition on monetary financing. The new task of Banka Slovenije of supervising the compliance of credit institutions with the requirements under the draft law in relation to the restructuring of privately negotiated loan agreements between credit institutions and their customers can be regarded as a central bank task. However, as the new task conferred upon Banka Slovenije by the draft law must not adversely affect its capacity to carry out its NCB or ESCB-related tasks, careful consideration should be given to its impact on Banka Slovenije’s operational capacity. In addition, careful consideration should be made of any disproportionate political risk or impact on the personal independence of the members of the decision-making bodies of Banka Slovenije that may arise in the performance of the new task.

text: Done at Frankfurt am Main, 18 July 2019. [signed]

text: The President of the ECB

text: Mario DRAGHI


text: EUT C 235, 12.7.2019, s. 1.

sprak: sv

title: ECB-rådets yttrande av den 25 juli 2019 om rådets rekommendation om utnämning av Europeiska centralbankens ordförande (CON/2019/28)

text: Inledning och rättslig grund

text: Den 16 juli 2019 mottog Europeiska centralbanken (ECB) en begäran från Europeiska rådets ordförande om ett yttrande över rådets rekommendation av den 9 juli 2019 om utnämning av Europeiska centralbankens ordförande.

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

text: artikel 283.2 i fördraget om Europeiska unionens funktionssätt

text: Allmänna kommentarer

text: 1. I rådets rekommendation, som överlämnats till Europeiska rådet och som Europaparlamentet och ECB-rådet nu ska yttra sig över, föreslås att Christine LAGARDE utnämns till ordförande för ECB för en tidsperiod om åtta år från och med den 1 november 2019.

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

text: 3. ECB-rådet har ingen invändning mot rådets rekommendation att utnämna Christine LAGARDE till ordförande för 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. Prawo bankowe (Dz. U. z 2018 r., poz. 2187, z późn. zm.).

text: See paragraph 1.1 of Opinion

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

text: See paragraph 3.1.1 of Opinion

text: and paragraph 2.3.1 of 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: (COM(2018) 94 final). 6 See the first paragraph under ‘General observations’ in Opinion

text: . 7 See paragraph 2.1 of Opinion

text: See paragraph 2.4 of Opinion

text: , paragraph 2.4.4 of Opinion

text: , paragraph 2.2.2 of Opinion

text: , paragraph 2.3 of Opinion

text: , paragraph 2.3 of Opinion

text: , and paragraph 2.2 of Opinion

text: . 9 See paragraph 3.8 of Opinion

text: , paragraph 4.3 of Opinion

text: , and paragraph 3.2 of Opinion

title: Opinion of the European Central Bank of 9 August 2019 on restrictions on transfers of mortgage claims (CON/2019/29)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 9 August 2019 on restrictions on transfers of mortgage claims (

text: ) Introduction and legal basis

text: On 10 July 2019 the European Central Bank (ECB) received a request from the Polish Sejm (Parliament) for an opinion on a draft law amending the Law on banking (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: Article 2(1) of Council Decision 98/415/EC

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 Under the Law on banking , in order to establish a mortgage for the benefit of a bank, the owner of an immovable property (hereinafter the ‘property owner’) must submit a written statement of consent, confirming the creation of a mortgage in favour of the bank. This statement is necessary in order to record a mortgage in the land and mortgage register. 1.2 The draft law provides that the requirement to submit such a written statement of consent applies, mutatis mutandis, in the case of the transfer of a mortgage in connection with the disposal of bank claims.

text: 2. General observations

text: 2.1 The ECB understands that the amendment introduced by the draft law should be interpreted as requiring the written consent of a property owner to transfer any bank claim secured by a mortgage established for the benefit of a bank, without distinguishing between the purpose and the means of the transfer. This would include, inter alia, transfers for the purpose of creating asset-backed securities or security over pools of credit claims or transfers to specialised institutions for the purpose of issuing covered bonds.

text: 2.2 The effect of the draft law would be to render the type of asset transfers required to utilise these financial instruments and techniques significantly more difficult for Polish credit institutions. However, all of these instruments and techniques are important for the funding and, thus, the functioning of the Polish banking sector. 2.3 The ECB also understands that the provisions of the draft law are limited to the banking sector. This implies that only transfers of mortgage claims established for the benefit of a credit institution would require the written consent of the property owner. This places Polish credit institutions in a disadvantageous position compared to other market participants, who would be able to acquire or dispose of mortgage claims without the need to obtain the consent of the property owner for such a transaction. 2.4 The ECB also understands that the draft law applies not only to the transfer of ‘new’ mortgages, i.e. those created after the enactment of the draft law, but also to transfers of ‘existing’ mortgages, i.e. those created prior to the enactment of the draft law. Hence, the draft law may raise issues of legal certainty in respect of the validity of such transfers.

text: 3. Specific observations

text: 3.1 Impact on securitisation and covered bond markets 3.1.1 The ECB has a strong interest in the sustainable revival of the European securitisation market. Securitisation is a form of asset-based financing with the capacity both to channel flows of credit to the real economy and to transfer risk . A healthy European securitisation market is important to ensure well-functioning capital markets in the Union. Particularly where credit institutions’ capacity to lend to the real economy is constrained, securitisation can act as a fresh source of funding and free up capital for lending . 3.1.2 At Union level, the ECB supports the proposal for a directive of the European Parliament and the Council on the issue of covered bonds and covered bond public supervision , aimed at facilitating the creation of a developed, harmonised, high-quality and transparent covered bond market in the Union, which is important for promoting further integration of Union financial markets and deepening the Capital Markets Union (CMU) . At national level, in the case of Poland, the ECB has welcomed the legal framework introduced in the past to promote the development of the Polish covered bond market . 3.1.3 In this context, the draft law must carefully balance the benefits of well-functioning securitisation and covered bond markets against the impetus to protect debtors. In this respect, the ECB notes

text: that the draft law is being introduced without the benefit of a thorough impact assessment. It is only by making such a prior assessment that it may be possible both to determine whether the draft law could achieve its aim, and to mitigate any negative implications. In the absence of an impact assessment, however, it is difficult to ascertain whether the objectives set by the draft law will be achieved . 3.1.4 The ECB has concerns that the draft law would, by making it more difficult for credit institutions to resort to securitisations or issue covered bonds, have significant adverse effects on Polish credit institutions’ funding situation and their capacity to properly manage their balance sheets. In particular, the draft law would impact the true sale securitisation structures of Polish credit institutions. 3.2 Compliance with Polish constitutional and other legal principles It is for the Polish authorities to assess whether the draft law, including its potentially retroactive character, complies with Polish constitutional and other legal principles, in particular property rights. For its part, the ECB notes that introducing measures with retroactive effect would undermine legal certainty and not be in line with the principle of legitimate expectations .

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

text: Done at Frankfurt am Main, 9 August 2019.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI


text: Ο περί Αγοραπωλησίας Πιστωτικών Διευκολύνσεων και για Συναφή Θέματα Νόμος του 2015 (Ν. 169(I)/2015). 2

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 3 Ο περί Τιτλοποιήσεων Νόμος του 2018 (N. 88(I)/2018). 4 Ο περί της Μεταβίβασης Τραπεζικών Εργασιών και Εξασφαλίσεων Νόμος του 1997 (Ν. 64(I)/1997).

text: Ο περί Συμβάσεων Πίστωσης για Καταναλωτές σε σχέση με Ακίνητα που προορίζονται για Κατοικία Νόμος του 2017 (Ν. 41(I)/2017). 6

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: (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1).

text: See Article 17 of the draft law, which amends Article 18 of the Law, for the provisions referred to in this paragraph. 8 All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 9 See Articles 17, 20 and 21 of the Law. 10 See paragraph 3.1 of Opinion

text: and paragraph 2.1 of Opinion

text: See paragraph 2.4.1 of Opinion

text: . 12 See paragraph 2.2.5 of Opinion

text: and paragraph 3.2.3.5 of Opinion

text: . 13 See Article 16 of the Law. 14 See paragraph 3.1.1, 3.1.6 and 3.1.8 of Opinion

text: . 15 See the Council’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to tackle non-performing loans in Europe’, available on the Council’s website at www.consilium.europa.eu 16 See, for example, Section B of the ECB’s November 2016 Financial Stability Review, available at www.ecb.europa.eu. 17 See paragraph 2.2.1 of Opinion

text: and paragraph 1.1 of Opinion

text: . 18 See paragraph 2.2.2 of Opinion

text: and paragraph 1.2 of Opinion

text: . 19 See paragraph 2.2.4 of Opinion

text: See paragraph 1.3, and

text: Article 4

text: (f) of the Law (as inserted by Article 4 of the draft law). 26 See Articles 6, 8, 9, 10, 11, 12, 13 and 14 of the Law, respectively. 27 See paragraph 1.7. 28 See

text: Article 4

text: A(4) of the Law, as added by Article 5 of the draft law. 29 The term ‘group of companies’ is defined in the draft law by reference to the Companies Law, Cap 113, as a group of companies comprising the holding company and the subsidiary company or companies.

text: See paragraph 3.3 of Opinion

title: Opinion of the European Central Bank of 16 August 2019 on the sale and purchase of credit facilities (CON/2019/30)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 16 August 2019 on the sale and purchase of credit facilities (

text: ) Introduction and legal basis

text: On 6 June 2019 the European Central Bank (ECB) received a request from the Ministry of Finance of Cyprus for an opinion on a draft law amending the Law on the sale and purchase of credit facilities of 2015 (hereinafter the ‘draft law’). On 9 July 2019 the Ministry of Finance submitted a new request for an opinion on a revised version of 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: , as the draft law relates to the Central Bank of Cyprus (CBC) and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets, and the tasks conferred on the ECB pursuant to Article 127(6) of the Treaty concerning policies relating to the prudential supervision of credit institutions. 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 aim of the draft law is to improve certain aspects of the Law on the sale and purchase of credit facilities of 2015 (hereinafter the ‘Law’). In brief, the Law governs the sale and purchase of credit facilities in Cyprus and grants the CBC the power to authorise, regulate and supervise entities that wish to engage in transactions for the acquisition and sale of credit facilities. 1.2 The Law currently applies to credit facilities afforded to an individual or to a small or micro enterprise or group of affiliated enterprises the total balance of which does not exceed EUR 1 million, above which threshold the Law is not applicable. The draft law abolishes this threshold and provides for exemptions from the Law’s scope of application in respect of transactions that are subject to foreign law, the Law on securitisation of 2018 or the Law on transfer of banking activities of 1997 . The draft law also removes existing exemptions from the Law’s scope of application with respect to credit facilities that (a) have been granted by a credit institution or a branch of a credit institution to a natural person not permanently domiciled in Cyprus or to a legal

text: entity not registered in Cyprus; or (b) concern activities or investments outside Cyprus; or (c) are secured by a mortgage on an immovable property or an encumbrance located outside Cyprus. 1.3 The draft law also expands the list of legal persons entitled to purchase credit facilities under the Law, by adding institutions that engage in immovable property transactions in accordance with the Law on credit agreements for consumers relating to residential immovable property of 2017 and legal entities that have secured the prior written consent of the CBC following a substantiated and duly justified application that explains why they are not required to apply for authorisation as a credit acquiring company. The Law currently provides that a seller of credit facilities needs to be one of the entities eligible to purchase credit facilities or any other legal entity that has secured the CBC’s prior written consent for this purpose. The draft law removes this requirement and simply allows eligible purchasers to acquire credit facilities from any non-authorised entity in possession of such credit facilities. 1.4 Furthermore, the draft law establishes a framework for the licensing of credit servicers by the CBC and brings credit services under the CBC’s supervisory scope. The draft law sets out the application procedure for the licensing of servicers and the procedures for the suspension and termination of these licences. It provides that any material changes that affect the information or documents submitted to the CBC as part of that procedure, the appointment of any member of the management of an authorised servicer and any increase or decrease in any special participation rights in the ownership structure of authorised servicers must be notified to and, where appropriate, approved by the CBC. The draft law also sets out the rules as regards the appointment of servicers by entities authorised to carry out credit activities in accordance with the Law, which include the requirement to enter into a written agreement with these entities governing the servicing of the credit facilities portfolio. The CBC may determine the minimum terms and requirements of such agreements by way of issuing directives. 1.5 The draft law also allows credit servicers that engage in the collection and recovery of debt collection and the renegotiation with borrowers of the terms of credit facilities to obtain access to data related to serviced credit facilities. In particular, credit servicers may submit requests to the CBC for access to the CBC’s credit registry as regards the credit facilities they are to manage, and the CBC may accept or reject such requests. A request may only be granted for the purpose of servicing the credit facilities in accordance with the relevant outsourcing agreement and on the basis of the criteria and terms and conditions laid down by the CBC by way of issuing directives or in any other manner. If the CBC approves a request, the servicer will also be entitled to have access to the database of the Department of Lands and Surveys. The explanatory memorandum notes that such access to data will enable credit servicers to assess the borrowers’ creditworthiness, resulting in a more effective evaluation of their repayment ability and in improvement of the proposed restructuring solutions, and that this is in compliance with

text: Regulation (EU) 2016/679

text: of the European Parliament and of the Council .

text: 1.6 In addition, the draft law provides that entities that intend to sell credit facilities must notify their security providers, as well as the underlying borrowers and their guarantors, and provide them with the opportunity to submit within 45 days from the date of notification a proposal for the purchase of the relevant credit facilities. It also introduces an exemption from this ex ante notification requirement in respect of credit facilities sold within the same group of companies. The transferor, at the time of the transfer and/or on the date of publication of the notice to the relevant governmental departments, must notify, free of charge, the registrar of the competent court and the Department of Lands and Surveys in relation to any proceedings which are pending before them, and such notification will constitute a final notification with regard to the transfer of the underlying credit facilities and their finality. The draft law requires the Registrar of Companies, the Department of Lands and Surveys, the Cyprus Stock Exchange and any other relevant governmental department to update their records to show the name of the new holder of the credit facilities. The transfer of credit facilities and collateral pursuant to the Law should not be subject to any charges or tax . 1.7 Finally, the draft law expands the ex post notification requirement to cover not only underlying borrowers, but also security providers and guarantors, the Registrar of Companies, the Department of Lands and Surveys, the Cyprus Stock Exchange and other relevant governmental departments. Accordingly, the seller and the purchaser are required (a) within 15 days from the transfer of the credit facilities to jointly and by post notify the underlying borrowers, the security providers and the guarantors of the transfer of the credit facilities and related collateral of the contact details of the persons that will be handling these facilities and the updated account details, and (b) on the date of the transfer or no later than the next business day to jointly and by means of personal service notify the abovementioned governmental departments of the sale and transfer of the credit facilities and provide them with the necessary information for the purposes of updating their records.

text: 2. General observations

text: 2.1 The ECB recalls that it was consulted on the draft version of the Law and issued its observations in Opinion

text: . 2.2 Tasks of the CBC 2.2.1 The draft law complements the CBC’s existing tasks, particularly in respect of the supervision of regulated financial service providers and regulated businesses. However, it does not confer genuinely new tasks on the CBC in this area. For example, in respect of credit acquiring companies, the CBC already has powers to authorise and supervise such entities, to make them subject to the CBC’s directives, and to take enforcement measures against them . Consequently, the issue of assessing the conferral of new tasks on a national central bank (NCB) from the perspective of the prohibition of monetary financing does not arise . The ECB notes, in any event, that the principle of financial independence requires that the Member States may not put their

text: NCBs in a position where they have insufficient financial resources to carry out their European System of Central Banks (ESCB) or Eurosystem-related tasks . Therefore, when allocating specific non-ESCB related tasks to the NCBs, additional personnel and financial resources must also be allocated so that these tasks may be carried out in a manner that will not affect the NCBs’ operational or financial capacity to perform their ESCB or Eurosystem-related tasks . 2.2.2 Furthermore, the ECB notes that, according to the Law, credit acquiring companies must pay an annual fee of EUR 3 000 in order to cover the costs incurred by the CBC in carrying out its supervisory functions . The ECB wishes to reiterate that a more flexible mechanism for determining the fee level would be more appropriate, with a view to safeguarding the CBC’s financial independence. For example, it may be useful to include a provision in the Law that will allow the fees to be increased, if needed . In addition, the ECB suggests that the legislator considers whether, for the sake of consistency, the Law should also cater for the reimbursement of the CBC for costs incurred in the context of the licensing and supervision of credit servicers. 2.3 Impact on secondary markets for credit institution assets 2.3.1 The ECB has been a strong proponent of the development of secondary markets for bank assets, particularly non-performing loans (NPLs), as reflected in the Council’s action plan to tackle NPLs in Europe . In the context of the large stocks of NPLs that remain on the balance sheet of some European credit institutions, and as part of a comprehensive solution to NPL resolution , the development of secondary markets may contribute to reducing NPLs. Looking ahead, wellfunctioning secondary markets may also prevent stocks of NPLs building up in the future . 2.3.2 Moreover, a well-functioning secondary market may have a positive effect on financial stability to the extent that it could facilitate the transfer of the risks of NPLs off credit institutions’ balance sheets. The presence of significant volumes of NPLs on credit institutions’ balance sheets reduces their ability to fulfil their function as providers of credit to the real economy and hampers the operational flexibility and overall profitability that are essential to a well-functioning banking sector. It is essential that the legal framework applicable to secondary markets enables the efficient transfer of NPLs off the balance sheet of credit institutions . 2.3.3 While risk transfer through asset sales, securitisation and other measures may be effective in reducing NPLs, risk reduction measures remain, nevertheless, an important channel, particularly in a context where NPL stocks are high. In that regard, and in the context of a comprehensive solution to NPL resolution, the originating credit institutions’ internal procedures for handling the work-out of NPLs themselves will always remain important .

text: 2.4 Impact on securitisation 2.4.1 The ECB has a strong interest in the sustainable revival of the European securitisation market. As a form of asset-based financing with the capacity both to channel flows of credit to the real economy and to transfer risk, securitisation has particular significance for the transmission of monetary policy. A healthy European securitisation market is important to ensure well-functioning capital markets in the Union. Particularly where credit institutions’ capacity to lend to the real economy is constrained, securitisation can act as a fresh source of funding and free up capital for lending. Securitisation may also have a positive effect on financial stability to the extent that it can facilitate the transfer of the risks of NPLs off credit institutions’ balance sheets . Securitisation is one of a variety of options that banks may apply alone or in combination with other measures, such as borrower-creditor engagement, to address the issues posed by NPLs . 2.4.2 The ECB understands that the draft law intends to exempt securitisations from its scope. The ECB welcomes this intention, as this will ensure that the draft law does not discourage securitisation activity . 2.5 Interaction with prospective Union legislative measures 2.5.1 Finally, the ECB notes that on 3 March 2018, the Commission published its proposal for a Directive of the European Parliament and of the Council on credit servicers, credit purchasers and the recovery of collateral . This proposal seeks to set out a common Union framework and requirements for credit servicers, credit purchasers, and for the recovery of collateral in respect of credit agreements concluded with business borrowers, with a view to ensuring a high level of consumer protection and a level playing field across the Union. If this proposed Directive is adopted by the European Parliament and the Council, its provisions will be transposed into Cypriot law, potentially requiring further amendment of the rules applicable to credit ownership and credit servicing .

text: 3. Specific observations

text: 3.1 The ECB takes note of the abolition of the current threshold of EUR 1 million, above which the Law is not applicable as regards sales of credit facilities to natural persons and micro and small enterprises. The ECB understands that, by abolishing this threshold, the Law will become applicable as regards any kind of credit transaction undertaken by the entities set out in the Law, except in respect of transactions which are subject to foreign law, securitisations and transfers of banking activities. It is understood that, as a result of this amendment, any entity wishing to engage in credit transactions in Cyprus will need to comply with the requirements of the Law and, in particular, with authorisation requirements and ex ante and ex post notification requirements. 3.2 The ECB also takes note of the expansion of the list of legal persons entitled to purchase credit facilities under the Law and, in particular, the inclusion of legal entities that have been granted prior 20 See paragraphs 3.1.1 and 3.1.2 of Opinion

text: and paragraph 2.3.1 of Opinion

text: . 21 See paragraph 2.3.1 of Opinion

text: . 22 See paragraph 2.3.2 of Opinion

text: . 23 COM(2018) 135 final. 24 See paragraph 2.4.5 of Opinion

text: written consent from the CBC . It is understood that these legal entities will not fall within the supervisory scope of the CBC and that, in particular, the provisions concerning changes to qualifying holdings, suspension and revocation of authorisation, supervision, minimum capital, assessment of management bodies, submission of information and the carrying out of investigations apply only in relation to credit acquiring companies and credit services . The consulting authority may nonetheless consider whether these provisions should also apply to legal entities that have obtained the CBC’s prior written consent. In addition, from a technical drafting perspective, the words ‘or natural person’ in Article 4 of the draft law may need to be removed as the rest of the provision refers only to legal persons. 3.3 As regards the revised ex post notification requirements, the ECB understands that by requiring the transferor and the transferee to notify not only the underlying borrowers as regards completed credit transactions but also their guarantors and security providers, as well as the relevant governmental departments , the legislator may have intended to achieve greater transparency and to ensure that the records held by these departments are kept up to date. However, the consulting authority may need to consider the potential implications that the requirement to notify the guarantors and security providers might have in practice, and in particular whether it might create a risk of judicial challenge on procedural grounds, for example in a situation where one security provider has not been properly notified or not notified at all, and whether this may potentially create an obstacle to the smooth execution of transactions for the sale and purchase of credit facilities. 3.4 The draft law requires the CBC to issue a directive governing the procedure for approving or rejecting applications for authorisation of credit servicers . The ECB understands that, on the basis of this provision, the CBC will not be able to consider any applications submitted by credit servicers until it has first issued a directive setting out the applicable procedure that it would need to follow. This, however, may have the consequence of delaying the practical implementation of the Law with regard to the granting of authorisations to servicers until such time as the CBC issues the relevant directive. It is therefore proposed that the wording of the relevant article should be revised in a manner that would allow, rather than require, the CBC to issue a directive regulating its internal authorisation procedure. 3.5 The ECB also takes note of the intragroup exemption introduced with regards to the ex ante notification requirements. It is understood that the purpose of this exemption is to alleviate the notification burden in respect of credit transactions carried out within the same group of companies . 3.6 Finally, the ECB reiterates its understanding that the Cypriot authorities opted not to impose express limits on leverage and liquidity requirements on credit acquiring companies, in order to

text: offer wider opportunities for new companies entering the market for such services, with a view to facilitating private debt restructuring . This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 16 August 2019. [signed]

text: The President of the ECB

text: Mario DRAGHI