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).

title: Opinion of the European Central Bank of 21 October 2016 on a modification of the remuneration formula in respect of the French livret A (CON/2016/51)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 21 October 2016 on a modification of the remuneration formula in respect of the French livret A (

text: ) Introduction and legal basis

text: On 4 October 2016 the European Central Bank (ECB) received a request from the French Ministry of Economy and Finance for an opinion on a draft regulatory provision (hereinafter the ‘draft amendment’) amending the remuneration formula in respect of the livret A, which is a type of French savings account. 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 amendment relates to (a) the basic task of the European System of Central Banks (ESCB) of implementing the monetary policy of the Union pursuant to the first indent of Article 127(2) of the Treaty, (b) the Banque de France and (c) the 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 amendment

text: 1.1 The purpose of the draft amendment is to modify the calculation formula for setting the annual nominal remuneration rate of the livret A. 1.2 The livret A is a short-term, i.e. fully liquid, tax-free savings instrument. The total level of savings under the livret A and livret de développement durable (sustainable growth savings account), which is fairly similar to the livret A, currently amounts to approximately 350 billion euro. Credit institutions collect savings under the livret A, but approximately 60% of the collected savings are centralised by a special fund of the Caisse des dépôts et consignations (CDC, Deposits and Consignments Fund). The bulk of the funds centralised by the CDC is used to finance social housing, with the remainder used to finance small and medium-sized enterprises. 1.3 Currently the remuneration rate of the livret A is calculated by the Banque de France, in accordance with its standard revision procedure, twice a year on 15 January and 15 July. The Banque de France may depart from this standard revision procedure in the event of steep rises or falls in the inflation rate or in money market rates by initiating, on 15 April or 15 October, a revision of the anticipated remuneration rates applicable as of 1 May or 1 November. Furthermore, in

text: situations where the calculation made would lead to a rate that would not allow for the preservation of household purchasing power, and in certain other exceptional circumstances, the Governor of the Banque de France has the right to propose to the minister responsible for economic matters not to apply the new rate. In such cases, the rates are maintained at their previous level and the Comité de réglementation bancaire et financière (Banking and Financial Regulatory Board) will consider whether it is appropriate to amend them. The draft amendment does not modify these provisions. 1.4 According to the current calculation formula the remuneration rate of the livret A corresponds to whichever is the higher of: (a) (i) the monthly average three-month Euribor rate and the monthly average euro overnight index average (EONIA) rate combined and then divided by two, plus (ii) the French inflation rate as measured by the percentage change over the latest available 12 months of l’Indice INSEE des prix à la consommation de l’ensemble des ménages (INSEE, National Institute of Statistics and Economic Studies consumer price index), with the sum of (i) and (ii) then divided by two; or (b) the French inflation rate as measured by the percentage change over the latest available 12 months of the same price index plus 0.25%. 1.5 Under the new proposed calculation formula the remuneration rate of the livret A would be the higher of: (a) the French inflation rate measured as the six-month average of the percentage change in the INSEE consumer price index over the latest available 12 months and the six-month average EONIA rate combined and then divided by two; or (b) the inflation mentioned under (a) increased by 0.25% except in situations where the difference between the money market rate and the inflation rate mentioned under (a) is more than 0.25%. 1.6 The main differences between these two calculation methods are as follows: (a) the additional 0.25% remuneration over the relevant inflation rate would not be applied in circumstances where the difference between the money market rate and the inflation rate was more than 0.25%; (b) the money market and inflation rates would be based on six-month averages instead of monthly figures; and (c) the calculation of the money market rate would no longer be based on Euribor rates. 1.7 The change in the calculation formula used in respect of the livret A would also affect the remuneration rate of other types of French savings accounts that are based on the remuneration rate of the livret A, including comptes spéciaux sur livret du crédit mutuel (special savings account of Crédit Mutuel), livret de développement durable (sustainable growth savings account), livret d’épargne populaire (popular savings account), livrets d’épargne entreprise (corporate savings account) and compte d’épargne logement (housing savings account).

text: 2. General observations

text: 2.1 The ECB observes that in setting the remuneration rate of the livret A, the French Government has to strike a balance between preserving household purchasing power and providing affordable funding for investments mainly in social housing. Over the past few years, money market rates have decreased significantly and even turned negative. On the other hand, the remuneration rate of the livret A has remained positive and well above money market interest rates. It currently stands

text: at 0.75%. The reason for the divergence between the money market rates and the remuneration rate of the livret A lies in part in the current calculation formula which offers a 0.25% step-up on the 12-month average French inflation rate, as evidenced by the corresponding INSEE consumer price index. This growing divergence raises serious issues as regards the efficiency of monetary policy transmission. Furthermore, the implied liquidity costs for banks collecting savings under the livret A, may raise financial stability concerns by potentially impeding banks’ intermediation capacity. 2.2 The ECB is generally not in favour of the regulation of savings remuneration, as this derogates from the principle of an open market economy with free competition, presents challenges for the efficient transmission of monetary policy and, to a certain extent, for financial stability. 2.3 Against this background, the ECB understands that the aim of the draft amendment is to limit any potential excessive divergence between money market interest rates and the fixed remuneration of the livret A and thereby to: (a) allow monetary policy to be transmitted more effectively; (b) reduce the costs associated with the collection of such regulated savings for credit institutions and the savings fund operated by the CDC; and (c) render the new formula more stable by smoothing the references used for short-term interest rates and inflation, and thus mitigate the problems related to the volatility of the current formula and the need for the Governor of the Banque de France to request derogations. 2.4 The ECB considers that the abovementioned objectives pursued by the French authorities are legitimate. The ECB has no specific comments as regards the best formula to be used for the calculation of the remuneration rate of the livret A. However, the ECB regrets that the principle of regulated savings remuneration is maintained in the draft amendment. 2.5 Finally, the draft amendment does not introduce any changes to a task that has been historically exercised by the Banque de France and its Governor on behalf of the French Government. However, exercising this government task has the potential to place the Banque de France and its Governor in a position in which there is a conflict of interest between the exercise of this task and the exercise of the Banque de France’s central banking tasks. This may in turn potentially have an impact on the Banque de France’s independence in pursuing the Eurosystem’s objective of maintaining price stability.

text: This opinion will be published on the ECB’s website following its adoption, and in any case no later than six months following its adoption.

text: Done at Frankfurt am Main, 21 October 2016.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI


text: The ECB has adopted its opinion based on the proposed draft law (as proposed by the Ministry of Finance) sent for consultation, but also taking into account the explanatory memorandum accompanying the draft law submitted to the Croatian Parliament by a group of Members of Parliament on 14 October 2016, published on the Croatian Parliament's website, see www.sabor.hr .

text: See Opinion

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

text: See paragraph 2.1.1 of Opinion

text: For the activities of the independent external auditors of the NCBs see Article 61 of the Law on HNB.

text: See the ECB’s Convergence Report, June 2016, pp. 26-27 and Opinions

text: and

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

text: See the ECB’s Convergence Report, June 2016, pp. 26-27. 8 See

text: Article 61

text: .a(3) of the draft law. 9 See

text: Article 61

text: .a(2) of the draft law. 10 See

text: Article 61

text: .a(2) fourth indent of the draft law. 11 See Article 61 of the Law on HNB.

text: See for example paragraph 2.2 of Opinion

text: . 13 See the ECB’s Convergence Report, June 2016, p. 27. 14 See the ECB’s Convergence Report, June 2016, Chapter 7.5.3.

text: See the ECB’s Convergence Report, June 2014, p. 22.

text: See paragraphs 3.5, 3.6 and 3.7 of Opinion

text: . 17 See explanatory memorandum accompanying the draft law submitted to the Croatian Parliament by a group of Members of Parliament on 14 October 2016, published on web-pages of the Croatian Parliament; see www.sabor.hr 18 See paragraph 2.3.2 of Opinion

text: . 19 See the Decision of the Constitutional Court of the Republic of Croatia U-III-930/2015, 31 March 2015.

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 28 October 2016 on amendments to the Law on Hrvatska Narodna Banka (CON/2016/52)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 28 October 2016 on amendments to the Law on Hrvatska Narodna Banka (

text: ) Introduction and legal basis

type: rubrik

text: On 4 October 2016 the European Central Bank (ECB) received a request from the Ministry of Finance of the Republic of Croatia for an opinion on draft amendments to the Law on Hrvatska Narodna Banka (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 Hrvatska Narodna Banka (HNB). In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

type: stycke

text: 1. Purpose of the draft law

text: 1.1 The draft law enables the State Audit Office to perform an annual audit of the business operations of HNB, in addition to the existing audit of prepared financial statements and overall operations performed by independent external auditors. In particular, the draft law proposes that the State Audit Office will carry out an audit of the efficiency of HNB’s business operations in line with the regulations governing the working methods of the State Audit Office and in compliance with the provisions of the Law on HNB. Under the draft law this audit of HNB’s business operations will imply: (a) verification of documents, deeds, reports, internal control systems, and accounting, financial and other procedures and other records for the purpose of expressing an opinion as to whether HNB’s annual financial statements are prepared in accordance with the applicable financial reporting and legal framework; (b) a procedure for the evaluation of whether activities, financial transactions and information are in all relevant regards in line with the applicable regulations governing HNB’s business operations; (c) a procedure for the evaluation of whether HNB’s programmes, projects and activities are realised efficiently, in accordance with the principles of effectiveness, efficiency and purposefulness; and (d) an evaluation of other tasks and

text: procedures that the State Audit Office deems relevant for the preparation of its report on the business operations of HNB. 1.2 The draft law provides that HNB will be obliged to make available to an authorised state auditor all requested documentation and information for the purpose of performing an audit, and to make it possible for an authorised state auditor to have an insight into classified documents for the purpose of performing an audit. The draft law specifies that authorised state auditors may use such documentation and information only for the purpose of performing an audit, and that the State Audit Office shall have to ensure the confidentiality of information and documents received in this respect. 1.3 The draft law requires the Governor of HNB to submit, within eight days after receiving the draft report, to the State Audit Office a response to the facts described in the draft report. Thereafter the report on the performed audit, including the Governor’s response, is required to be delivered to the Governor. The Governor may raise an objection to the report within eight days. The Chief State Auditor is required to decide on the Governor’s objection within 30 days. The report on the performed audit of HNB will be published and the Governor is required to deliver, within 60 days, to the State Audit Office, a written response on the measures taken pursuant to the findings of the audit. 1.4 The draft law clarifies that, regardless of the provisions of the regulations governing the working methods of the State Audit Office, the State Audit Office will have no power to propose a dismissal of any member of the Council of HNB. 1.5 The draft law clarifies that the audit performed by the State Audit Office will be completely separate from the audit carried out by independent external auditors selected in line with the provisions of the Law on HNB. 1.6 The draft law contains a number of specific provisions concerning the tasks of HNB relating to the European System of Central Banks (ESCB). In particular, the draft law provides that, within the framework of the audit of business operations, the State Audit Office will not evaluate the activities referring to the realisation of goals and the execution of tasks established by the Treaty, the Protocol on the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’) and the Law on HNB. The draft law further provides that the findings of the audit will not refer to the tasks of HNB relating to the ESCB. It also provides that the State Audit Office may be granted an insight into confidential data referred to in Article 37 of the Statute of the ESCB, in line with the rules of the ESCB. 1.7 In addition to the provisions concerning the State Audit Office, the draft law requires HNB, once a year, to submit to the Croatian Parliament (a) semi-annual information about the financial condition, the level of price stability achieved and the implementation of monetary policy; and (b) an annual report on its performance and business operations. The draft law further provides that the Croatian Parliament has to discuss these documents, and vote for or against their adoption. The explanatory memorandum accompanying the draft law further clarifies that these documents will be discussed at the Plenary Session of the Croatian Parliament, and voted on in terms of the acceptance or nonacceptance thereof. The explanatory memorandum also emphasises that during the discussion on

text: these documents in the Croatian Parliament, in line with HNB’s independence, the independence enjoyed by the members of the HNB bodies in charge of decision-making must not be brought into question, nor will the discussion have any impact on it, and that the special status of the Governors must be respected in terms of their membership in the ECB General Council. The explanatory memorandum further states that, at the same time, HNB and the Croatian Parliament must respect the confidentiality requirements that flow from the Statute of the ESCB. 1.8 Finally, the draft law reduces the permissible number of six-year terms of office of members of the HNB Council to no more than two (at present it is possible to serve additional terms without restriction), while introducing transitional arrangements for the existing members of the HNB Council. In particular, the draft law provides that members of the Council who are appointed on the basis of the current Law on HNB will continue to be members of the Council until the expiry of their terms of office.

text: 2. General observations

text: 2.1 The purpose of the draft law is similar to that of a previous legislative initiative on which the ECB issued Opinion

text: , which was not adopted by the Croatian Parliament. On this occasion the draft law is more detailed than the previous legislative initiative, and seeks in certain respects to respond to the ECB Opinion. 2.2 The explanatory memorandum accompanying the draft law states that the Law on the State Audit Office will also be amended so that it allows the State Audit Office to perform the audit of HNB’s business operations. At this point no draft legislation to this effect has been submitted to the ECB for consultation. Should the Law on the State Audit Office be amended at a later date as suggested in the explanatory memorandum, the ECB reminds that it should be consulted on such amendments.

text: 3. Specific observations

text: 3.1 State Audit Office’s audit of HNB

text: 3.1.1 As noted in the ECB Opinion

text: , the principle of institutional independence referred to in Article 130 of the Treaty and Article 7 of the Statute of the ESCB refers to the fact that the exercise of central bank powers and the performance of the tasks and duties conferred on central banks must not be subject to external instructions or government influence. In particular, where a national central bank's (NCB's) operations are subject to the control of a state audit office or similar body charged with controlling the use of public finances, the scope of the control (a) should be clearly defined by the legal framework; (b) should be without prejudice to the activities of the NCB’s independent external auditors to examine all books and accounts of the NCB and, further, in line with the principle of institutional independence; (c) should comply with the prohibition on giving instructions to an NCB and its decision-making bodies; and (d) should not interfere with the NCB’s

text: ESCB-related tasks . The state audit should be conducted on a non-political, independent and purely professional basis . 3.1.2 By establishing rules on the scope of the audit of HNB, the draft law seeks to take into account the principle of central bank independence and the related requirements and safeguards referred to in paragraph 3.1.1. However, the draft law is in this respect unclear, contradictory and fails to satisfy these requirements and safeguards in a number of important respects. 3.1.3 First, the scope of the State Audit Office’s control of HNB’s operations is not clearly defined by the legal framework. In particular, the draft law excludes from the scope of the audit activities related to the realisation of goals and the execution of tasks established by the Treaty , the Statute of the ESCB and the Law on HNB. However, in its other provisions , the draft law broadens the scope of the audit to include inter alia, the procedure of evaluation whether programmes, projects and activities of HNB are realised efficiently and whether activities, financial transactions and information are in any relevant aspect in line with the regulations governing the business operations of HNB. The exclusion from the scope of the audit of HNB’s activities referring to the realisation of goals and the execution of tasks under the Law on HNB would seem, literally read, to have the consequence of excluding all of HNB’s activities pursuant to the Law on HNB from the scope of the State Audit Office’s audit. Since this does not appear to be consistent with the manifest intention of the draft law and more importantly with a number of its proposed provisions as described above, the coexistence of such provisions which on the one hand exclude some activities and on the other they seem to include them casts legal doubt on the precise scope of the audit by the State Audit. Moreover, the proposed ‘evaluation of other tasks and procedures’ grants undefined powers to the State Audit Office in respect of its choice as to what it deems relevant for the preparation of its report on HNB’s business operations. 3.1.4 Second, the scope of the State Audit Office’s control of HNB’s operations, as proposed by the draft law, is not without prejudice to the activities of HNB’s independent external auditors to examine all HNB’s books and accounts. The draft law states that the audit of business operations will imply the verification of, inter alia, accounting, financial and other procedures and other records for the purpose of expressing opinions whether HNB’s annual financial statements are prepared in accordance with applicable financial reporting and legal requirements. In this respect, the ECB notes that the task of evaluating HNB’s financial statements belongs to the independent external auditors . The draft law should be adapted so that the State Audit Office may not verify or express opinions regarding the HNB’s financial statements, since this may interfere with the work of HNB’s independent external auditors who, given their independence and expertise, are better placed than a State body to audit the financial statements of an NCB. In addition, a duplication of opinions regarding HNB’s financial statements may negatively affect the credibility of HNB’s accounts.

text: 3.1.5 Third, in line with the principle of institutional independence, the draft law could usefully clarify the need to comply with the prohibition on giving instructions to HNB and its decision-making bodies. In particular, the provision of the draft law that requires HNB to deliver a written response on the measures taken pursuant to the findings of the audit should not amount to a requirement of HNB to receive instructions from the State Auditor . 3.1.6 Fourth, the scope of the State Audit Office’s control of HNB’s operations should not interfere with the HNB’s ESCB-related tasks. As noted in paragraph 3.1.3, it is legally uncertain whether the HNB’s ESCB-related tasks are excluded from the scope of the State Audit Office’s audit of business operations. Moreover, although the provisions of the draft law purport to prohibit the State Audit Office from evaluating the activities referring to the realisation of ESCB-related goals and the execution of ESCB-related tasks and from making audit findings relating to HNB’s ESCB-related tasks, the draft law specifically provides that the State Audit Office may be granted an insight into confidential data referred to in Article 37 of the Statute of the ESCB. This seems to imply that the State Audit Office would have the right to examine HNB’s ESCB-related activities but not to evaluate and make audit findings in respect of them. It is difficult to understand what purpose would be served by such examinations by the State Audit Office in circumstances where the State Audit Office would be unable to make any evaluations or findings as a result of such examinations. The ECB would therefore welcome the exclusion of HNB’s ESCB-related tasks from the scope of the State Audit Office’s audit of business operations, since this should clearly ensure that the audit would not interfere with HNB’s ESCB-related tasks. 3.1.7 Regarding confidentiality requirements in particular, Article 37 of the Statute of the ESCB requires the members of the governing bodies and the staff of NCBs, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy. The primacy of Union law and the rules adopted thereunder means that national laws on access by third parties (such as the State Audit Office) to documents may not lead to infringements of the ESCB’s confidentiality regime. The access of a state audit office or similar body to an NCB’s information and documents must be limited and must be without prejudice to the ESCB’s confidentiality regime to which the members of NCBs’ decision-making bodies and staff are subject . Hence, access by the State Audit Office to HNB’s confidential information must be limited to that which is strictly necessary for the performance of the state auditor’s tasks. Such access must also be without prejudice both to HNB’s independence and to the ESCB confidentiality regime, to which the members of HNB’s decision-making bodies and staff are subject. In addition, the relevant provisions in the draft law should be amended to stipulate that the State Audit Office must safeguard the confidentiality of information and documents disclosed by HNB to the same extent as the professional secrecy provisions applied by HNB . 3.2 Croatian Parliament’s vote on HNB’s semi-annual information and annual report 3.2.1 While the explanatory memorandum emphasises that the independence enjoyed by the members of the HNB bodies in charge of decision-making must not be brought into question during the

text: discussion on HNB’s annual report and other documents in the Croatian Parliament, and that the special status held by the Governors must be respected in terms of their membership in the ECB General Council, and that the Croatian Parliament must respect the confidentiality requirements flowing from the Statute of the ESCB, the ECB understands that the contents of the explanatory memorandum have no legal standing in Croatian law, but constitute mere statements as to the authors’ intentions, without providing any statutory or legal guarantees. In addition, the ECB notes that these intentions are not reflected in the draft law. 3.2.2 While the draft law does not explicitly clarify the precise implications of the Croatian Parliament’s vote on HNB’s annual report and semi-annual information regarding HNB’s financial condition, the level of price stability achieved and monetary policy implementation, the reference in the draft law to the Croatian Parliament voting for or against the adoption of them seems to imply that the adoption of HNB’s annual report and semi-annual information on HNB’s financial condition, the level of price stability achieved and monetary policy implementation is contingent on a positive vote of the Croatian Parliament. 3.2.3 As the ECB stated in its Opinion

text: , in line with the principle of institutional independence under Article 130 of the Treaty and Article 7 of the Statute of the ESCB, the NCBs and the members of their decision-making bodies are prohibited from seeking or taking instructions from Union institutions, bodies or agencies, from any government of a Member State or from any other body. In addition, the governments of the Member States are prohibited from seeking to influence the members of the NCBs’ decision-making bodies whose decisions may affect the fulfilment of the NCBs’ ESCB-related tasks. If national legislation mirrors Article 130 of the Treaty and Article 7 of the Statute, it should reflect both prohibitions and not narrow the scope of their application. 3.2.4 Furthermore, the rights of third parties to approve, suspend, annul or defer an NCB’s decisions are incompatible with the Treaty and the Statute as far as ESCB-related tasks are concerned . Therefore, the Croatian Parliament’s competence to vote on and adopt HNB’s annual report on its activities and semi-annual information regarding HNB’s financial condition, the level of price stability achieved and monetary policy implementation would affect HNB’s institutional independence, as it goes beyond the transparency and accountability obligation of a central bank towards a national Parliament. As regards the compatibility of a dialogue between NCBs and third parties with central bank independence, the ECB refers to paragraph 2.2.3 of Opinion

text: , which clarifies that such a dialogue is welcome and compatible with central bank independence provided that (a) this does not result in interference with the independence of the members of the NCB’s decision-making bodies; (b) the special status of Governors in their capacity as members of the ECB’s General Council is fully respected; and (c) confidentiality requirements resulting from the Statute of the ESCB are observed. A decision of the Croatian Parliament whether to adopt the abovementioned annual report and semi-annual information seems to imply that the Croatian Parliament could give direct or indirect instructions to HNB and its decisionmaking bodies and members, for example as regards amending HNB’s annual report or

text: challenging HNB’s assessment regarding price stability and the implementation of monetary policy. Any right of the Parliament to approve, suspend, annul or defer HNB’s decisions would be contrary to HNB’s institutional independence under the Treaty and the Statute of the ESCB . 3.3 Reduction of the number of terms of office of HNB’s Governor and the other members of HNB’s

text: Council

text: 3.3.1 The ECB welcomes the introduction of a provision in the draft law which explicitly guarantees that, notwithstanding that the members of the HNB’s Council may henceforth only be appointed to a maximum of two terms of office, the current members of HNB’s Council who have been appointed on the basis of the existing provisions of the Law on HNB will continue to be members until the expiry of their terms of office. 3.3.2 The ECB notes that the explanatory memorandum accompanying the draft law published on the web-pages of the Croatian Parliament states that these provisions of the draft law will not be applied retroactively and that the current members of the Council of HNB, as well as the persons 17 18 who were members previously, will be able to be members in the future . As previously noted , the ECB shares this understanding, in accordance with the principles of the rule of law, legal safety, legal predictability and legal certainty under the Croatian Constitution, that the requirement that members of HNB Council may be appointed for a maximum of two terms of office does not apply in respect of terms which were served before the date the draft law comes into effect . This implies that the current and past members of HNB Council will be able to serve two terms in the future, and that terms served in the past are not included and do not count towards the calculation of the limitation of two terms. For the sake of legal certainty, and taking account that the explanatory memorandum has no legal standing as a matter of Croatian law, an express provision could be usefully added to the text of the draft law, so that the members of the Council of HNB have a clear understanding as to the maximum number of terms of office which they may serve.

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

text: Done at Frankfurt am Main, 28 October 2016.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI

type: vagledning

utgivare: ecb


text: Council Decision 98/415/EC of 29 June 1998

text: on the consultation of the European Central Bank by national authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).

text: See Section 46f (6) and (7) of the Law on banking.

text: Directive

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

text: and repealing Directives

text: and

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

text: EBA Guidelines on the remuneration benchmarking exercise of 16 July 2014 (

text: ) and EBA Guidelines on sound remuneration policies under Articles

text: and

text: of Directive 2013/36/EU and disclosures under

text: Article 450 of Regulation (EU) No 575/2013 of 27 June 2016

text: See Joint Paper of BaFin, Bundesbank and FMSA of 3 June 2016, ‘Gemeinsame Auslegungshilfe zur insolvenzrechtlichen Behandlung bestimmter Verbindlichkeiten von CRR-Instituten nach § 46f Abs. 5-7 KWG n.F.’.

text: See for example § 1(11) sentence 2 of the Law on banking, which stipulates that money market instruments are ‘all types of receivables that are normally traded on the money market, with the exception of payment instruments’. This shall include instruments with a maturity of up to twelve months (see BaFin Merkblatt für Finanzinstrumente of July 2013).

text: See § 194 of the Capital Investment Act (Kapitalanlagegesetzbuch) which sets out very detailed requirements as regards money market instruments, for investor protection purposes, which may be acquired by UCITS funds.

text: Union law definitions refer to ‘instruments normally dealt in on the money market’, which partly list generic examples like treasury and local authority bills, certificates of deposit, commercial papers, medium-term notes and bankers’ acceptances, see for example

text: recital 36

text: of

text: Directive 2009/65/EC

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

text: Also see ECB Opinion of 2 September 2015 on bank resolution (

text: ), paragraphs 3.1.2. to 3.1.8.

title: Opinion of the European Central Bank of 31 October 2016 on the reorganisation of the duties of the Federal Agency for Financial Market Stabilisation and the implementation of the EBA guidelines on sound remuneration policies (CON/2016/53)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 31 October 2016 on the reorganisation of the duties of the Federal Agency for Financial Market Stabilisation and the implementation of the EBA guidelines on sound remuneration policies (

text: ) Introduction and legal basis

text: On 29 August 2016 the European Central Bank (ECB) received a request from the German Federal Ministry of Finance for an opinion on a draft law concerning the reorganisation of the duties of the Federal Agency for Financial Market Stabilisation (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 The draft law is aimed, inter alia, at introducing further legal clarity to the statutory subordination provisions. In particular, the draft law confers on the Federal Ministry of Finance the competence to issue regulations further specifying the features of structured debt and money market instruments that will be excluded from statutory subordination and will thus rank alongside operating liabilities such as corporate deposits and certain claims under derivative transactions . 1.2 The draft law contains several provisions to refine the implementation of certain aspects of Directive

text: of the European Parliament and of the Council and to implement the European Banking Authority (EBA) Guidelines on prudential rules in relation to remuneration in credit institutions. Taking a stricter approach than envisaged by the EBA Guidelines, the draft law

text: prohibits any payment of variable remuneration to members of the administrative or supervisory boards of credit institutions. Further, the draft law gives the Federal Ministry of Finance the competence to issue a regulation specifying (i) the requirements and the procedure for shareholder approval to raise the ratio between fixed and variable annual remuneration and (ii) the calculation of the ratio between variable and fixed remuneration, especially with regard to discounting factors when determining the underlying cash value of the variable remuneration.

text: 2. Specific observations

text: 2.1 Measures to enhance legal clarity in the application of the bail-in tool 2.1.1 In the absence of a Union framework, the ECB supports the approach taken in the draft law to provide legal clarity by promoting the specification of the types of instruments that will be excluded from statutory subordination in the creditor hierarchy, which will be relevant for bail-in and resolution purposes. As set out in the provisions on statutory subordination adopted last year, certain structured debt instruments as well as money market instruments are exempt from such subordination due to their complexity and potential impact on financial stability. This exemption recognises the importance of having straightforward subordinated instruments, which carry a lower contagion risk to ensure that a bail-in can be achieved in an effective manner and that it is legally certain. So far, non-binding guidance has been issued by the national authorities on the treatment of certain types of structured debt instruments for purposes of statutory subordination . The delegation of authority in the draft law enables the Ministry of Finance to issue legally binding rules and therefore promotes the legal clarity and certainty of instruments subject to and exempt from the statutory subordination arrangements. 2.1.2 National and Union laws offer several definitions of money market instruments . However, these definitions were established for purposes other than to define subordinated instruments suitable for 8 9 bail-in , and some are rather broad in nature . The application of the bail-in tool requires a clear identification of subordinated instruments to eliminate or minimise any ambiguities that could complicate the identification of instruments subject to bail-in, to protect investors from being subject to unforeseen bail-in measures, and to improve legal certainty for affected creditors in bank insolvency proceedings. In view of the particular importance of the money markets for the implementation of Eurosystem monetary policy operations, the ECB would appreciate being

text: consulted on any future draft legal act specifying particular money market and debt instruments that will be excluded from subordination in the creditor hierarchy in bank insolvency proceedings, as such legal definitions could have an impact on the wider development of the money markets.

text: 2.2 Implementation of prudential rules on remuneration

text: The implementation measures regarding prudential rules for variable remuneration do not raise specific concerns as regards their substance. However, banking legislation adopted by the Member States after the establishment of the Single Supervisory Mechanism (SSM) should facilitate the exercise by the ECB of its responsibilities within the SSM including its capacity to enhance the consistency of the supervision of credit institutions across the SSM. Member States should refrain from setting obstacles both to uniform supervisory practice and to the exercise of supervisory discretion by the ECB within the SSM .

text: Done at Frankfurt am Main, 31 October 2016.

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: The ECB is also generally not in favour of the regulation of savings remuneration, as pointed out in its recent opinion

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

text: Directive

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

text: and repealing Directives

text: and

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

text: 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). Articles

text: and

text: b of the Treaty are now Articles 123 and 124 of the Treaty.

text: This includes the Treaty on European Union and the Treaty on the Functioning of the European Union.

text: See paragraph 3.3 of Opinion

text: and paragraph 3.3 of Opinion

text: See paragraph 4.3 of Opinion

text: See paragraph 3.4 of Opinion

text: and paragraph 4.4 of Opinion

text: See paragraph 4 of Opinion

text: See, for example, paragraphs 2.1 to 2.3 of Opinion

text: , paragraphs 2.1 and 2.2 of Opinion

text: , paragraphs 2.1 to 2.5 of Opinion

text: and paragraph 2 of Opinion

text: See paragraph 3.1 of Opinion

text: The national laws may apply to credit institutions, to entities other than credit institutions, or to both, depending on the jurisdiction.

text: See, for example, Belgium: Royal decree of 4 August 1992; Bulgaria: Article 19(4) of the Law on consumer credits; Cyprus: Section 314A of the Cyprus Criminal Code, Cap. 154; this does not apply to credit granted by credit institutions and in some other specified cases; Estonia: Section 406 of the Law on obligations; France: Article L. 314- 6 (1) of the Consumer Code; Croatia:

text: Article 11

text: c of the Law on consumer credit (Official Gazette 75/2009, 112/2012, 143/2013, 9/2015, 78/2015, 102/2015 and 52/2016); Hungary: Law CLXII of 2009 on consumer credit, as amended by Law LCCVIII of 2014; Italy: Law on usury (Law 108/1996); ; Malta: Article 1852 of the Civil Code: this does not apply to credit granted by credit institutions; Poland: Article 359 of the Civil Code and Article 304 of the Penal Code; Portugal: Decree-law 133/2009 of 2 June; Slovenia: Article 24 of the Law on consumer credit; and Slovakia: Article 53(6) of Law No 40/1964 Coll. Civil Code as amended, and

text: Article 1

text: a of Government Regulation No 87/1995 Coll., as amended.

text: See, for example, Belgium: Royal decree of 11 January 1993; Bulgaria: Article 29(9) of the Law on consumer credits related to immoveable property; France: Article L. 314-6 (1) of the Consumer Code; Croatia:

text: Article 11

text: b of the Law on consumer credit; Hungary: Law CLXII of 2009 on consumer credit, as amended by Law LCCVIII of 2014; Italy: Law on usury (Law 108/1996); and Poland: Article 359 of the Civil Code and Article 304 of the Penal Code.

text: This applies in Belgium, Cyprus, Estonia, France, Croatia, Hungary, Italy, Portugal and Slovenia.

text: The rate is set by law in, Malta, Poland and Slovakia. In Bulgaria, the Council of Ministers sets the limitation.

text: This is the case in Belgium.

text: This is the case in Cyprus, Estonia, France, Croatia, Hungary, Italy, Portugal and Slovenia.

text: This applies in Cyprus, Estonia, France, Croatia, Italy, Portugal and Slovenia.

text: This is the case in Belgium and Slovenia.

text: This is the case in Bulgaria and Latvia. It is also the case in Hungary in specific instances, depending on the type of breach.

text: The Hungarian Competition Authority carries tasks relating to competitive discipline (see Law XLVII of 2008 on the prohibition of unfair business-to-consumer commercial practices).

text: This is the case in France (Autorité de contrôle prudentiel et de résolution).

text: This is the case in Croatia, Italy, Portugal, Slovakia. This is the case in Hungary in specific instances.

text: This is the case in Estonia, France, Poland and Malta.

text: This is the case in Cyprus, France and Poland.

text: Hungary: Law CCXXXVII of 2013 on credit institutions and financial enterprises and Law XLVII of 2008 on the prohibition of unfair business-to-consumer commercial practices.

text: In those circumstances, the NCB may determine the highest rate of interest that may be charged by that credit institution.

text: France: Regulation n° 86-13 regarding the remuneration of funds received by credit institutions.

text: Belgium: Article

text: ° Code of Income Tax and Royal decree of 27 August 1993. 32 Recommendation

text: of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments of macroprudential policy (OJ C 170, 15.6.2013, p. 1). 33 In the context of the regulation of savings remuneration by an NCB, the ECB has pointed out that it considered such a role to be carried out on behalf of the government, and exercising this government task has the potential to place the NCB and its Governor in a position in which there is a conflict of interest between the exercise of this task and the exercise of the NCB’s central banking tasks. See ECB Opinion

text: See paragraph 4 of Opinion

text: . 35 See paragraph 14 of Opinion

text: . 36 See paragraph 4 of Opinion

text: . 37 See paragraph 3.3 of Opinion

text: . 38 See paragraph 14 of Opinion

text: . 39 See paragraph 8 of Opinion

text: . 40 See paragraph 4 of Opinion

text: . 41 See the ECB’s 2016 Convergence Report, p. 25.

text: See the subsection headed ‘Financing of the public sector or of public sector obligations to third parties’ in Section 2.2.5.1 (‘Prohibition on monetary financing’) of the ECB’s 2016 Convergence Report.

title: Opinion of the European Central Bank of 17 November 2016 on the conferral of powers on the Central Bank of Ireland to assess competition in the market for mortgage loans and to issue lenders with directions on variable interest rates (CON/2016/54)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 17 November 2016 on the conferral of powers on the Central Bank of Ireland to assess competition in the market for mortgage loans and to issue lenders with directions on variable interest rates (

text: ) Introduction and legal basis

text: On 6 October 2016, the European Central Bank (ECB) received a request from the Chairman of the Oireachtas (Irish National Parliament) Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach (Irish Prime Minister), for an opinion on the Central Bank (Variable Rate Mortgages) Bill 2016 (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 (a) the basic task of the European System of Central Banks (ESCB) to implement the monetary policy of the Union pursuant to the first indent of Article 127(2) of the Treaty, (b) the specific tasks conferred upon the ECB concerning policies relating to the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty, (c) the Central Bank of Ireland (CBI) and (d) rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: 1.1 The draft law provides for measures intended to identify and address market failures in the market for principal dwelling house mortgage loans. In order to achieve this purpose, the draft law confers a number of tasks on the CBI. 1.2 The draft law requires the CBI to carry out assessments on the state of competition in the market for principal dwelling house mortgage loans on at least a quarterly basis, and sets parameters for such assessment. The factors to be taken into account by the CBI in carrying out this assessment include: the variable interest rates being charged by lenders; the ease with which borrowers can switch their principal dwelling house mortgage loans; the relationship and proportionality between the variable interest rates being charged by each lender and the cost of funds of that lender; lenders’ weighted average cost of capital and the trend in lenders’ weighted average costs of capital over time; lenders’ reasonable profit expectations in the prevailing market conditions; the

text: proportion of the principal dwelling house mortgage loan market accounted for by each lender; and such other matters as the Governor of the CBI may certify as being of relevance. 1.3 Upon completion of its assessment, the draft law requires the CBI to form a conclusion whether the state of competition is such that a ‘market failure’ exists. The draft law defines a ‘market failure’ as a situation in which market conditions are such that a lender is charging a variable interest rate which is higher than the CBI considers can be reasonably and objectively justified. Where the CBI forms such a conclusion, the draft law confers powers on the CBI to issue directions to lenders not to charge a variable interest rate which exceeds certain thresholds. These thresholds can be: (a) rates specified by the CBI; (b) margins specified by the CBI above the lenders’ cost of funds; (c) margins specified by the CBI, above a rate set by the ECB; and/or (d) a proportion if not more than one-third, specified by the CBI, above the average variable interest rate charged in the market for comparable principal dwelling house mortgage loans as determined by the CBI. 1.4 With regard to enforcement, the draft law confers powers on the CBI to enforce such directions on lenders that fail to comply, by applying to the High Court for an enforcement order. When granting the enforcement order, the High Court must also impose a fine on the lender, unless the High Court determines that it would be unjust to impose such a fine, in which case it may impose a lesser fine or dispense with the requirement to impose a fine. 1.5 Furthermore, the draft law imposes a requirement on lenders not to discriminate between existing and new borrowers when setting a variable interest rate for a group, and confers powers on the CBI to enforce that prohibition. In this respect, the CBI may apply to the High Court to seek a rectification order requiring the lender to cease the relevant discriminatory practice. The High Court may also make a compensation order to ensure that the lender compensates the borrowers for such discriminatory practice, and may also impose a fine on the lender. 1.6 Finally, the draft law further specifies that there is no right of appeal to the Financial Services Appeals Tribunal or to the High Court in respect of the assessment of the CBI, a direction of the CBI to a lender, or a decision by the CBI to seek an enforcement or rectification order.

text: 2. Scope of the opinion

text: This opinion focuses on: (1) specific aspects of the power to issue directions to lenders not to charge a variable interest rate which exceeds certain thresholds and the relationship of this power with the CBI’s existing functions with respect to monetary policy, banking supervision and financial stability (Section 3.1); (2) the potential effects of the draft law on the independence of the CBI (Section 3.2); and (3) the new tasks conferred on the CBI in relation to the prohibition of monetary financing under Article 123 of the Treaty (Section 3.3).

text: 3. Observations

text: 3.1 Specific aspects of the power to issue directions to lenders not to charge a variable interest rate

text: which exceeds certain thresholds

text: As a starting point, the ECB wishes to emphasise that administrative control of market pricing by public authorities, such as issuing directions to lenders not to charge a rate exceeding certain

text: thresholds, should only be undertaken where it is clear which purpose the controls seek to achieve and that they are likely to achieve this purpose.

text: 3.1.1 Effects on the transmission of monetary policy

text: The ECB has concerns that the administrative control of the interest rates charged by lenders could interfere with the market determination of lending decisions. In turn, this could have a detrimental effect on the transmission of monetary policy. On the one hand, the smooth pass-through of changes in the ECB policy rates to bank borrowers is a component of the monetary policy transmission mechanism, which relies on well-functioning and competitive markets for bank credit. For that reason, any measures aimed at ensuring the passthrough of ECB rates or the proper functioning of the monetary policy transmission mechanism are, in principle, welcome. However, the draft law seems instead to be motivated primarily by an assumption that, due to a lack of competition in the Irish market, lenders operating in Ireland are maintaining rates on variable rate mortgages in excess of the rates necessary to cover the lenders’ cost of funds, the credit risk associated with lending, operational costs and the cost of capital. Despite this, the measures specified in the draft law do not seek to promote competition in the market, or to address other possible root causes influencing variable interest rates in Ireland, such as the large legacy portfolio of tracker mortgages, which have an adverse impact on bank profitability, the burden of non-performing loans on lenders’ balance sheets, and the pricing of credit risk in Ireland. Against this background, imposing administrative controls on the variable interest rates for principal dwelling house mortgage loans may have several unintended side effects. This is particularly relevant given the prevalence of this type of mortgage in a very important segment of the Irish market for bank credit. This may not only affect the transmission mechanism of monetary policy but also run counter to the very objective of the draft law. For example, imposing administrative controls could potentially affect the rates offered by lenders for other types of bank credit, impairing the pass-through of the ECB’s accommodative monetary policy stance to low interest rates on loans to other sectors of the economy. For example, lenders aiming to achieve a sustainable level of profitability may try to compensate for insufficient margins on their variable interest rate mortgage portfolio by charging higher rates on other types of bank loans. In addition, lenders might adapt their credit standards, and offer variable interest rate mortgages only to new borrowers with a very low risk profile. This would effectively ration the supply of variable interest rate mortgages in the Irish market. Lenders could be motivated by a desire to sustain a risk-adjusted margin on variable interest rate mortgages which is comparable to the margin that would otherwise prevail. Riskier borrowers might instead be offered fixed-rate mortgages, which are outside the scope of the draft law. Furthermore, the possibility of restrictions on the maximum rate that banks are allowed to charge for variable interest rate mortgages could potentially render the market less attractive and discourage new entrants. This would lead instead to lower competition in financial services in Ireland, effectively defeating the purpose of the draft law.

text: Overall, the power to issue directions to lenders not to set rates in excess of a certain threshold could interfere with the implementation of monetary policy by the CBI, one of its basic Eurosystem tasks, due to the potential for such directions to interfere with the monetary policy transmission mechanism.

text: 3.1.2 Effects on the banking sector

text: In the context of its direct responsibility for the supervision of significant banking groups within the euro area, the ECB monitors closely the profitability of credit institutions. The CBI also closely monitors profitability, in the context of its responsibility for less significant credit institutions. One of the reasons for this is because low profitability has been identified as a business model risk, which warrants particular supervisory attention. It is important that banks are not prevented from generating sustainable profits which will result in well capitalised banks operating competitively. The high level of non-performing loans in Ireland and the low level of repossessions have brought large credit losses to Irish banks in the recent past and indicate that Irish banks could expect higher credit losses over the economic cycle than banks in a number of other euro area countries. In addition, it is worth noting that, while tracker rate mortgage contracts are currently not offered to new customers in Ireland, a substantial share of Irish mortgage borrowers, as tracker mortgage holders, are currently paying an average interest rate considerably below the average rate offered to new borrowers in the euro area. In general, when pricing mortgages, credit institutions should take account of many factors, including the actual and future cost of funding, expenses and overhead, the cost of capital, and expected credit losses. The factors the CBI must consider in carrying out its assessment under the draft law reflect these issues only to a limited extent, as they focus on the lenders’ cost of funds, the lenders’ weighted average cost of capital and reasonable profit expectations in the prevailing market conditions. While the draft law permits other matters to be taken into account by the CBI for the purposes of the assessment (provided that the Governor of the CBI certifies these as relevant), it does not fully acknowledge the wider matrix of factors that credit institutions need to take into account in setting their interest rates. The ECB would like to emphasise that extreme caution should be exercised when transferring the power to take commercial decisions from market actors to public authorities. The benefits need to be weighed against a number of risks including information asymmetry and moral hazard. Thus from a supervisory perspective, the ECB also has concerns about the powers conferred on the CBI by the draft law. While the CBI is not obliged to exercise the rate-setting power, such intervention in the setting of rates by the market could affect overall profitability in the banking system, which is already challenged by the prevalence of tracker mortgages and the high level of non-performing loans. As a consequence, the exercise of the power conferred on the CBI could possibly conflict with the effective use of the supervisory powers conferred on the ECB as part of the single supervisory mechanism (SSM) in accordance with

text: Council Regulation (EU) No 1024/2013

text: 3.1.3 Effects on financial stability

text: The ECB notes that the implementation of the draft law and exercise of the powers thereunder by the CBI could entail financial costs for the banking sector. Consequently, the possibility to set administrative limits on the profitability of a core business activity of the banking system might induce more risk-taking behaviour with banks engaging in alternative projects that do not reflect prudent risk-taking behaviour thus potentially leading to financial instability. Overall, given the scope of the draft law and the importance of mortgage portfolios in total bank assets, these factors may have a negative impact on the profitability; capitalisation and the future lending capacity of the credit institutions affected, and ultimately may have implications for financial stability. 3.1.4 Compliance with the principle of an open market economy with free competition The Treaty provides that the ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources. Likewise, the Treaty provides that Member States’ economic policies shall be conducted in accordance with this principle. The ECB is generally not in favour of the regulation of interest rates charged by credit institutions, including for the reasons outlined in this paragraph 3 and more generally because such regulation would, under normal circumstances, diverge from basic economic and market principles . Conferring powers on a public authority to intervene in the market could undermine the principle of an open market economy with free competition and favouring an efficient allocation of resources. In particular, the ECB is concerned that such intervention by the CBI could create market distortions, and could be inconsistent with the gradual return of the banking system to full private ownership. As outlined above, the draft law presents challenges for the efficient transmission of monetary policy. It could also place possible additional earnings’ pressure on Irish credit institutions and result in a loss of investor confidence. Moreover, the decision to direct lenders as to the interest rate they can charge could even lead to a decrease in competition, and discourage foreign lenders from entering the market. 3.1.5 Observations on the procedure to be followed by the CBI to assess, form conclusions and issue

text: directions to lenders

text: In terms of procedure, the draft law requires the CBI first to assess and form a conclusion on the state of competition in the market as a whole. If the CBI concludes that a market failure exists, it may issue directions to a specific lender or lenders, or to lenders in general. The factors to which the CBI must have regard in conducting its assessment include both factors influencing the state of the market as a whole and factors influencing individual lenders. From a practical perspective, the ECB has concerns about a lack of coherence in the procedure to be followed. While conclusions must be drawn based on a market-wide assessment, this may result in targeted measures imposed on individual lenders, without an individual assessment being conducted in relation to those lenders. With regard to the assessment of a ‘market failure’, it may need to be further examined whether the definition under the draft law is fully aligned with the understanding of that concept under

text: competition law, in particular, in order to encompass considerations relating to the market structure and entry barriers. Moreover, with regard to the requirement under the draft law for the CBI to publish its assessment, the ECB wishes to stress that publication must be conducted in accordance with the Union law requirements on professional secrecy, including

text: Article 53 of Directive 2013/36/EU

text: of the European Parliament and of the Council , which provides that confidential information ‘may be disclosed only in summary or aggregate form, such that individual credit institutions cannot be identified’. In addition to these practical concerns, the ECB notes that is for the Irish authorities to assess whether the draft law complies with Irish constitutional and other legal principles. 3.1.6 Interaction with the existing objectives and tasks of the CBI The CBI does not currently have an objective related to competition policy or any function to assess competition in the financial sector: the competition authority in Ireland is the Competition and Consumer Protection Commission. As noted in paragraph 3.1.1 above, the power to issue directions to lenders not to set rates in excess of a certain threshold could interfere with the CBI’s basic Eurosystem task to implement monetary policy, due to the potential for such directions to interfere with the monetary policy transmission mechanism. Section 6A(1) of the Central Bank Act 1942 states that the primary objective of the CBI, in discharging its functions and exercising its powers as part of the ESCB, is to maintain price stability. This is in line with the primary objective of the Eurosystem under Article 127(1) of the Treaty. It is difficult to see how the CBI could properly perform a task which could interfere with its overriding monetary policy task and objective. The CBI also has other objectives as set out in section 6A(2) of the Central Bank Act 1942, i.e. the stability of the financial system overall; the proper and effective regulation of financial service providers and markets, while ensuring that the best interests of consumers of financial services are protected; the efficient and effective operation of payment and settlement systems; the resolution of financial difficulties in credit institutions; the provision of analysis and comment to support national economic policy development and the discharge of such other functions and powers as are conferred on the CBI by law. As the national authority responsible for banking supervision and contributing to the stability of the financial system, the CBI will have to mitigate any potential conflicts of interests between the proposed new competition tasks under the draft law and, inter alia, its banking supervision and financial stability mandates by always taking the latter into account when exercising its powers. Sufficient mitigation measures would be necessary to ensure that, in the event of a conflict of interest, financial stability and prudential supervisory considerations prevail. However, in light of the objectives of the CBI set out in the Central Bank Act 1942, it appears particularly difficult to ensure that sufficient mitigation measures can be put in place. As all of the secondary objectives under Section 6A(2) of the Central Bank Act 1942 must be regarded as equal by the CBI, it would not be able to mitigate the conflict of interest between the competition objectives of its new role and its

text: 3.2 Central bank independence

text: As noted in paragraphs 3.1.1 and 3.1.6, the power to issue directions to lenders not to set rates in excess of a certain threshold has the potential to interfere with the overriding monetary policy task and objective of the Eurosystem, including of the CBI. The ECB has concerns that the conflict of interest between this new task and the exercise of the CBI’s monetary policy and financial stability tasks, which have different objectives, may potentially have an impact on the institutional independence of the CBI and the personal independence of the Governor of the CBI. This could, by extension, potentially damage the credibility of the CBI, the ECB and the Eurosystem as a whole. In addition, as outlined in further detail in paragraph 3.3, the CBI itself will have to dedicate additional human and financial resources to carry out the assessments required under section 2 of the draft law and may also incur further costs in the context of monitoring compliance with directions, and applying to the High Court for relevant court orders. The CBI should be provided with sufficient resources to perform the new tasks. For these reasons, the ECB has concerns that the draft law could undermine the independence required of the CBI as a central bank of the Eurosystem, and of the Governor of the CBI as a member of the ECB Governing Council. Furthermore, the CBI is a national competent authority (NCA) of the Single Supervisory Mechanism (SSM) and in the exercise of the powers conferred upon the ECB by the SSM Regulation, and thus is, under

text: Article 19

text: SSM Regulation, required to act independently. The ECB has concerns regarding the interaction of this new task with the exercise of the CBI’s supervisory tasks. The exercise of the powers assigned by the draft law could potentially conflict with the effective use of the supervisory powers conferred on the ECB on the basis of the SSM Regulation, and therefore may potentially impact on the CBI’s independence as an NCA member of the SSM.

text: 3.3 Conferral of new tasks on the CBI

text: 3.3.1 As noted in paragraph 1, the draft law confers a number of new tasks on the CBI regarding the assessment of whether the state of competition in the market for principal dwelling house mortgage loans is such that a ‘market failure’ exists, the issuance of directions in such circumstances to lenders not to charge a variable interest rate which exceeds certain thresholds, and related enforcement powers. 3.3.2 The ECB underlines that, in the context of a proposed conferral of tasks on a national central bank (NCB) in the ESCB, it is necessary to assess such conferral 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’. As the objective of the monetary financing prohibition of maintaining a sound budgetary policy of Member States may not be circumvented, the task of financing measures which are normally the responsibility of the Member States, and financed from their budgetary sources rather than by the NCBs, must not be entrusted to NCBs by law. In order to decide what constitutes a form of 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 the central bank tasks – 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, needs to be carried out on a case-by-case basis. In other words, sufficient 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. 3.3.3 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 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, constitute 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 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

text: creation of an indefinite chain of ancillary tasks. Such complementarity should be examined also 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 negatively 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 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 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.

text: 3.3.4 On the basis of the criteria set out above, the following paragraphs assess whether the CBI’s new tasks are in line with the monetary financing prohibition. 3.3.4.1 Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute

text: of the ESCB

text: The powers conferred on the CBI by the draft law are expressly characterised as powers for the purposes of protecting competition in the mortgage loan market. These powers could also be seen as being related to the protection of consumers of mortgage loan services. However, the goal of consumer protection appears to be subsidiary to the draft law’s overriding goal of protecting competition in the mortgage loan market. It has to be examined to what extent these powers are related to the performance of Eurosystem tasks, including the implementation of monetary policy, the specific tasks conferred upon the ECB concerning policies relating to the prudential supervision of credit institutions and contributing to the smooth conduct of policies pursued by the competent authorities relating to the stability of the financial system in accordance with the first indent of

text: Article 127(2)

text: Article 127(5)

text: 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. Importantly, although in accordance with Article 127(1) of the Treaty the Eurosystem must act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, the Eurosystem has not itself been conferred with any tasks in the area of competition policy. As noted in paragraph 3.1.1, the power to issue directions to lenders not to set rates in excess of a certain threshold could interfere with the CBI’s basic Eurosystem task to implement monetary policy, due to the potential for such directions to interfere with the monetary policy transmission mechanism. As noted in paragraph 3.1.2, the exercise of this power by the CBI could also possibly conflict with the effective use of the supervisory powers conferred on the ECB on the basis of the SSM, and therefore has the potential to create tensions with the CBI’s role as a NCA within the SSM.

text: The supervision of consumer credit providers , as well as the oversight of the market for credit agreements relating to residential immovable property , can be considered tasks related to those referred to in

text: Article 127(5)

text: and (6) of the Treaty, based on the understanding that they are complementary to the banking supervision tasks exercised by NCBs and are linked to the task of contributing to the stability of the financial system. In Ireland, the CBI’s responsibilities include ensuring compliance with, inter alia, the Consumer Protection Act 2007, the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995 and 2000 and with the European Union (Consumer Mortgage Credit Agreements) Regulations 2016. However, in light of the fact that the draft law is primarily aimed at addressing market failures and enhancing competition in the banking sector, rather than directly aimed at protecting the consumers of banking services, it is difficult to characterise the draft law as complementary to the banking supervision tasks of the CBI, also taking account of the implications of the draft law for the banking sector and on financial stability, as out outlined in paragraphs 3.1.2 and 3.1.3. For these reasons, the tasks conferred on the CBI by the draft law cannot be considered as related to the tasks of monetary policy implementation and contribution to financial stability referred to in the first indent of

text: Article 127(2)

text: and Article 127(5) of the Treaty, or to the tasks exercised by the CBI as part of the SSM, in accordance with

text: Regulation (EU) No 1024/2013

text: 3.3.4.2 Tasks which are atypical of NCB tasks

text: As outlined above, the powers conferred on the CBI by the draft law are expressly characterised as powers for the purposes of protecting competition in the mortgage loan market. However, the ECB has not identified any other NCB in the ESCB which has been conferred with or exercises similar powers for the purposes of protecting competition. With regard to ensuring the protection of consumers of mortgage loan services, the ECB has generally accepted the allocation of consumer protection tasks to NCBs, including supervisory 9 10 tasks related to the provision of consumer credit and the fight against usury , provided such tasks do not interfere with the performance of the NCB’s ESCB-related tasks and provided that those tasks ‘complement existing supervisory powers and thus contribute to the soundness of the financial market and the preservation of confidence in the market place’ . In light of the CBI’s statutory responsibility for banking supervision and financial stability, further powers in the area of consumer protection could be argued to be not atypical of a central bank. The ECB understands that the laws in a number of Member States have put in place limitations 13 14 on the maximum interest rates that can be charged by lenders for consumer loans , including

text: those relating to immovable property . The national legislation in those Member States either:

text: (a) sets out the methodology for determining the relevant reference index or reference interest

text: rate, and the maximum margin above the reference interest rate which the interest rate charged

text: by the lender cannot exceed ; or (b) determines the maximum interest rate in the law itself or in

text: a decree adopted thereunder . The role of the NCB in relation to the reference rates can

text: include: (i) the provision of advice to the legislature or government on the setting of the rate,

text: taking into account evolutions in the market ; or (ii) the periodic calculation and publication of a

text: reference interest rate . In many cases, the NCB must calculate the reference interest rate

text: based on the average interest rate charged by market participants . The national authority

text: responsible for monitoring and enforcement of compliance with such national laws varies,

text: depending on the Member State, and may be conducted by the Ministry for Economics , the

text: national consumer protection authority , national competition authority the national competent

text: authority for prudential supervision , the NCB or by the courts, as a matter of civil or

text: criminal law. It is noted that in one Member State , a specific consumer protection power is

text: given to the NCB, in its capacity as supervisory authority, to monitor compliance of certain

text: institutions with rules on business-to-consumer commercial practices. Further, it may impose

text: sanctions on financial institutions in the event of a serious infringement of the provisions of the

text: banking laws . Some Member States also seek to control the interest rate for savings

text: deposits , including by means of tax incentives .

text: However, the key difference between the national laws mentioned and the Irish draft law relates to the powers conferred on the CBI. None of the above examples confer broad discretionary decision-making powers on an NCB to determine the appropriate level of interest rates which lenders may charge, as this kind of power is exercised by the legislature or by the government. Where NCBs play a role under such laws, this role is limited to the calculation and publication of a reference rate, based on predefined criteria, or to the enforcement of such laws against the relevant lenders, as an aspect of the NCB’s mandate for consumer protection. Thus, the decision-making powers conferred on the CBI by the draft law, to issue directions to lenders not to charge a variable interest rate which exceeds certain thresholds, may be considered atypical of a central bank, even if they could be characterised as consumer protection and not competition powers. For the sake of completeness, the powers under the draft law also cannot be characterised as macroprudential powers, as it is difficult to conclude that they pursue a legitimate macroprudential objective. The legitimate objectives of macroprudential policy can be understood by reference to Recommendation

text: of the European Systemic Risk Board on intermediate objectives and instruments of macroprudential policy , which considers the objectives of macroprudential policy to include the mitigation and prevention of excessive credit growth and leverage, the mitigation and prevention of excess maturity mismatches and market illiquidity, the limitation of concentration of exposures, the limitation of the systemic impact of misaligned incentives, and the strengthening of the resilience of financial infrastructures. To conclude, the conferral of these new powers on the CBI should be regarded as atypical of a central bank. 3.3.4.3 Impact of the tasks on the independence of the CBI The draft law designates the CBI as the sole authority with the power to assess the state of competition in the market for principal dwelling house mortgage loans and to issue directions to lenders not to charge a variable interest rate which exceeds certain thresholds. Given the factual assessment that this task is atypical of a central bank, it should be considered, in addition, whether the task is being discharged on behalf of and in the exclusive interest of the government . An important criterion for this qualification is the impact of the task on the independence of the CBI. Such impact is analysed in paragraph 3.2 of this Opinion. 3.3.4.3.1 Extent to which performance of the new task creates conflicts of interest with existing central

text: bank tasks

text: As noted above, the power to issue directions to lenders not set to rates in excess of a certain threshold could interfere with the CBI’s basic Eurosystem task to implement monetary policy,

text: due to the potential for such directions to interfere with the monetary policy transmission mechanism. The exercise of this power by the CBI could also possibly conflict with the effective use of the supervisory powers conferred on the ECB on the basis of the SSM, and therefore has the potential to create tensions with the CBI’s role as an NCA within the SSM. The ECB discourages the concentration of decision-making powers in the areas of competition and banking supervision in one body . In fact, the ECB has previously welcomed draft national laws transferring the responsibilities for the enforcement of competition policy in the banking sector away from the NCB to a national competition authority and discouraged the concentration of decision-making powers in the areas of antitrust and banking supervision in one body . In doing so, the ECB highlighted the need to balance the potentially conflicting objectives of market competition and financial stability . While coordination is highly necessary to avoid an overly complex framework for supervised entities, it would seem appropriate to maintain a clear distinction between procedures that are pursuing distinct public interests in particular for procedures leading to antitrust and banking supervision decisions . For that reason the ECB considers that in these circumstances draft national laws should reflect the principle of allocating powers to authorities in accordance with their respective objectives . 3.3.4.3.2 Extent to which performance of the new task is disproportionate to the CBI’s financial or

text: organisational capacity

text: The principle of financial independence requires NCBs to have sufficient means to carry out not only their ESCB-related tasks but also their national tasks, both from an operational and financial perspective . Under the draft law, the CBI is obliged to carry out detailed assessments on the state of competition in the market for principal dwelling house mortgage loans on a at least a quarterly basis, taking into account a wide range of factors. This may require the CBI to impose additional reporting requirements on mortgage lenders, which will impose costs on those mortgage lenders. Moreover, the CBI itself will have to dedicate additional human and financial resources to compile the relevant indicators and methodology, to collect, process and analyse the relevant data in order to carry out that assessment, and to present and report the data. Moreover, the CBI may incur further costs in the context of monitoring compliance with directions, and applying to the High Court for court orders. The draft law contains no provision for the reimbursement of the CBI for this additional burden. 3.3.4.3.3 Extent to which performance of the new task fits into the CBI’s institutional set-up, in light of

text: central bank independence and accountability considerations

text: As discussed in paragraph 3.1.6 above, it is difficult to see how the CBI could properly perform a task which could interfere with its overriding monetary policy task and objective. Moreover, the

text: exercise of this power by the CBI could also possibly conflict with the effective use of the supervisory powers conferred on the ECB on the basis of the SSM, and therefore has the potential to create tensions with the CBI’s role as an NCA within the SSM. As the national authority responsible for banking supervision and contributing to the stability of the financial system, the CBI will have to mitigate any potential conflicts of interests between its competition tasks and its banking supervision and financial stability mandates, by always taking the latter into account when exercising its powers. Sufficient mitigation measures would be necessary to ensure that, in the event of a conflict of interest, financial stability and prudential supervisory considerations prevail. However, in light of the objectives of the CBI set out in the Central Bank Act 1942, it appears particularly difficult to ensure that sufficient mitigation measures can be put in place. As all of the secondary objectives under Section 6A(2) of the Central Bank Act 1942 must be regarded as equal by the CBI, it would not be able to mitigate the conflict of interest between the competition objectives of its new role and its existing financial stability and prudential supervision objectives, by giving precedence to the latter objectives when exercising its new powers. Finally, there is the reputational risk that the CBI could be held accountable by the general public for problems related to the divergent treatment of holders of variable rate mortgages and tracker mortgages by commercial banks, even where the CBI’s assessment concludes that the variable rates can be reasonably and objectively justified, by reference to the various factors outlined in paragraph 3.1.2. Thus, given the absence of complementarity with the CBI’s existing tasks, the new tasks do not appear to fit into the CBI’s current institutional set-up. 3.3.4.3.4 Extent to which the performance of tasks harbours substantial financial risks The draft law specifies that there is no right of appeal to the Financial Services Appeals Tribunal or to the High Court in respect of the assessment of the CBI, a direction of the CBI to a lender, or a decision by the CBI to seek an enforcement or rectification order. In that respect, the CBI may not be exposed to substantial financial risks. However, it is for the Irish authorities to assess whether the draft law complies with Irish legal and constitutional principles in this particular respect. 3.3.4.3.5 Extent to which performance of the new task exposes members of the CBI’s decision-making bodies to disproportionate political risks and impacts on their personal independence As noted in paragraph 3.1.2 and paragraph 3.2, while the CBI is not obliged to exercise its new interest rate setting power, the ECB would be concerned that new task could create a conflict of interest with the CBI’s existing monetary policy and supervisory tasks, which would undermine the independence required of the CBI as a central bank of the Eurosystem and of the Governor of the CBI as a member of the Governing Council. 3.3.4.4 Conclusion regarding the compatibility of the draft law with the prohibition on monetary financing The ECB considers that the CBI’s new tasks relating to the variable rate mortgages qualify as government tasks, in the sense that they are, first, not linked to and do not complement the CBI’s existing monetary policy, supervisory or financial stability tasks and, second, atypical of

text: central banks. In addition, given that the draft law is primarily aimed at addressing market failures and enhancing competition in the mortgage loan market, the conferral of this task on the CBI creates a conflict of interest with the CBI’s monetary policy, banking supervision and financial stability tasks and objectives and raises concerns with regard to the independence of the CBI. Thus, the task is clearly discharged on behalf of and in the exclusive interest of the government. This conclusion is particularly evident with regard to the CBI’s discretionary, decision-making powers under the draft law to issue directions to lenders, but is also true with regard to the requirement to assess competition and form a conclusion on whether the state of competition is such that a ‘market failure’ exists. The carrying out of this government task by the CBI would only be compatible with the monetary financing prohibition if this task were fully and adequately remunerated . As this is not currently provided for in the draft law, the conferral of these new tasks on the CBI would not, therefore, appear to be compatible with the monetary financing prohibition.

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

text: Done at Frankfurt am Main, 17 November 2016.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI