title: Opinion of the European Central Bank of 27 March 2019 on judicial relief granted to former holders of qualified bank credit (CON/2019/13)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 27 March 2019 on judicial relief granted to former holders of qualified bank credit (

text: ) Introduction and legal basis

text: On 1 February 2019 the European Central Bank (ECB) received a request from the Slovenian Ministry of Finance for an opinion on a draft law on judicial relief granted to former holders of qualified bank credit (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and sixth indents of

text: as the draft law relates to Banka Slovenije, rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets and the tasks conferred upon the ECB pursuant to Article 127(6) of the Treaty. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: 1.1 The main objective of the draft law is to remedy the unconstitutionality, as declared by the Slovenian Constitutional Court in decision No U-I-295/13-260, dated 19 October 2016 (hereinafter the ‘2016 Decision’), of certain provisions of the Law on banking (hereinafter the ‘ZBan-1’) governing Banka Slovenije’s liability for damages with respect to extraordinary measures imposed by Banka Slovenije. The provisions assessed by the Constitutional Court authorised Banka Slovenije to adopt extraordinary measures to write-down or convert qualified liabilities during the reorganisation of a bank that failed or was likely to fail, to meet minimum requirements for capital and liquidity, to an extent that could result in the withdrawal of their banking authorisation. 1.2 While the Constitutional Court confirmed that the legal basis for the extraordinary measures imposed in 2013 and 2014 by Banka Slovenije in respect of the write-down of subordinated instruments was in line with the Constitution of the Republic of Slovenia, it held that the provisions of

text: Article 350

text: .a of the ZBan-1 providing for judicial relief to be unconstitutional. This conclusion was

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

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

text: 2 Zakon o bančništvu, Uradni list Republike Slovenije št. 131/06.

text: 3 Articles

text: .a, 253.b, 260.a, 260.b, 261.b, 261.c, 261.d, 261.e, 262.a, 262.b(2), 346, 347, 350 and 350.a of ZBan-1.

text: 4 Ustava Republike Slovenije, Uradni list Republike Slovenije št. 33/91-I. based on the Constitutional Court’s finding that exercising judicial relief under

text: Article 350

text: .a of the ZBan-1 did not afford effective judicial protection to former holders of qualified bank credit affected by Banka Slovenije’s extraordinary measures. The Constitutional Court decided that the legislator must remedy the unconstitutionality within six months of the publication of the Constitutional Court’s decision, and provided the legislator with further guidance on how best to ensure more effective judicial protection. 1.3 The main purpose of the draft law is to remedy the unconstitutionality of the judicial relief afforded to former holders of qualified bank credit affected by Banka Slovenije’s extraordinary measures, as declared by the Slovenian Constitutional Court. The key points of the draft law are summarised below. 1.4 The draft law codifies special procedural rules of judicial redress for the former holders of qualified bank credit, which deviate from the general rules and, inter alia, enable legal proceedings affecting similarly-placed litigants to be joined together to achieve a joint and uniform assessment of claims regarding a specific bank that was subject to Banka Slovenije’s extraordinary measures. Any action for compensation may be filed after three months have elapsed from the entry into force of the draft law and at the latest within fifteen months from the entry into force of the draft law. The draft law prescribes a two-stage decision procedure. First, a decision establishing that there is a basis for a claim against Banka Slovenije would be issued by the court in the form of an interlocutory judgment. The claimant would then file a claim stipulating the level of damages at the latest sixty days from the date on which the interlocutory judgement becomes final. Banka Slovenije would, within thirty days of the interlocutory judgment becoming final, prepare and present a list of amounts of individual damages to the court and an individual assessment to the relevant claimant. The claimants would have the possibility to comment on the list made by Banka Slovenije within the claimants’ sixty day deadline. The court would then issue a final judgement deciding on the amount of damages for each individual claimant. 1.5 The draft law regulates those proceedings that were already pending or will be pending in which the former holders of qualified bank credit are seeking judicial protection under civil law based on

text: Article 350

text: .a of the ZBan-1.

text: Article 350

text: .a of the ZBan-1 stipulates that shareholders, creditors, and other persons whose rights are affected due to the effects of an order by Banka Slovenije on an extraordinary measure may claim damages from Banka Slovenije in accordance with

text: Article 223

text: .a of the ZBan-1, if they prove that the loss that has arisen due to the effects of the extraordinary measure is higher than it would have been had the extraordinary measure not been adopted.

text: Article 223

text: .a of the ZBan-1 stated that Banka Slovenije and all of the persons acting on its behalf should be acting with the diligence of a good expert when exercising their supervisory functions. As confirmed by the Constitutional Court, and also noted in the explanatory memorandum to the draft law, the liability of Banka Slovenije as provided for in

text: Article 350

text: .a of the ZBan-1 is a sui generis liability (specially determined liability) .

text: 5 See paragraph 120 of the 2016 Decision and page 16 of the explanatory memorandum. The draft law specifically refers to the material provisions of the ZBan-1 for the court to consider in establishing whether a claimant has a right to compensation. Article 19 of the draft law provides guidelines for the court on how to establish a right to compensation in the most economically efficient way . When determining whether a claimant has a right to compensation, the court must establish whether extraordinary measures relating to qualified liabilities were adopted by Banka Slovenije in accordance with the conditions laid down in the ZBan-1 . Under the draft law, the court must, inter alia, verify whether the assessment of the conditions necessary for imposing extraordinary measures, as laid down in

text: Article 253

text: .a of the ZBan-1 , including the respective bank’s asset quality review (AQR), was carried out in accordance with the relevant provisions of the ZBan-1. In doing so, the main aspects that the court must verify, in accordance with the conditions laid down in the draft law, are whether: (i) the method and the premises on which the method was based, to an extent that impacted the assessment were in breach of the ZBan-1, the rules of the European Union on state aid and the standards for the supervision of banks as stipulated by the ECB, the European Commission, and the European Banking Authority (EBA); (ii) the methods and premises on which the method was based were used wrongly and this affected the assessment; (iii) the method of obtaining the data used in the preparation of the assessment raises a reasonable doubt as to whether source data were used and this affected the assessment; and (iv) there is reasonable doubt concerning the professionalism and the independence of the person who, or the entity which, performed the valuation of the assets of the bank that was used for the assessment to such an extent that it would be an unsuitable basis for a decision . In the event of a dispute regarding the fulfilment of the conditions for the extraordinary measures, Banka Slovenije must, in connection with the write-off or conversion of qualified credit of the bank, ensure that an individual creditor does not, as a result of such actions, suffer greater losses than he would have suffered if the bank had been declared insolvent, in accordance with the ‘no-creditor- 10 11 worse-off-than-in-insolvency’ principle . The burden of proof lies with the Banka Slovenije . 1.6 The draft law provides that the action for the recovery of damages based on

text: Article 350

text: .a of the ZBan-1 may only be filed against the Banka Slovenije. Compensation for damages incurred as a result of the extraordinary measures must therefore be paid by Banka Slovenije. As noted in the explanatory memorandum to the draft law, the full amount of the qualified credit that was written off as a result of the extraordinary measures ordered by Banka Slovenije pursuant to the ZBan-1, and as such the potential amount of damages to be covered by Banka Slovenije, amounts to EUR

text: 6 As noted in the explanatory memorandum in the comments to Article 19 of the draft law.

text: Articles 253

text: .a(1) and

text: Article 261

text: .a to 261.c ZBan-1.

text: 8 The conditions laid down in

text: Article 253

text: .a of the ZBan-1 are as follows: i) an increase in risk is prevailing in relation to the bank; ii) there are no circumstances indicated showing that the reasons for this increased risk are likely to be eliminated within a suitable time period, iii) it is not likely that Banka Slovenije could take other measures on the basis of this act for the bank to achieve short-term and long-term capital adequacy or to achieve a suitable liquidity position within a suitable time; and iv) extraordinary measures are in the public interest to prevent a threat to the stability of the financial system.

text: 9 See Article 19 of the draft law.

text: 10 See the fifth paragraph of

text: Article 261

text: .a of the ZBan-1.

text: 11 See Article 14 of the draft law. 963,197,453.89 . 1.7 The funds for the payment of the damages will be provided independently by Banka Slovenije from its own funds, up to the level of the provisions established for this purpose and general reserves established in accordance with the Law on Banka Slovenije . If the funds required for the payment of damages exceed the level of the provisions established for this purpose and general reserves, the Republic of Slovenia will temporarily cover the difference. The Republic of Slovenia and Banka Slovenije will, within twelve months from the draft law entering into force, enter into an agreement on this temporary provision of funds . The draft law provides that the Banka Slovenije must make arrangements for the reimbursement of the temporarily provided monetary funds in its financial plan and ensure that the reimbursement of these funds does not cause a shortfall in income over expenses that cannot be covered by the existing general reserves of Banka Slovenije . 1.8 The draft law provides for one exception from the mandatory application of the draft law, in situations where a criminal offence has been declared to have been committed in relation to a decision of Banka Slovenije on an extraordinary measure by a final judgement of a criminal court. In such cases, the general rules for the recovery of damages and the general procedure will apply, instead of the special provisions of the draft law. 1.9 The draft law lays down rules for a two-stage disclosure of documents and information in relation to any decision on extraordinary measures adopted by Banka Slovenije. Firstly, Banka Slovenije must publish on its website: (i) the order under which the extraordinary measure was adopted; (ii) documents showing the content of the contractual relationship between Banka Slovenije and the person who, or entity which, performed the valuation of the assets of the bank in accordance with

text: Article 261

text: (b)(1) of the ZBan-1; (iii) documents showing the content of the contractual relationship between Banka Slovenije and the performers of the asset quality review, the stress tests and the property valuators; and (iv) the stress test reports . All personal and confidential information or commercial secrets must be redacted in advance of any such publication on the website of Banka Slovenije . Secondly, Banka Slovenije must establish a data room for each bank in respect of which an extraordinary measure was adopted at discrete sites in the area in which the bank had its registered office at the time the measure was adopted. Former holders of the qualified bank credit (i.e., the claimants) have the right to access all the data and documents that were taken into account in adopting the extraordinary measures . Personal data will be redacted from the documents made available in the data room and persons seeking access to the data room will

text: 12 See page 7 of the explanatory memorandum to the draft law.

text: 13 Zakon o Banki Slovenije, Uradni list Republike Slovenije št. 72/06.

text: 14 In the agreement the parties will stipulate the procedures and criteria for the calculation and determination of the level of the monetary funds that are necessary for the temporary coverage.

text: 15 See Article 24 of the draft law.

text: 18 See Article 7 of the draft law. have to sign a confidentiality undertaking . Furthermore, the draft law stipulates that the former holders of qualified bank credit may file a motion to the court to oblige Banka Slovenije (and certain other entities, such as the State, the Court of Audit, the Central Securities Clearing Corporation, the Securities Market Agency, the Insurance Supervision Agency, the Bank Assets Management Company and the bank affected by the extraordinary measure) to provide documents to the court without redacting personal or confidential information, whereby the court must limit any disclosure of evidence to what is required and proportionate and must also ensure the adoption of effective measures to protect such information, for example by excluding the public from the court’s proceedings and limiting the review to certain entities. 1.10 In order to ensure the effectiveness of the protection of documents and data in a data room, the draft law establishes fines for violations . Under the draft law, Banka Slovenije is also designated as an authority responsible for deciding on breaches of a confidentiality undertaking and the imposition of fines in accordance with the Minor Offences Act .

text: 2. Observations

text: 2.1 Prohibition of monetary financing 2.1.1 The ECB has already delivered opinions on two earlier versions of the draft law . Under the first version of the draft law, compensation for damages incurred as a result of the extraordinary measures was required to be paid either by Banka Slovenije or the State, and if no liability could be attributed to Banka Slovenije, compensation was required to be paid by the State . Under the second version of the draft law, even though Banka Slovenije would be liable for damages, provision was also made for Banka Slovenije to file an action against the State in order to prove in a separate court procedure that Banka Slovenije was not liable for the damages resulting from the imposition of the extraordinary measures . The current version of the draft law does not make any reference to the liability of the State. 2.1.2 As noted by the ECB in its previous opinions, a requirement that Banka Slovenije must pay compensation for damages, to the extent that it results in Banka Slovenije assuming the liability of the Republic of Slovenia, would not be in line with the monetary financing prohibition laid down in

text: Article 123

text: TFEU . As repeatedly noted by the ECB, while resolution tasks may be considered to be central banking tasks, provided that they do not undermine an NCB’s independence in accordance with Article 130 of the Treaty, the discharge of these tasks by central banks may not

text: 20 See Article 7(4) of the draft law. 21 See Article 25 of the draft law. 22 Zakon o prekrških, Uradni list Republike Slovenije, št. 29/11. 23 See Opinion

text: and Opinion

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 24 See paragraph 1.4 of Opinion

text: . 25 See paragraph 1.4 of Opinion

text: . 26 For the purposes of the monetary financing 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’.. extend to the financing of resolution funds or other financial arrangements related to resolution proceedings as these are governmental tasks . In this respect, it is noted that Directive

text: of the European Parliament and of the Council provides that the resolution financing arrangements may be used to pay compensation to shareholders and creditors if the valuation carried out for the purposes of assessing whether shareholders and creditors would have received better treatment if the institution under resolution had entered into normal insolvency proceedings determines that any shareholder or creditor has incurred greater losses than it would have incurred under normal insolvency proceedings . It is also noted that

text: Regulation (EU) No 806/2014

text: of the European Parliament and of the Council envisages that, on the one hand, the resolution fund may be used to pay compensation to shareholders or creditors if, following an evaluation, they have incurred greater losses than they would have incurred under normal insolvency proceedings while on the other hand, in the case of non-contractual liability, the Single Resolution Board would compensate for any damage caused by it or by its staff in the performance of their duties . The draft law should establish liability arrangements which clarify that Banka Slovenije is not liable to pay compensation for damages in circumstances that would mirror the compensation foreseen under Directive

text: and

text: Regulation (EU) No 806/2014

text: to be paid from resolution financing arrangements to shareholders or creditors when a second independent valuation (carried out after resolution actions have been effected) determines that shareholders or creditors have incurred greater losses than they would have incurred under normal insolvency proceedings, as otherwise Banka Slovenije would de facto finance measures akin to resolution proceedings. Banka Slovenije may not finance a government task. 2.2 Financial independence of Banka Slovenije As the ECB has repeatedly stated , Member States may not put their central banks in a position where they have insufficient financial resources and inadequate net equity to carry out their ESCB or Eurosystem-related tasks, as well as their national tasks. Consequently, the impact of the draft law on the financial independence of Banka Slovenije should be carefully considered. According to the figures provided in the explanatory memorandum to the draft law, the total amount of the qualified credit written of, pursuant to the orders of Banka Slovenije on extraordinary measures, was EUR 963,197,453.89 . However, Banka Slovenije’s most recently reported reserves amount

text: 27 See, e.g., paragraph 3.2.3 of Opinion

text: . 28 Directive

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

text: Council Directive 82/891/EEC

text: , and Directives

text: and

text: , and Regulations

text: (EU) No 1093/2010

text: and

text: (EU) No 648/2012

text: , of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 190). 29 See Articles

text: and

text: (e) of Directive

text: . 30

text: Regulation (EU) No 806/2014

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

text: Regulation (EU) No 1093/2010

text: (OJ L 225, 30.7.2014, p. 1). 31 See

text: Articles 76(1)

text: (e) and 87(3) of

text: Regulation (EU) No 806/2014

text: . 32 See Opinions

text: and

text: . 33 See page 7 of the explanatory memorandum to the draft law to EUR 908,827,000.00 . Taking into account the worst-case scenario, Banka Slovenije could lose a significant amount of its reserves and as a consequence it may have a negative effect on the financial resources of Banka Slovenije and its financial independence. 2.3 Professional secrecy As noted by the ECB in its opinions on earlier versions of the draft law, national legislation should be compatible with obligations to maintain professional secrecy imposed by Union law, in particular by

text: Article 53 of Directive 2013/36/EU

text: of the European Parliament and of the Council . In this respect, the ECB considers that except for the outcome of stress tests, the publication of which is explicitly permitted under

text: Article 53(3) of Directive 2013/36/EU

text: , the stress test reports, AQR and asset valuations relating to individual supervised banks are to be regarded as confidential information. Disclosure of such confidential information can generally only be permitted in cases specified in

text: Article 53(1) of Directive 2013/36/EU

text: , which does not include disclosure to all the claimants envisaged under the draft law as disclosure is only permitted in cases of civil proceedings in connection with cases where a credit institution has been declared bankrupt or is being compulsorily wound up . In order to ensure the adequate protection of confidential supervisory information, the disclosure of stress test reports without confidential information should be limited only to the shareholders or creditors who were directly affected by the extraordinary measures taken by Banka Slovenije and therefore have a legitimate legal interest as defined by the Constitutional Court of the Republic of Slovenia . 2.4 Miscellaneous 2.4.1 Regarding the draft law’s requirement to verify whether the methods and the basic premises underlying the methods used in the assessment of the conditions necessary for imposing extraordinary measures, as laid down in

text: Article 253

text: .a of the ZBan-1, were consistent with the standards of banking supervision adopted by the ECB, the European Commission and the EBA, the ECB reiterates its previous recommendation that, in order to provide legal certainty, the draft law should specify in more detail the relevant legal sources (e.g. legal acts and best supervisory practices) relevant in this context . 2.4.2 Finally, as noted previously by the ECB , pursuant to

text: Article 33 of Council Regulation (EU) No 1024/2013

text: , from 3 November 2013 onwards, in view of the imminent assumption of its prudential

text: 34 See Banka Slovenije’s Annual Report 2017 (Letno poročilo 2017, leto 28, april 2018). 35 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). 36 See the judgement of the Court of Justice of 19 June 2018, Baumeister,

text: , ECLI:EU:C:2018:464; the judgement of the Court of Justice of 13 September 2018, UBS Europe and Others,

text: , ECLI:EU:C:2018:715; and the judgement of the Court of Justice of, 13 September 2018, Buccioni,

text: , ECLI:EU:C:2018:717. 37 See paragraph 123 of the 2016 Decision. 38 See paragraph 2.5 of Opinion

text: . 39 See paragraph 2.9 of Opinion

text: . 40

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). supervisory tasks under

text: Regulation (EU) No 1024/2013

text: , the ECB was authorised to require the national competent authorities, including Banka Slovenije, together with credit institutions, financial holding companies, mixed financial holding companies and mixed-activity holding companies of euro area Member States, as well as persons belonging to these entities and third parties to whom these entities had outsourced functions or activities, to provide all relevant information for the ECB to carry out a comprehensive assessment, including a balance-sheet assessment, of credit institutions in euro area Member States. The comprehensive assessment conducted by the ECB in this context comprised two components, including an AQR, which was a point-in-time assessment of the accuracy of the carrying value of banks’ assets as at 31 December 2013. The AQR was undertaken by the ECB and the national competent authorities, including Banka Slovenije, and was based on a uniform methodology and harmonised definitions. The comprehensive assessment was based on

text: Regulation (EU) No 575/2013

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

text: . The ECB notes that the judicial review of the comprehensive assessment, including the underlying uniform methodology, conducted by the ECB in this respect falls outside the competence of the national courts, and falls exclusively within the competence of the Court of Justice of the European Union. It would be useful, to avoid any possible doubt on this issue, to introduce a provision into the draft law to clarify this particular point, so that any possible discrepancies between the draft law and Union law in this respect can be avoided. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 27 March 2019. [signed] The President of the ECB Mario DRAGHI

text: Regulation (EU) No 575/2013

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

text: Regulation (EU) No 648/2012

text: (OJ L 176, 27.6.2013, p. 1). 42 See pages 2-4 of the European Central Bank, Aggregate Report on the Comprehensive Assessment: Summary (October 2014), available on the ECB’s website at www.ecb.europa.eu.


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 paragraph 2.2.2 of Opinion

text: , paragraph 2.3 of Opinion

text: , paragraph 2.3 of Opinion

text: , and paragraph 2.2 of Opinion

text: . All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 3 Guideline

text: (EU) 2015/510

text: of the European Central Bank of 19 December 2014 on the implementation of the Eurosystem monetary policy framework (ECB/2014/60) OJ L 91, 2.4.2015, p. 3.

text: Article 4 of Guideline 2014/528 of the European Central Bank of 9 July 2014 on additional temporary measures relating to Eurosystem refinancing operations and eligibility of collateral and amending Guideline ECB/2007/9 (ECB/2014/31) OJ L 240, 13.8.2014, p. 28.

text: See ECB press release on monetary policy decisions dated 7 March 2019 (link).

text: See paragraph 2.2.1 of Opinion

text: and paragraph 3.1 of Opinion

text: Following the amendments made to Part V of the Central Bank Act 1997 by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018, the term ‘credit servicing’ in relation to a credit agreement is defined to include holding the legal title to credit granted under the credit agreement.

text: See also paragraph 2.4.1 of Opinion

text: and paragraph 2 of Opinion

text: See the speech by Danièle Nouy, Chair of the Supervisory Board of the ECB, and Sharon Donnery, Chair of the ECB’s High Level Group on non-performing loans, ‘Introductory remarks to the public hearing on the draft addendum to the ECB guidance to banks on non-performing loans’, Frankfurt am Main, 30 November 2017, available on the ECB’s Banking Supervision website at www.bankingsupervision.europa.eu.

text: See ‘European banking supervision three years on,’ Welcome remarks by Mario Draghi, President of the ECB, at the second ECB Forum on Banking Supervision, Frankfurt am Main, 7 November 2017, available on the ECB’s website at www.ecb.europa.eu.

text: See paragraph 1 of Opinion

text: European Commission, Post-Programme Surveillance Report. Ireland, Spring 2018, 6 July 2018, page 17.

text: See the Council of the European Union’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to tackle non-performing loans in Europe’, available at: http://www.consilium.europa.eu/en/press/pressreleases/2017/07/11/conclusions-non-performing-loans/. See also Opinion

text: See, for example, Special features, Section B of the ECB’s November 2016 Financial Stability Review, available at: https://www.ecb.europa.eu/pub/pdf/other/sfbfinancialstabilityreview201611.en.pdf.

text: See paragraphs 2.2 and 2.3 of Opinion

text: See sections 28 to 36N of the Central Bank Act 1997, as amended. See also the recent Consumer Protection (Regulation of Credit Servicing Firms) Act 2018.

text: See paragraph 3.1 of Opinion

publisher: Europeiska centralbanken

sprak: en

title: Opinion of the European Central Bank of 29 March 2019 on requiring the consent of borrowers to transfers of loans secured by mortgages on residential property (CON/2019/14)

serie: con

text: OPINION OF THE EUROPEAN CENTRAL BANK of 29 March 2019 on requiring the consent of borrowers to transfers of loans secured by mortgages on residential property (

text: ) Introduction and legal basis

type: rubrik

text: On 4 March 2019 the European Central Bank (ECB) received a request from Chairman of the Oireachtas (Irish National Parliament) Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach (Irish Prime Minister) for an opinion on a No Consent, No Sale Bill 2019 (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and sixth indents of

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

text: , as the draft law relates to (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.

type: stycke

text: 1. Purpose of the draft law

text: 1.1 The draft law introduces a new rule to the effect that lenders may not transfer loans secured by the mortgage of residential property without the written consent of the borrower. It specifies that when seeking a borrower’s consent to such a transfer, the lender must provide a statement giving sufficient information on how the transfer would affect the individual borrower so that the borrower may make an informed decision and be given a reasonable time within which to give or decline to give such consent. This statement of information must be approved by the CBI before it is provided to a borrower. 1.2 The draft law sets out the information that must be provided in the statement of information to a borrower, namely: (i) the name and address of the intended transferee, and of any holding company applicable; (ii) the relationship, if any, between the lender and the transferee; (iii) a description of the intended transferee and of its business, including how long it has been in operation, and details of its involvement in the management of mortgages; (iv) details of the

text: policies and procedures which will apply for the setting of mortgage interest rates and for the making of repayments if the transfer takes place; and (v) confirmation that in the absence of a specific consent the existing arrangements will continue to apply. 1.3 The draft law also covers transfers in the context of securitisation-type transactions where the original lender would service the mortgage as an agent of the transferee. In such cases, the lender must confirm that the transferee’s policy on handling arrears and setting interest rates will be the same as that of the original lender, and that the original lender will handle arrears as its agent. 1.4 The draft law also provides that where, following a transfer of a mortgage, the lender would no longer have control of setting the interest rates and/or determining the conduct of relations with borrowers seriously in arrears, the lender must seek the borrower’s consent notwithstanding any previous consent the borrower has given. It also lays down certain requirements for any mortgage transfer agreement, including that a transferee must allow transferred mortgages to be redeemed without charging a redemption fee and must allow the borrower to arrange their own insurance. 1.5 The requirements of the draft law do not apply in certain limited cases, including where the lender is subject to winding-up proceedings, or has been determined by the CBI to be failing or likely to fail and the lender has satisfied the CBI that the application of the draft law would not be appropriate and that the transfer is being effected on terms which are just and equitable and which a borrower would reasonably be entitled to expect.

text: 2. General observations

text: 2.1 The ECB understands the draft law applies to the transfer of all loans secured by a mortgage of a residential property. While the draft law does not define the term ‘residential property’, the ECB understands that the draft law applies to both owner-occupied and rented or buy-to-let properties, regardless of whether the loan secured by the mortgage is classified as performing or nonperforming. In addition, there are no restrictions on borrowers withholding their consent to a transfer; rather, borrower consent may be withheld in any and all circumstances. The ECB also understands that the draft law applies not only to the transfer of ‘new’ residential mortgages – entered into after the enactment of the draft law – but also applies to transfers of ‘existing’ mortgages – entered into prior to the enactment of the draft law. 2.2 The ECB understands that the draft law applies to all transfers of residential mortgages, without distinguishing between the purpose and the means of the transfer. The ECB notes that, under Irish law, in order for credit institutions to issue asset-backed securities (ABSs), covered bonds, or residential (or special residential) mortgage-backed promissory notes, or to create security over pools of credit claims, the underlying residential mortgages must be transferred or, in the case of a security interest, capable of subsequent transfer. The effect of the draft law would be to render the type of asset transfers required to utilise these financial instruments and techniques effectively impossible for Irish credit institutions. However, all of these instruments and techniques are essential, both in relation to performing and non-performing loans, for the funding and, thus the day-to-day functioning of the Irish banking sector. As such, the draft law would make the use of

text: Irish residential mortgages as collateral for bank funding significantly more difficult, if not impossible. 2.3 Moreover, the presence of significant volumes of non-performing loans (NPLs) on credit institutions’ balance sheets reduces the ability of those institutions to fulfil their function as providers of credit to the real economy, and hampers the operational flexibility and overall profitability that are indispensable to a well-functioning banking sector. It is essential that the national legal framework enables the efficient transfer of NPLs off the balance sheet of credit institutions, through asset sales, securitisations and other measures. 2.4 The draft law is being introduced without the benefit of a thorough impact assessment. Only by making such a prior assessment would it be possible both to i) determine whether the draft law is able to achieve its aim – presumed to be consumer protection, and ii) mitigate any negative implications. However, in the absence of an impact assessment, it is difficult to be confident whether the objectives set by the draft law would be achieved . Indeed, for the reasons outlined in this opinion, the ECB has concerns that the draft law would have significant adverse effects on Irish credit institutions’ ability to participate in Eurosystem monetary policy operations, as well as on their funding situation and capacity to properly manage their balance sheets. In turn, this is likely to result in additional costs being passed on to other borrowers; it could also result in a significant impact on mortgage pricing and availability, and even an increase in NPLs, all of which are likely to impact financial stability, Irish taxpayers, and ultimately the Irish economy. 2.5 Finally, the ECB notes that it is not clear whether the draft law applies retrospectively to transfers of mortgages which took place prior to the enactment of the draft law. Hence, the draft law may raise issues of legal certainty in respect of the validity of such transfers.

text: 3. Specific observations

text: 3.1 Access of Irish credit institutions to Eurosystem credit operations and effects on the transmission of

text: monetary policy in Ireland

text: 3.1.1 In accordance with Article 18.1 of the Statute of the ESCB and of the ECB, the Eurosystem provides credit to eligible monetary policy counterparties, with lending based on adequate collateral. The types of assets which can be pledged as collateral in Eurosystem credit operations include marketable assets such as ABSs and covered bonds, as well as non-marketable assets such as credit claims, mortgage-backed promissory notes (MBPNs) and additional credit claims (ACCs) . 3.1.2 The ECB notes that Irish credit institutions are heavily reliant on mobilising collateral backed by residential mortgages, in particular ABSs, covered bonds and ACCs, to access Eurosystem credit

text: operations. Such ABSs, covered bonds and ACCs are generally backed by performing residential mortgages, transfers of which are also affected by the draft law. 3.1.3 By requiring the written consent of the borrower for the transfer of a mortgage, the draft law would significantly reduce the possibility for Irish credit institutions to mobilise pools of residential mortgage loans under the ACC scheme as collateral in Eurosystem credit operations. Moreover, by materially restricting the issuance of residential mortgage-backed securities (RMBSs) and of covered bonds, it would also impede the ability of Irish credit institutions to generate collateral that could be pledged to access Eurosystem credit operations. 3.1.4 This potentially relevant reduction in the availability of collateral assets could limit the amount of central bank liquidity that Irish banks could obtain from the Eurosystem, both in the main refinancing operations (MRO) and in the long-term refinancing operations (LTRO). In this regard, the Eurosystem’s fixed-rate full allotment policy has recently been extended until the end of the reserve maintenance period starting in March 2021 . Under this policy, eligible monetary policy counterparties can obtain the entire amount of liquidity requested from the Eurosystem. In this context, the availability of a sufficiently large amount of eligible collateral is crucial for credit institutions to be able to participate in Eurosystem credit operations and then to obtain the amount of liquidity they need. From the perspective of Irish credit institutions, and given that residential mortgages comprise a large proportion of their business, the draft law could therefore severely restrict their ability to access Eurosystem credit operations. This ability is of fundamental importance to credit institutions under normal circumstances, and is critical in times of financial stress. The inability of Irish credit institutions to generate mortgage-backed collateral would, de facto, also prevent Irish credit institutions from using mortgage-backed collateral for the purposes of accessing programmes under several of the Eurosystem’s non-standard monetary policy measures, notably for purchases under the ABS purchase programme (ABSPP) and the third covered bond purchase programme (CBPP3). This is because the eligibility of an ABS or a covered bond under the Eurosystem’s collateral framework is a necessary condition for determining its eligibility for purchase under the ABSPP and CBPP3. 3.1.5 By reducing the available types of collateral that can be charged by Irish credit institutions, the draft law could significantly limit the effectiveness in Ireland of monetary policy measures intended to ensure the smooth functioning of the monetary policy transmission mechanism, and thus, the achievement of the Eurosystem’s primary objective of maintaining price stability. Such limitation on the effectiveness of monetary policy measures in Ireland could give rise to fragmentation across the euro area concerning the extent to which monetary policy measures are reflected in the funding costs of Irish banks and then – ultimately – in the interest rates charged to borrowers. 3.1.6 Moreover, to the extent that participation in Eurosystem monetary policy operations reduces the funding costs of credit institutions and increases their funding sources, impediments to making full use of those monetary policy tools would increase funding costs and decrease funding sources. Ultimately, this could also be reflected in increased interest rates charged to borrowers.

text: 3.2 Implications for bank funding and lending conditions 3.2.1 If, as a result of the effects of the draft law, Irish credit institutions could no longer reliably access Eurosystem credit operations, they would have to increase their market-based wholesale funding, either through short-term interbank borrowing or issuance of debt instruments. However, funding by way of debt issuance also relies, to some extent, on the ability of credit institutions to securitise performing and non-performing loans and to issue covered bonds to be sold to market investors. Since the draft law would effectively prevent any future issuance of securitisations or covered bonds, Irish credit institutions would need to issue a larger amount of unsecured bonds, which would be subject to less favourable pricing than secured debt instruments. 3.2.2 These factors would then contribute to an increase in the funding costs of Irish credit institutions, which may then be passed through to borrowers via an increase in interest rates. In addition, if credit institutions with reduced access to funding sources encounter difficulties in raising wholesale debt funding from the private market, this could, in turn, lead to capacity constraints in bank lending to the real economy more generally.

text: 3.3 Effects on the banking sector 3.3.1 In the context of its direct responsibility for the supervision of significant banking groups within the euro area, the ECB closely monitors the stability of credit institutions. The high level of NPLs in Ireland has brought large credit losses to Irish credit institutions in the recent past. Thus, it is important that NPLs are dealt with in an efficient and effective manner – balancing, on the one hand, the need to ensure observance of the general duty of debtors to meet their payment obligations and, on the other hand, the need to provide assistance to individuals in dire financial situations . Risk transfer through asset sales, securitisation and other measures is an important part of the toolkit available to credit institutions to reduce NPLs in an effective manner; these are in addition to other tools, such as the originating credit institutions’ internal procedures for handling the work-out of NPLs. 3.3.2 Provided that the consumer protection framework remains fully applicable to transfers regulated by the draft law, borrowers should not be worse off in the event that their mortgage is transferred to a purchaser. In that respect, the ECB understands that borrowers currently benefit from the protections afforded to them under the CBI’s Code of Conduct on Mortgage Arrears 2013 and the Consumer Protection Code 2012, as well as Part V of the Central Bank Act 1997 – as amended by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 and the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 – which provides for the regulation of credit servicing . The draft law does not appear to provide additional protection to borrowers, as the existing consumer protection framework applies regardless of whether the mortgage is held and serviced by the original lender, or is transferred to a purchaser and serviced through a credit

text: servicing firm . 3.3.3 The ECB notes that, for a number of reasons, addressing high levels of NPLs has been one of the ECB’s supervisory priorities since the inception of the Single Supervisory Mechanism . First, NPLs weigh on the balance sheets of credit institutions, curbing their profits. Second, NPLs are distracting for credit institutions, and represent a drain on their resources. Third, NPLs undermine investors’ confidence in credit institutions. In addition, internal analysis by the ECB shows that, over recent years, credit institutions with high stocks of NPLs have consistently lent less than credit institutions whose loans are of better credit quality, thereby providing less support to firms and households and the economy generally . Further, high stocks of NPLs are a macroprudential issue and often affect entire economies . 3.3.4 It is worth considering in further detail how the draft law may impact the ability to address high levels of NPLs, and why this may raise concerns from a supervisory perspective. First, it is noted that the other elements of the toolkit available to credit institutions to reduce NPLs include split mortgages, mortgage-to-rent schemes and voluntary surrender. However, these solutions rely on the engagement of the borrower. Currently, repossession activity in Ireland remains limited, and the length of proceedings continues to be protracted . In such a context, some borrowers may not be incentivised to engage fully with these solutions, and the draft law may further adversely affect the balance of incentives from the point of view of borrowers. The protracted nature of some NPL workouts can have a significant impact on the balance sheets of the credit institutions involved, given the time value of money: the value of an asset must be discounted over time until its value can be realised. Using even modest interest rates, a delay of several years in the workout of an NPL can have a significant impact on valuation due to the compounding of interest. In those circumstances the effect of the draft law would be to deprive credit institutions of the possibility of disposing of non-performing portfolios that can be worked out by transferees which have specialised expertise and a specialised business model. Removing this possibility would have serious implications for credit institutions’ balance sheets. 3.3.5 Second, the proper management of NPL exposures, in full compliance with both prudential requirements and the consumer protection framework, is an expensive process; it requires specialised expertise which consumes valuable resources that could otherwise be devoted to the prudent management of the credit institution. When NPL stocks on credit institutions’ balance sheets reach critical levels the burden can become severe and debilitating. Credit institutions’ ability to sell portfolios of assets can alleviate these issues, strengthen credit institutions’ balance sheets, and reduce the costs of capital and funding. However, the draft law is likely to impede credit institutions’ ability to sell portfolios of assets.

text: 3.3.6 Third, the draft law may have an adverse impact on current and prospective Irish borrowers generally. When pricing mortgages and setting interest rates, credit institutions take account of many factors including: the actual and future cost of funding; expenses and overheads; the cost of capital; and expected credit losses. By depriving credit institutions of an important tool available for the workout of NPLs, additional costs would be generated. These additional costs are likely to be passed on to other borrowers and could result in a significant impact on mortgage pricing and availability – further increasing interest rates charged to borrowers in Ireland, including holders of variable rate mortgages – and potentially leading to higher levels of NPLs.

text: 3.4 Effects on secondary markets for credit institution assets 3.4.1 The ECB has been a strong proponent of the development of secondary markets for credit institution assets – particularly NPLs – as reflected in the action plan of the Council of the European Union to tackle NPLs in Europe . In the context of the large stocks of NPLs that remain on the balance sheets of some European credit institutions, and as part of a comprehensive solution to NPL resolution , the development of secondary markets may contribute to reducing NPLs. Looking ahead, well-functioning secondary markets may also prevent stocks of NPLs from building up in the future. 3.4.2 Moreover, a well-functioning secondary market for credit institution assets may have a positive effect on financial stability to the extent that it could facilitate the transfer of NPLs off credit institutions’ balance sheets. As noted above, the presence of significant volumes of NPLs on credit institutions’ balance sheets reduces the ability of those institutions to fulfil their function as providers of credit to the real economy, and hampers the operational flexibility and overall profitability that are essential to a well-functioning banking sector. It is essential that the national legal framework applicable to secondary markets enables the efficient transfer of NPLs off the balance sheets of credit institutions. 3.4.3 From a procedural perspective, further consideration should be given to the practical implications of the draft law on the process for transferring portfolios of mortgages, whether performing or nonperforming. The provisions of the draft law would mean that a credit institution could only approach borrowers to obtain their consent after the completion of negotiations between the transferee and the credit institution, and the conduct and completion of due diligence in respect of the portfolio. Thus, consent could only be sought once various terms of the transfer, including the price, have been agreed. If one or more borrowers in the portfolio refuse to grant consent, the agreed terms would have to be renegotiated. This is likely to render such transfers effectively impossible and, in any case, increase costs and impede the functioning of secondary markets for credit institution assets. 3.4.4 In this context, the draft law must carefully balance the benefits of creating well-functioning

text: secondary markets against the need to protect borrowers. The draft law would impede the transfer of NPLs off credit institutions’ balance sheets and impede the development of secondary markets. As noted above, if credit institutions (or secondary market purchasers of assets) are deprived of efficient tools to work out NPLs in an effective and timely manner, the result could be unnecessarily high levels of NPLs and private sector debt, which in turn have an adverse impact on financial stability and could undermine future credit supply .

text: 3.5 Effects on financial stability The implementation of the draft law would entail financial costs for the banking sector. Given the scope of the draft law and the importance of mortgage portfolios in total credit institution assets, these factors would have a negative impact on the profitability, capitalisation and future lending capacity of the credit institutions affected, and ultimately may have implications for financial stability. Combined with the potential impact of a shift away from stable, relatively cheap, central bank funding towards more volatile wholesale markets, the draft law could undermine financial stability.

text: 3.6 Effects on the Irish economy In view of the above considerations, the draft law is likely to adversely affect the future supply of credit and the pricing of mortgages. Credit institutions may respond to the likely increases in finance costs resulting from the draft law by unduly tightening lending conditions, in particular by charging higher interest rates and by decreasing lending volumes – with a potentially negative compositional effect in terms of credit allocation. This could reduce economic capacity in Ireland.

text: 3.7 Impact on tasks of Central Bank of Ireland The draft law does not confer genuinely new tasks on the CBI in the area of prudential supervision or consumer protection. Rather, it complements the CBI’s existing tasks, in particular in the field of supervision of regulated financial service providers and regulated businesses. For example, in respect of retail credit firms and credit servicing firms, the CBI already has powers to authorise and supervise such entities, to make them subject to CBI codes or directions, and to take enforcement measures against them – including for the purposes of protecting natural persons and micro, small or medium-sized enterprises that have entered into credit agreements . Consequently, the question of whether new tasks conferred on a national central bank constitute government tasks in the context of the prohibition of monetary financing does not arise .

text: 3.8 Compliance with Irish constitutional and other legal principles It is for the Irish authorities to assess whether the draft law, including its potentially retroactive

text: character, complies with Irish constitutional and other legal principles, in particular property rights. For its part, the ECB notes that introducing measures with retroactive effect would undermine legal certainty and not be in line with the principle of legitimate expectations. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 29 March 2019. [signed]

text: The President of the ECB

text: Mario DRAGHI

type: vagledning

utgivare: ecb


title: Opinion of the European Central Bank of 11 April 2019 on lobbying (CON/2019/15)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 11 April 2019 on lobbying (

text: ) Introduction and legal basis

text: On 28 February 2019 the European Central Bank (ECB) received a request from the Minister of Justice of the Czech Republic for an opinion on a draft law on the regulation of lobbying (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 on the third indent of

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

text: , as the draft law relates to Česká národní banka (ČNB). In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: 1.1. The purpose of the draft law is to regulate lobbying in the Czech Republic. The draft law defines the activity of lobbying, the persons understood to be lobbyists (hereinafter ‘lobbyists’) and the public officials exposed to lobbying (hereinafter ‘lobbied persons’). It also defines the competences of public authorities in relation to such activity and the rights and obligations of lobbyists and lobbied persons. In addition, the draft law establishes the Transparency Register as a public information system to be maintained by the Úřad pro dohled nad hospodařením politických stran a politických hnutí (ÚDHPSH, the Oversight Office for Political Parties and Political Movements). Lobbyists and lobbied persons must register with the Transparency Register and report on a quarterly basis on their lobbying activities and relevant contacts during that period. The Transparency Register and the periodic reports are made available to the public on the ÚDHPSH’s website. 1.2. A member of the Bank Board of ČNB would be regarded as a lobbied person according to the draft law if he or she is lobbied in order to influence a decision on the preparation, negotiation or passage of a draft legislation or regulation that is within the competence of ČNB. In that case, ČNB would be required to enter the member’s details as prescribed in the draft law in the Transparency Register, and the member would be required to submit quarterly reports with information on his or her respective contacts with lobbyists during that period. The reports are to be submitted electronically and are made available to the public on the ÚDHPSH’s website. 1.3. The explanatory memorandum accompanying the draft law states that this provision takes into account the special status of the members of the Bank Board of ČNB. In this respect, the

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

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

text: 2 https://apps.odok.cz/veklep-detail?pid=KORNB4B9CNQE explanatory memorandum notes that, pursuant to Article 98 of the Constitution of the Czech 3 4 Republic , ČNB's core responsibilities are price stability and monetary policy . The draft law does not interfere with the areas in which ČNB is completely independent. Such interference is prohibited under Law No 6/1993 on ČNB . Therefore, members of the Bank Board of CNB only fall within the scope of the draft law if they are involved in legal drafting within ČNB’s competence. Members of the Bank Board of CNB that are not involved in legal drafting within ČNB’s competence are not subject to the draft law. The consulting authority has informed the ECB that the ECB’s opinion from 2005 on the Slovak regulation of lobbying has been taken into account in drafting this provision .

text: 2. Observations

text: 2.1 This opinion addresses the provisions of the draft law relating to the members of the Bank Board of ČNB. 2.2 The ECB understands that a draft regulation within ČNB’s competence with respect to which a member of the Bank Board of ČNB could be lobbied would cover draft legislation on the currency and the circulation of money, and draft legislation concerning the status, competence, organisation and activities of ČNB (where ČNB co-submits the draft law, together with the Ministry of Finance, to the Government ) as well as draft ČNB decrees issued pursuant to Law No 6/1993 on ČNB, including decrees on required minimum reserves, and other laws under which ČNB has regulatory 8 9 competences. This includes the areas of banking and financial supervision , market infrastructures , 10 11 12 the circulation of banknotes and coins , consumer credit and anti-money laundering . Accordingly, any lobbying of a member of the Bank Board of CNB during a legislative process on decisions concerning a draft legal act outside the regulatory competence of ČNB would not fall under the draft law. 2.3 Article 130 of the Treaty requires that, when exercising the powers and carrying out the tasks and duties conferred upon them by the Treaty, the Treaty on European Union and the Statute, neither the ECB nor an NCB nor any member of their decision-making bodies shall seek or take instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body. The aim of Article 130 of the Treaty is to shield central banks from political pressure

text: 3 Article 98 of Constitutional Law No. 1/1993 Coll. Ústava České republiky.

text: 6 See ECB Opinion

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

text: 8 See Law No 21/1992 Coll. on banks (zákon o bankách); Law No 277/2009 Coll. on insurance (zákon o pojišťovnictví); Law No 87/1995 Coll. on credit unions (zákon o spořitelních a úvěrních družstvech); Law No 277/2013 Coll. on currency exchange (zákon o směnárenské činnosti ); Law No 15/1998 Coll. on supervision in the capital market area (zákon o dohledu v oblasti kapitálového trhu); Law No 256/2004 Coll. on capital market undertakings (zákon o podnikání na kapitálovém trhu); Law No 190/2004 Coll. on bonds (zákon o dluhopisech); and various laws on pension insurance and savings (mainly Laws No. 42/1994 and No. 427/2011 (zákon o penzijním připojištění se státním příspěvkem a zákon o doplňkovém penzijním spoření).

text: 9 See Law No 370/2017 Coll. on the payment system (zákon o platebním styku).

text: 10 See Law No 136/2011 Coll. on the circulation of banknotes and coins (zákon o oběhu bankovek a mincí) and provisions on counterfeiting etc. in the Criminal Code, Law No. 40/2009 Coll. (trestní zákoník).

text: 11 See Law No 257/2016 Coll. on consumer credit (zákon o spotřebitelském úvěru).

text: 12 See Law No 253/2008 Coll. on selected measures against legitimisation of proceeds of crime and financing of terrorism (zákon o některých opatřeních proti legalizaci výnosů z trestné činnosti a financování terorismu). to enable them to effectively pursue the objectives attributed to their tasks through the independent exercise of the specific powers conferred on them for that purpose. However, the recognition that central banks have such independence does not have the consequence of exempting them from every rule of law and to shield them from any kind of legislation . 2.4 The ECB considers that regular contacts and interaction with external stakeholders provide relevant input and information that help to understand the dynamics of the economy, the financial markets and the banking sector, and the broader societal context. Members of the ECB’s decision-making bodies and other high level officials are required upon their appointment to sign a declaration of adherence to the ECB’s Code of Conduct for High Level ECB Officials , which provides good governance safeguards for relations with interest groups and also includes guiding principles regarding communication with external parties. The members of high-level ECB bodies commit to safeguard confidential information in accordance with their obligations and to avoid any appearance that potentially market-sensitive information may not be available to the widest possible public audience at the same time. To enhance transparency and accountability, they shall, as a general rule, include information on their meetings with external parties in their published meeting calendars, to the extent such information relates to their role as members of high-level ECB bodies. 2.5 In view of the above considerations, the ECB considers that the draft law, including the proposed transparency-related obligations for members of the Bank Board of ČNB aimed at combating corruption and increasing transparency in the specific context of lobbying during the legislative process in the Czech Republic, would not impair the independent performance of ČNB’s ESCBrelated tasks. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 11 April 2019. [signed] The President of the ECB Mario DRAGHI

text: 13 See judgement of the Court of Justice of 10 July, Commission v ECB,

text: , ECLI:EU:C:2003:395, paragraphs 134 to 136.

text: 14 See Code of Conduct for High Level ECB Officials of December 2018 https://www.ecb.europa.eu/ecb/legal/pdf/en_single_code_conduct_for_high_level_ecb_officials_f_sign.pdf


text: Regulation (EU) No 806/2014

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

text: Regulation (EU) No 1093/2010

text: (OJ L 225, 30.7.2014, p. 1).

text: See paragraphs 2 and 4 of the draft law. 6 See paragraph 5 of the draft law. 7 See paragraph 57 of the draft law.

text: See paragraphs 43-45 of the draft law. 15 See paragraph 17 of the draft law. 16 See paragraph 19 of the draft law. 17 See paragraph 20 of the draft law. 18 See paragraphs 17, 19 and 20 of the draft law.

text: See paragraph 1.3 of ECB Opinion

text: . All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 22

text: Council Regulation (EU) No 1024/2013 of 15 October 2013

text: conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).

text: See Articles 60(1) and 64(1) of the Law on the recovery and resolution of credit institutions and investment firms. 24 See, for example, Articles 61(2), 63(2) and 64(5) of the Law on the recovery and resolution of credit institutions and investment firms. 25 See, for example, Articles 61(1), 63(1) and 64(3) of the Law on recovery and resolution of credit institutions and investment firms. 26

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). 27 See paragraph 3.1.2 of Opinion

text: . 28 See paragraph 2.1.2 of ECB Opinion

text: and paragraph 3.2.3 of Opinion

text: . 29 See paragraph 3.1.1 of Opinion

text: and paragraph 3.1.4 of Opinion

text: See paragraph 3.1.2 of Opinion

text: and paragraph 3.4.2 of Opinion

text: . See also ECB Convergence Report 2018, point 2.2.5.1. 31 See paragraph 3.1.2 of Opinion

text: . 32 See Article 5(3) of the Law on the recovery and resolution of credit institutions and investment firms.

title: Opinion of the European Central Bank of 17 April 2019 on participation in the Single Resolution Mechanism (CON/2019/16)

text: OPINION OF THE EUROPEAN CENTRAL BANK of 17 April 2019 on participation in the Single Resolution Mechanism (

text: ) Introduction and legal basis

text: On 20 March 2019 the European Central Bank (ECB) received a request from the Bulgarian Minister of Finance for an opinion on a draft law amending and supplementing the Law on the recovery and resolution of credit institutions and investment firms, the Law on Българска народна банка (Bulgarian National Bank) and the Law on the bank deposit guarantee (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third and sixth indents of

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

text: , as the draft law relates to Българска народна банка (Bulgarian National Bank (BNB)), rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets and tasks conferred on the ECB concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

text: 1. Purpose of the draft law

text: The draft law introduces provisions which the consulting authority considers necessary in relation to the application in Bulgaria of

text: Regulation (EU) No 806/2014

text: of the European Parliament and of the Council (hereinafter the ‘SRM Regulation’) . 1.1. Competences of the national resolution authorities and the Single Resolution Board The draft law establishes the competences of BNB as the national resolution authority responsible for the resolution of credit institutions and of the Financial Supervision Commission (FSC) as the national resolution authority responsible for the resolution of investment firms within the meaning of the SRM Regulation . The draft law provides that, when performing their resolution tasks, BNB and the FSC must comply with the guidelines and general directions issued by the Single Resolution

text: Board (SRB) and take the necessary actions to implement the SRB’s decisions pursuant to the SRM Regulation. 1.2. Cooperation between national and Union authorities in the context of resolution The draft law further specifies that, in the framework of the SRM Regulation, BNB and the FSC must cooperate with the SRB, the European Commission, the Council of the European Union, the ECB, national resolution authorities and national competent authorities . The draft law also amends the Law on BNB to enable BNB to exchange information with the SRB . 1.3. National financing arrangements The draft law reorganises the existing national resolution financing arrangements. It is envisaged that the existing national resolution fund for the resolution of credit institutions (the ‘Bank Resolution Fund’ (BRF)), which is currently managed by the Bulgarian Deposit Insurance Fund (BDIF), will in the future be managed by BNB . Within the BRF, two sub-funds would be established – one sub-fund for the collection of contributions in accordance with

text: Articles 69

text: to 71 of the SRM Regulation and one sub-fund with the objective of funding the resolution of branches of third-country credit institutions. The draft law provides that the available funds in the BRF would be held in a BNB account and invested in accordance with the Law on BNB . The costs of managing the BRF will be financed by the fees collected in connection with BNB’s resolution function and pursuant to

text: Article 59

text: a of the Law on BNB. The draft law also provides for the split of the existing national resolution fund for the resolution of investment firms (the ‘Investment Firm Resolution Fund’ (IFRF)) into two sub-funds: one sub-fund for the collection of contributions in accordance with

text: Articles 69

text: to 71 of the SRM Regulation and one sub-fund with the objective of funding the resolution of investment firms which fall outside the scope of the SRM Regulation as well as branches of third-country investment firms . BNB will be the depositary of the IFRF . 1.4. Contributions to the Single Resolution Fund The draft law mandates BNB and the FSC to notify the relevant credit institutions and investment firms of an SRB notification of the amount of contributions due in accordance with

text: Articles 69

text: to 71 of the SRM Regulation . BNB and the FSC will be required to promptly transfer to the Single Resolution Fund (SRF) the contributions collected from such credit institutions and investment firms. The draft law also aims to facilitate the gradual transfer of the financial means of the BRF to the SRF . In addition, the draft law clarifies the rules for the calculation and collection of

text: contributions from branches of third-country credit institutions, investment firms which fall outside the scope of the SRM Regulation as well as branches of third-country investment firms . 1.5. Competences relating to the application of resolution tools To complement the proposed transfer of the management of the BRF from the BDIF to BNB, the draft law seeks to transfer the BDIF’s functions with regard to the establishment of bridge institutions and asset management vehicles to BNB. In particular, BNB is now empowered to 15 16 establish a bridge bank , a bridge financial holding company and an asset management vehicle . In addition, the draft law specifies that the capital of those entities may be fully or partially financed by the SRF or the BRF . Moreover, eligible liabilities may also be converted into ordinary shares in order to constitute the capital of a bridge institution . 1.6. Exchange of information in the period leading up to the establishment of close cooperation Finally the draft law aims to ensure the appropriate exchange of information for the purposes of establishing close cooperation between the ECB and BNB and in relation to the implementation of the Agreement on the transfer and mutualisation of contributions to the Single Resolution Fund . To this end the draft law introduces a transitional provision which permits the exchange of information, on the one hand, between BNB and the SRB and, on the other hand, between credit institutions established in Bulgaria and the SRB. This transitional provision would apply as of the date of publication in the State Gazette and until the date of application of an ECB decision establishing close cooperation between the ECB and BNB.

text: 2. General observations

text: 2.1 With regard to the proposed amendments to decision-making and governance of the national resolution financing arrangements, the resolution decision-making process should allow for timely and efficient decision-making, if necessary, within a very short time, such as a few days or, where necessary, a few hours . 2.2 The ECB underlines that this opinion is without prejudice to the ongoing assessment of the request filed on 18 July 2018 by the Republic of Bulgaria to establish close cooperation between the ECB and BNB, in line with the existing procedures established under

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

text: 3. Specific observations 3.1 BNB as a resolution authority BNB is already the national resolution authority competent for the resolution planning and resolution of credit institutions. It also has the relevant resolution powers necessary to fulfil these functions. The ECB understands that, under the existing law, BNB is already competent to apply both the bridge institution tool and the asset separation tool. In particular, BNB is the competent resolution authority to decide on a transfer to a bridge institution or an asset management vehicle of instruments of ownership, assets, rights and liabilities . BNB is also competent to approve the operation of a bridge bank, a bridge financial holding company, or an asset management vehicle, 24 25 upon proposal of the BDIF , while the capital of those entities is provided by the BRF . 3.2 Complementing existing resolution tasks The proposed transfer to BNB of the existing competences of the BDIF regarding the establishment and incorporation of bridge institutions and asset management vehicles does not confer genuinely new tasks on BNB. Rather, BNB’s proposed new administrative competences in relation to the management of the BRF complement BNB’s existing resolution tasks. The draft law specifies certain new administrative competences that BNB would exercise when carrying out its tasks as a resolution authority. 3.3 Compliance with the monetary financing prohibition Since the draft law only envisages complementing BNB’s existing resolution tasks, it is not necessary to assess whether the conferral of new tasks on a national central bank complies with the prohibition of monetary financing under the Treaty. The ECB understands that BNB will manage, but not own, the BRF. The role of a resolution fund that is managed within a central bank must remain consistent under all circumstances with the prohibition on monetary financing under Article 123 of the Treaty, as supplemented by

text: Council Regulation (EC) No 3603/93

text: , which prohibits, inter alia, any financing by a central bank of the public sector’s obligations vis-à-vis third parties . While administrative resolution tasks may be considered to be central banking tasks, the discharge of these tasks by central banks may not extend to the financing of resolution funds or other financial arrangements related to resolution proceedings as these are governmental tasks . The provision of such financing would constitute a government task in breach of the prohibition of monetary financing under the Treaty . Where a resolution fund established within a central bank holds capital of a bridge institution or an asset management vehicle, it should be clarified, for the

text: avoidance of doubt, that the central bank will not employ its resources, other than those collected in the resolution fund, to assume or finance any obligation of these entities . 3.4 Financial independence The principle of financial independence requires NCBs to have sufficient means to carry out not only their ESCB-related tasks from an operational and financial point of view, but also their national tasks. For that reason, it should be ensured that if a resolution fund established within BNB becomes the owner of a bridge institution or an asset management vehicle, sufficient financial and human resources are provided to address the operational burden associated with it . The ECB notes that the draft law provides that the costs of managing the BRF will be financed by the fees collected in connection with BNB’s resolution function. 3.5 Liability of BNB The ECB notes that the BNB, the members of the BNB Governing Council, and the BNB staff are not held liable for acts or omissions in the course of discharging their duties under the Law on the recovery and resolution of credit institutions and investment firms, unless they acted intentionally . The ECB understands that this provision applies also in relation to the draft law and the BNB’s tasks of managing the BRF and acting as the depositary of the IFRF.

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

text: Done at Frankfurt am Main, 17 April 2019.

text: [signed]

text: The President of the ECB

text: Mario DRAGHI