EN ECB-PUBLIC 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 28 October 2016  
on amendments to the Law on Hrvatska Narodna Banka 
(CON/2016/52) 
 
Introduction and legal basis 
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’)1. 
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 Article 2(1) of Council Decision 98/415/EC2, 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. 
 
1.  Purpose of the draft law 
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, r eports, 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 
                                                 
1  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  .  
2  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
ECB-PUBLIC  
2 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 purp ose 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 t he 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 prov isions 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 exec ution 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 impl ementation 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 non-
acceptance thereof. The explanatory memorandum also emphasises that during the discussion on 
ECB-PUBLIC  
3 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 i t, 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 fl ow 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 arra ngements 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. 
 
2. General observations 2.1 The purpose of the draft law is similar to that of  a previous legislative initiative on which the ECB 
issued Opinion CON/2016/33
3, 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 legisl ation 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. 
 
3. Specific observations 3.1  State Audit Office’s audit of HNB  
3.1.1 As noted in the ECB Opinion CON/2016/33
4, 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
5 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 
                                                 
3 See Opinion CON/2016/33. All ECB opinions are published on the ECB's website at www.ecb.europa.eu  . 
4  See paragraph 2.1.1 of Opinion CON/2016/33. 
5  For the activities of the independent external auditor s of the NCBs see Article 61 of the Law on HNB. 
ECB-PUBLIC  
4 ESCB-related tasks6. The state audit should be conducted on a non-political, independent and 
purely professional basis7.  
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
8, the Statute of the 
ESCB and the Law on HNB. However, in its other provisions9, 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 prop osed ‘evaluation of other tasks and procedures’
10 
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 th at 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
11. 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. 
                                                 
6  See the ECB’s Convergence Report, June 2016, pp. 26-27 and Opinions CON/2011/9 and CON/2011/53. All ECB 
convergence reports are published on the ECB’s website at www.ecb.europa.eu  . 
7  See the ECB’s Convergence Report, June 2016, pp. 26-27. 
8  See Article 61.a(3) of the draft law.  
9  See Article 61.a(2) of the draft law. 
10  See Article 61.a(2) fourth indent of the draft law. 
11  See Article 61 of the Law on HNB. 
ECB-PUBLIC  
5 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
12. 
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 St atute 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 partic ular, 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 st ate 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
13. 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
14. 
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 
                                                 
12  See for example paragraph 2.2 of Opinion CON/2016/24. 
13  See the ECB’s Convergence Report, June 2016, p. 27. 
14  See the ECB’s Convergence Report, June 2016, Chapter 7.5.3.  
ECB-PUBLIC  
6 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 under stands 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 CON/2016/33, 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
15. 
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 implemen tation 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 
CON/2016/33, 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 obser ved. 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 decision-
making bodies and members, for example as regards amending HNB’s annual report or 
                                                 
15  See the ECB’s Convergence Report, June 2014, p. 22. 
ECB-PUBLIC  
7 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
16.  
3.3  Reduction of the number of terms of office of HNB’s Governor and the other members of HNB’s 
Council  
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 Co uncil 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 
who were members previously, will be able to be members in the future
17. As previously noted18, 
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
19. 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. 
 This opinion will be published on the ECB’s website.  
 
Done at Frankfurt am Main, 28 October 2016.  
[signed ] 
 
The President of the ECB 
Mario DRAGHI 
                                                 
16  See paragraphs 3.5, 3.6 and 3.7 of Opinion CON/2008/31. 
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 CON/2016/33. 
19  See the Decision of the Constitutional Court of th e Republic of Croatia U-III-930/2015, 31 March 2015.