EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 28 October 2005 
at the request of Česká národní banka  
on a comprehensive proposal to amend the draft law on the amendment of laws  
in connection with the integration of financial market supervision 
(CON/2005/39) 
 1. On 21 September 2005, the European Cent ral Bank (ECB) received a request from Česká národní 
banka (ČNB) for an opinion on a  comprehensive proposal to amend the draft law on the 
amendment of laws in connection with the integra tion of financial market supervision (hereinafter 
the ‘revised draft law’).  
2. The ECB’s competence to deliver an opinion is based  on the third and sixth indents of Article 2(1) 
of Council Decision 98/415/EC of 29 June 1998 on th e consultation of the European Central Bank 
by national authorities regarding draft legislative provisions
1, as the revised draft law contains 
provisions concerning a national central bank (NCB) and rules applicable to financial institutions 
that materially influence the stability of financia l 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. 
 Integration of financial market supervision
  
3. The purpose of the revised draft law is to establis h the legal framework for integrated supervision 
of the Czech financial markets by ČNB. At present, ČNB is one of four financial market 
supervisors in the Czech Republic and is responsible  for the supervision of credit institutions other 
than cooperative banks. The other financial ma rket supervisors are the Securities Commission 
(SEC), the Office for the Supervision of Insura nce and Pension Funds (OSIPF), which forms part 
of the Ministry of Finance, and the Office for Supervision of Cooperative Banks (OSCB) 
(hereinafter referred to collectively as the ‘other supervisors’). The revised draft law amends an 
earlier legislative proposal, which was also  submitted to the ECB for consultation2. That proposal 
only provided for the integration of the OSCB into ČNB as the first step in a broader reorganisation 
of financial market supervision whereby the number of supervisors would be reduced to two, with 
                                                 
1  OJ L 189, 3.7.1998, p. 42. 
2  ECB Opinion CON/2005/24 of 15 July 2005.      
 
 2ČNB as the banking supervisor and the SEC as the non-banking sector supervisor. Under the 
revised draft law, however, which enters into force on 1 April 2006 (hereinafter the ‘effective 
date’), all three of the other supervisors will be dissolved and their responsibilities and staff will be 
transferred to ČNB. 
4. The ECB understands that the revised  draft law has been agreed by ČNB and the Czech Ministry of 
Finance and that the Czech Government also supports the proposals set out in the revised draft law
3. The ECB welcomes the proposal to inte grate all the other supervisors within ČNB. The ECB 
considers that in a Member State with a rela tively small financial market, such as the Czech 
Republic, there are strong arguments for concentra ting supervisory responsibilities in the hands of a 
single authority4.  
5. The ECB considers that the proposed extension of ČNB’s supervisory tasks to non-banking 
supervision is compatible with its tasks in rela tion to the European System of Central Banks. In 
particular, the ECB welcomes the fact that the ta sk of performing prudential supervision of all 
financial market intermediaries will be transferred to ČNB. Faced with the increasing blurring of 
traditional borders between the banking, secur ities and insurance sectors and the resulting new 
challenges to prudential supervision and the stabilit y of the financial system, an NCB with overall 
responsibility for the financial markets is likely to cope better than several supervisors whose 
supervisory competences are limited to  a particular financial sector. 
 Financial stability
 
6. The ECB takes note that the revised draft la w specifies that in performing capital market 
supervision ČNB will contribute to investor protection and strengthen confidence in the capital 
markets5. The revised draft law also adds to ČNB’s tasks the task of ‘taking care of the safe 
functioning and development of the financial market’6. Whilst these definitions of ČNB’s 
supervisory role and objectives are welcome, the ECB considers that the revised draft law should 
clearly recognise ČNB’s wider role of: (i) safeguarding the security and soundness of financial 
institutions, and (ii) safeguarding the stability of the financial system as a whole. The focus of NCBs on systemic stability in performing their t asks means that they can better assess not only the 
likelihood and the potential impact of macro-ec onomic shocks or disturbances in domestic and 
international capital markets, but also the operati on of common factors affecting the stability of 
                                                 
3  See the explanatory memorandum to the revised draft law. 
4  Slovakia has also recently concentrated responsibility fo r financial supervision with in its NCB (see ECB Opinion 
CON/2004/31 of 22 September 2004 at the request of Národná banka Slovenska on a draft law on supervision of the 
financial market and on amendm ents to certain laws).  
5  Article 2 of the draft amendment to the Act on the Secu rities Commission (to be rena med Act on supervision of the 
capital markets) which forms pa rt of the revised draft law. 
6  See Article 2(2)(d) of the Act No 6/1993 Coll., on Česká národní banka (hereinafter the ‘ ČNB Act’), as amended by the 
revised draft law. Article 44(2) of the ČNB Act, as amended by the re vised draft law, also defines ČNB supervision by 
listing the various tasks that the fu lfilment of this function involves. 
 
 3groups of financial intermediaries. For these reasons, the ECB would welcome it if the revised draft 
law expressly recognised, as is the case in the st atutes of other Member States’ NCBs, that ČNB 
has the wider task of contributing to the st ability of the financial system as a whole7. A clear 
distinction could also be made in the supervis ory framework between the objective of financial 
stability and that of investor protection, par ticularly as these two objectives may not always be 
mutually supportive and may occasionally even conflict8. 
 The Committee for the financial market
 
7. The ECB notes that the revised draft law9 establishes a ‘Committee for the financial market’ 
(CFM). The CFM will act as an expert consultative body to ČNB’s Bank Board (hereinafter the 
‘Bank Board’) on the situation and development of  the financial market and on the strategy and 
longer term perspective for financial market supervision. The CFM comprises seven expert 
members, three of whom (including the Chairman  and Vice-Chairman) will be elected by the 
budgetary committee of the lower house of Parliament on a proposal from professional and interested organisations, while another two memb ers will be drawn from the Ministry of Finance 
and appointed and recalled by the Minister of Fi nance. The two remaining members will comprise 
one member of the Bank Board and the financial arbiter
10. CFM members are required to exercise 
their functions independently and they are not remunerated. The ECB understands that the CFM 
will be a purely consultative body whose main task s will be to issue opinions and recommendations 
to the Bank Board in its fields of its competen ce. In no circumstances will the CFM be able to 
directly or indirectly determine the Bank Board’s decision making. On that basis, the ECB broadly 
welcomes the establishment of the CFM, which s hould provide wide-ranging expertise to the Bank 
Board which will be useful in exercising its new r esponsibility for supervising the financial market.  
 ČNB’s succession to the rights and obligations of the other supervisors
   
8. The ECB notes that under the revised draft law, th e transfer of competences from each of the other 
supervisors to ČNB is regulated by separate transitiona l provisions relating to that particular 
supervisor11. These provisions expressly provide that on the effective date the other supervisor in 
question will be dissolved, with all its statutory competences passing to ČNB, and that its 
employees will become ČNB employees12. These provisions also lay down that on the effective 
                                                 
7  Clauses to that effect might be added to Article 2 of the draft amendment to the ČNB Act and also to Article 2 of the draft 
law on supervision of the capital market. 
8  ČNB’s task of contributing to the stability of the financ ial system may be understood as an overarching goal of the 
supervision it performs, whereas investor protection, however important, is only one further objective of that supervision. 
9  Article 45a of the ČNB Act, as amended by the revised draft law. 
10  See the Act No. 229/2002 Coll., on the financial arbiter,  as amended.  
11  The ECB notes, however, that in each case the te rm of the transitional period is not specified. 
12  The ECB notes, however, that in the case of the draf t amendment to the Act No 87/1995 Coll., on savings and credit 
cooperatives, as amended, there is no specific menti on of employees being transferred from the OSCB to ČNB. The 
 
 4date any right to manage State- owned property (apart from real property) previously held by the 
other supervisor and which is necessary to carry out its supervisory functi ons will cease and that 
the property (and obligations relati ng to that property) will pass to ČNB13. The details of these 
property transfers will be determ ined by an agreement between ČNB and the Ministry of Finance. 
The provisions also state that, from the effective date, ČNB will be substituted for the other 
supervisor in any proceedings to which it was a party and which commenced prior to the effective 
date. Moreover, the revised draft law expressly pr ovides that the State will meet any financial 
obligations incurred by ČNB as a result of ČNB being substituted for one of the other supervisors 
either in any proceedings to which the latter was a party14 on the effective date or in any 
proceedings which commenced after the effective date but which relate to the activities of the other 
supervisor under the then existing legal regulations.  
9. The ECB welcomes the transitional provisions of the revised draft law. They appear, when assessed 
in conjunction with the State Liability Act15, to effectively insulate ČNB from financial obligations 
resulting from the activities of the other supervisors. These provisions do not therefore require assessment from the perspective of ČNB’s financial independence and its compliance with the 
prohibition on monetary financing under the Treaty. 
10. Finally, the ECB would appreciate being provided , for information purposes, with the following: 
(i) a detailed description of the proposed organisa tional scheme and division of supervisory powers 
within ČNB from 1 April 2006; and (ii) a copy of any agreement concluded between the Ministry 
of Finance and ČNB as regards the transfer of property an d connected obligations from any of the 
other supervisors to ČNB under the transitional provisions of the revised draft law. 
11. This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 28 October 2005. 
 
[signed] 
The President of the ECB 
Jean-Claude TRICHET 
                                                                                                                                                                          
 
transitional provisions to that draft amendment state that ‘ri ghts and obligations … from property and other legal relations 
shall be transferred upon the effective date from the OSCB to ČNB’. The ECB understands that only a small number of 
employees (approximately 10) presently work at the OSCB and will therefore be affected by the transfer.  
13  In addition, in the case of the SEC, any other property and c onnected obligations of that supervisor shall be settled by the 
Ministry of Finance. 
14  Or in which the other supervisor was representing the State. 
15  Act No 82/1998 Coll., on State liability fo r damages caused in the course of the ex ercise of public aut hority by decisions 
or improper administrative action, as amended; especially Articles 3(a) and 13 thereof.