OPINION OF THE EUROPEAN CENTRAL BANK
of 5 June 2002
at the request of the Irish Department of Finance on a draft Central Bank and Financial
Services Authority of Ireland Bill, 2002 
(CON/2002/16)
1. On 16 April 2002 the European Central Bank (ECB) received a request from the Irish
Department of Finance for an opinion on a draft Central Bank a nd Financial Services Authority
of Ireland Bill, 2002.
2. The ECBs competence to deliver an opinion is based on Article 2 of Council Decision
98/415/EC of 29 June 1998 on the consultation of  the European Central Bank by national
authorities regarding draft legislative provisions1, as the legislative proposal contains
provisions concerning a national central bank and rules which materially influence the stability
of financial institutions. In accordance with th e first sentence of Article 17.5 of the Rules of
Procedure of the European Central Bank, this  opinion has been adopted by the Governing
Council of the ECB. 
3. The legislative proposal contai ns four noteworthy elements. First,  the Central Bank of Ireland
would be reorganised and re-named as the Cent ral Bank and Financial Services Authority of
Ireland, which would be the legal entity that woul d qualify as the central bank of Ireland and be
a member of the European System of Central Banks. Second,  a new body called the Irish
Financial Services Regulatory Authority (the R egulatory Authority) would be established as a
constituent part of the central bank with res ponsibility for the supervision of virtually all
financial institutions and insurance undertakings in Ireland, as well as the protection ofconsumers of financial services. Third,  while the decision-making body within the central bank
for ESCB-related functions would continue to be  solely the Governor, the draft legislation
provides for the possible establishment of a comm ittee of the central banks Board of Directors
called the Monetary Committee of the Board (or a similar name) to which the Governor,subject to the requirements of the Treaty esta blishing the European Community and the ESCB
Statute, would be required to provide informa tion about, and with the members of which the
Governor may discuss, the performance by the Governor of the central banks ESCB-related
functions. Fourth,  the central banks residual functions, including the co-ordination of activities
of the constituent parts of the central bank and the exchange of information among those parts,
                                                          
1 OJ L 189, 3.7.1998, p. 42.
2would be vested in a reconstituted board of directors, whose 12 members would include the
Governor as Chairperson, six members drawn from the Regulatory Authority (including the
Chairperson and Chief Executive of the Regulato ry Authority and four members appointed by
the Minister for Finance after consulting the Mi nister for Enterprise, Trade and Employment),
the Secretary General of the Depa rtment of Finance, the Direct or General of the central bank
and three other directors appointed  by the Minister for Finance. 
4. The legislative proposal would establish the Re gulatory Authority as an autonomous authority
that will perform the financial supervision functi ons previously attributed to the central bank
and other residual functions relating to the supe rvision of the Irish financial sector and of
financial intermediaries in particular. The E CB welcomes the fact that the new supervisory
authority will remain a constituent part of the central bank. While the ECBs overall assessment
of the structure is therefore positive, the ECB has a number of detailed, technical reservations
regarding the draft legislation which are set forth in this opinion. These reservations are
primarily designed to eliminate any legal risks a ssociated with the independent discharge of the
central banks ESCB-related tasks. The ECB believes that these reservations can beaccommodated without disturbing the overall in tegrity of the Regulatory Authority as an
autonomous supervisory authority operating within  the legal structure of the central bank of
Ireland.
5. In view of the somewhat complex corporate gove rnance structure for the central bank that the
establishment of the Regulatory Authority enta ils, the ECB is concerned that the governance
structure of the central bank might not allow fo r an effective contribution of central banking
functions to prudential supervision tasks, which will be conducted in an independent manner bythe Regulatory Authority, or indeed that the pursuance of supervisory tasks might prevail over
the central banking perspective. In this regard, the ECB welcomes the series of provisions that
should safeguard the contribution of central banking functions. First,  the central bank has the
function of contributing to the stability of th e financial system. In addition, the pursuance of
this objective would also be taken into due cons ideration by the central bank in promoting the
development of the financial services industry. Second,  the Regulatory Authority has the
obligation to consult and obtain the approval of  the Governor over matters relating to the
stability of the financial system, including the issue, revocation and suspension of a licence or
authorisation. In this regard, the Governor, in addition to the Chief Executive of the Regulatory
Authority, enjoys crucial powers to authorise central bank employees to investigate the
business and carry out on-site inspections of financial institutions. Third,  the future Board of
the central bank is established as the main forum that will allow close co-operation between
central banking and supervisory functions within the central bank. Fourth,  the Governor or the
Board of the central bank may issue guidelines to  the Regulatory Authority as to the principles
and policies that the Regulatory Authority is required to implement in performing the central
banks functions, and the Regulatory Author ity would be required to comply with such
guidelines. Fifth, upon request the Regulatory Authority would be required to provide the
3Governor with advice, information and assistance.  All these provisions, in the view of the ECB,
are fundamental - and should be made the most of  in practice  to allow for the continued close
involvement of the central banking functions in  supervision matters, as is currently the case
within the Central Bank of Ireland. Indeed, this  involvement is a necessary condition to allow
the Eurosystem to contribute adequately to monito ring the risks to financial stability in the euro
area. In addition, it also safeguards a smoot h co-ordination between the central banking
functions exercised at the Eurosystems leve l and the supervisory functions carried out at
national level. An additional safeguard to ensure  that supervisory tasks do not prevail over the
central banking perspective, as referred to belo w with regard to other issues raised in this
opinion, would be that the composition of the centr al banks Board would not be such that as
many as half of the Board di rectors would also be members of the Regulatory Authority.
6. The legislation would establish a structure th at is unique within the Eurosystem for the
regulation and supervision of financial ins titutions by setting-up a statutory body enjoying
independent functions, but located within the lega l personality of a national central bank. In this
regard, the ECB would like to make two general points. First,  under Article 108 of the Treaty,
when exercising the powers and carrying out the tasks and duties conferred upon it by the
Treaty and the ESCB Statute, neither a national central bank nor any member of its decision-
making bodies shall seek or take instructions from, inter alia,  any government of a Member
State or from any other body, which would incl ude a statutory body such as the Regulatory
Authority. Having particular regard to the unique  structure of the Regulatory Authority as a
constituent part of the central bank, the ECB c onsiders that it is of critical importance, as
required by Article 108 of the Treaty, that the Regulatory Authority should not seek to
influence the Governor, in his capacity as the sole member of the central banks decision-
making body responsible for the performance of the central banks ESCB tasks. Second,  there
would be no precedent within the Eurosystem for a national central bank to be accountable orliable for acts performed by a constituent part of  the central bank (the Regulatory Authority)
which would be outside the control of the centr al banks key decision-making body responsible
for the discharge of its ESCB-related tasks (the Governor). Such a structure could pose a risk to
a national central banks integrity, threatenin g its overall institutional independence. The
potential exposure of a national central bank to liabilities resulting from funding and budgetary
decisions for the Regulatory Authority could al so be seen as a threat to its financial
independence. In addition, the Governor would not have autonomy for staffing decisions in
terms similar to those available to the Regulato ry Authority. In order to eliminate any legal
risks associated with the independent discharge of the central banks ESCB-related tasks, one
of the following two options could be followed. First, the Governor could be granted an
explicit right to oppose any funding, budgetar y and staffing decisions which may have
implications for the central banks indepe ndence or which may be deemed otherwise
incompatible with the exercise by the Governor  of the central banks ESCB-related functions.
Second,  all funding, budgetary and st affing decisions for the Regulatory Authority could be
4made by a restructured Board of  Directors, removing the require ment that as many as half of
the Board directors would also be members of the Regulatory Authority. 
7. With regard to funding, while the Regulatory Authority may be funded by levies and fees paid
by financial institutions subject to the Authoritys  supervision, in the event that the funds raised
from such levies and fees prove insufficient th e central banks board of directors may provide
funding to the Authority, following  approval by the Minister fo r Finance of the amount of the
funds concerned and any conditions to the fundi ng imposed by the central banks Board. The
draft legislation contains some safeguard provisi ons which are designed to ensure that this does
not impede the proper performance of the central banks ESCB-related tasks. First,  the
Governor, in his capacity as Chairperson of th e central banks Board of Directors, has a
platform from which he may seek to protect th e central banks independence with respect to
any decisions of the central banks Board a nd the Minister for Finance to provide the
Regulatory Authority with central bank funds . In practice, however, there may be potential
within the central banks Board for a conflict of interest between the financial interests of the
Regulatory Authority and the independence of the central bank in view of the particular
composition of the Board, a majority of whose 12 members would include six members of the
Regulatory Authority, including the Chairperson and Chief Executive of the RegulatoryAuthority, and the Secretary General of the De partment of Finance, whose Minister would
ultimately be responsible for the approval of an y funds provided by the central bank to the
Regulatory Authority. Second,  the central bank has a legal obligation to perform its functions in
a manner consistent with the Treaty and the ESCB Statute. This legal obligation would
necessarily apply to the directors when exerci sing their statutory responsibilities as members of
the central banks Board of Directors. While  the legal risks posed to the central banks
independence would be reduced by these safeguards, it remains unclear from a legalperspective whether the Governor would enjoy a sufficient degree of control over any decisions
by the central bank to fund the Regulatory Authority  so as to be able to fully protect the central
banks institutional and financial independence. 
8. With regard to the budget, the Regulatory Aut hority would be required to prepare an annual
statement setting out estimates of its income and expenditure, and the Minister for Finance
would be empowered, following consultation of  the central banks Board, to approve the
statement. As noted in the 1998 European M onetary Institute (EMI) Convergence Report,
where third parties, and particularly the govern ment, are in a position, directly or indirectly, to
exercise influence on the determination of a national central banks budget, the relevant
statutory provisions shoul d contain a safeguard clause to ensure that this does not impede the
proper performance of the national central ba nks ESCB-related tasks. Although both the
Minister for Finance and the Regulatory Au thority are clearly in a position, directly or
indirectly, to exercise influence on the determ ination of that portion of the central banks
budget that relates to the Regulatory Authority, the relevant statutory provisions contain some
safeguard clauses which are designed to ensure that this does not impede the proper
5performance of the central banks ESCB-related tasks. First, in the case of the Regulatory
Authoritys budgetary powers, these safeguards  include (a) a required consultation of the
Governor of the estimates insofar as they affect the carrying out of the central banks
obligations with respect to the Irish States fi nancial stability or the performance of the central
banks ESCB-related functions; and (b) the Gover nors power, with respect to the exercise of
his functions, to issue guidelines as to polic ies and principles with which the Regulatory
Authority would be required to comply. Second, in the case of the Minister for Finances
budgetary powers, these safeguards include (a) a required consultation of the central banks
Board, of which the Governor is  Chairperson, before approving the estimates; and (b) a specific
legal obligation of the Minister to have regard  to the central banks functions under the Treaty
and the ESCB Statute, which are exclusively ve sted in the Governor, when approving the
estimates. While the legal risks posed to the cen tral banks independence would be reduced by
these safeguards, it remains unclear from a lega l perspective whether the Governor would enjoy
a sufficient degree of control over budgetary deci sions taken by the Regulatory Authority and
the Minister for Finance so as to be able to fully protect the central banks institutional and
financial independence. 
9. With regard to staffing, the central banks Board of Directors woul d be responsible for
administering the staff of the central bank a nd its constituent parts and for administering the
provision of accommodation and offi ce equipment with a view to enabling the central bank and
its constituent parts to perform their respectiv e functions. However, while the central banks
Board would be required to a ppoint such employees of the central bank as it considers
necessary for the effective performance of the functions of the central bank and each of its
constituent parts, the Regulatory Authority and its Chief Executive would have the same poweras the Board to appoint employees of the central  bank. In fixing the conditions of employment
of such central bank employees appointed by the Chief Executive of the Regulatory Authority
the central banks Board would be required to obtain the concurrence of the Regulatory
Authority or its Chief Executive. While the lega l risks posed to the central banks operational
independence would be reduced by certain safegu ards, such as the Governors power to issue
guidelines and the Regulatory Authoritys legal obligation to perform its functions in a way that
is consistent with the Treaty and the ESCB Statut e, it remains unclear from a legal perspective
whether the Governor would enjoy a sufficient de gree of control over staffing decisions taken
by the Regulatory Authority and its Chief Executive so as to be able to fully protect the central
banks operational independence. This risk would cease to exist if the Governor were to begranted comparable staffing powers as the Regulatory Authority and its Chief Executive.
10. The ECB considers that the significant role th at the Governor would have with respect to
financial stability issues eliminates any legal risks resulting from the separation between the
decision-making power and the central banks legal accountability with respect to thosedecisions of the Regulatory Authority which have  financial stability implications. However, the
ECB notes that provision is made for the appoi ntment within the Regulatory Authority, and
6therefore as a constituent part of the central ba nk, of a Registrar of Credit Unions responsible
for the registration and supervision of credit uni ons. The Registrar would not be subject to the
control or direction of the Regulatory Aut hority. While the Regulatory Authority would be
required to issue guidelines to the Registrar w ith respect to consultation and co-operation with
the Governor, it is unclear whether the Gover nor would enjoy a sufficient degree of control
over the supervisory decisions of the autonom ous Registrar in order to protect the central
banks independence. The legislation should exp licitly clarify that the supervisory decisions of
the Registrar of Credit Unions, as a constituent part  of the central bank, would be subject to the
same degree of financial stability oversight by the Governor as is proposed for the RegulatoryAuthority.
11. The draft legislation facilitates the possible es tablishment by the central banks Board of
Directors of a committee of the Board called the Monetary Committee of the Board (or asimilar name) consisting of those Board memb ers who are not members of the Regulatory
Authority, to whom the Governor, subject to  the requirements of the Treaty and the ESCB
Statute, would be required to provide inform ation about, and with whom the Governor may
discuss, the performance of the central banks ES CB-related functions. In this regard, the ECB
takes particular note that the draft legislation would not authorise the Board to delegate any
function that must be performed by the Gove rnor. Given that the Go vernors ESCB-related
tasks include monetary policy, one might questi on whether the statutory characterisation of a
board committee as a Monetary Committee might create the misleading impression that such a
committee enjoys an advisory role with respect  to the performance by the Governor of the
central banks monetary policy tasks. The ECB would therefore like to express its clearunderstanding that the members of such a Mone tary Committee would, in practice, enjoy no
role with respect to the performance of th e central banks ESCB-related functions. As is
clarified in the EMIs 1998 Convergence Report,  dialogue between the Governor, in his
capacity as the sole decision-making body of the central bank responsible for the performanceof the central banks ESCB-related tasks, a nd the members of such a Monetary Committee,
even when based on such statutory obligations  to provide information and exchange views,
would not be incompatible with the Treaty, provided that (a) th is does not result in interference
with the independence of the Governor; (b) the ECBs competences and accountability at the
Community level as well as the special status of the Governor as a member of the ECBsdecision-making bodies are respected; and (c) confidentiality requirements resulting from the
ESCB Statute are respected. 
12. As is currently the case, the Director General of  the central bank would be required to carry out
the responsibilities of the Governor for the pe rformance of the central banks ESCB-related
functions whenever the Governor is unable to carry out those responsibilities, while any one of
the central bank directors may be appointed to act as Governor to carry out the other non-ESCB
related responsibilities of the Governor. It is ther efore necessary to explicitly clarify that where
the Governor is unable to carry out certain re sponsibilities which are vested in the Governor in
7order to ensure the proper performance of the central banks ESCB-related functions, these
responsibilities would be carried out by the Dir ector General, in his capacity as the central
banks substitute decision-making body for the performance of ESCB-related tasks. Theseresponsibilities include all of the Governors pow ers and functions in connection with (a) the
financial stability of the States financial syst em; (b) the issuance to the Regulatory Authority
of guidelines as to the policies and principles  that the Authority is required to implement;
(c) decisions by the central bank to fund the Re gulatory Authority; (d) th e establishment of the
Regulatory Authoritys annual estimates of its income and expenditure; (e) requests for advice,
information and assistance from the Regulatory Authority; and (f) the Governors responsibility
to ensure that the resources of the central ba nk allocated for carrying out the central banks
ESCB-related responsibilities are used effectively, efficiently and economically.
13. The ECB notes that the explicit clarification in the draft legislation of the Governors
responsibilities in connection with the holding and managing the foreign reserves held by thecentral bank is consistent with the exclusiv e vesting of the central banks ESCB-related
functions in the Governor, since the basic ta sks to be carried out through the ESCB under
Article 105(2) of the Treaty include the holding  and management of the official foreign
reserves of the Member States. In a similar ma nner, the ECB welcomes the provisions of the
draft legislation whereby the Governor is respons ible for promoting the efficient and effective
operation of payment and settlement systems as reflecting the ESCBs related functionregarding clearing and payment systems provided for in the Treaty and the Statute. Regarding
the identification in the draft legislation of th e objectives of the central bank in performing its
ESCB functions, two draf ting points are noted. First,  under Article 105(5) of the Treaty the
ESCBs required contribution to the stability of  the financial system does not contain any
geographical connotations, and the specific referen ce to the stability of the European financial
system should be amended accordingly. Second, under Article 105(1) of the Treaty the ESCBs
objective of supporting the general economic policie s in the Community is stated to be without
prejudice to (rather than without affecting) th e objective of price stability. These two drafting
points are adequately addressed in the existing wo rding of Section 6(2) and (6) of the Central
Bank Act, 1942, as amended.
14. The ECB notes that the list of enactments and regulations under which the Regulatory
Authority is to perform functions of the cen tral bank should not in clude any ESCB-related
functions vested in the Governor, such as certa in of the functions of the central bank under
(a) section 18 of the Central Bank Act, 1971, as amended, which, inter alia,  facilitates the
collection by the ECB, assisted by the central bank, of the necessary statistical information
directly from economic agents in order to unde rtake the tasks of the ESCB, in accordance with
Article 5 of the ESCB Statute; and (b) Secti on 23 of the Central Bank Act, 1971, as amended,
which, inter alia,  facilitates the application by the central bank of the ECBs requirements that
credit institutions hold minimum reserves on accounts with the ECB and national central banksin pursuance of monetary policy objectives, in accordance with Article 19.1 of the ESCB
8Statute. It is recognised that the Regulatory Authority must be able to exercise the central
banks functions under Section 18 in order to co llect information and under Section 23 in order
to apply specified ratios for purposes of the exercise of the Regulatory Authoritys own
functions. 
15. The ECB notes the proposed rep eal of section 7(1)(mm) of the Central Bank Act, 1942, under
which it is stated to be lawful for the central ba nk to transfer assets, in come or liabilities to the
ECB where required under the ESCB Statute. This repeal should not affect the obligations of
the central bank under Chapter VI of the ESCB Stat ute regarding the financial provisions of the
ESCB.
16. While the draft legislative proposal does not pr opose to repeal Section 11 of the Central Bank
Act, 1998, pursuant to which the central banks accounts may be audited in accordance withArticle 27 of the ESCB Statute, the proposed re peal of the related Section 19 of the Central
Bank Act, 1989 would appear to have rende red Section 11 of the 1998 Act redundant. It is
therefore suggested that a new section be insert ed in the provisions of the draft legislative
proposal which restate Section 19 of the 1989 Act to clarify that the central banks accounts
may, in addition to being audited by the Co mptroller and Auditor General, be audited by
independent external auditors recommended by the ECB in accordance with Article 27 of the
ESCB Statute. A corresponding revision to th e provisions permitting the disclosure of
information concerning matters arising in c onnection with performance of the central banks
functions to such independent external  auditors would also be necessary.
17. Finally, the ECB notes that the draft legislativ e proposal contains a g ood deal of restatement
and reordering of existing Irish legislation rela ting to the central banks functions and powers.
While the ECB welcomes this partial consolidati on of Irelands central bank statutes, and most
particularly the Central Bank Act, 1942, the ECB not es that the provisions of Irish law relating
to the basic structure of Irela nds central bank and the performa nce of its ESCB-related tasks
would, following enactment of the draft legi slative proposal, be contained in a number of
different laws, including the draft legislative pr oposal, the surviving provisions of the original
Central Bank Act, 1942, a number of provisions  in the Central Bank Acts, 1971 and 1989, the
surviving provisions of the Central Bank Ac t, 1998, a number of provisions of the Economic
and Monetary Union Act, 1998 (as amended by the Finance Act, 2002), as well as a number of
additional laws concerning currency matters. The lack of a consolidated central bank statute
creates a structure for Irelands central bank th at is somewhat lacking in transparency. Legal
clarity and transparency would suggest that  at the first suitable opportunity the Irish
Government should undertake a consolidation ex ercise. In addition, a full consolidation of
Irelands central bank statutes would greatly assist the ECB in fulfilling its ongoing task of
responding to consultations from the Irish author ities on draft legislation within the ECBs field
of competence, as well as of ensuring that Iris h legislation, including th e statutes of Irelands
central bank, are compatible with the Treaty and th e ESCB Statute. In this regard it is noted that
9Irelands central bank statutes are the only central bank statutes  in the Eurosystem which have
not been consolidated.
18. The ECB would appreciate being provided, fo r information purposes, with any amendments
affecting any of the issues addressed in th is opinion. In addition, the ECB stands ready to
provide further comments on the draft legisla tion prior to enactment by the Oireachtas.
Done at Frankfurt am Main on 5 June 2002.
The President of the ECB
[signed]
Willem F. DUISENBERG