EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 21 December 2010 
on the Hungarian Financial Supervisory Authority and on its President’s legislative powers 
(CON/2010/94) 
 Introduction and legal basis
 
On 9 November 2010, the European Central Bank (E CB) received a request from the Hungarian Ministry 
of Public Administration and Justice for an opinion on (i) a draft law on legislation and (ii) a draft law 
amending Law XX of 1949 on the Constitution of the H ungarian Republic (hereinafter the ‘draft law 
amending the Constitution’) with rega rd to the legislative powers of the President of the Pénzügyi 
Szervezetek Állami Felügyelete (t he Financial Supervisory Authorit y, hereinafter the ‘PSZÁF’). On 
17 November 2010, the ECB received a request from the Ministry of the National Economy on a draft 
law on the PSZÁF (the draft law on legislation, the draft law amending the Constitution and the draft law 
on the PSZÁF, hereinafter collectively referred to as ‘the draft laws’). Since the subject matter of the draft 
laws is closely related, the ECB has merged these consultations. 
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, fourth , fifth and sixth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consulta tion of the European Central Bank by national 
authorities regarding draft legislative provisions1, as the draft laws contain provisions concerning the 
Magyar Nemzeti Bank (MNB), the collection of sta tistical data, payment and settlement systems and 
rules applicable to financial institutions that may mate rially 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.  
 1.  Purpose of the draft laws 
1.1 Amendments to the Constitution and to  the draft law on legislation conferring  legislative powers on 
the PSZÁF’s President  
The draft law on legislation will replace the Law on legislation annulled by the Hungarian 
Constitutional Court
2, and will thus re-establish the legisl ative framework in Hungary. The reason 
                                                 
1  OJ L 189, 3.7.1998, p. 42. 
2  Decision 121/2009 (XII.17.) 
2 for the annulment was that most provisions of the Law on legislation did not comply with 
constitutional developments that ha d taken place since its adoption. Since the remaining provisions 
were insufficient to constitute a legal act, the C onstitutional Court annulled the Law on legislation 
in its entirety with effect for the future. The Cons titutional Court requested the legislator to adopt a 
new law on the same subject matter by 31 Decembe r 2010 and obliged the legislator to regulate 
certain issues in the Constitution rather than in th e Law on legislation. In reaction to this judgment, 
the Hungarian legislator had already drawn up a draft law amending the Constitution and a draft 
law on legislation on which the ECB had been consulte d with regard to the legislative powers of the 
MNB3. The legal provisions concerning the legislative powers of the PSZÁF’s President now 
submitted for consultation will be inserted in these draft laws.  
According to the new amendments, the Cons titution lays down the PSZÁF’s main tasks4 and 
provides that its President is appointed by Hungary’s President for a term of six years5. 
Furthermore, the draft Constitution sets out that decrees issued by the PSZÁF’s President qualify as 
legislation6 and that they may not contradict laws , or government or MNB Governor decrees7. The 
legislator explains that these changes are intended to ensure the PSZÁF’s independence. 
1.2 The draft law on the PSZÁF 
The draft law on the PSZÁF will repeal and replace Law CXXXV of 2007 on the Financial 
Supervisory Authority and is expected to enter into force on 1 January 2011.  
In general, the draft law on the PSZÁF maintain s the current legislative framework currently 
applicable to it. According to the explanator y memorandum, the PSZÁF’s status is strengthened as 
it will be subordinated only to laws8. The draft law on the PSZÁF will establish a financial 
arbitration board to protect consumers, modify its  organisation mainly on la bour law related issues, 
provide for new sources of income and modify its supervisory procedures. 
In addition, the draft law on the PSZÁF restricts the rights of the Pénzügyi Stabilitási Tanács (the 
Financial Stability Council, hereinafter the ‘PST’).  The PST consists of the Minister for Finance, 
the PSZÁF’s President and the MNB’s Governor and has the mandate to assist the FSA and, inter 
alia, to assess the stability of the fina ncial markets. It can also submit legislative proposals to the 
Government or to one of its members or to the PST’s Chair and has the right to be informed about how the addressee is going to proceed with this proposal
9. The new draft no longer provides for this 
duty to ‘comply or explain’ in reaction to legislative proposals by the PST10.  
                                                 
3  Opinion CON/2010/76. All ECB opinions are availa ble on the ECB’s website  at www.ecb.europa.eu.  
4  Article 40/D(1) of the draft Constitution. 
5  Articles 30/A(1) and 40/D(2) of the draft Constitution. 
6  Article 7/A(2) of the draft Constitution. 
7  Article 40/D(4) draft Constitution. 
8  Article 1 of the draft law on the PSZÁF. 
9  ‘comply or explain’. 
10  See Section 33 of the new draft law on the FSA. 
3 2. General observations 
2.1 The appropriate time to consult the ECB 
The draft law amending the Constitution and the La w on legislation were a dopted on 22 November 
2010 while the Law on the PSZÁF was adopted on 13 December 2010 shortly after the ECB had 
been consulted and before it could adopt the pr esent opinion. As a consequence, there was no 
possibility for the Hungarian legislator to take the ECB’s views into account before adopting the 
draft laws. 
The ECB reiterates that even cases of particular urgency do not relieve national authorities from 
their duty under Articles 127(4) and 282(5) of the Treaty to consult the ECB and to allow sufficient 
time to take into account its views, in accord ance with Decision 98/415 /EC. Any substantive 
amendments to the draft law – as in the case of the provisions subject to this  consultation – have to 
be submitted to the ECB in order to allow it to i ssue its opinion based on the most recent text. In 
cases of particular urgency which do not allow for a normal consultation period, the consulting 
authority may indicate urgency in the consultati on request and ask for a shorter deadline for the 
ECB’s opinion to be adopted, ther eby indicating the estimated course of the legislative process. The 
second sentence of Article 4 of Decision 98/415/EC pr ovides that the ECB must be consulted ‘at an 
appropriate stage’ in the legislative process. This implies that the consultation should take place at a 
point in the legislative process which affords the ECB sufficient time to examine the draft 
legislative provisions and to adopt its opinion in  all required language versions, and which also 
enables the relevant national authorities to take the ECB’s opinion into consideration before the 
provisions are adopted. Article 3(4) of Decision 98/415/EC also obliges Member States to suspend the adoption process for draft legislative provisions, pending receipt of the ECB’s opinion. 
With respect to this ongoing consultation, this dut y to consult the ECB has not been respected by 
the Hungarian authorities. This present Opinion in no way eliminates this breach of duty, as it is 
important for the application and interpretation of  the enacted laws and any future amendments. 
The ECB would appreciate it if the Hungarian authorities would honour their obligation under the Treaty to consult the ECB, in acco rdance with Decision 98/415/EC. 
2.2 Legal certainty 
The ECB stresses the importance of legal cer tainty. The Law governing the tasks and the 
operational structure of the PSZÁF has been ame nded several times in recent years, and it is 
essential for the basic legislation regulating the PSZÁ F’s structure to serve as clear and consistent 
guidance. Frequent changes to the PSZÁF’s structure would compromise this function.  
2.3 Observations made in ECB Opinion CON/2010/10 
With regard to the latest amendment to Law CX XXV of 2007, the Hungarian Ministry of Finance 
consulted the ECB at a very late stage in the le gislative process. The observations made in Opinion 
CON/2010/10 could not be taken into account, as th e Law was enacted before the ECB adopted its 
4 opinion. Opinion CON/2010/10 is of particular re levance to the present consultation and the ECB 
invites the Hungarian authorities to take note of it. 
Already this earlier amendment changed the PSZÁF’ s legal status from government agency into a 
‘self-regulatory administrative body11, ‘operated and mana ged independently’12. Furthermore the 
PSZÁF’s organisational framework has been ch anged by abolishing the Board as a decision-
making body and transferring these powers to its Chair13. A Financial Stability Council (PST) was 
also created14. 
 3. Specific observations 3.1 Competence of the PSZÁF’s Preside nt to adopt legislative decrees  
According to the draft Constitution, the PSZÁF oversees, monitors and regulates Hungary’s 
financial intermediation system. The PSZÁF is res ponsible for the smooth operation of the financial 
intermediation system in the manners specified by law. The PSZÁF’s President may adopt decrees 
within the scope of the PSZÁF’s authority concerni ng a wide range of financial matters, including 
on the collection of statistical data, payment a nd settlement systems, and rules applicable to 
financial institutions that may materially influence the stability of financial institutions and markets. 
Article 40/D(4) of the draft Constitution provides that decrees issued by the PSZÁF’s President 
may not contradict laws, or government or MNB Governor decrees. In this respect, it should be 
made clear how this rule will be applied in order to be compatib le with the PSZÁF’s independence 
which is indispensable for the ex ercise of its supervisory function
15.  
3.2 The obligation to consult the ECB 
The ECB welcomes the stress in Article 20 of the Law on legislation specifically on the duty to 
comply with notification and consultation obligatio ns in the legislative process, as foreseen in 
Union legislation and that the draft law on legi slation includes new decrees drafted by the PSZÁF’s 
President. The duty to consult the ECB applies to generally applicable acts of supervisory 
authorities where these bodies have regulatory power s. However, this does not mean that the ECB 
should be consulted on all secondary legislation im plementing primary legisl ation falling within the 
ECB’s fields of competence. Given the objectives of  Decision 98/415/EC, it is clear that an opinion 
should only be sought from the ECB on draft seconda ry legislation where its subject-matter is 
closely related to the ECB’s tasks and if the impa ct on areas within the ECB’s fields of competence 
differs from that resulting from the primary legislation itself. 
                                                 
11  Section 1(1) of Law CXXXV 2007. 
12  Section 1(3) of Law CXXXV 2007. 
13  Section 11 of Law CXXXV 2007. 
14  Section 14 to 16 of the Law CXXXV 2007. 
15  The need for independence is also reflected in Principl e 1(2) of the Core Principles Methodology, Basel Committee on 
Banking Supervision, October 2006 available on the BIS’ website at www.bis.org.  
5 3.3 Supervisory college 
The ECB welcomes Article 12 of the draft law on the PSZÁF that introduces the concept of the 
supervisory college. The ECB is of the opinion  that this will ensure smooth cross-border 
cooperation among the relevant  supervisory authorities.  
3.4 Respect of MNB’s independence 
As already indicated in ECB Opinion CON/ 2010/10, the PST will contribute to fostering 
cooperation and information sharing between the three represented authorities and contribute to 
financial market stability. The ECB expects that  the PST will be a separate body for which the 
PSZÁF and the MNB will provide administrative and l ogistical support. Also, the ECB expects that 
the exercise of the PST’s powers will fully respect the MNB’s excl usive competence over monetary 
policy and any legislative proposals and  recommendations that may be made by the PST should not 
impinge on the MNB’s implementation of monetary policy decisions. 
3.5 PSZÁF’s institutional framework 
Concerning the PSZÁF’s institutional framework, the ECB refers to paragraphs 2.13 and 2.16 of 
Opinion CON/2010/10 in line with the position taken by the ECB in previous opinions16, and in the 
light of the widespread practice in the Union on decision-making in supervisory matters. The ECB 
would prefer if the PSZÁF’s decision-making body consisted of a formal board, acting on the basis 
of collegiality, rather than a President acting al one. In many Member States that have adopted 
supervisory models based on an i ndependent financial supervisory au thority, the central bank either 
provides members of the decision-making body of  the supervisory authority or plays an 
institutional role in the appointment and dismissal of its members. In some  cases there is joint 
membership of the decision-making bodies of the cen tral bank and of the supervisory authority. 
Such an approach would retain some of the adva ntages of the existing ins titutional framework for 
the supervision of credit institutions in Hungary , and provide a practical means for exchanging 
information between the MNB and the PSZÁF. The ECB would, furthermore, welcome the 
inclusion in the draft law of provisions establishing a collegiate decision-making body with an appropriate number of MNB representatives having the full right to participate in its meetings, to 
vote and to share in all information available to  the PSZÁF. The inclusion of MNB representatives 
in the PSZÁF’s collegiate body would need to give due consideration to safeguards for the 
independence of the MNB’s staff and its governing body
17. 
3.6  Determination of the salary for the PSZÁF’s staff by its President 
The ECB notes the discretionary powers conferre d on the PSZÁF’s President with respect to the 
salary of the PSZÁF’s staff who have civil servant status18. The President may reduce the civil 
servants’ basic salary by up to 35% or increase it by up to 50%. He has also the power to grant a 
                                                 
16  See paragraphs 3.2.3 and 3. 2.4 of Opinion CON/2006/15. 
17  See footnote 7. 
18  Article 25 of the draft law on the PSZÁF. 
6 personal salary for civil servants achieving outstanding performance, which amounts to 150% of 
the basic salary and which is revocable without explanation. These discretionary powers are not in 
line with sound governance; they disrespect the need  for transparency and legal certainty in the 
decision-making process.  
 3.7 Limiting the PST’s powers 
The PST’s powers were originally tailored to the financial crisis, enabling it to efficiently assess 
and evaluate the implementation of prudential s upervision policies. The ECB considers that under 
the draft law on the PSZÁF, the PST should still be entitled to be informed of how the addressee is going to proceed with its legislative proposals. Due to its composition, the PST has the knowledge 
and expertise to ensure a proper reaction to any financial stability issues. The proposed limitation 
on its powers will considerably w eaken the impact of its legislative proposals. Moreover, limiting 
the PST’s supervisory powers without entrusti ng these powers to another competent body or 
institution raises concerns. 
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 21 December 2010. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET