EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 15 July 2005 
at the request of the Ministry of Finance of the Czech Republic 
on a draft law on the integration of financial market supervisors 
(CON/2005/24) 
 1. On 31 May 2005 the European Central Bank (ECB) received a request from the Ministry of 
Finance of the Czech Republic for an opinion on a draft law on the amendment of laws in 
connection with the integration of financial market  supervisors (hereinafter the ‘draft law’). The 
draft law represents the first stage in a broad reor ganisation of financial ma rket supervision in the 
Czech Republic. The draft law amends a number of separate laws
1 and it is proposed that it will 
enter into force on 1 January 2006 (h ereinafter the ‘effective date’). 
2. The ECB’s competence to deliver an  opinion is based on the first, second, third, fifth and sixth 
indents of Article 2(1) of Council Decision 98/415/E C of 29 June 1998 on the consultation of the 
European Central Bank by national authoriti es regarding draft legislative provisions2 as the draft 
law relates to currency matters, means of payment, a national central bank, payment and settlement systems and also rules applicable to financial ins titutions that materially influence the stability of 
financial institutions and markets. In accordance w ith 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 supervisors
 
3. The draft law reorganises financial market supervis ion in the Czech Republic in several respects. 
The main change is to reduce the number of fina ncial market regulators from four to two. Under 
the draft law, both the Office fo r the Supervision of Cooperative Banks (OSCB) (a separate state 
supervisory body) and the Office for the Supervisio n of Insurance and Pension Funds (which forms 
part of the Ministry of Finance) will cease to ex ist. Instead, the two regulators will be the Securities 
Commission, which will be renamed the Financial Market Commission, and Česká národní banka  
                                                      
1  The draft law provides for amendments to 27 existing laws including the Act establishing ministries and other central 
administrative bodies of the Czech Republic No 2/1969 Co ll., as amended, the Act on the Securities Commission No 
15/1998 Coll., as amended, the Act on Česká národní banka No 6/1993 Coll., as amended (hereinafter the ‘ ČNB Act’), 
the Act on insurance No 363/1999 Coll., as amended, the Act on suppl ementary pension insuranc e with state contribution 
No 42/1994 Coll., as amended, the Act on savings and credit cooperatives No 87/1995 Coll., as amended (hereinafter the 
‘Cooperative Banks Act’), the Act on the financial arb iter No 229/2002 Coll., as amended and the Act on banks 
No 21/1992 Coll., as amended. 
2  OJ L 189, 3.7.1998, p. 42. 
 
2 (ČNB). The responsibilities of the Office for the Su pervision of Insurance and Pension Funds will 
pass to the Financial Market Commission. ČNB will be responsible for supervising savings and 
credit cooperatives (hereinafter ‘cooperative banks’),  including their participation in designated 
payment systems licensed by ČNB under a separate law3.  
4. The ECB welcomes in principle th e changes to the organisation of financial market supervision and 
oversight in the Czech Republic laid down by the draft law. The streamlining of financial market 
supervision into just two authorities should prevent inefficient overlaps and create a basis for more 
efficient supervision over financia l institutions and markets in the Czech Republic. In that context, 
the fact that the responsibility for supervising banks, foreign branches and also now cooperative 
banks is being placed under one roof within ČNB constitutes a positive development.   
5. As set out in the explanatory memorandum accompanying it, the draft law represents the first stage 
in a broad reorganisation of financial market supervision and oversight in the Czech Republic. 
During the second stage of this reorganisation, which is intended to take place, at the latest, when 
the Czech Republic adopts the eu ro, it is intended to merge the supervisory functions of both ČNB 
and the Financial Market Commission into a singl e supervisory authority. The ECB should be 
formally consulted on this future legislative initia tive. However, as it is not clear at this moment 
whether any future single supervisory authority will be within or outside ČNB, the ECB would 
already at this stage like to draw a ttention to the need to ensure that ČNB can perform its tasks 
smoothly in relation to financial stability and the oversight of payment and securities settlement 
systems (for the latter, see paragraphs 13 to 15 below).   
Supervision of cooperative banks  
6. Under the draft law, responsibility for the supe rvision of cooperative banks is assigned to ČNB. 
While cooperative banks remain governed by sp ecific legislation and do not fall under the 
legislation governing other banks, they will be supervised largely on the same basis as other banks, 
for example as regards licence terms, prudential ru les and notification obligations. In particular, 
cooperative banks will be required to observe the same minimum reserve requirements as those 
applicable to banks and branches of  foreign banks. They will also be  required to participate in the 
deposit insurance scheme for banks and to contribute a fixed annual percentage of their deposits to 
the Deposits Insurance Fund, as banks and branches of foreign banks currently do under the Act on 
banks. Unlike its powers vis-à-vis banks and branches of foreign banks, however, ČNB will not 
have statutory powers to impose a re gime of enforced administration4 on a cooperative bank.  
                                                      
3  Under the Act on payment systems No 124/ 2004 Coll. as amended. The ECB notes in  this regard that payment systems 
not licensed by ČNB fall outside the legal regime established by the Act on payment systems and are not therefore 
regulated by ČNB. ČNB is, however, generally responsible for the ‘reliability and efficiency of payment systems and 
their development’ pursuant to Article 2(2) c) of the ČNB Act. 
4    Enforced administration is a special regulatory power of ČNB under Articles 26, and 27-33 of the Act on banks enabling 
it to take over the management of any bank, where shortcomings in the activities of the bank could put at risk the 
financial stability of the banking sy stem and where the shareholders, in ČNB’s view, have not taken sufficient steps to 
eliminate those shortcomings.  
 
3 7. The ECB broadly welcomes the provisions of the draft law pursuant to which ČNB will supervise 
cooperative banks, as this appr oach is consistent with ČNB’s overall responsibility for the 
supervision of credit institutions. It is also consiste nt with the definition of ‘credit institution’ laid 
down in the Consolidated Banking Directive5, which implicitly includes cooperative banks, as they 
receive deposits or other repayable funds from th e public and grant credits for their own account. 
The fact that certain regulatory instruments, such  as enforced administration, will not be available 
in relation to cooperative banks is not per se  of concern, although it should be ensured that all 
credit institutions are regulated as far as possible on an objective and transparent basis. The regulatory regime applicable to one type of cr edit institution should not differ fundamentally from 
that applicable to another, merely because the former is less economically significant than the 
latter. 
ČNB’s succession to the OSCB’s rights and obligations
 
8. Under the draft law, the basic position is that ČNB will become the OSCB’s legal successor from 
the effective date, whereupon the OSCB’s rights, obligations and liabilities arising from property 
and other legal relations will pass from the OSCB to ČNB6.Making ČNB the legal successor to the 
liabilities of a separate supervisory authority raises issues relating to ČNB’s financial independence 
and its compliance with the prohibition on monetary financing under the Treaty. However, the draft 
law also lays down certain financial co mmitments of the Czech State to cover ČNB’s potential 
liabilities in respect of the activities of the OSCB. In particular, the draft law provides that, from 
the effective date, ČNB will be substituted for the OSCB as a party to any proceedings to which the 
OSCB is currently a party7 and that the State will meet any financial obligations incurred by ČNB 
as a result of it being substituted fo r the OSCB in any such proceedings8.  
9. Moreover, the ECB understands that pursu ant to the Czech State Liability Act9 the State is 
primarily liable for any damage caused by unlawful decision or improper administrative action by a legal entity or person in the course of executing pu blic authority on the State’s behalf. The carrying 
out of supervision clearly constitutes the exerci se of a public authority. The entity or person 
carrying out public authority could be the State (or any organisational unit of the State), ČNB, the 
OSCB, or any other person provided it has sep arate legal personality. The ECB therefore 
                                                     
 
5  Article 1(1) of Directive 2000/12/EC of the European Pa rliament and of the Council of 20 March 2000 relating to the 
taking up and pursuit of the business of credit institutions, OJ  L 126, 26.5.2000, p. 1. Dire ctive as last amended by 
Directive 2004/69/EC (OJ L 125, 28.4.2004, p. 44). 
6 Paragraph 4 of Article IX of the draft provisions amending th e Cooperative Banks Act. Howeve r, the draft law also states 
that from the effective date any claims  and obligations of the OSCB vis-à-vis the State incurred in connection with 
repayable financial aid provided to the OSCB by the State under the Cooperative Banks Act will pass to the Cooperative 
Banks Reinsurance Fund. Paragraph 5 of  Article IX of the draft provisions amending the Cooperati ve Banks Act.  
7  Except in the case of proceedings relating to claims of  the OSCB vis-à-vis the State incurred in connection with 
repayable financial aid provided to the OSCB by the State,  which pass to the Cooperative Banks Reinsurance Fund and 
not to ČNB. 
8 Paragraph 6 of Article IX of the draft pr ovisions amending the C ooperative Banks Act. 
9   Act No 82/1998 Coll. as amended, of 17 March 1998, on State liability for damages caused in the course of the exercise 
of public authority by decisions or improper admi nistrative action ; especial ly Articles 3 and 13. 
 
4 understands that, besides the specific financial co mmitments of the State under the abovementioned 
provisions of the draft law, the State will remain liable on the basis of the State Liability Act for any damage caused to third parties as a result of  any unlawful decision or improper administrative 
action of the OSCB carried out in the exercise of its public authority. Accordingly, as regards legal 
proceedings, the State remains liabl e for settling the financial obligations of the OSCB, irrespective 
of whether those obligations arise in proceedings in itiated before the effective date or thereafter - 
provided the proceedings concern the OSCB’s supervisory activities. 
10. The ECB understands that pursuant to the draft law
10 the State will also be required to meet any 
financial obligations incurred by ČNB arising from non-supervision related proceedings, such as 
employment relations or liquidation proceedings.  
11. Furthermore, in the event that the State pays out damages for an unlawful decision or improper 
administrative conduct of the OSCB on the basis of its primary obligations under the State Liability Act, the ECB understands that this would not give the State any right of financial recourse against 
ČNB or any of its officials
11, in view of the fact that ČNB will not have been involved in any way 
whatsoever in the supervision of cooperativ e banks prior to the effective date.    
12. The ECB welcomes the abovementioned provisions of the draft law in view of the fact that, in 
conjunction with the State Liability Act, they appear to insulate ČNB from financial obligations 
resulting from the OSCB’s activities. 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. 
Oversight of payment and securities settlement systems
 
13. The responsibility for oversight of payment a nd securities settlement systems remains divided 
under the draft law between ČNB, which oversees payment systems it has licensed12, and the 
Financial Market Commission, which over sees securities settlement systems (SSSs)13. While the 
ECB is aware that this split between the oversi ght of payment systems and securities settlement 
systems is not, as such, a new development in the Czech Republic, the ECB would like to take this 
opportunity to share some observations in this regard. 
14. As recalled in previous ECB opinions14, oversight is one of the core competencies attributed to the 
Eurosystem by the Treaty. The oversight of paymen t systems has always been recognised as one of 
the main functions of national central banks (NCBs ) and the framework for this function, although 
informal, has been effective and successful. A growing number of NCBs see a benefit in 
                                                      
10  Paragraph 6 of Article IX of the draft pr ovisions amending the C ooperative Banks Act. 
11  Pursuant to Articles 16-18 of the State Liability Act. The E CB notes however that a theoretical possibility exists of the 
State having recourse against a former official of th e OSCB, who, upon its dissolution, becomes an employee of ČNB.       
12 Pursuant to the Act on payment systems No 124/2002 Coll. 
13  Pursuant to the Act on trading on the capital markets No 256/2004 Coll. 
14  For example ECB Opinion CON/2003/14 of 7 August 2003 at the re quest of the Banca d’Italia  on a draft regulation on 
payment systems, payment infrastructures and payment instruments. 
 
5 formalising their oversight role. The majority of NCBs carry out this function on the basis of their 
organic laws, without any explic it and detailed legal provisions. Ar ticle 105(2) of the Treaty and 
Article 3.1 of the Statute of the European System  of Central Banks and of the European Central 
Bank provide the legal basis for the Eurosystem’s oversight function, together with Article 22 of 
the Statute, which reads: ‘The ECB and national central banks may provide facilities, and the ECB 
may make regulations, to ensure efficient and sound clearing and payment systems within the 
Community and with other countries’. Within th e Eurosystem, oversight activities are performed 
by NCBs in line with the common oversight policy,  as defined by the Govern ing Council. This will 
also apply to ČNB once the Czech Republic adopts the euro. In the meanwhile, it should be 
recognised that payment systems and SSSs are interlinked given the use of the mechanism of “Delivery versus Payment” systems under which settlements of securities and transfers of funds 
take place simultaneously. There is therefore a strong argument for the model used in some 
Member States of integrating the oversight of payment and securities settlement systems, and for 
the NCB to perform this function. Settlement of bot h legs of such transactions should be subject to 
similar safeguards to avoid asymmetries with syst emic implications. The role of NCBs in SSS 
oversight is evident given SSSs’ crucial role in  the functioning of the financial markets and 
therefore the need for them to be safe and effi cient. The NCBs’ oversight responsibilities in the 
context of safeguarding the effectiveness of m onetary policy and the overall stability of the 
financial system mean that they must ensure that SSSs are sufficiently protected against the 
transmission of systemic disruptions.  
15. The joint work on SSSs by the Committee on Payment and Settlement Systems (CPSS), which 
serves as a forum for the central banks of the Group of Ten countries (G10), and the International 
Organization of Securities Commissions (IOSCO) is  recognition at the international level of the 
interest and role of central banks in the oversight of securities settlement systems. At a Community level this is reflected in the joint work of the ESCB and the Committee of European Securities 
Regulators (CESR) in establishing common standards for EU SSSs.  
16. Finally, it should be ensured that ČNB has the power to gain access to all information and data 
relevant for the performance of its oversight task s. The opportunity could therefore be taken to 
state clearly in the draft law the powers conferred on ČNB and the consequenc es for SSS operators 
of not complying with its requests.  
New administrative offences regime in the ČNB Act
 
17. As a final point, the draft law introduces a number of new administrative offences punishable by 
fine and increases the fines imposed for committi ng certain existing administrative offences. In 
particular, the draft law15 makes it an offence punishable by a fi ne of up to CZK 1 million to fail to 
withdraw counterfeit currency from circulation.  Further, the fine for breaching the ban on 
                                                      
15 Specifically §§ 46c-46d (‘administrative offe nces’) of the draft provisions amending the ČNB Act. 
 
6 unlawfully reproducing monetary symbols or object s imitating money is increased from CZK 5 000 
to CZK 500 000. The underlying intention is to  transpose the obligation laid down in several 
Community regulations to make Member States’ sanc tions in this area ‘effective, proportionate and 
deterrent’16. The ECB welcomes the introduction of new administrative offences and the increases 
in these penalties, which should have a greater deterrent effect on potential offenders.   
18. This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 15 July 2005. 
   
The President of the ECB 
Jean-Claude TRICHET 
  
                                                     
 
16 Council Regulation (EC) No 1338/2001 of 28 June 2001 laying down measures necessary for the protection of the euro 
against counterfeiting (OJ L 181, 4.7.2001, p. 6), Council Regulation (EC) No 1339/2001 of 28 June 2001 extending the 
effects of Regulation (EC) No 1338/2001 laying down measures  necessary for the protection of the euro against 
counterfeiting to those Member States which have not a dopted the euro as their single currency (OJ L 181, 4.7.2001, 
p. 11) and Council Regulation (EC) No 2182/2004 of 6 Decem ber 2004 concerning medals and tokens similar to euro 
coins (OJ L 373, 21.12.2004, p. 1).