EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 18 January 2010 
on the Magyar Nemzeti Bank’s tasks, the structur e and legal status of the Hungarian Financial 
Supervisory Authority and the establishment of the Financial Stability Council 
(CON/2010/10) 
 Introduction and legal basis
 
On 23 November 2009, the European Central Ba nk (ECB) received a request from the Hungarian 
Ministry of Finance for an opinion on a draft law amending several legal acts, including the Law on the 
Magyar Nemzeti Bank and the Law on the Financial Supervisory Authority (hereinafter the ‘draft law’). 
On 4 December 2009, the ECB received an additional re quest from the Hungarian Ministry of Finance for 
an opinion on further supplementary articles of the draf t law. As part of the legislative procedure, on 
7 December 2009 the Hungarian Parliament adopted s ubstantive amendments to the draft law, on which 
the ECB was not consulted. The Parliament en acted the draft law including the amendments on 
14 December 2009, before the ECB had adopted its opi nion on the draft law. As a consequence, the 
ECB’s views have not been taken into account in the legislative process. 
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 and sixth indent of Article 2(1) 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 draft law relates to the Magyar Nemzeti Bank (MNB) and 
rules applicable to financial institutions in so far as they materially influence the stability of financial 
institutions and markets. In accordance with the first sen tence 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 inter alia extends the duties of the MNB. Pursuant to Article 4(7) of Law LVIII of 
2001 on the Magyar Nemzeti Bank
2 (hereinafter the ‘Law on the MNB’) the MNB promotes the 
stability of the financial system and contributes to the development and smooth conduct of policies 
related to the prudential supervision of the financ ial system. The draft law amends this provision so 
that the MNB will ‘support the evaluation and implementation of policies referring to the 
                                                 
1  OJ L 189, 3.7.1998, p. 42. 
2  Published in Magyar Közlöny  2001/76 (VII. 5.) 
2 prudential supervision of credit institutions and to the stability of the financial intermediary 
system.’ For this purpose, among other things th e draft law specifies that the MNB will identify 
business and economic risks threatening the financia l intermediary system as a whole, promote the 
prevention of systemic risks and help to ease or eliminate the identified systemic risk.  
1.2 The draft law authorises the Governor of the MNB to issue decrees prohibiting, restricting or 
making conditional certain activities, services, deals a nd the distribution of certain products if they 
pose a significant threat to the stability of the fi nancial intermediary system. The Governor may 
also make proposals for legislation to the Government, to a member of the Government or to the President of the Financial Supervisory Authorit y (FSA) for regulations for the safe and secure 
operation of the financial intermediary system.  
1.3 The draft law establishes the Financial Stability  Council (FSC) consisting of the Minister of 
Finance, the President of the FSA and the Governor of the MNB (hereinafter the ‘three represented authorities’), as well as three invited members. Th e chairmanship of the FSC will rotate annually 
between the Minister of Finance, the Governor of the MNB and the President of the FSA. The 
FSC’s tasks are defined in Article 44 of the draft law and include: continuously assessing the stability of the financial market; discussing the FSA ’s risk analysis; proposing to the Government, 
to a member of the Government or to the Pr esident of the FSA the adoption of legal acts; 
discussing the FSA’s annual report; discussing all gene ral measures, orders or decisions of the 
FSA, other than those applying to individuals; delivering an opinion on draft decrees of the Governor of the MNB issued under the new propos ed Article 60/A of the Law on the MNB; and 
continuously monitoring the FSA’s enforcement activities. 
1.4  The draft law also changes the FSA’s legal status. Under Article 1(1) of Law CXXXV of 2007 on 
the Financial Supervisory Authority
3 (hereinafter the ‘Law on the FSA’), the FSA is a Government 
authority. Under the draft law, the FSA becomes an  independent agency. The draft law also amends 
the purpose of the FSA’s activities. 
1.5 The draft law establishes a new organisational fra mework for the FSA. Pursuant to Article 11 of 
the Law on the FSA, financial superv ision is conducted by a Board. Under the draft law, the Board 
is abolished and most of its functions are tran sferred to the President of the FSA who will be 
personally responsible for FSA’s governance. The draft law also regulates in detail the process of 
appointing the President of the FSA, his conditions of employment and the scope of his duties and 
authority.  
 2. General observations 
The appropriate time to consult the ECB 
                                                 
3  Published in Magyar Közlöny  2007/162 (XI. 28.) 
3 2.1 The ECB points out that, in cases of particular urgency which do not allow for a normal 
consultation period, the consulting authority may indicate urgency in the consultation request and 
ask for a shorter deadline for the ECB’s opinion to be adopted. This does not prejudice the 
consulting authority’s duty under Article 127(4) an d 282(5) of the Treaty to consult the ECB on 
national draft legislative provisions falling within its fields of competence in due course of the 
national legislation process. The second sentence of Ar ticle 4 of Decision 98/415/EC states 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 le gislative process which a ffords the ECB sufficient 
time to examine the draft legislative provisions an d to adopt its opinion in all required language 
versions, and which also enables the relevant na tional 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 a doption process for draft legislative provisions, pending receipt of 
the ECB’s opinion. As the draft law was submitted to the Hungarian Parliament a month before the 
ECB received the first consultation request
4, the ECB could not take into consideration the 
consulting authority’s request for urgency on the grounds of the advanced stage of the process of 
legislation.  
2.2 The opportunity to issue an opinion on a draft law within its competence of consultation allows the 
ECB to express its views on the substance of the proposed legislation, including considerations 
such as the importance that the ECB may attach to a particular legislative proposal and its potential 
impact on the Eurosystem. Therefore, the ECB reit erates its position that even cases of particular 
urgency do not relieve national authorities from their duty to consult the ECB and to allow 
sufficient time to take into acc ount its views in accordance with Council 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 issue its opinion based on the 
most recent text. Furthermore, with respect to the ongoing consultation, the process of adoption of the draft law should have been suspended. Th e ECB’s comments on the consulted provisions do 
not eliminate the breach of the obligation to c onsult the ECB. Even though the provisions have 
already been enacted, the ECB considers that its  comments are important for the application and 
interpretation of the enacted law and any futu re amendments. The ECB would appreciate the 
Ministry of Finance giving due consideration to honouring their obligation to consult the ECB in 
the future, in accordance with the regulations  laid down in Council Decision 98/415/EC. 
 New tasks of the MNB in relation to its contributio n to financial stability and the prevention of systemic 
risks 
2.3 The ECB understands that, under Articles 4(7) and 60/A of the Law on the MNB, specific new 
tasks will be assigned to the MNB which are intended to facilitate the MNB’s effective 
                                                 
4   Draft Law No T/10998 was submitted to the Hungarian Parliament on 22.10.2009, and the consultation request 
concerning it was received by the ECB on 23.11.2009. 
4 performance of its financial stability role and its contribution to the prevention, identification and 
elimination of systemic risks. The ECB welcom es and supports the inherent recognition in the 
proposed institutional framework of the essential role  of the central bank in promoting the safety 
and soundness of financial institutions and the stability of the financial system as a whole5. 
Moreover, the introduction of a reference in the draft law to the ‘support to the evaluation and 
implementation of supervisory policies’ in the c ontext of the financial stability tasks recognises the 
importance of taking financial stability considera tions into account when developing supervisory 
policies. In this context, the creation of a fina ncial stability council, with the involvement of the 
central bank, will allow the central bank to contri bute with its systemic risk assessments to the 
development of the supervisory policies of the FSA. 
Interaction with the monetary policy of the MNB 2.4 The ECB understands that, by setting up th e FSC, the draft law does not establish a body 
responsible for supervision, functioning aut onomously within the framework of the FSA. 
According to Article 44 of the draft law, the FSA  will provide the secretariat of the FSC. Although 
the draft law provides that the FSC will ‘assist’ th e FSA, which seems to indicate that the FSC will 
have a subordinate role in contributing to the fulf ilment of the tasks of the FSA, the ECB trusts that 
the FSC will be a separate body to which the FSA will provide administrative and logistical 
support. The assignment to the MNB of specific t asks in the context of the establishment of the 
FSC is welcome, as it enhances the MNB’s contri bution to financial stability. These new tasks 
should contribute to financial stability, without compromising the conduct of the monetary policy 
by the MNB.  
2.5  The draft law provides that the FSC will assess the stability of the financial markets, including the 
money market. It is emphasised that the MNB is a key actor in the money market through the implementation of its monetary policy in order to fulfil its objectives. The implementation of 
monetary policy decisions is thus the exclusiv e competence of the central bank and should be 
preserved in all circumstances. It is therefore e xpected that the assessment of the stability of the 
money market will fully respect this exclusive co mpetence of the MNB over monetary policy. Also, 
any recommendations that may be made by  the FSC should not impinge on the MNB’s 
implementation of monetary policy decisions. For th e sake of clarity, it might be advisable to stress 
that the new tasks conferred on the MNB in the dr aft law will not affect its conduct of monetary 
policy.  
2.6  Given the abovementioned c onsiderations, the FSC’s responsibilities should be formulated 
precisely so as to ensure that th e effectiveness of the coordination process is not affected by any 
uncertainty regarding the roles, tasks and co mpetences of the FSC and the three represented 
authorities. 
                                                 
5   See, e.g. paragraph 5 of Opinion CON/2004/16. 
5 Broadening the scope of secondary legislative powers of the MNB, and the MNB’s relationship with the 
FSC 
2.7 Under the new Article 60/A of the MNB Law, th e Governor of the MNB is empowered to issue 
decrees prohibiting, restricting or making conditio nal certain activities, ser vices, deals and the 
distribution of certain products if they pose a significant threat to the stability of the financial intermediary system. According to the draft law, the Governor has to inform and seek the opinion 
of the FSC prior to issuing such decrees. In cont rast to other provisions of the draft law, Article 
60/A(6) does not set a time limit for the FSC to  give an opinion. When issuing a decree, the 
Governor may also make proposals for legislati on to the Government, or to a member of the 
Government or to the President of the FSA for regulation to provide for the safe and secure 
operation of the financial intermediary system . The new power of the Governor could be 
beneficially used to allow the MNB to better carry  out its financial stability tasks. This new power 
of the MNB is underpinned by Article 28(1) of  the Law on the MNB which gives the MNB the 
competence to gather adequate information on activities or persons pursuing activities that could 
endanger financial stability. 
2.8 In its Convergence Reports
6, most recently in its May 2008 Convergence Report, the ECB has 
reiterated that: ‘An express statutory obligation for an NCB to consult third parties ex ante provides 
the latter with a formal mechanis m to influence the final decision and is therefore incompatible 
with the Treaty and the Statute. However, dial ogue between NCBs and third parties, even when 
based on statutory obligations to provide informat ion and exchange views, is compatible with 
central bank independence provided that: 
– this does not result in interference with the independence of the members of the 
NCB’s decision-making bodies; 
– the special status of Governors in their capacity as members of the ECB’s General 
Council is fully respected; and 
– confidentiality requirements resulting from the Statute are observed.’ 
Although the ECB welcomes the fact that the ne w Article 60/A of the MNB Law reaffirms the 
independence of the MNB by specifying that an ex ante  obligation to consult ‘may not in any way 
result in influencing the independence of the me mbers of the decision making bodies of the MNB, 
or result in influencing or delaying the decision of the MNB’, in practice the obligation to consult the FSC in advance without a time  limit for the opinion to be given, allows the FSC to influence 
and delay the MNB’s decisions. Therefore, the dr aft law should establish a regime for cooperation 
and dialogue based on clear procedural rules, includi ng a time limit for the FSC to give its opinion, 
ensuring that the MNB’s independence is r espected and its decisions not delayed. 
                                                 
6  Available on the ECB’s we bsite at www.ecb.europa.eu 
6 2.9 As pointed out in ECB Opinion CON/2009/88, it is expected that the MNB’s new tasks under 
Articles 28 and 29, and its activities to support the FSC under Article 44 will fully comply with the 
Treaty obligations. In particular, it is expected that  the MNB’s new tasks laid down in the draft law 
will neither affect the MNB’s institutional, functional and financial independence nor the 
performance by the European System of Central Ba nks of its tasks under the Treaty and the Statute 
of the European System of Central Banks and of the European Central Bank. Similarly, it is also 
expected that it will be ensured that the new tasks of the MNB, such as its contribution to the FSC, 
will fully comply with the prohibition of monetary  financing laid down in Article 123(1) of the 
Treaty, read in conjunction with Council Regul ation 3603/93/EC of 13 December 1993 specifying 
definitions for the application of the prohi bitions referred to in Articles 104 and 104b(1)7 (now 
Articles 123 and 125(1) of the Treaty). In this respect, the MNB’s new tasks and activities to support the FSC should not give rise, implicitly or e xplicitly, to any form of overdraft facility or 
any type of credit facility with the MNB. 
The establishment and role of the FSC 2.10 In the view of the ECB, the newly establishe d FSC will contribute to fostering cooperation and 
information sharing between the three represented authorities and contribute to financial market 
stability, thus creating a forum where the three represented authorities playing a key role in 
financial regulation can initiate coor dinated action in a financial crisis. 
2.11 The establishment of national financial stab ility committees can enhance the ability of national 
central banks and supervisory authorities to contri bute analytical support to the European Systemic 
Risk Board (ESRB). The tasks performed by these committees should complement the activities 
performed by the ESRB, therefore it is particular ly important to develop appropriate synergies. 
However, it is necessary to avoid such national committees being entrusted with tasks and powers 
that potentially conflict with those of the ESRB, and which may undermine the effectiveness of the 
newly-established European macro-prudential supe rvisory body. Moreover, the legal frameworks 
of these committees should appropriately reflect the roles of central banks, should not constrain the 
independence of the governors of the central banks  or unduly affect the quality and impartiality of 
their contributions as members of the ESRB. Lastly, in view of the importance of ensuring the effectiveness of macro-prudential supervisory arrangements at EU level, it is essential to safeguard 
the ability of the ESRB to perform its tasks inde pendently and to guarantee an authoritative and 
effective channel for transmitting the warnings  and recommendations issued by the ESRB. 
2.12 The ECB also reminds the consulting auth ority of the Memorandum of Understanding on 
cooperation between Financial Supe rvisory Authorities, Central Banks and Finance Ministries of 
the European Union on cross-border financial stab ility which entered into force on 1 June 2008. 
The Memorandum of Understanding provides for the establishment of a domestic standing group in each Member State consisting of the financial supervisory authorities, central banks, finance 
                                                 
7   OJ L 332, 31.12.1993, p. 1. 
7 ministries at the national level with the objective of enhancing preparedness in normal times and 
facilitating the management and r esolution of a financial crises. 
Changes to the FSA’s institutional framework  
2.13 In line with the position taken by the ECB in previous opinions8, and in the light of the widespread 
practice in the European Union on decision-making in  supervisory matters, it may be preferable for 
the FSA’s decision-making body to consist of a fo rmal board, acting on the basis of collegiality, 
rather than a President acting alone. 
2.14 In many Member States that have adopted s upervisory models based on an independent financial 
supervisory authority, 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 cross-membership betw een the decision-making bodies of the central bank 
and of the supervisory authority. Such an appro ach would retain some of the advantages of the 
existing institutional framework for the supervision of credit institutions in Hungary, and provide a 
practical means for exchanging information between the MNB and the FSA. 
2.15 Having regard to the above, the ECB would welcome the inclusion in the draft law of provisions 
establishing a collegiate decision-making body as the FSA’s sole organ, including an appropriate 
number of MNB representatives in such a collegiate body, with the full right to participate in its meetings, to vote and to share in all informa tion available to the FSA. The inclusion of MNB 
representatives in the FSA’s collegiate body would need  to give due consideration to safeguards for 
the independence of the members of the MNB staff and its governing body
9. 
2.16 The draft law does not provide for the transfer of the tasks of the current supervisory body, i.e. 
from the Board to the President of the FSA. The ECB draws the consulting authority’s attention to 
the need to ensure the continuity of the smoot h performance of the FSA’s tasks by regulating the 
transfer of the competencies and responsibilities fro m the Board to the President of the FSA. The 
operational independence of supe rvisory bodies from political inte rference is an essential and 
internationally recognised standard for the supervis ion of financial markets. Such standards should 
be applied in particular to the procedures for the dismissal of the chairman of the Board of  the 
FSA. Article 72(2) of the draft law concerns the stat us of the current chairman of the Board of the 
FSA. The ECB welcomes the inclusion in the draft law of a provision for the current chairman of the Board of the FSA to continue in office until the end of his appointed term. Lastly, the ECB 
stresses the importance of legal certainty. The law governing the tasks and the operational structure 
of the FSA has been amended several times in recent years, and it is essential for the basic 
legislation regulating the structure of the FSA to  serve as clear and consistent guidance. Overly 
frequent changes to the structure of the FSA may compromise this function. 
                                                 
8  See paragraphs 3.2.3 and 3.2.4 of Opinion CON/2006/15. 
9  See footnote 7. 
8 2.17 The ECB supports the basic principle that, in  order to carry out their respective responsibilities 
effectively, there should be close cooperation be tween financial regulators. Therefore, the ECB 
welcomes the reference in the tasks of the FSA to  the duty to cooperate with the MNB to prevent 
systemic risks arising. The Hungarian aut horities may also consider further enhancing 
arrangements for information-sharing between the MNB and the FSA to take into account the duty 
of the FSA to cooperate with the MNB fo r the mitigation of systemic risks.  
 3. Specific comments 
Definitions According to Article 28 of the draft law, the MNB will play a significant role in the evaluation and 
implementation of policies concerning the stability of the financial intermediary system. The ECB 
recommends that the term ‘financial intermediary syst em’ should be defined for the sake of legal clarity. 
  This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 18 January 2010. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET