EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 25 May 2001
at the request of the Austrian Ministry of Finance on a draft Article of the Federal law
establishing and organising the financial market supervisory authority and amending the laws
relating to banking, securities supervision, investment funds, equities funds, savings banks,
building societies, mortgage banks, mortgage bonds, the IAPL, the stock exchange (1989),
insurance supervision, motor vehicle third party liability insurance (1994), pension funds,
capital markets, the Commercial Code, companies limited by shares, limited liability companies
and the National Bank (1984) ( Finanzmarktaufsichtgesetz  FMAG)
(CON/2001/10)
1. On 19 April 2001 the European Central Bank (ECB) received a request from the Austrian
Federal Ministry of Finance for an opinion on a draft Federal law establishing and organisingthe financial market supervisory authority and amending the laws relating to banking, securitiessupervision, investment funds, equities funds, savings banks, building societies, mortgagebanks, mortgage bonds, the IAPL, the stock exchange (1989), insurance supervision, motorvehicle third party liability insurance (1994), pension funds, capital markets, the CommercialCode, companies limited by shares, limited liability companies and the National Bank (1984)(Finanzmarktaufsichtgesetz  FMAG ). The intention of this draft Law is the reorganisation of
prudential supervision in Austria and the grant to the Oesterreichische Nationalbank (OeNB) of
the oversight function of payment systems (hereinafter referred to as the draft Law).
2. The ECBs competence to deliver an opinion is based on Article 105(4) of the Treaty
establishing the European Community (hereinafter referred to as the Treaty), Article 3.1 ofthe Statute of the European System of Central Banks and of the European Central Bank(hereinafter referred to as the Statute), and the third, fifth and sixth indents of Article 2(1) ofCouncil Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bankby national authorities regarding draft legislative provisions
1, as the draft Law contains
provisions concerning a national central bank, payment and settlement systems as well as rulesapplicable to financial institutions which could materially influence the stability of financial
                                                          
1OJ L 189, 3.7.1998, p. 42.
2institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of
Procedure of the European Central Bank, this opinion has been adopted by the GoverningCouncil of the ECB.
3. One aim of the draft Law is to concentrate the capacities of those authorities which are currently
involved in Austria in the various fields of supervision, namely the Federal Ministry of Finance,the securities supervisory authority and the OeNB, in a newly established authority, theFinanzmarktaufsichtsbehörde  (FMA), which is not bound by instructions. The FMA will be
established as a public law entity with legal personality and will, as a global-finance supervisoryauthority, be competent for banking, insurance, securities and pension funds supervision. TheFederal Ministry of Finance will be entrusted with supervision of the overall fulfilment of thelegal obligations of the FMA. The FMA will be funded by the supervised entities themselves aswell as by an annual contribution of the federal government. The official explanatorymemorandum accompanying the draft Law argues that the establishment of a stand-alonefinancial regulatory agency in Austria inter alia  pursues the objectives of ensuring operational
independence of the regulatory agency and regulatory flexibility. The operational independenceand freedom from instruction of the FMA corresponds fully to Principle 1 of the Coreprinciples for effective banking supervision of the Basel Committee on Banking Supervision.
4. As a general observation, the ECB notes that the role of the OeNB in the field of prudential
supervision will diminish as a result of the adoption of the draft Law. This contrasts with theposition expressed by the ECB in the note on The role of central banks in prudentialsupervision
2. The ECB considers that maintaining a close involvement of national central
banks in prudential supervision is a condition necessary to allow the Eurosystem to contributeadequately to monitoring the risks to financial st ability in the euro area. This is of particular
importance in a context in which the nature and scope of these risks are affected by theintroduction of the single currency and the consequent enhanced integration of financialmarkets. In addition, it safeguards the smooth coordination between the central bankingfunctions exercised at the Eurosystem level and the supervisory functions carried out at thenational level. In the ECBs opinion, the objective of achieving more effective coordinationbetween the conduct of supervisory functions in all segments of financial activity could bepursued also with means that do not imply a reduced role of the central bank in this field. Insupport of a continued and even reinforced involvement of the OeNB in prudential supervision,it may be argued that also the Treaty contains a provision relying on the central bank to addresssupervisory issues which may arise in increasingly integrated financial markets. In fact, Article105(6) of the Treaty envisages a simplified procedure to confer upon the ECB specific tasks inthe context of supervision of credit institutions and other financial institutions with theexception of insurance firms. Furthermore, Article 105(5) of the Treaty entrusts the Eurosystem
                                                          
2Published on the ECBs website ( http://www.ecb.int);  see the ECB press release of 22.3.2001.
3with the task of contributing to the smooth conduct of policies pursued by the competent
authorities relating to prudential supervision of credit institutions and the stability of thefinancial system. A reduced role of the OeNB in prudential supervision could generally makecompliance with the obligations arising from this provision more difficult. In the opinion of theECB, the draft law does not provide sufficient safeguards for the OeNB to assume its fullresponsibilities in the context of the prudential functions which the Eurosystem has beenentrusted with in the interest of financial system stability and soundness.
5. The ECB notes, moreover, that the draft Law also intends to maintain some of the advantages
stemming from the institutional framework in pla ce, including the current involvement of the
OeNB in prudential supervision  with the fu ndamental and objectively unfounded exception of
limiting on-site inspections to market risk (see paragraph 9 below). Such involvement,according to the explanatory memorandum, should be supported regardless of the organisationalform chosen for the attribution of supervisory re sponsibilities. This, in practice, is reflected in
the provisions of the draft Law concerning inter alia  the procedures for the nomination of the
members of the FMA's executive board ( Vorstand ) and supervisory board ( Aufsichtsrat ), the
composition of the FMA's advisory board ( Beirat ), the composition of the Financial Market
Committee ( Finanzmarktkomitee ), the possible operational involvement of the OeNB in
supervisory tasks, the institutional exchange of information between the two bodies, and the
consultative role of the OeNB vis-à-vis the FMA and the Federal Minister of Finance. 
6. Against this background, the ECB believes that improvements in the draft legislative provisions
in defining the role of the OeNB with regard to financial stability and the conduct of prudentialsupervision tasks are required. This would comply with the meaning and intention of therelevant provisions of the Treaty establishing the European Community.
7. First, the specific role of the OeNB in financial stability and prudential supervision. The draft
Law should make it clear that the OeNB has responsibility for the overall stability of the
financial system as a whole, as a separate function from hands-on supervision and financialregulation. The express attribution of such a role seems particularly useful, given the formalattribution of the responsibility for prudential supervision of individual institutions to the FMA.This would prove beneficial to the institutional framework being proposed in the draft Law.Central banks are in general in an advantageous position to fulfil the responsibility for financialstability, given their insight into money and financial market developments and involvement inpayment systems and monetary policy operations. This is both on an ongoing basis and in crisismanagement situations. In this context, the ECB welcomes the establishment of the FinancialMarket Committee as a body fostering cooperation and information sharing among theauthorities jointly responsible for financial market stability. Moreover, in view of its financialstability role, the OeNB should be expressly assigned the task of contributing to the conduct ofprudential supervision of financial intermediaries, in close cooperation with the FMA. 
48. Secondly, while the draft Law responds in various ways to the need to bridge the supervisory
and the central banking functions, the ECB considers that it could be useful to insert in the draft
Law the basic principle  that a smooth interaction between the FMA and the OeNB warrants
close cooperation between them in all fields of common interest. This principle, which is forinstance reflected in the draft provisions for Articles 79 and 80 of the Banking Act(Bankwesengesetz ) contained in Section II of the draft Law, should be further reflected in a
general provision stipulating a duty of cooperation, whose ultimate purpose would be to have inplace effective and practical arrangements for cooperation and information sharing between theFMA and the OeNB. Such a provision could go beyond the proposed provisions in Article 1 of
the draft Law concerning Article 21(2) of the Financial Market Law.
9. Thirdly, it follows that the issue of access to information and information sharing in general
could be further specified in the draft Law than as provided in the amendments to Articles 79
and 80 of the Banking Act contained in Section II of the draft Law. In this context, the ECBnotes first that in Article 43 of the National Bank Act, as in Article 77 of the Banking Act and inthe provisions proposed in Article II of the draft Law concerning Article 21(2) of the FinancialMarket Law, there are indeed provisions in this regard. The ECB would however welcome forthe following reasons further clarification of  the access to information and information
exchange. In particular, the exchange of information would not be dependent on the occurrenceof specific events, as currently foreseen in these draft provisions, but would occur on an on-going basis, which would imply regular flows of information. Furthermore, the ECB wouldwelcome the express removal of possible legal obstacles to information sharing between theFMA and the OeNB. The relevant provisions of the post-BCCI Directive
3, which were
incorporated in all sectoral directives, stipulat e that information subject to confidentiality and
professional secrecy requirements may be shared between supervisory authorities and centralbanks, and vice versa, for the purposes of the exercise of their respective tasks. In view of thefact that the draft Law will establish a new supervisory authority, the ECB would welcome the
express inclusion of such a principle both in the Law establishing the FMA and in the OeNBAct. Central banking is a valuable input to the supervisory process, while access by centralbanks to supervisory resources benefits the conduct of monetary policy operations, the oversightof payment systems and the pursuance of financial stability. It may be noted that informationsharing may entail a cross-border dimension, si nce information concerning Eurosystem-related
tasks might need to be conveyed to other national central banks of the Eurosystem and the ECB.A provision reflecting this aspect would be welcome. This suggestion is in line with therecommendations put forward by the recent Economic and Financial Committee's "Report on
                                                          
3Article 4 of the European Parliament and Council Directive 95/26/EC of 29 June 1995 amending Directives
77/780/EEC and 89/646/EEC in the field of credit institutions, Directives 73/239/EEC and 92/49/EEC in the field ofnon-life insurance, Directives 79/267/EEC and 92/96/EEC in the field of life assurance, Directive 93/22/EEC in the
field of investment firms and Directive 85/611/EEC in the field of undertakings for collective investment in
transferable securities (Ucits), with a view to reinfo rcing prudential supervision, OJ L 168 , 18.7.1995 p. 7.
5financial crisis management"4, to remove any legal impediments to the cross-border exchange
of information among supervisors and central banks on a cross-border basis. With regard toaccess to information from financial institutions, the ECB welcomes the proposed amendmentsto Article 22e and Article 26 of the Banking Act contained in Section II of the draft Law,stipulating that the OeNB will remain a recipient of information from reporting institutions. Inthe same manner, Article 79(2) and (3) of the Banking Act are also welcome, since they foreseethat both the FMA and the OeNB will be able to access the reports which each of them receivesfrom credit institutions. In line with the foregoin g given the enhanced integration of financial
services, access to supervisory information by the OeNB should not be limited to informationon the banking sector but should also include the other sectors of the financial system whichmay be deemed relevant for the stability of the financial system. The central bank should havethe means to assess possible systemic implications of the behaviour of complex financial groupson money and capital markets as well as on payment and settlement systems. This would forinstance also be in line with the European Commission's recent proposal for a Communitydirective on the supervision of financial conglomerates
5, which purports to lift the legal
obstacles for supervisory information sharing with central banks. 
10. Fourthly, the operational involvement of the Oe NB in prudential supervision. The involvement
of the OeNB in on-site inspections is substantially reduced by the draft Law as a consequence of
the full attribution of supervisory responsibilities to the FMA. The on-site examination powerswill be limited to the examination of market risks under the proposed amendments to Article 70of the Banking Act contained in Section II of the draft Law. The possibility remains, under theproposed amendments to Articles 26b, 27 and 70 of the Banking Act, that the FMA may requestthe OeNB to carry out inspections in respect of market risks. This is conditional, under draft
Article 70 of the Banking Act, on the process being substantially streamlined or being mademore expeditious or being in the interests of expediency, simplicity, speed or cost-saving. TheECB would like to note that, in line with the intention of the draft Law, the operationalinvolvement of the OeNB might represent a consid erable advantage to the activities of the FMA
in view of the experience and expertise of the central bank as well as of the central bank'sinfrastructure. The possibility of the involvement of the OeNB seems however to be veryrestricted by the provisions of the draft Law. On the one hand, such involvement may well gobeyond the mere assessment of market risks and could include full on-site examination tasks.On the other hand, the conditions set for the FMA to have recourse to the OeNB could bedrafted in a broader manner so that the contribution of the central bank would not be envisagedas an exceptional procedure. In addition, it is to be recalled that market and credit risk are
                                                          
4The Economic and Financial Committees Report on financ ial crisis management, 17.4.2001, EFC/ECFIN/251/01-
en-Final.
5Article 9(1) of the proposal for a directive of the European Parliament and of the Council on the supplementarysupervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and
amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and
Directives 98/78/EC and 2000/12/EC of the European Parliament and the Council, COM (2001) 213 final.
6related in many respects. Hence, the specific exchange rate risk does indeed form part of market
risk, but it is also an indication of creditworthiness of current issuers in close connection withsolvency provisions. It should also be borne in mind that the methods of measurement andmanagement of credit and market risks are c ontinuously growing closer. The ECB therefore
considers it to be desirable for the draft Law to create the legal basis to confer on the OeNB notonly the procedural limitation of market risk but  in any event  also credit risk. This isparticularly significant since provision for the participation of the OeNB in the inspection ofcredit risk impairs the contributions of the Oe NB to new activities arising from the current
reworking of the Basle Capital Accord a nd the EU provisions on capital adequacy.
11. Fifthly, the ECB welcomes the proposed Article 80(2) of the Banking Act contained in Section
II of the draft Law, which provides the OeNB with the right to be consulted by the FMA and the
Federal Minister of Finance on legal acts issued under the Banking Act. The ECB wouldsuggest that, in view of its financial stability ro le, the OeNB be provided with an advisory role
for all national legislation falling within such field of competence, without any restriction to
legal acts in the banking field. The ECB refers  in this context to the special meaning of
Article 7(3) of the National Bank Act according to which the OeNB has the right to beconsulted on all drafts with political implications for the financial market or otherwise theinterests of the OeNB.
12. The ECB would welcome the inclusion in the draft Law of a provision stipulating that the FMA
will respect all pre-existing commitments to cooperate and share information undertaken by theFederal Minister of Finance in its capacity as former supervisory authority vis-à-vis othersupervisory authorities and central banks of the EU Member States.
13. The ECB welcomes the provisions directed at enhancing and reinforcing the supervisory
framework for credit institutions. In particular the ECB welcomes the proposed provisions forthe Banking Act allowing for the possibility of the FMA to inform the public about the licencestatus and about supervisory measures that are taken vis-à-vis an institution (proposedamendments in Section II of the draft Law to Article 4, new paragraph 7 and Article 70, newparagraph 7), the strengthening of the credit institutions' advisory boards ( Aufsichtsräte )
(proposed new Article 63a of the Banking Act), and the rotation principle of bank auditors(proposed amendments to Article 62 of the Banking Act), according to which auditors of banksmust be changed after a certain number of years in order to ensure their impartiality andindependence.
14. In addition to the issues described above, the draft Law proposes changes to the National Bank
Act dealing with payments systems oversight. According to these draft provisions, the OeNBwill be the competent authority in Austria for the oversight of payment systems. Section XIX ofthe draft Law (proposed new Article 44a(1) of the National Bank Act) provides that the OeNBwill be competent to oversee (i) payment systems to  which Austrian law applies; (ii) participants
7in payment systems which are located in Austria and to which Austrian laws applies; and (iii)
participants in payment systems which are located  in Austria, which are not subject to Austrian
law. Section XIX of the draft Law (proposed new Article 44a(5) of the National Bank Act)provides that the OeNB will be competent to make regulations in order to implement any
relevant recommendations of the Committee on Payment and Settlement Systems (CPSS). Inthe fulfilment of its tasks as overseer of payments systems, the OeNB will also be entitled torequest information concerning payment systems, to carry out on-site inspections (either in its
own name or via the FMA), and to impose sanctions in cases of non-compliance with itsregulations.
15. In this context, the ECB would like to state first of all that payment systems oversight is an
essential function of central banks. The aim of the oversight of clearing and payment systems isthe maintenance of systemic stability, the promotion of efficiency and the safeguarding of thetransmission channel for monetary policy. These concerns are material to both the confidence ofthe users of the payment systems and of the users of the payment instruments and, ultimately, tothe maintenance of public confidence in the currency. Article 105(2)
6 of the Treaty and
Article 3.17 of the Statute provide for the legal basis for the oversight activities of the
Eurosystem. In addition, the competence of the Eurosystem for the systems oversight resultsfrom Article 22 of the Statute, which provides: The ECB and national central banks mayprovide facilities, and the ECB may make regulations
8, to ensure efficient and sound clearing
and payment systems within the Community and with other countries. Within the Eurosystem,the Governing Council of the ECB formulates  the common policy stance, determining the
objectives and core principles of the common oversight policy of the Eurosystem. The nationalcentral banks (NCBs) and the ECB are responsible for the implementation of the commonpolicy stance and for the performance of the regular oversight activities over the systems undertheir respective responsibility. In addition, for areas not specifically covered by the commonoversight policy, policies defined at the level of an individual NCB apply which must beconsistent with the objectives and principles defined at the level of the Eurosystem.
16. Against this general background, the ECB welcomes the grant by law to the OeNB of the
competence of payment systems oversight in Austria. This step enhances the transparency of thecentral banks policies and is in line with the IMFs Code of Good Practices on Transparency inMonetary and Financial Policies. However, the ECB notes that Section XIX of the draft Law(proposed new Article 44a(1) of the National Bank Act) seems to restrict the oversight functionof the OeNB to the protection of security of pa yment systems. Although this task is of primary
                                                          
6The basic tasks to be carried out through the ESCB shall be: [] to promote the smooth operation of payment
systems.
7In accordance with Article 105(2) of the Treaty, the basic tasks to be carried out through the ESCB shall be: [] to
promote the smooth operation of payment systems.
8See Article 34.2 of the Statute: A regulation shall have general application. It shall be binding in its entirety anddirectly applicable in all Member States.
8importance within the oversight function, it is only one aspect of a broader spectrum, as
described above. Therefore, the ECB suggests replacing the proposed new Article 44a(1) of theNational Bank Act with a more general provision in line with the Treaty. It should provide thatthe OeNB is under an obligation to ensure the sound and efficient operation of paymentsystems, which includes the security of the paym ent instruments, within the framework of the
task of the European System of Central Banks (ESCB) relating to the promotion of the smoothoperation of payment systems as specified by Article 105(2) of the Treaty.
17. According to Section XIX of the draft Law (proposed new Article 44a(1)1 of the National Bank
Act) oversight shall be applicable to payment systems to which Austrian laws apply. TheECB notes that for systems which have no clear domestic anchorage, the body entrusted withoversight responsibility is the NCB where the system is legally incorporated, unless theGoverning Council of the ECB decides otherwise on  the basis of the features of the system and
entrusts oversight responsibilities to the ECB. Obviously, this can also affect systems that areestablished and operated on the basis of the laws of individual Member States. Therefore, theECB suggests clarifying in the draft Law that the proposed new Article 44a(1)1 of the NationalBank Act does not interfere with any oversight function of the ECB that has been determined byits Governing Council.
18. The ECB notes that according to Section XIX of the draft Law (proposed new Article 44a(1)3
of the National Bank Act) oversight shall be exercised with regard to the participants ofpayment systems based in Austria, which are not subject to Austrian law. The ECBunderstands that this provision applies to participants located in Austria who participate throughremote access in a payment system governed by foreign law and that those participants wouldfall under Austrian oversight of payment systems. Clarification should be introduced in the draft
Law in this respect.
19. The ECB would also like to comment on the proposed new Article 44a(5) contained in
Section XIX of the draft Law as well as on the related section in the explanatory memorandum.These provisions specify that OeNB is entitled by means of regulations to officially establish thecontent of the recommendations made by the CPSS, which is an international standard settingbody with the function of elaborating recommendations for clearing and payment transactionsand systems. 
On the basis of the Articles of the Treaty and of the Statute referred to in paragraph 15 above, inconjunction with the first paragraph of Article 12.1
9 of the Statute, the Governing Council of the
ECB is the decision-making body responsible for the definition of the common policy stance ofthe Eurosystem in the field of oversight. According to the third paragraph Article 12.1
10 of the
                                                          
9The Governing Council shall adopt the guidelines and take the decisions n ecessary to ensure the performance of the
tasks entrusted to the ESCB under this Treaty and this Statute.
10To the extent deemed possible and appropriate and without pr ejudice to the provisions of  this Article, the ECB shall
have recourse to the national central banks to carry out operations which form part of the tasks of the ESCB.
9Statute, within the Eurosystem, the NCBs shall be available, and the ECB shall have recourse to
them to the extent deemed possible and appropriate, for the implementation of the oversightpolicy stance. Against this background, it will be in the first instance within the competence ofthe Governing Council of the ECB to decide on any adoption and enforcement of the CPSSsrecommendations at the level of the Eurosystem. It is within this general institutionalframework and the general appreciation pertaining to the Governing Council of the ECB that theOeNB, like the other NCBs within the Eurosystem, may implement at a national level theCPSSs recommendations. Consequently and more in general, the ECB would appreciateamendment of the proposed new Article 44a(5) contained in Section XIX of the draft Law tomake it clear that exercise of the regulatory power of the OeNB in the field of payment systemsoversight should be in line with the common pol icy stance that the Governing Council of the
ECB has adopted for the Eurosystem.
20. The ECB welcomes the grant to the OeNB of a regulatory power in the field of payment system
oversight. It should, however, be recalled th at any ECB regulation would supersede an OeNB
regulation adopted by virtue of the regulatory power conferred by the draft Law on the OeNB.Although the ECB has not yet used the possibility provided by Article 22 of the Statute to adopt
regulations to ensure efficient and sound clearing and payment systems, as pointed out in theexplanatory memorandum to the draft Law, it should be noted that the Governing Council of theECB can always take an initiative, where necessary. The ECB would therefore appreciateamendment of the explanatory memorandum to the draft Law to avoid the impression ofimpairing the competencies of the ECB in this field. 
21. The proposed new Article 44a(6) contained in Section XIX of the draft Law stipulates that
upon agreement with the FMA, on-site inspections can also be carried out by the auditingdivisions of the FMA, on behalf of and at the expense of the Oesterreichische Nationalbank.The ECB understands that for the tasks performed under this provision, and whenever theOeNB makes recourse to the FMA in the performance of its oversight functions, the personnelof the FMA will be accountable to the OeNB only and not be bound by instructions from theFMA or any other third party. 
22. According to the new draft Article 69 of the Banking Act contained in Section II of the draft
Law, the oversight of securities settlement systems (SSSs), currently a competence of theFederal Ministry of Finance, will be transferred to the FMA. In this respect, it should be recalledthat the smooth operation of securities settlement systems is crucial for the smooth functioningof payment systems. It has been recognised by international fora such as the Wise MenCommittee, the CPSS and IOSCO that the oversight of securities settlement systems alsorequire the expertise of the central bank, due to the interdependency between the paymentsystems and the securities settlement systems. Consequently, the OeNB could also be involvedin the oversight of securities settlement systems. In addition, as also stated in the
10recommendation being finalised by the CPSS-IOSCO Joint Task Force on Securities Settlement
Systems of the G10 States (CPSS-IOSCO Recommendation 18), SSSs should be subject toregulation and oversight. In particular, the responsibilities and objectives of the securitiesregulator and the central bank with respect to SSSs should be clearly defined, and their roles andmajor policies should be publicly disclosed. In addition, they should have the ability and theresources to perform their responsibilities, including assessing and promoting implementation ofthese recommendations. The ECB stresses the importance of compliance by the draft Law withthe principles of the abovementioned CPSS-IOSCO Recommendation 18.
Done at Frankfurt am Main on 25 May 2001.
The President of the ECB
[signed]
Willem F. DUISENBERG