EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 22 May 2006 
at the request of the Central Bank of Malta 
concerning a draft law amending the Central Bank of Malta Act 
(CON/2006/23) 
 
Introduction and legal basis  
On 31 March 2006, the European Central Bank (ECB) received a request  from the Central Bank of Malta 
for an opinion on a bill amending the Central Bank of Malta Act  (hereinafter the ‘draft law’). 
The ECB’s competence to de liver an opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the first, second, third, f ourth and fifth indents of Article 2(1) of Council 
Decision 98/415/EC of 29 June 1998 on the consu ltation of the European Central Bank by national 
authorities regarding draft legislative provisions1, as the draft law relates to currency matters, means of 
payment, national central banks (NCBs), the collec tion, compilation and distribution of statistics and 
payment and settlement systems. In accordance with the firs t sentence of Article 17.5 of the Rules of 
Procedure of the European Central Bank, th e Governing Council has adopted this opinion.  
The ECB welcomes the amendments contained in the dr aft law intended to integrate the Central Bank of 
Malta (‘CBM’) into the Eurosystem. They also addr ess the issues raised in  the ECB’s 2004 Convergence 
Report2, as well as some additional issues relevant to  the introduction of the euro in Malta. The 
amendments relate mainly to the CBM’s tasks, including monetary policy, foreign reserves, euro 
banknotes and coins and payment systems. They also  cover the CBM’s relations with the Maltese 
Government and the appointment of auditors fo r the CBM. In addition, these amendments provide 
transitional provisions to regulate the exchange of Maltese lira banknotes and coins after the euro 
adoption date. 
 1. Comments on Part I ‘Preliminary’ 1.1 The bill defines ‘coins denominated in euro’. It is understood that the purpose of this definition is 
to clarify that any reference to euro coins also in cludes the coins of the subdivisions of the euro, i.e. 
the euro cent coins. The ECB proposes deleting this de finition, given that any reference to the euro 
                                                     
 
1  OJ L 189, 3.7.1998, p. 42. 
2  Available on www.ecb.int. 
2 should always be construed as a reference to a curre ncy, of which the currency unit is one euro and 
which is subdivided into 100 cent3. 
1.2  The ECB would also like to draw attention to the fact that in the definition of the term ‘Treaty’, the 
correct date should read ‘25 March 1957’.  
 2. Comments on Part II ‘Establishment and Conduct of Affairs of Bank’ 2.1 The ECB welcomes the comprehensive Article 3 to  be inserted in the Central Bank of Malta Act as 
it will be amended (hereinafter the ‘amended CBM Act’), establishing that the CBM will be an 
integral part of the European System of Central Banks as established under the Treaty. This Article also refers to the CBM’s rights and obligations due to such status, and imposes the obligation to 
comply with the objectives conferred on it by the St atute of the European System of Central Banks 
and of the European Central Bank. 
2.2  Although this introductory Article asserts th e compatibility of the CBM’s functions with those 
prescribed to it by the Statute and the Treaty, and that any interpretation of the following provisions 
of the amended CBM Act should be  construed within an ESCB context, the ECB nevertheless 
suggests that some provisions of the amended CB M Act should make more explicit references to 
the Statute and the Treaty. To this end, Article  5 of the amended CBM Act should be clearer in 
establishing that the CBM will execute any of its tasks in accordance with
 the Statute and the 
Treaty rather than providing for action ‘within the framework of the ES CB’. Hence, the strict 
approach adopted in Articles 3 and 4 should also be used in Article 5.  
2.3  Article 5(2) of the amended CBM Act prohibits th e CBM, or any of its officials or members of its 
Board of Directors when exercising any function, duty or power under the same Act, from seeking 
or taking instructions from the Government or any other body. For the sake of clarity, however, this Article should mirror in the amended CBM Act Arti cle 108 of the Treaty, including the prohibition 
on the Government from seeking to influence the CBM, its Board of Directors or any of its officials. 
2.4 Article 17(1)(g) of the amended CBM Act provides that the CBM safeguards financial stability or 
in other exceptional circumstances may grant a loan or advance to any credit institution 
incorporated in Malta against such forms of secu rity as the Board may consider appropriate. The 
ECB understands that the purpose of this provision is to provide for the possibility of emergency liquidity assistance. While similar provisions can be found in several NCBs’ statutes, Article 17(1)(g) should also provide that such lo ans or advances are provided without prejudice to 
the requirements derived from the CBM’s particip ation in the ESCB. In any event, compliance 
with the prohibition on monetary financing in Article 101 of the Treaty must be ensured. 
                                                     
 
3 Council Regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro (OJ L 139, 11.5.1998, p. 1). 
Regulation as amended by Regulation (EC) No 2596/2000 (OJ L 300, 29.11.2000, p. 2).  
3 2.5  Article 17(3) of the amended CBM Act should also refer to the wider general term ‘financial 
instruments’ rather than ‘securities’, given the risk  usually associated with investing solely in the 
latter type of instrument. 
2.6  Once Malta introduces the euro and the CBM effectively becomes part of the Eurosystem, 
monetary policy will no longer be subject to natio nal scrutiny. Article 15 of the Statute provides 
that the ECB’s President, on behalf of the ESCB,  will report to the European Parliament, the 
Council, the Commission and the European Council . In addition, the CBM’s Governor may still 
ask to be heard, or be requested to provide in formation or answer any questions related to the 
implementation of the Eurosystem’s monetary po licy and decisions before the Maltese House of 
Representatives, provided that the CBM’s indepe ndence and the Eurosystem’s communication 
rules are respected. In view of this, the ECB reco mmends inserting in Article 18(4) of the amended 
CBM Act the necessary safeguards. 
 3. Comments on Part III ‘Financial Provisions’ 
3.1. The ECB welcomes the fact that Article 19 of the amended CBM Act establishes a minimum level 
for the CBM’s legal reserves since this reinfo rces the principle of financial independence. 
Nevertheless, the CBM might consider includi ng in the amended CBM Act the procedures 
describing the recapitalisation of the reserves if they have been exhausted by a financial loss .  
3.2. Article 20 of the amended CBM Act does not adequa tely reflect the proceedings under Article 27.1 
of the Statute. The independent external auditors appointed to verify the CBM’s accounts, whilst appointed by the CBM’s Board of Directors, also have to be recommended by the ECB’s 
Governing Council and approved by  the EU Council under Article 27.1 of the Statute. In the 
current wording of Article 20, these requirements seem to be covered by the concluding phrase ‘in accordance with the Statute’. However, Article 20 also provides for the approval of the external 
auditors by the Maltese Minister for Finance, which is incompatible with Article 27.1 of the Statute 
since the latter provision establishes that they have  to be approved by the EU Council. For this 
reason, Article 20 of the amended CBM Act shoul d provide that the CBM’s accounts are to be 
audited by independent external auditors recommended by the ECB’s Governing Council and 
approved by the Council, and authorise the Board to appoint such auditors. 
 4. Comments on Part IV ‘Collection of Information’ 
4.1. The ECB recommends slightly amending Article 24(1 ) of the amended CBM Act to clarify that the 
CBM’s power to issue directives is subject to their conformity with Article 5.1 of Council Regulation (EC) No 2533/98 of 23 November 1 998 concerning the collection of statistical 
information by the European Central Bank
4. This reference would recognise the primacy of 
                                                      
4  OJ L 318, 27.11.1998, p. 8. 
4 secondary Community legislation over national law in th e field of statistics and is in the interests of 
legal certainty.  
4.2. Along the same lines, in Article 24(2) concerning the CBM’s right to verify the accuracy and 
quality of statistical information submitted unde r Article 24(1) of the amended CBM Act, a 
reference to Article 6 of Regulation (E C) No 2533/98 would be beneficial.  
 5. Comments on Part V ‘Relations with Government’ 
5.1. National legislation mirroring the directly appli cable provisions of Article 101 may not narrow the 
scope of application of the moneta ry financing prohibition. Therefore, Article 27(1) of the amended 
CBM Act needs to be extended to be consistent w ith the Treaty and to fully mirror the content of 
Article 101 of the Treaty to avoid any confusio n as to the entities covered by the monetary 
financing prohibition, or alternatively could contai n a reference to Article 101 of the Treaty, or be 
deleted. 
 6. Comments on Part VI ‘Relations with  Credit and Financial Institutions’ 
6.1. The ECB proposes including in Article 32 of the amended CBM Act a clear reference to 
Article
 14.4 of the Statute. In this way, any cooperatio n with credit and financ ial institutions for the 
furtherance of policies in the national interest woul d be emphasised, given this clearly falls outside 
the functions specified in the Statute. It w ill be carried out under the CBM’s responsibility and 
liability, and permitted unless decided otherwise by the ECB’s Governing Council. Alternatively, 
the ECB proposes deleting Article 32 of the amended CBM Act. 
6.2. It appears that Article 33 of the amended CBM Act refers to minimum reserve requirements, 
although using slightly different terminology (‘reserve deposits’). The proposed amendments to 
Article 33 do not bring Maltese reserve requirements fully into line with the regime adopted under 
Article 19 of the Statute and the relevant Comm unity law, namely (i) Council Regulation (EC) 
No 2531/98 of 23 November 1998 concerning the ap plication of minimum reserve requirements by 
the European Central Bank5; and (ii) Regulation ECB/2003/ 9 of 12 September 2003 on the 
application of minimum reserves6. This legislation, which is direc tly applicable to and binding on 
credit institutions in the euro area, is intended to ensure that the terms and conditions for the 
Eurosystem’s minimum reserve system are uniform  throughout the euro area. Article 33 of the 
amended CBM Act should therefore use wording cl oser to the wording for the minimum reserve 
system established under Article 19 of the Statute.  
 
                                                      
5 OJ L 318, 27.11.1998, p. 1. 
6 OJ L 250, 2.10.2003, p. 10. 
5 7. Comments on Part VII ‘Payment Systems’ 
7.1. Part VII of the amended CBM Act is entitled ‘P ayment Systems’. Article 35(7) makes equivalent 
the definition of ‘payment system’ and ‘system’. It is not entirely clear whether or not the amended CBM Act also covers securities clearing and settlement  systems. In fact, as noted in previous ECB 
opinions
7, payment systems and securities clearing a nd settlement systems are interlinked, 
particularly in view of the use of the ‘deliver y versus payment’ mechanism, which ensures that 
delivery of securities occurs only if payment occu rs. There is therefore a strong argument in favour 
of the model used in some Member States of in tegrating the oversight of payment and securities 
settlement systems, and for the central bank to pe rform this function. Settlement of both legs of 
such transactions should be subject to similar safeguards in order to avoid asymmetries with 
systemic implications. Therefore, the amended CBM Act should clarify that it expressly also covers 
securities clearing and settlement systems. In this context, the ECB recommends aligning the terms and concepts used in national law as closel y as possible to the corresponding concepts of 
Community legislation, notably the definition an d concept of ‘participant’ in systems in the 
Settlement Finality Directive
8.  
7.2. Payment systems oversight is a core Eurosystem competence and the common oversight policy 
defined by the Governing Council is the basis for the central banks’ oversight activity. The ECB is 
of the opinion that it would be useful if the ame nded CBM Act reflected the role of the Eurosystem 
more clearly by, for example, stating that the CBM  would continue to conduct oversight within the 
Eurosystem’s framework on the basis of requi rements and standards endorsed by the ECB’s 
Governing Council.  
7.3. The current draft law gives the CBM very gene ral regulatory rights over payments. Article 35(5) of 
the amended CBM Act mentions several different  aspects of payments, e.g. participation in 
payment systems, cross-border credit transfers and electronic payment services. Community legislation
9 already covers these areas to some extent. To avoid any confusion regarding the CBM’s 
regulatory powers within an ESCB context and for the purposes of clarity and legal certainty, the 
ECB strongly recommends inserting in Article 35(5) a reference to the relevant Community legislation as well as to the national regulatory regime implementing it.  
                                                     
 
7 See for instance paragraphs 10 to 14 of ECB Opinion CON/2003/ 14 of 7 August 2003 at the reque st of the Banca d’Italia 
on a draft regulation on payment systems, payment infrastructur es and payment instruments; paragraphs 13 to 16 of ECB 
Opinion CON/2005/24 of 15 July 2005 at the request of the Mini stry of Finance of the Czech Republic on a draft law on 
the integration of financial market supervisors. 
8 Directive 98/26/EC of the European Pa rliament and of the Council of 19 May 199 8 on settlement finality in payment and 
securities settlement systems (OJ L 166, 11.6.1998, p. 45). 
9 For instance, Directive 97/5/EC of the European Parliament  and of the Council of 27 January 1997 on cross-border credit 
transfers (OJ L 43, 14.2.1997, p. 25); Directive 2000/12/EC of th e European Parliament and of the Council of 20 March 
2000 relating to the taking up and pursuit of the business of cred it institutions (OJ L 126, 26.5.2000, p. 1), Directive as 
last amended by Commission Directive 2006/29/EC (OJ L 70, 9.3.2006); Directive 2000/46/EC of the European 
Parliament and of the Council of 18 Oc tober 2000 on the taking up, pursuit of a nd prudential supervision of the business 
of electronic money institutions  (OJ L 275, 27.10.2000, p. 39), Directive 2001/24/ EC of the European Parliament and of 
the Council of 4 April 2001 on the reorganisation and winding up of credit institutions (OJ L 125, 5.5.2001, p. 15); 
Directive 2002/47/EC of the European Parliament and of th e Council of 6 June 2002 on financ ial collateral arrangements 
(OJ L 168, 27.6.2002, p. 43); Regulatio n (EC) No 2560/2001 of the European Parliament and of the Council of 
19 December 2000 on cross-border payments in euro (OJ L 344, 28.12.2001, p. 13). 
6  
8. Comments on Part IX ‘Relations with  International and Other Organisations’ 
8.1. Although it is understood that Article 40 of the amended CBM Act also has to provide for the 
CBM’s participation in international organisations  involving tasks outside the ESCB, such Article 
should refer to Article 6 of the Statute in so  far as international cooperation involving tasks 
entrusted to the ESCB is concerned. With regards to the latter type of cooperation, the ECB decides 
on the representation of the ESCB. Hence, Articl e 40 of the amended CBM Act should reflect this 
through a reference to the Statute. 
 9. Comments on Part X ‘Currency’ 
9.1. In addition to the reference to the Statute, Ar ticle 52 of the amended CBM Act should refer to 
Decision ECB/2003/4 of 20 March 2003 on the denom inations, specifications, reproduction, 
exchange and withdrawal of euro banknotes
10, in particular to Articles 2 and 3 thereof. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 22 May 2006. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                     
 
10  OJ L 78, 25.3.2003, p. 16.