EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 4 January 2002
at the request of the Finnish Ministry of Finance
on a draft proposal concerning the revision of the Credit Institution Act
(CON/2002/1)
1. On 21 May 2001 the European Central Bank (ECB) received a request from the Finnish Ministry of
Finance for an opinion on a draft Government proposal concerning the revision of the FinnishCredit Institution Act (hereinafter referred to as the proposal). The revision concerns in particular(i) credit institutions specialising in the issuance of electronic money and transfer of payments;(ii) providing companies other than credit institutions with the right to receive refundable fundsfrom the public; and (iii) using an agent or other outsourcing of banking services. 
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) and on the second, fifth and sixthindents of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 on the consultation of theECB by national authorities regarding draft legislative provisions
1, as the proposal contains
provisions concerning means of payment, payment and settlement systems and rules applicable tofinancial institutions which could materially influence the stability of financial institutions andmarkets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of theEuropean Central Bank, this opinion has been adopted by the Governing Council of the ECB. 
3. The proposal is intended to ensure that the Finnish legislation concerning the core banking services
is updated with regard to the technological developments enabling the use of different means in theprovision of these services. It also intends to ensure that banking services are widely available in allparts of Finland in spite of the different reorganisation measures in the banking sector. Theintentions of the proposal will be attained by three different means. First, the proposal introducesinto the Finnish Credit Institution Act ( luottolaitostoiminnasta annettu laki  1607/1993) new
provisions relating to the credit institutions specialising in the issuance of electronic money and/orin transfer of payments. Secondly, the proposal provides, under certain conditions, a right for alllimited liability companies and cooperatives, which are not credit institutions, (hereinafter referredto as the other companies) to  receive into so-called client accounts funds from the public
                                                     
1 OJ L 189, 3.7.1998, p. 42.
2refundable on demand as well as to issue electronic money to a certain limited extent. Thus all of
the other companies regardless of their field of business activity would be provided with a right toreceive funds into these client accounts and to issue electronic money for limited purposes.According to the proposal, even though the intenti on is to provide retail businesses and chains with
a right to receive funds into client accounts this right would not be restricted to retail business andtherefore companies providing other services would also be able to provide such client accounts.Thirdly, the proposal gives credit institutions as well as investment service companies the right tocarry out business through an agent.
4. Regarding the first means of attaining the intentions of the proposal, the proposal would widen the
scope of application of the Finnish Credit Institution Act in such a way that transfer of paymentsand issuance of electronic money would both be considered as activities of a credit institution.According to the proposal, since both the transf er of payments and the issuance of electronic
money are activities that are based on the receipt of funds from the public and investment of thesefunds on a short-term basis, they should both be regulated according to the same principles.Therefore, the proposal provides rules on a new type of credit institution, a payment transactionsociety, the activities of which would be limited to general transfer of payments and the issuanceof electronic money. The ECB notes that these rules are intended to implement into Finnishlegislation Directive 2000/46/EC of the European Parliament and of the Council of18 September 2000 on the taking up, pursuit of and prudential supervision of the business ofelectronic money institutions
2. The ECB would like to recall that, although the competent authority
for verifying the implementation of Community directives into national law is the Commission, itnevertheless appreciates the opportunity to comment on such draft national legislative provisionswhen they concern its field of competence. 
5. The ECB notes this widening of the scope of application of the Finnish Credit Institution Act and
the application of the provisions of Directiv e 2000/46/EC to payment transaction societies in
Finland. In this regard, the ECB observes that according to Article 1(5)(a) of Directive 2000/46/ECthe business activities of electronic money institutions other than the issuing of electronic moneyshall be restricted to the provision of closely related financial and non-financial services such as theadministering of electronic money by the performance of operational and other ancillary functionsrelated to its issuance, and the issuing and admini stering of other means of payment. According to
the proposal the business activities of a payment transaction society can be the following:(i) obtaining refundable assets other than deposits from the public and other acquisitions of funds;(ii) payment transactions in general and other payment traffic; (iii) issuance of electronic money,associated data processing and the storing of data on an electronic device on behalf of anothercompany; and (iv) currency exchange. Taking into account the above-mentioned restrictions inDirective 2000/46/EC, the ECB submits that some further thought may be required regarding the
                                                     
2OJ L 275, 27.10.2000, p. 39.
3compatibility of the activity of currency exchange with the activities that electronic money
institutions are allowed to engage in under this Directive. The prudential framework established inDirective 2000/46/EC in order to safeguard the financial integrity and stability of electronic moneyinstitutions might not fully take into account the risks involved in the activity of currencyexchange. Therefore the ECB considers that, at leas t, the activity of currency exchange should be
clearly separated from the activity of issuing electronic money. This would better comply with theintention of Directive 2000/46/EC, namely achieving a balance between a less cumbersomeprudential supervisory regime applying to electronic money institutions and, on the other hand,limitations on the types of activities of these institutions.
6. Moreover, the ECB would like to point out that  the explanatory memorandum of the proposal,
which contains the governments interpretation of the proposed legislative provisions, introducesan additional limitation regarding the definition of electronic money in Finland, namely that theelectronic device in which the value is stored has to be given to a customer. This limitation would
in principle exclude electronic money schemes with centralised accounting from the definition ofelectronic money. The approach in the proposal is therefore not technology-neutral, and sinceDirective 2000/46/EC does not explicitly provide for such a limitation, the ECB submits that thisadditional limitation in the explanatory memorandum should be reconsidered (see alsoparagraph 13 below).
7. Furthermore, the ECB would like to recall that according to Article 19.1 of the Statute of the
European System of Central Banks and of the European Central Bank (hereinafter referred to as theStatute) the ECB may require credit institutions established in the Member States to holdminimum reserves on accounts with the ECB and national central banks in pursuance of monetarypolicy objectives. Directive 2000/12/EC of the European Parliament and of the Council of20 March 2000 relating to the taking up and pursuit of the business of credit institutions
3, as
amended by Directive 2000/28/EC4, defines electronic money institutions as credit institutions.
Thus the minimum reserve requirements imposed on credit institutions by RegulationECB/1998/15 of 1 December 1998 on the application of minimum reserves
5, as amended by
Regulation ECB/2000/86, also apply to electronic money institutions and in view of the present
proposal, to the payment transactions societies in Finland.
Furthermore the statistical reporting requirements imposed on monetary financial institutions byRegulation ECB/1998/16 of 1 December 1998 concerning the consolidated balance sheet of the
                                                     
3 OJ L 126, 26.5.2000, p. 1.
4 OJ L 275, 27.10.2000, p. 37.
5OJ L 356, 30.12.1998, p. 1.
6OJ L 229, 9.9.2000, p. 34.
4monetary financial institutions sector7, as amended by Regulation ECB/2000/88, are also applicable
to payment transaction societies in Finland.
As the ECB stated in its opinion (CON/98/56)9 on the proposal for Directive 2000/46/EC, the
possibility for the ECB to impose minimum reserve requirements and statistical reportingrequirements on all issuers of electronic money is crucial, in particular given the need to ensure thatthe ECBs monetary policy instruments and procedures are prepared in case of a substantial growthin electronic money, which may have a material impact on monetary policy.
8. Regarding the second means of attaining the intentions of the proposal, the ECB notes that
according to the legislation in force in Finland only the so-called deposit banks have a right toreceive deposits from the public. The differences between a deposit and other repayable fundsreceived from the public as well as between the operation of a deposit bank and the operation ofother types of credit institution are more pronounced in Finnish legislation than in the Communitybanking directives. The Community directives do no t provide specific rules regarding the operation
of a deposit bank.  
The proposal would retain the existing exclusive right of deposit banks in Finland to receive adeposit, but the other companies, as defined in paragraph 3 above, would have a right to receivefunds from the public into client accounts. This new right would also include the right to issueelectronic money under certain restrictions and limitations (see paragraphs 9 and 10 below). Theterm deposit would therefore be redefined in the Finnish Credit Institution Act to cover onlyfunds received by a deposit bank. It would therefore not cover the repayable funds received by theother companies. In the case of insolvency a deposit can be reimbursed from the Finnish DepositGuarantee Fund. However, the other companies cannot participate in the Finnish DepositGuarantee Scheme and therefore the funds held on a client account would have to be seen asinvestments carrying risk because they are not covered by this Scheme. In addition, such othercompanies are not subject to solvency or other requirements applicable to credit institutions.
9. According to the proposal, if the repayable funds he ld on such a client account, or electronic money
issued by such other companies, can only be used as payment for goods or services provided by thecompany itself, this would not be considered as an activity of a credit institution and therefore theFinnish Credit Institution Act would not apply. Nevertheless, according to the proposal the right toreceive funds into such a client account would be subject to a ceiling of EUR 3 000 per client.Correspondingly, with regard to the issuance of electronic money, the electronic storage devicewould be subject to a maximum storage amount of  EUR 150. Furthermore, the funds from a client
account could also be withdrawn as cash.
                                                     
7 OJ L 356, 30.12.1998, p. 7. Regulation ECB/1998/16 has been repealed by Regulation ECB/2001/13 of 22 November
2001 concerning the consolidated balance sheet of the moneta ry financial institutions sector, which will enter into force
on 1 January 2002 (OJ L 333, 17.12.2001, p 1).
8OJ L 229, 9.9.2000, p. 34.
9 OJ C 189, 6.7.1999, p. 7.
510. The ECB notes that the proposal intends to make full use of the possibility provided for in Article 8
of Directive 2000/46/EC to waive the application of the provisions of this Directive andDirective 2000/12/EC in cases where electronic money, issued by a company other than a creditinstitution, is accepted as a means of payment by another company belonging to the same group asthe issuing company. In the proposal such a group is either a group as defined in the FinnishAccounting Act ( kirjanpitolaki  1336/1997) or a group of undertakings which can be clearly
distinguished by their location or their close financial or business relationship. The application ofthe waiver has been extended in the proposal to cover also the funds held on the above-mentionedclient accounts. According to the proposal, in such cases the Finnish Financial SupervisionAuthority (FSA) would have the right to decide that a credit institution authorisation is not neededfor such a company. In these cases a ceiling of EUR 3 000 per client would also be applied to thefunds received into the client account and, regarding the issuance of electronic money, theelectronic storage device would be subject to a maximum storage amount of EUR 150. 
The waiver in Article 8 of Directive 2000/46/EC provides a derogation from the main rules of the
Directive which are intended to ensure sound and prudent operation and in particular the financialintegrity of electronic money institutions. In the interest of smooth functioning of the paymentssystems as well as for monetary policy reasons in general, the ECB would have welcomed a morerestrictive use of the waiver.
11. In addition, the ECB notes that according to the proposal the other companies which issue
electronic money and benefit from the waiver would not be regarded as credit institutions. In thisrespect the ECB would like to stress that Article 1(4) of Directive 2000/46/EC provides thatMember States shall prohibit persons or undertakings that are not credit institutions from carryingon the business of issuing electronic money. Furthermore, the Council of the European Unionstated in its common position concerning the proposal for Directive 2000/46/EC
10 that even though
the Member States have the option to waive the application of some or all of the provisions ofDirective 2000/46/EC and the application of Directive 2000/12/EC, this does not affect the natureof the institutions concerned; they remain credit institutions, as defined in Article 1, point 1, firstsubparagraph of Directive 2000/12/EC. In addition, according to the common position, thecompetence of monetary authorities to impose minimum reserve requirements is not affected. Thequestion of which types of institution are regarded as credit institutions is important for the ECBnotably in the context of the European System of Central Banks operations. In this context theECB recalls that competence with regard to credit institutions access to central banks paymentssystems as well as to the standing facilities as instruments of the monetary policy of theCommunity lies with it.   
12. Moreover, the ECB notes that the explanatory memorandum of the proposal considers that the
maximum storage amount of EUR 150 is only meant to be applied to electronic money which is
                                                     
10 Common Position of the Council with a view to adopting Directive 2000/46/EC, OJ C 26, 28.1.2000, p. 9.
6stored on an electronic device given to the customer. From this it follows that the storage limit of
EUR 150 laid down in Article 8(1) of Directive 2000/46/EC would not be applied to electronic
money schemes with centralised accounting. Furthermore, according to the explanatorymemorandum, if the amount of electronic money given to the customer was tracked customer-by-customer within an accounting system of the issuer, the maximum amount of electronic money
would be the customer specific limit of EUR 3 000 in a client account. The ECB recalls thatDirective 2000/46/EC requires that when electronic money is issued under the waiver the storagedevice should be subject to the maximum storag e amount of EUR 150, irrespective of whether the
storage device has been given to the customer or whether any centralised features are in place fortracking the amount of electronic money given to the customer. Therefore, the ECB wouldwelcome an amendment to the proposal extending the application of the storage limit of EUR 150to all electronic money issued under the waiver irrespective of whether electronic money has beengiven to the customer or whether centralised tracking facilities are in place.
13. Regarding the third means of achieving the intentions of the proposal, the ECB notes that the
legislation in force in Finland does not provide rules on banking services provided via an agent oron other outsourcing of operations, even though in practice this has been possible. According to theproposal a credit institution or an investment serv ice company would have the right to use an agent
in its business operations. For example, loan or other financing agreements between a creditinstitution and its client as well as agreements relating to the provision of investment services couldbe carried out via an agent. The provisions of the proposal concerning the use of an agent wouldalso apply to other types of outsourcing that could be relevant to the risk management and internalcontrol of a credit institution. An example of outso urcing of operations that are significant to the
stability of a credit institution would be the outsourcing of operations concerning the analysis ofinformation relevant to the risk management of a bank.
According to the proposal, when passing on its business to be managed by an agent, the creditinstitution or investment service company shall ensure that it obtains continuously from the agentthe information necessary for the supervision of its operations, risk management and internalcontrol. Furthermore, it shall be ensured that th is information is passed on to the FSA. A credit
institution or investment service company must notify the FSA before passing on the business to bemanaged by an agent. The FSA may prohibit the use of an agent or other type of outsourcing if itconsiders that this endangers the risk management and internal control of the credit institution.
14. The proposal as a whole may have implications for the smooth functioning of payments systems
and the stability of the financial markets. The ECB notes that the Treaty and the Statute entrust theEurosystem
11 and Suomen Pankki, as its component member, with, inter alia , the task of payment
systems oversight in order to promote the smooth operation of payment systems and thus contribute
                                                     
11 The Eurosystem comprises the ECB and the national central banks of the Member States that have adopted the euro as
their single currency.
7to financial stability. The ECB and national central banks of the Eurosystem may also provide
facilities, and the ECB may make regulations, to ensure efficient and sound clearing and paymentsystems within the Community and with other countries. Moreover, the Treaty and the Statuteprovide that the Eurosystem shall contribute to the smooth conduct of policies pursued by thecompetent authorities relating to th e prudential supervision of credit institutions and the stability of
the financial system. Therefore, the ECB would welcome the introduction into the proposal ofprovisions concerning adequate means and procedures for informing Suomen Pankki of any issuethat may have such implications.
The ECB would furthermore like to draw attention to  the fact that central banks traditional focus
on systemic risk, together with their knowledge of money and securities markets and marketinfrastructures and their function in the oversight of payment and settlement systems, places themin a unique position to identify threats to the st ability of the financial system. In this context,
information sharing with Suomen Pankki, as a component member of the Eurosystem, will
contribute to the monitoring and pursuit of systemic stability in the Community.
15. In addition the ECB observes that according to the proposal the provisions on the receipt of funds
from the public are without prejudice to the right of Suomen Pankki to receive funds from thepublic. Directive 2000/46/EC shall not apply to the institutions referred to in Article 2(3) ofDirective 2000/12/EC, which in turn excludes the central banks of Member States from its scope ofapplication. Therefore, the ECB would welcome a provision stating that rules on the issuance ofelectronic money are also without prejudice to the right of Suomen Pankki to issue electronicmoney.
16. The ECB confirms that it has no objection to the competent national authorities making this
opinion publicly available at their discretion.
Done at Frankfurt am Main on 4 January 2002.
The President of the ECB
[signed]
Willem F. DUISENBERG