OPINION OF THE EUROPEAN CENTRAL BANK
at the request of the Luxembourg Minister for Relations with Parliament under Articles 109l(2)
and 109f(6) of the Treaty establishing the Eu ropean Community (hereinafter referred to as the
Treaty) and Article 5.3 of the Statute of the European Mone tary Institute (hereinafter referred
to as the EMI) on : 1) a law proposal con cerning the monetary status and the Banque centrale
du Luxembourg, and 2) a law proposal concerning the creation of a commissi on charged with the
surveillance of the financial sector (CON/98/39).
CON/98/39
1. On 6 August 1998 the European Central Bank (herei nafter referred to as the ECB) received a
request from the Luxembourg Minister for Relations  with Parliament for an opinion on 1) a law
proposal concerning the monetary status a nd the Banque centrale du Luxembourg (hereinafter
referred to as Law Proposal 1), and 2) a la w proposal concerning th e creation of a commission
charged with the surveillance of the financial s ector (hereinafter referred to as Law Proposal
2).
2. In accordance with Article 109l (2) of the Treaty,  the ECB has taken over the advisory functions
of the EMI, which went into liquidation upon th e establishment of the ECB on 1 June 1998. The
ECBs competence to deliver an opinion on La w Proposal 1 is based on Article 1.1, second
indent, of the Council Decisi on (93/717/EC) of 22 November 1993 on the consultation of the
EMI by the authorities of the Member States on draft legislative provisions. The ECBscompetence to deliver an opinion on Law Proposal 2 is based on Ar ticle 1.1, fifth indent, of the
Council Decision (93/717/EC) of 22 November 1993 on the consultation of the EMI by the
authorities of the Member States on draft legisl ative provisions. In accordance with Articles 12.4
and 47.1, second indent, of the Stat ute of the European System of Central Banks and of the
European Central Bank (hereinafter referred to as the Statute), this Opinion has been adopted
by the Governing Council of the ECB with the contribution of the General Council of the ECB.
3. The ECB notes that the objective of  Law Proposal 1 is to address, in the perspective of Article
108 of the Treaty, the imperfections in Luxembourg monetary law identified by the EMI in itsConvergence Report of March 1998, prepared unde r Article 109j of the Treaty (hereinafter
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referred to as the Convergence Report).  At the same time, Law Proposal 1 takes account of
the decision by the Luxembourg Government to assi gn the task of prudential supervision of the
financial sector to an authority which is dis tinct from the Banque centrale du Luxembourg, i.e.
the Commission de surveillance du secteur fi nancier. According to the Explanatory
Memorandum, such decision aims at safeguardi ng the independence of the Banque centrale du
Luxembourg (hereinafter referred to as the BCL)  by avoiding conflicts of interest which might
otherwise arise between monetary tasks and a mission of prudential supervision.
4. The ECB notes with satisfacti on that Law Proposal 1 addresses the issues raised in the
Convergence Report with respect to Luxembourg. As such:
- Independence: 1. Institutional independence:  The scope of Art. 5.2 of Law Proposal 1,
which reproduces the first part of the prohibiti on on seeking or taking instructions as laid
down in Art. 107 of the Treaty, is no longer limited to the monetary realm but extends to
all functions of the ESCB; 2. Personal independence: Art. 12.3 of Law Proposal 1
provides that the Government, having prev iously consulted the Council of the BCL, may
propose to the Grand-Duc that a member of the Management of the BCL be relieved of
his/her functions if he/she no longer fulfils  the conditions required for the performance of
his/her duties or if he/she is found guilty of serious misconduct. Such a provisionreproduces the literal grounds for dismissal as laid down in Art. 14.2 of the Statute; Art.7.3 of Law Proposal 1 addresses the concer n raised in the Convergence Report with
respect to conflicts of interest. The new artic le stipulates that no one can be appointed a
member of the Council of the BCL or remain member of the Council of the BCL if he/she
has professional responsibilities outside the BCL which are in conflict with therequirements of Art. 5.2 or with the pr ovisions concerning professional secrecy
applicable to the ESCB.
- Legal integration in the ESCB: 1. Statutory objective:  Art. 2 of Law proposal 1 now
reflects the primacy of the ESCBs statutory objective and confirms the integration of the
BCL into the ESCB. The article provides that the BCL will form an integral part of the
ESCB and that it will act in accordance with th e guidelines and instructions of the ECB.
The article further states that the principal mission of the BCL is to participate in the
execution of the tasks of the ESCB with a vi ew to attaining the objectives of the ESCB.
The BCL will pursue its secondary objectives only to the extent that their pursuit is
compatible with its principal mission; 2. Tasks:  The new Art. 6 of law Proposal 1 no
longer contains any allocation of compet ences to the Council of the BCL beyond the
scope of the execution of monetary policy, as defined by the Governing Council of the
ECB and implemented by the Executive Board of the ECB; Art. 17-20 which regroup the
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provisions pertaining to the issuance of m onetary tokens address the comments contained
in the Convergence Report and, consequently, re flect the prerogatives of the ECB in this
field; 3. Instruments: Art. 22-23 define the BCLs instruments in the monetary field in
relation to BCLs  objective and missions which, in accordance with Art. 2 of Law
Proposal 1, is to participate in the execution of the missions of the ESCB with a view to
attaining the objectives of the ESCB; Ar t. 25 of Law Proposal  1 no longer makes
reference to the provision of credit facilities  but only to the provision of facilities to
ensure efficient and sound clearing and payment systems. 
In general the ECB welcomes Law Proposal 1 as it remedies, in the perspective of Article 108 of
the Treaty, the imperfections in Luxembourg monetary law identified by the EMI in itsConvergence Report.
Moreover, the ECB notes with satisfaction that, in  the perspective of Art. 105a of the Treaty and
Art. 16 of the Statute, Art. 36( 2) of Law Proposal 1 abrogates (on 1 January 1999) all statutory
and regulatory provisions conferring legal te nder to the banknotes issued by the BIL (Banque
Internationale à Luxembourg).
Notwithstanding the foregoing, the ECB would like to invite th e Luxembourg legislator to take
account of the following comments and suggestions:
-  in respect of article 2 of Law Proposal 1, para graph (3) states that the performance by the
BCL of its secondary functions is subject to compliance with the BCLs principal
mission. In order to bring such a stipulation more into line with Art. 14.4 of the Statute,
the ECB would like to suggest that the current wording be revised so as to state that the
performance by the BCL of its secondary func tions is subject to compliance with the
Treaty and the Statute;
-  in respect of the financial independence of the BCL: The ECB takes note of the fact that,
in its start-up phase, the BCL will not have substantial reserves while at the same time it
will be imperative for the BCL to dispose of an appropriate financial endowmentsufficient to ensure the satisfactory perfo rmance of its tasks and the pursuit of its
objectives resulting from participation in  the ESCB. To this end the Luxembourg
legislator may wish to bolster  the BCLs financial soundness, particularly in view of the
new rule (laid down in Art. 31)  concerning the transfer of the BCLs net profit to the
Luxembourg Treasury and owing to the absen ce of any provisions outlining the ways in
which the BCLs potential losses will be covered. On this subject, the ECB would alsolike to recall that the EMI, in its Conver gence Report (p.295), stressed the importance of
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national central banks being in a position to avail themselves of the appropriate means to
ensure that their ESCB-related tasks can be properly fulfilled. 
-  in respect of Art. 7 and 12:  The ECB would like to point out  that Art. 108 of the Treaty,
in combination with Article 109e (5) of  the Treaty, require that central bank
independence, including the personal inde pendence of the members of the decision-
making bodies of national central banks involved in the performance of ESCB relatedtasks, be achieved at the latest at the date  of the establishment of the ESCB/ECB. This
implies that the adoption itself of Law Proposal  1 might not affect the security of tenure
of the present members of such bodies whic h would be incompatible with the Treaty;
-  in respect of Art. 13: In light of the refe rence to collegial decision taking, the ECB would
like the personal independence of the directeur général of the BCL to be highlighted by
starting this article with wording along the lines of (cf. Art. 6(a)): Sans préjudice de
lindépendence du directeur général par ra pport à toute instruction en sa qualité de
membre du conseil des gouverneurs de la BC E et sans préjudice des dispositions relatives
au secret professionnel applicables au SEBC;
-  in respect of Art. 23: The ECB questions whether the reference to measures of exchange
controls in this article is appropriate;
-  in respect of Art. 32(1): The ECB is of the view that the last sentence of Art. 32(1) ought
to recognise Community legislation as well as  the competencies of the ESCB in this area;
5. The ECB notes that the twofold obj ective of Law Proposal 2 is: 1) to create an authority which is
distinct from the Banque centrale du Luxembour g, i.e. the Commission de surveillance du
secteur financier and 2) to assign to such aut hority the tasks of i) the prudential supervision of
credit institutions, other professionals in the financial sector, organisations of collective
investment and exchanges, and ii) the surveillan ce of markets of financial assets. Law Proposal 2
thus achieves the separation of central banking a nd prudential supervision as well as the bringing
together of public control attributions with rega rd to certain parts of the financial sector. The
ECB welcomes Law Proposal 2 to the extent that it purports to increase the stability of financial
institutions and markets.
Notwithstanding the above-mentioned views,  the ECB submits that it may be advisable, in order
to avoid any misunderstanding, for Law Proposal 2 explicitly to exempt the BCL fromsupervision by the Commission de surveillance du secteur financier.
 
6. The ECB confirms that it has no objection to this  Opinion being made public by the competent
Luxembourg authorities at their discretion.
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Done at Frankfurt am Main on 23 September 1998
The Vice-President of the ECB
[signed]
Christian Noyer