OPINION OF THE EUROPEAN CENTRAL BANK 
of 27 August 2008 
at the request of the Central Bank of Malta 
on a draft Central Bank of Malta Directive No 10 on the banknote recycling framework 
(CON/2008/38) 
 
Introduction and legal basis  
On 24 July 2008 the European Central Bank (ECB) r eceived a request from the Central Bank of Malta for 
an opinion on a draft Central Bank of Malta Directive No 10 on the banknote recycling framework (hereinafter the ‘draft directive’). 
The ECB’s competence to deliver an  opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the first and second indents of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions
1, as the draft directive relates to currency matters and means of payment. In 
accordance with the first sentence 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 directive 
The draft directive supplements Article 6 of C ouncil Regulation (EC) No 1338/2001 of 28 June 2001 
laying down measures necessary for the prot ection of the euro against counterfeiting
2 and provides for a 
specific legal framework for the recycling of euro  banknotes by credit institutions and other professional 
cash handlers. The aim of the draft directive is to reinforce the Central Bank of Malta’s powers with 
respect to the detection of counterfeits and fitness so rting of euro banknotes and, in particular, provides 
for: 
                                                      
1  OJ L 189, 3.7.1998, p. 42.  
2  OJ L 181, 4.7.2001, p. 6. According to Article 6, credit instit utions engaged in the sorting and distribution to the public of  
notes and coins as a professional activity,  including establishm ents whose activity consists of exchanging notes and coins 
of different currencies, such as bureaux de change, are oblig ed to withdraw from circulation all euro notes and coins 
received by them which they know or ha ve sufficient reason to believe to be counterfeit. The same article also imposes an 
obligation on these institutions to immediately hand such not es over to the competent national authorities and for 
Member States to take the necessary measures to ensure that  the establishments which fail to discharge their obligations 
are subject to effect ive, proportionate and deterrent sanctions.  
2 (i) implementation of the Eurosyst em’s banknote recycling framework3;  
(ii) the collection of information from, and conduct of  on-site checks at, credit institutions and other 
professional cash handlers to enable the Centra l Bank of Malta to monitor banknote recycling 
activities on an ongoing basis and to establish a re gime to sanction non-compliance by credit 
institutions and other pr ofessional cash handlers.  
 
2. General observations  Maintaining the integrity and fitness of euro banknotes in circulation is  an important objective of the ECB 
and the national central banks (NCBs) of the Member States that have adopted the euro. Only banknotes 
in good physical condition can be easily and reliabl y checked by the public for counterfeits. The ECB 
therefore welcomes this initiative by the Maltese aut horities since one of the Central Bank of Malta’s 
statutory tasks as part of the Eurosystem is to main tain the integrity and quality of euro banknotes and to 
manage their smooth circulation throughout the territory  of Malta. Furthermore, it is acknowledged that 
credit institutions and other professional cash handlers can  usefully contribute to the recycling of euro 
banknotes provided that those institutions reliably check them in line with the procedures pursuant to the 
Eurosystem’s banknote recycling framework before  the banknotes are put back into circulation. 
 3. Specific observations 3.1 Reference to the Treaty  
Article 3 of the draft directive refers to Articles 106(1) and 105(2) of the Treaty. The reference to 
Article 106(1) is justified insofar as it lays do wn that the ECB and the NCBs may issue euro 
banknotes, thereby entitling the ECB and the NCBs to take all necessary measures to ensure the 
integrity and preservation of euro banknotes. However, the reference to Article 105(2) of the Treaty 
appears unnecessary, given that neither currency nor means of payment are mentioned in the 
aforementioned provision. 
3.2 Definitions and terminology  
3.2.1 The definition of ‘professional cash handlers’ is  a key definition for the proper implementation of 
the draft directive and it is therefore important that it is well formulated. The scope of the institutions engaged in the professional activity of  sorting and distributing euro banknotes to the 
public differs among Member States. Therefore, th is definition must be as broad as possible to 
ensure that all professional cash handlers fall within the scope of the draft directive. Furthermore, 
                                                     
 
3   The Eurosystem’s banknote recycling framework means the framework for banknote recycling laid down in the 
document entitled ‘Recyc ling of euro banknotes: framework for the detecti on of counterfeits and fitness sorting by credit 
institutions and other professional cash handlers’ adopted by the Governing Council on 16 December 2004 and published 
on the ECB’s website in January 2005, as modified from time to time, as well as the documents relating to the deadlines 
for its implementation at national level. 
3 the ECB noted in ECB Opinion CON/2007/42 of 17  December 2007 at the request of the Council 
of the European Union on a proposal for a Council Regulation amending Regulation (EC) No 1338/2001 laying down measu res necessary for the protec tion of the euro against 
counterfeiting
4, that the reference in Article 6(1) of Regulation (EC) No 1338/2001 to ‘other 
institutions engaged in the sorting and distributi on to the public of notes and coins as a professional 
activity’ leaves out of its scope other organisati ons that run self-service devices supplying euro 
banknotes to the public, even if not as a professional activity. The practical implementation of the Eurosystem’s banknote recycling framework at na tional level has revealed the narrowness of the 
term, especially as regards retailers who re-fill au tomated teller machines. Therefore, the ECB 
proposed a broader definition of the addressees of  the obligation contained in Article 6(1). A 
regulation amending Regulation (E C) No 1338/2001 has not yet been adopted and the banknote 
recycling framework continues to address only prof essional cash handlers. In order to extend the 
scope of Maltese professional cash handlers, a refo rmulation of the definition proposed in the draft 
directive could however be considered. 
3.2.2 Some of the definitions contained in Article 7 could be improved to ensure  clarity and consistency, 
especially those related to the different cat egories of banknote handling machines, e.g. 
authentication machines, banknote handling equi pment and staff-operated machines. The ECB 
document on the common implementation rules and procedures for the Eurosystem’s banknote recycling framework would be a useful reference in this respect.  
3.2.3 The defined terms in Article 7, particularly  those related to banknote handling machines, which 
should replace the term ‘banknote handling equipment’ , should be used cons istently throughout the 
draft directive. For example, in Article 8, ‘b anknote handling machines’ is not defined and should 
therefore be replaced by an appropriately defined term. In Articles 10 and 11 the words ‘cannot be 
put back into circulation’ and ‘shall not be re-issu ed’ appear to be synonyms; it would be preferable 
to use one and the same term to designate the sa me action. The ECB would suggest that the term 
‘put back into circulation’ be used throughout the draft directive rather than the term ‘re-issue’ in 
order to designate the recycling of euro banknot es that have been authenticated as genuine and 
sorted as fit. In addition, the definiti ons should appear in alphabetical order. 
3.3 Principles  
3.3.1 As regards Article 8, it needs to be clarified that the banknote handling machines to be used for 
checking banknotes have to be tested by an NC B according to the Eurosystem’s common test 
procedures, as referred to in Section 2.6 of the banknote recycling framework. 
3.3.2 In addition, Articles 10 and 11 could be merged for the sake of clarity.  
                                                     
 
4  OJ C 27, 31.1.2008, p. 1. 
4 3.4  Requirements for banknote handling 
3.4.1  The second sentence of Article 12 of the draft directive should make it clear that both authenticity 
checks and fitness checks are obligatory for banknot es received from customers that are intended to 
be put back into circulation. 
3.4.2 Banknote handling machines that have passed th e Eurosystem’s common test procedures are listed 
centrally by the Eurosystem on one dedicated EC B webpage and all NCBs have to add links from 
their websites to this ECB webpage; Arti cle 13 should reflect this approach.  
3.4.3 Article 13(2) stipulates that intermediaries ha ve to notify the use of banknote handling machines to 
the central bank prior to putting them into oper ation. To ensure consistency with the banknote 
recycling framework, this provision should clarify that only new types of banknote handling machines need to be notified to the central bank be fore they are used for recycling purposes. Such 
notification is not required if additional machines of an already notified machine type are put into 
operation.  
3.4.4 The formulation of Article 14 could be rec onsidered in view of the Eurosystem’s banknote 
recycling framework, which states on page 4 th at ‘banknotes which have been checked for 
authenticity by trained staff members, either ma nually or without the use of successfully tested 
banknote handling equipment, shall not be returned to circulation via ATMs’. The current wording 
of Article 14 is not clear in this respect. 
3.5 Sanctions  
Article 24 should be further clarified especially w ith regard to measures to ensure compliance with 
the draft directive. Reference could be made to  the power to impose sanctions on intermediaries 
that do not comply with the draft directive. 
3.6 Role of the manufacturers of banknote handling equipment 
3.6.1 The last sentence of Article 24 provides that where the tested banknote handling equipment does 
not fulfil all the criteria set by the draft directive,  ‘the respective intermediary shall update all its 
relevant machines without delay.’ Th is wording could be more precise to make it clear that contacts 
of the intermediary with the manufacturer(s) of the relevant equipment may be necessary. In addition, the timeframe within which unfit m achines should be updated could be specified. 
3.6.2 The meaning of ‘without delay’ is quite va gue. The wording could be improved by setting some 
precise deadlines that should be different depending  on whether the authentication control or the 
fitness sorting control of the equipment is im paired. The separate ECB document on the common 
implementation rules and procedures for the banknote recycling framework could be referred to in 
this respect. 
 
5 This opinion will be published on the ECB’s website. 
  Done at Frankfurt am Main, 27 August 2008. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET