EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 28 February 2003
at the request of the Danish Financial Supervisory Authority
on a draft law replacing the Financial Business Act and a draft law on the Mortgage Loans and
Mortgage Bonds Act
(CON/2003/2)
1. On 24 January 2003 the European Central Bank (ECB) received a request via Danmarks
Nationalbank from the Finanstilsynet  (Danish Financial Supervisory Authority) on behalf of the
Økonomi- og Erhvervsministeriet (Ministry of Economics and Business Affairs)  for an opinion on a
draft law replacing the Lov om finansiel virksomhed  (Financial Business Act) and a draft law on the
Lov om realkredit og realkreditobligationer m.v.  (Mortgage Loans and Mortgage Bonds Act).
2. The ECBs competence to deliver an opinion is based on Article 105(4) of the Treaty establishing
the European Community and Article 2(1), fifth and sixth  indents concerning payment systems and
the stability of financial institutions and market s, of Council Decision 98/415/EC of 29 June 1998 on
the consultation of the European Central Bank by national authorities regarding draft legislativeprovisions
1, as the legislative proposals, amongst other things, contain provisions concerning
(i) electronic money institutions, (ii) license to run financial businesses, (iii) best practice,(iv) management and speculative transactions, (v) divulging confidential information, (vi) solvency(vii) investment of funds and liquidity and (viii) interest-only loans for a period of up to 10 years toprivate real estate and weekend cottages owners. In accordance with the first sentence of Article 17.5of the Rules of Procedure of the European Central Bank, the Governing Council of the ECB hasadopted this opinion.
3. In December 2000 and February 2002 the ECB was consulted on two draft laws relating to the Lov
om finansiel virksomhed  (CON/00/32) and (CON/2002/10). The in tention behind these drafts was to
ensure the simplification and increased consistency of Danish financial business legislation. In bothinstances the ECB welcomed the fact that a further review of the financial business legislation wouldbe carried out at a later stage. This objective is now one of the aims of the current draft laws. TheECB welcomes the fact that the current drafts contribute to legal reform by further harmonising,codifying and restructuring legislation. The current draft laws contribute to harmonisation byproposing, amongst other things, a considerable reduction in the number of financial laws and
                                                     
1OJ L 189, 3.7.1998, p. 42.
2provisions. Thus, the Lov om banker og sparekasser  (The Commercial Banks and Savings Banks,
etc. Consolidated Act), the Lov om fondsmæglerselskaber  (Stockbroker Companies Act), the Lov om
realkredit  (Mortgage Credit Act), the Lov om forsikringsvirksomhed  (Insurance Companies Act), the
Lov om udstedere af elektroniske penge  (Electronic Money Institutions Act) and the Lov om
sparevirksomheder  (Savings Banks Act) would all be repealed.
4. The bulk of the provisions in the draft Financial Business Act, which replaces the current Financial
Business Act, constitute the provisions contained in the latter together with the provisions of the six
abovementioned repealed Acts. As a consequence, the majority of its provisions do not actuallychange the present state of the law. It should be noted that a number of the provisions taken overfrom existing legislation have not yet been reviewed in the Danish legislative process. Consideration
should be given to the further harmonisation and streamlining of these provisions. The draft lawspropose substantial amendments on certain matters of relevance to the ECB and these are addressedbelow.The draft Mortgage Loans and Mortgage Bonds Act is also part of the financial law reform.The bulk of its provisions are taken over from the Mortgage Credit Act, which is repealed by thedraft law. The most substantial change is the proposal to allow mortgage bond institutions to offerowners of private real estate and weekend cottages interest-only mortgages for a period of up to10 years (as is already the case for professional borrowers). 
5. To the extent that the draft laws implement directives such as Council Directive 93/6/EEC of
15 March 1993 on the capital adequacy of investments firms and credit institutions2 and Council
Directive 93/22/EEC of 10 May 1993 on investment services in the securities field3, the Danish
authorities are not obliged to consult the ECB,  in accordance with Article 1(2) of Council
Decision 98/415/EC.
6. The existing provisions of the Lov om udstedere af elekroniske penge  (Electronic Money Institutions
Act), which implements 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
4, are transferred to chapter 19 of the draft Financial Business Act, c.f.
Section 1(8) of the draft law. The ECB considers,  however, that Section 1(8) should also refer to
chapter 2 (Definitions), since this would avoid any interpretative doubts as to whether electronicmoney institutions are covered by the definition of credit institutions contained in Section 5 of thedraft Financial Business Act in accordance with Article 1 of Directive 2000/12/EC of the EuropeanParliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the businessof credit institutions
5, as amended by Directive 2000/28/EC of the European Parliament and of the
Council of 18 September 20006. According to the definition contained in Article 1(1)b a credit
institution shall, apart from the traditional credit  institutions governed by Article 1(1)a, mean  an
                                                     
2 OJ L 141, 11.6.1993, p. 1.
3 OJ L 141, 11.6.1993, p. 27.
4 OJ L 275, 27.10.2000, p. 39.
5 OJ L 126, 26.05.2000, p. 1.
6 OJ L 275, 27.10.2000, p. 37.
3electronic money institution within the meaning of Directive 2000/46/EC  . Both in the interests
of the smooth functioning of payments systems and for monetary policy reasons in general the ECBaims to achieve a consistent definition of credit institutions throughout the European Communities.
7. The substantial content of the provisions on best practices (chapter 6 of the draft Financial
Business Act) is taken over from the existing rules on which the ECB commented positively inconnection with (CON/00/32) and (CON/2002/10). Th e changes currently proposed further simplify
the rules on best practices by stating that detailed provisions for specific types of financial entitiesshall be established in the future in executive orders.
The provisions on management and speculative transactions (chapter 8 of the draft FinancialBusiness Act) uphold the existing rules laying down certain qualifications and integrity requirementsfor the members of the boards of financial institutions. In this connection the ECB takes note ofSection 350 of the draft Financial Business Act, according to which the Financial SupervisoryAuthority is competent to oblige a financial entity to remove a member of its board if the boardmember is no longer able to fulfil his/her duties. The ECB welcomes the increased powers vested inthe Financial Supervisory Authority in this area  which bring it into line with international
supervisory standards and has positive implications for the maintenance of financial stability and forcrisis management. Furthermore, the ECB welcomes the way in which the provisions relating to thepersons and financial activities covered by the prohibition against speculative transactions areamended, in particular by Section 76 of the draft Financial Business Act. The ECB understands thatthe existing prohibition applies only to persons fulfilling certain types of job category whilst theproposed scope is directed at the actual tasks that company employees perform. The prohibition isthus more precisely targeted at the type of risks that the rules are intended to counter. The fact is alsowelcomed that, due to the long-standing Danish policy of a fixed exchange rate between the Danishkroner and the euro, the existing restriction on euro positions is abolished and no longer covered bythe prohibition against speculative transactions. The provisions on adjustment or termination ofbusiness (chapter 14 of the draft Financial Business Act) are largely unchanged and remain inaccordance with secondary Community legislation. The ECB notes that Section 203 nowspecifically mentions that merger with or acquisition by foreign institutions also requires theauthorisation of the Danish Financial Supervisory Authority and welcomes the legal clarity createdby this provision.
8. The most important innovation proposed by the draft Mortgage Loans and Mortgage Bonds Act
(Section 4) is the liberalisation that allows mortga ge bond institutions to offer owners of private real
estate and weekend cottages the option of paying only the interest and no principal (interest-onlyloan) for a period of up to 10 years (as it is already the case for professional borrowers). To datethese owners have not been allowed to amortise  their mortgages more slowly i.e. to pay less
principal than according to a 30-year annuity. It is noted, however, that; 
/g183 the proposal only provides for a slower repayment profile, with a greater part of the repayment
on the final maturity date, and does not allow for an extension of the maximum maturity of a
4mortgage, which remains unchanged at 30 years (35 years if special guarantees are available);
and 
/g183 the unchanged maximum limit for the size of th e mortgage relative to the value of the
underlying real estate needs to be respected throughout the duration of the mortgage; andfinally
/g183 the so-called balancing-principle ensures that the mortgage bond institutions will need to
hedge any interest rate risk that may result from granting any such loans with a slowerrepayment profile.
Accordingly it is understood that the proposal, whic h offers Danish owners of real estate certain
financing opportunities that are already available in other EU countries, does not substantiallychange the risk profile of mortgage bond institutions and the bonds they are issuing. The ECBtherefore assumes that the proposal would have no impact as regards the compliance of Danishmortgage bonds with Article 22(4) of Council Directive 85/611/EEC
7. Compliance with the UCITS
Directive means that from a risk profile viewpoint the proposal does not impact upon the eligibilityof these bonds as underlying collateral for Eurosystem credit. However, new aspects of DanishMortgage Bonds would obviously also need to comply  with the other criteria listed in the General
documentation on ESCB monetary policy instruments and procedures annexed to the Guideline ofthe European Central Bank of 7 March 2002 amending Guideline ECB/2000/7 on monetary policyinstruments and procedures of the Eurosystem (ECB/2002/2)
8 in order to qualify as collateral for
Eurosystem credit.
9. The ECB confirms that it has no objection to the competent national authorities making this opinion
publicly available at their discretion. This opinion will be published on the ECBs website sixmonths after the date of its adoption.
Done at Frankfurt am Main on 28 February 2003.
The President of the ECB
[signed]
Willem F. DUISENBERG
                                                     
7 Council Directive 85/611/EEC of 20 D ecember 1985 on the coordination of laws. Regulations and administrative
provisions relating to undertakings for collective investment in transferable securities (UCITS), OJ L 375, 31.12.1985, p. 3.
8 OJ L 185, 15.7.2002, p. 1.