EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 20 January 2004 
at the request of the Economic Committee of the Finnish Parliament
on the government proposal to amend the Suomen Pankki Act and other related acts
(CON/2004/1)
Introduction
1. On 22 December 2003 the European Central Bank (ECB) received a request from the Economic
Committee of the Finnish Parliament for an opinion on a government proposal (HE 134/2003) toamend the Suomen Pankki Act ( Laki Suomen Pankista (214/1998) ) of 27 March 1998, the Suomen
Pankki Officials Act ( Laki Suomen Pankin virkamiehistä (1166/1998) ) of 30 December 1998, and the
Financial Supervision Act ( Laki Rahoitustarkastuksesta (587/2003) ) of 27 June 2003 (hereinafter the
‘final legislative proposal’). The consultation request concerns the same subject matter as thataddressed in ECB Opinion CON/2003/22 of 15 October 2003 which related to the draft governmentproposal (hereinafter the ‘draft legislative proposal’). The present opinion concerns the finalgovernment proposal that was submitted subsequent to the ECB’s first opinion. Like the first opinionalso this opinion focuses on proposed measures affecting Suomen Pankki’s financial position andprovisions relating to its power to issue norms. 
2. The ECB’s competence to deliver an opinion is based on the second indent of Article 105(4) of the
Treaty establishing the European Community and the third indent of Article 2(1) of Council Decision98/415/EC of 29 June 1998 on the consultation of the ECB by national authorities regarding draftlegislative provisions
1, as the final legislative proposal relates to the national central bank (NCB) of
Finland (Suomen Pankki). In accordance with the first sentence of Article 17.5 of the Rules ofProcedure of the European Central Bank, the Governing Council of the ECB has adopted this opinion.
Summary of the most important differences between the draft and the final legislative proposal
3. The draft legislative proposal suggested reducing the primary capital of Suomen Pankki. This reduction
would have forced Suomen Pankki de facto to sell part of its foreign reserve assets. As stated in
CON/2003/22 the ECB considered that reducing the capital combined with other proposed measures
                                                     
1OJ L 189, 3.7.1998, p. 42.
2affecting Suomen Pankki’s financial position and with a lack of statutory safeguards ensuring Suomen
Pankki’s ability to perform its ESCB-related and other tasks would have endangered Suomen Pankki’sindependence. The ECB welcomes the fact that the final legislative proposal does not reduce thecapital. The ECB also welcomes the fact that the final legislative proposal contains a clause aiming toensure that Suomen Pankki is able to perform its ESCB-related tasks, although this clause does notfully satisfy the requirements of financial independence as discussed below. 
General assessment of the proposed measures affecting Suomen Pankki’s independence
4. Article 109 of the Treaty provides that the Member States must ensure that their national legislation,
including the NCBs’ Statutes, is compatible with the Treaty and the Statute of the European System ofCentral Banks and of the European Central Bank. Article 108 of the Treaty, reinforced by Article 7 ofthe Statute, requires an NCB that forms part of the European System of Central Banks (ESCB) to beindependent. 
5. The principle of financial independence of central banks embedded in Article 108 of the Treaty
requires that ‘the NCBs be in a position to avail themselves of the appropriate means to ensure thattheir ESCB-related tasks can be properly fulfilled’
2. The concept of financial independence also
requires that an NCB must, at all times, have sufficient financial means to carry out its other functions,i.e. to perform its national tasks, to meet its international obligations, and to cover properly itsadministrative and operational expenses. It should also be taken into account that the NCBs havecommitments also regarding their foreign reserve assets and own funds, such as IMF-relatedcommitments. Suomen Pankki’s national tasks include those related to financial stability and crisisprevention and management. Although systemic crises tend to be rare events that are largelyunpredictable, they can have great impact on the economy and should therefore receive appropriateattention from central banks. In such cases, an NCB’s ability to act swiftly may prove to be particularlyvaluable. In particular, sufficient financial resources will assure public confidence as to the NCB’sability to intervene independently to tackle the crisis. This would also strengthen the credibility of itspublic statements aimed at restoring confidence in the viability of the financial system as a whole. 
6. The final legislative proposal contains, inter alia , two measures, (i) an obligation to transfer 100% of
Suomen Pankki’s profits to the State, as a rule, and (ii) a strict limitation on Suomen Pankki’s right tocreate financial provisions. Without proper statutory safeguards ensuring Suomen Pankki’s ability toperform its ESCB-related tasks, the combined effect of these measures will weaken Suomen Pankki’sfinancial position over time, increasing the risk that it may not have sufficient resources in the future tocarry out its ESCB-related and other tasks and making it dependent on the decisions of third parties insuch situations. In view of the uncertainty about future financial demands on Suomen Pankki, it is vitalto have adequate margins and to safeguard the real value of the bank’s resources in relation to its tasks.
                                                     
2European Monetary Institute, Convergence Report, March 1998.
3In its present form, the final legislative proposal infringes the principle of financial independence with
regard to Suomen Pankki. Therefore, the ECB concludes that the final legislative proposal is stillincompatible with the Treaty and its intentions. Moreover, as the weakening of the financial position ofan NCB forming part of the ESCB/Eurosystem cannot be seen in isolation from the system as a whole,the final legislative proposal will have an adverse effect on the credibility and financial standing of theEurosystem as a whole. 
Distribution of Suomen Pankki’s profit 
7. According to the final legislative proposal the rules on the allocation of Suomen Pankki’s profit would
be amended. The current Suomen Pankki Act states that half of the profit is credited as income to theState and the other half is transferred to the reserve fund, unless the Parliamentary Supervisory Councildecides to allocate the profits differently. The final legislative proposal will change this rule andestablish the compulsory transfer of the entire annual profit of Suomen Pankki to the State. A decisionby the Parliamentary Supervisory Council to use the profit differently would require specialjustification. 
8. The ECB is seriously concerned with regard to the consequences of a legislative arrangement under
which not even a share of Suomen Pankki’s profits is allocated to the reserve fund either automaticallyor based on the independent and professional judgement of the Board of Suomen Pankki after takinginto account any possible future risks. The wording of the final legislative proposal places the use ofpossible profits for such purpose at the sole discretion of the Parliamentary Supervisory Council.Financial independence in Member States where Government or Parliament can directly or indirectlyexercise influence on the distribution of an NCB’s profit requires that statutory provisions guaranteethat the proper performance of the NCBs’ ESCB-related tasks is not hindered
4. 
9. Section 21.2 of the final legislative proposal acknowledges that the Parliamentary Supervisory Council
can decide to alter the profit allocation in order to safeguard the performance of ESCB-related tasks.However, the wording of the clause, especially the use of the word ‘can’ instead of ‘must’, leaves thediscretion of opting for or against the main rule (100% to the State) entirely with the ParliamentarySupervisory Council. Even though the justification for Section 21.2 in the explanatory memorandumstates that ‘the allocation of profit may not jeopardise the performance of Suomen Pankki’s ESCB-related tasks’, the ECB considers that the actual drafting of the statutory clause does not ensure thefinancial independence of Suomen Pankki required by Article 108 of the Treaty. For the sake of claritythe ECB would point out that even if it were not proposed to transfer the whole profit to the State as arule but only a part of it, the final legislative proposal would still infringe the requirement of centralbank independence set out in the Treaty if it allowed the Parliamentary Supervisory Council to refrainfrom allocating profits to Suomen Pankki where the performance of ESCB-related tasks would require
                                                     
4 European Monetary Institute, Convergence Report, March 1998.
4such an allocation. 
10. In its report to the Economic Committee of the Finnish Parliament of 27 November 2003 the Finnish
Parliament’s Constitutional Committee considered that since Article 108 of the Treaty may in certaincircumstances oblige the Parliamentary Supervisory Council to detract from the main rule for profitallocation, the statutory law should not imply that the Parliamentary Supervisory Council has any kindof discretion in such situations. The ECB fully supports this view.
Suomen Pankki’s right to make financial provisions
11. The final legislative proposal would abolish Suomen Pankki’s right independently to create financial
provisions to safeguard the maintenance of the real value of its capital and reserves. The ECB stressesthat future financial and economic developments cannot be foreseen with any degree of certainty, andtherefore does not consider it justified for an NCB to be deprived of the opportunity of protecting itselfagainst the erosion of the real value of its capital in the longer term. 
12. The final legislative proposal allows exchange rate risk and the risk of variation in the market value of
securities to be covered by making financial provisions. However, such provisions may only equal theamounts of annual realised net profits resulting from these sources. Where such net realised gains donot exist or are insufficient to cover future exposures, the final legislative proposal leaves the decisionof allocating regular profits to the general reserve fund to the discretion of the ParliamentarySupervisory Council. This arrangement is not compatible with the requirement for an NCB to befinancially independent, as the professional assessment of the Board of Suomen Pankki regardingcoverage of future exposures would, under the final legislative proposal, not be decisive and there isstill no adequate safeguard that the rules concerning the allocation of regular profits would sufficientlyguarantee Suomen Pankki’s ability to take care of its current or future tasks.
Suomen Pankki’s power to issue norms regarding oversight
13. The final legislative proposal grants Suomen Pankki certain limited powers to issue norms in order to
carry out its duties as part of the Eurosystem. According to the final legislative proposal, the normswould only be addressed to those institutions that maintain or participate in such payment and clearingsystems as the Finnish Ministry of Finance has designated under the Finnish law implementing theSettlement Finality Directive
5. As the final legislative proposal remained, to some extent, unchanged
on this matter, the ECB would like to reiterate the views expressed in CON/2003/22. 
14. Article 105(2) of the Treaty and Article 3.1 of the Statute include as a basic Eurosystem central bank
task the promotion of the smooth operation of payment systems. For the NCBs of the participatingMember States, these Articles provide a legal basis for the oversight of payment systems functionally
                                                     
5 Directive 98/26/EC of the European Parliament and the Council of 19 May 1998 on settlement finality in payment and
securities settlement systems, OJ L 166, 11.6.1998, p. 45.
5directly linked with settlement systems. Within the Eurosystem, oversight activities are generally
performed at NCB level, in line with the common oversight policy defined for the Eurosystem by theECB’s Governing Council. The ECB understands that in line with the NCBs’ oversight function
6,
Section 3 of the Suomen Pankki Act provides the legal basis for Suomen Pankki’s oversight functionby stipulating that it will both participate in maintaining the reliability and efficiency of the paymentsystem and the overall financial system and assist in their development.
15. The ECB supports the proposed measure, which makes it easier for Suomen Pankki to fulfil its
oversight function in a sufficiently transparent way. The ECB notes, however, that the wording of thefinal legislative proposal appears relatively restrictive and could prove to be impracticable. Firstly,Suomen Pankki is responsible for overseeing the reliability and efficiency of the overall infrastructureof the financial system, which includes securities settlement systems. Therefore, an explicit referencein the Suomen Pankki Act to Suomen Pankki’s oversight function regarding securities clearing andsettlement systems might be helpful for the sake of clarification. Secondly, given the broad oversightfunction of Suomen Pankki, as described in the explanatory memorandum, it would be reasonable forall payment and securities clearing and settlement systems to be brought under the regulatory powersof Suomen Pankki, regardless of whether they are protected by the Settlement Finality Directive.Thirdly, ECB legal acts other than guidelines, instructions and regulations, such as decisions, as well asESCB-wide agreements, are excluded from the explicit wording of the final legislative proposal. ECBdecisions that bind the NCBs are, however, referred to in the explanatory memorandum. The ECBnotes that when adopting the Treaty Finland undertook to act in a manner enabling its central bank toabide by the legal instruments of the ECB with binding effect on it. For the sake of greater clarity andlegal certainty the ECB would like to invite the Finnish Government and Parliament to extend theexplicit wording of the final legislative proposal to cover ECB legal instruments binding on NCBs.This could be done for example by linking Suomen Pankki’s power to issue norms to its obligation tocarry out its tasks as part of the ESCB, as is acknowledged in the explanatory memorandum. In thiscontext, the ECB would point out that the NCBs are always bound by the content and parameters laiddown in ECB legal acts, which do not allow discretionary powers to be used when implementing them. 
                                                     
6 The oversight function of NCBs has been described in detail in previous ECB opinions published on its website
http://www.ecb.int. For example see ECB Opinion CON/2003/14 of 7 August 2003 at the request of the Banca d’Italia on adraft regulation on payment systems, payment infrastructures and payment instruments and ECB Opinion CON/2003/15 of
8 August 2003 at the request of Sveriges Riksbank on a draft law amending the Sveriges Riksbank Act (not yet published).
6This opinion will be published on the ECB’s website.
Done at Frankfurt am Main on 20 January 2004. 
[signed]
The President of the ECB
Jean-Claude TRICHET