EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 24 April 2002
at the request of the Belgian Ministry of Finance
on a draft proposal for a law on prudential supervision of the financial sector and financial services
(CON/2002/13)
1. On 18 March 2002 the European Central Bank (ECB) received a request from the Belgian Ministry
of Finance for an opinion on a draft proposal for a law on prudential supervision of the financialsector and financial services (hereinafter referred to as the draft proposal). The draft proposal willintroduce a comprehensive system for the supervision of the financial sector, including provisionson the coordination of the supervisory function. In addition, it provides specific rules on secondarymarkets for financial instruments.
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 the sixth indent ofArticle 2(1) of Council Decision  98/415/EC of 29 June 1998 on the consultation of the European
Central Bank (ECB) by national authorities regarding draft legislative provisions
1, as the draft
proposal contains provisions concerning rules applicable to financial institutions which couldmaterially influence the stability of financial ins titutions and markets. In accordance with the first
sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, this opinion hasbeen adopted by the Governing Council of the ECB. 
3. The ECB notes that Article 2, 10° g) includes in the definition of qualified intermediary also the
European Central Bank, the National Bank of Belgium (NBB) as well as the other central banks ofthe other Member States of the European Economic Area. The definition is used in the draftproposal in Article 6 §1, which lists the subjects entitled to be admitted as members of the Belgianregulated markets (provided that they satisfy the conditions laid down in Article 6 §2). Moreover, itis noted that according to Article 27 §1, qualified intermediaries active in Belgium are requested toadopt an internal code of conduct for ensuring the respect of the provisions of Article 24 and 25. Inaddition, the definition is used in Article 31, concerning a right of priority over financialinstruments and funds. The ECB notes that, in principle, national law cannot impose obligations onthe ECB and Eurosystem central banks with regard to operations conducted as part of theEurosystem's tasks and it could be helpful if Belgian law explicitly confirms this point.
                                                     
1 OJ L 189, 3.7.1990, p. 42.
24. In order to ensure proper external, public and independent control, as well as to provide market
undertakings with the appropriate means to oper ate under private law and without any public status
constraints, the ECB understands that the draft proposal envisages a further increase in theseparation between the supervision of compliance with legislation concerning public policyconferred upon the Commissie voor het Bank-  en Financiewezen/Commission Bancaire et
Financière (BFC) and the activities of private market undertakings. To this effect, and in line withthe ECB opinion of 22 November 2001 on the proposal for a directive on insider dealing andmarket abuse
2, the ECB would like to express the need to clearly limit  and define the possible
delegation of powers to market operators in order to avoid the problems identified in the statementof reasons of the draft Belgian law (lack of efficiency of the supervisory structure, the confidentialnature of public service activities and the risk of conflict of interest). Therefore, the proposal thatpublic authorities assume final responsibility for supervising compliance with Community and
national legislation is welcomed by the ECB. This approach is also consistent with the viewsexpressed by the Commission in its recently revised orientations on the review of the InvestmentServices Directive.
5. The ECB notes that the competence of the NBB to ensure the proper, efficient and sound operation
of clearing and payment systems, as mentioned in Article 8 of the NBBs Organic Law, has beenexpressly recognised by Article 33 of the draft proposal. The ECB also notes that Articles 22and 23 of the draft proposal, which provide for a general framework regarding clearing andsettlement, give the King the competence to issue more detailed legislation by means of royaldecrees. In accordance with the Council Decision 98/415/EC. The ECB would need to be consultedon such royal decrees as well.
6. The draft proposal sets up a comprehensive framework to combat market abuse. Aside from
Articles 39 and 40 which provide for criminal sanctions, Article 25 enumerates variousinfringements related to the financial markets which give rise to administrative sanctions imposedby an independent administrative body, namely the BFC. The draft proposal sets out rulesaccording to which no specific evidence of the use of fraudulent means is required to establish theinfringements and therefore impose sanctions, whilst still providing the person who has conducteda suspect transaction with sufficient safeguards. The effectiveness of the legal framework in thefight against market abuse is further enhanced by the fact that the draft proposal also allows theKing to extend the scope of the prohibitions in order to adapt to rapid developments of the markets.It is furthermore noted that these provisions partly anticipate the Commission proposal for adirective on insider dealing and market manipulation, in particular as the draft proposal appointsthe BFC as the single administrative authority competent to handle infringements related to thefinancial markets in Belgium. The ECB welcomes these provisions, as they enhance investor
                                                     
2 ECB Opinion CON/2001/38, OJ C 24, 26.01.2002, p.8.
3confidence in the financial markets and therefore contribute to the financial stability of these
markets.
7. Moreover, as regards the provisions on market abuse, the ECB notes that the draft proposal
exempts the ECB, the NBB and the NCBs of the Eurosystem from the scope of the rules regardinginfringements which give rise to administrative sanctions (Article 25 §1, 1°). An identicalexemption is foreseen for the provisions regardin g infringements giving rise to criminal sanctions
(Article 40 §6, 1°). In line with the Commission proposal for a directive on insider dealing andmarket manipulation, the exemption could be extended to all the NCBs of the Member States of the
European Communities, including those of Member States which have not yet adopted the euro.Moreover, it is noted that the ECBs opinion on the above mentioned proposal requested that theexemption be extended to cover not only monetary policy and foreign exchange operations, butalso operations carried out by the central banks, or on their behalf, relating to foreign reservemanagement, in order to enable the ESCB to carry out those basic tasks as part of Article 105(2) ofthe Treaty. In the ECBs view the exemption incl uded in the draft proposal should be amended
accordingly.
8. The provisions contained in Chapters III to V of  the draft proposal concerning the reform of the
structure of financial supervision in Belgium are broadly welcomed by the ECB. The aim of theseprovisions is to ensure a flexible and up-to-date supervisory framework taking into account inter
alia the principle of sound corporate governance of supervisory authorities and the need for
supervisory cooperation and information-sharing. One of the main merits of the new structureperceived by the ECB is the envisaged reinforcement of the cooperation mechanisms amongsupervisory authorities, and between them and the central bank. The draft proposal rightly points tothe need to achieve synergy when addressing the systemic risk to financial stability and (macro)prudential supervision. This synergy is indeed an important condition to allow central banks toadequately monitor risks to financial stability at the national level and to enable the Eurosystem inturn to contribute adequately to the monitoring process from the perspective of an area. In thiscontext, the ECB has four specific observations to make. 
9. First, the overall effectiveness of the coordination process. The separation of the financial
supervisory institutions is preserved as both the BFC and the Insurance Control Office (ICO)
remain separate legal entities distinct from the NBB. However, the new structure entails theestablishment of two bodies to promote coordination: the Supervisory Board of the FinancialServices Authority and the Financial Stability Committee, each having members from the NBB,the BFC and the ICO. The ECB understands that the establishment of these two bodies is intendedto assure effective coordination among the three institutions in light of the dynamic environment inwhich banks and other financial institutions operate as well as to make the international dimensionof supervision possible. The ECB would like to point out that the provisions concerning the twobodies could clarify better their particular advisory and decision-making competencies. This is inorder that the effectiveness of the coordination process is not affected by possible uncertainties
4regarding the precise respective roles of each body. In particular, the competencies and
responsibilities of the two bodies as well as their contribution to supervisory cooperation should beclearly distinguishable. It might be worth noting that the word Authority in the formers name
could be misleading since no financial services authority as such is intended to be established.
10. Second, the nature of the Financial Stability Committee. The ECB understands that this committee
is presented as a platform for discussion and consensus building among the three institutions in
matters relating to financial stability. However, some uncertainty could possibly arise over theexistence or non-existence of decision-making competencies of this committee from the combinedreading of the relevant articles of the draft proposal and the comments on these articles. Thearticles refer to deliberations of this committee that are without prejudice to the responsibilities ofone or the other of the management committees for the issue that is the subject of the deliberations.This provision seems to indicate that the committees tasks are short of decision-making functions.On the other hand, in the comments on the articles, the notion of a double majority, referring tothe committee itself and the management boards of the NBB, BFC and ICO, is introduced. Thiscould be interpreted as attributing decision-making competencies to the committee, which could,under specific but possibly unlikely circumstances, result in a blocking of decisions in cases wherethe committees view diverged from that of the management boards of its sponsoring institutions.The ECB would appreciate a clarification of this issue with a view to assuring effective andtransparent decision-making processes. 
11. Third, the tasks of the central bank. The ECB notes that the matters of common interest which may
be subject to the attention of the Financial Stability Committee, in accordance with Article 117 §3,
relate to the pursuance of the statutory tasks of each of the authorities participating in the
committee. Whilst recognising the merit of the es tablishment of the Financial Stability Committee
as a policy coordination body, the ECB considers that it should be clarified by means of a specificprovision that the tasks attributed to this committee must not compromise the independentpursuance of the competencies of the central bank, in accordance with its statute. This is relevant,first, with regard to the preservation of the stability of the financial system as a whole and crisismanagement, which may directly concern certain functions of the central bank. In this context, theECB would also see value in attributing to the centr al bank the statutory task of contributing to the
stability of the financial system. The explicit inclusion of such a task in the NBBs Statute andOrganic Law would prove beneficial to the instit utional framework proposed in the draft proposal.
Central banks are in general in an advantageous position to contribute to the pursuance of financialstability, both on an ongoing basis and in crisis management situations, given their insight intomonetary and financial market developments and involvement in payment systems and monetarypolicy operations. This would also clarify the contribution of the central bank to the activities of theFinancial Stability Committee. Second, the above consideration is also relevant with regard to theFinancial Stability Committees task of working on issues relating to the interaction betweenprudential control and the oversight of paymen t systems. The ECB notes that this should be
5without prejudice to the exclusive responsibility of  the NBB, under its Organic Law, to ensure the
proper, efficient and sound operation of clearing and payment systems, which is in line with theprovisions laid down in Article 105(2) of the Treaty. Lastly, the ECB considers that the pooling ofpersonnel resources to the activities of the Financial Stability Committee, as foreseen byArticle 118, should be done in a manner that does not compromise the central banks autonomy inthe pursuance of its statutory tasks, including its desirable contribution to the pursuance of financialstability. In this context, it is noted that the draft proposal contains references to future royaldecrees, which could be used to introduce far-reaching amendments to the intended institutionalstructure and its coordination mechanisms. The ECB understands that the Belgian authorities willconsult the ECB when such measures are proposed provided that that they fall within the ECBs
fields of competence.
12. Fourth, the corporate governance of the superv isory authorities. The ECB recognises the
desirability and necessity of enhancing the BFCs and ICOs organisational structures, through the
establishment within these two institutions of the Supervisory Board, the Management Board,the Chairman and the Secretary General. The draft proposal is intended to reshape the currentstructures in light of the requirements of sound corporate governance to assure efficient, transparentand predictable intra-institutional procedures in the future. To that end, the draft proposal aims atestablishing a clear separation between management and controlling tasks as well as a clearallocation of responsibilities regarding inquiries and decisions taken as a result thereof. Against thisbackground, the ECB emphasises the need to insert in the draft proposal a provision according towhich the members of the management boards would act freely in their personal capacity. Thiswould avoid any inter-institutional coordination burden prior to decision-making that could ariseotherwise. 
13. 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 24 April 2002.
The President of the ECB
[signed]
Willem F. DUISENBERG