Opinion of the European Monetary Institute Consultation by the Finnish Ministry of Finance under Article 109f (6) of the Treaty establishing the European Community and Article 5.3 of the Statute of the EMI on draft legislation establishing the statute of the Bank of Finland (CON/96/05)
Date: 1996-05-13
Institutions: European Monetary Institute
Subjects: European System of Central Banks, Finland, board of directors, central bank, conflict of interest, decision-making, financial statistics, parliamentary scrutiny

13th May 1996

OPINION OF THE EUROPEAN MONETARY INSTITUTE

CON/96/05

Consultation  by  the  Finnish  Ministry  of  Finance  under  Article  109f  (6)  of  the  Treaty

establishing  the  European  Community  and  Article  5.3  of  the  Statute  of  the  EMI  on  draft

legislation establishing the statute of the Bank of Finland.

1

On  10th  April  1996  the  EMI  received  from  the  Finnish  Ministry  of  Finance  a  request  for

consultation  on  draft  legislation  establishing  the  Statute  of  the  Bank  of  Finland  (“the  Act”).

The  documentation  submitted  for  consultation  comprises  an  explanatory  memorandum

accompanying  the  draft  (“the  Memorandum”),  the  Act  itself  and,  in  addition,  a  draft

amendment of paragraph 4 of Section 4 of the Currency Act (358/93), addressing a reallocation

of competences on currency matters within the decision-making bodies of the Bank of Finland

(“the  Amendment  Act”).  All  documentation  has  been  received  in  the  English  language,

translated  by  the  consulting  authority,  and  the  present  opinion  is  issued  on  the  basis  of  such

translation.

2

The  objective  of  the  Bank  of  Finland  is  defined  in  Section  2  of  the  Act  as  follows:  “to
safeguard the value of money”. Article 2 of the ESCB Statute stipulates that: “(cid:1)...(cid:2) the primary
objective (cid:1)...(cid:2) shall be to maintain price stability”. Although the EMI has received clarification

from the Bank of Finland that the present wording of Section 2 of the official version of the Act

reflects  an  identical  objective  to  the  one  expressed  in  Article  2  of  the  ESCB  Statute,  which

clarification has been  duly  noted,  the  importance  of  this  provision  mandates  legal  clarity  and

full consistency between the Act and the Treaty.

3

Section 8 of the Act is purported to introduce into domestic law the content of Article 104 of

the  Treaty.  To  avoid  any  potential  discrepancy  with  that  Treaty  article  and  with  Council

Regulation (EC) n. 3603/93 of 13.12.1993, the language of Section 8 may be considered further

before the enactment of the Act.

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2

4

Article 109e(5) of the Treaty states that “During the second stage, each Member State shall, as

appropriate, start the process leading to the independence of its central bank.” Independence

of  national  central  banks  is  a  significant  element  of  central  banks  qualifying  to  become  an

integral part of the ESCB, which needs to be accomplished  before the date of establishment of

the ECB and is a prerequisite to participation in monetary union. Independence may, however,

be achieved through different measures, taking into account different institutional traditions in

the various Member States. The Act, namely if amended as suggested in the following, is one

example  of  several  possible  alternatives  for  a  legislative  framework  which  would  further  the

degree of central bank independence, although additional adaptations for Stage Three may be

necessary as anticipated below. 

(a)

The  Act  under  review  mentions,  in  Section  1,  that  “The  Bank  of  Finland  [...]  is  an

independent institution [...]”. The EMI welcomes such an initial legal statement, which

gives a basis to Section 5, second paragraph, and may inspire the interpretation of other

sections of the Act. The EMI moreover welcomes the disappearance in the Act of some

sections of the current Statute which might have been seen as inconsistent with the basic

principle of central bank independence required for by the Treaty.

(b)

Sections  12  to  14  of  the  Act  refer  to  a  Parliamentary  Supervisory  Council,  a  body

foreseen  in  constitutional  provisions  and  characterised  in  Section  11  as  one  of  the

Governing Bodies of the Bank of Finland. Being integrated by members of parliament, it

has  to  be  defined  as  a  political  organ.  The  Treaty  requirement  of  independence  in

decision-making applies not only vis-à-vis Government but also in relation to any other

political body, and therefore it would not be achieved if the  Parliamentary  Supervisory

Council would have the possibility of interfering in any manner with the decisions of the

Board  on  monetary  matters.  The  permanency  of  a  political  body  within  the  internal

structure of the Bank would be consistent with the required level of independence to the

extent that statutory tasks by such a body could not interfere with the required autonomy

of  the  decision-making  process  of  the  central  bank  with  respect  to  monetary  policy

issues. 

The EMI notes that the new list of tasks vested in the Parliamentary Supervisory Council

does not explicitly include monetary powers. The EMI reads the draft text of the Act, and

in  particular  Section  16,  as  implying  that  the  list  of  tasks  vested  in  the  Parliamentary

Supervisory Council through Section 13 is exhaustive, and draws the conclusion that the

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supreme  decision-making  body  of  the  Bank  in  monetary  matters  would  be  the  Board.

Hence, Sections 6 and 7 of the Act would have to be read as implying that the exclusive

responsibility for monetary policy decisions is vested with the Board. This interpretation

is  coincident  with  the  explanations  contained  in  the  Memorandum.  Provided  that  the

supervisory  powers  of  the  Parliamentary  Supervisory  Council  are  limited  to  the  tasks

listed  in  Section  13,  and  further  provided  that  these  supervisory  powers  are  without

prejudice  to  the  exclusive  competence  of  the  Board  as  regards  monetary  matters,  this

aspect of the projected legal architecture for the Bank of Finland would not appear to be

incompatible with the letter and the spirit of the Treaty.

(c)

Sections 12 and 15 of the Act are drafted in a manner which does not explicitly preclude

the appointment of a member of the Parliamentary Supervisory Council as member of the

Board. Simultaneous membership of both the Parliamentary Supervisory Council and the

Board  could  result  in  a  situation  where  a  conflict  of  interest  may  possibly  arise  which

may hinder the required independence of the Board on monetary policy matters.

(d)

The second paragraph of Section 5 of the Act reads: “In carrying out its tasks related to

monetary  policy,  the  Bank  of  Finland  may  not  seek  or  take  instructions  concerning  its

activities”.  The  EMI  interprets  the  Act  as  providing  for  the  exclusive  responsibility  of

the  Board  on  “tasks  related  to  monetary  policy”.    The  Board,  as  supreme  decision-

making body on monetary policy matters, should not seek nor take instructions from the

Parliamentary  Supervisory  Council,  nor  from  any  other  internal  or  external  body  or

institution. Moreover, the requirement of central bank independence as specified by the

Treaty  addresses  not  only  institutional  independence  of  central  banks  and  its  decision-

making bodies as collective organs, but also the personal independence of the members

of such organs. To achieve more legal clarity and full consistency with Article 7 of the

ESCB Statute, the language of Section 5 may be considered further before the enactment

of the Act.

The  first  paragraph  of  Section  5  imposes  on  the  Bank  of  Finland  the  obligation  to

“cooperate  with  the  Council  of  State  and  other  authorities.”  In  order  to  enhance  the

overall  importance  of  independence  and  of  the  prohibitions  contained  in  the  second

paragraph  of  that  Section  5,  it  may  be  suggested  to  change  the  order  of  the  two

paragraphs of Section 5 and subject the obligation to cooperate with political bodies to

the prohibition of seeking and taking instructions.

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(e)

Under Section 13, first paragraph, indent (2), of the Act, the Parliamentary Supervisory

Council is entitled to discharge the liability of the Board. To secure the independence of

the Board on monetary policy decisions, it would be advisable to state that the discharge

of liability of the Board cannot be refused by the Parliamentary Supervisory Council in

relation to the conduct of monetary policy. 

(f)

Section 18 of the Act provides for the compulsory dismissal of Board members, vesting

upon  the  President  of  the  Republic  the  authority  for  such  dismissals.  Article  34  of  the

Constitution of Finland specifies that the decisions of the President are adopted “in the

Council of State on the basis of a presentation by the competent Minister”, and that such

decisions  require  the  countersignature  of  the  presenting  Minister.  The  institutional

independence of the Bank and the personal independence of the Board members would

be enhanced if such a presentation by the Minister either included a formal opinion or if

it could only be effectuated upon an initial motion of the Board of the Bank of Finland.

Furthermore, it is noted that the Act does not explicitly  recognise  the  right  to  have  the

dismissal directly reviewed by a domestic court, unless this right already arises from the

legislation referred to in Section 18 of the Act, or as a result of Section 40 of the Act, or

otherwise  due  to  general  legislation  regarding  judicial  safeguards  in  the  area  of

administrative law.

(g)

The  Act  does  not  define  eligibility  criteria  for  members  of  the  Board,  nor  place  any

limitations  on  other  professional  activities  of  Board  members.  Neither  Treaty  nor  the

ESCB/ECB Statute specifies such criteria and limitations, but these may be seen as the

necessary  consequence  of  the  Treaty  requirement  of  personal  independence,  which

implies  the  avoidance  of  possible  conflicts  of  interests  between  the  Bank  and  other

bodies, and of potential situations of external dependency.

5

The statistical regime is addressed in Sections 3 and 38 of the Act. It would be advisable that

in  Section  3,  second  paragraph,  third  indent  of  the  Act  the  word  “collection”  is  introduced

between “provide for the” and “compilation and”.

6

The  Finnish  Currency  Act  was  issued  on  16th  April  1993.  The  Amendment  Act  proposes  to

alter Article 4 of the Currency Act with the expressed purpose according to the Memorandum

of substituting the Board for the Parliamentary Supervisory Council as the competent body to

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make  proposals  to  the  Council  of  State  on  the  external  value  of  the  markka.  The  EMI

welcomes this amendment as a provision which will enhance the powers of the Board as a body

whose decision-making powers are not subject to political control.

7

The  EMI  would  like  to  draw  the  attention  on  the  fact  that,  according  to  Article  108  of  the

Treaty, the compatibility of the statutes of a NCB must be ensured “at the latest at the date of

the establishment of the ESCB”, and that this compatibility will already be assessed in the EMI

and the European Commission reports drawn up on the basis of Article 109j(1).

The EMI notes that the Act is exclusively purported to adapt the statute of the Bank for Stage

Two of EMU, and that it is recognised that there is a need to introduce further adaptations to

allow  the  Bank  in  Stage  Three  “to  become  an  integral  part  of  the  ESCB”.  Although  at  this

stage the EMI has not arrived at final conclusions on the scope of these further amendments, it

may  be  foreseen  that  Sections  4,  7,  18,  19,  29,  30,  35  and  38  of  the  Act,  as  well  as  the

mechanism for the determination of the external value of the Finnish markka and the Currency

Act, might in all likelihood require further adaptations. In addition, the EMI wishes to make the

following specific comments as regards other statutory requirements for the integration of the

Bank in the ESCB: 

(a)

The  second  paragraph  of  Section  5,  concerning  the  prohibition  to  seek  or  take

instructions  related  to  monetary  policy,  will  have  to  be  amended  for  Stage  Three,  to

avoid patent incompatibilities between the national legislation and Treaty provisions, in

particular with Article 14.3 of the ESCB/ECB Statute, and to include within its scope all

ESCB tasks to which Articles 3 to 6 of the ESCB/ECB Statute refers.

(b) 

Section  9  of  the  Act  permits  exceptionally  the  Bank  of  Finland  to  grant  credit  without

adequate collateral. This provision would be, in Stage Three, inconsistent with Article

18.1,  second  indent,  of  the  ESCB  Statute,  which  does  not  contemplate  that  possibility.

Therefore, and in accordance with Article 108 of the Treaty, this provision would require

to  be  amended  for  the  Bank  of  Finland  to  become  an  integral  part  of  the  ESCB.  It  is

matter  of  internal  consideration  whether  the  application  of  this  principle  is  to  be

anticipated in Stage Two. 

8

The EMI has no objection to its opinion being made public.

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