Opinion of the European Monetary Institute at the request of the Finnish Ministry of Finance under Article 109f (6) of the Treaty establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI as regards draft legislative proposals concerning the Act on the Bank of Finland, the Act on the Repeal of the Currency Act and the Act on Coins (CON/98/06)
Date: 1998-02-12
Institutions: European Monetary Institute
Subjects: European Monetary System, European System of Central Banks, Finland, central bank, conversion rate, euro, euro area, financial supervision, money, parliamentary scrutiny

OPINION OF THE EUROPEAN MONETARY INSTITUTE

at  the  request  of  the  Finnish  Ministry  of  Finance  under  Article  109f  (6)  of  the  Treaty

establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI

as regards draft legislative proposals concerning the Act on the Bank of Finland, the Act on the

Repeal of the Currency Act and the Act on Coins

CON/98/06

1.

On 26 January 1998 the EMI received a request from  the  Finnish  Ministry  of  Finance  for  an

opinion  on  draft  legislative  proposals  concerning  the  Act  on  the  Bank  of  Finland  (the  “New

Act”), the Act on the Repeal of the Currency Act (the “Repeal Currency Act”) and the Act on

Coins  (the  “Coins  Act”)  (the  “legislative  proposals”).  The  Finnish  Ministry  of  Finance  also

submitted an explanatory memorandum on the Government Proposal to Parliament on the Act

on the Bank of Finland and Certain Related Acts (the “Memorandum”). A complete set of the

legislative  proposals  translated  into  English  by  the  consulting  authority  was  received  by  the

EMI on 29 January 1998, and the present opinion is issued on the basis of those translations.

2.

The  EMI’s  competence  to  deliver  an  opinion  is  based  on  Article  1.1,  second  indent,  of  the

Council  Decision  (93/717/EC)  of  22  November  1993  on  the  consultation  of  the  EMI  by  the

authorities  of  the  Member  States  on  draft  legislative  proposals,  as  the  legislative  proposals

contain  new  provisions  concerning  Suomen  Pankki  (the  “Bank”)  with  a  view  to  the

implementation of the Treaty and, in particular, Article 108 thereof.

3.

The  EMI  recalls  earlier  legislative  amendments  regarding  the  laws  which  are  now  subject  to

further  revisions.  Finland  has  already  changed  its  Currency  Act  in  order  to  enable  it  to

participate  in  the  Exchange  Rate  Mechanism  of  the  European  Monetary  System.  Draft

legislation to this effect was submitted to the EMI for consultation on 9 November 1995 and the

EMI delivered its opinion on 11 December 1995 (CON/95/16). Draft legislation concerning the

statute of the Bank was submitted to the EMI for consultation on 10 April 1996 and the EMI

delivered  its  opinion  on  17  May  1996  (CON/96/05)  (the  “1996  Opinion”).  As  a  result  of  the

latter legislative amendments, a revised Act on the Bank of Finland was adopted by the Finnish

Parliament and entered into force on 1 January 1998 (the “Current Act”). The EMI noted in its

1996  Opinion  that  the  draft  legislation  concerning  the  Current  Act  was  a  step  towards  the

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fulfilment  of  the  requirements  of  the  Treaty  and  of  the  Statute  of  the  European  System  of

Central  Banks  and  of  the  European  Central  Bank  (the  “ESCB  Statute”)  and  that  further

adaptations would be necessary to qualify for participation in EMU. 

4. 

The  EMI  notes  that  the  New  Act  represents  a  comprehensive  revision  of  the  Current  Act.  It

welcomes the further adaptations suggested  in  the  legislative  proposals  and,  in  particular,  the

aspects  to  which  reference  is  made  in  the  Memorandum.  Once  enacted,  and  subject  to  the

following, the legislative proposals would contribute to the completion of the legal adaptations

required for participation in  Stage  Three  of  EMU  as  referred  to  in  the  EMI’s  1995  and  1996

reports on “Progress Towards  Convergence”  (the  “1995  and  1996  Convergence  Reports”),  as

well  as  in  the  EMI’s  report  on  “Legal  Convergence  in  the  Member  States  of  the  European

Union - As at August 1997”, which was published on 27 October 1997 (the “1997 Report”).

5.

Central bank independence needs to be achieved at the latest by the date of the establishment of

the  European  Central  Bank  (the  “ECB”)  and  of  the  European  System  of  Central  Banks  (the

“ESCB”). The timetable for the adaptation of national legislation regarding the independence of

national central banks (“NCBs”) in view of Articles 107 and 108 of the Treaty is addressed in

the 1995 Convergence Report (pages 89-90): 

“[...] NCBs should become effectively independent  by  the  date  of  the  establishment  of  the

ESCB. Clear support for this view can be found in Article 109e (5) [of the Treaty], which

expressly states that the process leading to NCB independence should be commenced during

the  second  stage.  [...]  Before  the  start  of  Stage  Three,  the  ECB’s  Governing  Council  will

have to decide upon the policy framework of the ESCB. At this crucial stage, it is important

that the Governors, who will sit  on  the  Governing  Council  [of  the  ECB],  come  from  fully

independent NCBs.”

Section  31  of  the  New  Act  stipulates  that  the  New  Act  will  enter  into  force  on  the  date  of

Finland’s  entry  into  the  single  currency  area  in  accordance  with  Article  109l  of  the  Treaty,

which would be the appropriate date of entry into force for provisions regarding the integration

of the Bank into the ESCB. Furthermore, Section 31, paragraph 2, provides that Section 16 of

the New Act will enter into force on an earlier date in 1998, which has yet to be specified, and

repeal Section 18 of the Current Act. Section 16 of the New Act (and Section 18 of the Current

Act) can be found under the heading “Dismissal of a member of the Board”. The EMI agrees

that  Section  16  of  the  New  Act  contains  provisions  which  address  the  topic  of  the  personal

independence  of  individual  members  of  a  decision-making  body  of  the  Bank  involved  in  the

performance of tasks and duties conferred upon the ESCB by the Treaty and the ESCB Statute

(“ESCB-related tasks”) and, therefore, needs to be effective by the date of the establishment of

the  ESCB.  However,  the  new  paragraph  2  of  Section  15,  which  provides  a  most  welcome

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clarification that the independence and the powers of the Governor of the Bank in respect of the

performance  of  his  or  her  duties  as  a  member  of  the  Governing  Council  of  the  ECB  are  laid

down  in  the  Treaty  and  the  Statute,  must  also  be  mentioned  together  with  Section  16  of  the

New Act for early entry into force, namely at the latest by the date of the establishment of the

ESCB. In addition, this early date of entry into force has to cover also Sections 4 and 17 (as the

latter may amend Section 19 of the Current Act as suggested under item 7(h) below).

6.

The  EMI  notes  from  the  Memorandum  that  the  legislative  proposals  will  be  presented  to  the

Finnish Parliament in the latter part of February and, as a more general remark on the timing for

the adoption of the legislative proposals, the EMI recalls its statement in the 1997 Report that,

“[i]n  order  to  comply  with  Article  108,  the  national  legislative  procedures  must  be

accomplished in such a way that the compatibility of national legislation is ensured at the latest

at the date of the establishment of the ESCB.” The EMI will have to report to the EU Council

under  Article  109j  (1)  of  the  Treaty  before  the  end  of  March  1998.  According  to  this  Treaty

provision, such report “shall include an examination of the compatibility between each Member

State’s national legislation, including the statutes of its national central bank, and Articles 107

and 108 of this Treaty and the Statute of the ESCB”. Although due consideration will be given

to the legislation of Member States which has been submitted to the EMI for consultation and is

now in the final stages of the respective national legislative procedures, the reporting obligation

of  the  EMI  will  have  to  be  based  on  the  legal  position  of  the  Member  State  in  question

prevailing at the time of the report’s publication.

7. With  regard  to  the  substantive  aspects  of  the  legislative  proposals,  the  EMI  welcomes  in

particular the following proposed legal provisions:

(a)

Status of the Bank

The EMI welcomes the fact that the New Act provides clarification that, from the start of

Stage Three of EMU, the Bank will form an integral part of the ESCB (as proposed in

Section 1, paragraph 2, of the New Act) and that the Bank shall act in accordance with

the  guidelines  and  instructions  of  the  ECB  (as  required  by  Article  14.3  of  the  ESCB

Statute).

(b) Objective of the Bank

The  EMI  also  welcomes  the  reformulation  of  the  statutory  objective  of  the  Bank

(Section 2,  paragraph  2,  of  the  New  Act),  which  is  now  fully  consistent  with  Article

105 (l)  of  the  Treaty  and  Article  2  of  the  ESCB  Statute.  The  EMI  also  notes  that  the

subsidiary  objective  (contained  in  Section  2,  paragraph  2,  of  the  New  Act)  shall  be

without  prejudice  to  the  objective  to  maintain  price  stability  and  shall  apply  in

- 4 -

accordance with the Treaty (which should be read as a reference to Article 2 of the ESCB

Statute and Articles 2 and 3(a) of the Treaty).

(c)

Independence and integration of the Bank

The  EMI  also  notes  that  the  provision  presently  entitled  “Co-operation  with  other

authorities” (Section 5 of the Current Act) has been amended to contain a prohibition on

instructions to the Bank in its performance of ESCB-related tasks (Section 4, paragraph

1, of the New Act) and that this prohibition on seeking or taking instructions is to cover

all entities “other than the [ECB]”. As indicated under 5 above, it is necessary that this

aspect of the New Act enters into force at the establishment of the ESCB.

(d)

Prohibition of public financing

As indicated in the 1996 Opinion, any potential discrepancy between provisions on the

prohibition  of  public  financing  and  either  Article  104  of  the  Treaty  or  the  Council

Regulation  (EC  3603/93)  of  13  December  1993  should  be  avoided,  and  the  EMI

welcomes the further consideration given to this aspect (Section 6 of the New Act).

(e)

Collateral

The EMI welcomes the deletion of the provision that the Bank may “temporarily rescind

the collateral requirement” and the fact that the New Act clearly stipulates that the Bank

is to hold adequate collateral in connection with the granting of credit (Section 7 of the

New Act; compare Article 18.1, second indent, of the ESCB Statute).

(f)

Independence of the Governor

The  declaration  and  reference  to  the  Treaty  and  the  ESCB  Statute  with  regard  to  the

independence and the powers of the Governor of the Bank in respect of the performance

of  his  or  her  duties  as  a  member  of  the  Governing  Council  of  the  ECB  is  seen  as  a

positive clarification (Section 15 of the New Act).

(g) Dismissal of Board members

The  EMI  welcomes  the  wording  chosen  in  respect  of  the  grounds  of  dismissal  for  a

member of the Board (Section 16, paragraph 1, of the New Act), which is fully consistent

with  Article  14.2  of  the  ESCB  Statute,  although  Section  30  of  the  New  Act,  presently

entitled  “Impeachment”,  should  be  consistent  with  Section  16  and  refer  to  “serious”

misconduct as a basis for charges brought against a member of the Board.

(h)

Limitations on other professional activities of Board members

The  EMI  notes  that  Section  17  of  the  New  Act  and  Section  19  of  the  Current  Act

stipulate that a member of the Board shall not have any secondary occupation unless the

- 5 -

Parliamentary Supervisory Council, upon application, grants a permit authorising him or

her to have such a secondary occupation, provided that no secondary occupation will be

granted if it would disqualify the Board member from his or her position, jeopardise the

confidence placed in his or her activities as a member of the Board, or otherwise impede

the appropriate performance of his or her duties (which includes all ESCB-related tasks

and  covers  any  secondary  occupation  (or  position)  which  could  negatively  affect  the

required independence  of  a  Board  member  involved  in  the  performance  of  such  tasks).

Such limitations are necessary as a means of avoiding possible conflicts of interest and,

to the extent it is not already clear that the Parliamentary Supervisory Council may not

grant a Board member a permit for any secondary occupation (or position) which could

negatively affect either the performance by such Board member of ESCB-related tasks or

his  or  her  personal  independence,  additional  wording  to  this  effect  must  be  introduced

(which clarification could be added at the end of the third paragraph of Section 17 of the

New Act). In view of the suggested amendment to clarify the limitation of any secondary

occupation (or position), Section 17 of the New Act (as amended) must also be included

in  Section  31,  paragraph  2,  as  a  Section  containing  legal  provisions  which  enter  into

force by the date of the establishment of the ESCB (see also item 5 above).

(i)

Operations, base rates and other interest rates

Finally, the EMI welcomes the deletion of the Bank’s right to determine the base rate and

other interest rates (as specified in Section 6, paragraph 2, the Current Act). In addition,

the  EMI  notes  from  the  Memorandum  that  the  Finnish  Government  will  present  a

separate  proposal  to  the  Parliament  for  a  law  on  the  transfer  of  matters  concerning  the

base  rate  to  the  Ministry  of  Finance  and  it  is  the  EMI’s  understanding  that  the  said

proposal will be presented to the Parliament following the present legislative proposals

and enter into force on 1 January 1999.

8.

As already indicated in the 1996 Opinion, and provided  that  the  powers  of  the  Parliamentary

Supervisory Council are limited to the tasks expressly enumerated in Section 11 of the New Act

and, furthermore, provided that these supervisory (and other) powers are without prejudice to

the exclusive competence of the Board as regards all ESCB-related tasks, then the division of

competences between the Parliamentary Supervisory Council and the Board would not appear

to be incompatible with the Treaty. In particular, the EMI welcomes the deletion of Section 16,

paragraph 4, of the Current Act, according to which the Board is obliged to report regularly to

the Parliamentary Supervisory Council on monetary policy and its implementation.

9.

Instead,  Section  14,  paragraph  4,  of  the  New  Act  provides  that  “[t]he  Governor  and  other

members of the Board shall be obliged to provide the Parliamentary Supervisory Council with

information on a regular basis concerning the execution of monetary policy and other activities

- 6 -

of  the  Bank  [...].”  Moreover,  the  Parliamentary  Supervisory  Council  is  also  obliged  under

Section  11,  paragraph  1,  fifth  indent,  of  the  New  Act  to  “submit  to  Parliament  reports  on

monetary  policy  and  other  activities  of  the  Bank  [...]”,  as  necessary.  In  order  to  achieve

consistency  between  these  two  provisions,  it  is  necessary  to  reformulate  the  latter  provision

(Section 11, paragraph 1, fifth indent) to clarify that the submission of reports to the Parliament

also refers to “the execution of monetary policy”. In addition, the Bank shall be obliged, under

Section  27  of  the  New  Act,  “to  provide  any  concerned  Committee  of  Parliament  with  all  the

information  that  is  necessary  for  the  performance  of  the  Committee’s  tasks”.  According  to

Section 10 of the New Act (and Section 12 of the Current Act), the Parliamentary Supervisory

Council  is  to  consist  of  nine  members  elected  by  Parliament.  The  topic  of  consultation  and

dialogue  between  NCBs  and  political  representatives  is  addressed  in  the  1996  Convergence

Report (page 101):

“The  crucial  issue  is  whether  a  national  institution  has  any  formal  mechanism  at  its

disposal to ensure that its views influence the final decision. An explicit statutory obligation

for an NCB to consult political authorities provides for such a mechanism and is therefore

incompatible with the Treaty and the [ESCB] Statute. 

A  dialogue  between  NCBs  and  their  respective  political  authorities,  even  when  based  on

statutory obligations to provide information and exchange views, is  not  incompatible  with

the Treaty and the [ESCB] Statute, provided that:

-

-

this  does  not  result  in  interference  with  the  independence  of  the  members  of  decision-

making bodies of NCBs;

the ECB’s competences and accountability at the Community level as well as the special

status of a Governor in his/her capacity as a member of its decision-making bodies are

respected; and

-

confidentiality requirements resulting from [ESCB] Statute provisions are observed.”

While the EMI welcomes the deletion of the obligation for the Board “to report regularly to the

Parliamentary  Supervisory  Council  on  monetary  policy”  (Section  16,  paragraph  4,  of  the

Current Act), Section 11, paragraph 1, fifth indent, and Section 27 of the New Act should still

be critically assessed in the light of the above considerations. The said provisions of the New

Act would not be incompatible with the Treaty and the ESCB Statute if the obligations under

these  provisions  on  the  part  of  the  Board  and  the  Bank  respectively  to  provide  information

relate exclusively to past activities, and provided that the criteria in the text quoted above from

the 1996 Convergence Report are respected. In this connection, the EMI also notes Section 4,

paragraph 2, of the New Act and suggests that additional text should be introduced to clarify

the fact that the obligation on the part of the Bank to “co-operate as necessary with the Council

of State and other authorities” shall be “without prejudice to paragraph 1” of the said Section 4.

- 7 -

More generally, the EMI notes the legal provisions on the exchange of information contained in

the New Act in respect of the activities of the Bank (compare Section 11, paragraph 1, fourth

and fifth indents, Section 12, paragraph 2, Section 14, paragraph 4, and Section 27 of the New

Act).  In  view  of  the  importance  of  compliance  with  confidentiality  requirements  under  the

Treaty  and  the  ESCB  Statute  (compare  Articles  10.4  and  38  of  the  ESCB  Statute),  the  latter

requirements  need  to  be  expressly  acknowledged  to  avoid  any  appearance  of  incompatability

between the New Act and the Treaty and the ESCB Statute.

10.

The  1996  Opinion  addressed  the  entitlement  of  the  Parliamentary  Supervisory  Council  to

discharge the Board from liability, and stated that “[t]o 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”.  Section  11,  paragraph  1,  second  indent,  of  the  New  Act  provides  that  the

Parliamentary Supervisory Council shall decide on the discharge of the Board from liability for

“matters concerning [the] internal management of the Bank [...]”. In addition, paragraph 2, third

indent,  of  the  said  Section  entitles  the  Parliamentary  Supervisory  Council  “to  decide  on  the

issuance  of  warnings  to  members  of  the  Board  and  [the  settlement  of]  other  issues  related  to

their service”. The EMI welcomes the stipulation that the basis upon which the Parliamentary

Supervisory  Council  may  refuse  to  discharge  the  Board  from  liability  shall  be  “matters

concerning  [the]  internal  management  of  the  Bank”,  and  notes  that  a  refusal  to  discharge  the

Board from liability would require the Parliamentary Supervisory Council to refer the matter to

a  public  prosecutor  or  bring  an  action  concerning  the  matter  on  behalf  of  the  Bank  within  a

prescribed  time  period.  It  should  be  clearly  stated  in  the  New  Act  that  the  provisions  on  the

discharge  of  the  Board  from  liability  only  cover  matters  outside  the  scope  of  ESCB-related

tasks and that the grounds for dismissal of a member of the Board would only be those to which

reference  is  made  in  Section  16  of  the  New  Act.  With  such  clarification,  the  legislative

proposals  concerning  the  discharge  of  the  Board  from  liability  would  not  seem  to  be

incompatible with the Treaty. In a similar manner, the issuance of warnings to members of the

Board  and  the  settlement  of  other  issues  related  to  their  service  should  also  be  restricted  to

aspects of their duties outside the scope of ESCB-related tasks. Accordingly, the introduction of

a  clarification  in  the  New  Act  along  the  lines  indicated  above  is  required  if  the  legislative

proposals referred to in this item 10 are maintained since they could otherwise negatively affect

the  independence  of  the  Board  or  individual  Board  members  involved  in  the  performance  of

ESCB-related tasks.

11.

In the same spirit, the EMI would interpret Section 11, paragraph 3, fourth indent, of the New

Act, when read in conjunction with Section 15, paragraph 3, as a reference to the establishment

by  the  Parliamentary  Supervisory  Council  of  purely  administrative  rules  which  must  not

infringe  upon  the  independence  of  the  Board  or  that  of  its  decision-making  procedures  in

- 8 -

relation to ESCB-related tasks (compare Section 13, paragraph 3, fourth indent, and Section 17,

paragraph 2, of the Current Act, where there is a clear reference to the Bank’s “administrative”

rules).

12.

The EMI welcomes the Repeal Currency Act and, in particular, the abolition of the provisions

of Section 4 of the Currency Act on the determination of the external value of the markka. The

EMI also welcomes the amendments and reference to Community law until 31 December 2001

in  respect  of  Section  7  of  the  Currency  Act,  which  stipulates  that  the  Ministry  of  Finance

decides  on  the  face  value  and  the  characteristics  of  coins,  and  the  abolition  of  the  first

paragraph of the said Section 7, under which the State has the exclusive right to mint coins for

its own account.

13.

Finally, the Coins Act does not reflect the provision of the Treaty that the issuance of coins by

Member States is subject to approval by the ECB of the volume of the issue (Article 105a (2),

first sentence of the Treaty). A reference to this provision has to be introduced.

14.

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

12 February 1998