Opinion of the European Monetary Institute at the request of the Department of Finance of Ireland under Article 109f(6) of the Treaty establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the EMI concerning a draft bill on investor compensation schemes (“the draft bill”) (CON/98/21)
Date: 1998-04-30
Institutions: European Monetary Institute
Subjects: European System of Central Banks, Ireland, central bank, credit institution, financial stability, financial supervision, insurance company, investment company, investment protection, private investment

OPINION OF THE EUROPEAN MONETARY INSTITUTE

April 30, 1998

at the request of the Department of Finance of Ireland under Article 109f(6) of the Treaty
establishing the European Community (the “Treaty”) and Article 5.3 of the Statute of the

EMI concerning a draft bill on investor compensation schemes (“the draft bill”)

(CON/98/21)

1.

On 1 April 1998 the EMI received a request for an opinion on the Investor Compensation Bill,

1998 (the “draft bill”) from the Irish Department of Finance. The request contained the draft bill,

which  enacts  provisions  relating  to  investor  compensation  schemes,  and  requested  the  EMI  to

submit its opinion within one month of receipt.

2.

The  EMI’s  competence  to  deliver  an  opinion  is  based  on  Article  1.1  of  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 provisions, as the draft bill contains provisions concerning the

status and powers of the Central Bank of Ireland.

3.

The  draft  bill  introduces  investor  compensation  arrangements  for  clients  of  investment  firms,

stock  exchange  member  firms,  credit  institutions  providing  investment  services  and  insurance

intermediaries. The draft bill gives effect to Directive 97/9/EC of the European Parliament and

of  the  Council  of  3  March  1997  on  investor  compensation  schemes  (hereafter,  the  “investor

compensation directive”). The draft bill goes further than a mere implementation of the investor

compensation  directive  insofar  as  it  establishes  compensation  arrangements  for  clients  of  a

number  of  entities  not  covered  by  the  investor  compensation  directive  (e.g.,  insurance

intermediaries,  certified  persons  regulated  by  an  approved  professional  body,  restricted  activity

investment  product  intermediaries  and  certain  investment  business  firms  not  falling  within  the

definition of an investment firm under the investor compensation directive).

4.

The  draft  bill  appoints  the  Central  Bank  of  Ireland  as  supervisory  authority  for  investor

compensation arrangements under the bill, and in this regard the bill confers various supervisory

powers on the Central Bank of Ireland. In view of the Central Bank of Ireland’s designation as

the competent authority in Ireland for purposes of Council Directive 93/22/EEC of 10 May 1993

on investment services in the securities field, the Central Bank of Ireland is required under the

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investor compensation to be the competent authority with respect to investment firms subject to

the directive.

5.

The  EMI  notes  that  the  Irish  authorities  are  not  obliged  to  consult  the  EMI  on  the  draft  bill

insofar  as  it  seeks  to  implement  the  investor  compensation  directive.  This  follows  from  Article

2.2 of 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  provisions,  which  provides  that  the

authorities  of  the  Member  States  shall  not  consult  the  EMI  on  draft  legislative  provisions  the

exclusive purpose of which is the transposition of Community directives into the law of Member

States.  The  EMI  therefore  refrains  from  commenting  on  those  aspects  of  the  draft  bill  which

implement the investor compensation directive.

6.

The narrow question for the EMI’s consideration is whether the draft bill’s proposed expansion

of  the  Central  Bank  of  Ireland’s  supervisory  powers  with  respect  to  entities  not  subject  to  the

investor compensation directive raises any particular concerns. Under Article 14.4 of the Statute

of the ESCB/ECB national central banks may perform functions other than those specified in the

Statute unless the Governing Council of the ECB finds, by a majority of two thirds of the votes

cast,  that  these  interfere  with  the  objectives  and  tasks  of  the  ESCB.  Such  functions  shall  be

performed  on  the  responsibility  and  liability  of  the  national  central  banks  and  shall  not  be

regarded as being part of the functions of the ESCB. Without prejudice to the competence of the

ECB,  the  EMI  does  not  envisage  that  the  supervisory  role  envisaged  for  the  Central  Bank  of

Ireland by the draft bill would be prohibited under Article 14.4 of the Statute.

7.

In passing, the EMI notes that the definition of the ECU set forth in section 2(1) of the draft bill

will require adaptation in view of the repeal of Council Regulation (EC) No 3320/94 by Council

Regulation (EC) No 1103/97 with effect from 1 January 1999.

8.

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

30 April 1998