Opinion of the European Central Bank at the request of the Luxembourg Minister for Relations with Parliament under Articles 109l(2) and 109f(6) of the Treaty establishing the European Community (hereinafter referred to as the "Treaty") and Article 5.3 of the Statute of the European Monetary Institute (hereinafter referred to as the "EMI") on : 1) a law proposal concerning the monetary status and the Banque centrale du Luxembourg, and 2) a law proposal concerning the creation of a commission charged with the surveillance of the financial sector (CON/98/39)
Date: 1998-09-23
Institutions: European Central Bank
Subjects: Luxembourg, central bank, financial stability, financial supervision, institutional activity, national law

OPINION OF THE EUROPEAN CENTRAL BANK

at the request of the Luxembourg Minister for Relations with Parliament under Articles 109l(2)

and 109f(6) of the Treaty establishing the European Community (hereinafter referred to as the

“Treaty”) and Article 5.3 of the Statute of the European Monetary Institute (hereinafter referred

to as the “EMI”) on : 1) a law proposal concerning the monetary status and the Banque centrale

du Luxembourg, and 2) a law proposal concerning the creation of a commission charged with the

surveillance of the financial sector (CON/98/39).

CON/98/39

1. 

On 6 August 1998 the European Central Bank (hereinafter referred to as the “ECB”) received a

request from the Luxembourg Minister for Relations with Parliament for an opinion on 1) a law

proposal  concerning  the  monetary  status  and  the  Banque  centrale  du  Luxembourg  (hereinafter

referred to as “Law Proposal 1”), and 2) a law proposal concerning the creation of a commission

charged  with  the  surveillance  of  the  financial  sector  (hereinafter  referred  to  as  “Law  Proposal

2”).

2. 

In accordance with Article 109l (2) of the Treaty, the ECB has taken over the advisory functions

of the EMI, which went into liquidation upon the establishment of the ECB on 1 June 1998. The

ECB’s  competence  to  deliver  an  opinion  on  Law  Proposal  1  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  provisions.  The  ECB’s

competence to deliver an opinion on Law Proposal 2 is based on Article 1.1, fifth 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 provisions. In accordance with Articles 12.4

and  47.1,  second  indent,  of  the  Statute  of  the  European  System  of  Central  Banks  and  of  the

European Central Bank (hereinafter referred to as the “Statute”), this Opinion has been adopted

by the Governing Council of the ECB with the contribution of the General Council of the ECB.

3. 

The ECB notes that the objective of Law Proposal 1 is to address, in the perspective of Article

108 of the Treaty, the imperfections in Luxembourg monetary law identified by the EMI in its

Convergence  Report  of  March  1998,  prepared  under  Article  109j  of  the  Treaty  (hereinafter

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referred to as the “Convergence Report”).  At the same time, Law Proposal 1 takes account of

the decision by the Luxembourg Government to assign the task of prudential supervision of the

financial sector to an authority which is distinct from the Banque centrale du Luxembourg, i.e.

the  “Commission  de  surveillance  du  secteur  financier”.  According  to  the  Explanatory

Memorandum, such decision aims at safeguarding the independence of the Banque centrale du

Luxembourg (hereinafter referred to as the “BCL”) by avoiding conflicts of interest which might

otherwise arise between monetary tasks and a mission of prudential supervision.

4. 

The  ECB  notes  with  satisfaction  that  Law  Proposal  1  addresses  the  issues  raised  in  the

Convergence Report with respect to Luxembourg. As such:

- 

Independence:  1.  Institutional  independence:  The  scope  of  Art.  5.2  of  Law  Proposal  1,

which reproduces the first part of the prohibition on seeking or taking instructions as laid

down in Art. 107 of the Treaty, is no longer limited to the monetary realm but extends to

all  functions  of  the  ESCB;  2.  Personal  independence:  Art.  12.3  of  Law  Proposal  1

provides that the Government, having previously consulted the Council of the BCL, may

propose to the Grand-Duc that a member of the Management of the BCL be relieved of

his/her functions if he/she no longer fulfils the conditions required for the performance of

his/her  duties  or  if  he/she  is  found  guilty  of  serious  misconduct.  Such  a  provision

reproduces the literal grounds for dismissal as laid down in Art. 14.2 of the Statute; Art.

7.3  of  Law  Proposal  1  addresses  the  concern  raised  in  the  Convergence  Report  with

respect to conflicts of interest. The new article stipulates that no one can be appointed a

member of the Council of the BCL or remain member of the Council of the BCL if he/she

has  professional  responsibilities  outside  the  BCL  which  are  in  conflict  with  the

requirements  of  Art.  5.2  or  with  the  provisions  concerning  professional  secrecy

applicable to the ESCB.

-  Legal  integration  in  the  ESCB:  1.  Statutory  objective:  Art.  2  of  Law  proposal  1  now

reflects the primacy of the ESCB’s statutory objective and confirms the integration of the

BCL into the ESCB. The article provides that the BCL will form an integral part of the

ESCB and that it will act in accordance with the guidelines and instructions of the ECB.

The  article  further  states  that  the  principal  mission  of  the  BCL  is  to  participate  in  the

execution of the tasks of the ESCB with a view to attaining the objectives of the ESCB.

The  BCL  will  pursue  its  secondary  objectives  only  to  the  extent  that  their  pursuit  is

compatible  with  its  principal  mission;  2.  Tasks:  The  new  Art.  6  of  law  Proposal  1  no

longer  contains  any  allocation  of  competences  to  the  Council  of  the  BCL  beyond  the

scope of the execution of monetary policy, as  defined  by  the  Governing  Council  of  the

ECB and implemented by the Executive Board of the ECB; Art. 17-20 which regroup the

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provisions pertaining to the issuance of monetary tokens address the comments contained

in the Convergence Report and, consequently, reflect the prerogatives of the ECB in this

field;  3.  Instruments:  Art.  22-23  define  the  BCL’s  instruments  in  the  monetary  field  in

relation  to  BCL’s  objective  and  missions  which,  in  accordance  with  Art.  2  of  Law

Proposal 1, is to participate in the execution of the missions of the ESCB with a view to

attaining  the  objectives  of  the  ESCB;  Art.  25  of  Law  Proposal  1  no  longer  makes

reference to the provision of “credit facilities” but only to the provision of “facilities” to

ensure efficient and sound clearing and payment systems. 

In general the ECB welcomes Law Proposal 1 as it remedies, in the perspective of Article 108 of

the  Treaty,  the  imperfections  in  Luxembourg  monetary  law  identified  by  the  EMI  in  its

Convergence Report.

Moreover, the ECB notes with satisfaction that, in the perspective of Art. 105a of the Treaty and

Art. 16 of the Statute, Art. 36(2) of Law Proposal 1 abrogates (on 1 January 1999) all statutory

and  regulatory  provisions  conferring  legal  tender  to  the  banknotes  issued  by  the  BIL  (Banque

Internationale à Luxembourg).

Notwithstanding the foregoing, the ECB would like to invite the Luxembourg legislator to take

account of the following comments and suggestions:

- 

 in respect of article 2 of Law Proposal 1, paragraph (3) states that the performance by the

BCL  of  its  secondary  functions  is  subject  to  compliance  with  the  “BCL’s  principal

mission”. In order to bring such a stipulation more into line with Art. 14.4 of the Statute,

the ECB would like to suggest that the current wording be revised so as to state that the

performance  by  the  BCL  of  its  secondary  functions  is  subject  to  compliance  with  the

Treaty and the Statute;

- 

 in respect of the financial independence of the BCL: The ECB takes note of the fact that,

in its start-up phase, the BCL will not have substantial reserves while at the same time it

will  be  imperative  for  the  BCL  to  dispose  of  an  appropriate  financial  endowment

sufficient  to  ensure  the  satisfactory  performance  of  its  tasks  and  the  pursuit  of  its

objectives  resulting  from  participation  in  the  ESCB.  To  this  end  the  Luxembourg

legislator may wish to bolster the BCL’s financial soundness, particularly in view of the

new  rule  (laid  down  in  Art.  31)  concerning  the  transfer  of  the  BCL’s  net  profit  to  the

Luxembourg Treasury and owing to the absence of any provisions outlining the ways in

which the BCL’s potential losses will be covered. On this subject, the ECB would also

like to recall that the EMI, in its Convergence Report (p.295), stressed the importance of

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national central banks being in a position to avail themselves of the appropriate means to

ensure that their ESCB-related tasks can be properly fulfilled. 

- 

 in respect of Art. 7 and 12: The ECB would like to point out that Art. 108 of the Treaty,

in  combination  with  Article  109e  (5)  of  the  Treaty,  require  that  central  bank

independence,  including  the  personal  independence  of  the  members  of  the  decision-

making  bodies  of  national  central  banks  involved  in  the  performance  of  ESCB  related

tasks, be achieved at the latest at the date of the establishment of  the  ESCB/ECB.  This

implies that the adoption itself of Law Proposal 1 might not affect the security of tenure

of the present members of such bodies which would be incompatible with the Treaty;

- 

 in respect of Art. 13: In light of the reference to collegial decision taking, the ECB would

like the personal independence of the “directeur général” of the BCL to be highlighted by

starting  this  article  with  wording  along  the  lines  of  (cf.  Art.  6(a)):  “Sans  préjudice  de

l’indépendence  du  directeur  général  par  rapport  à  toute  instruction  en  sa  qualité  de

membre du conseil des gouverneurs de la BCE et sans préjudice des dispositions relatives

au secret professionnel applicables au SEBC…”;

- 

 in respect of Art. 23: The ECB questions whether the reference to measures of exchange

controls in this article is appropriate;

- 

 in respect of Art. 32(1): The ECB is of the view that the last sentence of Art. 32(1) ought

to recognise Community legislation as well as the competencies of the ESCB in this area;

5. 

The ECB notes that the twofold objective of Law Proposal 2 is: 1) to create an authority which is

distinct  from  the  Banque  centrale  du  Luxembourg,  i.e.  the  “Commission  de  surveillance  du

secteur financier” and 2) to assign to such authority the tasks of i) the prudential supervision of

credit  institutions,  other  professionals  in  the  financial  sector,  organisations  of  collective

investment and exchanges, and ii) the surveillance of markets of financial assets. Law Proposal 2

thus achieves the separation of central banking and prudential supervision as well as the bringing

together  of  public  control  attributions  with  regard  to  certain  parts  of  the  financial  sector.  The

ECB welcomes Law Proposal 2 to the extent that it purports to increase the stability of financial

institutions and markets.

Notwithstanding the above-mentioned views, the ECB submits that it may be advisable, in order

to  avoid  any  misunderstanding,  for  Law  Proposal  2  explicitly  to  exempt  the  BCL  from

supervision by the “Commission de surveillance du secteur financier”.

6. 

The ECB confirms that it has no objection to this Opinion being made public by the competent

Luxembourg authorities at their discretion.

 
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Done at Frankfurt am Main on 23 September 1998

The Vice-President of the ECB

[signed]

Christian Noyer