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)
Date: 2002-04-24
Institutions: European Central Bank
Subjects: Belgium, financial stability, financial supervision, national law

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 financial

sector and financial services (hereinafter referred to as ‘the draft proposal’). The draft proposal will

introduce a comprehensive system for the supervision of the financial sector, including provisions

on the coordination of the supervisory function. In addition, it provides specific rules on secondary

markets 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  of

Article 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  provisions1,  as  the  draft

proposal  contains  provisions  concerning  rules  applicable  to  financial  institutions  which  could

materially influence the stability of financial institutions and markets. In accordance with the first

sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, this opinion has

been 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 of

the  other  Member  States  of  the  European  Economic  Area.  The  definition  is  used  in  the  draft

proposal in Article 6 §1, which lists the subjects entitled to be admitted as members of the Belgian

regulated markets (provided that they satisfy the conditions laid down in Article 6 §2). Moreover, it

is noted that according to Article 27 §1, qualified intermediaries active in Belgium are requested to

adopt an internal code of conduct for ensuring the respect of the provisions of Article 24 and 25. In

addition,  the  definition  is  used  in  Article  31,  concerning  a  right  of  priority  over  financial

instruments and funds. The ECB notes that, in principle, national law cannot impose obligations on

the  ECB  and  Eurosystem  central  banks  with  regard  to  operations  conducted  as  part  of  the

Eurosystem's tasks and it could be helpful if Belgian law explicitly confirms this point.

1 

OJ L 189, 3.7.1990, p. 42.

                                                     
4. 

In  order  to  ensure  proper  external,  public  and  independent  control,  as  well  as  to  provide  market

undertakings with the appropriate means to operate under private law and without any public status

constraints,  the  ECB  understands  that  the  draft  proposal  envisages  a  further  increase  in  the

separation  between  the  supervision  of  compliance  with  legislation  concerning  public  policy

conferred  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 with

the  ECB  opinion  of  22  November  2001  on  the  proposal  for  a  directive  on  insider  dealing  and

market  abuse2,  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 statement

of reasons of the draft Belgian law (lack of efficiency of the supervisory structure, the confidential

nature of public service activities and the risk of conflict of interest). Therefore, the proposal that

public  authorities  assume  final  responsibility  for  supervising  compliance  with  Community  and

national  legislation  is  welcomed  by  the  ECB.  This  approach  is  also  consistent  with  the  views

expressed by the Commission in its recently revised orientations on the review of the Investment

Services 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 been

expressly  recognised  by  Article  33  of  the  draft  proposal.  The  ECB  also  notes  that  Articles  22

and 23  of  the  draft  proposal,  which  provide  for  a  general  framework  regarding  clearing  and

settlement,  give  the  King  the  competence  to  issue  more  detailed  legislation  by  means  of  royal

decrees. In accordance with the Council Decision 98/415/EC. The ECB would need to be consulted

on 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  various

infringements related to the financial markets which give rise to administrative sanctions imposed

by  an  independent  administrative  body,  namely  the  BFC.  The  draft  proposal  sets  out  rules

according to which no specific evidence of the use of fraudulent means is required to establish the

infringements and therefore impose sanctions, whilst still providing the person who has conducted

a  suspect  transaction  with  sufficient  safeguards.  The  effectiveness  of  the  legal  framework  in  the

fight  against  market  abuse is further  enhanced  by  the fact that  the  draft  proposal  also  allows  the

King 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  a

directive on insider dealing  and  market  manipulation, in  particular  as  the  draft  proposal  appoints

the  BFC  as  the  single  administrative  authority  competent  to  handle  infringements  related  to  the

financial  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.

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confidence  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 regarding

infringements  which  give  rise  to  administrative  sanctions  (Article  25  §1,  1°).  An  identical

exemption is foreseen for the provisions regarding infringements giving rise to criminal sanctions

(Article  40  §6,  1°).  In  line  with  the  Commission  proposal  for  a  directive  on  insider  dealing  and

market 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 the

exemption  be  extended  to  cover  not  only  monetary  policy  and  foreign  exchange  operations,  but

also  operations  carried  out  by  the  central  banks,  or  on  their  behalf,  relating  to  foreign  reserve

management, in order to enable the ESCB to carry out those basic tasks as part of Article 105(2) of

the  Treaty.  In  the  ECB’s  view  the  exemption  included  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 these

provisions 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  structure

perceived  by  the  ECB  is  the  envisaged  reinforcement  of  the  cooperation  mechanisms  among

supervisory authorities, and between them and the central bank. The draft proposal rightly points to

the  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  to

adequately monitor risks to financial stability at the national level and to enable the Eurosystem in

turn  to  contribute  adequately  to  the  monitoring  process  from  the  perspective  of  an  area.  In  this

context, 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  the

establishment  of  two  bodies  to  promote  coordination:  the  ‘Supervisory  Board  of  the  Financial

Services 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 intended

to assure effective coordination among the three institutions in light of the dynamic environment in

which banks and other financial institutions operate as well as to make the international dimension

of supervision possible. The ECB would like to point  out that  the  provisions  concerning  the  two

bodies could clarify better their particular advisory and decision-making competencies. This is in

order  that  the  effectiveness  of  the  coordination  process  is  not  affected  by  possible  uncertainties

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regarding  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 be

clearly  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  the

existence or non-existence of decision-making competencies of this committee from the combined

reading  of  the  relevant  articles  of  the  draft  proposal  and  the  comments  on  these  articles.  The

articles refer to deliberations of this committee that are without prejudice to the responsibilities of

one 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 to

the  committee itself  and  the  management  boards  of  the  NBB,  BFC  and  ICO,  is  introduced.  This

could 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 where

the 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  and

transparent 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 establishment of the Financial Stability Committee

as a policy coordination body, the ECB considers that it should be clarified by means of a specific

provision  that  the  tasks  attributed  to  this  committee  must  not  compromise  the  independent

pursuance 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 ‘crisis

management’, which may directly concern certain functions of the central bank. In this context, the

ECB would also see value in attributing to the central 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  and

Organic Law would prove beneficial to the institutional framework proposed in the draft proposal.

Central banks are in general in an advantageous position to contribute to the pursuance of financial

stability,  both  on  an  ongoing  basis  and  in  crisis  management  situations,  given  their  insight  into

monetary and financial market developments and involvement in payment systems and  monetary

policy operations. This would also clarify the contribution of the central bank to the activities of the

Financial Stability Committee. Second, the above consideration is also relevant with regard to the

Financial  Stability  Committee’s  task  of  working  on  issues  relating  to  the  interaction  between

prudential  control  and  the  ‘oversight’  of  payment  systems.  The  ECB  notes  that  this  should  be

4

without 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 the

provisions laid down in Article 105(2) of the Treaty. Lastly, the ECB considers that the pooling of

personnel  resources  to  the  activities  of  the  Financial  Stability  Committee,  as  foreseen  by

Article 118, should be done in a manner that does not compromise the central bank’s autonomy in

the pursuance of its statutory tasks, including its desirable contribution to the pursuance of financial

stability.  In  this  context,  it  is  noted  that  the  draft  proposal  contains  references  to  future  royal

decrees,  which  could  be  used  to  introduce  far-reaching  amendments  to  the  intended  institutional

structure and its coordination mechanisms. The ECB understands that the Belgian authorities will

consult 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  supervisory  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 current

structures in light of the requirements of sound corporate governance to assure efficient, transparent

and predictable intra-institutional procedures in the future. To that end, the draft proposal aims at

establishing  a  clear  separation  between  management  and  controlling  tasks  as  well  as  a  clear

allocation of responsibilities regarding inquiries and decisions taken as a result thereof. Against this

background, the ECB emphasises the need to insert in the draft proposal a provision according to

which  the  members  of  the  management  boards  would  act  freely  in  their  personal  capacity.  This

would  avoid any  inter-institutional  coordination  burden  prior  to  decision-making  that  could  arise

otherwise. 

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

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