Opinion of the European Central Bank of 28 February 2003 at the request of the Danish Financial Supervisory Authority on a draft law replacing the Financial Business Act and a draft law on the Mortgage Loans and Mortgage Bonds Act (CON/2003/2)
Date: 2003-02-28
Institutions: European Central Bank
Subjects: Denmark, electronic money, financial stability, financial supervision, mortgage, national law, payment system

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 28 February 2003

at the request of the Danish Financial Supervisory Authority

on a draft law replacing the Financial Business Act and a draft law on the Mortgage Loans and

Mortgage Bonds Act

(CON/2003/2)

1. 

On  24  January  2003  the  European  Central  Bank  (ECB)  received  a  request  via  Danmarks

Nationalbank  from  the  Finanstilsynet  (Danish  Financial  Supervisory  Authority)  on  behalf  of  the

Økonomi- og Erhvervsministeriet (Ministry of Economics and Business Affairs) for an opinion on a

draft law replacing the Lov om finansiel virksomhed (Financial Business Act) and a draft law on the

Lov om realkredit og realkreditobligationer m.v. (Mortgage Loans and Mortgage Bonds Act).

2. 

The ECB’s competence to deliver an opinion is based on Article 105(4) of the Treaty establishing

the European Community and Article 2(1), fifth and sixth indents concerning payment systems and

the stability of financial institutions and markets, of Council Decision 98/415/EC of 29 June 1998 on

the  consultation  of  the  European  Central  Bank  by  national  authorities  regarding  draft  legislative
provisions1,  as  the  legislative  proposals,  amongst  other  things,  contain  provisions  concerning

(i) electronic  money  institutions,  (ii)  license  to  run  financial  businesses,  (iii)  best  practice,

(iv) management and speculative transactions, (v) divulging confidential information, (vi) solvency

(vii) investment of funds and liquidity and (viii) interest-only loans for a period of up to 10 years to

private real estate and weekend cottages owners. In accordance with the first sentence of Article 17.5

of  the  Rules  of  Procedure  of  the  European  Central  Bank,  the  Governing  Council  of  the  ECB  has

adopted this opinion.

3. 

In December 2000 and February 2002 the ECB was consulted on two draft laws relating to the Lov

om finansiel virksomhed (CON/00/32) and (CON/2002/10). The intention behind these drafts was to

ensure the simplification and increased consistency of Danish financial business legislation. In both

instances the ECB welcomed the fact that a further review of the financial business legislation would

be carried out at a later stage. This objective is now one of the aims of the current draft laws. The

ECB  welcomes  the  fact  that  the  current  drafts  contribute  to  legal  reform  by  further  harmonising,

codifying  and  restructuring  legislation.  The  current  draft  laws  contribute  to  harmonisation  by

proposing,  amongst  other  things,  a  considerable  reduction  in  the  number  of  financial  laws  and

1

OJ L 189, 3.7.1998, p. 42.

                                                     
provisions. Thus, the  Lov om banker og sparekasser  (The  Commercial  Banks  and  Savings  Banks,

etc. Consolidated Act), the Lov om fondsmæglerselskaber (Stockbroker Companies Act), the Lov om

realkredit (Mortgage Credit Act), the Lov om forsikringsvirksomhed (Insurance Companies Act), the

Lov  om  udstedere  af  elektroniske  penge  (Electronic  Money  Institutions  Act)  and  the  Lov  om

sparevirksomheder (Savings Banks Act) would all be repealed.

4. 

The bulk of the provisions in the draft Financial Business Act, which replaces the current Financial

Business Act, constitute the provisions contained in the latter together with the provisions of the six

abovementioned  repealed  Acts.  As  a  consequence,  the  majority  of  its  provisions  do  not  actually

change the present state of the law. It should be noted that a number  of the  provisions  taken  over

from existing legislation have not yet been reviewed in the Danish legislative process. Consideration

should  be  given  to  the  further  harmonisation  and  streamlining  of  these  provisions.  The  draft  laws

propose substantial amendments on certain matters of relevance to the ECB and these are addressed

below.The draft Mortgage Loans and Mortgage Bonds Act is also part of the financial law reform.

The bulk of its provisions are taken  over  from  the  Mortgage  Credit  Act,  which is repealed  by  the

draft law. The most substantial change is the proposal to allow mortgage bond institutions to offer

owners  of  private  real  estate  and  weekend  cottages  interest-only  mortgages  for  a  period  of  up  to

10 years (as is already the case for professional borrowers). 

5. 

To  the  extent  that  the  draft  laws  implement  directives  such  as  Council  Directive  93/6/EEC  of
15 March  1993  on  the  capital  adequacy  of  investments  firms  and  credit  institutions2  and  Council
Directive  93/22/EEC  of  10  May  1993  on  investment  services  in  the  securities  field3,  the  Danish

authorities  are  not  obliged  to  consult  the  ECB,  in  accordance  with  Article  1(2)  of  Council

Decision 98/415/EC.

6. 

The existing provisions of the Lov om udstedere af elekroniske penge (Electronic Money Institutions

Act),  which  implements  Directive  2000/46/EC  of  the  European  Parliament  and  of  the  Council  of

18 September  2000  on  the  taking  up,  pursuit  of  and  prudential  supervision  of  the  business  of
electronic money institutions4, are transferred to chapter 19 of the draft Financial Business Act, c.f.

Section  1(8) of the  draft law. The  ECB  considers, however,  that  Section  1(8)  should  also  refer  to

chapter 2 (“Definitions”), since this would avoid any interpretative doubts as to whether electronic

money institutions are covered by the definition of credit institutions contained in Section 5 of the

draft Financial Business Act in accordance with Article 1 of Directive 2000/12/EC of the European

Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the business
of credit institutions5, as amended by Directive 2000/28/EC of the European Parliament and of the
Council  of  18  September  20006.  According  to  the  definition  contained  in  Article  1(1)b  a  credit

institution  shall,  apart  from  the  traditional  credit  institutions  governed  by  Article  1(1)a,  mean  ‘an

2 
3 
4 
5 
6 

OJ L 141, 11.6.1993, p. 1.
OJ L 141, 11.6.1993, p. 27.
OJ L 275, 27.10.2000, p. 39.
OJ L 126, 26.05.2000, p. 1.
OJ L 275, 27.10.2000, p. 37.

2

                                                     
electronic money institution within the meaning of Directive 2000/46/EC … ’. Both in the interests

of the smooth functioning of payments systems and for monetary policy reasons in general the ECB

aims to achieve a consistent definition of credit institutions throughout the European Communities.

7. 

The  substantial  content  of  the  provisions  on  “best  practices”  (chapter  6  of  the  draft  Financial

Business  Act)  is  taken  over  from  the  existing  rules  on  which  the  ECB  commented  positively  in

connection with (CON/00/32) and (CON/2002/10). The changes currently proposed further simplify

the rules on best practices by stating that detailed provisions for specific types of financial entities

shall be established in the future in executive orders.

The  provisions  on  management  and  speculative  transactions  (chapter  8  of  the  draft  Financial

Business Act) uphold the existing rules laying down certain qualifications and integrity requirements

for  the  members  of  the  boards  of  financial  institutions.  In  this  connection  the  ECB  takes  note  of

Section 350  of  the  draft  Financial  Business  Act,  according  to  which  the  Financial  Supervisory

Authority  is  competent  to  oblige  a  financial  entity  to  remove  a  member  of  its  board  if  the  board

member is no longer able to fulfil his/her duties. The ECB welcomes the increased powers vested in

the  Financial  Supervisory  Authority  in  this  area  which  bring  it  into  line  with  international

supervisory standards and has positive implications for the maintenance of financial stability and for

crisis management. Furthermore, the ECB welcomes the way in which the provisions relating to the

persons  and  financial  activities  covered  by  the  prohibition  against  speculative  transactions  are

amended, in particular by Section 76 of the draft Financial Business Act. The ECB understands that

the  existing  prohibition  applies  only  to  persons  fulfilling  certain  types  of  job  category  whilst  the

proposed scope is directed at the actual tasks that company employees perform. The prohibition is

thus more precisely targeted at the type of risks that the rules are intended to counter. The fact is also

welcomed that, due to the long-standing Danish policy of a fixed exchange rate between the Danish

kroner and the euro, the existing restriction on euro positions is abolished and no longer covered by

the  prohibition  against  speculative  transactions.  The  provisions  on  adjustment  or  termination  of

business  (chapter  14  of  the  draft  Financial  Business  Act)  are  largely  unchanged  and  remain  in

accordance  with  secondary  Community  legislation.  The  ECB  notes  that  Section  203  now

specifically  mentions  that  merger  with  or  acquisition  by  foreign  institutions  also  requires  the

authorisation of the Danish Financial Supervisory Authority and welcomes the legal clarity created

by this provision.

8. 

The  most  important  innovation  proposed  by  the  draft  Mortgage  Loans  and  Mortgage  Bonds  Act

(Section 4) is the liberalisation that allows mortgage bond institutions to offer owners of private real

estate  and  weekend  cottages  the  option  of  paying  only  the  interest  and  no  principal  (interest-only

loan) for a period of up to  10  years (as it is already  the  case for professional borrowers). To  date

these  owners  have  not  been  allowed  to  amortise  their  mortgages  more  slowly  i.e.  to  pay  less

principal than according to a 30-year annuity. It is noted, however, that; 

(cid:1) 

the proposal only provides for a slower repayment profile, with a greater part of the repayment

on the final maturity date, and does not allow for an extension of the maximum maturity of a

3

mortgage, which remains unchanged at 30 years (35 years if special guarantees are available);

and 

(cid:1) 

(cid:1) 

the  unchanged  maximum  limit  for  the  size  of  the  mortgage  relative  to  the  value  of  the

underlying  real  estate  needs  to  be  respected  throughout  the  duration  of  the  mortgage;  and

finally

the  so-called  “balancing”-principle  ensures  that  the  mortgage  bond  institutions  will  need  to

hedge  any  interest  rate  risk  that  may  result  from  granting  any  such  loans  with  a  slower

repayment profile.

Accordingly  it  is  understood  that  the  proposal,  which  offers  Danish  owners  of  real  estate  certain

financing  opportunities  that  are  already  available  in  other  EU  countries,  does  not  substantially

change  the  risk  profile  of  mortgage  bond  institutions  and  the  bonds  they  are  issuing.  The  ECB

therefore  assumes  that  the  proposal  would  have  no  impact  as  regards  the  compliance  of  Danish
mortgage bonds with Article 22(4) of Council Directive 85/611/EEC7. Compliance with the UCITS

Directive means that from a risk profile viewpoint the proposal does not impact upon the eligibility

of  these  bonds  as  underlying  collateral  for  Eurosystem  credit.  However,  new  aspects  of  Danish

Mortgage Bonds would obviously also need to comply with the other criteria listed in the ‘General

documentation on ESCB monetary policy instruments and procedures’ annexed to the Guideline of

the European Central Bank of 7 March 2002 amending Guideline ECB/2000/7 on monetary policy
instruments  and  procedures  of  the  Eurosystem  (ECB/2002/2)8  in  order  to  qualify  as  collateral  for

Eurosystem credit.

9. 

The ECB confirms that it has no objection to the competent national authorities making this opinion

publicly  available  at  their  discretion.  This  opinion  will  be  published  on  the  ECB’s  website  six

months after the date of its adoption.

Done at Frankfurt am Main on 28 February 2003.

The President of the ECB

[signed]

Willem F. DUISENBERG

7 

8 

Council  Directive  85/611/EEC  of  20  December  1985  on  the  coordination  of  laws.  Regulations  and  administrative
provisions relating to undertakings for collective investment in transferable securities (UCITS), OJ L 375, 31.12.1985, p. 3.
OJ L 185, 15.7.2002, p. 1.

4