Opinion of the European Central Bank of 20 January 2004 at the request of the Economic Committee of the Finnish Parliament on the government proposal to amend the Suomen Pankki Act and other related acts (CON/2004/1)
Date: 2004-01-20
Institutions: European Central Bank
Subjects: Finland, banking supervision, capital increase, economic independence, national law, payment system, profit

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 20 January 2004 

at the request of the Economic Committee of the Finnish Parliament

on the government proposal to amend the Suomen Pankki Act and other related acts

(CON/2004/1)

Introduction

1.  On  22  December  2003  the  European  Central  Bank  (ECB)  received  a  request  from  the  Economic

Committee  of  the  Finnish  Parliament  for  an  opinion  on  a  government  proposal  (HE  134/2003)  to

amend  the  Suomen  Pankki  Act  (Laki  Suomen  Pankista  (214/1998))  of  27  March  1998,  the  Suomen

Pankki Officials Act (Laki Suomen Pankin virkamiehistä (1166/1998)) of 30 December 1998, and the

Financial  Supervision  Act  (Laki  Rahoitustarkastuksesta  (587/2003))  of  27  June  2003  (hereinafter  the

‘final  legislative  proposal’).  The  consultation  request  concerns  the  same  subject  matter  as  that

addressed  in  ECB  Opinion  CON/2003/22  of  15  October  2003  which  related  to  the  draft  government

proposal  (hereinafter  the  ‘draft  legislative  proposal’).  The  present  opinion  concerns  the  final

government proposal that was submitted subsequent to the ECB’s first  opinion. Like  the  first opinion

also  this  opinion  focuses  on  proposed  measures  affecting  Suomen  Pankki’s  financial  position  and

provisions relating to its power to issue norms. 

2. 

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

Treaty establishing the European Community and the third indent of Article 2(1) of Council Decision

98/415/EC  of  29 June  1998  on  the  consultation  of  the  ECB  by  national  authorities  regarding  draft
legislative  provisions1,  as  the  final  legislative  proposal  relates  to  the  national  central  bank  (NCB)  of

Finland  (Suomen  Pankki).  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.

Summary of the most important differences between the draft and the final legislative proposal

3. 

The draft legislative proposal suggested reducing the primary capital of Suomen Pankki. This reduction

would  have  forced  Suomen  Pankki  de  facto  to  sell  part  of  its  foreign  reserve  assets.  As  stated  in

CON/2003/22  the  ECB  considered  that  reducing  the  capital  combined  with  other  proposed  measures

1

OJ L 189, 3.7.1998, p. 42.

                                                     
affecting Suomen Pankki’s financial position and with a lack of statutory safeguards ensuring Suomen

Pankki’s ability to perform its ESCB-related and other tasks would have endangered Suomen Pankki’s

independence.  The  ECB  welcomes  the  fact  that  the  final  legislative  proposal  does  not  reduce  the

capital. The ECB also welcomes the fact that the final legislative proposal contains a clause aiming to

ensure  that  Suomen  Pankki  is  able  to  perform  its  ESCB-related  tasks,  although  this  clause  does  not

fully satisfy the requirements of financial independence as discussed below. 

General assessment of the proposed measures affecting Suomen Pankki’s independence

4. 

Article 109 of  the Treaty provides that  the  Member States  must ensure that  their national  legislation,

including the NCBs’ Statutes, is compatible with the Treaty and the Statute of the European System of

Central Banks and of the European Central Bank. Article 108 of the Treaty, reinforced by Article 7 of

the Statute, requires an NCB that forms part of the European System  of Central Banks  (ESCB) to be

independent. 

5. 

The  principle  of  financial  independence  of  central  banks  embedded  in  Article  108  of  the  Treaty

requires  that  ‘the  NCBs  be  in  a  position  to  avail  themselves  of  the  appropriate  means  to  ensure  that
their  ESCB-related  tasks  can  be  properly  fulfilled’2.  The  concept  of  financial  independence  also

requires that an NCB must, at all times, have sufficient financial means to carry out its other functions,

i.e.  to  perform  its  national  tasks,  to  meet  its  international  obligations,  and  to  cover  properly  its

administrative  and  operational  expenses.  It  should  also  be  taken  into  account  that  the  NCBs  have

commitments  also  regarding  their  foreign  reserve  assets  and  own  funds,  such  as  IMF-related

commitments.  Suomen  Pankki’s  national  tasks  include  those  related  to  financial  stability  and  crisis

prevention  and  management.  Although  systemic  crises  tend  to  be  rare  events  that  are  largely

unpredictable,  they  can  have  great  impact  on  the  economy  and  should  therefore  receive  appropriate

attention from central banks. In such cases, an NCB’s ability to act swiftly may prove to be particularly

valuable.  In  particular,  sufficient  financial  resources  will  assure  public  confidence  as  to  the  NCB’s

ability to intervene independently to tackle the crisis. This would also strengthen the credibility of its

public statements aimed at restoring confidence in the viability of the financial system as a whole. 

6. 

The final legislative proposal contains, inter alia, two measures, (i) an obligation to transfer 100% of

Suomen Pankki’s profits to the State, as a rule, and (ii) a strict limitation on Suomen Pankki’s right to

create  financial  provisions.  Without  proper  statutory  safeguards  ensuring  Suomen  Pankki’s  ability  to

perform its ESCB-related tasks, the combined effect of these measures will weaken Suomen Pankki’s

financial position over time, increasing the risk that it may not have sufficient resources in the future to

carry out its ESCB-related and other tasks and making it dependent on the decisions of third parties in

such situations. In view of the uncertainty about future financial demands on Suomen Pankki, it is vital

to have adequate margins and to safeguard the real value of the bank’s resources in relation to its tasks.

2

European Monetary Institute, Convergence Report, March 1998.

2

                                                     
In its present form, the final legislative proposal infringes the principle of financial independence with

regard  to  Suomen  Pankki.  Therefore,  the  ECB  concludes  that  the  final  legislative  proposal  is  still

incompatible with the Treaty and its intentions. Moreover, as the weakening of the financial position of

an NCB forming part of the ESCB/Eurosystem cannot be seen in isolation from the system as a whole,

the final legislative proposal will have an adverse effect on the credibility and financial standing of the

Eurosystem as a whole. 

Distribution of Suomen Pankki’s profit 

7. 

According to the final legislative proposal the rules on the allocation of Suomen Pankki’s profit would

be amended. The current Suomen Pankki Act states that half of the profit is credited as income to the

State and the other half is transferred to the reserve fund, unless the Parliamentary Supervisory Council

decides  to  allocate  the  profits  differently.  The  final  legislative  proposal  will  change  this  rule  and

establish the compulsory transfer of the entire annual profit of Suomen Pankki to the State. A decision

by  the  Parliamentary  Supervisory  Council  to  use  the  profit  differently  would  require  special

justification. 

8. 

The  ECB  is  seriously  concerned  with  regard  to  the  consequences  of  a  legislative  arrangement  under

which not even a share of Suomen Pankki’s profits is allocated to the reserve fund either automatically

or based on the independent and professional judgement of the Board  of Suomen Pankki  after taking

into account any possible future risks. The  wording  of  the  final  legislative proposal places  the use  of

possible  profits  for  such  purpose  at  the  sole  discretion  of  the  Parliamentary  Supervisory  Council.

Financial independence in Member States where  Government or Parliament  can directly  or  indirectly

exercise  influence  on  the  distribution  of  an  NCB’s  profit  requires  that  statutory  provisions  guarantee
that the proper performance of the NCBs’ ESCB-related tasks is not hindered4. 

9. 

Section 21.2 of the final legislative proposal acknowledges that the Parliamentary Supervisory Council

can decide  to alter  the profit allocation  in order to safeguard  the performance  of ESCB-related  tasks.

However, the wording of the clause, especially the use of the word ‘can’ instead of ‘must’, leaves the

discretion  of  opting  for  or  against  the  main  rule  (100%  to  the  State)  entirely  with  the  Parliamentary

Supervisory  Council.  Even  though  the  justification  for  Section  21.2  in  the  explanatory  memorandum

states  that  ‘the  allocation  of  profit  may  not  jeopardise  the  performance  of  Suomen  Pankki’s  ESCB-

related  tasks’,  the  ECB  considers  that  the  actual  drafting  of  the  statutory  clause  does  not  ensure  the

financial independence of Suomen Pankki required by Article 108 of the Treaty. For the sake of clarity

the ECB would point out that even if it were not proposed to transfer the whole profit to the State as a

rule but only  a part of it, the  final  legislative  proposal  would  still  infringe  the  requirement  of  central

bank independence set out in the Treaty if it allowed the Parliamentary Supervisory Council to refrain

from allocating profits to Suomen Pankki where the performance of ESCB-related tasks would require

4 

European Monetary Institute, Convergence Report, March 1998.

3

                                                     
such an allocation. 

10. 

In its report to the Economic Committee of the Finnish Parliament of 27 November 2003 the Finnish

Parliament’s Constitutional Committee considered that since Article 108 of the Treaty may in certain

circumstances  oblige  the  Parliamentary  Supervisory  Council  to  detract  from  the  main  rule  for  profit

allocation, the statutory law should not imply that the Parliamentary Supervisory Council has any kind

of discretion in such situations. The ECB fully supports this view.

Suomen Pankki’s right to make financial provisions

11.  The final  legislative proposal  would  abolish  Suomen  Pankki’s  right  independently  to  create  financial

provisions to safeguard the maintenance of the real value of its capital and reserves. The ECB stresses

that future financial and economic developments cannot be foreseen with any degree of certainty, and

therefore does not consider it justified for an NCB to be deprived of the opportunity of protecting itself

against the erosion of the real value of its capital in the longer term. 

12.  The final legislative proposal allows exchange rate risk and the risk of variation in the market value of

securities to be covered by making financial provisions. However, such provisions may only equal the

amounts of annual realised net profits resulting from these sources.  Where  such net  realised  gains do

not exist or are insufficient to cover future exposures, the final legislative proposal leaves the decision

of  allocating  regular  profits  to  the  general  reserve  fund  to  the  discretion  of  the  Parliamentary

Supervisory  Council.  This  arrangement  is  not  compatible  with  the  requirement  for  an  NCB  to  be

financially  independent,  as  the  professional  assessment  of  the  Board  of  Suomen  Pankki  regarding

coverage  of  future exposures  would, under the  final  legislative  proposal,  not  be  decisive  and  there  is

still no adequate safeguard that the rules concerning the allocation of regular profits would sufficiently

guarantee Suomen Pankki’s ability to take care of its current or future tasks.

Suomen Pankki’s power to issue norms regarding oversight

13.  The final legislative proposal grants Suomen Pankki certain limited powers to issue norms in order to

carry  out  its  duties  as  part  of  the  Eurosystem.  According  to  the  final  legislative  proposal,  the  norms

would only be addressed to those institutions that maintain or participate in such payment and clearing

systems  as  the  Finnish  Ministry  of  Finance  has  designated  under  the  Finnish  law  implementing  the
Settlement  Finality  Directive5.  As  the  final  legislative  proposal  remained,  to  some  extent,  unchanged

on this matter, the ECB would like to reiterate the views expressed in CON/2003/22. 

14.  Article 105(2) of the Treaty and Article 3.1 of the Statute include as a basic Eurosystem central bank

task  the  promotion  of  the  smooth  operation  of  payment  systems.  For  the  NCBs  of  the  participating

Member States, these Articles provide a legal basis for the oversight of payment systems functionally

5 

Directive  98/26/EC  of  the  European  Parliament  and  the  Council  of  19  May  1998  on  settlement  finality  in  payment  and
securities settlement systems, OJ L 166, 11.6.1998, p. 45.

4

                                                     
directly  linked  with  settlement  systems.  Within  the  Eurosystem,  oversight  activities  are  generally

performed at NCB level, in line with the common oversight policy defined for the Eurosystem by the
ECB’s  Governing  Council.  The  ECB  understands  that  in  line  with  the  NCBs’  oversight  function6,

Section 3 of the Suomen Pankki Act provides the legal basis for Suomen Pankki’s oversight function

by stipulating that it  will both participate in  maintaining  the  reliability  and efficiency  of  the payment

system and the overall financial system and assist in their development.

15.  The  ECB  supports  the  proposed  measure,  which  makes  it  easier  for  Suomen  Pankki  to  fulfil  its

oversight function in a sufficiently transparent way. The ECB notes, however, that the wording of the

final  legislative  proposal  appears  relatively  restrictive  and  could  prove  to  be  impracticable.  Firstly,

Suomen Pankki is responsible for overseeing the reliability and efficiency of the overall infrastructure

of the financial system, which includes securities settlement systems. Therefore, an  explicit  reference

in  the  Suomen  Pankki  Act  to  Suomen  Pankki’s  oversight  function  regarding  securities  clearing  and

settlement systems might be helpful for the sake of clarification. Secondly, given the broad oversight

function of Suomen Pankki, as described in the explanatory memorandum, it would be reasonable for

all payment and securities clearing and settlement systems to be brought under the regulatory powers

of  Suomen  Pankki,  regardless  of  whether  they  are  protected  by  the  Settlement  Finality  Directive.

Thirdly, ECB legal acts other than guidelines, instructions and regulations, such as decisions, as well as

ESCB-wide agreements, are excluded from the explicit wording of the final legislative proposal. ECB

decisions  that  bind  the  NCBs  are,  however,  referred  to  in  the  explanatory  memorandum.  The  ECB

notes that when adopting the Treaty Finland undertook to act in a manner enabling its central bank to

abide by the legal instruments of the ECB with binding effect on it. For the sake of greater clarity and

legal  certainty  the  ECB  would  like  to  invite  the  Finnish  Government  and  Parliament  to  extend  the

explicit  wording  of  the  final  legislative  proposal  to  cover  ECB  legal  instruments  binding  on  NCBs.

This could be done for example by linking Suomen Pankki’s power to issue norms to its obligation to

carry  out  its  tasks  as  part  of  the  ESCB,  as  is  acknowledged  in  the  explanatory  memorandum.  In  this

context, the ECB would point out that the NCBs are always bound by the content and parameters laid

down in ECB legal acts, which do not allow discretionary powers to be used when implementing them. 

6 

The  oversight  function  of  NCBs  has  been  described  in  detail  in  previous  ECB  opinions  published  on  its  website
http://www.ecb.int. For example see ECB Opinion CON/2003/14 of 7 August 2003 at the request of the Banca d’Italia on a
draft regulation on payment systems,  payment  infrastructures  and  payment  instruments  and  ECB  Opinion  CON/2003/15 of
8 August 2003 at the request of Sveriges Riksbank on a draft law amending the Sveriges Riksbank Act (not yet published).

5

                                                     
This opinion will be published on the ECB’s website.

Done at Frankfurt am Main on 20 January 2004. 

[signed]

The President of the ECB

Jean-Claude TRICHET

6