Opinion of the European Central Bank of 22 September 2004 at the request of Národná banka Slovenska on a draft law on supervision of the financial market and on amendments to certain laws (CON/2004/31)
Date: 2004-09-22
Institutions: European Central Bank
Subjects: Slovakia, central bank, financial stability, financial supervision, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 22 September 2004  

at the request of Národná banka Slovenska on a draft law on supervision of the financial market 

and on amendments to certain laws 

(CON/2004/31) 

1. 

On  5  August  2004,  the  European  Central  Bank  (ECB)  received  a  request  from  Národná  banka 

Slovenska  (NBS)  for  an  opinion  on  a  draft  law  on  supervision  of  the  financial  market  and  on 

amendments to certain laws (hereinafter the ‘draft law’).  

2. 

The ECB’s competence to deliver an opinion is based on the third and sixth indents of Article 2(1) 

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 draft law contains provisions 

concerning  the  Slovak  national  central  bank  and  rules  applicable  to  financial  institutions  that 

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,  the  Governing 

Council has adopted this opinion. 

3. 

The main purpose of the draft law is to establish the legal framework for integrated supervision of 

the financial market by NBS. Under the draft law, the responsibility of the Slovak Financial Market 

Authority (FMA) for supervision of the non-banking financial market (capital markets, insurance 

business  and  pension  schemes)  will  be  transferred  to  NBS  on  1  January  2006.  Currently  NBS  is 

only responsible for the supervision of credit institutions. If the proposal goes ahead, the FMA will 

be dissolved on 1 January 2006. 

4. 

As  explained  in  the  reports  of  the  expert  commissions  established  by  the  Slovak  Government  to 
prepare the draft law2, the existence of a relatively small financial market in the Slovak Republic 

led to the proposal to make a single authority responsible for financial market supervision. Various 

options were considered. The decisive reason for allocating this task to NBS was its independence, 
which  is  guaranteed  by  Article  56  of  the  Constitution  of  the  Slovak  Republic3.  Other  essential 

reasons  taken  into  consideration  were:  (i)  NBS’s  credibility;  and  (ii)  the  experience  of  its  staff, 

1  
2  

3  

OJ L 189, 3.7.1998, p. 42. 
Four expert commissions have been established under the Financial Market Integrated Supervision Implementation Plan 
adopted by the Slovak Government pursuant to Resolution No 775 of 21 August 2003. 
No 460/1992 Coll. as last amended by Constitutional Act No 323/2004 Coll. 

 
 
 
                                                 
acquired  in  carrying  out  its  current  tasks  and  more  particularly  through prudential  supervision  of 

credit institutions on the basis of Act No 483/2001 Coll. on banks. 

5. 

As previously stated, NBS is currently responsible for supervising credit institutions only. The draft 

law  will  therefore  considerably  broaden  its  existing  supervisory  powers.  NBS  will  become  the 

competent  authority  for  supervision  of  the  entire  Slovak  insurance  sector  including  reinsurance 

companies  and  of  the  capitalisation  pillar  of  compulsory  pension  insurance  (i.e.,  old  age  pension 

savings).  NBS  will  also  assume  all  of  the  FMA’s  current  powers  in  the  field  of  capital  market 

supervision. It will therefore become the competent authority for supervision of investment firms, 

stock exchanges, central securities depositories, asset management companies and mutual funds. It 

will  also  be  designated  as  the  competent  authority  within  the  meaning  of  a  number  of  recently 

adopted Community Directives which have not yet been transposed into Slovak law, in particular 
the  Market  Abuse  Directive4,  the  Prospectus  Directive5,  the  Takeover  Bids  Directive6  and  the 
Markets in Financial Instruments Directive7. NBS’s regulatory powers will also be broadened. Its 

existing power to issue decrees and measures in the field of banking will be extended to the capital 

market  and  to  the  insurance  and  pensions  sectors.  After  the  reform,  NBS  will  be  able  to  adopt 

implementing regulations: (i) for the capital market and the insurance sector in cooperation with the 

Slovak Ministry of Finance; and (ii) for the pension savings sector in cooperation with the Ministry 

of Finance and the Ministry of Labour, Social Affairs and the Family. 

6. 

The ECB notes that the specific laws governing supervision of each financial market sector will be 

amended pursuant to the draft law. The provisions currently conferring supervisory and regulatory 

powers  on  the  FMA  will  be  amended  in  order  to  transfer  these  powers  to  NBS.  Transitional 

provisions forming part of the amendments to these specific laws expressly indicate that the NBS 

will complete any administrative proceedings started by the FMA. 

7. 

The ECB notes that the draft law, when adopted, will establish a structure that is currently unique 

within  the  European  Union  by  making  a  national  central  bank  directly  and  fully  responsible  for 

supervision  of  a  Member  State’s  entire  financial  market.  The  ECB  understands  that  in  Member 

States  with  a  relatively  small  financial  market,  such  as  the  Slovak  Republic,  there  are  good 

arguments  for  concentrating  supervisory  responsibilities  in  the  hands  of  a  single  authority.  The 

ECB welcomes the fact that NBS’s independence, credibility and experience have been considered 

as decisive reasons for the Slovak Government to propose appointing it for this task.  

4  

5  

6  

7  

Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market 
manipulation (market abuse) (OJ L 96, 12.4.2003, p. 16). 
Directive  2003/71/EC  of  the  European  Parliament  and  of  the  Council  of  4  November  2003  on  the  prospectus  to  be 
published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (OJ L 345, 
31.12.2003, p. 64). 
Directive  2004/25/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on  takeover  bids  (OJ  L  142, 
30.4.2004, p. 12). 
Directive  2004/39/EC  of  the  European  Parliament  and  of  the  Council  of  21  April  2004  on  markets  in  financial 
instruments  amending  Council  Directives  85/611/EEC  and 93/6/EEC  and  Directive 2000/12/EC  of  the  European 
Parliament and of the Council and repealing Council Directive 93/22/EEC (OJ L 145, 30.4.2004, p. 1). 

2 

 
                                                 
8. 

Under  Article  14.4 of  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European 

Central  Bank,  the  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  European  System  of  Central  Banks 

(ESCB).  Such  functions  are  performed  on  the  responsibility  and  liability  of  the  national  central 

banks and are not regarded as being part of the functions of the ESCB.  

9.  Without  prejudice  to  the  Governing  Council’s  powers  to  take  action  under  Article  14.4  of  the 

Statute, the ECB considers that the proposed extension of NBS’s supervisory tasks is compatible 

with its ESCB-related tasks. In particular, the ECB welcomes the fact that the task of performing 

prudential  supervision  of  all  financial  intermediaries  will  be  allocated  to  NBS.  The  proposed 

institutional framework for prudential supervision has the potential to cope with increasing cross-

sectoral interlinkages in the financial system. Indeed, the nature and scope of risk in the financial 

sector is widening due to closer links between credit institutions, insurance companies, investment 

firms  and  pension  funds.  The  traditional  borders  between  the  banking,  securities  and  insurance 

sectors  of  the  financial  market  are  becoming  increasingly  blurred,  as  demonstrated  by  the 

emergence  of  hybrid  financial  products,  the  increased  use  of  risk  transfer  instruments  and 

distribution  agreements  between 
conglomerates8. 

the 

three  sectors,  and 

the  growing  role  of  financial 

10.  The  ECB  takes  note  that  the  draft  law  is  oriented  towards  recognising  the  essential  role  to  be 

played  by  NBS  in  safeguarding  the  stability  and  credibility of  the  financial  market,  as  well  as  in 

protecting  clients.  While  the  ECB’s  overall  assessment  of  this  structure  is  positive,  it  favours 

recognising in the supervisory framework the clear distinction between the two goals of financial 

stability  and  investor  protection.  In  particular,  the  draft  law  should  clearly  emphasise  the 

importance  of:  (i)  the  safety  and  soundness  of  financial  institutions;  and  (ii)  the  stability  of  the 

entire  financial  system.  The  micro-prudential  approach  in  the  draft  law  could  be  coupled  with  a 

macro-prudential  dimension,  which  might  result  in  more  effective  monitoring  of  systemic  risk. 

There is a close relationship between prudential controls applied to individual intermediaries and 

the assessment of risks for the financial system as a whole. Therefore, the ECB would welcome it if 

the draft law explicitly recognised, as is the case in the statutes of other Member States’ national 

central  banks,  that  NBS  has  the  task  of  contributing  to  the  stability  of  the  financial  system  as  a 
whole9. Central banks’ focus on systemic stability means that they can better  assess not only the 

likelihood and the potential impact of macro-shocks or disturbances in domestic and international 

capital  markets,  but  also  the  operation  of  common  factors  affecting  the  stability  of  groups  of 

intermediaries. 

8  

9  

See also paragraph 5 of ECB Opinion CON/2004/16 of 11 May 2004 at the request of the Italian Ministry of Economic 
Affairs and Finance on a draft law on the protection of savings. 
Also  the  current  wording  of  Articles  2(2)(d)  and  36(1)  of  Act  No  566/1992  Coll.  on  Národná  banka  Slovenska,  as 
amended, refers to the safe operation of the banking system. 

3 

 
                                                 
11.  The  draft  law  provides  for  an  organisational  unit  of  NBS,  established  in  accordance  with  NBS’s 

organisational  rules  and  designated  as  the  ‘financial  market  supervision  unit’  (hereinafter  the 

‘supervision unit’) to carry out on and off-site supervision and, as a rule, also to act as the decision-

making body in the first instance. The supervision unit will exercise its tasks under the managerial 

responsibility of the Vice-Governor of NBS, who will also adopt its decisions. § 2(10) of the draft 

law explicitly states that in supervising supervised entities, the supervision unit will act ‘separately, 

independently  and  impartially,  in  accordance  with  the  draft  law  and  specific  laws’.  NBS’s  Bank 

Board  (hereinafter  the  ‘Bank  Board’)  will  rule  on  appeals  against  the  supervision  unit’s  first 

instance decisions. The supervision unit will be bound by decisions of the Bank Board and in turn 

by court decisions taken on administrative review of such decisions.  

12.  The ECB has examined the provisions of the draft law relating to the supervision unit particularly 

with a view to avoiding ambiguity with regard to allocation of responsibilities for supervision. The 

ECB  understands  that  the  draft  law  will  not  establish  a  body  responsible  for  supervision 

functioning autonomously within the framework of NBS. Instead, the aim is to establish NBS itself 

as  the  competent  authority  directly  and  fully  responsible  for  supervision  of  the  entire  Slovak 

financial  market.  This  approach  implies  that  the  Bank  Board  is  ultimately  responsible  for 

supervision. NBS’s internal governance structure should therefore appropriately reflect the fact that 

the exercise of supervisory tasks is under the ultimate control of the Bank Board. Ambiguity in this 

respect could impinge on NBS’s institutional and financial independence as well as its reputation.  

13.  The ECB understands from the explanations provided by the supporting documents to the draft law 

and  by  NBS  itself  that  the  draft  law  together  with  Act  No  566/1992  Coll.  on  Národná  banka 

Slovenska  ensure  that  the  Bank  Board  will  have  the  power  to  issue  general  guidelines  on  the 

exercise  of  supervisory  tasks  by  the  supervision  unit  as  well  as  to  any  of  NBS’s  other  business 

units. It also understands that the Bank Board will have access, where necessary, to all information 

concerning the financial situation of supervised entities and supervised transactions on the capital 

markets. In addition, the draft law explicitly provides that the Bank Board may issue warnings to 

the supervision unit if it fails to commence proceedings when it is under an obligation to do so, or 

fails to take a decision within the time limit prescribed by law. If the supervision unit still fails to 

take  a  decision  in  accordance  with  such  a  warning,  the  Bank  Board  may  appoint  another  NBS 

organisational unit to take the decision concerned. 

14.  The  ECB  considers  that  the  proposed  system  of  warnings  coupled  with  the  ability  to  transfer 

decision-making  power  from  the  supervision  unit  to  another  NBS  organisational  unit  fails  to 

recognise  the  prominent  role  that  the  Bank  Board  should  play  in  some  situations,  particularly  in 

crisis situations threatening the stability of the financial system. The proposed system could prove 

too  cumbersome  in  such  situations,  where  important  decisions  must  sometimes  be  taken  rapidly. 

The  Bank  Board  must  be  in  a  position  to  manage  such  situations  effectively  and  efficiently. The 

ECB therefore recommends clarifying in the draft law that the Bank Board will have full power to 

4 

 
intervene, if necessary directly, in the decision-making process relating to NBS’s performance of 

its supervisory tasks.  

15.  The  ECB  has  also  examined  the  possible  impact  of  the  proposed  reform  on  NBS’s  financial 

situation.  In  this  respect,  the  ECB  notes  that  NBS  will  no  longer  have  to  fully  fund  prudential 

supervision of the banking sector. After the reform, supervised credit institutions will be asked to 

contribute  to  supervision  costs  in  accordance  with  the  provisions  of  an  NBS  decree  adopted  in 

agreement  with  the  Ministry  of  Finance.  The  ECB  also  notes  that  supervision  of  the  insurance 

sector and of the capital market has until now been fully funded by market participants and that this 

financing system will be maintained after the reform. Finally, the ECB notes that the Slovak State 

is liable for all possible claims arising due to damage caused by activities performed by the FMA in 
the exercise of its supervsiory tasks10. 

16.  The  ECB  would  appreciate  being  provided,  for  information  purposes,  with:  (i)  any  proposed 

amendments to the draft law in relation to the issues addressed in this opinion; and (ii) a detailed 

description of the proposed organisational scheme and division of supervisory powers both within 

the supervision unit and within NBS as a whole from 1 January 2006.  

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

Done at Frankfurt am Main, 22 September 2004. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

10  

Pursuant to Article 4(1)(c) of Act No 514/2003 Coll. on liability for damage caused by discharge of public authority.  

5