Opinion of the European Central Bank of 15 July 2005 at the request of the Ministry of Finance of the Czech Republic on a draft law on the integration of financial market supervisors (CON/2005/24)
Date: 2005-07-15
Institutions: European Central Bank
Subjects: Czechia, financial supervision, institutional reform, national law, payment system, supervisory power

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 15 July 2005 

at the request of the Ministry of Finance of the Czech Republic 

on a draft law on the integration of financial market supervisors 

(CON/2005/24) 

1. 

On  31  May  2005  the  European  Central  Bank  (ECB)  received  a  request  from  the  Ministry  of 

Finance  of  the  Czech  Republic  for  an  opinion  on  a  draft  law  on  the  amendment  of  laws  in 

connection  with  the  integration  of  financial  market  supervisors  (hereinafter  the  ‘draft  law’).  The 

draft law represents the first stage in a broad reorganisation of financial market supervision in the 
Czech Republic. The draft law amends a number of  separate laws1 and it is proposed that it will 

enter into force on 1 January 2006 (hereinafter the ‘effective date’). 

2. 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  the  first,  second,  third,  fifth  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  provisions2  as  the  draft 

law relates to currency matters, means of payment, a national central bank, payment and settlement 

systems and also 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. 

Integration of financial market supervisors 

3. 

The draft law reorganises financial market supervision in the Czech Republic in several respects. 

The main change is to reduce the number of financial market regulators from four to two. Under 

the draft law, both the Office for the Supervision of Cooperative Banks (OSCB) (a separate state 

supervisory body) and the Office for the Supervision of Insurance and Pension Funds (which forms 

part of the Ministry of Finance) will cease to exist. Instead, the two regulators will be the Securities 

Commission, which will be renamed the Financial Market Commission, and Česká národní banka 

1  

2  

The  draft  law  provides  for  amendments  to  27  existing  laws  including  the  Act  establishing  ministries  and  other  central 
administrative  bodies  of  the  Czech  Republic  No  2/1969  Coll.,  as  amended,  the  Act  on  the  Securities  Commission  No 
15/1998 Coll., as amended, the Act on Česká národní banka No 6/1993 Coll., as amended (hereinafter the ‘ČNB Act’), 
the Act on insurance No 363/1999 Coll., as amended, the Act on supplementary pension insurance with state contribution 
No 42/1994 Coll., as amended, the Act on savings and credit cooperatives No 87/1995 Coll., as amended (hereinafter the 
‘Cooperative  Banks  Act’),  the  Act  on  the  financial  arbiter  No  229/2002  Coll.,  as  amended  and  the  Act  on  banks 
No 21/1992 Coll., as amended. 
OJ L 189, 3.7.1998, p. 42. 

 
 
 
                                                      
(ČNB). The responsibilities of the Office for the Supervision of Insurance and Pension Funds will 

pass  to  the  Financial  Market  Commission.  ČNB  will  be  responsible  for  supervising  savings  and 

credit  cooperatives  (hereinafter  ‘cooperative  banks’),  including  their  participation  in  designated 
payment systems licensed by ČNB under a separate law3.  

4. 

The ECB welcomes in principle the changes to the organisation of financial market supervision and 

oversight in the Czech Republic laid down by the draft law. The streamlining of financial market 

supervision into just two authorities should prevent inefficient overlaps and create a basis for more 

efficient supervision over financial institutions and markets in the Czech Republic. In that context, 

the  fact  that  the  responsibility  for  supervising  banks,  foreign  branches  and  also  now  cooperative 

banks is being placed under one roof within ČNB constitutes a positive development.   

5. 

As set out in the explanatory memorandum accompanying it, the draft law represents the first stage 

in  a  broad  reorganisation  of  financial  market  supervision  and  oversight  in  the  Czech  Republic. 

During the second stage of this reorganisation, which is intended to take place, at the latest, when 

the Czech Republic adopts the euro, it is intended to merge the supervisory functions of both ČNB 

and  the  Financial  Market  Commission  into  a  single  supervisory  authority.  The  ECB  should  be 

formally consulted on this future legislative initiative. However,  as it is not clear at this  moment 

whether  any  future  single  supervisory  authority  will  be  within  or  outside  ČNB,  the  ECB  would 

already  at  this  stage  like  to  draw  attention  to  the  need  to  ensure  that  ČNB  can  perform  its  tasks 

smoothly  in  relation  to  financial  stability  and  the  oversight  of  payment  and  securities  settlement 

systems (for the latter, see paragraphs 13 to 15 below).   

Supervision of cooperative banks 

6. 

Under  the  draft  law,  responsibility  for  the  supervision  of  cooperative  banks  is  assigned  to  ČNB. 

While  cooperative  banks  remain  governed  by  specific  legislation  and  do  not  fall  under  the 

legislation governing other banks, they will be supervised largely on the same basis as other banks, 

for  example  as  regards  licence  terms,  prudential  rules  and  notification  obligations.  In  particular, 

cooperative  banks  will  be  required  to  observe  the  same  minimum  reserve  requirements  as  those 

applicable to banks and branches of foreign banks. They will also be required to participate in the 

deposit insurance scheme for banks and to contribute a fixed annual percentage of their deposits to 

the Deposits Insurance Fund, as banks and branches of foreign banks currently do under the Act on 

banks.  Unlike  its  powers  vis-à-vis  banks  and  branches  of  foreign  banks,  however,  ČNB  will  not 
have statutory powers to impose a regime of enforced administration4 on a cooperative bank.  

3  

4    

Under the Act on payment systems No 124/2004 Coll. as amended. The ECB notes in this regard that payment systems 
not  licensed  by  ČNB  fall  outside  the  legal  regime  established  by  the  Act  on  payment  systems  and  are  not  therefore 
regulated  by  ČNB.  ČNB  is,  however,  generally  responsible  for  the  ‘reliability  and  efficiency  of  payment  systems  and 
their development’ pursuant to Article 2(2) c) of the ČNB Act. 
Enforced administration is a special regulatory power of ČNB under Articles 26, and 27-33 of the Act on banks enabling 
it  to  take  over  the  management  of  any  bank,  where  shortcomings  in  the  activities  of  the  bank  could  put  at  risk  the 
financial stability of the banking system and where the shareholders, in ČNB’s view, have not taken sufficient steps to 
eliminate those shortcomings.  

2 

 
                                                      
7. 

The ECB broadly welcomes the provisions of the draft law pursuant to which ČNB will supervise 

cooperative  banks,  as  this  approach  is  consistent  with  ČNB’s  overall  responsibility  for  the 

supervision of credit institutions. It is also consistent with the definition of ‘credit institution’ laid 
down in the Consolidated Banking Directive5, which implicitly includes cooperative banks, as they 

receive deposits or other repayable funds from the public and grant credits for their own account. 

The fact that certain regulatory instruments, such as enforced administration, will not be available 

in  relation  to  cooperative  banks  is  not  per  se  of  concern,  although  it  should  be  ensured  that  all 

credit  institutions  are  regulated  as  far  as  possible  on  an  objective  and  transparent  basis.  The 

regulatory regime applicable to one type of credit institution should not differ fundamentally from 

that  applicable  to  another,  merely  because  the  former  is  less  economically  significant  than  the 

latter. 

ČNB’s succession to the OSCB’s rights and obligations 

8. 

Under the draft law, the basic position is that ČNB will become the OSCB’s legal successor from 

the effective date, whereupon the OSCB’s rights, obligations and liabilities arising from property 
and other legal relations will pass from the OSCB to ČNB6.Making ČNB the legal successor to the 

liabilities of a separate supervisory authority raises issues relating to ČNB’s financial independence 

and its compliance with the prohibition on monetary financing under the Treaty. However, the draft 

law  also  lays  down  certain  financial  commitments  of  the  Czech  State  to  cover  ČNB’s  potential 

liabilities in respect of the activities of the OSCB. In particular, the draft law provides that, from 

the effective date, ČNB will be substituted for the OSCB as a party to any proceedings to which the 
OSCB is currently a party7 and that the State will meet any financial obligations incurred by ČNB 
as a result of it being substituted for the OSCB in any such proceedings8.  

9.  Moreover,  the  ECB  understands  that  pursuant  to  the  Czech  State  Liability  Act9  the  State  is 

primarily liable for any damage caused by unlawful decision or improper administrative action by a 

legal entity or person in the course of executing public authority on the State’s behalf. The carrying 

out  of  supervision  clearly  constitutes  the  exercise  of  a  public  authority.  The  entity  or  person 

carrying out public authority could be the State (or any organisational unit of the State), ČNB, the 

OSCB,  or  any  other  person  provided  it  has  separate  legal  personality.  The  ECB  therefore 

5  

6 

7  

8 
9   

Article 1(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  institutions,  OJ  L  126,  26.5.2000,  p.  1.  Directive  as  last  amended  by 
Directive 2004/69/EC (OJ L 125, 28.4.2004, p. 44). 
Paragraph 4 of Article IX of the draft provisions amending the Cooperative Banks Act. However, the draft law also states 
that  from  the  effective  date  any  claims  and  obligations  of  the  OSCB  vis-à-vis  the  State  incurred  in  connection  with 
repayable financial aid provided to the OSCB by the State under the Cooperative Banks Act will pass to the Cooperative 
Banks Reinsurance Fund. Paragraph 5 of Article IX of the draft provisions amending the Cooperative Banks Act.  
Except  in  the  case  of  proceedings  relating  to  claims  of  the  OSCB  vis-à-vis  the  State  incurred  in  connection  with 
repayable financial aid provided to the OSCB by the State, which pass to the Cooperative Banks Reinsurance Fund and 
not to ČNB. 
Paragraph 6 of Article IX of the draft provisions amending the Cooperative Banks Act. 
Act No 82/1998 Coll. as amended, of 17 March 1998, on State liability for damages caused in the course of the exercise 
of public authority by decisions or improper administrative action ; especially Articles 3 and 13. 

3 

 
                                                      
understands that, besides the specific financial commitments of the State under the abovementioned 

provisions of the draft law, the State will remain liable on the basis of the State Liability Act for 

any damage caused to third parties as a result of any unlawful decision or improper administrative 

action of the OSCB carried out in the exercise of its public authority. Accordingly, as regards legal 

proceedings, the State remains liable for settling the financial obligations of the OSCB, irrespective 

of whether those obligations arise in proceedings initiated before the effective date or thereafter - 

provided the proceedings concern the OSCB’s supervisory activities. 

10.  The ECB understands that pursuant to the draft law10 the State will also be required to meet any 

financial  obligations  incurred  by  ČNB  arising  from  non-supervision  related  proceedings,  such  as 

employment relations or liquidation proceedings.  

11.  Furthermore,  in  the  event  that  the  State  pays  out  damages  for  an  unlawful  decision  or  improper 

administrative conduct of the OSCB on the basis of its primary obligations under the State Liability 

Act, the ECB understands that this would not give the State any right of financial recourse against 
ČNB or any of its officials11, in view of the fact that ČNB will not have been involved in any way 

whatsoever in the supervision of cooperative banks prior to the effective date.    

12.  The  ECB  welcomes  the  abovementioned  provisions  of  the  draft  law  in  view  of  the  fact  that,  in 

conjunction  with  the  State  Liability  Act,  they  appear  to  insulate  ČNB  from  financial  obligations 

resulting  from  the  OSCB’s  activities.  These  provisions  do  not  therefore  require  assessment  from 

the  perspective  of  ČNB’s  financial  independence  and  its  compliance  with  the  prohibition  on 

monetary financing under the Treaty. 

Oversight of payment and securities settlement systems 

13.  The  responsibility  for  oversight  of  payment  and  securities  settlement  systems  remains  divided 
under  the  draft  law  between  ČNB,  which  oversees  payment  systems  it  has  licensed12,  and  the 
Financial  Market  Commission,  which  oversees  securities  settlement  systems  (SSSs)13.  While  the 

ECB  is  aware  that  this  split  between  the  oversight  of  payment  systems  and  securities  settlement 

systems is not, as such, a new development in the Czech Republic, the ECB would like to take this 

opportunity to share some observations in this regard. 

14.  As recalled in previous ECB opinions14, oversight is one of the core competencies attributed to the 

Eurosystem by the Treaty. The oversight of payment systems has always been recognised as one of 

the main functions of national central banks (NCBs) and the framework for this function, although 

informal,  has  been  effective  and  successful.  A  growing  number  of  NCBs  see  a  benefit  in 

10  
11  

12 
13  
14  

Paragraph 6 of Article IX of the draft provisions amending the Cooperative Banks Act. 
Pursuant to Articles 16-18 of the State Liability Act. The ECB notes however that a theoretical possibility exists of the 
State having recourse against a former official of the OSCB, who, upon its dissolution, becomes an employee of ČNB.       
Pursuant to the Act on payment systems No 124/2002 Coll. 
Pursuant to the Act on trading on the capital markets No 256/2004 Coll. 
For example 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. 

4 

 
                                                      
formalising their oversight role. The majority of NCBs carry out this function on the basis of their 

organic laws, without any explicit and detailed legal provisions. Article 105(2) of the Treaty and 

Article  3.1  of  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European  Central 

Bank provide the legal basis for the Eurosystem’s oversight function, together with Article 22 of 

the Statute, which reads: ‘The ECB and national central banks may provide facilities, and the ECB 

may  make  regulations,  to  ensure  efficient  and  sound  clearing  and  payment  systems  within  the 

Community  and  with  other  countries’.  Within  the  Eurosystem,  oversight  activities  are  performed 

by NCBs in line with the common oversight policy, as defined by the Governing Council. This will 

also  apply  to  ČNB  once  the  Czech  Republic  adopts  the  euro.  In  the  meanwhile,  it  should  be 

recognised  that  payment  systems  and  SSSs  are  interlinked  given  the  use  of  the  mechanism  of 

“Delivery  versus  Payment”  systems  under  which  settlements  of  securities  and  transfers  of  funds 

take  place  simultaneously.  There  is  therefore  a  strong  argument  for  the  model  used  in  some 

Member States of integrating the oversight of payment and securities settlement systems, and for 

the NCB to perform this function. Settlement of both legs of such transactions should be subject to 

similar  safeguards  to  avoid  asymmetries  with  systemic  implications.  The  role  of  NCBs  in  SSS 

oversight  is  evident  given  SSSs’  crucial  role  in  the  functioning  of  the  financial  markets  and 

therefore  the  need  for  them  to  be  safe  and  efficient.  The  NCBs’  oversight  responsibilities  in  the 

context  of  safeguarding  the  effectiveness  of  monetary  policy  and  the  overall  stability  of  the 

financial  system  mean  that  they  must  ensure  that  SSSs  are  sufficiently  protected  against  the 

transmission of systemic disruptions.  

15.  The  joint  work  on  SSSs  by  the  Committee  on  Payment  and  Settlement  Systems  (CPSS),  which 

serves as a forum for the central banks of the Group of Ten countries (G10), and the International 

Organization  of  Securities  Commissions  (IOSCO)  is  recognition  at  the  international  level  of  the 

interest and role of central banks in the oversight of securities settlement systems. At a Community 

level  this  is  reflected  in  the  joint  work  of  the  ESCB  and  the  Committee  of  European  Securities 

Regulators (CESR) in establishing common standards for EU SSSs.  

16.  Finally,  it  should  be  ensured  that  ČNB  has  the  power  to  gain  access  to  all  information  and  data 

relevant  for  the  performance  of  its  oversight  tasks.  The  opportunity  could  therefore  be  taken  to 

state clearly in the draft law the powers conferred on ČNB and the consequences for SSS operators 

of not complying with its requests.  

New administrative offences regime in the ČNB Act 

17.  As a final point, the draft law introduces a number of new administrative offences punishable by 

fine  and  increases  the  fines  imposed  for  committing  certain  existing  administrative  offences.  In 
particular, the draft law15 makes it an offence punishable by a fine of up to CZK 1 million to fail to 

withdraw  counterfeit  currency  from  circulation.  Further,  the  fine  for  breaching  the  ban  on 

15 

Specifically §§ 46c-46d (‘administrative offences’) of the draft provisions amending the ČNB Act. 

5 

 
                                                      
unlawfully reproducing monetary symbols or objects imitating money is increased from CZK 5 000 

to  CZK  500  000.  The  underlying  intention  is  to  transpose  the  obligation  laid  down  in  several 

Community regulations to make Member States’ sanctions in this area ‘effective, proportionate and 
deterrent’16. The ECB welcomes the introduction of new administrative offences and the increases 

in these penalties, which should have a greater deterrent effect on potential offenders.   

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

Done at Frankfurt am Main, 15 July 2005. 

The President of the ECB 

Jean-Claude TRICHET 

16 

Council Regulation (EC) No 1338/2001 of 28 June 2001 laying down measures necessary for the protection of the euro 
against counterfeiting (OJ L 181, 4.7.2001, p. 6), Council Regulation (EC) No 1339/2001 of 28 June 2001 extending the 
effects  of  Regulation  (EC)  No  1338/2001  laying  down  measures  necessary  for  the  protection  of  the  euro  against 
counterfeiting  to  those  Member  States  which  have  not  adopted  the  euro  as  their  single  currency  (OJ  L  181,  4.7.2001, 
p. 11)  and  Council  Regulation  (EC)  No 2182/2004  of  6  December  2004  concerning  medals  and tokens  similar  to  euro 
coins (OJ L 373, 21.12.2004, p. 1). 

6