Opinion of the European Central Bank of 28 October 2005 at the request of Česká národní banka on a comprehensive proposal to amend the draft law on the amendment of laws in connection with the integration of financial market supervision (CON/2005/39)
Date: 2005-10-28
Institutions: European Central Bank
Subjects: Czechia, central bank, financial stability, financial supervision, national law, supervisory power

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 28 October 2005 

at the request of Česká národní banka  

on a comprehensive proposal to amend the draft law on the amendment of laws  

in connection with the integration of financial market supervision 

(CON/2005/39) 

1. 

On 21 September 2005, the European Central Bank (ECB) received a request from Česká národní 

banka  (ČNB)  for  an  opinion  on  a  comprehensive  proposal  to  amend  the  draft  law  on  the 

amendment of laws in connection with the integration of financial market supervision (hereinafter 

the ‘revised 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  revised  draft  law  contains 

provisions concerning a national central bank (NCB) 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. 

Integration of financial market supervision  

3. 

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

of  the  Czech  financial  markets  by  ČNB.  At  present,  ČNB  is  one  of  four  financial  market 

supervisors in the Czech Republic and is responsible for the supervision of credit institutions other 

than  cooperative  banks.  The  other  financial  market  supervisors  are  the  Securities  Commission 

(SEC), the Office for the Supervision of Insurance and Pension Funds (OSIPF), which forms part 

of  the  Ministry  of  Finance,  and  the  Office  for  Supervision  of  Cooperative  Banks  (OSCB) 

(hereinafter  referred  to  collectively  as  the  ‘other  supervisors’).  The  revised  draft  law  amends  an 
earlier legislative proposal, which was also submitted to the ECB for consultation2. That proposal 

only provided for the integration of the OSCB into ČNB as the first step in a broader reorganisation 

of financial market supervision whereby the number of supervisors would be reduced to two, with 

1  
2  

OJ L 189, 3.7.1998, p. 42. 
ECB Opinion CON/2005/24 of 15 July 2005.      

 
 
 
 
                                                 
ČNB  as  the  banking  supervisor  and  the  SEC  as  the  non-banking  sector  supervisor.  Under  the 

revised  draft  law,  however,  which  enters  into  force  on  1  April  2006  (hereinafter  the  ‘effective 

date’), all three of the other supervisors will be dissolved and their responsibilities and staff will be 

transferred to ČNB. 

4. 

The ECB understands that the revised draft law has been agreed by ČNB and the Czech Ministry of 

Finance  and  that  the  Czech  Government  also  supports  the  proposals  set  out  in  the  revised  draft 
law3. The ECB welcomes the proposal to integrate all the other supervisors within ČNB. The ECB 

considers  that  in  a  Member  State  with  a  relatively  small  financial  market,  such  as  the  Czech 

Republic, there are strong arguments for concentrating supervisory responsibilities in the hands of a 
single authority4.  

5. 

The  ECB  considers  that  the  proposed  extension  of  ČNB’s  supervisory  tasks  to  non-banking 

supervision  is  compatible  with  its  tasks  in  relation  to  the  European  System  of  Central  Banks.  In 

particular,  the  ECB  welcomes  the  fact  that  the  task  of  performing  prudential  supervision  of  all 

financial market intermediaries will be transferred to ČNB. Faced with the increasing blurring of 

traditional  borders  between  the  banking,  securities  and  insurance  sectors  and  the  resulting  new 

challenges to prudential supervision and the stability of the financial system, an NCB with overall 

responsibility  for  the  financial  markets  is  likely  to  cope  better  than  several  supervisors  whose 

supervisory competences are limited to a particular financial sector. 

Financial stability 

6. 

The  ECB  takes  note  that  the  revised  draft  law  specifies  that  in  performing  capital  market 

supervision  ČNB  will  contribute  to  investor  protection  and  strengthen  confidence  in  the  capital 
markets5.  The  revised  draft  law  also  adds  to  ČNB’s  tasks  the  task  of  ‘taking  care  of  the  safe 
functioning  and  development  of  the  financial  market’6.  Whilst  these  definitions  of  ČNB’s 

supervisory role and objectives are welcome, the ECB considers that the revised draft law should 

clearly  recognise  ČNB’s  wider  role  of:  (i)  safeguarding  the  security  and  soundness  of  financial 

institutions,  and  (ii)  safeguarding  the  stability  of  the  financial  system  as  a  whole.  The  focus  of 

NCBs on systemic stability in performing their tasks means that they can better assess not only the 

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

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

3  
4  

5  

6  

See the explanatory memorandum to the revised draft law. 
Slovakia  has  also  recently  concentrated  responsibility  for  financial  supervision  within  its  NCB  (see  ECB  Opinion 
CON/2004/31  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).  
Article  2  of  the  draft  amendment  to  the  Act  on  the  Securities  Commission  (to  be  renamed  Act  on  supervision  of  the 
capital markets) which forms part of the revised draft law. 
See Article 2(2)(d) of the Act No 6/1993 Coll., on Česká národní banka (hereinafter the ‘ČNB Act’), as amended by the 
revised draft law. Article 44(2) of the ČNB Act, as amended by the revised draft law, also defines ČNB supervision by 
listing the various tasks that the fulfilment of this function involves. 

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groups of financial intermediaries. For these reasons, the ECB would welcome it if the revised draft 

law expressly recognised, as is the case in the statutes of other Member States’ NCBs, that ČNB 
has  the  wider  task  of  contributing  to  the  stability  of  the  financial  system  as  a  whole7.  A  clear 

distinction  could  also  be  made  in  the  supervisory  framework  between  the  objective  of  financial 

stability  and  that  of  investor  protection,  particularly  as  these  two  objectives  may  not  always  be 
mutually supportive and may occasionally even conflict8. 

The Committee for the financial market 

7. 

The  ECB  notes  that  the  revised  draft  law9  establishes  a  ‘Committee  for  the  financial  market’ 

(CFM).  The  CFM  will  act  as  an  expert  consultative  body  to  ČNB’s  Bank  Board  (hereinafter  the 

‘Bank  Board’)  on  the  situation  and  development  of  the  financial  market  and  on  the  strategy  and 

longer  term  perspective  for  financial  market  supervision.  The  CFM  comprises  seven  expert 

members,  three  of  whom  (including  the  Chairman  and  Vice-Chairman)  will  be  elected  by  the 

budgetary  committee  of  the  lower  house  of  Parliament  on  a  proposal  from  professional  and 

interested organisations, while another two members will be drawn from the Ministry of Finance 

and appointed and recalled by the Minister of Finance. The two remaining members will comprise 
one member of the Bank Board and the financial arbiter10. CFM members are required to exercise 

their  functions  independently  and  they  are  not  remunerated.  The  ECB  understands  that  the  CFM 

will be a purely consultative body whose main tasks will be to issue opinions and recommendations 

to  the  Bank  Board  in  its  fields  of  its  competence.  In  no  circumstances  will  the  CFM  be  able  to 

directly or indirectly determine the Bank Board’s decision making. On that basis, the ECB broadly 

welcomes the establishment of the CFM, which should provide wide-ranging expertise to the Bank 

Board which will be useful in exercising its new responsibility for supervising the financial market.  

ČNB’s succession to the rights and obligations of the other supervisors   

8. 

The ECB notes that under the revised draft law, the transfer of competences from each of the other 

supervisors  to  ČNB  is  regulated  by  separate  transitional  provisions  relating  to  that  particular 
supervisor11. These provisions expressly provide that on the effective date the other supervisor in 

question  will  be  dissolved,  with  all  its  statutory  competences  passing  to  ČNB,  and  that  its 
employees  will  become  ČNB  employees12.  These  provisions  also  lay  down  that  on  the  effective 

7  

8  

9  
10  
11  
12  

Clauses to that effect might be added to Article 2 of the draft amendment to the ČNB Act and also to Article 2 of the draft 
law on supervision of the capital market. 
ČNB’s  task  of  contributing  to  the  stability  of  the  financial  system  may  be  understood  as  an  overarching  goal  of  the 
supervision it performs, whereas investor protection, however important, is only one further objective of that supervision. 
Article 45a of the ČNB Act, as amended by the revised draft law. 
See the Act No. 229/2002 Coll., on the financial arbiter, as amended.  
The ECB notes, however, that in each case the term of the transitional period is not specified. 
The  ECB  notes,  however,  that  in  the  case  of  the  draft  amendment  to  the  Act  No  87/1995  Coll.,  on  savings  and  credit 
cooperatives,  as  amended,  there  is  no  specific  mention  of  employees  being  transferred  from  the  OSCB  to  ČNB.  The 

 3

 
 
 
                                                 
date  any  right  to  manage  State-owned  property  (apart  from  real  property)  previously  held  by  the 

other supervisor and which is necessary to carry out its supervisory functions will cease and that 
the  property  (and  obligations  relating  to  that  property)  will  pass  to  ČNB13.  The  details  of  these 

property transfers will be determined by an agreement between ČNB and the Ministry of Finance. 

The  provisions  also  state  that,  from  the  effective  date,  ČNB  will  be  substituted  for  the  other 

supervisor in any proceedings to which it was a party and which commenced prior to the effective 

date.  Moreover,  the  revised  draft  law  expressly  provides  that  the  State  will  meet  any  financial 

obligations incurred by ČNB as a result of ČNB being substituted for one of the other supervisors 
either  in  any  proceedings  to  which  the  latter  was  a  party14  on  the  effective  date  or  in  any 

proceedings which commenced after the effective date but which relate to the activities of the other 

supervisor under the then existing legal regulations.  

9. 

The ECB welcomes the transitional provisions of the revised draft law. They appear, when assessed 
in conjunction with the State Liability Act15, to effectively insulate ČNB from financial obligations 

resulting  from  the  activities  of  the  other  supervisors.  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. 

10.  Finally, the ECB would appreciate being provided, for information purposes, with the following: 

(i) a detailed description of the proposed organisational scheme and division of supervisory powers 

within ČNB from 1 April 2006; and (ii) a copy of any agreement concluded between the Ministry 

of Finance and ČNB as regards the transfer of property and connected obligations from any of the 

other supervisors to ČNB under the transitional provisions of the revised draft law. 

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

Done at Frankfurt am Main, 28 October 2005. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

transitional provisions to that draft amendment state that ‘rights and obligations … from property and other legal relations 
shall be transferred upon the effective date from the OSCB to ČNB’. The ECB understands that only a small number of 
employees (approximately 10) presently work at the OSCB and will therefore be affected by the transfer.  
In addition, in the case of the SEC, any other property and connected obligations of that supervisor shall be settled by the 
Ministry of Finance. 
Or in which the other supervisor was representing the State. 
Act No 82/1998 Coll., on State liability for damages caused in the course of the exercise of public authority by decisions 
or improper administrative action, as amended; especially Articles 3(a) and 13 thereof.  

13  

14  
15  

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