Opinion of the European Central Bank of 22 May 2006 at the request of the Central Bank of Malta concerning a draft law amending the Central Bank of Malta Act (CON/2006/23)
Date: 2006-05-22
Institutions: European Central Bank
Subjects: Eurosystem, Malta, central bank, competence of the institution, foreign-exchange reserves, monetary integration, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 22 May 2006 

at the request of the Central Bank of Malta 

concerning a draft law amending the Central Bank of Malta Act 

(CON/2006/23) 

Introduction and legal basis 

On 31 March 2006, the European Central Bank (ECB) received a request from the Central Bank of Malta 

for an opinion on a bill amending the Central Bank of Malta Act (hereinafter the ‘draft law’). 

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

European  Community  and  the  first,  second,  third,  fourth  and  fifth  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 relates to currency matters, means of 

payment,  national  central  banks  (NCBs),  the  collection,  compilation  and  distribution  of  statistics  and 

payment  and  settlement  systems.  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.  

The ECB welcomes the amendments contained in the draft law intended to integrate the Central Bank of 

Malta (‘CBM’) into the Eurosystem. They also address the issues raised in the ECB’s 2004 Convergence 
Report2,  as  well  as  some  additional  issues  relevant  to  the  introduction  of  the  euro  in  Malta.  The 

amendments  relate  mainly  to  the  CBM’s  tasks,  including  monetary  policy,  foreign  reserves,  euro 

banknotes  and  coins  and  payment  systems.  They  also  cover  the  CBM’s  relations  with  the  Maltese 

Government  and  the  appointment  of  auditors  for  the  CBM.  In  addition,  these  amendments  provide 

transitional  provisions  to  regulate  the  exchange  of  Maltese  lira  banknotes  and  coins  after  the  euro 

adoption date. 

1. 

Comments on Part I ‘Preliminary’ 

1.1  The bill defines ‘coins denominated in euro’. It is understood that the purpose of this definition is 

to clarify that any reference to euro coins also includes the coins of the subdivisions of the euro, i.e. 

the euro cent coins. The ECB proposes deleting this definition, given that any reference to the euro 

1  
2  

OJ L 189, 3.7.1998, p. 42. 
Available on www.ecb.int. 

 
 
 
 
                                                      
should always be construed as a reference to a currency, of which the currency unit is one euro and 
which is subdivided into 100 cent3. 

1.2   The ECB would also like to draw attention to the fact that in the definition of the term ‘Treaty’, the 

correct date should read ‘25 March 1957’.  

2. 

Comments on Part II ‘Establishment and Conduct of Affairs of Bank’ 

2.1  The ECB welcomes the comprehensive Article 3 to be inserted in the Central Bank of Malta Act as 

it  will  be  amended  (hereinafter  the  ‘amended  CBM  Act’),  establishing  that  the  CBM  will  be  an 

integral part of the European System of Central Banks as established under the Treaty. This Article 

also refers to the CBM’s rights and obligations due to such status, and imposes the obligation to 

comply with the objectives conferred on it by the Statute of the European System of Central Banks 

and of the European Central Bank. 

2.2   Although  this  introductory  Article  asserts  the  compatibility  of  the  CBM’s  functions  with  those 

prescribed to it by the Statute and the Treaty, and that any interpretation of the following provisions 

of  the  amended  CBM  Act  should  be  construed  within  an  ESCB  context,  the  ECB  nevertheless 

suggests that some provisions of the amended CBM Act should make more explicit references to 

the  Statute  and  the  Treaty.  To  this  end,  Article  5  of  the  amended  CBM  Act  should  be  clearer  in 

establishing  that  the  CBM  will  execute  any  of  its  tasks  in  accordance  with  the  Statute  and  the 

Treaty  rather  than  providing  for  action  ‘within  the  framework  of  the  ESCB’.  Hence,  the  strict 

approach adopted in Articles 3 and 4 should also be used in Article 5.  

2.3   Article 5(2) of the amended CBM Act prohibits the CBM, or any of its officials or members of its 

Board of Directors when exercising any function, duty or power under the same Act, from seeking 

or taking instructions from the Government or any other body. For the sake of clarity, however, this 

Article should mirror in the amended CBM Act Article 108 of the Treaty, including the prohibition 

on  the  Government  from  seeking  to  influence  the  CBM,  its  Board  of  Directors  or  any  of  its 

officials. 

2.4  Article 17(1)(g) of the amended CBM Act provides that the CBM safeguards financial stability or 

in  other  exceptional  circumstances  may  grant  a  loan  or  advance  to  any  credit  institution 

incorporated in Malta against such forms of security as the Board may consider appropriate. The 

ECB understands that the purpose of this provision is to provide for the possibility of emergency 

liquidity  assistance.  While  similar  provisions  can  be  found  in  several  NCBs’  statutes, 

Article 17(1)(g) should also provide that such loans or advances are provided without prejudice to 

the  requirements  derived  from  the  CBM’s  participation  in  the  ESCB.  In  any  event,  compliance 

with the prohibition on monetary financing in Article 101 of the Treaty must be ensured. 

3 

Council  Regulation  (EC)  No  974/98  of  3  May  1998  on  the  introduction  of  the  euro  (OJ  L  139,  11.5.1998,  p.  1). 
Regulation as amended by Regulation (EC) No 2596/2000 (OJ L 300, 29.11.2000, p. 2).  

2 

 
                                                      
2.5   Article  17(3)  of  the  amended  CBM  Act  should  also  refer  to  the  wider  general  term  ‘financial 

instruments’ rather than ‘securities’, given the risk usually associated with investing solely in the 

latter type of instrument. 

2.6   Once  Malta  introduces  the  euro  and  the  CBM  effectively  becomes  part  of  the  Eurosystem, 

monetary policy will no longer be subject to national scrutiny. Article 15 of the Statute provides 

that  the  ECB’s  President,  on  behalf  of  the  ESCB,  will  report  to  the  European  Parliament,  the 

Council,  the  Commission  and  the  European  Council.  In  addition,  the  CBM’s  Governor  may  still 

ask  to  be  heard,  or  be  requested  to  provide  information  or  answer  any  questions  related  to  the 

implementation  of  the  Eurosystem’s  monetary  policy  and  decisions  before  the  Maltese  House  of 

Representatives,  provided  that  the  CBM’s  independence  and  the  Eurosystem’s  communication 

rules are respected. In view of this, the ECB recommends inserting in Article 18(4) of the amended 

CBM Act the necessary safeguards. 

3. 

Comments on Part III ‘Financial Provisions’ 

3.1.  The ECB welcomes the fact that Article 19 of the amended CBM Act establishes a minimum level 

for  the  CBM’s  legal  reserves  since  this  reinforces  the  principle  of  financial  independence. 

Nevertheless,  the  CBM  might  consider  including  in  the  amended  CBM  Act  the  procedures 

describing the recapitalisation of the reserves if they have been exhausted by a financial loss.  

3.2.  Article 20 of the amended CBM Act does not adequately reflect the proceedings under Article 27.1 

of the Statute. The independent external auditors appointed to verify the CBM’s accounts, whilst 

appointed  by  the  CBM’s  Board  of  Directors,  also  have  to  be  recommended  by  the  ECB’s 

Governing  Council  and  approved  by  the  EU  Council  under  Article  27.1  of  the  Statute.  In  the 

current wording of Article 20, these requirements seem to be covered by the concluding phrase ‘in 

accordance  with  the  Statute’.  However,  Article  20  also  provides  for  the  approval  of  the  external 

auditors by the Maltese Minister for Finance, which is incompatible with Article 27.1 of the Statute 

since  the  latter  provision  establishes  that  they  have  to  be  approved  by  the  EU  Council.  For  this 

reason,  Article  20  of  the  amended  CBM  Act  should  provide  that  the  CBM’s  accounts  are  to  be 

audited  by  independent  external  auditors  recommended  by  the  ECB’s  Governing  Council  and 

approved by the Council, and authorise the Board to appoint such auditors. 

4. 

Comments on Part IV ‘Collection of Information’ 

4.1.  The ECB recommends slightly amending Article 24(1) of the amended CBM Act to clarify that the 

CBM’s  power  to  issue  directives  is  subject  to  their  conformity  with  Article  5.1  of  Council 

Regulation  (EC)  No  2533/98  of  23  November  1998  concerning  the  collection  of  statistical 
information  by  the  European  Central  Bank4.  This  reference  would  recognise  the  primacy  of 

4  

OJ L 318, 27.11.1998, p. 8. 

3 

 
 
                                                      
secondary Community legislation over national law in the field of statistics and is in the interests of 

legal certainty.  

4.2.  Along  the  same  lines,  in  Article  24(2)  concerning  the  CBM’s  right  to  verify  the  accuracy  and 

quality  of  statistical  information  submitted  under  Article  24(1)  of  the  amended  CBM  Act,  a 

reference to Article 6 of Regulation (EC) No 2533/98 would be beneficial.  

5. 

Comments on Part V ‘Relations with Government’ 

5.1.  National legislation mirroring the directly applicable provisions of Article 101 may not narrow the 

scope of application of the monetary financing prohibition. Therefore, Article 27(1) of the amended 

CBM Act needs to be extended to be consistent with the Treaty and to fully mirror the content of 

Article  101  of  the  Treaty  to  avoid  any  confusion  as  to  the  entities  covered  by  the  monetary 

financing prohibition, or alternatively could contain a reference to Article 101 of the Treaty, or be 

deleted. 

6. 

Comments on Part VI ‘Relations with Credit and Financial Institutions’ 

6.1.  The  ECB  proposes  including  in  Article  32  of  the  amended  CBM  Act  a  clear  reference  to 

Article 14.4 of the Statute. In this way, any cooperation with credit and financial institutions for the 

furtherance of policies in the national interest would be emphasised, given this clearly falls outside 

the  functions  specified  in  the  Statute.  It  will  be  carried  out  under  the  CBM’s  responsibility  and 

liability, and permitted unless decided otherwise by the ECB’s Governing Council. Alternatively, 

the ECB proposes deleting Article 32 of the amended CBM Act. 

6.2. 

It  appears  that  Article  33  of  the  amended  CBM  Act  refers  to  minimum  reserve  requirements, 

although  using  slightly  different  terminology  (‘reserve  deposits’).  The  proposed  amendments  to 

Article 33 do not bring Maltese reserve requirements fully into line with the regime adopted under 

Article  19  of  the  Statute  and  the  relevant  Community  law,  namely  (i)  Council  Regulation  (EC) 

No 2531/98 of 23 November 1998 concerning the application of minimum reserve requirements by 
the  European  Central  Bank5;  and  (ii)  Regulation  ECB/2003/9  of  12  September  2003  on  the 
application of minimum reserves6. This legislation, which is directly applicable to and binding on 

credit  institutions  in  the  euro  area,  is  intended  to  ensure  that  the  terms  and  conditions  for  the 

Eurosystem’s  minimum  reserve  system  are  uniform  throughout  the  euro  area.  Article  33  of  the 

amended CBM Act should therefore use wording closer to the wording for the minimum reserve 

system established under Article 19 of the Statute.  

5 
6 

OJ L 318, 27.11.1998, p. 1. 
OJ L 250, 2.10.2003, p. 10. 

4 

 
 
 
                                                      
7. 

Comments on Part VII ‘Payment Systems’ 

7.1.  Part VII of the amended CBM Act is entitled ‘Payment Systems’. Article 35(7) makes equivalent 

the definition of ‘payment system’ and ‘system’. It is not entirely clear whether or not the amended 

CBM Act also covers securities clearing and settlement systems. In fact, as noted in previous ECB 
opinions7,  payment  systems  and  securities  clearing  and  settlement  systems  are  interlinked, 

particularly  in  view  of  the  use  of  the  ‘delivery  versus  payment’  mechanism,  which  ensures  that 

delivery of securities occurs only if payment occurs. There is therefore a strong argument in favour 

of  the  model  used  in  some  Member  States  of  integrating  the  oversight  of  payment  and  securities 

settlement  systems,  and  for  the  central  bank  to  perform  this  function.  Settlement  of  both  legs  of 

such  transactions  should  be  subject  to  similar  safeguards  in  order  to  avoid  asymmetries  with 

systemic implications. Therefore, the amended CBM Act should clarify that it expressly also covers 

securities clearing and settlement systems. In this context, the ECB recommends aligning the terms 

and  concepts  used  in  national  law  as  closely  as  possible  to  the  corresponding  concepts  of 

Community  legislation,  notably  the  definition  and  concept  of  ‘participant’  in  systems  in  the 
Settlement Finality Directive8.  

7.2.  Payment  systems  oversight  is  a  core  Eurosystem  competence  and  the  common  oversight  policy 

defined by the Governing Council is the basis for the central banks’ oversight activity. The ECB is 

of the opinion that it would be useful if the amended CBM Act reflected the role of the Eurosystem 

more clearly by, for example, stating that the CBM would continue to conduct oversight within the 

Eurosystem’s  framework  on  the  basis  of  requirements  and  standards  endorsed  by  the  ECB’s 

Governing Council.  

7.3.  The current draft law gives the CBM very general regulatory rights over payments. Article 35(5) of 

the  amended  CBM  Act  mentions  several  different  aspects  of  payments,  e.g.  participation  in 

payment  systems,  cross-border  credit  transfers  and  electronic  payment  services.  Community 
legislation9 already covers these areas to some extent. To avoid any confusion regarding the CBM’s 

regulatory powers within an ESCB context and for the purposes of clarity and legal certainty, the 

ECB  strongly  recommends  inserting  in  Article  35(5)  a  reference  to  the  relevant  Community 

legislation as well as to the national regulatory regime implementing it.  

7 

8 

9 

See for instance paragraphs 10 to 14 of 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; paragraphs 13 to 16 of ECB 
Opinion CON/2005/24 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. 
Directive 98/26/EC of the European Parliament and of the Council of 19 May 1998 on settlement finality in payment and 
securities settlement systems (OJ L 166, 11.6.1998, p. 45). 
For instance, Directive 97/5/EC of the European Parliament and of the Council of 27 January 1997 on cross-border credit 
transfers (OJ L 43, 14.2.1997, p. 25); 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  Commission  Directive  2006/29/EC  (OJ  L  70,  9.3.2006);  Directive  2000/46/EC  of  the  European 
Parliament and of the Council of 18 October 2000 on the taking up, pursuit of and prudential supervision of the business 
of electronic money institutions (OJ L 275, 27.10.2000, p. 39), Directive 2001/24/EC of the European Parliament and of 
the  Council  of  4  April  2001  on  the  reorganisation  and  winding  up  of  credit  institutions  (OJ  L  125,  5.5.2001,  p.  15); 
Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements 
(OJ  L  168,  27.6.2002,  p.  43);  Regulation  (EC)  No  2560/2001  of  the  European  Parliament  and  of  the  Council  of 
19 December 2000 on cross-border payments in euro (OJ L 344, 28.12.2001, p. 13). 

5 

                                                      
8. 

Comments on Part IX ‘Relations with International and Other Organisations’ 

8.1.  Although  it  is  understood  that  Article  40  of  the  amended  CBM  Act  also  has  to  provide  for  the 

CBM’s participation in international organisations involving tasks outside the ESCB, such Article 

should  refer  to  Article  6  of  the  Statute  in  so  far  as  international  cooperation  involving  tasks 

entrusted to the ESCB is concerned. With regards to the latter type of cooperation, the ECB decides 

on the representation of the ESCB. Hence, Article 40 of the amended CBM Act should reflect this 

through a reference to the Statute. 

9. 

Comments on Part X ‘Currency’ 

9.1. 

In  addition  to  the  reference  to  the  Statute,  Article  52  of  the  amended  CBM  Act  should  refer  to 

Decision  ECB/2003/4  of  20  March  2003  on  the  denominations,  specifications,  reproduction, 
exchange and withdrawal of euro banknotes10, in particular to Articles 2 and 3 thereof. 

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

Done at Frankfurt am Main, 22 May 2006. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

10  

OJ L 78, 25.3.2003, p. 16. 

6