Opinion of the European Central Bank of 27 August 2008 at the request of the Central Bank of Malta on a draft Central Bank of Malta Directive No 10 on the banknote recycling framework (CON/2008/38)
Date: 2008-08-27
Institutions: European Central Bank
Subjects: Malta, counterfeiting, euro, issuing of currency, money, national law

OPINION OF THE EUROPEAN CENTRAL BANK 

of 27 August 2008 

at the request of the Central Bank of Malta 

on a draft Central Bank of Malta Directive No 10 on the banknote recycling framework 

(CON/2008/38) 

Introduction and legal basis 

On 24 July 2008 the European Central Bank (ECB) received a request from the Central Bank of Malta for 

an  opinion  on  a  draft  Central  Bank  of  Malta  Directive  No  10  on  the  banknote  recycling  framework 

(hereinafter the ‘draft directive’). 

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

European Community and the first and second 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  directive  relates  to  currency  matters  and  means  of  payment.  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. 

1.  

Purpose of the draft directive 

The  draft  directive  supplements  Article  6  of  Council  Regulation  (EC)  No  1338/2001  of  28  June  2001 
laying down measures necessary for the protection of the euro against counterfeiting2 and provides for a 

specific legal framework for the recycling of euro banknotes by credit institutions and other professional 

cash  handlers.  The  aim  of  the  draft  directive  is  to  reinforce  the  Central  Bank  of  Malta’s  powers  with 

respect to the detection of counterfeits and fitness sorting of euro banknotes and, in particular, provides 

for: 

1  
2  

OJ L 189, 3.7.1998, p. 42.  
OJ L 181, 4.7.2001, p. 6. According to Article 6, credit institutions engaged in the sorting and distribution to the public of 
notes and coins as a professional activity, including establishments whose activity consists of exchanging notes and coins 
of  different  currencies,  such  as  bureaux  de  change,  are  obliged  to  withdraw  from  circulation  all  euro  notes  and  coins 
received by them which they know or have sufficient reason to believe to be counterfeit. The same article also imposes an 
obligation  on  these  institutions  to  immediately  hand  such  notes  over  to  the  competent  national  authorities  and  for 
Member States to take the necessary measures to ensure that the establishments which fail to discharge their obligations 
are subject to effective, proportionate and deterrent sanctions.  

 
 
 
 
                                                      
(i) 

implementation of the Eurosystem’s banknote recycling framework3;  

(ii) 

the  collection  of  information  from,  and  conduct  of on-site  checks  at,  credit  institutions  and other 

professional  cash  handlers  to  enable  the  Central  Bank  of  Malta  to  monitor  banknote  recycling 

activities  on  an  ongoing  basis  and  to  establish  a  regime  to  sanction  non-compliance  by  credit 

institutions and other professional cash handlers. 

2. 

General observations  

Maintaining the integrity and fitness of euro banknotes in circulation is an important objective of the ECB 

and the national central banks (NCBs) of the Member States that have adopted the euro. Only banknotes 

in  good  physical  condition  can  be  easily  and  reliably  checked  by  the  public  for  counterfeits.  The  ECB 

therefore  welcomes  this  initiative  by  the  Maltese  authorities  since  one  of  the  Central  Bank  of  Malta’s 

statutory tasks as part of the Eurosystem is to maintain the integrity and quality of euro banknotes and to 

manage their smooth circulation throughout the territory of Malta. Furthermore, it is acknowledged that 

credit  institutions  and  other  professional  cash  handlers  can  usefully  contribute  to  the  recycling  of  euro 

banknotes provided that those institutions reliably check them in line with the procedures pursuant to the 

Eurosystem’s banknote recycling framework before the banknotes are put back into circulation. 

3. 

Specific observations 

3.1  Reference to the Treaty 

Article 3 of the draft directive refers to Articles 106(1) and 105(2) of the Treaty. The reference to 

Article  106(1)  is  justified  insofar  as  it  lays  down  that  the  ECB  and  the  NCBs  may  issue  euro 

banknotes,  thereby  entitling  the  ECB  and  the  NCBs  to  take  all  necessary  measures  to  ensure  the 

integrity and preservation of euro banknotes. However, the reference to Article 105(2) of the Treaty 

appears  unnecessary,  given  that  neither  currency  nor  means  of  payment  are  mentioned  in  the 

aforementioned provision. 

3.2  Definitions and terminology 

3.2.1  The definition of ‘professional cash handlers’ is a key definition for the proper implementation of 

the  draft  directive  and  it  is  therefore  important  that  it  is  well  formulated.  The  scope  of  the 

institutions  engaged  in  the  professional  activity  of  sorting  and  distributing  euro  banknotes  to  the 

public  differs  among  Member  States.  Therefore,  this  definition  must  be  as  broad  as  possible  to 

ensure that all professional cash handlers fall within the scope of the draft directive. Furthermore, 

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The  Eurosystem’s  banknote  recycling  framework  means  the  framework  for  banknote  recycling  laid  down  in  the 
document entitled ‘Recycling of euro banknotes: framework for the detection of counterfeits and fitness sorting by credit 
institutions and other professional cash handlers’ adopted by the Governing Council on 16 December 2004 and published 
on the ECB’s website in January 2005, as modified from time to time, as well as the documents relating to the deadlines 
for its implementation at national level. 

2 

 
 
                                                      
the ECB noted in ECB Opinion CON/2007/42 of 17 December 2007 at the request of the Council 

of  the  European  Union  on  a  proposal  for  a  Council  Regulation  amending  Regulation  (EC) 

No 1338/2001  laying  down  measures  necessary  for  the  protection  of  the  euro  against 
counterfeiting4,  that  the  reference  in  Article  6(1)  of  Regulation  (EC)  No  1338/2001  to  ‘other 

institutions engaged in the sorting and distribution to the public of notes and coins as a professional 

activity’  leaves  out  of  its  scope  other  organisations  that  run  self-service  devices  supplying  euro 

banknotes to the public, even if not as a professional activity. The practical implementation of the 

Eurosystem’s  banknote  recycling  framework  at  national  level  has  revealed  the  narrowness  of  the 

term,  especially  as  regards  retailers  who  re-fill  automated  teller  machines.  Therefore,  the  ECB 

proposed  a  broader  definition  of  the  addressees  of  the  obligation  contained  in  Article  6(1).  A 

regulation  amending  Regulation  (EC)  No  1338/2001  has  not  yet  been  adopted  and  the  banknote 

recycling framework continues to address only professional cash handlers. In order to extend the 

scope of Maltese professional cash handlers, a reformulation of the definition proposed in the draft 

directive could however be considered. 

3.2.2  Some of the definitions contained in Article 7 could be improved to ensure clarity and consistency, 

especially  those  related  to  the  different  categories  of  banknote  handling  machines,  e.g. 

authentication  machines,  banknote  handling  equipment  and  staff-operated  machines.  The  ECB 

document  on  the  common  implementation  rules  and  procedures  for  the  Eurosystem’s  banknote 

recycling framework would be a useful reference in this respect.  

3.2.3  The  defined  terms  in  Article  7,  particularly  those  related  to  banknote  handling  machines,  which 

should replace the term ‘banknote handling equipment’, should be used consistently throughout the 

draft directive. For example, in Article 8, ‘banknote handling machines’ is not defined and should 

therefore be replaced by an appropriately defined term. In Articles 10 and 11 the words ‘cannot be 

put back into circulation’ and ‘shall not be re-issued’ appear to be synonyms; it would be preferable 

to use one and the same term to designate the same action. The ECB would suggest that the term 

‘put back into circulation’ be used throughout the draft directive rather than the term ‘re-issue’ in 

order  to  designate  the  recycling  of  euro  banknotes  that  have  been  authenticated  as  genuine  and 

sorted as fit. In addition, the definitions should appear in alphabetical order. 

3.3  Principles 

3.3.1  As  regards  Article  8,  it  needs  to  be  clarified  that  the  banknote  handling  machines  to  be  used  for 

checking  banknotes  have  to  be  tested  by  an  NCB  according  to  the  Eurosystem’s  common  test 

procedures, as referred to in Section 2.6 of the banknote recycling framework. 

3.3.2  In addition, Articles 10 and 11 could be merged for the sake of clarity.  

4  

OJ C 27, 31.1.2008, p. 1. 

3 

                                                      
3.4   Requirements for banknote handling 

3.4.1  The second sentence of Article 12 of the draft directive should make it clear that both authenticity 

checks and fitness checks are obligatory for banknotes received from customers that are intended to 

be put back into circulation. 

3.4.2  Banknote handling machines that have passed the Eurosystem’s common test procedures are listed 

centrally by the Eurosystem on one dedicated ECB webpage and all NCBs have to add links from 

their websites to this ECB webpage; Article 13 should reflect this approach.  

3.4.3  Article 13(2) stipulates that intermediaries have to notify the use of banknote handling machines to 

the  central  bank  prior  to  putting  them  into  operation.  To  ensure  consistency  with  the  banknote 

recycling  framework,  this  provision  should  clarify  that  only  new  types  of  banknote  handling 

machines need to be notified to the central bank before they are used for recycling purposes. Such 

notification is not required if additional machines of an already notified machine type are put into 

operation.  

3.4.4  The  formulation  of  Article  14  could  be  reconsidered  in  view  of  the  Eurosystem’s  banknote 

recycling  framework,  which  states  on  page  4  that  ‘banknotes  which  have  been  checked  for 

authenticity  by  trained  staff  members,  either  manually  or  without  the  use  of  successfully  tested 

banknote handling equipment, shall not be returned to circulation via ATMs’. The current wording 

of Article 14 is not clear in this respect. 

3.5 

Sanctions 

Article 24 should be further clarified especially with regard to measures to ensure compliance with 

the  draft  directive.  Reference  could  be  made  to  the  power  to  impose  sanctions  on  intermediaries 

that do not comply with the draft directive. 

3.6  Role of the manufacturers of banknote handling equipment 

3.6.1  The last sentence of Article 24 provides that where the tested banknote handling equipment does 

not fulfil all the criteria set by the draft directive, ‘the respective intermediary shall update all its 

relevant machines without delay.’ This wording could be more precise to make it clear that contacts 

of  the  intermediary  with  the  manufacturer(s)  of  the  relevant  equipment  may  be  necessary.  In 

addition, the timeframe within which unfit machines should be updated could be specified. 

3.6.2  The  meaning of ‘without delay’ is quite vague. The wording could be improved by setting some 

precise  deadlines  that  should  be  different  depending  on  whether  the  authentication  control  or  the 

fitness sorting control of the equipment is impaired. The separate ECB document on the common 

implementation rules and procedures for the banknote recycling framework could be referred to in 

this respect. 

4 

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

Done at Frankfurt am Main, 27 August 2008. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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