Opinion of the European Central Bank of 2 December 2008 at the request of the Hungarian Ministry of Finance on a draft law amending the Law on the Magyar Nemzeti Bank (CON/2008/83)
Date: 2008-12-02
Institutions: European Central Bank
Subjects: Hungary, central bank, conflict of interest, governance, money, payment system, statistics

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 2 December 2008 

at the request of the Hungarian Ministry of Finance  

on a draft law amending the Law on the Magyar Nemzeti Bank 

(CON/2008/83) 

Introduction and legal basis 

On 23 October 2008 the European Central Bank (ECB) received a request from the Hungarian Ministry 

of Finance for an opinion on a draft law (hereinafter the ‘draft law’) amending Law LVIII of 2001 on the 
Magyar Nemzeti Bank1 (hereinafter the ‘Law on the MNB’). 

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

European Community and the 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  provisions2,  as  the  draft  law  relates  to  banknotes  and  coins,  the  Magyar 

Nemzeti  Bank  (MNB),  data  collection  for  the  central  bank  information  system  and  to  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. 

1. 

Purpose of the draft law 

The draft law has the following main objectives: 

(a) 

to align the MNB’s legal framework with the Treaty provisions on central bank independence,  

(b) 

to regulate the date of taking up of office by Monetary Council Members and their oath, 

(c) 

to change the current property acquisition restrictions,  

(d) 

to provide detailed rules on conflicts of interest applicable to MNB officials and employees, 

(e) 

to  authorise:  (i)  the  MNB’s  Governor  to  regulate  certain  issues  concerning  central  depository 

activities and central counterparty activities; (ii) the MNB to collect statistical data in anonymous 

form  from  other  bodies  belonging  to  the  official  statistical  reporting  service;  (iii)  the  MNB  to 

involve third parties, i.e. the Post Office and credit institutions, in fulfilling its obligations related to 

exchanging mutilated or withdrawn banknotes and coins for legal tender; (iv) the forwarding of any 

1  
2 

Magyar Közlöny.2001. VII. 5. 
OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
                                                      
counterfeit  Hungarian  and  foreign  currency  to  the  designated  body  through  the  financial 

intermediary system and the postal service. 

2. 

General observations 

2.1  The  ECB  repeats  its  previous  comments  regarding  the  frequent  amendments  to  the  Law  on  the 

MNB. One consideration in the context of central bank independence is the need for a central bank 

legal framework that provides a stable and long-term basis for the central bank’s functioning. With 

regard  to  the  MNB,  the  ECB  notes  that  the  Law  on  the  MNB  has  been  amended  on  several 

occasions in recent years, often substantially changing the MNB’s legal framework, and finds that 

the  introduction  of  different  legal  concepts  within  such  a  relatively  short  time  has  adversely 
affected the MNB’s organisational and governance stability3. 

2.2  The ECB finds it regrettable that the draft law still does not address all the issues highlighted in the 

ECB’s Convergence Report of May 2008. 

3. 

Specific observations 

Issues regarding the prohibition on monetary financing 

3.1  The ECB welcomes Article 4 of the draft law, which inserts an express reference to Article 101 of 

the  Treaty  into  Article  16(1)  of  the  Law  on  the  MNB,  along  with  the  reference  to  Council 

Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for the application of the 
prohibitions  referred  to  in  Articles  104  and  104b  (1)  of  the  Treaty4,  as  suggested  in  the  ECB’s 

Convergence  Report  of  May  2008.  Concerning  Article  14  and  Article  71(3)  of  the  Law  on  the 

MNB, the  Convergence Report also  suggests inserting an express reference to Article 101 of the 

Treaty. Articles 1 and 16 of the draft law insert a reference to Article 16(1) of the Law on the MNB 

which refers to Article 101 of the Treaty. The ECB considers this serial reference merely a question 

of  legislative  technique  and  finds  that  the  result  of  referring  to  Article  101  of  the  Treaty  is 

achieved.  

3.2  The  ECB  notes  that  while  the  draft  law  amends  Article  14  and  Article  71(3)  of  the  Law  on  the 

MNB, it does not specify that loans are extended against adequate collateral. The ECB considers 

that  such  a  specification  would  be  necessary,  since  it  would  introduce  an  additional  safeguard 

which should minimise the possibility of the MNB suffering any loss. 

3.3  Article 3 of the draft law, by amending Article 15(1) of the Law on the MNB, extends considerably 

the list of public sector accounts to be managed by the MNB. It also introduces a new Article 15(2) 

to  the  effect  that  the  MNB  must  pay  interest  equal  to  the  central  bank  base  rate  on  the  current 

balance  of  the  single  bank  account  of  the  Hungarian  State  Treasury  account  with  the  MNB.  As 

addressed in the ECB’s Convergence Report of May 2008, national legislation on the fiscal agent 

3  

4  

ECB  Opinion  CON/2007/14  of  24  May  2007  at  the  request  of  the  Hungarian  Ministry  of  Finance  on  a  draft  law 
amending the Law on the Magyar Nemzeti Bank. 
OJ L 332, 31.12.1993, p. 1.

2 

 
 
                                                      
function,  which  national  central  banks  (NCBs)  are  enabled  to  conduct  under  Article  21.2  of  the 

Statute of the European System of Central Banks and of the European Central Bank (hereinafter the 

‘ESCB Statute’), should be compatible with the monetary financing prohibition in Article 101 of 

the  Treaty.  Compliance  with  the  monetary  financing  prohibition  is  affected  where  national 

legislation enables the remuneration of deposits or current account balances above, rather than at or 

below,  market  rates.  In  the  present  case,  if  the  central  bank  base  rate  is  above  market  rates,  the 

remuneration margin is above market rates and constitutes a de facto intra-year credit, contrary to 

the  objective  of  the  prohibition  on  monetary  financing,  and  might  undermine  the  prohibition’s 

objectives. The ECB suggests replacing in Article 3 of the draft law, amending Article 15(2) of the 

Law on the MNB, the words ‘equal to the central bank base rate’ with ‘below or at market rates’. 

Banknotes and coins 

3.4  According to Article 8 of the draft law, amending Article 31(9) of the Law on the MNB, the MNB 

may  not  pay  compensation  for  the  value  of  banknotes  or  coins  which  have  been  destroyed.  The 

ECB considers that if the destroyed banknotes or coins are legal tender, they should be redeemed, 

even  for  a  fee,  unless  there  is  a  suspicion  that  the  destruction  is  intentional  or  results  from  a 

criminal act. 

3.5  Referring to Article 9 of the draft law, amending Article 31/A(2) to (4) of the Law on the MNB, the 

ECB  notes  that  the  expert  examination  should  not  be  prevented  by  the  use  or  retention  of 

counterfeit  banknotes  as  evidence  in  criminal  proceedings,  except  when  such  evidence  is 
impossible, taking into account the quantity and type of seized counterfeits5. 

3.6  Article 9 of the draft law amending Article 31/A(2) to (4) of the Law on the MNB lists the service 

providers  obliged  to  ensure  that  euro  banknotes  and  coins  that  they  have  received  and  intend  to 

return  to  circulation  are  checked  for  authenticity.  The  ECB  recommends  also  taking  into 

consideration  future  amendments  to  Council  Regulation  (EC)  No  1338/2001  of  28  June  2001 
laying down measures necessary for the protection of the euro against counterfeiting6. 

Central bank independence - the Governor’s oath 

3.7  According to Article 10 of the draft law amending Article 49(7) of the Law on the MNB, Monetary 

Council  members  must  make  an  oath  or  a  solemn  promise  and  sign  a  document  before  the 

Hungarian  President  with  the  words  required  by  Law  XXVII  of  2008  on  the  oath  and  solemn 
promise  of  certain  public  officials7.  Since  the  Monetary  Council  members  are  involved  in  the 

performance  of  ESCB-related  tasks,  the  wording  of  the  oath  to  be  sworn  by  them  needs  to  be 

adapted to comply with Article 14.3 of the ESCB Statute. 

5  

6  
7  

Recommendation ECB/2006/13 of 6 October 2006 on the adoption of certain measures to protect euro banknotes more 
effectively against counterfeiting(OJ C 257, 25.10.2006, p. 16). 
OJ L 181, 4.7.2001, p. 6.
Magyar Közlöny 2008. VI. 18. The wording of the oath is the following: ‘I, ….(name of the designated public officer), 
hereby make an oath to be faithful to my home country, to the Republic of Hungary and to its people, I will comply and 
ensure compliance with the Constitution, together with other laws, I will keep any secrets disclosed to me, I will fulfil my 
duties arising from my position as a … (name of the position) in order to promote the development of the Republic of 
Hungary and the application of the Constitution’.  

3 

                                                      
Statistics 

3.8  The ECB welcomes Articles 6 and 19 of the draft law amending Article 28 of the Law on the MNB 
and Law XLVI of 1993 on statistics8. The ECB finds that the proposed amendments are in line with 

Community legislation. 

Recognition of MNB’s oversight functions 

3.9  The ECB welcomes the intention of the draft law to specify that the MNB’s oversight activity is 

one of its core functions in respect of payment systems, securities clearing and settlement systems 

and  central  counterparties.  The  ECB  considers  that  an  important  element  of  the  draft  law  is  the 

express  specification  of  the  MNB’s  oversight  powers  which  lays down  a  good  basis  for  defining 

the  legal  framework  of  a  central  bank’s  oversight  function.  The  draft  law  also  provides  for  an 

effective oversight tool by authorising the MNB’s Governor to regulate certain issues with regard 

to securities clearing and settlement infrastructures, including central counterparties. 

3.10  As  noted  in  previous  ECB  opinions,  an  oversight  function  is  inherent  in  the  central  bank  task  of 

promoting a sound market infrastructure, in order to safeguard the effectiveness of monetary policy 
and  the  overall  stability  of  the  financial  system9.  It  should  be  recognised  in  this  context  that 

payment  systems  and  security  settlement  systems  (SSS)  are  interlinked  given  the  use  of  the 

mechanism  of  ‘delivery  versus  payment’  under  which  settlements  of  securities  and  transfers  of 

funds take place simultaneously. There is therefore a strong argument for 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 SSS’ crucial role in the 

functioning  of  the  financial  markets  and  the  need  for  them  to  be  safe  and  efficient.  Oversight  of 

payment and clearing systems is one of the core competencies attributed to the Eurosystem, with its 

legal  basis  specified  in  Article  105(2)  of  the  Treaty  and  Article  3.1  and  Article 22  of  the  ESCB 
Statute10. In particular, the Eurosystem  NCBs perform oversight of payment systems in line with 

the common oversight policy defined by the ECB’s Governing Council, which will also apply to 
the MNB once Hungary adopts the euro11. As noted in previous ECB opinions12, the central bank 

oversight role is also reflected: (i) at international level, in the joint work on SSS concluded by the 

Committee  on  Payment  and  Settlement  Systems  (CPSS)  and  the  International  Organization  of 

8  
9  

10  

11  

12  

Magyar Közlöny.1993. V. 12. 
Paragraph 2.8 of ECB Opinion CON/2006/53 of 16 November 2006 at the request of the Polish Minister of Finance on a 
draft  law  amending  the  Law  on  trading  in  financial  instruments;  see  paragraph  3.2  of  ECB  Opinion  CON/2006/20  of 
25 April  2006  on  the  Dutch  draft  law  concerning  financial  sector  supervision  and  paragraphs  4  to  14  of  ECB  Opinion 
CON/1999/19 of 20 January 2000 at the request of the Luxembourg Ministry for the Treasury and the Budget on a draft 
legislative  proposal  implementing  Directive  98/26/EC  [title  shortened];  see  CPSS,  ‘Central  bank  oversight  of  payment 
and settlement systems’, May 2005, paragraph 1.1; publication available on the BIS website at www.bis.org. 
See paragraph 5 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. 
See paragraph 14 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;  see  also  paragraph  4.2  of  ECB  Opinion 
CON/2006/15  of  9  March  2006  at  the  request  of  the  Polish  Minister  of  Finance  on  a  draft  law  on  the  supervision  of 
financial institutions. 
See paragraph 15 of ECB Opinion CON/2005/24. 

4 

                                                      
Securities  Commissions  (IOSCO)13;  and  (ii)  at  Community  level,  in  the  joint  work  of  the  ESCB 

and  the  Committee  of  European  Securities  Regulators  (CESR)  in  establishing  common 
recommendations for European Union SSS14, the mandate for which has recently been reaffirmed 
by the Council15. 

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

Done at Frankfurt am Main, 2 December 2008. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

13  

14  
15  

See  e.g.  joint  CPSS-IOSCO  publications  ‘Recommendations  for  securities  settlement  systems’,  November  2001  and 
‘Recommendations  for  Central  Counterparties’,  November  2004;  publications  available  on  the  BIS  website  at 
www.bis.org. 
See press release available on the ECB’s website at www.ecb.europa.eu. 
See:  Council  Conclusions  on  clearing  and  settlement,  2872nd  Economic  and  Financial  Affairs  Council  meeting, 
Luxembourg, 3 June 2008. 

5