Opinion of the European Central Bank of 4 November 2009 on the composition of the Board of the Central Bank and Financial Services Authority of Ireland and the membership of the Irish Financial Services Regulatory Authority (CON/2009/89)
Date: 2009-11-04
Institutions: European Central Bank
Subjects: Ireland, board of directors, central bank, financial supervision, institutional activity, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 4 November 2009 

on the composition of the Board of the Central Bank and Financial Services Authority of Ireland 

and the membership of the Irish Financial Services Regulatory Authority 

(CON/2009/89) 

Introduction and legal basis 

On  20  October  2009  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish  Minister  for 

Finance (hereinafter the ‘Minister’) for an opinion on draft amendments to the Central Bank Act 1942, to 
be included in the draft National Asset Management Agency Bill 20091 (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 third indent 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  the  Central  Bank  and  Financial  Services  Authority  of  Ireland 

(hereinafter  the  ‘Central  Bank’).  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  

1.1  The  purpose  of  the  draft  law  is  to  amend  certain  provisions  of  the  Central  Bank  Act  1942,  as 

amended,  to  allow  for  the  restructuring  and  creation  of  a  common  membership  of  the  board 

(hereinafter  the  ‘Board’)  of  the  Central  Bank  and  of  the  Irish  Financial  Services  Regulatory 

Authority (hereinafter the ‘Regulatory Authority’).  

1.2  The purpose of the proposed inclusions at Section 18BA(1) and Section 33E(1A) is to ensure that 

the Act will not prevent a member of the Board from being a member of the Regulatory Authority 

and vice versa. Section 18B(2), which states that four members of the Regulatory Authority must 

be members of the Board, and Section 25(2) and part of Section 25(3), which refer to the vacation 

of office of those appointed directors who are members of the Board by virtue of being a member 

of  the  Regulatory  Authority,  are  to  be  deleted  in  light  of  the  fact  that  the  boards  will  now  be 

combined.  The  rationale  for  the  inclusion  of  Section  18BA(2)  is  to  simplify  the  quorum 

requirements,  given  that  the  Board  of  the  Central  Bank  and  the  membership  of  the  Regulatory 

Authority will be the same.   

1  

2  

The  ECB  was  previously  consulted  on  other,  unrelated  provisions  of  this  Bill;  see  Opinion  CON/2009/68.  All  ECB 
opinions are published on the ECB’s website at www.ecb.europa.eu.  
OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                 
1.3  The  substitutions  in  Section  33E(1)  and  Section  33E(1)(c)  increase  the  minimum  and  maximum 

membership  of  the  Regulatory  Authority  (and  those  members  that  can  be  appointed  by  the 

Minister)  so  that  the  number  will  correspond  with  that  of  the  Board.  The  inclusion  at 

Section 33I(1A) allows the Minister to appoint the Governor of the Central Bank as Chairperson of 

the Regulatory Authority. The purpose of the amendments to Section 25(4)(b) (and inclusion of a 

new  Section  25(4)(c))  and  to  paragraph  5(3)(b)  of  Schedule  3  (and  the  inclusion  of  a  new 

paragraph 5(3)(c) in Schedule 3) is to add additional grounds on which the Minister can remove an 

appointed director of the Board or an appointed member of the Regulatory Authority.  

2. 

General observations  

2.1  Reform of supervision in Ireland 

2.1.1  The ECB notes that the essential purpose of the draft law is to enable a common membership of the 

Central  Bank’s  Board  and  the  membership  of  the  Regulatory  Authority  in  the  transitional  phase 

before  the  dissolution  of  the  Regulatory  Authority.  The  ECB  understands  from  the  consulting 

authority that the intention is that the functions of the Regulatory Authority – other than in respect 

of  consumer  information,  which  are  intended  to  be  transferred  to  another  agency  –  will  be 

performed by a single unitary Central Bank of Ireland. The ECB further understands that the new 

structure,  which  will  establish  a  single  fully  integrated  institution  in  a  reformed  Central  Bank  of 

Ireland, will be accomplished by way of separate legislation yet to be published, which will be the 

subject of a separate opinion request.  

2.1.2  The ECB welcomes the purpose of the draft law. In general, the ECB has consistently favoured the 

involvement  of  central  banks  in  prudential  supervision.  Previous  ECB  opinions  on  draft  national 

legislation reforming the institutional framework for prudential supervision in Member States have 

noted  that  central  banks  have  traditionally  been  closely  involved  in  the  prudential  supervision  of 

credit  institutions  due  to  their  pivotal  role  in  the  financial  system,  in  particular  regarding 
implementing  monetary  policy  and  ensuring  the  proper  functioning  of  payment  systems3. 

Furthermore,  previous  ECB  opinions  have  noted  that  maintaining  close  involvement  of  national 

central  banks  (NCBs)  in  prudential  supervision  is  an  important  condition  for  allowing  the 

Eurosystem to contribute adequately to monitoring the risks to financial stability in the euro area, in 

accordance  with  Article  105(5)  of  the  Treaty,  and  to  safeguard  smooth  cooperation  between  the 

central bank  functions exercised at Eurosystem level and the supervisory functions carried out at 
national level4. 

2.1.3  The ECB welcomes institutional frameworks in Member States that recognise the essential role of 

central banks in promoting the soundness and security of credit and financial institutions and the 

stability of the financial system as a whole. As such, the ECB welcomes the proposed restructuring 

3  
4  

See Opinion CON/2003/23, paragraph 6. 
See Opinion CON/2006/39, paragraph 2.3; Opinion CON/2006/15, paragraph 2.1.2; Opinion CON/2001/10, paragraph 4; 
and Opinion CON/2001/35, paragraph 5. 

2 

 
                                                 
of  the  Central  Bank  in  such  a  manner  that  the  Central  Bank  will  become  fully  and  directly 

responsible for the supervision of credit and financial institutions. 

2.2  Central bank independence 

2.2.1  The ECB would point out that even during this transitional phase, the duration of which is not clear 

from  the  draft  law,  the  Central  Bank  should  continue  to  perform  its  tasks  in  a  manner  consistent 

with  the  Treaty  and  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European 

Central Bank (hereinafter the ‘Statute of the ESCB’). In particular, under Article 108 of the Treaty, 

when exercising the powers and carrying out the tasks and duties conferred on it by the Treaty and 

the Statute of the ESCB, neither an NCB nor any member of its decision-making bodies may seek 

or take instructions from, inter alia, any government  of a Member State or from any other body, 

which would include a statutory body such as the Regulatory Authority. Having particular regard to 

the unique structure of the Regulatory Authority as a constituent part of the Central Bank, the ECB 

considers  that  it  is  of  critical  importance,  as  required  by  Article  108  of  the  Treaty,  that  the 

Regulatory Authority should not seek to influence the Governor, in his capacity as the sole member 

of the Central Bank’s decision-making body responsible for the performance of the Central Bank’s 
ESCB-related tasks, during the transitional phase5. 

2.2.2  In this regard, the ECB was consulted and issued an opinion in 2002 on the establishment of the 
Regulatory Authority as a constituent part of the Central Bank6. On that occasion, the ECB raised 

certain  concerns  regarding  the  Central  Bank’s  independence  and  made  suggestions  designed  to 

eliminate  any  legal  risks  associated  with the independent discharge of the Central Bank’s ESCB-

related tasks. 

2.2.3  In particular, it was considered that one safeguard to ensure that supervisory tasks did not prevail 

over the central banking perspective would be to ensure that the composition of the Central Bank’s 

Board was not such that as many as half of the Board’s directors hold their positions by virtue of 

being members of the Regulatory Authority. Given the new provisions in Section 18B of the draft 

law, the ECB would once again raise the concern that the pursuit of supervisory tasks might prevail 
over the central banking perspective during the transitional phase7.  

2.2.4  In its 2002 opinion, the ECB expressed concern that the potential exposure of the Central Bank to 

liabilities resulting from funding and budgetary decisions for the Regulatory Authority could also 

be seen as a threat to the Central Bank’s financial independence. Moreover, in order to eliminate 

any legal risks associated with the independent discharge of the Central Bank’s ESCB-related tasks, 

one of the solutions suggested by the ECB was that the Governor could be granted an explicit right 

to  oppose  any  funding,  budgetary  and  staffing  decisions  which  might  have  implications  for  the 

Central Bank’s independence or which might be deemed otherwise incompatible with the exercise 

5  
6  
7  

See Opinion CON/2002/16, paragraph 6. 
Opinion CON/2002/16. 
See Opinion CON/2002/16, paragraph 5. 

3 

 
                                                 
by the Governor of the Central Bank’s ESCB-related functions. The ECB’s 2002 opinion also noted 

that there might be potential for a conflict of interest within the Central Bank’s Board between the 

financial interests of the Regulatory Authority and the independence of the Central Bank in view of 

the particular composition of the Board. It remained unclear from a legal perspective whether the 

Governor would enjoy a sufficient degree of control over any decision by the Central Bank to fund 

the  Regulatory  Authority  so  as  to  be  able  to  fully  protect  the  Central  Bank’s  institutional  and 
financial independence8.  

2.2.5  The  concerns  expressed  in  the  ECB’s  2002  opinion  were  addressed  by  a  number  of  additional 

statutory safeguards regarding funding, budgetary and staffing matters, which were not present in 
the draft legislation on which the ECB was consulted9. While these additional statutory safeguards 

undoubtedly  represented  an  improvement  as  compared  to  the  safeguards  contained  in  the  draft 

legislation  on  which  the  ECB  was  consulted,  so  far  as  funding  and  budgetary  matters  were 

concerned, these additional safeguards fell short of the solutions suggested by the ECB in order to 

eliminate  any  legal  risks  associated  with  the  independent  discharge  of  the  Central  Bank’s ESCB-
related tasks10.  

2.2.6  The ECB would again raise the concerns expressed  in its 2002 opinion in view of the provisions 

proposed during the transitional phase now being envisaged under the draft law. In this context, the 

ECB recommends clarifying in the draft law that the Governor has the sole right to determine any 

funding and budgetary decisions pertaining not only to the Central Bank’s ESCB-related tasks and 

their  implementation,  but  also  to  the  Regulatory  Authority,  which  may  have  implications  for  the 

Central Bank’s independence or which may be deemed otherwise incompatible with the exercise by 

the Governor of the Central Bank’s ESCB-related functions. 

2.2.7  The ECB notes that the draft law will remove the category of directors appointed to the Board of 

the Central Bank by virtue of their membership of the Regulatory Authority. However to reduce the 

legal risks to the independence of the Central Bank, it is important that the intent of the draft law to 

provide for full common membership of the Regulatory Authority and of the Board is implemented 

in full. 

2.2.8  As regards personal independence, the same rules for security of tenure of office of the Governor 

apply to other members of NCB decision-making bodies who are involved in the performance of 

ESCB-related 

tasks11.  Nevertheless, 

the  ECB  notes 

that 

the  amendments  proposed 

to 

8  
9  

See Opinion CON/2002/16, paragraphs 7-8. 
See Sections 6D(3)(a), 33L(3)(b), 33L(4) and 33N(4) and paragraphs 2(2) and 3(3) of Schedule 1 of the Central Bank Act 
1942,  as  amended.  These  safeguards  are  in  addition  to  a  number  of  statutory  safeguards  already  reflected  in  the  draft 
legislation  on  which  the  ECB  was  consulted  and/or  otherwise  reflected  in  the  final  legislation  adopted.  See 
Sections 5A(4),  18B(5),  33C(1)(b),  33C(7)-(8),  33D(1)-(2),  33N(3)  and  33N(5)  of  the  Central  Bank  Act  1942,  as 
amended. 

10   Moreover, one of the additional statutory safeguards introduced at that time would now be removed under the draft law, 
namely that  where  the  Board  is  considering  budgetary,  funding or  staffing  issues  relating to  the  Regulatory  Authority, 
there is no quorum unless there are present sufficient members of the Board to ensure that: (a) if there is an even number 
of  members  present,  at  least  half  of  them  are  not  members  of  the  Regulatory  Authority;  and  (b)  if  there  is  an  uneven 
number of members present, the majority of them are not members of the Regulatory Authority. 
See Opinions CON/2006/44, CON/2004/16, CON/2006/32, CON/2004/35 and CON/2007/6.  

11  

4 

                                                 
Section 25(4)(b) (and inclusion of a new Section 25(4)(c)) and to paragraph 5(3)(b) of Schedule 3 

(and the inclusion of a new paragraph 5(3)(c) in Schedule 3), which provide two additional grounds 

on which the Minister can remove an appointed director from the Board or an appointed member 

from  the  Regulatory  Authority,  do  not  affect  the  Governor,  who  is  solely  responsible  for  the 

performance of ESCB-related tasks, or the Director General when carrying out the Governor’s sole 

responsibility in this respect. Those two Board members are official directors of the Board rather 

than appointed directors, and accordingly the additional grounds for removal of appointed directors 

do not apply to them. 

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

Done at Frankfurt am Main, 4 November 2009. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

5