Opinion of the European Central Bank of 18 January 2010 on the Magyar Nemzeti Bank’s tasks, the structure and legal status of the Hungarian Financial Supervisory Authority and the establishment of the Financial Stability Council (CON/2010/10)
Date: 2010-01-18
Institutions: European Central Bank
Subjects: Hungary, central bank, competence of the institution, financial stability, financial supervision, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 18 January 2010 

on the Magyar Nemzeti Bank’s tasks, the structure and legal status of the Hungarian Financial 

Supervisory Authority and the establishment of the Financial Stability Council 

(CON/2010/10) 

Introduction and legal basis 

On  23  November  2009,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Hungarian 

Ministry of Finance for an opinion on a draft law amending several legal acts, including the Law on the 

Magyar Nemzeti Bank and the Law on the Financial Supervisory Authority (hereinafter the ‘draft law’). 

On 4 December 2009, the ECB received an additional request from the Hungarian Ministry of Finance for 

an  opinion  on  further  supplementary  articles  of  the  draft  law.  As  part  of  the  legislative  procedure,  on 

7 December 2009 the Hungarian Parliament adopted substantive amendments to the draft law, on which 

the  ECB  was  not  consulted.  The  Parliament  enacted  the  draft  law  including  the  amendments  on 

14 December  2009,  before  the  ECB  had  adopted  its  opinion  on  the  draft  law.  As  a  consequence,  the 

ECB’s views have not been taken into account in the legislative process. 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union  and  the  third  and  sixth  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 provisions1, as the draft law relates to the Magyar Nemzeti Bank (MNB) and 

rules  applicable  to  financial  institutions  in  so  far  as  they  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. 

1.  

Purpose of the draft law 

1.1   The draft law inter alia extends the duties of the MNB. Pursuant to Article 4(7) of Law LVIII of 
2001 on the Magyar Nemzeti Bank2 (hereinafter the ‘Law on the MNB’) the MNB promotes the 

stability of the financial system and contributes to the development and smooth conduct of policies 

related to the prudential supervision of the financial system. The draft law amends this provision so 

that  the  MNB  will  ‘support  the  evaluation  and  implementation  of  policies  referring  to  the 

1  
2  

OJ L 189, 3.7.1998, p. 42. 
Published in Magyar Közlöny 2001/76 (VII. 5.) 

 
 
 
 
                                                 
prudential  supervision  of  credit  institutions  and  to  the  stability  of  the  financial  intermediary 

system.’  For  this  purpose,  among  other  things  the  draft  law  specifies  that  the  MNB  will  identify 

business and economic risks threatening the financial intermediary system as a whole, promote the 

prevention of systemic risks and help to ease or eliminate the identified systemic risk. 

1.2  The  draft  law  authorises  the  Governor  of  the  MNB  to  issue  decrees  prohibiting,  restricting  or 

making conditional certain activities, services, deals and the distribution of certain products if they 

pose  a  significant  threat  to  the  stability  of  the  financial  intermediary  system.  The  Governor  may 

also make proposals for legislation to the Government, to a member of the Government or to the 

President  of  the  Financial  Supervisory  Authority  (FSA)  for  regulations  for  the  safe  and  secure 

operation of the financial intermediary system.  

1.3  The  draft  law  establishes  the  Financial  Stability  Council  (FSC)  consisting  of  the  Minister  of 

Finance, the President of the FSA and the Governor of the MNB (hereinafter the ‘three represented 

authorities’), as well as three invited members. The chairmanship of the FSC will rotate annually 

between  the  Minister  of  Finance,  the  Governor  of  the  MNB  and  the  President  of  the  FSA.  The 

FSC’s  tasks  are  defined  in  Article  44  of  the  draft  law  and  include:  continuously  assessing  the 

stability of the financial market; discussing the FSA’s risk analysis; proposing to the Government, 

to  a  member  of  the  Government  or  to  the  President  of  the  FSA  the  adoption  of  legal  acts; 

discussing  the  FSA’s  annual  report;  discussing  all  general  measures,  orders  or  decisions  of  the 

FSA,  other  than  those  applying  to  individuals;  delivering  an  opinion  on  draft  decrees  of  the 

Governor of the MNB issued under the new proposed Article 60/A of the Law on the MNB; and 

continuously monitoring the FSA’s enforcement activities. 

1.4   The draft law also changes the FSA’s legal status. Under Article 1(1) of Law CXXXV of 2007 on 
the Financial Supervisory Authority3 (hereinafter the ‘Law on the FSA’), the FSA is a Government 

authority. Under the draft law, the FSA becomes an independent agency. The draft law also amends 

the purpose of the FSA’s activities. 

1.5  The draft law establishes a new organisational framework for the FSA. Pursuant to Article 11 of 

the Law on the FSA, financial supervision is conducted by a Board. Under the draft law, the Board 

is  abolished  and  most  of  its  functions  are  transferred  to  the  President  of  the  FSA  who  will  be 

personally responsible for FSA’s governance. The draft law also regulates in detail the process of 

appointing the President of the FSA, his conditions of employment and the scope of his duties and 

authority.  

2.  General observations 

The appropriate time to consult the ECB 

3  

Published in Magyar Közlöny 2007/162 (XI. 28.) 

2 

 
                                                 
2.1  The  ECB  points  out  that,  in  cases  of  particular  urgency  which  do  not  allow  for  a  normal 

consultation period, the consulting authority may indicate urgency in the consultation request and 

ask  for  a  shorter  deadline  for  the  ECB’s  opinion  to  be  adopted.  This  does  not  prejudice  the 

consulting  authority’s  duty  under  Article  127(4)  and  282(5)  of  the  Treaty  to  consult  the  ECB  on 

national  draft  legislative  provisions  falling  within  its  fields  of  competence  in  due  course  of  the 

national legislation process. The second sentence of Article 4 of Decision 98/415/EC states that the 

ECB  must  be  consulted  ‘at  an  appropriate  stage’  in  the  legislative  process.  This  implies  that  the 

consultation should take place at a point in the legislative process which affords the ECB sufficient 

time  to  examine  the  draft  legislative  provisions  and  to  adopt  its  opinion  in  all  required  language 

versions,  and  which  also  enables  the  relevant  national  authorities  to  take  the  ECB’s  opinion  into 

consideration  before  the  provisions  are  adopted.  Article  3(4)  of  Decision  98/415/EC  also  obliges 

Member States to suspend the adoption process for draft legislative provisions, pending receipt of 

the ECB’s opinion. As the draft law was submitted to the Hungarian Parliament a month before the 
ECB  received  the  first  consultation  request4,  the  ECB  could  not  take  into  consideration  the 

consulting authority’s request for urgency on the grounds of the advanced stage of the process of 

legislation.  

2.2  The opportunity to issue an opinion on a draft law within its competence of consultation allows the 

ECB  to  express  its  views  on  the  substance  of  the  proposed  legislation,  including  considerations 

such as the importance that the ECB may attach to a particular legislative proposal and its potential 

impact on the Eurosystem. Therefore, the ECB reiterates its position that even cases of particular 

urgency  do  not  relieve  national  authorities  from  their  duty  to  consult  the  ECB  and  to  allow 

sufficient time to take into account its views in accordance with Council Decision 98/415/EC. Any 

substantive  amendments  to  the  draft  law  –  as  in  the  case  of  the  provisions  subject  to  this 

consultation – have to be submitted to the ECB in order to allow it to issue its opinion based on the 

most recent text. Furthermore, with respect to the ongoing consultation, the process of adoption of 

the  draft  law  should  have  been  suspended.  The  ECB’s  comments  on  the  consulted  provisions  do 

not  eliminate  the  breach  of  the  obligation  to  consult  the  ECB.  Even  though  the  provisions  have 

already  been enacted,  the  ECB  considers  that  its  comments  are  important  for  the  application  and 

interpretation  of  the  enacted  law  and  any  future  amendments.  The  ECB  would  appreciate  the 

Ministry of Finance giving due consideration to honouring their obligation to consult the ECB in 

the future, in accordance with the regulations laid down in Council Decision 98/415/EC. 

New tasks of the MNB in relation to its contribution to financial stability and the prevention of systemic 

risks 

2.3  The  ECB  understands  that,  under  Articles  4(7)  and  60/A  of  the  Law  on  the  MNB,  specific  new 

tasks  will  be  assigned  to  the  MNB  which  are  intended  to  facilitate  the  MNB’s  effective 

4  

  Draft  Law  No  T/10998  was  submitted  to  the  Hungarian  Parliament  on  22.10.2009,  and  the  consultation  request 

concerning it was received by the ECB on 23.11.2009. 

3 

 
                                                 
performance of its financial stability role and its contribution to the prevention, identification and 

elimination  of  systemic  risks.  The  ECB  welcomes  and  supports  the  inherent  recognition  in  the 

proposed institutional framework of the essential role of the central bank in promoting the safety 
and  soundness  of  financial  institutions  and  the  stability  of  the  financial  system  as  a  whole5. 

Moreover,  the  introduction  of  a  reference  in  the  draft  law  to  the  ‘support  to  the  evaluation  and 

implementation of supervisory policies’ in the context of the financial stability tasks recognises the 

importance  of  taking  financial  stability  considerations  into  account  when  developing  supervisory 

policies.  In  this  context,  the  creation  of  a  financial  stability  council,  with  the  involvement  of  the 

central  bank,  will  allow  the  central  bank  to  contribute  with  its  systemic  risk  assessments  to  the 

development of the supervisory policies of the FSA. 

Interaction with the monetary policy of the MNB 

2.4  The  ECB  understands  that,  by  setting  up  the  FSC,  the  draft  law  does  not  establish  a  body 

responsible  for  supervision,  functioning  autonomously  within  the  framework  of  the  FSA. 

According to Article 44 of the draft law, the FSA will provide the secretariat of the FSC. Although 

the draft law provides that the FSC will ‘assist’ the FSA, which seems to indicate that the FSC will 

have a subordinate role in contributing to the fulfilment of the tasks of the FSA, the ECB trusts that 

the  FSC  will  be  a  separate  body  to  which  the  FSA  will  provide  administrative  and  logistical 

support.  The  assignment  to  the  MNB  of  specific  tasks  in  the  context  of  the  establishment  of  the 

FSC  is  welcome,  as  it  enhances  the  MNB’s  contribution  to  financial  stability.  These  new  tasks 

should contribute to financial stability, without compromising the conduct of the monetary policy 

by the MNB.  

2.5   The draft law provides that the FSC will assess the stability of the financial markets, including the 

money  market.  It  is  emphasised  that  the  MNB  is  a  key  actor  in  the  money  market  through  the 

implementation  of  its  monetary  policy  in  order  to  fulfil  its  objectives.  The  implementation  of 

monetary  policy  decisions  is  thus  the  exclusive  competence  of  the  central  bank  and  should  be 

preserved  in  all  circumstances.  It  is  therefore  expected  that  the  assessment  of  the  stability  of  the 

money market will fully respect this exclusive competence of the MNB over monetary policy. Also, 

any  recommendations  that  may  be  made  by  the  FSC  should  not  impinge  on  the  MNB’s 

implementation of monetary policy decisions. For the sake of clarity, it might be advisable to stress 

that the new tasks conferred on the MNB in the draft law will not affect its conduct of monetary 

policy.  

2.6   Given  the  abovementioned  considerations,  the  FSC’s  responsibilities  should  be  formulated 

precisely  so  as  to  ensure  that  the  effectiveness  of  the  coordination  process  is  not  affected  by  any 

uncertainty  regarding  the  roles,  tasks  and  competences  of  the  FSC  and  the  three  represented 

authorities. 

5  

See, e.g. paragraph 5 of Opinion CON/2004/16. 

4 

                                                 
 
Broadening the scope of secondary legislative powers of the MNB, and the MNB’s relationship with the 

FSC 

2.7  Under the new Article 60/A of the MNB Law, the Governor of the MNB is  empowered to issue 

decrees  prohibiting,  restricting  or  making  conditional  certain  activities,  services,  deals  and  the 

distribution  of  certain  products  if  they  pose  a  significant  threat  to  the  stability  of  the  financial 

intermediary system. According to the draft law, the Governor has to inform and seek the opinion 

of  the  FSC  prior  to  issuing  such  decrees.  In  contrast  to  other  provisions  of  the  draft  law,  Article 

60/A(6)  does  not  set  a  time  limit  for  the  FSC  to  give  an  opinion.  When  issuing  a  decree,  the 

Governor  may  also  make  proposals  for  legislation  to  the  Government,  or  to  a  member  of  the 

Government  or  to  the  President  of  the  FSA  for  regulation  to  provide  for  the  safe  and  secure 

operation  of  the  financial  intermediary  system.  The  new  power  of  the  Governor  could  be 

beneficially used to allow the MNB to better carry out its financial stability tasks. This new power 

of  the  MNB  is  underpinned  by  Article  28(1)  of  the Law  on  the  MNB  which  gives  the  MNB  the 

competence  to  gather  adequate  information  on  activities  or  persons  pursuing  activities  that  could 

endanger financial stability. 

2.8 

In  its  Convergence  Reports6,  most  recently  in  its  May  2008  Convergence  Report,  the  ECB  has 

reiterated that: ‘An express statutory obligation for an NCB to consult third parties ex ante provides 

the  latter  with  a  formal  mechanism  to  influence  the  final  decision  and  is  therefore  incompatible 

with  the  Treaty  and  the  Statute.  However,  dialogue  between  NCBs  and  third  parties,  even  when 

based  on  statutory  obligations  to  provide  information  and  exchange  views,  is  compatible  with 

central bank independence provided that: 

– 

this  does  not  result  in  interference  with  the  independence  of  the  members  of  the 

NCB’s decision-making bodies; 

– 

the  special  status  of  Governors  in  their  capacity  as  members  of  the  ECB’s  General 

Council is fully respected; and 

– 

confidentiality requirements resulting from the Statute are observed.’ 

Although  the  ECB  welcomes  the  fact  that  the  new  Article  60/A  of  the  MNB  Law  reaffirms  the 

independence of the MNB by specifying that an ex ante obligation to consult ‘may not in any way 

result in influencing the independence of the members of the decision making bodies of the MNB, 

or result in influencing or delaying the decision of the MNB’, in practice the obligation to consult 

the FSC in advance without a time limit for the opinion to be given, allows the FSC to influence 

and delay the MNB’s decisions. Therefore, the draft law should establish a regime for cooperation 

and dialogue based on clear procedural rules, including a time limit for the FSC to give its opinion, 

ensuring that the MNB’s independence is respected and its decisions not delayed. 

6   Available on the ECB’s website at www.ecb.europa.eu 

5 

                                                 
2.9  As  pointed  out  in  ECB  Opinion  CON/2009/88,  it  is  expected  that  the  MNB’s  new  tasks  under 

Articles 28 and 29, and its activities to support the FSC under Article 44 will fully comply with the 

Treaty obligations. In particular, it is expected that the MNB’s new tasks laid down in the draft law 

will  neither  affect  the  MNB’s  institutional,  functional  and  financial  independence  nor  the 

performance by the European System of Central Banks of its tasks under the Treaty and the Statute 

of the European System of Central Banks and of the European Central Bank. Similarly, it is also 

expected that it will be ensured that the new tasks of the MNB, such as its contribution to the FSC, 

will  fully  comply  with  the  prohibition  of  monetary  financing  laid  down  in  Article  123(1)  of  the 

Treaty, read in conjunction with Council Regulation 3603/93/EC of 13 December 1993 specifying 
definitions  for  the  application  of  the  prohibitions  referred  to  in  Articles  104  and  104b(1)7  (now 

Articles  123  and  125(1)  of  the  Treaty).  In  this  respect,  the  MNB’s  new  tasks  and  activities  to 

support the FSC should not give rise, implicitly or explicitly, to any form of overdraft facility or 

any type of credit facility with the MNB. 

The establishment and role of the FSC 

2.10  In  the  view  of  the  ECB,  the  newly  established  FSC  will  contribute  to  fostering  cooperation  and 

information  sharing  between  the  three  represented  authorities  and  contribute  to  financial  market 

stability,  thus  creating  a  forum  where  the  three  represented  authorities  playing  a  key  role  in 

financial regulation can initiate coordinated action in a financial crisis. 

2.11  The  establishment  of  national  financial  stability  committees  can  enhance  the  ability  of  national 

central banks and supervisory authorities to contribute analytical support to the European Systemic 

Risk  Board  (ESRB).  The  tasks  performed  by  these  committees  should  complement  the  activities 

performed  by  the  ESRB,  therefore  it  is  particularly  important  to  develop  appropriate  synergies. 

However, it is necessary to avoid such national committees being entrusted with tasks and powers 

that potentially conflict with those of the ESRB, and which may undermine the effectiveness of the 

newly-established  European  macro-prudential  supervisory  body.  Moreover,  the  legal  frameworks 

of these committees should appropriately reflect the roles of central banks, should not constrain the 

independence of the governors of the central banks or unduly affect the quality and impartiality of 

their  contributions  as  members  of  the  ESRB.  Lastly,  in  view  of  the  importance  of  ensuring  the 

effectiveness of macro-prudential supervisory arrangements at EU level, it is essential to safeguard 

the  ability  of  the  ESRB  to  perform  its  tasks  independently  and  to  guarantee  an  authoritative  and 

effective channel for transmitting the warnings and recommendations issued by the ESRB. 

2.12  The  ECB  also  reminds  the  consulting  authority  of  the  Memorandum  of  Understanding  on 

cooperation  between  Financial  Supervisory  Authorities,  Central  Banks  and  Finance  Ministries  of 

the  European  Union  on  cross-border  financial  stability  which  entered  into  force  on  1  June  2008. 

The Memorandum of Understanding provides for the establishment of a domestic standing group in 

each  Member  State  consisting  of  the  financial  supervisory  authorities,  central  banks,  finance 

7  

  OJ L 332, 31.12.1993, p. 1. 

6 

                                                 
ministries at the national level with the objective of enhancing preparedness in normal times and 

facilitating the management and resolution of a financial crises. 

Changes to the FSA’s institutional framework  

2.13  In line with the position taken by the ECB in previous opinions8, and in the light of the widespread 

practice in the European Union on decision-making in supervisory matters, it may be preferable for 

the FSA’s decision-making body to consist of a formal board, acting on the basis of collegiality, 

rather than a President acting alone. 

2.14  In many Member States that have adopted supervisory models based on an independent financial 

supervisory authority, the central bank either provides members of the decision-making body of the 

supervisory authority or plays an institutional role in the appointment and dismissal of its members. 

In some cases there is cross-membership between the decision-making bodies of the central bank 

and  of  the  supervisory  authority.  Such  an  approach  would  retain  some  of  the  advantages  of  the 

existing institutional framework for the supervision of credit institutions in Hungary, and provide a 

practical means for exchanging information between the MNB and the FSA. 

2.15  Having regard to the above, the ECB would welcome the inclusion in the draft law of provisions 

establishing a collegiate decision-making body as the FSA’s sole organ, including an appropriate 

number of MNB representatives in such a collegiate body, with the full right to participate in its 

meetings,  to  vote  and  to  share  in  all  information  available  to  the  FSA.  The  inclusion  of  MNB 

representatives in the FSA’s collegiate body would need to give due consideration to safeguards for 
the independence of the members of the MNB staff and its governing body9. 

2.16  The  draft  law  does  not  provide  for  the  transfer  of  the  tasks  of  the  current  supervisory  body,  i.e. 

from the Board to the President of the FSA. The ECB draws the consulting authority’s attention to 

the need to ensure the continuity of the smooth performance of the FSA’s tasks by regulating the 

transfer of the competencies and responsibilities from the Board to the President of the FSA. The 

operational  independence  of  supervisory  bodies  from  political  interference  is  an  essential  and 

internationally recognised standard for the supervision of financial markets. Such standards should 

be  applied  in  particular  to  the  procedures  for  the  dismissal  of  the  chairman  of  the  Board  of    the 

FSA. Article 72(2) of the draft law concerns the status of the current chairman of the Board of the 

FSA. The ECB welcomes the inclusion in the draft law of a provision for the current chairman of 

the  Board  of  the  FSA  to  continue  in  office  until  the  end  of  his  appointed  term.  Lastly,  the  ECB 

stresses the importance of legal certainty. The law governing the tasks and the operational structure 

of  the  FSA  has  been  amended  several  times  in  recent  years,  and  it  is  essential  for  the  basic 

legislation  regulating  the  structure  of  the  FSA  to  serve  as  clear  and  consistent  guidance.  Overly 

frequent changes to the structure of the FSA may compromise this function. 

8  
9  

See paragraphs 3.2.3 and 3.2.4 of Opinion CON/2006/15. 
See footnote 7. 

7 

                                                 
2.17  The  ECB  supports  the  basic  principle  that,  in  order  to  carry  out  their  respective  responsibilities 

effectively,  there  should  be  close  cooperation  between  financial  regulators.  Therefore,  the  ECB 

welcomes the reference in the tasks of the FSA to the duty to cooperate with the MNB to prevent 

systemic  risks  arising.  The  Hungarian  authorities  may  also  consider  further  enhancing 

arrangements for information-sharing between the MNB and the FSA to take into account the duty 

of the FSA to cooperate with the MNB for the mitigation of systemic risks.  

3. 

Specific comments 

Definitions 

According  to  Article  28  of  the  draft  law,  the  MNB  will  play  a  significant  role  in  the  evaluation  and 

implementation  of  policies  concerning  the  stability  of  the  financial  intermediary  system.  The  ECB 

recommends that the term ‘financial intermediary system’ should be defined for the sake of legal clarity. 

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

Done at Frankfurt am Main, 18 January 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

8