Opinion of the European Central Bank of 17 June 2010 on a draft law relating to the restructuring of the Central Bank and Financial Services Authority of Ireland (CON/2010/48)
Date: 2010-06-17
Institutions: European Central Bank
Subjects: Ireland, central bank, competence of the institution, financial supervision, institutional reform, national law, supervisory power

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 17 June 2010 

on a draft law relating to the restructuring of the Central Bank and Financial Services Authority of 

Ireland 

(CON/2010/48) 

Introduction and legal basis 

On  7  April  2010,  the  Governing  Council  of  the  European  Central  Bank  (ECB)  adopted  an  opinion1 

(hereinafter the ‘draft heads opinion’) on draft heads, relating to a proposed draft law on the restructuring 

of  the  Central  Bank  and  Financial  Services  Authority  of  Ireland  (CBFSAI).  The  purpose  of  the  draft 

heads was to provide a framework pursuant to which  the draft law would be prepared. The draft heads 

and the draft law implement a decision of the Irish Government of 16 June 2009 approving the reform of 
the internal structures of the CBFSAI2.  

On  9  April  2010,  the  ECB  received  a  request  from  the  Irish  Minister  for  Finance  (hereinafter  the 

‘Minister’)  for  an  opinion  relating  to  the  abovementioned  draft  law,  entitled  the  ‘Central  Bank  Reform 

Bill 2010’ (hereinafter the ‘draft law’).  

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  (TFEU)  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 provisions3, as the draft law relates to the CBFSAI. 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  purpose  of  the  draft  law  is  to  provide  for  the  reform  of  the  internal  structures  of  the  CBFSAI,  in 

particular the Irish financial regulatory structures. The draft law implements this restructuring by way of 

various  amendments  to  the  Irish  Central  Bank  Acts  1942  to  1998  (hereinafter  the  ‘CBAs’).  The  ECB 

welcomes the fact that the draft law follows the form and content of the draft heads  

1   
2  

3  

Opinion CON/2010/30. 
See  Opinion  CON/2009/89,  paragraph  2.1.1,  which  specifically  anticipated  the  present  proposed  reform.  All  ECB 
opinions are published on the ECB’s website at www.ecb.europa.eu. 
OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
                                                      
2. 

General observations  

Consolidation of Ireland’s CBAs and reform of supervision in Ireland 

The ECB reaffirms its general observations set out in paragraphs 2.1 and 2.2 of the draft heads opinion, in 

relation  to  (a)  the  consolidation  of  Ireland’s  CBAs;  and  (b)  the  reform  of  supervision  in  Ireland.  In 

particular,  the  ECB  points  out  that  the  current  CBAs  are  not  consolidated  and  that  a  consolidation  is 

urgently needed. 

3. 

Specific observations  

3.1  Central bank independence  

As stated in the draft heads opinion, the ECB had a number of reservations as regards whether the 

draft  heads  ensure  full  independence  for  Ireland’s  central  bank  (hereinafter  the  ‘Bank’)  in 

compliance with (a) the central bank independence principle; and (b) the role of the central bank as 

part  of  the  European  System  of  Central  Banks  (ESCB),  including  the  principle  that,  when  it  is 

entrusted with ESCB-related tasks as well as with other tasks, the latter should not interfere with 

the  ESCB’s  tasks.  More  particularly,  the  ECB  stated  that  the  Bank  must  be  a  fully  independent 

institution with a precisely defined mandate. As regards ESCB-related tasks and their performance, 

the Governor, the Bank, the Commission and its individual members must all be independent and 
must not seek or take instructions from the Government as far as those tasks are concerned4. The 

ECB called for stringent respect of the Bank’s independence in the draft law and for clarification of 

the roles of the Governor and the Commission. In this regard, the ECB welcomes the fact that the 

draft  law  retains  Section  19A(2)  of  the  Central  Bank  Act  (CBA)  1942  which  provides  that  the 

Governor  has  sole  responsibility  for  the  performance  of  ESCB-related  tasks.  However,  the  ECB 

notes that this provision contradicts other provisions of the draft law whereby the Commission is 

entrusted  with  ESCB-related  tasks  (see  details  in paragraph  3.1.3  of  this  opinion).  Therefore,  the 

ECB reiterates its comment that the new set-up must clarify the roles of the Commission and the 

Governor. 

Furthermore,  the  ECB  welcomes  the  draft  law’s  insertion  of  subsections  (1A)  and  (1B)  after 

subsection (1) of Section 6 of the CBA 1942, which is intended to underline the independence of 

the  Bank,  the  Governor  and  the  Commission,  as  required  by  the  TFEU  and  the  Statute  of  the 

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

the ESCB’). While the ECB agrees with the clear intention of these insertions, it remains to be seen 

whether  in  practice  they  will  be  able  to  ensure  that  the  Bank  and  the  members  of  its  decision-

making bodies will be fully independent with a view to their ESCB-related tasks. In any event, the 

ECB recommends that subsection (1A) should be further strengthened in order to make clear that, 

where any provision of the CBAs could involve a contradiction of the independence principle, the 

4  

See the ECB Convergence Report of May 2008, pp. 17-18. 

2 

 
 
                                                      
independence  principle  is  to  have  supremacy.  Any  contradictory  provision  of  the  CBAs  is  to  be 

interpreted with due regard to that overriding principle. The ECB welcomes the more substantive 

nature of subsection (1B) and recommends that it should be further enhanced, along the following 

lines. According to its current formulation, only the Bank, the Governor and the Commission are 

protected from being directed or required by any person or authority to act in a manner inconsistent 

with the TFEU and the Treaty on European Union (TEU) (hereinafter the ‘Treaties’) or the Statute 

of  the  ESCB.  The  ECB  recommends  that  this  protection  should  also  extend  to  any  individual 

member of the Commission, either an ex officio member or a member appointed by the Minister, 

who  may  be  concerned  in  the  performance  of  ESCB-related  tasks.  Subsection  (1B)  should  also 

specifically provide that no member of the Commission shall seek to influence or give instructions 

to  the  Governor  in  his  capacity  as  the  sole  member  of  the  Commission  responsible  for  the 

performance of the Bank’s ESCB-related tasks. In addition, the ECB understands that the provision 

encompasses instructions from both national and foreign institutions in line with Article 130 of the 

TFEU and Article 7 of the Statute of the ESCB. For legal certainty reasons, this provision should 
be brought fully in line with Article 130 of the TFEU and Article 7 of the Statute of the ESCB5.  

In addition, the ECB notes that at the same time the new subsections (3) and (5) of Section 6A of 

the  CBA  1942  indicate  that  for  the  Bank’s  non-ESCB-related  tasks  the  Commission  and  the 

Governor  must  comply  with  the  requests  for  a  consultation  or  information  of  the  Minister  for 

Finance.  In  this  context,  to  ensure  that  the  Bank  and  members  of  its  decision-making  bodies  are 
fully independent in the performance of their ESCB-related tasks6, the Governor should have the 

explicit competence to organise the ESCB-related tasks in such a way that they are performed in an 
independent manner7.  

On  the  assumption  that  the  above  recommendations  are  followed,  the  ECB  makes  the  following 

additional specific comments regarding the draft law:  

3.1.1  The  draft  law  does  not  affect  the  current  Section  6A(1)  of  the  CBA  1942,  which  states  that  the 

primary  objective  of  the  Bank  is  to  maintain  price  stability.  A  substituted  Section  6A(2)  of  the 

CBA 1942 lists the other objectives of the Bank, which were referred to in the draft heads opinion 

as the ‘secondary objectives’ of the Bank. The ECB stated in the draft heads opinion that the draft 

law  should  provide  that  the  Bank’s  secondary  objectives  should  be  expressed  to  be  without 

prejudice  to  its  primary  objective,  as  set  out  in  Articles  127(1)  and  282(2)  of  the  TFEU  and 

Article 2 of the Statute of the ESCB. Furthermore, the ECB stated that the draft law should provide 

that  the  secondary  objectives  must  be  consistent  and  not  interfere  with  the  Bank’s  obligation 

pursuant to Section 6A(6) to support the general economic policies of the European Union with a 

view to contributing to the achievement of the objectives of that Union as laid down in Article 3 of 

5  
6  

7  

Similarly, see, for example, the ECB Convergence Report of May 2008, pp. 229, 236 and 246. 
Under  Article  127(5)  of  the  TFEU,  one  of  the  tasks  of  the  ESCB  is  to  contribute  to  the  smooth  conduct  of  policies 
relating to the prudential supervision of credit institutions and the stability of the financial system. 
See  also  paragraph  3.1  of  Opinion  CON/2010/30;  in  particular:  ‘Although  the  draft  heads  provide  for  an  independent 
governor  solely  responsible  for  the  ESCB-related  tasks,  the  Governor  may  not  be  seen  in  isolation  from  the  central 
banking structure’. 

3 

 
                                                      
the TFEU, which is itself an objective expressed to be without prejudice to the primary objective of 

maintaining  price  stability.  As  these  comments  do  not  appear  to  have  been  addressed,  the  ECB 

restates its remarks in respect of Section 6A(2). In addition, the ECB notes that Section 6A(1) of 

the  CBA  1942  seems  to  limit  the  primary  objective  of  the  central  bank  to  the  context  of 

performance of its ESCB-related tasks. In line with the ECB’s comments in this paragraph, Section 

6A(1)  of  the  CBA  1942  should  ensure  that  the  objective  of  price  stability  is  an  objective  of  the 

Bank in the performance of any of its tasks, ESCB-related or non-ESCB-related. 

3.1.2  The substituted Section 6A(2)(e) of the CBA 1942 provides that one of the Bank’s other objectives 

will be ‘the discharge of such other functions and powers as are conferred on it by law’. The ECB 

reminded  the  consulting  authority  in  the  draft  heads  opinion  that  the  Bank’s  functions  must  be 

performed in a manner that is fully compatible with the Treaties and the Statute of the ESCB. This 

substituted Section 6A(2)(e) has to be considered together with subsection (10) of the substituted 

Section 5A, which states that the Bank is required to perform its functions and exercise its powers 

in a manner consistent with the Treaties and the Statute of the ESCB, For legal certainty reasons, 

the ECB continues to recommend that the draft law clarifies that the Bank’s objective to discharge 

‘such other functions and powers as are conferred on it by law’ is subject to the requirements of the 

Treaties  and  the  Statute  of  the  ESCB  and  that  practical  precautions  ensure  that  they  are  not 

compromised.  

3.1.3  The  substituted  Sections  18B(1)  and  18B(2)  of  the  CBA  1942  provide  that,  except  as  expressly 

provided otherwise by the CBA 1942, the affairs and activities of the Bank shall be managed and 

controlled  by  the  Commission.  Although  Section  19A(2),  which  provides  that  the  Governor  is 

solely  responsible  for  the  performance  of  ESCB-related  tasks,  is  retained  along  with  subsection 

(10) of the substituted Section 5A and even on the assumption that the recommendations specified 

in  paragraph  3.1  above  are  implemented,  the  ECB  is  not  satisfied  that  its  comments  in  the  draft 

heads opinion as regards the interaction between (a) the Commission’s management and control of 

the Bank’s affairs and activities; and (b) the Governor’s sole responsibility for the performance of 

the Bank’s objectives relating to ESCB-related tasks, have been adequately addressed and, thus, the 

ECB would like to reiterate these comments as follows.   

The substituted Section 18B(3) provides that the Commission shall ensure the proper exercise and 

discharge  by  the  Bank  of  the  powers  and  functions  conferred  on  it  by,  inter  alia,  the  substituted 

Section  5A  (General  functions  and  powers  of  the  Bank).  This  appears  to  include  clearly  ESCB-

related tasks such as, for example, in the substituted Section 5A(1)(b), (c), (g) and (h). In this sense, 

Article  6.1  of  the  Statute  of  the  ESCB  provides  that  in  the  field  of  international  cooperation 

involving tasks entrusted to the Eurosystem, the ECB decides how the ESCB is represented. To the 

extent  that  the  substituted  Section  5A(1)(b)  and  (c)  allow  the  central  bank  to  participate  in 

international  monetary  institutions,  the  draft  law  should  make  such  participation  subject  to  the 

ECB’s approval in accordance with Article 6.2 of the Statute of the ESCB. Also, the collection of 

statistical information, which is provided for in the substituted Section 5A(1)(g) and (h), is related 

4 

 
to the performance of ESCB-related tasks and, according to Article 5.1 of the Statute of the ESCB, 

in order to undertake such tasks, the ECB is assisted by the national central banks (NCBs) in the 

collection of necessary statistical information. In this regard, the ECB’s powers in this field should 

be recognised. 

Therefore,  the  draft  law  contains  provisions  whereby  the  Commission  is  responsible  for  clearly 

ESCB-related  tasks  and  this  is  in  direct  conflict  with  the  requirement  for  the  Governor  to  be  the 

sole  authority  with  responsibility  for  such  tasks  which  clearly  underscores  the  observations  in 

paragraph 3.1. 

3.1.4  Head 8 of the draft heads stated that ‘subject to certain exceptions, the functions and powers … of 

the Governor (excluding ESCB functions) … are to be transferred to the Bank’. In its draft heads 

opinion,  the  ECB  stated  that  it  was  unclear  which  of  the  Governor’s  functions  and  powers  were 

intended  to  be  transferred  to  the  Bank.  The  draft  law  does  not  appear  to  have  implemented  this 

element  of  draft  head  8  and  therefore,  assuming  that  this  is  not  reintroduced,  the  ECB  has  no 

further concerns in this regard. 

3.1.5  Subsection (11) of the substituted Section 5A of the CBA 1942 states that the bank shall perform 

its  functions  and  exercise  its  powers  in  a  way  that  is  consistent  with  (a)  the  orderly  and  proper 

functioning  of  financial  markets;  and  (b)  the  prudential  supervision  of  providers  of  financial 

services.  This  subsection  has  to  be  considered  together  with  subsection  (10)  of  the  substituted 

Section 5A. For legal certainty reasons, the ECB continues to recommend that subsection (11) is 

clarified with regard to the scope of the functions covered by it, and its reference to ESCB-related 

tasks.   

3.1.6  Head 17 of the draft heads stated that the draft law would provide that the Governor would assign 

the Heads of Function their responsibilities. According to the new Section 23A inserted in the CBA 

1942  by  the  draft  law,  it  is  the  Commission  which  will  assign  the  Heads  of  Function  their 

responsibilities. The ECB notes that, pursuant to the new Section 32A(1), it is the Governor who 

will propose a plan of assignment of responsibility for specified powers and functions of the Bank 

to,  inter  alia,  the  Heads  of  Function.  The  ECB  further  notes  that,  pursuant  to  the  new  Section 

32A(3), the Heads of Function are accountable to the Governor for the performance of an assigned 

function (although they may also be accountable to any other person specified for the purpose in 

the  assignment).  However,  the  ECB  recommends  a  clarification  regarding  the  Head  of  Central 

Banking  with  regard  to  Subsection  (4)  of  Section  23D  to  ensure  that  the  Minister  for  Finance 

cannot  use  powers  under  this  rule  to  compromise  independence  in  the  performance  of  ESCB-

related tasks. It would like to point out that, to the extent that the power of the Governor to assign 

responsibilities  under  the  new  Section  32A(1)  concerns  ESCB-related  tasks,  the  draft  law  should 

ensure that the Governor exercises this power independently. 

3.1.7  Head 13 of the draft heads stated that certain provisions relating to membership of the Commission 

were to be the same in the draft law as those that currently apply to the board of the CBSFAI. In its 

draft heads opinion, the ECB recommended that in the event of any conflict between the conditions 

5 

 
applicable to all members of the Commission and those applicable to the Governor, the Governor 

should be bound by the provisions applying specifically to him or her. In relation to the provisions 

of the draft law in this regard, the ECB is satisfied that no such conflict arises and it has no further 

concerns in this regard. 

3.1.8  The  draft  law  retains  without  modification  the  current  Section  19(6)  and  (7)  of  the  CBA  1942 

which provide for the automatic termination of office of the Governor for various reasons including 

bankruptcy, imprisonment or holding shares in a financial institution. The draft law also retains the 
current Section 21 of the CBA 19428. This section allows for the Governor’s removal from office 

on  grounds  of  permanent  incapacity  due  to  ill-health  and  for  one  or  more  specified  grounds  of 

serious misconduct. In its draft heads opinion, the ECB stated that, in order to ensure compliance 

with the conditions for dismissal of a Governor in Article 14.2 of the Statute of the ESCB, Sections 

19 and 21 need to reflect the language used in that Article which states that a Governor ‘may be 

relieved from office only if he no longer fulfils the conditions required for the performance of his 

duties  or  if  he  has  been  guilty  of  serious  misconduct’.  As  the  draft  law  does  not  appear  to  have 

addressed these specific recommendations, the ECB would like to restate them.  

3.1.9  As regards the Heads of Function, draft head 18 made it clear that the draft law would provide that 

the current Chief Executive of the Irish Financial Services Regulatory Authority (IFSRA) would be 

the  first  Head  of  Financial  Regulation  and  that  his  first  term  would  run  for  the  remainder  of  his 

contract  with  the  IFSRA.  In  its  draft  heads  opinion,  the  ECB  recommended  that  the  draft  law 

should have similar clarity as regards the position of Head of Central Banking, as draft head 18(3) 

simply stated that ‘there should be a transition arrangement for the present Director General of the 

Bank’. The ECB notes that the draft law does not appear to contain a transitional arrangement for 

the current Director General of the Bank. The ECB welcomes the clear provision in the draft law 

whereby  the office  of  Director  General  of  the  Bank is  replaced  by  the office  of  Head  of  Central 

Banking,  and  welcomes  the  retention  of  Section  22A  of  the  CBA  1942,  whereby  the  Head  of 

Central  Banking  will  now  carry  out  the  Governor’s  ESCB-related  tasks  whenever:  (a)  the 

Governor  is  unable  to  carry  out  those  responsibilities  because  of  absence,  ill-health  or  any  other 

reason;  or  (b)  the  office  of  Governor  is  vacant.  In  this  regard,  the  draft  law  should  expressly 

provide that the current Director General of the Bank will remain to see out his full term of office. 

In addition, the ECB restates its reminder to the consulting authority from the draft heads opinion 

that,  in  the  context  of  personal  independence,  the  same  safeguards  for  personal  independence 

(minimum  term  of  office,  grounds  for  dismissal,  security  of  tenure,  right  of  judicial  review, 

safeguards  against  conflicts  of  interests)  provided  for  the  Governor  must  apply  equally  to  all 

members of NCB decision-making bodies who are involved in the performance of ESCB-related 

8  

With one small amendment, however, to Section 21(2) of the CBA 1942, involving the deletion of the words ‘if the other 
members have passed a unanimous resolution requesting the President to remove the Governor from office’. The effect is 
that the Government may ask the President to remove the Governor for stated serious misconduct on its own initiative.   

6 

 
                                                      
tasks9 and in particular to those who may substitute the Governor. The new Section 25 of the CBA 

1942 does not seem to reflect this aspect.  

3.1.10 Draft head 18 stated that the draft law would provide that the Governor would be able to engage in 

other remunerative employment with the consent of the Commission. In its draft heads opinion, the 

ECB stated that the draft law should provide for safeguards against conflicts of interest that could 

jeopardise the personal independence of the Governor. As stated in the ECB Convergence Report 

of  May  2008,  ‘as  a  matter  of  principle,  membership  of  a  decision-making  body  involved  in  the 

performance of ESCB-related tasks is incompatible with the exercise of other functions that might 

create a conflict of interest. In particular, members of such decision-making bodies may not hold 

an  office  or  have  an  interest  that  may  influence  their  activities,  whether  through  office  in  the 

executive  or  legislative  branches  of  the  state  or  in  regional  or  local  administrations,  or  through 
involvement in a business organisation’10. The draft law does not appear to have implemented this 

element of draft head 18 in respect of the Governor. In this regard, the ECB welcomes the retention 

of Section 19(6) and (7) of the CBA 1942 which protect against conflicts of interest. However, it 

recommends that the draft law state more clearly the precise conditions which create a conflict of 

interest for the Governor. This also applies to all members of the Commission who are involved in 

the performance of ESCB-related tasks and in particular to those who may substitute the Governor. 

3.1.11 The  new  Section  32B  of  the  CBA  1942  provides  that  the  Bank  shall  prepare  and  submit  to  the 

Minister at specified intervals a strategic plan specifying the Bank’s objectives, activities, policies, 

strategies  and  policies  for  the  relevant  period.  The  ECB  notes  that,  pursuant  to  the  new  Section 

32B(5), the Minister shall have any such plan laid before the Houses of the Oireachtas (the Irish 
Parliament).  The  ECB  recommends  that  the  new  Section  32B  should  contain a  safeguard  for  the 

observance  of 

the  Bank’s 

independence, 

in  respect  of 

the  preparation,  approval  and 

implementation of any such strategic plan.   

3.1.12 The  draft  law  provides  in  the  new  Section  32C  of  the  CBA  1942  that  the  Bank  is  to  prepare  an 

annual  estimate  of  income  from  levies,  subvention  from  the  Bank  and  any  other  income  and 

expenditure in relation to financial regulation. This is to be submitted to the Minister not later than 

two  months  before  the  end  of  each  financial  year.  It  is  unclear  from  the  draft  law  whether  the 

Minister’s  approval  is  required,  as  was  explicitly  foreseen  in  draft  head  23,  although  such  a 

requirement for approval may be implicit in the new Section 32C.  

In its draft heads opinion, the ECB stated that, where third parties and particularly the government 

are in a position, directly or indirectly, to exercise influence on the determination of the budget of 

an NCB, the relevant statutory provisions should contain a safeguard clause to ensure that this does 
not  impede  the  proper  performance  of  the  NCB’s  ESCB-related  tasks11.  The  ECB  recommended 

9  

10 
11 

See  Opinions  CON/2004/16,  CON/2004/35,  CON/2006/32,  CON/2006/44  and  CON/2007/6.  See  also  the  comments 
made at paragraph 3.1 above in relation to central bank independence. 
See the ECB Convergence Report of May 2008, p. 20. 
As  noted  in  the  1998  European  Monetary  Institute  Convergence  Report,  and  reiterated  in  paragraph  8  of  Opinion 
CON/2002/16. 

7 

 
                                                      
that  the  Governor  should  be  granted  an  explicit  right  to  oppose  any  funding  and  budgetary 

decisions in respect of financial regulation which could cause such impediments. In this regard, the 

ECB notes and welcomes the drafts law’s inclusion of the strengthened substituted Section 19B in 

the CBA 1942. This provides for the Governor’s final determination of budgetary or funding issues 

being considered by the Commission,  which in the  Governor’s opinion have implications for the 

independence  of  the  Bank  or  the  Governor’s  performance  of  the  functions  conferred  on  the 

Governor and the Bank by or under the Treaties and the Statute of the ESCB. In order to avoid any 

possible  ambiguity,  the  ECB  recommends  that  the  substituted  Section  19B  is  extended  to 

encompass  budgetary  and  funding  issues  being  considered  by  the  Minister  in  this  regard.  In 

addition, Section 19B should provide that the Commission is obliged to ensure that the Bank has 

the financial means necessary for carrying out its ESCB-related tasks.  

In addition, the draft law should make clear that Section 19B should take precedence over the new 

Section 32C.   

3.1.13 The new Section 32F(4) of the CBA 1942 provides that any claims on, or liabilities to, the ECB are 

to be treated as assets or liabilities of the general fund or any other fund the Minister establishes by 

order for that purpose. The ECB would welcome clarification as to what is intended by this rule.  

3.1.14 The new Section 32G(1) of the CBA 1942 provides that the Bank shall pay its surplus income as 

and  when  determined  into  the  Exchequer  and  may,  at  any  time  pending  such  determination,  pay 

into  the  Exchequer  such  sums  on  account  of  surplus  income  as  may  be  agreed  between  the 

Minister and the Bank. Also, the new Section 32G(2) provides for the powers of the Minister to 

make  regulations  providing  for  the  periodic  determination  of  the  Bank’s  surplus  income  and  in 

particular regulations regarding reserves and other financial buffers and regulations providing for 

any  matter  arising  from  the  implementation  of  Chapters  VI  (financial  provisions  of  the  ESCB), 

VIII  (amendment  of  the  Statute  and  complementary  legislation),  and  IX    (transitional  provisions 

and other provisions for the ESCB) of the Statute of the ESCB. The ECB reminds the consulting 

authority that any transfers of financial resources by an NCB to a Member State’s budget, either in 

the  form  of  a  profit  distribution  scheme  or  in  any  equivalent  form,  need  to  comply  with  the 

limitations  imposed  in  this  respect  by  the  TFEU,  in  particular  with  the  principle  of  central  bank 
independence and the prohibition on monetary financing under Articles 130 and 123 thereof12. In 

the absence of precise provisions in an NCB statute of how profits are allocated, the decision on 

allocation  of  profits  should  be  taken  by  the  NCB’s  decision-making  bodies  on  professional 

grounds,  and  should  not  be  subject  to  the  discretion  of  third  parties  unless  there  is  an  express 

safeguard clause stating that this is without prejudice to the financial means necessary for carrying 
out  the  NCB’s  tasks  related  to  the  ESCB13.  Moreover,  compliance  with  the  principle  of  central 

bank  independence  under  Article  130  of  the  TFEU  includes  a  requirement  to  ensure  the  central 

bank’s  financial  independence.  To  ensure  such  compliance,  the  Member  States  should  establish 

12 
13 

Concerning the prohibition on monetary financing, see paragraph 3.2 below. 
See paragraph 2.2(b) of Opinion CON/2009/29 and p. 21 of the ECB Convergence Report of May 2008. 

8 

 
                                                      
legal frameworks for NCB profit distributions which allow for an arm’s length assessment of the 

financial  needs  of  the  relevant  NCB  to  be  appropriately  taken  into  account.  Such  assessments 

should  be  based  on  the  professional  judgement  of  the  relevant  NCB’s  independent  decision-

making  body  rather  than  on  the  financial  needs  of  the  State,  so  that  the  NCB  does  not  become 
dependent  for  its  finances  on  the  government,  the  parliament  or  any  other  third  party14.  The 

principle of central bank independence requires that no third party should be able to exercise direct 

or  indirect  influence,  over  the  performance  of  the  NCB’s  tasks,  or  over  its  ability,  both 

operationally in terms of manpower, and financially in terms of appropriate financial resources, to 

fulfil  its  mandate,  i.e.  to  perform  its  national  tasks,  to  meet  its  international  obligations  and  to 
properly cover its administrative and operational expenses15. Profits may be distributed to the State 

budget  only  after  any  accumulated  losses  from  previous  years  have  been  covered  and  financial 

provisions deemed necessary to safeguard the real value of the NCB’s capital and assets have been 

created. Indeed, it is of the utmost importance to allow a sufficient provision of reserves to allow 

the NCB to face possible losses without lessening its financial means to implement the monetary 

policy  of  the  Union.  Similarly,  the  NCB  must  also  be  free  to  independently  create  financial 

provisions to safeguard the real value of its capital and assets. Furthermore, Articles 28.1 and 30.4 

of  the  Statute  of  the  ESCB  provide  for  calls  on  the  NCBs  to  make  contributions  to  the  ECB’s 

capital and to make transfers of foreign reserves. The principle of financial independence requires 

that  compliance  with  these  provisions  leaves  an  NCB’s  ability  to  perform  its  functions 
unimpaired16.  

In respect of the new Section 32G(3), the ECB notes that the same safeguards are to apply as do 

currently, in that the Minister must have regard to the functions imposed and the powers conferred 

on the Bank by the Treaties and the Statute of the ESCB. As stated in paragraph 3.1.12 above, it 

appears that the current safeguards do not sufficiently secure the Governor’s final determination of 

budgetary  or  funding  issues  contained  in  the  substituted  Section  19B.  There  may  be  conflicts 
between the substituted Section 19B and the new Section 32G, or another provision of the CBAs17, 

which cast a doubt over the Governor’s right of final determination of budgetary or funding issues 

and  could  have  implications  for  the  Bank’s  independence  or  the  performance  of  ESCB-related 

tasks. In this respect, the draft law should make clear that Section 19B should take precedence over 

the new Section 32G.  

3.1.15 The  draft  law  provides  in  a  new  Section  32H  of  the  CBA  1942  that  where  it  appears  to  the 

Commission that the proceeds from levies and fees imposed in respect of financial regulation are 

likely to be insufficient to enable the Bank to properly perform its regulatory functions, the Bank 

may provide additional funds to subsidise the shortfall. The new Section 32H(3) and (4) contains 

14 
15 
16 
17 

Ibid. 
Ibid and see the ECB Convergence Report of May 2008, p. 20. 
See the ECB Convergence Report of May 2008, p. 20. 
See also Section 32H(3) and (4) (discussed in paragraph 3.1.15 below) of the CBA 1942.   

9 

 
                                                      
the  same  safeguards  as  currently  apply18:  (a)  the  Minister  is  competent  to  approve  such 

subsidisation; (b) the Minister must consult the Governor before deciding thereon; the latter may 

express his opinion thereon, in so far as it could affect (i) the Bank’s performance of its obligations 

with  respect  to  promoting  the  State’s  financial  stability;  and  (ii)  the  performance  of  the  Bank’s 

functions in its capacity as a member of the ESCB; and (c) the Minister must have regard to the 

functions and powers of the Bank under the Treaties and the Statute of the ESCB when approving 

such subsidisation. As stated in paragraph 3.1.14 above, it appears that the current safeguards do 

not sufficiently secure the Governor’s final determination of budgetary or funding issues contained 

in the substituted Section 19B. The ECB restates its recommendations at paragraph 3.1.14 in this 

regard.   

3.1.16 The  draft  law  provides  in  the  new  Section  32I  of  the  CBA  1942  for  the  Bank’s  preparation  of 

annual accounts. Section 32I(3) provides that the form of statement of accounts must be approved 

by the Minister after consulting the Bank. In its draft heads opinion, the ECB stated that the draft 

law  should  reflect  the  Bank’s  obligation  to  comply  with  the  Eurosystem’s  regime  for  financial 

reporting of the Bank’s operations pursuant to Article 26 of the Statute of the ESCB. In line with 

its  convergence  reports,  the  ECB  also  stated  that  the  power  of  the  Comptroller  and  the  Auditor 

General to audit the Bank’s accounts (provided for in the draft law as the new Section 32I(5) of the 

CBA  1942)  should  be  expressed  to  be  without  prejudice  to  the  audit  by  the  Bank’s  external 

auditors. As the draft law does not appear to have addressed these specific recommendations, the 

ECB restates its remarks in this regard.   

3.2  Monetary financing  

3.2.1  According to the draft law, the National Consumer Agency (NCA) will assume the previous role of 

the Consumer Director of providing information to consumers in relation to financial services. The 

draft  law  provides  in  its  Section  6  for  arrangements  in  respect  of  Bank  employees  who  may  be 

seconded or transferred to the NCA in order to implement the transfer of that function. According 

to the draft heads, provision was to be made in the draft law for the preservation of the rights of any 

seconded staff who had contributed to a central bank superannuation scheme up until transfer to the 

NCA.  The  ECB  repeats  its  recommendation  contained  in  the  draft  heads  opinion  in  this  respect, 

namely  that  in  order  to  ensure  full  compliance with  the  prohibition  on  monetary  financing  under 
Article 123 TFEU19 the draft law should clarify that no Bank resources will be applied towards the 

payment  of  pensions,  or  any  other  remuneration,  in  respect  of  Bank  staff,  once  seconded  or 

transferred to the NCA, other than solely in respect of ensuring the rights and entitlements already 

accrued by those Bank staff up to the time of secondment or transfer.  

18 
19  

See the current Section 33L of the CBA 1942. 
The monetary financing prohibition as laid down in Article 123 TFEU is further clarified in Council Regulation EC (No) 
3603/93 of 13 December 1993 specifying definitions for the application of prohibitions in Article 104 and 104b(1) of the 
Treaty [establishing the European Community] [now Articles 123 and 125 TFEU], OJ L 332, 31.12.1993, p. 1, according 
to which overdraft facilities or any other type of credit facility with the ECB or the NCBs of Member States in favour of 
Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed 
by  public  law,  or  public  undertakings  of  Member  States  are  prohibited,  as  is  any  purchase  directly  from  these  public 
sector entities by the ECB or NCBs of debt instruments. 

10 

 
                                                      
3.2.2  As set out above at paragraph 3.1.14, the new Section 32G(1) of the CBA 1942 provides that the 

Bank shall pay its surplus income as and when determined into the Exchequer and may, at any time 

pending  such  determination,  pay  into  the  Exchequer  such  sums  on  account  of  surplus  income  as 

may be agreed between the Minister and the Bank. The ECB reminds the consulting authority that 

any such transfers of financial resources by an NCB to a Member State’s budget, either in the form 

of  a  profit  distribution  scheme  or  in  any  equivalent  form,  need  to  comply  with  the  limitations 

imposed  in  this  respect  by  the  TFEU,  in  particular  with  the  prohibition  on  monetary  financing 

under  Article  123  thereof.  More  specifically,  in  order  to  comply  with  this  prohibition,  it  is  of 

crucial importance that the distribution of profits does not imply advances on future or provisional 

profits  but  is  rather  the  result  only  of  profits  that  are  fully  realised,  accounted  for  and  audited, 

which in turn requires due calculation of profits and losses. Otherwise, such distribution of profits 

may result in advance profit distribution to the State, which would constitute credit to the public 
sector in breach of the monetary financing prohibition20. Thus, in order to ensure that the schedule 

for  distribution  of  the  Bank’s  profits  to  the  Exchequer  complies  with  the  monetary  financing 

prohibition,  in  full  or  through  instalments,  it  may  not  imply  advances  on  future  or  provisional 

profits  but  only  result  in  annual  profit  distributions  that  are  fully  realised,  accounted  for  and 

audited,  which  in  turn  requires  due  calculation  of  profits  and  losses  for  the  relevant  reporting 
period21.  

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

Done at Frankfurt am Main, 17 June 2010. 

[signed] 

The Vice-President of the ECB 

Vítor CONSTÂNCIO 

20  

21 

See e.g., paragraph 3.3 of Opinion CON/2008/82, paragraph 2.4 of Opinion CON/2009/26, and paragraph 2.4 of Opinion 
CON/2009/53.  
See paragraph 2.2(b) of Opinion CON/2009/59.   

11