Opinion of the European Central Bank of 21 December 2010 on the Hungarian Financial Supervisory Authority and on its President’s legislative powers (CON/2010/94)
Date: 2010-12-21
Institutions: European Central Bank
Subjects: Hungary, competence of the institution, financial stability, financial supervision, national law, supervisory power

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 21 December 2010 

on the Hungarian Financial Supervisory Authority and on its President’s legislative powers 

(CON/2010/94) 

Introduction and legal basis 

On 9 November 2010, the European Central Bank (ECB) received a request from the Hungarian Ministry 

of Public Administration and Justice for an opinion on (i) a draft law on legislation and (ii) a draft law 

amending  Law  XX  of  1949  on  the  Constitution  of  the  Hungarian  Republic  (hereinafter  the  ‘draft  law 

amending  the  Constitution’)  with  regard  to  the  legislative  powers  of  the  President  of  the  Pénzügyi 

Szervezetek  Állami  Felügyelete  (the  Financial  Supervisory  Authority,  hereinafter  the  ‘PSZÁF’).  On 

17 November  2010,  the  ECB  received  a  request  from  the  Ministry  of  the  National  Economy  on  a  draft 

law on the PSZÁF (the draft law on legislation, the draft law amending the Constitution and the draft law 

on the PSZÁF, hereinafter collectively referred to as ‘the draft laws’). Since the subject matter of the draft 

laws is closely related, the ECB has merged these consultations. 

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, fourth, fifth and sixth indents of Article 2(1) of Council 

Decision  98/415/EC  of  29 June 1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities  regarding  draft  legislative  provisions1,  as  the  draft  laws  contain  provisions  concerning  the 

Magyar  Nemzeti  Bank  (MNB),  the  collection  of  statistical  data,  payment  and  settlement  systems  and 

rules applicable to financial institutions that may 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 laws 

1.1  Amendments to the Constitution and to the draft law on legislation conferring legislative powers on 

the PSZÁF’s President  

The  draft  law  on  legislation  will  replace  the  Law  on  legislation  annulled  by  the  Hungarian 
Constitutional Court2, and will thus re-establish the legislative framework in Hungary. The reason 

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2  

OJ L 189, 3.7.1998, p. 42. 
Decision 121/2009 (XII.17.) 

 
 
 
 
                                                 
for  the  annulment  was  that  most  provisions  of  the  Law  on  legislation  did  not  comply  with 

constitutional developments that had taken place since its adoption. Since the remaining provisions 

were insufficient to constitute a legal act, the Constitutional Court annulled the Law on legislation 

in its entirety with effect for the future. The Constitutional Court requested the legislator to adopt a 

new  law  on  the  same  subject  matter  by  31  December  2010  and  obliged  the  legislator  to  regulate 

certain issues in the Constitution rather than in the Law on legislation. In reaction to this judgment, 

the  Hungarian  legislator  had  already  drawn  up a  draft  law  amending  the  Constitution  and  a  draft 

law on legislation on which the ECB had been consulted with regard to the legislative powers of the 
MNB3.  The  legal  provisions  concerning  the  legislative  powers  of  the  PSZÁF’s  President  now 

submitted for consultation will be inserted in these draft laws.  

According  to  the  new  amendments,  the  Constitution  lays  down  the  PSZÁF’s  main  tasks4  and 
provides  that  its  President  is  appointed  by  Hungary’s  President  for  a  term  of  six  years5. 

Furthermore, the draft Constitution sets out that decrees issued by the PSZÁF’s President qualify as 
legislation6 and that they may not contradict laws, or government or MNB Governor decrees7. The 

legislator explains that these changes are intended to ensure the PSZÁF’s independence. 

1.2 

The draft law on the PSZÁF 

The  draft  law  on  the  PSZÁF  will  repeal  and  replace  Law  CXXXV  of  2007  on  the  Financial 

Supervisory Authority and is expected to enter into force on 1 January 2011.  

In  general,  the  draft  law  on  the  PSZÁF  maintains  the  current  legislative  framework  currently 

applicable to it. According to the explanatory memorandum, the PSZÁF’s status is strengthened as 
it  will  be  subordinated  only  to  laws8.  The  draft  law  on  the  PSZÁF  will  establish  a  financial 

arbitration board to protect consumers, modify its organisation mainly on labour law related issues, 

provide for new sources of income and modify its supervisory procedures. 

In addition, the draft law on the PSZÁF restricts the rights of the Pénzügyi Stabilitási Tanács (the 

Financial Stability Council, hereinafter  the ‘PST’). The PST consists of the Minister for Finance, 

the PSZÁF’s President and the MNB’s Governor and has the mandate to assist the FSA and, inter 

alia, to assess the stability of the financial markets. It can also submit legislative proposals to the 

Government or to one of its members or to the PST’s Chair and has the right to be informed about 
how the addressee is going to proceed with this proposal9. The new draft no longer provides for this 
duty to ‘comply or explain’ in reaction to legislative proposals by the PST10.  

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4  
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7  
8  
9  
10  

Opinion CON/2010/76. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu.  
Article 40/D(1) of the draft Constitution. 
Articles 30/A(1) and 40/D(2) of the draft Constitution. 
Article 7/A(2) of the draft Constitution. 
Article 40/D(4) draft Constitution. 
Article 1 of the draft law on the PSZÁF. 
‘comply or explain’. 
See Section 33 of the new draft law on the FSA. 

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2.  General observations 

2.1  The appropriate time to consult the ECB 

The draft law amending the Constitution and the Law on legislation were adopted on 22 November 

2010 while the Law on the PSZÁF was adopted on 13 December 2010 shortly after the ECB had 

been  consulted  and  before  it  could  adopt  the  present  opinion.  As  a  consequence,  there  was  no 

possibility  for  the  Hungarian  legislator  to  take  the  ECB’s  views  into  account before  adopting  the 

draft laws. 

The  ECB  reiterates  that  even  cases  of  particular  urgency  do  not  relieve  national  authorities  from 

their duty under Articles 127(4) and 282(5) of the Treaty to consult the ECB and to allow sufficient 

time  to  take  into  account  its  views,  in  accordance  with  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. 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, thereby indicating the estimated course of the legislative process. The 

second sentence of Article 4 of Decision 98/415/EC provides 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. 

With respect to this ongoing consultation, this duty to consult the ECB has not been respected by 

the Hungarian authorities. This present Opinion in no way eliminates this breach of duty, as it is 

important  for  the  application  and  interpretation  of  the  enacted  laws  and  any  future  amendments. 

The ECB would appreciate it if the Hungarian authorities would honour their obligation under the 

Treaty to consult the ECB, in accordance with Decision 98/415/EC. 

2.2  Legal certainty 

The  ECB  stresses  the  importance  of  legal  certainty.  The  Law  governing  the  tasks  and  the 

operational  structure  of  the  PSZÁF  has  been  amended  several  times  in  recent  years,  and  it  is 

essential for the basic legislation regulating the PSZÁF’s structure to serve as clear and consistent 

guidance. Frequent changes to the PSZÁF’s structure would compromise this function. 

2.3  Observations made in ECB Opinion CON/2010/10 

With regard to the latest amendment to Law CXXXV of 2007, the Hungarian Ministry of Finance 

consulted the ECB at a very late stage in the legislative process. The observations made in Opinion 

CON/2010/10 could not be taken into account, as the Law was enacted before the ECB adopted its 

3 

opinion. Opinion CON/2010/10 is of particular relevance to the present consultation and the ECB 

invites the Hungarian authorities to take note of it. 

Already this earlier amendment changed the PSZÁF’s legal status from government agency into a 
‘self-regulatory  administrative  body11,  ‘operated  and  managed  independently’12.  Furthermore  the 

PSZÁF’s  organisational  framework  has  been  changed  by  abolishing  the  Board  as  a  decision-
making body and transferring these powers to its Chair13. A Financial Stability Council (PST) was 
also created14. 

3. 

Specific observations 

3.1  Competence of the PSZÁF’s President to adopt legislative decrees  

According  to  the  draft  Constitution,  the  PSZÁF  oversees,  monitors  and  regulates  Hungary’s 

financial intermediation system. The PSZÁF is responsible for the smooth operation of the financial 

intermediation system in the manners specified by law. The PSZÁF’s President may adopt decrees 

within the scope of the PSZÁF’s authority concerning a wide range of financial matters, including 

on  the  collection  of  statistical  data,  payment  and  settlement  systems,  and  rules  applicable  to 

financial institutions that may materially influence the stability of financial institutions and markets. 

Article  40/D(4)  of  the  draft  Constitution  provides  that  decrees  issued  by  the  PSZÁF’s  President 

may  not  contradict  laws,  or  government  or  MNB  Governor  decrees.  In  this  respect,  it  should  be 

made clear how this rule will be applied in order to be compatible with the PSZÁF’s independence 
which is indispensable for the exercise of its supervisory function15.  

3.2  The obligation to consult the ECB 

The  ECB  welcomes  the  stress  in  Article  20  of  the  Law  on  legislation  specifically  on  the  duty  to 

comply  with  notification  and  consultation  obligations  in  the  legislative  process,  as  foreseen  in 

Union legislation and that the draft law on legislation includes new decrees drafted by the PSZÁF’s 

President.  The  duty  to  consult  the  ECB  applies  to  generally  applicable  acts  of  supervisory 

authorities where these bodies have regulatory powers. However, this does not mean that the ECB 

should be consulted on all secondary legislation implementing primary legislation falling within the 

ECB’s fields of competence. Given the objectives of Decision 98/415/EC, it is clear that an opinion 

should  only  be  sought  from  the  ECB  on  draft  secondary  legislation  where  its  subject-matter  is 

closely related to the ECB’s tasks and if the impact on areas within the ECB’s fields of competence 

differs from that resulting from the primary legislation itself. 

11  
12  
13  
14  
15  

Section 1(1) of Law CXXXV 2007. 
Section 1(3) of Law CXXXV 2007. 
Section 11 of Law CXXXV 2007. 
Section 14 to 16 of the Law CXXXV 2007. 
The need for independence is also reflected in Principle 1(2) of the Core Principles Methodology, Basel Committee on 
Banking Supervision, October 2006 available on the BIS’ website at www.bis.org.  

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3.3  Supervisory college 

The  ECB  welcomes  Article  12  of  the  draft  law  on  the  PSZÁF  that  introduces  the  concept  of  the 

supervisory  college.  The  ECB  is  of  the  opinion  that  this  will  ensure  smooth  cross-border 

cooperation among the relevant supervisory authorities.  

3.4  Respect of MNB’s independence 

As  already  indicated  in  ECB  Opinion  CON/2010/10,  the  PST  will  contribute  to  fostering 

cooperation  and  information  sharing  between  the  three  represented  authorities  and  contribute  to 

financial  market  stability.  The  ECB  expects  that  the  PST  will  be  a  separate  body  for  which  the 

PSZÁF and the MNB will provide administrative and logistical support. Also, the ECB expects that 

the exercise of the PST’s powers will fully respect the MNB’s exclusive competence over monetary 

policy and any legislative proposals and recommendations that may be made by the PST should not 

impinge on the MNB’s implementation of monetary policy decisions. 

3.5  PSZÁF’s institutional framework 

Concerning  the  PSZÁF’s  institutional  framework,  the  ECB  refers  to  paragraphs  2.13  and  2.16  of 
Opinion CON/2010/10 in line with the position taken by the ECB in previous opinions16, and in the 

light of the widespread practice in the Union on decision-making in supervisory matters. The ECB 

would prefer if the PSZÁF’s decision-making body consisted of a formal board, acting on the basis 

of  collegiality,  rather  than  a  President  acting  alone.  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  joint 

membership  of  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  PSZÁF.  The  ECB  would,  furthermore,  welcome  the 

inclusion  in  the  draft  law  of  provisions  establishing  a  collegiate  decision-making  body  with  an 

appropriate number of MNB representatives having the full right to participate in its meetings, to 

vote and to share in all information available to the PSZÁF. The inclusion of MNB representatives 

in  the  PSZÁF’s  collegiate  body  would  need  to  give  due  consideration  to  safeguards  for  the 
independence of the MNB’s staff and its governing body17. 

3.6   Determination of the salary for the PSZÁF’s staff by its President 

The  ECB  notes  the  discretionary  powers  conferred  on  the  PSZÁF’s  President  with  respect  to  the 
salary  of  the  PSZÁF’s  staff  who  have  civil  servant  status18.  The  President  may  reduce  the  civil 

servants’ basic salary by up to 35% or increase it by up to 50%. He has also the power to grant a 

16  
17  
18  

See paragraphs 3.2.3 and 3.2.4 of Opinion CON/2006/15. 
See footnote 7. 
Article 25 of the draft law on the PSZÁF. 

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personal  salary  for  civil  servants  achieving  outstanding  performance,  which  amounts  to  150%  of 

the basic salary and which is revocable without explanation. These discretionary powers are not in 

line  with  sound  governance;  they  disrespect  the  need  for  transparency  and  legal  certainty  in  the 

decision-making process.  

 3.7  Limiting the PST’s powers 

The  PST’s  powers  were  originally  tailored  to  the  financial  crisis,  enabling  it  to  efficiently  assess 

and evaluate the implementation of prudential supervision policies. The ECB considers that under 

the draft law on the PSZÁF, the PST should still be entitled to be informed of how the addressee is 

going to proceed with its legislative proposals. Due to its composition, the PST has the knowledge 

and expertise to ensure a proper reaction to any financial stability issues. The proposed limitation 

on its powers will considerably weaken the impact of its legislative proposals. Moreover, limiting 

the  PST’s  supervisory  powers  without  entrusting  these  powers  to  another  competent  body  or 

institution raises concerns. 

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

Done at Frankfurt am Main, 21 December 2010. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

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