Opinion of the European Central Bank of 16 July 2012 on new measures strengthening supervision and enforcement in financial regulation (CON/2012/52)
Date: 2012-07-16
Institutions: European Central Bank
Subjects: Ireland, central bank, competence of the institution, financial services, financial stability, financial supervision, national law, provision of services

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 16 July 2012  

on new measures strengthening supervision and enforcement in financial regulation 

(CON/2012/52) 

Introduction and legal basis 

On  18  May  2012,  the  European  Central  Bank  (ECB)  received  a  request  from  the  Irish  Department  of 

Finance for an opinion on the proposed parliamentary committee stage amendments to the Central Bank 

(Supervision  and  Enforcement)  Bill  2011  (hereinafter  the  ‘draft  law’)  on  which  the  ECB  had  adopted 
Opinion CON/2011/69 on 9 September 20111. 

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 indents of Article 2(1) of Council Decision 

98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding draft legislative provisions2, as the draft law relates to the Central Bank of Ireland (CBI) and 

contains  rules  applicable  to  financial  institutions  insofar  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  This opinion concerns certain amendments and supplements (hereinafter the ‘draft amendments’) 

to  the  draft  law.  The  draft  law  is  intended  to  provide  the  CBI  with  enhanced  powers  for  the 

supervision  of  regulated  financial  service  providers  and  the  enforcement  of  financial  services 

legislation. The publication of the draft law by the end of July 2011 was a structural benchmark of 

the EU-IMF Financial Support Programme for Ireland. 

1.2  First, the draft amendments set out a regulatory regime for the services of debt management firms 

and bill payment firms which currently fall outside existing regulatory regimes, making these firms 

subject to the existing regulatory regime applicable to financial service providers. 

1.3  Furthermore, the draft amendments will allow the CBI to obtain any information necessary for the 

performance  of  its  duties  relating  to  the  proper  and  effective  regulation  of  financial  service 

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2  

All ECB opinions are available on the ECB’s website at www.ecb.europa.eu. 
OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
                                                      
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providers, by requiring all regulated financial service providers to provide information if asked to 

do so. 

1.4  Moreover,  the  draft  amendments  will  provide  for  changes  to  the  rules  relating  to  the  hearing  of 

evidence, legal presumptions, legal professional privilege and the admissibility of expert evidence 

in the context of financial services legislation. 

1.5  The draft amendments will also introduce a requirement that auditors of regulated financial service 

providers should give reasonable assurances that the firms in question are compliant with certain 

regulatory  requirements  relating  to  administrative  or  accounting  procedures,  internal  control 

mechanisms and risk management, organisational structure, governance and oversight functions. 

1.6  The CBI will also have the power to direct regulated firms to give compensation to customers. The 

purpose  of  this  power  is  to  ensure  that  customers  are  compensated  quickly  and  with  minimum 

inconvenience. 

1.7  Finally, the draft amendments will further extend and enhance the CBI’s powers to give directions 

and make regulations, including, significantly, to enable the CBI to adopt regulations discharging 

its European System of Central Banks (ESCB) obligations. 

2. 

General observations 

2.1  The ECB welcomes that the draft amendments address several specific issues raised by the ECB in 
Opinion  CON/2011/693  on  the  draft  law.  Any  other  issues  in  that  Opinion  not  addressed  by  the 

draft amendments still remain valid. 

2.2 

It is not yet clear how certain draft amendments will be incorporated into existing legislation, such 

as the provision giving the CBI the ability to apply for court orders to take action against persons or 

entities outside the CBI’s current regulatory competence. The form of the draft law has also still 

not  been  finalised.  The  ECB  notes  in  this  respect  that  the  draft  amendments  remain  subject  to 

further review, including by the Irish Attorney General, meaning that they may be subject to further 

revision. 

2.3  This draft law is the second step in the legislative reform of the Irish central banking and financial 
regulatory regime4. The ECB notes the robust nature of the new measures and welcomes the draft 
law  as  substantially  enhancing  the  supervisory  and  enforcement  tools  available  to  the  CBI5.  As 

regards the financing of these enhanced CBI powers, the ECB refers to the principle of financial 

independence under which a national central bank (NCB) must have sufficient means to perform its 

3  

4  

5  

See, for example, the proposed amendment to section 53(1) of the draft law to replace the expression ‘overseas regulator’ 
with ‘Member State and third county authorities’. 
The first step was the Central Bank Reform Act 2010 which renamed the Central Bank and Financial Services Authority 
of Ireland, that became a single fully-integrated structure with a unitary board to replace the two-pillar structure of the 
previous Central Bank and Financial Services Authority of Ireland. 
See also paragraph 2.1 of Opinion CON/2009/50. 

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tasks related to the ESCB and its national tasks6. As pointed out in previous ECB opinions, when 

allocating  specific  non-ESCB  related  tasks  to  the  NCBs,  e.g.  tasks  in  the  area  of  financial 

supervision  or  consumer  protection,  an  adequate  amount  of  human  and  financial  resources  must 

also  be  allocated  in  order  for  these tasks  to  be  carried  out  in  a  manner  which will  not  affect  the 
NCBs’  operational  capacity  to  perform  their  ESCB-related  tasks7.  The  CBI  should  therefore 

possess  sufficient  human  and  financial  resources  to  efficiently  perform  any  additional  tasks 

introduced by the draft law in addition to its current tasks, and should not be adversely affected in 

carrying  out  its  ESCB-related  tasks,  from  an  operational  or  financial  point  of  view,  due  to  any 

additional tasks introduced by the draft law. 

2.4 

In  particular,  the  ECB  notes  the  expansion  of  the  CBI’s  prerogatives  in  the  area  of  consumer 

protection. Although consumer protection is not included in the NCB tasks specified in the Statue 

of  the  European  System  of  Central  Banks  and  of  the  European  Central  Bank,  as  pointed  out  on 

previous occasions, the ECB does not consider this task as interfering with the ESCB’s objectives 

and tasks. In addition, measures designed to enhance investor and consumer protection contribute 

to  safeguarding  the  soundness  of  the  financial  market  and  preserving  confidence  in  the 

marketplace. 

2.5   The  ECB  notes  that  various  provisions  of  Union  law  relating  to  supervision  and  enforcement  in 

financial  regulation  will  shortly  be  introduced.  As  a  general  matter,  the  ECB  underlines  the 

importance  of  ensuring  that  the  draft  law  fully  complies  and  is  consistent  with  the  relevant 

provisions of Union law. 

3. 

Legal instruments  

Part 6 of the draft law will be amended to empower the CBI to adopt regulations enabling it to discharge 

its  ESCB  obligations  and  transpose  into  Irish  law  any  ECB  legal  instrument  that  does  not  have  direct 

effect  but  which  is  required  to  bind  third  parties,  including  ECB  Guidelines.  The  ECB  welcomes  this 

provision as at present the method for implementing these types of legal instruments is through contracts. 

By  giving the  CBI the power to adopt regulations to discharge its ESCB obligations, in addition to the 

contractual approach, the enforceability of these legal instruments is reinforced. 

4. 

Judicial and procedural amendments 

The  draft  amendments  provide  for  changes  to  the  rules  relating  to  the  hearing  of  evidence,  legal 

presumptions, legal professional privilege, the admissibility of expert evidence and statements and copies 

of  documents  for  jurors.  These  rules  will  apply  to  the  CBI’s  performance  of  its  duties  under  financial 

services  legislation  and  to  proceedings  under  financial  services  legislation.  The  ECB  understands  that 

6  

7  

See  the  ECB’s  Convergence  Report,  May  2010,  p.  21,  paragraph  3.1.5  of  Opinion  CON/2009/93,  paragraph  3.2.1  of 
Opinion CON/2011/46 and paragraph 3 of Opinion CON/2011/69. 
See, for example, paragraph 3 of Opinion CON/2007/8 and paragraph 3.3 of Opinion CON/2011/76. 

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these provisions will assist the CBI in enforcing financial services legislation and will contribute to more 

effective application of the legislation. 

5.  Winding-Up Directives 

The  ECB  would  welcome  a  clarification  of  the  draft  amendment  to  Part  5  of  the  draft  law8  which 

introduces  additional  wording  after  section  39  of  the  draft  law.  This  wording  provides  that  if  the  CBI 
gives a direction in relation to a credit institution or insurance undertaking9 with the intention of restoring 

or preserving the financial position of such institution or undertaking, the CBI will declare in the direction 
that it is made with that intention, in accordance with the Winding-Up Directives10. 

In  the  ECB’s  view,  if  the  direction  is  to  qualify  as  a  ‘reorganisation  measure’  in  accordance  with  the 

Winding-Up  Directives,  the  direction  would  not  only  have  to  be  intended  to  preserve  or  restore  the 

financial situation of the institution but it would also have to satisfy the second part of the definition of a 

reorganisation  measure  set  out  in  those  Directives,  as  it  could  affect  the  pre-existing  rights  of  third 
parties11. It would be helpful if the draft amendments to this part of the draft law and the corresponding 
amendments to the implementing regulations for the Winding-Up Directives12 clarified this point in more 

detail. The ECB understands that not all directions the CBI may give to an institution would impact on its 

shareholders or creditors. 

6. 

CBI governance 

The  draft  law  will  be  amended  to  provide  that  a  high-level  official  or  significant  shareholder  of  a 

regulated  financial  service  provider  cannot  be  a  member  of  the  Commission  of  the  CBI.  Further, 

individuals  will  be  ineligible  to  be  members  of  the  Commission  where  (a)  they  have  been  adjudged 

bankrupt,  or  (b)  have  entered  into  a  composition  with  their  creditors,  or  (c)  have  been  convicted  of  an 

offence  for  which  they  have  been  sentenced  to  a  term  of  imprisonment.  Lastly,  the  Commission  may 

appoint an Audit Committee from among its appointed members that includes at least one expert member 

of the Committee who is not a member of the Commission. The ECB understands that these amendments 

aim  to  ensure  that  the  CBI’s  auditing,  financial  reporting,  control  systems,  legal  structure  and 

independence  are  adequate  to  ensure  the  integrity  of  operations  and  minimise  the  risk  of  misuse  of 

resources or misreporting of data. The ECB welcomes these amendments as they will help to ensure good 

corporate governance in the CBI. 

8  
9  
10  

11  

12  

Part 5 of the draft law ‘Bank’s power to give directions’. 
Section 37 of the draft law. 
Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding 
up  of  credit  institutions  (OJ  L  125,  5.5.2001,  p.  15)  and  Directive  2001/17/EC  of  the  European Parliament  and  of  the 
Council of 19 March 2001 on the reorganisation and winding up of insurance undertakings (OJ L 110, 20.4.2001, p. 28). 
See Article 2 of Directive 2001/24/EC and Article 2(c) of Directive 2001/17/EC. In the case of the latter definition, the 
reorganisation measure would have to affect the pre-existing rights of parties other than the insurance undertaking itself. 
The  draft  amendments  also  include  a  corresponding  amendment  to  the  European  Communities  (reorganisation  and 
winding up of credit institutions) Regulations 2011 to add directions given by the CBI under Part V of the draft law to the 
list of reorganisation measures defined in those regulations. 

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7. 

Customer redress 

The draft law will also be amended to provide for a procedure for customer redress including a provision 

allowing the CBI to direct a firm to review transactions and to issue a further direction to make redress to 

consumers affected by errors identified. The ECB understands that the power to allow the CBI to direct 

regulated firms to redress customers will be a means of ensuring that customers are compensated quickly 

and with minimum inconvenience, and that it would be used where the loss or damage as a result of an 

occurrence is widespread within a particular firm or across a particular industry. The ECB welcomes this 

provision  insofar  as  the  adoption  of  measures  aimed  to  strengthen  investor  and  consumer  protection 

would contribute to safeguarding the stability of the financial system. However, the ECB would welcome 

clarification  in  the  draft  law  to  address  how  such  a  provision  is  to  interact  with  other  provisions  of 

national and Union law relating to customer redress. 

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

Done at Frankfurt am Main, 16 July 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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