Opinion of the European Central Bank of 29 November 2017 on benchmarks in financial instruments and financial contracts (CON/2017/52)
Date: 2017-11-29
Institutions: European Central Bank
Subjects: Bulgaria, banking supervision, central bank, credit institution, interest, monetary relations, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 29 November 2017  

on benchmarks in financial instruments and financial contracts 

(CON/2017/52) 

Introduction and legal basis 

On  6  October  2017  the  European  Central  Bank  (ECB)  received  a  request  from  Българска  народна 

банка  (Bulgarian  National  Bank)  (BNB),  following  correspondence  exchanged  between  BNB  and  the 
Minister of Finance, for an opinion on a draft law on payment services and payment systems1 (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 and the third indent of Article 2(1) of Council Decision 98/415/EC2, as 

the  draft  law  relates  to  BNB.  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 

One of the aims of the draft law that the ECB’s previous opinion on the draft law3 did not address is the 

implementation in Bulgaria of some elements of Regulation (EU) 2016/1011 of the European Parliament 
and  of  the  Council4.  In  particular,  BNB  will  be  designated  as  the  competent  authority  responsible  for 

carrying out the duties specified under Regulation (EU) 2016/1011 in relation to administrators of interest 

rate benchmarks and the relevant supervised entities, which are credit institutions within the meaning of 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council5,  creditors  within  the 
meaning  of  Directive  2008/48/EC  of  the  European  Parliament  and  of  the  Council6,  and  non-credit 
institutions within the meaning of Directive 2014/17/EU of the European Parliament and of the Council7. 

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In  particular,  BNB  has  reconsulted  the  ECB  on  certain  provisions  of  the  draft  law  which  were  not  included  in  the 
original draft on which the ECB issued Opinion CON/2017/28. All ECB opinions are available on the ECB’s website 
at www.ecb.europa.eu. 

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
Opinion CON/2017/28. 

Regulation  (EU)  2016/1011  of  the  European  Parliament  and  of  the  Council  of  8  June  2016  on  indices  used  as 
benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and 
amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (OJ L 171, 29.6.2016, p. 1). 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential 
requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  176, 
27.6.2013, p. 1). 
Directive  2008/48/EC  of  the  European  Parliament  and  of  the  Council  of  23  April  2008  on  credit  agreements  for 
consumers and repealing Council Directive 87/102/EEC (OJ L 133, 22.5.2008, p. 66). 
Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for 
consumers  relating  to  residential  immovable  property  and  amending  Directives  2008/48/EC  and  2013/36/EU  and 
Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34). 

 
 
 
 
                                                 
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BNB  will  therefore  have  the  supervisory  powers  set  out  in  Article  41  of  Regulation  (EU)  2016/1011,  as 

well  as  the  power  to  impose  administrative  sanctions  and  other  administrative  measures  in  relation  to 

infringements, in accordance with Article 42 thereof. The draft law also amends the Law on Българска 
народна  банка  (Bulgarian  National  Bank)8  in  order  to  ensure  that  the  Governing  Council  of  BNB  is 

competent to adopt the related decisions. 

2. 

General observations 

2.1  The  draft  law  confers  upon  BNB  the  new  task  of  supervising  compliance  of  administrators  of 

interest  rate  benchmarks  and  the  relevant  supervised  entities  with  Regulation  (EU)  2016/1011. 

Where a new task is conferred on a national central bank (NCB) in the European System of Central 

Banks (ESCB) it must be assessed against the prohibition on monetary financing under Article 123 

of the Treaty. For the purposes of that prohibition, Article 1(1)(b)(ii) of Council Regulation (EC) No 
3603/939  defines  ‘other  type  of  credit  facility’  as,  inter  alia,  ‘any  financing  of  the  public  sector’s 

obligations vis-à-vis third parties’.  

2.2  Ensuring that Member States implement a sound budgetary policy is one of the key objectives of 
the  monetary  financing  prohibition,  which  may  not  be  circumvented10.  In  view  of  this,  the  task  of 

financing measures, which are normally the responsibility of the Member States and funded from 

their budgetary sources rather than by the NCBs, must not be entrusted to NCBs. To decide what 

constitutes  financing  of  the  public  sector’s  obligations  vis-à-vis  third  parties,  which  can  be 

translated as the provision of central bank financing outside the scope of central bank tasks, it is 

necessary  to  carry  out  on  a  case-by-case  basis  an  assessment  of  whether  the  task  to  be 

undertaken  by  an  NCB  is  a  central  bank  task  or  a  government  task,  i.e.  a  task  within  the 

responsibility  of  the  Member  States.  In  other  words,  adequate  safeguards  must  be  in  place  to 

ensure that no circumventions of the objective of the monetary financing prohibition of maintaining 

a sound budgetary policy of Member States take place. 

2.3  As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and 

Article 35.6 of the Statute of the European System of Central Banks and of the European Central 

Bank  (hereinafter  the  ‘Statute  of  the  ESCB’),  and  in  order  to  ensure  that  NCBs  honour  the 

obligations laid down by the Treaty, the Governing Council has endorsed safeguards of that kind in 

the form of criteria for determining what may be seen as falling within the scope of a public sector’s 

obligation within the meaning of Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, 

what constitutes a government task as follows: 

First, central bank tasks are in particular those tasks that are related to the tasks that have been 

conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks are 

mainly defined in Article 127(2), (5) and (6) and Article 128(1) of the Treaty, as well as Article 22 

and Article 25.1 of the Statute of the ESCB.  

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Published in Darjaven Vestnik No 46, 10 June 1997. 
Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying  definitions  for  the  application  of  the 
prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L 332, 31.12.1993, p. 1). 
Article  123  of  the  Treaty  also  serves  the  objective  of  maintaining  price  stability  and  reinforces  central  bank 
independence. 

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Second, as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘other functions’, new 

tasks, i.e. tasks that are not related to tasks that have been conferred upon the ECB and the NCBs, 

are  not  precluded  per  se.  However,  new  tasks  that  are  undertaken  by  an  NCB  and  which  are 

atypical of NCB tasks or which are clearly discharged on behalf of, and in the exclusive interest of 

the government or of other public sector entities, should be considered government tasks.  

Third, an important criterion for qualifying a new task as atypical of an NCB task or as being clearly 

on behalf of, and in the exclusive interest of the government or other public sector entities, is the 

impact of the task on the institutional, financial and personal independence of that NCB.  

In particular, the following aspects should be taken into account:  

(a)  whether  the  performance  of  the  new  task  creates  conflicts  of  interest  with  existing  central 

bank  tasks  which  are  not  adequately  addressed,  and  does  not  necessarily  complement 

those  existing  central  bank  tasks.  If  a  conflict  of  interest  arises  between  existing  and  new 

tasks, sufficient safeguards to mitigate that conflict should be in place. The complementarity 

between a new task and the existing central bank tasks should not be interpreted broadly, so 

as  to  lead  to  the  creation  of  an  indefinite  chain  of  ancillary  tasks.  Such  complementarity 

should also be examined in relation to the financing of those tasks; 

(b)  whether without new financial resources the performance of the new task is disproportionate 

to  the  NCB’s  financial  or  organisational  capacity,  and  may  have  a  negative  impact  on  the 

capacity to perform properly the existing central bank tasks; 

(c)  whether the performance of the new task fits into the institutional set-up of the NCB in the 

light of central bank independence and accountability considerations; 

(d)  whether the performance of the new task harbours substantial financial risks; 

(e)  whether the performance of the new task exposes the members of the NCB decision-making 

bodies  to  political  risks  which  are  disproportionate  and  may  also  have  an  impact  on  their 

personal  independence  and,  in  particular,  on  the  guarantee  of  term  of  office  set  out  in 

Article 14.2 of the Statute of the ESCB.  

3. 

Specific observations  

Currently BNB carries out activities related to the calculation and publication of interest rate benchmarks, 
namely the SOFIBID and SOFIBOR reference rates11, the LEONIA Plus reference rate12, as well as the 
base  interest  rate  in  Bulgaria13.  While  BNB  administers  these  benchmarks,  it  has  no  dedicated 

supervisory function with regard to them. The draft law therefore confers upon BNB а new task. 

On the basis of the criteria set out in paragraph 2.3, the following paragraphs assess whether BNB’s new 

task is in line with the monetary financing prohibition.  

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On the basis of a contractual agreement between BNB, the Association of Banks in Bulgaria and the ACI Bulgaria-
BDA. 
In  accordance  with  the  Methodology  for  calculation  of  the  LEONIA  Plus  reference  rate,  adopted  by  the  Governing 
Council of BNB. 
In accordance with Article 35 of the Law on Българска народна банка (Bulgarian National Bank). 

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3.1  New  tasks  related  to  the  tasks  conferred  upon  the  ECB  and  the  NCBs  by  the  Treaty  and  the 

Statute of the ESCB 

The  supervision  of  compliance  of  administrators  of  interest  rate  benchmarks  and  the  relevant 

supervised entities with Regulation (EU) 2016/1011 is not among the central banking tasks listed in 

Article  127(2)  or  (5)  of  the  Treaty  or  otherwise  conferred  upon  the  NCBs  by  the  Statute  of  the 

ESCB. Although the new task conferred on BNB relates to overseeing compliance with Union law 

requirements  by  credit  institutions  (among  others),  it  does  not  form  part  of  BNB’s  prudential 

supervisory tasks. It follows that the new task conferred on BNB under the draft law is not directly 

related  to  the  tasks  conferred  on  the  ECB  and  the  NCBs  by  the  Treaty  and  the  Statute  of  the 

ESCB. Consequently, a careful assessment of the conferral of this task on BNB is required in order 

to determine whether it constitutes a government task, and whether the related funding gives rise 

to monetary financing concerns.  

3.2  Tasks which are atypical of NCB tasks 

Designation as a competent authority responsible for carrying out the duties under Regulation (EU) 

2016/1011  in  relation  to  administrators  of  interest  rate  benchmarks  and  the  relevant  supervised 

entities is a new task for national authorities in the Union. 

In  this  regard,  central  banks  have  a  particular  interest  in  interest  rate  benchmarks  which  are  of 
importance  for  the  monetary  policy  transmission  and  financial  stability14.  In  fact,  the  ECB  itself  is 

also  planning  the  compilation  and  publication  of  a  new  unsecured  overnight  interest  rate 
benchmark15. 

While the majority of Member States have designated national capital markets supervisors for this 
task,  the  ECB  has  identified  a  number  of  Member  States,  including  the  Czech  Republic16, 
Portugal17  and  Slovakia18,  where  NCBs  have  been  conferred  at  least  part  of  the  tasks  under 

Regulation (EU) 2016/1011. 

The new task conferred on BNB by the draft law does not, therefore, appear to be atypical for an 

NCB of the ESCB. 

3.3 

Impact of the tasks on the independence of BNB 

The  potential  impact  of  the  new  task  on  the  institutional,  financial  and  personal  independence  of 

BNB must also be taken into consideration. 

3.3.1  Extent to which the performance of the new task creates conflicts of interest with existing central 

bank tasks 

14  

15  

16  

17  

18  

See  Opinion  CON/2014/2  and  the  European  Commission’s  public  consultation  on  the  regulation  of  indices  – 
Eurosystem’s response, November 2012. 
See  press  release,  ‘ECB  to  publish  new  unsecured  overnight  interest  rate’,  21  September  2017,  available  on  the 
ECB’s website at www.ecb.europa.eu. 
Article 192a(1)(j) of Law No 256/2004 Coll. on capital market undertakings designates Česká národní banka as the 
competent authority for the purposes of Regulation (EU) 2016/1011 effective as of 3 January 2018. 
Article  2,  n.º  1,  al.  b  of  Regulatory  Decree  No  8/2017  designates  the  Banco  de  Portugal  as  competent  national 
authority for the supervision of the use of benchmark indices in financial contracts entered into by entities subject to 
its supervision. 
Article  132s  of  the  Law  on  securities  and  investment  services  designates  Národná  banka  Slovenska  as  the 
competent  authority  for  implementing  authorisations  in  relation  to  authorisations  in  respect  of  the  indices  used  as 
benchmarks in financial instruments and financial contracts or to measure the performance of investment funds. 

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As noted above, BNB is  already performing activities related to the calculation and publication of 

interest rate benchmarks and is consequently administering these benchmarks. Central banks are 

not  subject  to  Regulation  (EU)  2016/1011,  as  they  already  meet  principles,  standards  and 

procedures  that  ensure  that  they  carry  out  their  activities  with  integrity  and  in  an  independent 
manner19.  To  the  extent  that  BNB  has  been  conferred  the  tasks  of  supervising  administrators  of 

interest  rate  benchmarks,  potential  conflicts  of  interest  may  arise  and  therefore,  sufficient 

safeguards to mitigate such conflicts should be put in place. 

3.3.2  Extent  to  which  the  performance  of  the  new  task  places  a  disproportionate  burden  on  BNB’s 

financial or organisational capacity 

The principle of financial independence requires that Member States may not put their NCBs in a 

position where they have insufficient resources to carry out both their ESCB-related tasks and their 

national tasks, from an operational and financial perspective. Furthermore, when allocating specific 

new tasks to NCBs, each NCB concerned should have sufficient financial and human resources at 

its disposal to ensure that the tasks can be carried out without impacting on the NCB’s financial or 

operational capacity to perform its ESCB tasks. In order to ensure that BNB’s capacity to perform 

its ESCB-related tasks is not impacted, BNB must, therefore, be in a position to avail itself of the 

necessary resources, including personnel, to carry out supervision under the draft law. 

3.3.3  Extent to which performance of the new task fits into BNB’s institutional set-up, in the light of the 

principles of central bank independence and accountability 

The  performance  of  the  new  tasks  does  not  appear  to  be  problematic  from  the  perspective  of 

BNB’s  institutional  set-up  or  to  raise  accountability  or  personal  and  institutional  independence 

concerns. 

3.3.4  Extent to which the performance of tasks harbours substantial financial risks 

The  draft  law  does  not  directly  address  BNB’s  potential  liability  in  the  event  of  any  legal  action, 

application or other legal proceedings for damages in relation to the exercise of its powers under 

the draft law or the failure to exercise such powers. In the absence of any provision in the draft law 

excluding BNB’s liability in performing the tasks under the draft law, BNB would ultimately be liable 

for  damages  in  accordance  with  the  general  liability  regime  under  Bulgarian  law.  Therefore,  the 

new task conferred on BNB under the draft law would entail additional financial risks. 

3.3.5  Extent  to  which  the  performance  of  the  new  task  exposes  members  of  BNB’s  decision-making 

bodies to disproportionate political risks and has an impact on their personal independence 

The  performance  of  the  new  task  does  not  appear  to  expose  the  members  of  BNB’s  decision-

making  bodies  to  any  disproportionate  political  risk  or  to  have  an  impact  on  their  personal 

independence. 

3.4  Conclusion regarding the compatibility of the draft law with the prohibition on monetary financing 

The task of carrying out the duties under Regulation (EU) 2016/1011 in relation to administrators of 

interest  rate  benchmarks  and  the  relevant  supervised  entities  is  not  among  the  central  banking 

tasks  listed  in  the  Treaty.  The  new  task  conferred  on  BNB  could  be  regarded  as  complementing 

19  

See recital 14 and Article 2(2)(a) of Regulation (EU) 2016/1011. 

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BNB’s  monetary  policy  and  financial  stability  tasks.  Furthermore,  this  task  might  be  seen  as  a 

legitimate task to confer on BNB given that it does not appear to be atypical for NCBs in the ESCB. 

However,  there  is  uncertainty  as  regards  the  size  of  the  additional  financial  burden  imposed  on 

BNB in undertaking this task. The ECB therefore recommends that the consulting authority takes 

this concern into account when conferring upon BNB the new task of carrying out the duties under 

Regulation  (EU)  2016/1011  in  relation  to  administrators  of  interest  rate  benchmarks  and  the 

relevant supervised entities. 

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

Done at Frankfurt am Main, 29 November 2017. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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