Opinion of the European Central Bank of 6 April 2018 on amendments to the Law on Hrvatska Narodna Banka and to the Law on the State Audit Office (CON/2018/17)
Date: 2018-04-06
Institutions: European Central Bank
Subjects: Croatia, audit, banking supervision, central bank, institutional activity, national law, supervisory body

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 6 April 2018  

on amendments to the Law on Hrvatska Narodna Banka and to the  

Law on the State Audit Office 

(CON/2018/17) 

Introduction and legal basis 

On 23 January 2018 the  European Central  Bank (ECB) received a request  on behalf of the Speaker of 

Hrvatski Sabor (the Croatian Parliament) for an opinion on two draft laws proposed to it by a member of 

the  Croatian  Parliament  comprising  (i)  a  draft  law  amending  the  Law  on  Hrvatska  narodna  banka  (the 

‘draft  law’)  and  (ii)  a  draft  law  amending  the  Law  on  the  State  Audit  Office  (the  ‘draft  law  on  the  State 

Audit Office’) (hereinafter referred to collectively as the ‘draft laws’). 

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/EC 1, as 

the  draft  laws  relate  to  Hrvatska  narodna  banka  (HNB).  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  State Audit Office’s audit of HNB 

1.1.1  The  draft  law  on  the  State  Audit  Office  provides  that  Državni  ured  za  Reviziju  (the  State  Audit 

Office) shall audit HNB, which is a new task of the State Audit Office. In this respect, the draft law 

on  the  State  Audit  Office  provides  that  an  audit  of  HNB’s  annual  financial  statements  and  the 

legality of the overall operations of HNB be performed at least once a year by the State Audit Office 

in  accordance  with  the  law  governing  financial  statement  audits,  International  Audit  Standards, 

International Accounting Standards for regular beneficiaries of the Croatian state budget and those 

eligible to become beneficiaries of the Croatian state budget.  

1.1.2  The  draft  law  provides  that  the  State  Audit  Office  will  audit  the  effectiveness  of  HNB’s  business 

operations  in  accordance  with  the  regulations  governing  the  procedures  of  the  State  Audit  Office 

and the provisions of the Law on Hrvatska narodna banka (hereinafter ‘the Law on HNB’). The draft 

law  sets  out  that  this  audit  shall  include  the  following  items  which  are  stated  to  be  related  to  the 

balance  sheet  of  HNB:  (i)  HNB’s  receivables  in  relation  to  loans  extended  and  investments  in 

securities  denominated  in  Croatian  Kuna  (HRK)  or  foreign  currencies;  (ii)  HNB’s  receivables  in 

relation to foreign currency time deposits and securities with foreign banks; (iii) HNB’s liabilities in 

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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). 

 
 
 
                                                 
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respect  of  foreign  currency  loans  taken  out  with  foreign  commercial  and  central  banks  and  with 

international  financial  institutions;  (iv)  an  audit  of  the  financial  and  day-to-day  operations  of  HNB 

according  to  International  Standards  on  Auditing,  International  Accounting  Standards,  and 

International  Financial  Reporting  Standards;  (v)  the  calculation  of  income  and  costs  of  HNB,  the 

production of the profit and loss account, the allocation of profit to the reserves of HNB, the share 

capital  of  HNB,  and  the  crediting  of  excess  profit  to  the  Croatian  treasury;  (vi)  the  review  of  the 

methodology for setting foreign currency exchange rates; (vii) transactions involving physical cash 

and  securities  at  HNB’s  depositories,  Croatian  banks,  Financijska  agencija  (Fina,  the  Financial 

Agency) and Hrvatski novčarski zavod (the Croatian Monetary Institute), including HNB’s policy for 

the  manufacture  of  banknotes  and  the  total  production  cost  of  banknotes;  (viii)  procurement  at 

HNB;  (ix)  investments  of  HNB,  including  buildings  and  business  premises;  (x)  the  supervision  of 

banks by HNB, including the lawfulness and frequency of supervision of large and small banks by 

HNB; (xi) domestic and foreign payment systems at HNB, including Hrvatski sustav velikih plaćanja 

(HSVP, the Croatian Large Value Payment System); Nacionalni klirinški sustav (NKS, the National 

Clearing System), HNB as part of the TARGET2 (the Trans-European Automated Real-time Gross 

Settlement  Express  Transfer  System)  and  EuroNCS  (the  Euro  National  Clearing  System),  which 

are used to process Single European Payment Area (SEPA) payments in euro; (xii) HNB statistics; 

and (xiii) the employment policy of HNB and its lawfulness. The draft law further specifies that the 

State Audit Office may assess other transactions and procedures that it considers relevant for the 

purposes  of  producing  a  report  concerning  the  operations  of  HNB,  and  that  HNB  will  publish  its 

audit reports. 

1.1.3  The  draft  law  provides  that  as  part  of  this  audit  the  State  Audit  Office  shall  not  assess  activities 

relating  to  the  implementation  of  the  goals  and  the  discharge  of  duties  established  under  the 

Treaty,  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  ECB  (hereinafter  the 

‘Statute of the ESCB’), and the Law on HNB.  

1.1.4  The  draft  law  provides  that  HNB  must  present  to  an  authorised  state  auditor  for  review  the 

confidential information referred to in Article 37 of the Statute of the ESCB, in accordance with the 

audit  rules  of  the  European  System  of  Central  Banks  (ESCB).  The  data  contained  in  such 

documents, papers, reports, records, and other such information may not be used to draft the audit 

report.  The  State  Audit  Office  must  ensure  that  the  confidentiality  of  this  information  and 

documents is kept to the same extent as that which HNB applies for professional secrets. 

1.1.5  The  draft  law  specifies  that,  without  prejudice  to  the  regulations  governing  the  procedures  of  the 

State  Audit  Office,  the  State  Audit  Office  may  not  propose  the  dismissal  of  members  of  Savjet 

Hrvatske narodne  banke (the HNB  Council) nor  order any  action that might call  into question the 

principle of the institutional, functional, personal, and financial independence of the HNB.  

1.1.6  The draft law on the State Audit Office provides that, in addition to the State Audit Office, audits of 

the  HNB’s  annual  financial  statements  may  also  be  performed  by  independent  external  auditors 

selected  by  Odbor  za  financije  i  državni  proračun  Hrvatskog  sabora  (the  Finance  and  Central 

Budget Committee of the Croatian Parliament). The audit performed by the State Audit Office will 

be  entirely  separate  from  audits  performed  by  independent  external  auditors  selected  in 

accordance with the Law on HNB.  

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1.1.7  The draft law on State Audit Office provides that the HNB may disclose to the public the financial 

statements of its operations as well as other reports on issues within the framework of its statutory 

mandate that are of public interest in Croatia. 

1.2  HNB’s reporting obligations in relation to the Croatian Parliament 

The draft law requires HNB to submit to the Croatian Parliament semi-annual information about the 

financial condition, the  level of price stability  achieved and the implementation  of monetary policy 

for the first six months of the current year by 30 September, and for the second six months by 30 

March of the following year, and to submit to the Croatian Parliament a regular annual report on its 

activities  and  business  operations  by  1  June  of  every  year.  The  Croatian  Parliament  shall  take  a 

position by voting on all such reports. 

1.3 

 Appointment of the members of the HNB Council 

1.3.1  The draft law provides that the HNB Council will comprise a total of nine members, five that will be 

HNB  employees,  including  the  Governor  and  up  to  four  Vice-Governors,  and  four  that  will  be 

external  members.  The  Governor  will  be  the  chair  of  the  HNB  Council.  The  Governor  will,  at  the 

beginning  of  his  term,  appoint  a  Deputy  Governor  from  amongst  the  Vice-Governors  who  will 

deputise for him in the event of his being unable to fulfil his duties.  

1.3.2  The draft law provides that the members of the HNB Council (i.e. the Governor, two to four Vice-

Governors,  and  the  external  members),  will  be  appointed  by  the  Croatian  Parliament  on  the 

proposal  of  its  Odbor  za  izbor,  imenovanja  i  upravne  poslove  (Elections,  Appointments  and 

Administration  Committee)  at  least  three  months  before  the  expiry  of  the  term  of  office  for  which 

they are appointed. The Committee will take into account the opinion of Odbor za financije i državni 

proračun  (the  Finance  and  State  Budget  Committee).  The  draft  law  further  provides  that  the 

Governor will be appointed by the Croatian Parliament on the proposal of the President of Croatia, 

and that the two to four Vice-Governors will be selected and appointed by the Croatian Parliament 

at  the  proposal  of  the  President  of  Croatia  after  the  Finance  and  State  Budget  Committee 

expresses its opinion. 

1.3.3  The  draft  law  provides  that  a  candidate  for  Governor  or  Vice-Governor  must  meet  the  following 

requirements: (1) be a Croatian citizen; (2) have no criminal record and not be under investigation; 

(3) be entirely physically and mentally fit to discharge the duties of Governor; (4) hold a university 

degree  in  economics  and  have  banking  and  financial  expertise  and  the  professional  skills  to 

discharge  the  duties  of  Governor;  (5)  have  organisational  and  management  skills  and  a  strong 

sense  of  teamwork;  (6)  have  at  least  ten  years  of  experience  in  banking  or  business  finance  in 

banks and/or state and/or academic institutions; and (7) have a clear vision of the development of 

the  Croatian  monetary  and  financial  system  and  be  well  informed  about  the  situation  in  the 

Croatian banking sector.  

1.3.4  The  draft  law  provides  that  a  candidate  for  HNB  Governor  or  Vice-Governor  shall  present  to  the 

Finance  and  State  Budget  Committee  of  the  Croatian  Parliament  the  proposed  HNB  work 

programme  for  the  next  term  for  which  the  candidate  has  applied.  After  consultations  and 

presentations by and of the candidate, the members of the Finance and State Budget Committee 

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will  vote  to  express  their  view  on  the  skills  and  expertise  of  the  candidates  for Governor  or  Vice-

Governor.  

1.3.5  The  draft  law  provides  that  the  Governor  and  Vice-Governors  will  be  employed  at  the  HNB  on  a 

full-time basis for an indefinite period. 

1.3.6  The draft law provides that the external members of the HNB Council will be elected from among 

various  segments  of  Croatian  business  and  social  life  (industry,  employers,  academia,  consumer 

protection associations, etc.) with professional experience in the field of economy and finance.  

1.3.7  The  draft  law  provides  that  the  members  of  the  HNB  Council  will  be  appointed  for  a  term  of  six 

years with only one possibility of reselection. No member of the HNB Council may serve more than 

two  terms  as  member  of  the  Council.  In  the  event  that  any  member  of  the  HNB  Council  departs 

before the end of his/her term, a new member will be selected for the remainder of the departing 

member’s term only.  

1.4  Employees of HNB 

The  draft  law  provides  that  employment  with  the  HNB,  the  conclusion  of  employment  contracts, 

and the appointment of employees to management posts with special powers and responsibilities 

will  be  the  responsibility  of  the  HNB  Governor  after  a  public  competition  procedure  has  been 

completed. Employees in  all management posts at the HNB  will be subject to reselection at four-

year intervals after an internal competition procedure has been completed. Only  Croatian citizens 

may be HNB employees. 

1.5 

 Secondary market purchases of public sector securities by HNB 

The  draft  law  authorises  the  HNB,  in  specific  situations  and  with  the  aim  to  achieve  financial 

stability and other aims of monetary credit policy, to repurchase in the secondary market, directly 

from credit institutions, securities issued by Croatia or a local self-government unit. 

1.6  Foreign currency operations of HNB 

The draft law provides that HNB will monitor, devise, apply, and supervise regulatory measures in 

the  area  of  foreign  currency  operations  of  credit  institutions  and  authorised  ‘bureaux  de  change’ 

and  will  perform  and  regulate  foreign  currency  operations  domestically  and  in  relationships  with 

foreign countries under the provisions of the Law on HNB and the law regulating foreign exchange 

in Croatia. In this respect, the HNB’s foreign exchange operations include: (1) the implementation 

of domestic foreign exchange policy; (2) foreign exchange market activities, the setting of foreign 

exchange  rates  and  the  exchange  rate  of  the  domestic  currency,  and  the  publication  of  the 

domestic  currency  exchange  rate  each  day;  (3)  international  payment  traffic  services;  (4)  the 

management  of  Croatia’s  foreign  liquidity  reserves;  (5)  credit  relationships  with  foreign  countries, 

including  the  policy  for  borrowing  from  and  lending  to  foreign  countries,  foreign  currency  debt 

management, the purchase and sale of foreign currency debts and claims and swap arrangements; 

(6)  relations  with  international  financial  institutions  (the  International  Monetary  Fund,  the  World 

Bank, the ECB, the Bank for International Settlements and development banks); (7) relations with 

the European Union and the bodies and organisations of the European Union; (8) HNB’s bilateral 

arrangements  with  foreign  countries;  (9)  correspondent  and  current  account  relationships  with 

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foreign banks and financial institutions; (10) control over part of the foreign exchange operations of 

credit institutions; and (11) management of HNB’s risks in international relations. 

1.7   Capital, reserves and allocation of profits and losses of HNB 

1.7.1  The  draft  law  clarifies  that  the  share  capital  of  HNB,  which  is  required  to  amount  to 

HRK 2,500,000,000, has been paid up by Croatia. 

1.7.2  The draft law provides that HNB’s general reserves may not exceed twice the amount of the HNB’s 

share  capital.  The  amount  of  the  specific  reserves  established  by  HNB  to  cover  identified  losses 

may not exceed the amount of HNB’s share capital.  

1.7.3  In  relation  to  the  appropriation  of  HNB’s  profit  and  the  coverage  of  losses,  the  draft  law  provides 

that HNB’s operating profit shall be allocated to general and specific reserves and to the Croatian 

Treasury.  The  allocation  of  operating  profit  to  general  and  specific  reserves  shall  not  exceed  the 

stipulated level of general and specific reserves established by the HNB Council. The residual profit 

following  allocation  to  general  and  specific  reserves  shall  constitute  extraordinary  revenue  of  the 

Croatian  Treasury.  HNB  shall  cover  any  operating  losses  using  general  reserves,  in  the  first 

instance.  Any  operating  losses  of  HNB  that  cannot  be  covered  from  general  reserves  will  be 

covered  by  first  using  specific  reserves,  then  using  share  capital,  and  finally  by  the  Croatian 

Treasury. HNB will transfer the residual operating profit to the Treasury within eight days from the 

date  on  which  the  annual  financial  statements  and  operational  report  for  the  previous  year  are 

delivered to the Croatian Parliament. HNB may establish a special operating fund for the purpose 

of acquiring property and rights constituting tangible fixed assets or fixed asset investments or both 

and for the purpose of establishing specialised financial organisations.  

1.8  Certain powers of the HNB over credit institutions 

1.8.1  The draft law provides that a credit institution shall be deemed insolvent if it fails in a timely manner 

to  settle  and/or  fulfil  its  statutory  and/or  contractual  obligations  domestically  and/or  abroad  and 

these obligations are not settled on its behalf under a guarantee. HNB may stipulate more detailed 

criteria for determining the insolvency of credit institutions.  

1.8.2  The  draft  law  prohibits  an  insolvent  credit  institution  from  making  payments  from  its  accounts, 

approving  credits,  giving  guarantees  or  assuming  new  financial  obligations,  and  payment  service 

providers are prohibited from executing payment orders for an insolvent credit institution, except in 

respect of citizens’ savings and current accounts in domestic and foreign currency. If, as part of the 

supervision or investigation of a credit institution, it is shown that a credit institution has breached 

certain provisions of the Law on HNB, HNB may declare that credit institution insolvent and adopt 

measures  in  relation  to  that  credit  institution  and  specific  members  of  its  executive  board. 

Measures  which  may  be  taken  in  relation  to  an  insolvent  credit  institution  or  a  credit  institution 
breaching the provisions of the Law on Credit Institutions 2 include (1) the suspension of lending for 

15  to  60  days;  (2)  the  suspension  of  payments  to  foreign  countries  for  15  to  60  days,  except  in 

relation  to  mature  foreign  credits  and  obligations  to  foreign  countries  under  conventions, 

guarantees and issued letters of credit; (3) a restriction on borrowing from foreign countries for 30 

2  

Zakon o kreditnim institucijama (Narodne novine no 159/13, 19/15 and 102/15). 

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to 60 days; and (4) the suspension of securities purchases and lending for 10 to 30 days. The HNB 

Governor will decide upon and impose such measures and the duration of their application. 

1.9  Obligation to denominate and pay all monetary obligations in Croatia in Kuna 

1.9.1  The  draft  law  provides  that  all  contractual  monetary  obligations  in  Croatia  shall,  unless  otherwise 

provided by law, be denominated, and discharged by means of payment denominated, in Kuna.  

1.9.2  The  draft  law  provides  that  contracting  parties  may  eliminate  the  risk  of  a material  change  in  the 

value of the currency in which a financial obligation is denominated after conclusion of the contract 

but before maturity of the financial obligation by concluding appropriate protective monetary value 

clauses,  in  order  to  protect  themselves  against  the  risk  of  a  change  in  the  value  of  financial 

obligations  between  conclusion  and  fulfilment  of  a  contract  for  the  discharge  or  payment  of  a 

financial obligation. A Croatian credit institution may agree with a borrower to use a floating interest 

rate clause or a protective monetary value clause; the simultaneous inclusion of both a protective 

clause  and  a  floating  interest  rate  is  prohibited.  Protective  monetary  or  foreign  currency  clauses 

may only be used if the financial obligation  whose value is being ensured is linked to the floating 

value  of  a  global  currency  and  the  credit  institution  has  a  sufficient  amount  of  this  currency  on 

deposit or sources of funding in this currency on the credit side of its balance sheet throughout the 

term of the contract.  

1.9.3  The  draft  law  provides  that  where  a  credit  institution  intends  to  approve  a  credit  for  clients  in 

domestic currency and link the credit to the exchange rate of another currency, it must first obtain 

the opinion of the HNB and Vijeće za financijsku stablinost (the Financial Stability Council). 

2. 

General observations 

2.1  Although  Member  States  with  a  derogation,  including  Croatia,  do  not  yet  participate  in  the  third 

stage  of  economic  and  monetary  union,  they  have  a  legal  duty  to  adapt  their  national  legislation 

including the statutes of their national central banks (NCBs) to ensure compatibility with the Treaty 
and  the  Statute  of  the  ESCB3.  Any  legislative  reform  in  any  such  Member  State  should  aim  to 
gradually achieve consistency with Eurosystem standards4. 

2.2  The  ECB  would  like  to  recall  that  it  has  previously  issued  Opinions  CON/2016/33  and 

CON/2016/52  in  response  to  legislative  consultations  from  the  Croatian  authorities  on  legislative 

initiatives  concerning  certain  matters  addressed  in  this  opinion,  including  the  State  Audit  Office’s 

audit of HNB, HNB’s reporting obligations in relation to the Croatian Parliament and the reduction 

of the number of terms of office of HNB’s Governor and the other members of HNB’s Council.  

3 
4 

Article 131 of the Treaty. 
See  paragraph  3.4  of  ECB  Opinion  CON/2008/34,  paragraph  2.1  of  ECB  Opinion  CON/2017/17.  All  ECB  opinions 
are published on the ECB website at www.ecb.europa.eu.  

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3. 

Specific observations 

3.1   State Audit Office’s audit of HNB  

3.1.1  As  previously  noted  by  the  ECB5,  the  principle  of  institutional  independence  referred  to  in 

Article 130 of the Treaty and Article 7 of the Statute of the ESCB refers the exercise of central bank 

powers and the performance of the tasks and duties conferred on central banks not being subject 

to  external  instructions  or  government  influence.  In  particular,  where  a  NCB's  operations  are 

subject to the control of a state audit office or similar body charged with controlling the use of public 

finances, the scope of the control (a) should be clearly defined by the legal framework; (b) should 

be  without  prejudice  to  the  activities  of  the  NCB’s  independent  external  auditors  to  examine  all 
books  and  accounts  of  the  NCB 6  and,  further,  in  line  with  the  principle  of  institutional 

independence;  (c)  should  comply  with  the  prohibition  on  giving  instructions  to  an  NCB  and  its 
decision-making  bodies;  and  (d)  should  not  interfere  with  the  NCB’s  ESCB-related  tasks7.  The 
state  audit  should  be  conducted  on  a  non-political,  independent  and  purely  professional  basis 8. 

The draft laws fail to satisfy these requirements and safeguards in a number of respects.  

3.1.2  First, the draft laws exclude from the scope of the audit activities related to the realisation of goals 

and  the  execution  of  tasks  established  by  the  Treaty,  the  Statute  of  the  ESCB  and  the  Law  on 
HNB9. However, in other more specific provisions 10, the draft laws broaden the scope of the audit 

to include almost all tasks of HNB. The exclusion from the scope of the audit of HNB’s activities of 

the  implementation  of  goals  and  the  discharge  of  duties  under  the  Law  on  HNB  would  seem, 

literally read, to have the consequence of excluding all of HNB’s activities pursuant to the Law on 

HNB from the scope of the State Audit Office’s audit. Since this does not appear to be consistent 

with the manifest intention of the draft laws, and more importantly with a number of the draft laws’ 

provisions as indicated above, the coexistence of such provisions which on the one hand exclude 

most of HNB’s activities from the scope of the draft laws and on the other hand which include them 

casts  legal  doubt  on  the  precise  scope  of  the  audit  by  the  State  Audit  Office.  Moreover,  the 
proposed  assessment  of  ‘other  transactions  and  procedures  that  it  considers  relevant’ 11  grants 

undefined, , powers to the State Audit Office in respect of its choice as to what it deems relevant for 

the preparation of its report on HNB’s business operations. Therefore, the scope of the State Audit 

Office’s control of HNB’s operations is not clearly defined by the draft laws. 

3.1.3  Second, the draft laws explicitly state that the audits of the State Audit Office and of HNB’s external 
auditors  will  be  completely  separate12.  The  draft  laws  further  state  that  the  audit  of  business 

operations by the State Audit Office will imply the verification of, inter alia, financial and day-to-day 

operations  of  the  HNB  according  to  International  Standards  on  Auditing,  International  Accounting 

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7 

8 

9 
10 
11 
12 

See paragraph 2.1.1 of Opinion CON/2016/33 and paragraph 3.1.1 of Opinion CON/2016/52. 

See Article 61 of the Law on HNB for the activities of the independent external auditors of the NCBs. 
See  the  ECB’s  Convergence  Report,  June  2016,  p.  26-27  and  Opinions  CON/2011/9,  CON/2011/53  and 
CON/2015/57.  
See the ECB’s Convergence Report, June 2016, p. 26-27. 

See Article 1 of the draft law adding Article 61.a (3) of the Law on HNB.  
See Article 1 of the draft law adding Article 61.a (2) of the Law on HNB. 
See Article 1 of the draft law adding Article 61.a (2) (4.8) of the Law on HNB. 

See Article 1 of the draft law adding Article 61.c (2) of the Law on HNB. 

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Standards, and International Financial Reporting Standards. In this respect, the task of evaluating 
HNB’s financial statements already belongs to the independent external auditors13. Also, the State 
Audit Office’s audit is stated to include the HNB’s balance sheet 14, which is an integral part of the 
HNB’s financial statements, which are already subject to the audit of the HNB’s external auditors15. 

The  draft  laws  should  be  adapted  so  that  the  scope  of  audit  of  the  State  Audit  Office  does  not 

overlap  with  the  audit  of  the  external  auditors  who,  given  their  independence  and  expertise,  are 

better  placed  than  a  State  body  to  audit  the  financial  statements  of  an  NCB.  In  addition,  a 

duplication of opinions regarding HNB’s financial statements may negatively affect the credibility of 

HNB’s  accounts.  Furthermore,  International  Accounting  Standards  and  International  Financial 

Reporting Standards are applicable to the preparation of financial statements, not to their auditing. 

In addition, the draft law on the State Audit Office states that audits of the HNB’s annual financial 
statements  may  also  be  performed  by  independent  external  auditors 16,  indicating  that  this  is 

optional rather than mandatory. This is not consistent with the Law on the HNB which requires the 

prepared  financial  statements  and  the  overall  operation  of  HNB  to  be  audited  by  independent 
external auditors in accordance with audit regulations and the International Auditing Standards 17. 

In conclusion, the scope of the State Audit Office’s control of HNB’s operations, as proposed by the 

draft  laws,  is  not  without  prejudice  to  the  activities  of  HNB’s  independent  external  auditors  to 

examine all HNB’s books and accounts. 

3.1.4  Third, as already noted in its Opinion CON/2016/33, the ECB understands that the audit performed 

by the  State  Audit Office is generally  governed  by  the provisions of the current Law on the State 

Audit Office. Its provisions stipulate that an audit includes a procedure for examining the auditee’s 

financial  transactions  in  terms  of  the  legal  use  of  funds  and  for  assessing  the  effectiveness  and 

efficiency of the auditee’s operations and how effectively the auditee’s general objectives were met 

or how effectively the objectives of the auditee’s individual financial transactions, programmes and 

projects  were  met.  Furthermore,  the  auditee  must  comply  with  audit  findings  and  notify  the  State 
Audit Office of the actions taken in response to the audit findings 18. It follows that the State Audit 

Office  would  be  empowered  to  assess  whether  HNB  meets  its  general  objectives,  including  its 

primary  objective  of  maintaining  price  stability.  These  provisions  of  the  Law  on  the  State  Audit 

Office in conjunction with the relevant provisions of the draft laws are not in line with the principle of 

central bank independence referred to in Article 130 of the Treaty and Article 7 of the Statute of the 

ESCB. In this respect it is noted that the draft laws provide that the State Audit Office may not order 

any  action  that  might  call  into  question  the  principle  of  the  institutional,  functional,  personal,  and 

financial independence of the HNB. The ECB understands that this provision is designed to ensure 

that  the  scope  of  control  of  the  State  Audit  Office  is  intended  to  comply  with  the  prohibition  on 

giving instructions to the HNB. For the sake of legal certainty, it is suggested that the draft laws be 

13 
14 
15 
16  
17  
18  

See Article 61 of the Law on HNB. 
See Article 1 of the draft law adding Article 61.a (2) of the Law on HNB. 

See Article 61 of the Law on HNB. 
See Article 1 of the Law on the amendments to the Law on the State Audit Office. 
See Article 61 of the Law on HNB. 

See Article 14 of the Law on the State Audit Office. 

8 

                                                 
ECB-PUBLIC 

adapted to clarify that the above-referenced provisions of the Law on the State Audit Office would 

not apply to audits of the HNB.  

3.1.5  Fourth, the scope of the State Audit Office’s control of HNB’s operations should not interfere with 

the  HNB’s  ESCB-related  tasks.  As  noted  in  paragraph  3.1.2,  it  is  legally  uncertain  whether  the 

HNB’s  ESCB-related  tasks  are  excluded  from  the  scope  of  the  State  Audit  Office’s  audit  of 

business operations. Moreover, although the provisions of the draft law purport to prohibit the State 

Audit Office from evaluating the activities referring to the realisation of ESCB-related goals and the 

execution  of  ESCB-related  tasks  and  from  making  audit  findings  relating  to  HNB’s  ESCB-related 

tasks, the draft law specifically provides that the HNB must give to the authorized state auditor an 

insight into confidential data referred to in Article 37 of the Statute of the ESCB for the purposes of 
the audit, in accordance with ESCB rules 19. This seems to imply that the State Audit Office would 

have  the  right  to  examine  HNB’s  ESCB-related  activities  but  not  to  evaluate  and  make  audit 

findings  in  respect  of  them.  It  is  difficult  to  understand  what  purpose  would  be  served  by  such 

examinations  by  the  State  Audit  Office  in  circumstances  where  the  State  Audit  Office  would  be 

unable  to  make  any  evaluations  or  findings  as  a  result  of  such  examinations.  The  ECB  would 

therefore recommend the exclusion of HNB’s ESCB-related tasks from the scope of the State Audit 

Office’s  audit  of  business  operations,  since  this  should  clearly  ensure  that  the  audit  would  not 

interfere with HNB’s ESCB-related tasks.  

Moreover, Article 37 of the Statute of the ESCB requires the members of the governing bodies and 

the  staff  of  NCBs,  even  after  their  duties  have  ceased,  not  to  disclose  information  of  the  kind 

covered by the obligation of professional secrecy. The primacy of Union law and the rules adopted 

thereunder mean that national laws on access by  third parties (such as the State Audit Office) to 

documents  may  not  lead  to  infringements  of  the  ESCB’s  confidentiality  regime.  The  access  of  a 

state  audit  office  to  an  NCB’s  information  and  documents  must  be  limited  and  must  be  without 

prejudice  to  the  ESCB’s  confidentiality  regime  to  which  the  members  of  NCBs’  decision-making 
bodies  and  staff  are  subject20.  Hence,  access  by  the  State  Audit  Office  to  HNB’s  confidential 

information  must  be  limited  to  that  which  is  strictly  necessary  for  the  performance  of  the  state 

auditor’s  tasks.  Such  access must  also  be  without  prejudice  both  to  HNB’s  independence  and  to 

the ESCB confidentiality regime, to which the members of the HNB’s decision-making bodies and 
staff are subject. In this respect the ECB welcomes the provision21 that the State Audit Office must 

safeguard the confidentiality of information and documents disclosed by HNB to the same extent as 
the professional secrecy provisions applied by HNB 22. 

3.1.6  Fifth,  under  the  draft  laws  the  audit  performed  by  the  State  Audit  Office  is  stated  to  include  the 

audit  of  the  HNB  as  part  of  the  TARGET2  payment  system  operated  by  the  Eurosystem.  This  is 

inconsistent  with  the  provision  of  the  draft  laws,  which  provide  that  the  State  Audit  Office  will  not 

assess  activities  relating  to  the  implementation  of  goals  and  the  discharge  of  duties  established 

19  
20  
21  
22  

See Article 1 of the draft law adding Article 61.b(1) and (2) of the Law HNB.  
See the ECB’s Convergence Report, June 2016, p. 26. 
See Article 1 of the draft law adding Article 61.b(3) of the Law HNB. 

See the ECB’s Convergence Report, June 2016, Chapter 7.5.3. 

9 

                                                 
ECB-PUBLIC 

under the Treaty, the Statute of the ESCB and the Law on HNB. 23 The TARGET2 payment system 

is  established  pursuant  to  an  ECB  Guideline  adopted  pursuant  to  the  first  and  fourth  indents  of 
Article  127(2)  of  the  Treaty, 24  and  has  been  identified,  pursuant  to  Decision  ECB/2014/35  of  the 
European  Central  Bank 25,  as  a  systemically  important  payment  system  (SIPS)  overseen  by  the 
ECB as competent authority under Regulation (EU) No 795/2014 (ECB/2014/28) 26. Therefore, it is 

suggested to delete the reference to the State Audit Office’s audit of TARGET2, since TARGET2 is 

operated on behalf of the Eurosystem and the scope of control of the State Audit Office should not 

interfere with HNB’s ESCB-related tasks.  

3.1.7  Sixth,  the  scope  of  the  HNB  audit  is  stated  to  include  the  NKS  and  the  EuroNCS.  The  ECB 

understands that these systems are not within HNB’s competence nor operated by HNB. 

3.1.8  Seventh,  regarding  the  proposed  audit  of  HNB’s  employment  policy,  the  ECB  notes  that  the 

concept  of financial independence should be assessed from the  perspective of  whether any  third 

party  is  able  to  exercise  either  direct  or  indirect  influence  not  only  over  an  NCB’s  tasks  but  also 

over its ability to fulfil its mandate, both operationally in terms of manpower, and financially in terms 

of appropriate financial resources. Member States may not impair an NCB’s ability to employ and 

retain the qualified staff necessary for the NCB to perform independently the tasks conferred on it 

by the Treaty and the Statute of the ESCB. Also, an NCB may not be put into a position where it 

has  limited  control  or  no  control  over  its  staff,  or  where  the  government  of  a  Member  State  can 
influence its policy on staff matters27. 

3.1.9  Finally,  regarding  the  provision  in  the  draft  law  relating  to  the  State  Audit  Office’s  audit  of  the 

financial  and  day-to-day  operation  of  HNB,  reference  is  made,  inter  alia,  to  the  review  of  the 

appropriateness  of  the  application  of  international  risk  assessment  standards  published  by  the 

Basel Committee on Banking Supervision (BASEL) and the establishment of risk reserves. It is not 

clear  why  the  draft  law  refers  to  BASEL  standards  as  these  standards  do  not  apply  to  central 

banks. 

3.2   HNB reporting obligations in relation to the Croatian Parliament 

3.2.1  As  regards  the  HNB’s  proposed  reporting  obligations  to  the  Croatian  Parliament,  as  previously 
noted by the ECB 28, and in line with the principle of institutional independence under Article 130 of 

the Treaty and Article 7 of the Statute of the ESCB, the NCBs and the members of their decision-

making bodies are prohibited from seeking or taking instructions from Union institutions, bodies or 

agencies,  from  any  government  of  a  Member  State  or  from  any  other  body.  In  addition,  the 

governments  of  the  Member  States  are  prohibited  from  seeking  to  influence  the  members  of  the 

23  
24  

25  

26  

27  
28  

See Article 1 of the draft law adding Article 61.a (3) of the Law HNB. 
Guideline ECB/2012/27 of the European Central Bank of 5 December 2012 on a Trans-European Automated Rea-
time Gross settlement Express Transfer system (TARGET2) (recast) (ECB/2012/27) (OJ L 30, 30.1.2013, p. 1). 
Decision  ECB/2014/35  of  the  European  Central  Bank  of  13  August  2014  on  the  identification  of  TARGET2  as  a 
systemically  important  payment  system  pursuant  to  Regulation  (EU)  No  795/2014  on  oversight  requirements  for 
systemically important payment systems (OJ L 245, 20.8.2014, p. 5). 

Regulation ECB/2014/28 of the European Central Bank (EU) No 795/2014 of 3 July 2014 on oversight requirements 
for systemically important payment systems (OJ L 217, 23.7.2014, p. 16). 
See ECB’s Convergence Report, June 2016, p. 27. 

See paragraphs 2.2.2 and 2,2,3 of Opinion CON/2016/33 and paragraphs 3.2.3 and 3.2.4 of Opinion CON/2016/52. 

10 

                                                 
ECB-PUBLIC 

NCBs’  decision-making  bodies  whose  decisions  may  affect  the  fulfilment  of  the  NCBs’  ESCB-

related tasks.  

3.2.2  While the explanatory memorandum emphasises that the independence enjoyed by the members 

of  the  HNB  bodies  in  charge  of  decision-making  must  not  be  brought  into  question  during  the 

discussion  on  HNB’s  annual  report  and  semi-annual  information  in  the  Croatian  Parliament,  and 

that  the  special  status  of  Governors must  be  respected  in  terms  of  their  membership  in  the  ECB 

General  Council,  and  that  the  Croatian  Parliament  must  respect  the  confidentiality  requirements 

flowing  from  the  Statute  of  the  ESCB,  the  ECB  understands  that  the  contents  of  the  explanatory 

memorandum  have  no  legal  standing  in  Croatian  law,  but  constitute  mere  statements  as  to  the 

authors’ intentions, without providing any statutory or legal guarantees. In addition, these intentions 

are not reflected in the provisions of the draft law. 

3.2.3  The draft law does not explicitly clarify the precise implications of the Croatian Parliament’s taking a 

position  on  the  HNB’s  annual  report  and  semi-annual  information  regarding  HNB’s  financial 

condition,  the  level  of  price  stability  achieved  and  monetary  policy  implementation.  The  rights  of 

third  parties  to  approve,  suspend,  annul  or  defer  an  NCB’s  decisions  are  incompatible  with  the 
Treaty and the Statute of the ESCB as far as ESCB-related tasks are concerned29. Therefore, the 

Croatian  Parliament’s  competence  to  take  a  position  on  the  HNB’s  annual  report  on  its  activities 

and  semi-annual  information  regarding  HNB’s  financial  condition,  the  level  of  price  stability 

achieved and monetary policy implementation would affect HNB’s institutional independence, as it 

goes  beyond  the  transparency  and  accountability  obligation  of  a  NCB  towards  a  national 

parliament. As regards the compatibility of a dialogue between NCBs and third parties with central 

independence, 

bank 
to  ECB  Opinion  CON/2016/33  and  ECB  Opinion 
CON/2016/5230,  which  clarify  that  such  a  dialogue  is  welcome  and  compatible  with  central  bank 

the  ECB  refers 

independence  provided  that  (1)  this  does  not  result  in  interference  with  the  independence  of  the 

members of the NCB’s decision-making bodies; (2) the special status of Governors in their capacity 

as members of the ECB’s  General Council is fully respected; and (3) confidentiality requirements 

resulting from the Statute of the ESCB are observed. A ‘position’ of the Croatian Parliament on the 

aforementioned  annual  report  and  semi-annual  information  seems  to  imply  that  the  Croatian 

Parliament could give direct or indirect instructions to the HNB and its decision-making bodies and 

members,  for  example  as  regards  amending  HNB’s  annual  report  or  challenging  HNB’s 

assessment  regarding  price  stability  and  the  implementation  of  monetary  policy.  Any  right  of  the 

Croatian  Parliament  to  approve,  suspend,  annul  or  defer  HNB’s  decisions  would  be  contrary  to 
HNB’s institutional independence under the Treaty and the Statute of the ESCB 31.  

29  
30  
31  

See ECB’s Convergence Report, June 2016, p. 22. 
See paragraph 2.2.3 of Opinion CON/2016/33, paragraph 3.2.4 of Opinion CON/2016/52.  

See paragraphs 3.5, 3.6 and 3.7 of Opinion CON/2008/31. 

11 

                                                 
ECB-PUBLIC 

3.3   Appointment of the members of the HNB Council 

3.3.1  The draft law states that, in the event any member of the HNB Council departs before the end of 

his/her  term,  a  new  member  will  be  selected  for  the  remainder  of  the  departing  member’s  term 

only.  Article  14.2  of  the  Statute  of  the  ESCB  provides  that  the  term  of  office  of  a  governor  of  a 

national  central  bank  shall  be  no  less  than  five  years.  Personal  independence  would  be 

jeopardised if the same rules for the security of tenure and grounds for dismissal of Governors did 

not  also  apply  to  other  members  of  the  decision-making  bodies  of  NCBs  involved  in  the 
performance  of  ESCB-related  tasks32.  Various  provisions  of  the  Treaty  and  of  the  Statute  of  the 

ESCB  require  comparable  security  of  tenure.  As  consistently  stated  in  the  ECB’s  convergence 

reports and opinions, when an NCB’s statutes are amended, the amending law should safeguard 

the  security  of  tenure  of  the  Governor  and  of  other  members  of  decision-making  bodies  who  are 
involved in the performance of ESCB-related tasks33. The ECB would recommend that, in the event 

any member of the HNB Council departs before the end of his/her term, a new member be selected 

for a term of at least five years, instead of the remainder of the departing member’s term only.  

3.3.2  The ECB takes note of the proposed expansion of the HNB Council by up to nine members, four of 

whom will be external members drawn from various segments of Croatian business and social life, 

including industry, employers, academia, consumer protection associations, etc., with professional 

experience in the field of economy and finance. The personal independence of the members of a 

NCB's decision-making bodies entails ensuring that no conflict of interest arises between the duties 

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

relation to their respective NCBs and any other functions which such members of decision-making 

bodies may have and which may jeopardise their personal independence. 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. 

Particular care should be taken to prevent potential conflicts of interest on the part of non-executive 
members of decision-making bodies 34.  

3.3.3  With  respect  to  the  provisions  of  the  draft  law  that  the  members  of  the  HNB  Council  will  be 

appointed for a term of six years with only one possibility of reselection, and that no member of the 

HNB Council may serve more than two terms as member of the Council, the ECB recalls that, in 

view  of  the  principle  of  central  bank  independence  laid  down  in  Article  130  of  the  Treaty  and 

Article 7  of  the  Statute  of  the  ESCB,  Governors  and  other  members  of  NCBs’  decision-making 

bodies involved in the performance of ESCB-related tasks may not be dismissed for reasons other 

than  those  mentioned  in  Article  14.2  of  the  Statute.  Therefore,  the  current  members  of  HNB’s 

Council should be allowed to complete their current terms of office, irrespective of how many terms 

32   
33  
34   

See paragraph 2.2 of Opinion CON/2014/51. 
See ECB’s Convergence Report, June 2016, p. 23. 

See ECB’s Convergence Report, June 2016, pp. 24-25. 

12 

                                                 
ECB-PUBLIC 

of  office  have  already  been  served  in  the  past,  and  the  draft  law  should  be  adapted  to  explicitly 

guarantee  the  completion  of  their  current  terms.  Moreover,  the  ECB  understands,  in  accordance 

with the principles of the rule of law, legal safety, legal predictability and legal certainty under the 

Croatian  Constitution,  that  the  requirement  that  the  members  of  the  HNB  Council  may  not  serve 

more than two terms of office does not apply in respect of terms which were served before the date 
the  draft  law  comes  into  effect35.  This  implies  that  the  current  and  past  members  of  the  HNB 

Council would be able to serve two terms in the future, and that terms served in the past are not 

included  and  do  not  count  towards  the  calculation  of  the  limitation  of  two  terms.  The  ECB 
welcomes this from the perspective of legal certainty36. 

3.3.4  The draft law  would need to clarify, for the sake of legal certainty,  whether the  Governor and the 

Vice-Governors would be appointed by the Croatian Parliament on the proposal of the Parliament’s 

Election,  Appointment,  and  Administration  Committee,  or  on  the  proposal  of  the  President  of 

Croatia, as currently both appointment procedures are envisaged by the draft law. 

3.3.5  It may be useful to reflect on how a candidate for Governor of HNB would be considered to meet 

the criterion of being entirely mentally fit to discharge the duties of Governor. 

3.3.6  The  ECB  notes  that  the  appointment  of  the  members  of  the  HNB  Council  is  already  regulated  in 
detail by the Law on HNB37. The ECB therefore understands that the intention of the draft law is to 

repeal the relevant provisions of the Law on HNB. 

3.4  Employees of HNB 

Regarding  the  proposed  requirement  that  employees  in  all  management  posts  at  the  HNB  be 

subject  to  reselection  at  four-year  intervals  after  an  internal  competition  procedure  has  been 

completed, as noted above (see paragraph 3.1.8), the concept of financial independence should be 

assessed from the perspective of whether any third party is able to exercise either direct or indirect 

influence  not  only  over  an  NCB’s  tasks  but  also  over  its  ability  to  fulfil  its  mandate,  including 

operationally in terms of manpower. Member States may not impair an NCB’s ability to employ and 

retain the qualified staff necessary for the NCB to perform independently the tasks conferred on it 

by the Treaty and the Statute of the ESCB. Also, an NCB may not be put into a position where it 

has  limited  control  or  no  control  over  its  staff,  or  where  the  government  of  a  Member  State  can 
influence  its  policy  on  staff  matters38.  Against  this  backdrop,  the  ECB  suggests  that  further 

consideration  be  given  to  the  imposition  of  a  requirement  on  HNB  under  the  draft  law  that  all 

managerial posts at the HNB be subject to internal recruitment procedures every four years, as this 

would  appear  to  intrude  on  the  HNB’s  ability  to  independently  determine  its  own  policy  on  staff 

matters.  

3.5  Secondary Market Purchases of public sector securities by HNB 

Regarding the authorisation to HNB to repurchase public sector securities in the secondary market 

directly from credit institutions, the ECB notes that, in accordance with the prohibition of monetary 

35  
36  
37  
38  

See the Decision of the Constitutional Court of the Republic of Croatia U-III-930/2015, 31 March 2015. 
See paragraph 2.3 of Opinion CON/2016/34 and paragraph 3.3 of Opinion CON/2016/52. 
See Articles 79, 80 and 82 of the Law on HNB. 

See ECB’s Convergence Report, June 2016, p. 27. 

13 

                                                 
ECB-PUBLIC 

financing under  Article  123 of the Treaty39, the  purchase directly by  the HNB of debt  instruments 

from  central  governments,  regional,  local  or  other  public  authorities,  other  bodies  governed  by 

public law or public undertakings by Member States shall be prohibited.  As noted in the recitals to 
Council Regulation (EC) No 3603/9340 Member States must take appropriate measures to ensure 

that this prohibition is applied effectively and fully. In particular, purchases made on the secondary 
market must not be used to circumvent the objective of Article 123 of the Treaty41.   

3.6  Capital, reserves and allocation of profits and losses of HNB   

3.6.1  Even  if an NCB  is fully  independent from a functional, institutional and personal point of view, its 

overall  independence  would  be  jeopardised  if  it  could  not  autonomously  avail  itself  of  sufficient 

financial resources to fulfil its mandate (i.e. to perform the ESCB-related tasks required of it under 

the  Treaty  and  the  Statute  of  the  ESCB).  Member  States  may  not  put  their  NCBs  in  a  position 
where  they  have  insufficient  financial  resources  and  inadequate  net  equity42  to  carry  out  their 
ESCB-related  tasks.43  Financial  independence  requires  that  in  performing  its  tasks  an  NCB  can 

independently  assess  the  risks  involved  and  has  the  power  to  decide  on  any  necessary 

precautions  to  take.  An  NCB  is  best  placed  to  make  these  assessments  and  needs  to  have  the 

necessary tools to evaluate the relevant circumstances and to make forecasts. 

3.6.2  The  principle  of  financial  independence  requires  an  NCB  to  have  sufficient  means  not  only  to 

perform its ESCB-related tasks but also its national tasks, e.g. financing its administration and own 
operations44.  

3.6.3  Financial  independence  also  implies  that  an  NCB  should  always  be  sufficiently  capitalised.  In 

particular,  any  situation  should  be  avoided  whereby  for  a  prolonged  period  of  time  an  NCB’s  net 

equity is below the level of its statutory capital or is even negative, including where losses beyond 

the level of capital and the other financial buffers, such as reserves and general risk provisions, are 

carried over. Any such situation may negatively impact on the NCB’s ability to perform its ESCB-

related tasks but also its national tasks. Therefore, the event of an NCB’s net equity becoming less 

than its statutory capital or even negative would require that the respective Member State provides 

the NCB with an appropriate amount of capital at least up to the level of the statutory capital within 
a reasonable period of time so as to comply with the principle of financial independence 45.  

3.6.4  With regard to profit allocation, an NCB’s statutes may prescribe how its profits are to be allocated. 

In  the  absence  of  such  provisions,  decisions  on  the  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  ESCB-related  tasks as well  as national 

39   
40   

41  
42  

43  
44  
45  

See also Article 78 of the Law on HNB. 

See Recital 7 of 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). 

See Case C-62/14 Gauweiler and Others v. Deutscher Bundestag, paras. 93-127, EU:C:2015:400. 
See paragraph 3.3 of Opinion CON/2014/24, paragraph 2.2 of Opinion CON/2014/27 and paragraph 3.1.1 of Opinion 
CON/2014/56. 
See ECB’s Convergence Report, June 2016, p. 25. 
See ECB’s Convergence Report, June 2016, pp. 25, 188 and paragraph 4.3 of Opinion CON/2009/85.  

See ECB’s Convergence Report, June 2016, pp. 25-26. 

14 

                                                 
ECB-PUBLIC 

tasks.  Profits  may  be  distributed  to  the  State  budget  only  after  any  accumulated  losses  from 
previous  years have been covered 46 and financial provisions deemed necessary to safeguard the 
real  value  of  the  NCB’s  capital  and  assets  have  been  created 47.  Any  amendment  to  the  profit 

distribution  rules  of  an  NCB  should  only  be  initiated  and  decided  in  cooperation  with  the  NCB, 
which is best placed to assess its required level of reserve capital48. As regards financial provisions 

or  buffers,  NCBs  must  be  free  to  independently  create  financial  provisions  to  safeguard  the  real 

value of their capital and assets. Member States may also not hamper NCBs from building up their 
reserve capital to a level which is necessary for a member of the ESCB to fulfil its tasks49.  

3.6.5  Based on the foregoing, the proposed limitations on the quantity of HNB’s general reserves to twice 

the amount of HNB’s share capital and on the amount of HNB’s specific reserves to the amount of 

HNB’s share capital would be inconsistent with the principle of financial independence. HNB is best 

positioned to assess the risks involved in its operations and what financial precautions need to be 

taken  to  guard  against  these  risks,  including  the  establishment  of  the  necessary  level  of  general 

and specific reserves or other types of financial buffers such as general risk provisions.  

3.6.6  In addition, the ECB welcomes that under the draft law losses of HNB would ultimately be covered 

by  the  Croatian  Treasury.  However,  using  share  capital  to  cover  losses  that  cannot  be  covered 

from  general  and  specific  reserves  could  lead  to  situations  whereby  the  net  equity  is  below  the 

level of HNB’s statutory capital, a situation which should be avoided for a prolonged period of time. 

The  reference  to  HNB’s  share  capital  for  covering  losses  should  therefore  be  removed  from  the 

draft law. 

3.6.7  The ECB notes that when applying the rules of the draft law, the HNB would need to release, for 

the benefit of the State budget, a considerable part of its existing reserves. The proposed statutory 

reduction of HNB's general reserves could also diminish its financial independence.  

3.6.8  Finally,  in  relation  to  the  establishment  of  a  special  operating  fund  to  acquire  property  and  rights 

constituting  tangible  fixed  assets  and/or  fixed  asset  investments  and  to  establish  specialised 

financial organisations, it is not clear how the establishment of such fund would relate to the other 
provisions  addressing  capital,  reserves  and  allocation  of  profits  and  losses  of  the  HNB50.  In  any 

case, any such fund or specialized financial organization may not be utilized in such a manner as 

to breach HNB’s obligations with respect to the prohibition of monetary financing under Article 123 
of the Treaty51. 

3.7  Foreign Currency Operations of HNB 

3.7.1  The ECB notes that, under the Law on HNB, HNB’s tasks include the definition and implementation 

of monetary  and  foreign  exchange  policies  and  the  holding  and  management  of  Croatia’s  foreign 

46 
47  

48  
49   

50  
51  

See paragraph 4.3 of Opinion CON/2009/85 and paragraph 2.2. of Opinion CON/2009/53. 
See  ECB’s  Convergence  Report,  June  2016,  pp.  25,  27  and  paragraph  3.3  of  Opinion  CON/2009/26  and 
paragraph 2.1 of Opinion CON/2012/69.    
See paragraphs 3.6 and 4.2 of Opinion CON/2009/83 and paragraph 3.3 of Opinion CON/2009/53. 

See paragraph 4.2 of Opinion CON/2008/34, paragraph 2.3 of Opinion CON/2009/26 and paragraph 2.1 of Opinion 
CON/2012/69. 
See Article 1 of the draft law amending Article 57 of the Law on HNB.  

See paragraph 6.4 of the ECB’s Annual Report 2015.  

15 

                                                 
ECB-PUBLIC 

reserves. HNB enjoys various related competences and powers to implement monetary and foreign 

exchange  policies,  conduct  open  market  operations,  lay  down  monetary  and  foreign  exchange 

policy  measures  and  instruments,  trade  in  foreign  currency  and  foreign  cash,  manage  foreign 

reserves, open accounts abroad, carry out all types of banking and financial transactions with other 

central  banks,  credit  and  financial  institutions  outside  Croatia,  and  international  institutions  and 

organizations,  and  enter  into  payment  and  clearing  agreements  with  foreign  clearing  institutions. 

The  Law  on  HNB  also  contains  provisions  with  respect  to  consultations  and  reporting  by  the 
Ministry of Finance with and to the HNB on the foreign borrowing transactions of Croatia 52.  

3.7.2  As  regards  supervision  over  authorised  foreign  exchange  offices,  the  ECB  notes  that,  under  the 

Law on HNB, HNB’s tasks include the issuance and withdrawal of authorisations and approvals in 

accordance  with  the  laws  governing  the  operation  of  credit  institutions,  credit  unions,  payment 

institutions,  electronic money  institutions, payment systems, foreign exchange operations  and the 
operation of authorised foreign exchange offices53. The ECB also understands that under the Law 
on foreign  exchange54 Financijski inspektorat (the Financial Inspectorate) of Ministarstvo financija 
(the Ministry of Finance) also has a role in the supervision of foreign exchange offices55.  

3.7.3  The ECB understands that setting foreign currency exchange rates and the  exchange rate of the 

domestic currency, and publishing the currency exchange rate, is regulated by the Law on foreign 
exchange 56.  

3.7.4  The  ECB  understands  that  all  payments  (whether  domestic  or  to  or  from  a  foreign  country)  are 

regulated by the Law on payment systems57.  

3.7.5  Contrary  to  the  provision  of  the  draft  law  which  provides  that  the  foreign  currency  operations  of 

HNB  include, inter  alia, HNB’s relationship  with  the  ECB, this relationship  is already  regulated by 

the provisions of the Statute of the ESCB and cannot be regulated further by national laws.  

3.7.6  Against this backdrop, the ECB suggests that the Croatian legislator gives further consideration to 

the  interaction  of  the  provisions  of  the  draft  law  regarding  the  foreign  currency  operations  of  the 

HNB  and  the  relevant  provisions  of  the  Law  on  HNB,  the  Law  on  foreign  exchange,  the  Law  on 

payment systems and the Statute of the ESCB. 

3.8  Certain powers of HNB over credit institutions  

The ECB  notes that under the  Law  on  HNB the tasks and  powers of the HNB  Council  include to 

establish the insolvency of credit institutions and decide on submitting proposals for the initiation of 

bankruptcy  proceedings  against  credit  institutions  or  on  the  withdrawal  of  authorisations  of  credit 
institutions 58.  Furthermore,  the  HNB  enjoys  a  range  of  powers  as  the  competent  supervisor  of 

52  
53  
54  

55  
56  
57  
58 

See Articles 4, 9, 10, 16, 17, 18, 19, 20, 38 and 74 of the Law on HNB. 
See Article 4 of the Law on HNB. 

Zakon  o  deviznom  poslovanju  (Narodne  novine  no  96/03,  140/05,  132/06,  150/08,  92/09,  133/09,  153/09,  145/10 
and 76/13).  

See Articles 55 and 58 of the Law on foreign exchange. 
See Article 42-45 of the Law on foreign exchange. 
Zakon o platnom prometu (Narodne novine No 133/09 and 136/12); see Article 1 and 43. 

See Article 42(9) of the Law on HNB. 

16 

                                                 
ECB-PUBLIC 

credit  institutions  under  the  Law  on  credit  institutions 59  and  the  Law  on  resolution  of  credit 
institutions  and  investment  companies 60,  including  with  respect  to  the  potential  unavailability  of 

deposits.  Certain  consequences  flowing  from  the  inability  of  a  credit  institution  to  meet  its 

obligations  are  also  regulated  by  the  Law  on  settlement  finality  in  payment  and  financial 
instruments settlement systems61. The protection of citizens’ deposits held at savings and current 
accounts  is  also  addressed  by  the  Law  on  deposit  insurance62.  Against  this  backdrop,  the  ECB 

suggests that the Croatian legislator gives further consideration to the interaction and considerable 

overlap  of  the  provisions  of  the  draft  law  regarding  the  proposed  powers  of  the  HNB  over  credit 
institutions and the relevant provisions of the Law on HNB, the Law on credit institutions 63, the Law 
on  resolution  of  credit  institutions  and  investment  companies64,  the  Law  on  settlement  finality  in 
payment and financial instruments settlement systems and the Law on deposit insurance65.  

3.9   Obligation to denominate and pay all monetary obligations in Croatia in Kuna 

The ECB understands that the matters addressed by the provisions of the draft law relating to the 

obligation to denominate and pay all monetary obligations in Croatia in Kuna, besides the Law on 

HNB, which defines that Kuna shall be legal tender in Croatia and that use of other currencies may 
be  allowed  for  domestic  payments  by  law66,  are  regulated  by  other  laws  in  Croatia,  including  the 
Law on civil obligations 67, the Law on credit institutions 68, the Decision on risk management69, the 
Law  on  consumer  credit70,  the  Law  on  credit  agreements  for  consumers  relating  to  residential 
immovable  property71,  the  Law  on  Foreign  Exchange72  and  the  Law  on  Payment  Systems73. 

Against this backdrop the ECB suggests that the Croatian legislator gives further consideration to 

59  
60  
61  

62  
63  

64  

65  

71   
72  
73  

Zakon o kreditnim institucijama (Narodne novine no 159/13, 19/15, 102/15 and 15/18). 
Zakon o sanaciji kreditnih institucija i investicijskih društava (Narodne novine no 19/15). 

Zakon o konačnosti namire u platnim sustavima i sustavima za namiru financijskih instrumenata (Narodne novine no 
51/12 and 44/16). 

Zakon o osiguranju depozita ((Narodne novine no 82/15). 
The  Law  on  credit  institutions  transposes  Directive  2013/36/EU  of  the  European  Parliament  and  the  Council  of  26 
June  2013  on  access  to  the  activity  of  credit  institutions  and  the  prudential  supervision  of  credit  institutions  and 
investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 
27.06.2013, p. 338) and implements Regulation (EU) No 575/2013 of the European Parliament and the Council of 26 
June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 
648/2012 (OJ L 321, 30.11.2013, p. 6).  

The  Law  on  resolution  of  credit  institutions  and  investment  companies  transposes  Directive  2014/59/EU  of  the 
European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of 
credit  institutions  and  investment  firms  and  amending  Council  Directive  82/891/EEC,  and  Directives  2001/24/EC, 
2002/47/EC,  2004/25/EC,  2005/56/EC,  2007/36/EC,  2011/35/EU,  2012/30/EU  and  2013/36/EU,  and  Regulations 
(EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (OJ L 173, 12.6.2014, p. 
190).  
The Law on deposit insurance transposes Directive 2014/49/EU of the European Parliament and of the Council of 16 
April 2014 on deposit guarantee schemes (OJ L 173/149, 12.06.2014). 
See Article 21 of the Law on HNB. 

66   
67 
Zakon o obveznim odnosima (Narodne novine No 35/05, 41/08, 125/11 and 78/15); see Articles 21 and 22.  
68  
See Articles 101, 302(6) and 303 of the Law on credit institutions. 
69    Decision on risk management, (Narodne novine No 1/2015 and 94/2016). 
70  

Zakon o  potrošačkom kreditiranju (Narodne novine No 75/09, 112/12, 143/13, 147/13, 09/2015, 78/15, 102/15 and 
52/16); see Articles 4(4) and 5. 
Zakon o stambenom potrošačkom kreditiranju (Narodne novine No 101/2017); see Article 13(2) and 13(6). 
See Articles 15 and 17 of the Law on foreign exchange. 

See Article 13 of the Law on payment systems. 

17 

                                                 
the  interaction  of  these  provisions  of  the  draft  law  and  the  relevant  provisions  of  the  afore-

mentioned Laws. 

ECB-PUBLIC 

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

Done at Frankfurt am Main, 6 April 2018. 

[signed] 

The President of the ECB 

Mario DRAGHI 

18