Opinion of the European Central Bank of 28 October 2016 on amendments to the Law on Hrvatska Narodna Banka (CON/2016/52)
Date: 2019-10-28
Institutions: European Central Bank
Subjects: Croatia, audit, central bank, national law, supervisory body

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 28 October 2016  

on amendments to the Law on Hrvatska Narodna Banka 

(CON/2016/52) 

Introduction and legal basis 

On 4 October 2016 the European Central Bank (ECB) received a request from the Ministry of Finance of 

the  Republic  of  Croatia  for  an  opinion  on  draft  amendments  to  the  Law  on  Hrvatska  Narodna  Banka 
(hereinafter the ‘draft law’)1. 

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  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 law 

1.1  The draft law enables the State Audit Office to perform an annual audit of the business operations 

of  HNB,  in  addition  to  the  existing  audit  of  prepared  financial  statements  and  overall  operations 

performed  by  independent  external  auditors.  In  particular,  the  draft  law  proposes  that  the  State 

Audit  Office  will  carry  out  an  audit  of  the  efficiency  of  HNB’s  business  operations  in  line  with  the 

regulations  governing  the  working  methods  of  the  State  Audit  Office  and  in  compliance  with  the 

provisions  of  the  Law  on  HNB.  Under  the  draft  law  this  audit  of  HNB’s  business  operations  will 

imply:  (a)  verification  of  documents,  deeds,  reports,  internal  control  systems,  and  accounting, 

financial  and  other  procedures  and  other  records  for  the  purpose  of  expressing  an  opinion  as  to 

whether  HNB’s  annual  financial  statements  are  prepared  in  accordance  with  the  applicable 

financial  reporting  and  legal  framework;  (b)  a  procedure  for  the  evaluation  of  whether  activities, 

financial  transactions  and  information  are  in  all  relevant  regards  in  line  with  the  applicable 

regulations  governing  HNB’s  business  operations;  (c)  a  procedure  for  the  evaluation  of  whether 

HNB’s programmes, projects and activities are realised efficiently, in accordance with the principles 

of  effectiveness,  efficiency  and  purposefulness;  and  (d)  an  evaluation  of  other  tasks  and 

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2  

The ECB has adopted its opinion based on the proposed draft law (as proposed by the Ministry of Finance) sent for 
consultation, but also taking into account the explanatory memorandum accompanying the draft law submitted to the 
Croatian  Parliament  by  a  group  of  Members  of  Parliament  on  14  October  2016,  published  on  the  Croatian 
Parliament's website, see www.sabor.hr .  
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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procedures  that  the  State  Audit  Office  deems  relevant  for  the  preparation  of  its  report  on  the 

business operations of HNB. 

1.2  The draft law provides that HNB will be obliged to make available to an authorised state auditor all 

requested  documentation  and  information  for  the  purpose  of  performing  an  audit,  and  to  make  it 

possible for an authorised state auditor to have an insight into classified documents for the purpose 

of  performing  an  audit.  The  draft  law  specifies  that  authorised  state  auditors  may  use  such 

documentation and information only for the purpose of performing an audit, and that the State Audit 

Office  shall  have  to  ensure  the  confidentiality  of  information  and  documents  received  in  this 

respect. 

1.3  The  draft  law  requires  the  Governor  of  HNB  to  submit,  within  eight  days  after  receiving  the  draft 

report, to the State Audit Office a response to the facts described in the draft report. Thereafter the 

report on the performed audit, including the Governor’s response, is required to be delivered to the 

Governor.  The  Governor  may  raise  an  objection  to  the  report  within  eight  days.  The  Chief  State 

Auditor  is  required  to  decide  on  the  Governor’s  objection  within  30  days.  The  report  on  the 

performed audit of HNB will be published and the Governor is required to deliver, within 60 days, to 

the  State  Audit  Office,  a  written  response  on  the  measures  taken  pursuant  to  the  findings  of  the 

audit. 

1.4  The  draft  law  clarifies  that,  regardless  of  the  provisions  of  the  regulations  governing  the  working 

methods of the State Audit Office, the State Audit Office will have no power to propose a dismissal 

of any member of the Council of HNB. 

1.5  The draft law clarifies that the audit performed by the State Audit Office will be completely separate 

from the audit carried  out  by  independent  external auditors selected  in line  with the  provisions  of 

the Law on HNB. 

1.6  The draft law contains a number of specific provisions concerning the tasks of HNB relating to the 

European  System  of  Central  Banks  (ESCB).  In  particular,  the  draft  law  provides  that,  within  the 

framework of the audit of business operations, the State Audit Office will not evaluate the activities 

referring  to  the  realisation  of  goals  and  the  execution  of  tasks  established  by  the  Treaty,  the 

Protocol  on  the  Statute  of  the  European  System  of  Central  Banks  and  of  the  European  Central 

Bank (hereinafter the ‘Statute  of the ESCB’) and the  Law on HNB. The draft law further provides 

that the findings of the audit will not refer to the tasks of HNB relating to the ESCB. It also provides 

that the State Audit Office may be granted an insight into confidential data referred to in Article 37 

of the Statute of the ESCB, in line with the rules of the ESCB.  

1.7 

In addition to the provisions concerning the State Audit Office, the draft law requires HNB, once a 

year, to submit to the Croatian Parliament (a) semi-annual information about the financial condition, 

the level of price stability achieved and the implementation of monetary policy; and (b) an annual 

report on its performance and business operations. The draft law further provides that the Croatian 

Parliament has to discuss these documents, and vote for or against their adoption. The explanatory 

memorandum accompanying the draft law further clarifies that these documents will be discussed 

at the Plenary Session of the Croatian Parliament, and voted on in terms of the acceptance or non-

acceptance thereof. The explanatory memorandum also emphasises that during the discussion on 

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these documents in the Croatian Parliament, in line with HNB’s independence, the independence 

enjoyed by the members of the HNB bodies in charge of decision-making must not be brought into 

question, nor will the discussion have any impact on it, and that the special status of the Governors 

must  be  respected  in  terms  of  their  membership  in  the  ECB  General  Council.  The  explanatory 

memorandum further states that, at the same time, HNB and the Croatian Parliament must respect 

the confidentiality requirements that flow from the Statute of the ESCB. 

1.8  Finally, the draft law reduces the permissible number of six-year terms of office of members of the 

HNB  Council  to  no  more  than  two  (at  present  it  is  possible  to  serve  additional  terms  without 

restriction),  while  introducing  transitional  arrangements  for  the  existing  members  of  the  HNB 

Council. In particular, the draft law provides that members of the Council who are appointed on the 

basis of the current Law on HNB will continue to be members of the Council until the expiry of their 

terms of office. 

2. 

General observations 

2.1  The purpose of the draft law is similar to that of a previous legislative initiative on which the ECB 
issued  Opinion  CON/2016/333,  which  was  not  adopted  by  the  Croatian  Parliament.  On  this 

occasion the draft law is more detailed than the previous legislative initiative, and seeks in certain 

respects to respond to the ECB Opinion. 

2.2  The explanatory memorandum accompanying the draft law states that the Law on the State Audit 

Office  will also be amended so that it allows the State Audit Office to perform the audit of HNB’s 

business operations. At this point no draft legislation to this effect has been submitted to the ECB 

for consultation. Should the Law on the State Audit Office be amended at a later date as suggested 

in  the  explanatory  memorandum,  the  ECB  reminds  that  it  should  be  consulted  on  such 

amendments. 

3. 

Specific observations 

3.1   State Audit Office’s audit of HNB  

3.1.1  As noted in the ECB Opinion CON/2016/334, the principle of institutional independence referred to 

in  Article  130  of  the  Treaty  and  Article  7  of  the  Statute  of  the  ESCB  refers  to  the  fact  that  the 

exercise of central bank powers and the performance of the tasks and duties conferred on central 

banks must not be subject to external instructions or government influence. In particular, where a 

national central bank's (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 NCB5 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 

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4  
5  

See Opinion CON/2016/33. All ECB opinions are published on the ECB's website at www.ecb.europa.eu . 
See paragraph 2.1.1 of Opinion CON/2016/33. 

For the activities of the independent external auditors of the NCBs see Article 61 of the Law on HNB. 

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ESCB-related  tasks6.  The  state  audit  should  be  conducted  on  a  non-political,  independent  and 
purely professional basis7.  

3.1.2  By establishing rules on the scope of the audit of HNB, the draft law seeks to take into account the 

principle of central bank independence and the related requirements and safeguards referred to in 

paragraph 3.1.1. However, the draft law is in this respect unclear, contradictory and fails to satisfy 

these requirements and safeguards in a number of important respects.  

3.1.3  First, the scope of the State Audit Office’s control of HNB’s operations is not clearly defined by the 

legal framework. In particular, the draft law excludes from the scope of the audit activities related to 
the  realisation  of  goals  and  the  execution  of  tasks  established  by  the  Treaty8,  the  Statute  of  the 
ESCB and the Law on HNB. However, in its other provisions9, the draft law broadens the scope of 

the  audit  to  include  inter  alia,  the  procedure  of  evaluation  whether  programmes,  projects  and 

activities  of  HNB  are  realised  efficiently  and  whether  activities,  financial  transactions  and 

information  are  in  any  relevant  aspect  in  line  with  the  regulations  governing  the  business 

operations  of  HNB.  The  exclusion  from  the  scope  of  the  audit  of  HNB’s  activities  referring  to  the 

realisation of goals and the execution of tasks 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 law and more importantly with a number of its proposed provisions as 

described  above,  the  coexistence  of  such  provisions  which  on  the  one  hand  exclude  some 

activities and on the other they seem to include them casts legal doubt on the precise scope of the 
audit  by  the  State  Audit.  Moreover,  the  proposed  ‘evaluation  of  other  tasks  and  procedures’10 

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.  

3.1.4  Second, the scope of the State Audit Office’s control of HNB’s operations, as proposed by the draft 

law, is not without prejudice to the activities of HNB’s independent external auditors to examine all 

HNB’s books and accounts. The draft law states that the audit of business operations will imply the 

verification  of,  inter  alia,  accounting,  financial  and  other  procedures  and  other  records  for  the 

purpose  of  expressing  opinions  whether  HNB’s  annual  financial  statements  are  prepared  in 

accordance  with  applicable  financial  reporting  and  legal  requirements.  In  this  respect,  the  ECB 

notes  that  the  task  of  evaluating  HNB’s  financial  statements  belongs  to  the  independent  external 
auditors11. The draft law should be adapted so that the State Audit Office may not verify or express 

opinions regarding the HNB’s financial statements, since this may interfere with the work of HNB’s 

independent 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. 

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7  
8  
9  
10  
11  

See the ECB’s Convergence Report, June 2016, pp. 26-27 and Opinions CON/2011/9 and CON/2011/53. All ECB 
convergence reports are published on the ECB’s website at www.ecb.europa.eu . 
See the ECB’s Convergence Report, June 2016, pp. 26-27. 

See Article 61.a(3) of the draft law.  

See Article 61.a(2) of the draft law. 
See Article 61.a(2) fourth indent of the draft law. 

See Article 61 of the Law on HNB. 

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3.1.5  Third, in line with the principle of institutional independence, the draft law could usefully clarify the 

need to comply with the prohibition on giving instructions to HNB and its decision-making bodies. In 

particular,  the  provision  of  the  draft  law  that  requires  HNB  to  deliver  a  written  response  on  the 

measures taken pursuant to the findings of the audit should not amount to a requirement of HNB to 
receive instructions from the State Auditor12. 

3.1.6  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  3.1.3,  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 State Audit Office may be granted an insight into 

confidential data referred to in Article 37 of the Statute of the ESCB. 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  welcome  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. 

3.1.7  Regarding confidentiality requirements in particular, 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  means  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  or  similar  body  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 
subject13. 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 HNB’s decision-making bodies and staff are subject. In addition, 

the relevant provisions in the draft law should be amended to stipulate 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 HNB14. 

3.2   Croatian Parliament’s vote on HNB’s semi-annual information and annual report 

3.2.1  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 

12  
13  
14  

See for example paragraph 2.2 of Opinion CON/2016/24. 
See the ECB’s Convergence Report, June 2016, p. 27. 

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

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discussion on HNB’s annual report and other documents in the Croatian Parliament, and that the 

special status held by the 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, the ECB notes 

that these intentions are not reflected in the draft law. 

3.2.2  While  the draft law does not explicitly clarify  the precise  implications of the Croatian Parliament’s 

vote on HNB’s annual report and semi-annual information regarding HNB’s financial condition, the 

level of price stability achieved and monetary policy implementation, the reference in the draft law 

to  the  Croatian  Parliament  voting  for  or  against  the  adoption  of  them  seems  to  imply  that  the 

adoption  of  HNB’s  annual  report  and  semi-annual  information  on  HNB’s  financial  condition,  the 

level of price stability achieved and monetary policy implementation is contingent on a positive vote 

of the Croatian Parliament. 

3.2.3  As  the  ECB  stated  in  its  Opinion  CON/2016/33,  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  NCBs’  decision-making  bodies  whose  decisions  may  affect  the 

fulfilment of the NCBs’ ESCB-related tasks. If national legislation mirrors Article 130 of the Treaty 

and  Article  7  of  the  Statute,  it  should  reflect  both  prohibitions  and  not  narrow  the  scope  of  their 

application.   

3.2.4 Furthermore, the rights of third parties to approve, suspend, annul or defer an NCB’s decisions are 
incompatible  with  the  Treaty  and  the  Statute  as  far  as  ESCB-related  tasks  are  concerned15. 

Therefore, the Croatian Parliament’s competence to vote on and adopt 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 central bank 

towards a national Parliament. As regards the compatibility of a dialogue between NCBs and third 

parties  with  central  bank  independence,  the  ECB  refers  to  paragraph  2.2.3  of  Opinion 

CON/2016/33,  which  clarifies  that  such  a  dialogue  is  welcome  and  compatible  with  central  bank 

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

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

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

resulting  from  the  Statute  of  the  ESCB  are  observed.  A  decision  of  the  Croatian  Parliament 

whether to adopt the  abovementioned annual report and semi-annual information seems to imply 

that  the  Croatian  Parliament  could  give  direct  or  indirect  instructions  to  HNB  and  its  decision-

making  bodies  and  members,  for  example  as  regards  amending  HNB’s  annual  report  or 

15  

See the ECB’s Convergence Report, June 2014, p. 22. 

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challenging HNB’s assessment regarding price stability and the implementation of monetary policy. 

Any right of the 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 ESCB16.  

3.3   Reduction  of  the  number  of  terms  of  office  of  HNB’s  Governor  and  the  other  members  of  HNB’s 

Council 

3.3.1  The ECB welcomes the introduction of a provision in the draft law which explicitly guarantees that, 

notwithstanding  that  the  members  of  the  HNB’s  Council  may  henceforth  only  be  appointed  to  a 

maximum of two terms of office, the current members of HNB’s Council who have been appointed 

on  the  basis  of  the  existing  provisions  of  the  Law  on  HNB  will  continue  to  be  members  until  the 

expiry of their terms of office. 

3.3.2  The  ECB  notes  that  the  explanatory  memorandum  accompanying  the  draft  law  published  on  the 

web-pages  of  the  Croatian  Parliament  states  that  these  provisions  of  the  draft  law  will  not  be 

applied retroactively and that the current members of the Council of HNB, as well as the persons 
who were members previously,  will be  able to be members in the future17. As previously noted18, 

the  ECB  shares  this  understanding,  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  members  of  HNB  Council  may  be  appointed  for  a  maximum  of  two  terms  of  office  does  not 
apply in respect of terms which were served before the date the draft law comes into effect19. This 

implies  that  the current  and  past members  of  HNB Council  will 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.  For  the  sake  of  legal  certainty,  and  taking  account  that  the 

explanatory memorandum has no legal standing as a matter of Croatian law, an express provision 

could  be  usefully  added  to  the  text  of  the  draft  law,  so  that  the  members  of  the  Council  of  HNB 

have a clear understanding as to the maximum number of terms of office which they may serve. 

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

Done at Frankfurt am Main, 28 October 2016. 

[signed] 

The President of the ECB 

Mario DRAGHI 

16  
17  

18  
19  

See paragraphs 3.5, 3.6 and 3.7 of Opinion CON/2008/31. 
See  explanatory  memorandum  accompanying  the  draft  law  submitted  to  the  Croatian  Parliament  by  a  group  of 
Members of Parliament on 14 October 2016, published on web-pages of the Croatian Parliament; see www.sabor.hr 
See paragraph 2.3.2 of Opinion CON/2016/33. 

See the Decision of the Constitutional Court of the Republic of Croatia U-III-930/2015, 31 March 2015. 

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