Opinion of the European Central Bank of 27 October 2017 on the role of Národná banka Slovenska in supervising the education of financial intermediaries and financial agents (CON/2017/43)

OPINION OF THE EUROPEAN CENTRAL BANK of 27 October 2017 on the role of Národná banka Slovenska in supervising the education of financial intermediaries and financial agents (CON/2017/43) Introduction and legal basis

On 22 September 2017 the European Central Bank (ECB) received a request from the Ministry of Finance of the Slovak Republic for an opinion on a draft Law amending and supplementing Law No. 186/2009 on financial intermediation and financial consultancy and on the amendment and supplementation of certain laws (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third indent of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to Národná banka Slovenska (NBS). 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 primary aim of the draft law is to transpose Directive (EU) 2016/97 of the European Parliament and of the Council and to improve the transposition of the provisions of Directive 2014/17/EU of the European Parliament and of the Council , as regards the cross-border performance of financial intermediation or financial consultancy in the field of real-estate credit. 1.2 In addition to the transposition of Union directives, the draft law introduces stricter regulation of specialised financial education with respect to the requirements for professional competence of financial intermediaries and financial agents as well as stricter conditions to be fulfilled by legal entities providing specialised financial education. 1.3 As a part of the reform of financial education, the draft law introduces a new task for NBS in relation to the supervision of financial education .

1.3.1 More specifically, NBS will be obliged to maintain a register of specialised financial education providers. NBS will assess whether an applicant to be included on the list of specialised financial education providers has provided sufficient evidence that: (i) the applicant is authorised to perform educational activity; (ii) the applicant is of a good character (in the case of an individual) or each member of the statutory body or management body of the applicant responsible for providing specialised financial education is of a good character (in the case of a legal entity); and (iii) the applicant has the technical and organisational expertise for providing specialised financial education . 1.3.2 NBS is furthermore entrusted with the general task of supervising the implementation of financial education by specialised financial education providers as well as by financial institutions providing specialised financial education to employees, financial agents and financial consultants. This includes the power to impose specific sanctions on specialised financial education providers and on persons providing specialised financial education, which is not in line with Law No. 186/2009, as amended by the draft law, or who are not on NBS’s register.

2. General observations

2.1 This opinion does not consider whether the draft law effectively implements into national law Directive (EU) 2016/97 or certain provisions of Directive 2014/17/EU. The ECB only assesses the provisions of the draft law that impact on the tasks of NBS as a national central bank (NCB) and as a member of the Eurosystem and the European System of Central Banks (ESCB). 2.2 The draft law confers upon NBS the new task of supervising financial education and specialised financial education providers, as specified in paragraph 1.3. Where a new task is conferred on an NCB in the ESCB it must be assessed against the prohibition on monetary financing under Article 123 of the Treaty. For the purposes of that prohibition, Article 1(1)(b)(ii) of Council Regulation (EC) No 3603/93 defines ‘other type of credit facility’ as, inter alia, ‘any financing of the public sector’s obligations vis-à-vis third parties’. 2.3 Ensuring that Member States implement a sound budgetary policy is one of the key objectives of the monetary financing prohibition, which may not be circumvented . In view of this, the task of financing measures, which are normally the responsibility of the Member States and funded from their budgetary sources rather than by the NCBs, must not be entrusted to NCBs. To decide what constitutes financing of the public sector’s obligations vis-à-vis third parties, which can be translated as the provision of central bank financing outside the scope of central bank tasks, it is necessary to carry out on a case-by-case basis an assessment of whether the task to be undertaken by an NCB is a central bank task or a government task, i.e. a task within the responsibility of the Member States. In other words, adequate safeguards must be in place to

ensure that circumventions of the objective of the monetary financing prohibition of maintaining a sound budgetary policy of Member States do not take place. 2.4 As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and Article 35.6 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’), to ensure that NCBs honour the obligations laid down by the Treaty, the Governing Council has endorsed safeguards of that kind in the form of criteria for determining what may be seen as falling within the scope of a public sector’s obligation within the meaning of Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, what constitutes a government task as follows: First, central bank tasks are in particular those tasks that are related to the tasks that have been conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks are mainly defined in Article 127(2), (5) and (6) and Article 128(1) of the Treaty, as well as Article 22 and Article 25.1 of the Statute of the ESCB. Second, as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘other functions’, new tasks, i.e. tasks that are not related to tasks that have been conferred upon the ECB and the NCBs, are not precluded per se. However, new tasks that are undertaken by an NCB and which are atypical of NCB tasks or which are clearly dischargedon behalf of and in the exclusive interest of the government or of other public sector entities should be considered government tasks. Third, an important criterion for qualifying a new task as atypical of an NCB task or as being clearly on behalf of and in the exclusive interest of the government or other public sector entities is the impact of the task on the institutional, financial and personal independence of that NCB. In particular, the following aspects should be taken into account: (a) Whether the performance of the new task creates conflicts of interest with existing central bank tasks which are not adequately addressed and does not necessarily complement those existing central bank tasks. If a conflict of interest arises between existing and new tasks, sufficient safeguards to mitigate that conflict should be in place. The complementarity between a new task and the existing central bank tasks should not be interpreted broadly, so as to lead to the creation of an indefinite chain of ancillary tasks. Such complementarity should also be examined in relation to the financing of those tasks; (b) whether without new financial resources the performance of the new task is disproportionate to the NCB’s financial or organisational capacity and may have a negative impact on the capacity to perform properly the existing central bank tasks; (c) whether the performance of the new task fits into the institutional set-up of the NCB in the light of central bank independence and accountability considerations; (d) whether the performance of the new task harbours substantial financial risks; (e) whether the performance of the new task exposes the members of the NCB decision-making bodies to political risks which are disproportionate and may also have an impact on their personal independence and, in particular, on the guarantee of term of office set out in Article 14.2 of the Statute of the ESCB.

3. Specific observations

On the basis of the criteria set out above, the following paragraphs assess whether NBS’s new task is in line with the monetary financing prohibition. 3.1 New tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the

Statute of the ESCB

The supervision of financial education or specialised financial education providers is not among the central banking tasks listed in Article 127(2) or (5) of the Treaty or otherwise conferred upon the NCBs by the Statute of the ESCB. Although the new task conferred on NBS relates, inter alia, to the provision of financial education by financial institutions, it does not form part of NBS’s prudential supervisory tasks. According to the explanatory report accompanying the draft law, the objective of the new task is rather one of financial consumer protection . It follows that the new task conferred on NBS under the draft law is not directly related to the tasks conferred on the ECB and the NCBs by the Treaty and the Statute of the ESCB. Consequently, a careful assessment of the conferral of this task on NBS is required in order to determine whether it constitutes a government task and whether the related funding gives rise to monetary financing concerns.

3.2 Tasks which are atypical of NCB tasks

The new task relating to the supervision of financial education widens the scope of the current tasks carried out by NBS in relation to the supervision of financial intermediaries and financial advisors by extending NBS’s tasks to include the supervision of specialised financial education providers. Currently, the tasks carried out by NBS under Law No.186/2009 include supervision of financial intermediation by an independent financial agent and of the provision of financial advice by financial advisers. In line with its current remit, NBS already possesses the powers necessary to ensure that the professional qualifications of financial intermediaries and financial agents meet the required standards. In particular, NBS, or a person appointed by it, currently ensures the conduct of professional examinations for specific financial sectors and the levels of professional qualifications of certain persons active in the financial intermediation and financial advisory services . NBS is also responsible for nominating the (vice-) chairmen and other members of the examining board and for approving examination regulations . NBS also records information on the completion of specialised financial education and professional examinations in its register of financial agents and financial intermediaries . In contrast with the tasks currently performed by NBS under Law No.186/2009, the content and scope of specialised financial education, the manner in which it is provided and other relevant details are only determined by the Decree of the Ministry of Finance of the Slovak Republic No. 600/2009 (hereinafter the ‘decree’). According to the decree, specialised financial education is provided by financial institutions or educational facilities. In defining an educational facility, the decree refers to Law No. 131/2002 on universities and Law No. 245/2008 on training and education

(school law). Therefore, the adequate provision of specialised financial education falls within the

scope of government policies on education. It follows that even where the new task conferred on

NBS might be regarded as being complementary to a certain extent to the supervision currently

exercised by the NBS over entities providing financial services to consumers due to the fact that it

contributes to ensuring appropriate professional qualifications of financial intermediaries and

financial agents, this task would nonetheless be at least partially discharged on behalf of and in the

interest of the government.

It is, consequently, necessary to analyse whether the new task to be conferred on NBS relating to

the supervision of specialised financial education is a typical task that is also undertaken by other

NCBs of the European System of Central Banks (ESCB). While the majority of NCBs of the ESCB

do not appear to have been assigned specific tasks of this nature, the ECB has identified a number

of Member States, including Croatia , the Czech Republic , Greece , Hungary , Portugal and

Slovenia , where NCBs appear to perform tasks similar to that conferred on NBS by the draft law. The new task conferred on NBS regarding the supervision of specialised financial education does not, therefore, appear to be atypical for a national central bank of the ESCB.

3.3 Impact of the tasks on the independence of NBS

The impact of the new task on the institutional, financial and personal independence of NBS must also be taken into consideration. 3.3.1 Extent to which the performance of the new task creates conflicts of interest with existing central

bank tasks

No apparent conflicts of interest with other existing central bank tasks arise from the NBS’s new task of supervising specialised financial education providers. 3.3.2 Extent to which the performance of the new task places a disproportionate burden on NBS’s

financial or organisational capacity

The principle of financial independence requires that Member States may not put their NCBs in a position where they have insufficient financial resources to carry out both their ESCB-related tasks and their national tasks, from an operational and financial perspective. Furthermore, when allocating specific new tasks to NCBs, each NCB concerned should have additional financial and human resources at its disposal to ensure that the tasks can be carried out without impacting on the NCB’s operational or financial capacity (including sufficient human resources) to perform its ESCB tasks. In order to ensure that NBS’s capacity to perform its ESCB-related tasks is not impacted, NBS must, therefore, be in a position to avail itself of the necessary resources, including personnel, for performing assessments and registrations and issuing directions under the draft law. In this regard, it is noted that the draft law requires applicants to pay a fee for entry in the register of specialised financial education providers. The application fee represents income for NBS . However, given that NBS’s new task would extend beyond the maintenance of the register of specialised financial education providers, to also include assessing whether the conditions of the draft law are met, it is difficult at this stage to predict the resources that would be required to ensure the sound supervision of specialised financial education. Therefore, it is not clear whether the

application fees would cover all the costs related to performing the new task, or whether additional resources would be required, which could impact NBS’s regular budget. 3.3.3 Extent to which performance of the new task fits into NBS’s institutional set-up, in the light of the

principles of central bank independence and accountability

Given that the objective underpinning the new task conferred on NBS by the draft law is similar to the objective of ensuring adequate professional qualifications of financial intermediaries and financial agents, which underlies NBS’s existing supervisory tasks as mentioned in paragraph 3.2, the performance of the new task does not appear to conflict with NBS’s institutional set-up. 3.3.4 Extent to which the performance of tasks harbours substantial financial risks The draft law does not directly address NBS’s potential liability in the event of any legal action, application or other legal proceeding for damages in relation to the exercise (or failure to exercise) of its powers under the draft law. In the absence of any provision in the draft law excluding NBS’s liability in performing the tasks under the draft law, NBS would ultimately be liable for damages in accordance with Slovak state liability rules. Therefore, the new task conferred on NBS under the draft law would entail additional financial risks. 3.3.5 Extent to which the performance of the new task exposes members of NBS’s decision-making bodies to disproportionate political risks and has an impact on their personal independence The performance of the new task does not appear to expose NBS’s decision-making bodies to any disproportionate political risk or to have an impact on their personal independence. As mentioned in paragraph 3.3.3, the new task shares a common objective with existing supervisory tasks of NBS to ensure appropriate professional qualifications of financial intermediaries and financial agents. 3.4 Conclusion regarding the compatibility of the draft law with the prohibition on monetary financing The supervision of financial education or specialised financial education providers is not among the central banking tasks listed in the Treaty. The new task conferred on NBS could be regarded as complementing the supervisory tasks currently performed by NBS, in the light of its contribution to the objective of ensuring adequate professional qualifications of financial intermediaries and financial agents. Furthermore, this task might be seen as a legitimate task to be conferred on the NBS given that this task does not appear to be atypical for NCBs in the ESCB. However, ensuring the sound provision of specialised financial education forms part of the educational policies of the State. In this respect, the new task would be administered at least in part on behalf of and in the interest of the government. Additionally, there is uncertainty as regards the additional financial burden imposed on NBS in undertaking this task. The ECB therefore recommends that the consulting authority take these concerns into account in its decision on whether to confer the new

task of supervising specialised financial education on NBS. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 27 October 2017. [signed]

The President of the ECB

Mario DRAGHI