Opinion of the European Central Bank of 7 January 2022 on the establishment by the Central Bank of Ireland of a database on safe-deposit boxes and bank and payment accounts (CON/2022/2)

OPINION OF THE EUROPEAN CENTRAL BANK of 7 January 2022 on the establishment by the Central Bank of Ireland of a database on safe-deposit boxes and bank and payment accounts (CON/2022/2) Introduction and legal basis

On 16 December 2021 the European Central Bank (ECB) received a request from the Irish Minister for Finance for an opinion on the European Union (Anti-Money Laundering: Central Mechanism for Information on Safe-Deposit Boxes and Bank and Payment Accounts) Regulations 2021 (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 the Central Bank of Ireland (CBI). 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 seeks to implement the requirement under Article 32a of Directive 2015/849/EU of the European Parliament and of the Council (hereinafter the ‘AMLD4’) as introduced by an amendment in 2018 by designating the CBI as responsible for the establishment and maintenance of a database containing information on natural or legal persons holding bank and payment accounts identified by an IBAN in Ireland, and natural or legal persons controlling safe-deposit boxes held by a credit institution in Ireland (hereinafter the ‘Central Mechanism’) . 1.2 The Central Mechanism must contain payment and bank account numbers, the names of the

account holders, the names of the persons authorised to manage these accounts and the names of persons with lease contracts for safe-deposit boxes with credit institutions. Consequently, the Central Mechanism is to contain personal data as understood by Regulation (EU) 2016/679 of the European Parliament and of the Council (General Data Protection Regulation) with the CBI acting as data controller of this information. 1.3 Under the draft law credit institutions will be required to provide the CBI with certain information through the Central Mechanism on their customers, beneficial owners of their customers, information on bank and payment accounts, and on safe-deposit boxes held at the credit institution. 1.4 The draft law allows members of FIU Ireland (a division of the Irish police service) to search for and retrieve information contained in the Central Mechanism via a ‘Central Database’ which is also to be established and maintained by the CBI under the draft law. 1.5 As noted in the consultation request accompanying the draft law, the Minister has committed that the Central Mechanism will be funded through a cost recovery mechanism, using State Exchequer funding. The Minister has directed that no funding for this mechanism will ultimately come from the CBI’s own provisions. Therefore, the policy decision is that the CBI will have no role in funding the responsibility that it is being assigned. However, the draft law does not contain any provision specifying that the mechanism will be funded from State Exchequer funding. This is due to the need for primary legislation for such provisions, whereas the CBI is being designated as responsible for the management of the Central Mechanism through secondary legislation. Primary legislation to provide for State Exchequer funding will be developed and once approved it will be progressed through the Irish legislative process. However, in the meantime the Minister has committed to recoup any costs incurred by the CBI.

2. Conferral of a new task on the Central Bank of Ireland

2.1 New task of the Central Bank of Ireland 2.1.1 The establishment and maintenance by the CBI of the Central Mechanism is separate and distinct from the CBI’s existing role as an NCA designated under the AMLD4 and as the supervisor of compliance by credit and financial institutions with anti-money laundering and counter-terrorist financing (AML/CFT) requirements. While Article 32a of the AMLD4 requires that the information contained in the centralised database be accessible to NCAs designated under the AMLD4, the establishment and maintenance of the Central Mechanism will primarily facilitate the investigative role of the law enforcement authorities in Ireland. 2.1.2 Furthermore, the obligations to be placed on the CBI in the draft law are separate and additional to the current responsibilities of the CBI with regard to Ireland’s implementation of Article 30 of the AMLD4 and the CBI’s establishment and maintenance of a central register of the beneficial owners of certain financial entities regulated by it .

2.1.3 The ECB underlines that a proposed conferral of new tasks on a national central bank (NCB) in the European System of Central Banks (ESCB) 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’, inter alia, as ‘any financing of the public sector’s obligations vis-à-vis third parties’. 2.1.4 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 . Therefore, the task of financing measures, which are normally the responsibility of the Member States, and which are financed 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 responsibilities of the Member States. 2.1.5 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 criteria for determining what may be seen as falling within the scope of a public sector 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 discharged on behalf of, and in the exclusive interest of the government or of other public sector entities should be considered government tasks. Third, an important criterion for qualifying a new task as atypical of an NCB task or as being clearly discharged 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 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 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 properly perform 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 that 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. 2.1.6 Based on the criteria set out above, the following paragraphs assess whether the CBI’s new task is in line with the prohibition of monetary financing. 2.2 Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of

the ESCB

The task of establishing and maintaining the Central Database and the Central Mechanism for the purposes of the prevention, detection or investigation of possible money laundering or terrorist financing is not in any respect related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. 2.3 Tasks which are atypical of central bank tasks The task of establishing and maintaining the Central Database and the Central Mechanism is an atypical task for an NCB. The ECB has previously opined that tasks entrusted to an NCB relating to the establishment of a central register of bank accounts are not central bank tasks nor do they facilitate the enforcement of such tasks . 2.4 Tasks clearly discharged on behalf of and in the exclusive interest of the government Notwithstanding the CBI’s existing role as an NCA designated under the AMLD4, the ECB considers the new task in the draft law to be exclusively discharged on behalf of and in the interest of the Irish government, as its purpose is to discharge the latter’s obligations under Article 32a of the AMLD4, and to further the Irish government’s interest in being able to efficiently access information for the prevention, detection or investigation of money laundering or terrorist financing. 2.5 Extent to which performance of the new task creates conflicts of interest with existing central bank

tasks

The performance of the task of establishing and maintaining the Central Database and the Central Mechanism is unlikely to give rise to any conflicts of interest arising with the CBI’s existing central

bank tasks. 2.6 Extent to which performance of the new task is disproportionate to the financial or organisational

capacity of the CBI

2.6.1 As previously noted by the ECB , the principle of financial independence requires that Member States must not put their NCBs in a position where they have insufficient resources to carry out both their ESCB-related tasks and their national tasks, from an operational and financial perspective. Furthermore, when allocating specific new tasks to NCBs, each NCB concerned should have sufficient financial and human resources at its disposal to ensure that the tasks can be carried out without impacting on the NCB’s financial or operational capacity to perform its ESCBrelated tasks. In order to ensure that the CBI’s capacity to perform its ESCB-related tasks is not impaired, the CBI must, therefore, be able to avail itself of the necessary resources to carry out its responsibilities under the draft law. 2.6.2 The ECB understands that the cost of establishing and maintaining the Central Database and the Central Mechanism has not yet been clarified in law. The draft law does not provide for the funding of the CBI’s task from government funds. However, this is to be provided for in separate primary legislation that has yet to be enacted; in the interim the Minister for Finance has committed to recoup any costs incurred by the CBI. The ECB invites the consulting authority to consider the impact of the draft law on the resources of the CBI and provide legal clarity on the reimbursement mechanism in order to avoid any potential breach of Article 123 of the Treaty. 2.7 Extent to which performance of the new task fits into the institutional set-up of the CBI, in the light of central bank independence and accountability considerations As noted previously, the draft law places separate and additional obligations on the CBI to those of maintaining a central register of the beneficial owners. The ECB understands that the operation of the Central Database and the Central Mechanism will be functionally separated from the AML/CFT and prudential supervisory roles of the CBI. It does not therefore appear that the new task would complement the CBI’s existing central bank tasks. 2.8 Extent to which the performance of tasks harbours substantial financial risks The performance of the new tasks does not harbour substantial financial risks for the CBI. The ECB understands that the tasks conferred on the CBI under the draft law would fall within the meaning of its functions or powers, such that the CBI will not be liable for damages for anything done or omitted in the performance or purported performance or exercise of any of its functions or powers, unless it is proved that the act or omission was in bad faith . 2.9 Extent to which the performance of the new task exposes members of the decision-making bodies of the CBI to disproportionate political risks and impacts on their personal independence The performance of the new functions conferred under the draft law does not appear to expose the CBI’s decision-making bodies to any disproportionate political risk or have an impact on their personal independence. However, the possibility cannot be entirely excluded that the CBI would be

exposed to reputational risks should the information in the databases be accessed by nonauthorised persons. 2.10 Conclusions The new tasks conferred on the CBI are essentially government tasks as their purpose is to further the State’s interest in being able to efficiently access information for the prevention, detection or investigation of money laundering or terrorist financing. These new tasks are therefore discharged exclusively in the interest of the Irish government, and cannot be regarded as central bank tasks . Consequently, in order to ensure compliance with the monetary financing prohibition, the CBI needs to be fully and adequately remunerated when carrying out its tasks in relation to the establishment and maintenance of the Central Database and the Central Mechanism and any other tasks necessary for carrying out its responsibilities under the draft law . In particular the CBI needs to be reimbursed in respect of all costs arising under the draft law, and such reimbursement should be made on the basis of ‘at arm’s length’ commercial terms, either in advance of costs being incurred or on a regular and prompt basis as the costs arise . In order to ensure compliance with the monetary financing prohibition, the consulting authority is therefore invited to clarify through appropriate provisions of law that any anticipated or actual shortfall of funds to defray the CBI’s expenses will be granted by the Minister for Finance on a regular and prompt basis as the costs arise in order to ensure that the CBI does not have to fund the cost of its tasks under the draft law from its own funds under any circumstances. Finally, it should be clarified that the CBI’s expenses incurred in discharging all of its responsibilities with respect to draft law will be defrayed.

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 7 January 2022.

[signed]

The President of the ECB

Christine LAGARDE