Opinion of the European Central Bank of 1 March 2022 on the establishment and operation of the central register of accounts (CON/2022/7)

OPINION OF THE EUROPEAN CENTRAL BANK of 1 March 2022 on the establishment and operation of the central register of accounts (CON/2022/7) Introduction and legal basis

On 3 January 2022 the European Central Bank (ECB) received a request from Minister for Interior of the Slovak Republic for an opinion on a draft law on the central register of accounts (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 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 establishing the central register of accounts (hereinafter the ‘register’), which will be operated and administered by the Ministry of Finance of the Slovak Republic (hereinafter the ‘Ministry of Finance’). 1.2 The register will contain the following information: the identification of the financial institution that maintains the account or leases out the safe-deposit box, the date on which the account was opened or on which the lease on the safe-deposit box began, the account number, the international bank account number (IBAN) (if assigned) or designation of the safe-deposit box, the identification details of the client, the identification details of the beneficial owner, details on the client’s authorisation to handle the funds in the account, the date of suspension of the account and the date of termination of the lease on the safe-deposit box (hereinafter collectively referred to as the ‘account information’).

1.3 The draft law requires financial institutions (i.e. banks and branches of foreign banks, payment institutions and branches of foreign payment institutions, electronic money institutions and branches of foreign electronic money institutions, securities dealers and branches of foreign securities dealers), central depositories and NBS (hereinafter collectively referred to as the ‘reporting entities’) to provide the account information. The account information must be provided to the register by the end of the day following that on which the creation, change or deletion of the relevant data in the account information takes place. 1.4 Under the draft law, NBS is not obliged to provide the account information in respect of accounts that NBS opens on the basis of specific regulations or a contractual relationship with international institutions. The draft law provides examples of such accounts in a footnote by referring to provisions regarding the accounts that NBS opens for the State Treasury (Štátna pokladnica) , the accounts in the payment systems operated by NBS , and the accounts that NBS opens in its capacity as a settlement agent . The explanatory memorandum accompanying the draft law clarifies that these exempted accounts are the ones that NBS opens in its capacity as a monetary authority or an operator of payment systems (e.g. the account maintained for the State Treasury, the Office of the Council for Budgetary Responsibility, the Investment Guarantee Fund and the Deposit Protection Fund), and the accounts maintained for other financial institutions (e.g. accounts maintained in connection with TARGET services that are Payments Module (PM) accounts maintained for the purpose of settling the payments of participants in TARGET2, TARGET2-Securities Dedicated Cash Accounts (T2S DCAs) for securities trading and TARGET Instant Payment Settlement Dedicated Cash Accounts (TIPS DCAs) for instant payments). 1.5 The reporting entities are responsible for the correctness and completeness of the account information reported to the register. The account information is considered to be correct and up-todate data when it is the same as the data that the reporting entities maintain in their information systems. The Ministry of Finance will not check or be responsible for the correctness and completeness of the account information reported to the register. 1.6 The account information in the register will be made available through a direct, continuous and remote access to the register by the following authorities: (i) a specific unit of the financial police service for the purpose of carrying out the tasks under the Law on protection against money laundering and terrorist financing ; (ii) a law enforcement agency or a court, for the purposes of a criminal procedure; (iii) the financial directorate, for the purposes of tax administration and criminal investigation; (iv) the customs and the tax authority, for tax administration and customs supervision purposes; (v) criminal police, financial police and police inspection services, for the purpose of exercising their criminal investigation powers; (vi) the financial police services for the purposes of tasks in the area of proving origin of assets; (vii) the National Security Authority (Národný

bezpečnostný úrad), Slovak Information Service (Slovenská informačná služba), Military Intelligence (Vojenské spravodajstvo) and the police force, for the purposes of security checks; (viii) the Slovak Information Service, for the purposes of the fight against organised crime and terrorism; (ix) the Military Intelligence, for the purpose of fulfilling of its statutory tasks; (x) the criminal office of financial administration, for the purposes of criminal investigations and the sharing of information with the European Anti-Fraud Office; and (xi) the Ministry of Finance, in connection with the application of international sanctions (hereinafter the ‘authorised authorities’). 1.7 Account information provided to or by the register will be regarded as banking secrets and protected data under a specific regulation . The Ministry of Finance will have to take appropriate organisational, personnel-related, control-related and technical measures to ensure adequate security of the data stored in the register, including protecting the data from unauthorised processing, misuse, loss, deletion and damage. The same is required from the authorities authorised to access the information as well as the reporting entities when they transmit data to the central register of accounts. The Ministry of Finance is authorised to request from the authorised authorities and reporting entities proof of compliance with these measures. 1.8 The draft law confers on NBS the task of supervising the compliance of financial institutions and any central securities depository (hereinafter collectively referred to as the ‘supervised entities’) with their obligations in the provision of account information to the register. NBS will have access to the account information stored in the register for the purpose of carrying out this supervision. Where a supervised entity provides to the register partial, incomplete or false account information, fails to provide to the register the account information using the prescribed method or within the prescribed time, or fails to provide historical account information, NBS will be able to impose fines of up to EUR 500 000 . Fines of between EUR 10 000 and EUR 1 000 000 will be imposed by NBS where repeated breaches occur within a two-year period.

2. Conferral of a new task on NBS

2.1 New task of NBS 2.1.1 The supervision of the compliance of supervised entities with their obligation to provide account information to the register does not appear to be merely auxiliary to NBS’s existing role as a competent authority designated under the AMLD4 to supervise the compliance by credit and financial institutions with anti-money laundering and counter-terrorist financing (AML/CFT) requirements . While Article 32a of the AMLD4 requires the information contained in the centralised database to be accessible to the competent authorities designated under the AMLD4, the register will also facilitate the performance of the investigative tasks of the law enforcement, security, military, tax and customs authorities in Slovakia.

2.1.2 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 laid down in Article 123(1) 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”. 2.1.3 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 . 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. 2.1.4 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 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 on 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 on 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. 2.1.5 Based on the criteria set out above, the following paragraphs assess whether NBS’s new task is in line with the prohibition of monetary financing. 2.2 Tasks related to the tasks conferred on the ECB and the NCBs by the Treaty and the Statute of the

ESCB

The task of supervising the compliance of supervised entities with their obligation to provide account information to the register for the purposes of the prevention, detection or investigation of possible money laundering or terrorist financing as well as for the facilitation of the performance of the investigative tasks of the law enforcement, security, military, tax and customs authorities in Slovakia is not related to the tasks conferred on 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 supervising the compliance of supervised entities with their obligation to provide account information to the register for the purposes of the prevention, detection or investigation of possible money laundering or terrorist financing as well as for the facilitation of the performance of the investigative tasks of the law enforcement, security, military, tax and customs authorities in Slovakia appears atypical of NCB tasks . 2.4 Tasks clearly discharged on behalf of and in the exclusive interest of the government Notwithstanding NBS’s existing role as a competent authority designated under the AMLD4, the new task under the draft law appears to be discharged on behalf of and in the interest of the Slovak government, as its purpose is to further the Slovak government’s interest in being able to access information efficiently for the prevention, detection or investigation of money laundering or terrorist

financing as well as for the facilitation of the performance of the investigative tasks of the law enforcement, security, military, tax and customs authorities in Slovakia. 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 supervising the compliance of supervised entities with their obligation to provide account information to the register is unlikely to give rise to any conflicts of interest in connection with NBS’s existing central bank tasks. 2.6 Extent to which performance of the new task is disproportionate to the financial or organisational

capacity of NBS

2.6.1 As previously noted by the ECB , 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 ESCB-related tasks. In order to ensure that NBS’s capacity to perform its ESCB-related tasks is not impaired, NBS must, therefore, be able to avail itself of the necessary resources to carry out its responsibilities under the draft law. 2.6.2 The draft law does not cover the funding of NBS’s new task. However, the explanatory memorandum accompanying the draft law expressly puts the new task in the context of NBS’s broader supervision tasks under the Law on the supervision of the financial market which requires NBS to supervise all entities in the financial market, ensuring compliance with the provisions of laws specifically applicable to the supervised entities or to their activities as well as with legally binding Union acts . In this regard, the ECB notes that ‘the entities to which an authorisation or other permit to operate in the financial market has been issued’ are required to pay annual contributions to NBS . Against this backdrop, the ECB invites the consulting authority to consider the impact of the draft law on NBS’s resources and to consider whether current financing arrangements, i.e. annual contributions to NBS, would sufficiently cover the costs associated with the new task under the draft law as well. 2.7 Extent to which performance of the new task fits into the institutional set-up of NBS, in the light of

central bank independence and accountability considerations

As noted above, the explanatory memorandum accompanying the draft law expressly puts the new task in the context of NBS’s broader supervision tasks under the Law on the supervision of the financial market. The explanatory memorandum accompanying the draft law also further expresses the expectation that supervision under the draft law will be performed as part of already established activities of NBS’s financial market supervision unit. Against this backdrop, the performance of the new supervision task does not appear to conflict with NBS’s institutional set-up.

2.8 Extent to which the performance of tasks harbours substantial financial risks The draft law does not address NBS’s potential liability in the event of legal action, application or other legal proceeding for damages in relation to the exercise of (or failure to exercise) its powers under the draft law. In the absence of any provision in the draft law excluding NBS’s liability when 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. However, such risks should not be considered substantial as they do not materially increase the financial risks of the supervisory tasks already assumed by NBS when performing supervision under the Law on the supervision of the financial market. 2.9 Extent to which the performance of the new task exposes members of the decision-making bodies of NBS to disproportionate political risks and impacts on their personal independence The performance of the new task conferred under the draft law does not appear to expose NBS’s decision-making bodies to any disproportionate political risk or have an impact on their personal independence. 2.10 Conclusions on monetary financing considerations Notwithstanding NBS’s existing role as a competent authority designated under the AMLD4, the new task under the draft law is essentially discharged on behalf of and in the interest of the Slovak government, as its purpose is to further the Slovak government’s interest in ensuring that relevant authorities are able to access information efficiently for the prevention, detection or investigation of money laundering or terrorist financing as well as for the facilitation of the performance of the investigative tasks of the law enforcement, security, military, tax and customs authorities in Slovakia. Consequently, in order to ensure compliance with the monetary financing prohibition, the NBS needs to be fully and adequately remunerated when carrying out its task in relation to the register under the draft law . The ECB therefore invites the consulting authority to consider the impact of the draft law on NBS’s resources and to ensure that the current financing framework, which entails financing through annual contributions to NBS as laid down in the Law on the supervision of the financial market, would sufficiently cover the costs associated with the new task under the draft law.

3. Obligations of NBS as a reporting entity

3.1 The ECB welcomes the exclusion of the accounts that NBS maintains for the State Treasury, the Office of the Council for Budgetary Responsibility, the Investment Guarantee Fund and the Deposit Protection Fund, and of the accounts that it maintains in connection with TARGET services (PM accounts, T2S DCAs for securities trading and TIPS DCAs for instant payments) from the scope of reporting to the register. To enhance the clarity of this exclusion, the ECB suggests to the consulting authority the inclusion in the text of the draft law of the examples mentioned in the explanatory memorandum.

3.2 The draft law requires NBS to provide the account information to the register by the end of the day following that on which the creation, change or deletion of the relevant data in the account information takes place. NBS is also required to take appropriate organisational, personnel-related, controlrelated and technical measures to ensure adequate security of the data transmitted to the register, including protecting the data from unauthorised processing, misuse, loss, deletion and damage. The ECB understands that the details of the transmission of the data to the register as well as of the measures to ensure adequate security of the data transmitted to the register will be specified by the Ministry of Finance. The ECB invites the Ministry of Finance to closely consult with NBS in advance of specifying of such details.

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 1 March 2022.

[signed]

The President of the ECB

Christine LAGARDE