Opinion of the European Central Bank of 28 November 2022 on amendments to the Law on the Magyar Nemzeti Bank (CON/2022/40)

OPINION OF THE EUROPEAN CENTRAL BANK of 28 November 2022 on amendments to the Law on the Magyar Nemzeti Bank (CON/2022/40) Introduction and legal basis

On 7 October 2022, the European Central Bank (ECB) received a request from the Hungarian Ministry of Finance for an opinion on a draft law amending the Law on the Magyar Nemzeti Bank . On 17 November 2022 the ECB received from the Ministry of Finance an updated version of the draft law (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 second, third, fourth, fifth and sixth indents of Article 2(1) of Council Decision 98/415/EC , as the draft law concerns means of payment, the Magyar Nemzeti Bank (MNB), the collection of statistics, payment and settlement systems, and rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. 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 main purpose of the draft law is to modify certain provisions of the Law on the MNB.

Cash infrastructure network

1.2. The draft law proposes to extend the regulatory and administrative responsibilities of the MNB to require it to rate the infrastructure network of credit institutions and post offices used to carry out cash transactions-flows in accordance with the regularity and criteria to be set out in a Decree of the MNB Governor governing the conditions for cash distribution. The MNB shall, on the basis of this rating, require credit institutions and post offices to establish an infrastructure network that meets the requirements assigned to the rating. 1.3. According to the detailed justification accompanying the draft law, these new powers are created for the MNB in order to the requirement that, in the development, maintenance and operation of the Hungarian cash infrastructure network, considerations of the security of supply and the optimisation of the network at

the level of society as a whole must be applied, in addition to the aspects of commercial policy of operators of the network.

Statistics

1.4. In accordance with the existing provisions of the Law on the MNB , the MNB operates a central bank information system in order to perform the MNB’s tasks, including the compilation of statistics. In this context the draft law provides that the MNB shall process in the central bank information system the personal data essential for the performance of the MNB’s monetary policy, payment and securities settlement system and supervisory tasks and that are necessary for the assessment of creditworthiness, the identification of credit risks, related to assets used as security and deposits held with a credit institution or the Treasury, and for the purpose of exercising ongoing supervision, with the proviso that the reporting of supervisory data may not relate to the natural identity data, special data, identification code or identification document of the person concerned. 1.5. In order to carry out its tasks to collect and publish statistical information in order to fulfil the MNB’s statistical reporting obligations towards the ECB under Article of the Statute of the European System of 6 7 Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’) , the draft law provides that the MNB shall operate a statistical system as part of the central bank information system, for which it may receive from a member of the Official Statistical Service, in a manner that is uniquely identified, personal data necessary for assessing creditworthiness, identifying credit risks, and related to assets used as security and deposits held with a credit institution or the Treasury, excluding the data subject’s natural identity data, special data, identification code or identification document. 1.6. The draft law provides that in the case of data provision and receipt of personal data, the MNB shall, by means of pseudonymisation, separate the data enabling the identification of the natural person concerned from other data relating to the data subject, and shall provide the data so separated with a technical identifier protected in accordance with specified security measures, without which the link between the data provided or received and the natural person concerned can no longer be restored, except by the MNB on a temporary basis for the purpose of achieving the MNB’s tasks as set out above and for the necessary period.

Macroprudential policy

1.7. Under the existing provisions of the Law on the MNB , the MNB Governor may issue a decree pursuant to a decision of the Hungarian Financial Stability Council specifying measures required to reduce the risk of excessive outflows of credit. In such decree the Governor shall establish rules that relate to, inter alia, contracts concluded with natural persons in Hungary in the course of credit and money lending activities and govern the maximum coverage ratio for real estate loans, vehicle financing loans and financial

leasing transactions, and the maximum debt-to-income ratio. 1.8. The draft law proposes to extend the MNB Governor’s regulatory power with regard to contracts concluded with natural persons in the framework of credit and money lending and financial leasing activities in Hungary to include the following macroprudential tools: (a) a maximum instalment amount in proportion to income; and (b) a maximum permitted loan or lease-related debt amount as a proportion of income. 1.9. As noted in the explanatory memorandum accompanying the draft law, it is appropriate to introduce debt-to-income limits also in line with the proposal for legal harmonisation and principles set out in the European Systemic Risk Board’s Recommendation on intermediate objectives and instruments of macroprudential policy .

Oversight and supervision of financial market infrastructures 1.10. Under the existing provisions of the Law on the MNB, the MNB shall oversee payment and securities settlement systems, including overseeing the operations of the system and of the organisation performing the activity of a central counterparty, in order to ensure the sound and efficient functioning of these systems and the smooth circulation of cash . Furthermore, under the Law on the MNB, the MNB shall supervise 13 14 the financial intermediary system . The Law on the MNB further specifies the MNB shall implement Regulation (EC) No 924/2009 of the European Parliament and of the Council (on cross-border payments in the Union) and Regulation (EU) No 260/2012 of the European Parliament and of the Council (on establishing technical and business requirements for credit transfers and direct debits in euro), and carry out the functions and, as the designated national competent authority, perform tasks relating to the implementation of Regulation (EU) No 648/2012 of the European Parliament and of the Council (on OTC derivatives, central counterparties and trade repositories) and Regulation (EU) No 909/2014 of the European Parliament and of the Council (on central securities depositories). 1.11. The draft law introduces a technical modification to these provisions whereby the specific duties and functions relating to the implementation of the aforementioned EU regulations are set out within the framework of the MNB’s supervisory duties only, and no longer within the additional framework of the MNB’s oversight duties.

Remuneration of the MNB Governor, Deputy Governor, members of the Monetary Council and members

of the Supervisory Board

1.12. Under the existing provisions of the Law on the MNB, the monthly remuneration of the MNB Governor is 5 million forints, and the remuneration or honorarium of the Deputy Governor, the Chairman of the Supervisory Board, and the members of the Monetary Council and the Supervisory Board is 90%, 70% and 20 21 60%, respectively, of the MNB Governor’s monthly remuneration . The draft law amends those existing provisions regarding the MNB Governor by providing that the MBN Governor’s monthly basic salary shall be equal to the monthly salary of the Chairman of the State Audit Office, resulting in a reference value that would be twelve times the national monthly average gross salary for the year preceding the given year, as officially published by the Central Statistical Office .

Miscellaneous provisions

1.13. The draft law contains miscellaneous provisions that include amendments concerning: (a) the administrative procedures of the MNB; (b) the performance of the MNB’s supervisory tasks; (c) the enforcement of fines and procedural costs; (d) the extension of the time limit (from 15 to 30 days) for opening market surveillance procedures related to the EU short-selling regulation; (e) changes to the deadline for, and the content of, the notification related to the opening of a market surveillance procedure; and (f) commemorative and collectors’ coins.

2. Remuneration of the MNB Governor, Deputy Governor, and members of the Monetary Council

2.1. The ECB would like to emphasise that, although Member States with a derogation – such as Hungary – do not yet participate in the third stage of economic and monetary union, they have a legal duty to adapt the statutes of their national central banks (NCBs) to ensure compatibility with the Treaty and the Statute of the ESCB. Any legislative reform in non-participating Member States should aim to gradually achieve consistency with Eurosystem standards . 2.2. Article 130 of the Treaty and Article 7 of the Statute of the ESCB expressly prohibit the ECB, the NCBs, and the members of their decision-making bodies from seeking or taking instructions from Union institutions, bodies, offices or agencies, from any government of a Member State or from any other body, on the one hand, and prohibits those Union institutions, bodies, offices or agencies and any government of a Member State from seeking to influence the members of the decision-making bodies of the ECB and the NCBs in the performance of their tasks, on the other. The intention of these provisions is to shield the European System of Central Banks (ESCB) from all political pressure in order to enable it effectively to

pursue the objectives ascribed to its tasks, through the independent exercise of the specific powers conferred on it for that purpose by primary law . National rules therefore cannot, without infringing Article 130 of the Treaty and Article 7 of the Statute of the ESCB, place the NCB concerned in a situation where it is potentially exposed to political pressure or which in any way undermines its ability to carry out independently a task falling within the scope of the ESCB . 2.3. With this in mind, the ECB observes that the Member States may not amend legislation affecting the remuneration of the members of the NCBs’ decision-making bodies with the purpose of seeking to influence them. The ECB understands that the impact of the draft law on the actual remuneration of the Governor, the Deputy Governor, and the members of the Monetary Council will be limited. Against this background, and as previously noted by the ECB to other Member States , the ECB invites the legislator to consider applying the new provisions on the determination of such renumeration only to Governors, Deputy Governors, and members of the Monetary Council who are appointed after the entry into force of the draft law.

3. Cash infrastructure network

3.1. The ECB understands that there is growing concern regarding access to cash in Hungary as cash in circulation continues to grow and cash demand remains robust while the credit institutions’ cash infrastructure has not been adapting to this evolution. Cash is a well-established means of payment providing for immediate settlement of debts and direct control over the payer’s spending. Furthermore, the ability to pay in cash remains particularly important for certain groups in society that, for various legitimate reasons, prefer to use cash rather than other means of payment, or who are unable to use digital technology. Additionally, cash payments facilitate the inclusion of the entire population in the economy by allowing it to settle any kind of financial transaction in this way. The ECB notes that cash could play an important role in the event of a contingency or crisis . 3.2. Notwithstanding that the ECB holds a positive view of further innovation and development in the field of electronic payment instruments , it also welcomes the core objectives of the draft law, namely to facilitate the continuity and security of cash supply and accessibility to Hungarian society by ensuring an adequate level of access to cash services throughout Hungary . The ECB also welcomes that the MNB will be empowered to assess and rate the adequacy of the cash infrastructure and to require credit institutions and postal offices to take measures in case of insufficient geographical coverage of cash services to the general public.

3.3. The ECB considers it important that all Member States, including non-euro area Member States, take appropriate measures to ensure that credit institutions and branches operating within their territories provide adequate access to cash services, in order to facilitate the continued use of cash . 3.4. Finally, the ECB would welcome a clarification regarding the possibilities for interventions and sanctions that the home supervisory authority would have if a branch of a foreign EEA credit institution were in breach of the draft law .

4. Statistics

4.1. Assisted by the NCBs, the ECB has the right to collect statistical information within the limits of the reference reporting population and of what is necessary to carry out the tasks of the ESCB. This reference reporting population may comprise natural persons as reporting agents, provided that the other relevant conditions which define the relevant reporting population are met. Thus, it is envisaged that the ECB and NCBs may in certain circumstances collect personal data directly from natural persons, based on the relevant provisions of Council Regulation (EC) No 2533/98 , which applies without prejudice to Regulation (EU) 2016/678 of the European Parliament and of the Council (hereinafter the ‘General Data 36. Protection Regulation’ or ‘GDPR’) and the equivalent legal act that applies to the EU institutions 4.2. Against this background, the draft law should not apply in a manner that is prejudicial to the GDPR. The question of whether the Law on the MNB is prejudicial to the GDPR falls within the jurisdiction of the relevant competent authorities. 4.3. The Law on the MNB must ensure that when these data fall under the scope of both statistical confidentiality and personal data protection rules, the authorised users of such data fulfil their respective obligations as recipients of personal data and as recipients of confidential statistical information in relation to the applicable security rules that are in place at national and/or Union level.

5. Macroprudential policy

5.1. As a national macroprudential authority, the MNB has conferred on it macroprudential tasks in order to maintain the stability of the banking system. The draft law does not confer new tasks on the MNB in this field, but rather specifies certain new macroprudential tools that the MNB may use when discharging its macroprudential responsibilities . 5.2. From a financial stability perspective, the ECB welcomes and supports the extension of the macroprudential toolkit of the MNB, as it is aimed at promoting responsible borrowing and lending, and increasing the transparency of credit institutions’ activities, thus safeguarding the stability of the financial system as a whole by strengthening its resilience and preventing and mitigating systemic risks.

5.3. The draft law establishes a legal basis for imposing maximum limits on the amount of loan or lease debt as a proportion of income. The introduction of borrower-based measures is in line with the principles set out in the European Systemic Risk Board’s Recommendation on intermediate objectives and instruments of macro-prudential policy – in particular with regard to the objectives of mitigating and preventing excessive credit growth and leverage – as it should contribute to strengthening credit institutions’ lending practices, whilst also ensuring consistency in assessment of borrowers’ creditworthiness. The ECB highlights the need for constant monitoring and updating of relevant limits, and recommends that they be subjected to a thorough assessment of their appropriateness, as well as to a regular review to take account of changes in macroeconomic and financial conditions.

6. Oversight and supervision of financial market infrastructures

The ECB welcomes the draft law’s technical clarification regarding the distinction between the oversight and supervision responsibilities of the MNB as regards Union legislation relating to credit and debit transfers in euro, central counterparties and central securities depositories.

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 28 November 2022.

[signed]

The President of the ECB

Christine LAGARDE