Opinion of the European Central Bank of 26 November 2024 on the establishment of the remuneration of the Governor and Deputy Governor of the Central Bank of Malta (CON/2024/38)

OPINION OF THE EUROPEAN CENTRAL BANK of 26 November 2024 on the establishment of the remuneration of the Governor and Deputy Governor of the Central Bank of Malta (CON/2024/38) Introduction and legal basis

On 2 April 2024 the Parliament of Malta adopted an amendment to Article 8(1) of the Central Bank of Malta Act (hereinafter the ‘amendment to the CBM Act’) concerning the remuneration of the Governor and Deputy Governors of the Central Bank of Malta (CBM). On 19 July 2024 the European Central Bank (ECB) received a request from the CBM for an opinion on draft amendments to the Central Bank of Malta Bye-Laws, 1968 (hereinafter the ‘draft bye-laws’) concerning the remuneration of the Governor and Deputy Governors of the CBM. 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 Article 2(1), third indent, of Council Decision 98/415/EC , as the amendment to the CBM Act and the draft bye-laws relate to the CBM. In accordance with Article 17.5, first sentence, of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the amendment to the CBM Act

1.1 The amendment to the CBM Act relates to the establishment of the remuneration of the Governor and Deputy Governors of the CBM. Prior to the amendment to the CBM Act, Article 8(1) of the CBM Act provided that the remuneration of the Governor and Deputy Governors was set out in their respective letters of appointment. In practice, this meant that it was previously the Government’s responsibility to set the remuneration of the Governor and Deputy Governors. 1.2 Following the adoption of the amendment to the CBM Act, this responsibility has been transferred to the Board of Directors of the CBM (hereinafter the ‘Board’). Article 8(1) of the CBM Act now provides

that the Governor and Deputy Governors are to receive such remuneration as approved by the Board .

2. Purpose of the draft bye-laws

2.1 The draft bye-laws provide for the setting-up of a Remuneration Committee entrusted with advising the Board on its new responsibility of establishing the remuneration of the Governor and Deputy Governors under Article 8(1) of the CBM Act. 2.2 The draft bye-laws provide for the Remuneration Committee to be composed of three members: (1) a retired judge or an advocate, preferably with experience in commercial matters; (2) a professional with extensive experience in human resources matters; and (3) a retired central banker preferably from a Eurosystem Member State. The members of the Remuneration Committee are to receive the remuneration determined by the Board and hold office for a period of 3 years, with eligibility for reappointment. They are to be independent from the CBM and cannot be removed during their term of office except on grounds of proven inability to perform the functions of their office or any other cause, or proven misbehaviour. The Remuneration Committee is to meet when necessary, however not less than once per year. The presence of all the members of the Remuneration Committee will be necessary for a quorum. 2.3 The draft bye-Laws provide that when the Board makes a decision related to the recommendations of the Remuneration Committee, any Governor or Deputy Governor whose remuneration is the subject of the decision will be excused from the Board meeting and will not participate in any discussions or vote.

3. Observations

3.1 As the amendment to the CBM Act and the draft bye-laws affect the remuneration of the Governor and Deputy Governors of the CBM, they should be examined from the perspective of the requirements of central bank independence. 3.2 Financial independence 3.2.1 Member States may not put their national central banks (NCBs) in a position where they have insufficient financial resources and inadequate net equity to carry out their European System of Central Banks or Eurosystem-related tasks, as applicable . This financial independence also entails that any amendment to the legislative provisions on the remuneration for members of an NCB’s decision-making bodies should be decided in close and effective cooperation with the NCB, taking

due account of its views, to ensure the ongoing ability of the NCB to independently carry out its tasks . 3.2.2 Against this background, the ECB welcomes the transfer of responsibility for setting the remuneration of the CBM Governor and Deputy Governors from the Government to the Board pursuant to the amendment to the CBM Act and the draft bye-laws as this will strengthen the CBM’s autonomy with regard to the setting of the remuneration of the Governor and Deputy Governors. 3.3 Personal independence 3.3.1 Article 130 of the Treaty prohibits national governments and any other bodies from influencing the members of NCBs’ decision-making bodies in the performance of the tasks and duties conferred upon them by the Treaties and the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’). In this context, the protection of the remuneration of the members of the decision-making bodies of NCBs is necessary to safeguard their personal independence. In particular, Member States may not seek to influence the members of a NCB’s decision-making bodies by amending national legislation affecting their remuneration, which, as a matter of principle, should apply only for future appointments . 3.3.2 The ECB understands that the Governor of the CBM has the sole responsibility for the performance of the functions imposed, and the exercise of powers conferred, on the CBM by or under the Treaties and the Statute of the ESCB . However, the two Deputy Governors of the CBM can also be considered to be members of the decision-making bodies of the CBM, in so far as they could perform the duties of the Governor in certain cases . 3.3.3 As the amendment to the CBM Act has transferred the responsibility of approving the remuneration of the CBM Governor and Deputy Governors from the Government to the Board (see paragraphs 1.1 and 1.2), the Government would not be able to change the remuneration of the CBM Governor and Deputy Governors during their term of office. Accordingly, the independence requirements laid down in Article 130 of the Treaty would not be breached by such changes in the remuneration of the CBM Governor and Deputy Governors, particularly if they are based on objective criteria, for example, by

benchmarking their salaries with designated positions within the CBM, with the aim of ensuring proportionality between the different hierarchical positions at the CBM. This opinion will be published on EUR-Lex. Done at Frankfurt am Main, 26 November 2024. [signed]

The President of the ECB

Christine LAGARDE