Appendix I International Documents
Appendix I 1 Third Amendment of the Articles of Agreement of the International Monetary Fund
Entered into force November 11, 1992
The Governments on whose behalf the present Agreement is signed agree as follows:
1. The text of Article XXVI, Section 2 shall be amended to read as follows:
“(a) If a member fails to fulfill any of its obligations under this Agreement, the Fund may declare the member ineligible to use the general resources of the Fund. Nothing in this Section shall be deemed to limit the provisions of Article V, Section 5 or Article VI, Section 1.
(b) If, after the expiration of a reasonable period following a declaration of ineligibility under (a) above, the member persists in its failure to fulfill any of its obligations under this Agreement, the Fund may, by a seventy percent majority of the total voting power, suspend the voting rights of the member. During the period of the suspension, the provisions of Schedule L shall apply. The Fund may, by a seventy percent majority of the total voting power, terminate the suspension at any time.
(c) If, after the expiration of a reasonable period following a decision of suspension under (b) above, the member persists in its failure to fulfill any of its obligations under this Agreement, that member may be required to withdraw from membership in the Fund by a decision of the Board of Governors carried by a majority of the Governors having eighty-five percent of the total voting power.
(d) Regulations shall be adopted to ensure that before action is taken against any member under (a), (b), or (c) above, the member shall be informed in reasonable time of the complaint against it and given an adequate opportunity for stating its case, both orally and in writing.”
2. A new Schedule L shall be added to the Articles, to read as follows:
“Schedule L Suspension of Voting Rights
In the case of a suspension of voting rights of a member under Article XXVI, Section 2(b), the following provisions shall apply:
1. The member shall not:
(a) participate in the adoption of a proposed amendment of this Agreement, or be counted in the total number of members for that purpose, except in the case of an amendment requiring acceptance by all members under Article XXVIII(b) or pertaining exclusively to the Special Drawing Rights Department;
(b) appoint a Governor or Alternate Governor, appoint or participate in the appointment of a Councillor or Alternate Councillor, or appoint, elect, or participate in the election of an Executive Director.
2. The number of votes allotted to the member shall not be cast in any organ of the Fund. They shall not be included in the calculation of the total voting power, except for purposes of the acceptance of a proposed amendment pertaining exclusively to the Special Drawing Rights Department.
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3. (a) The Governor and Alternate Governor appointed by the member shall cease to hold office.
(b) The Councillor and Alternate Councillor appointed by the member, or in whose appointment the member has participated, shall cease to hold office, provided that, if such Councillor was entitled to cast the number of votes allotted to other members whose voting rights have not been suspended, another Councillor and Alternate Councillor shall be appointed by such other members under Schedule D, and, pending such appointment, the Councillor and Alternate Councillor shall continue to hold office, but for a maximum of thirty days from the date of the suspension.
(c) The Executive Director appointed or elected by the member, or in whose election the member has participated, shall cease to hold office, unless such Executive Director was entitled to cast the number of votes allotted to other members whose voting rights have not been suspended. In the latter case:
(i) if more than ninety days remain before the next regular election of Executive Directors, another Executive Director shall be elected for the remainder of the term by such other members by a majority of the votes cast; pending such election, the Executive Director shall continue to hold office, but for a maximum of thirty days from the date of suspension;
(ii) if not more than ninety days remain before the next regular election of Executive Directors, the Executive Director shall continue to hold office for the remainder of the term.
4. The member shall be entitled to send a representative to attend any meeting of the Board of Governors, the Council, or the Executive Board, but not any meeting of their committees, when a request made by, or a matter particularly affecting, the member is under consideration.”
3. The following shall be added to Article XII, Section 3(i): “(v) When the suspension of the voting rights of a member is terminated under Article XXVI, Section 2(b), and the member is not entitled to appoint an Executive Director, the member may agree with all the members that have elected an Executive Director that the number of votes allotted to that member shall be cast by such Executive Director, provided that, if no regular election of Executive Directors has been conducted during the period of the suspension, the Executive Director in whose election the member had participated prior to the suspension, or his successor elected in accordance with paragraph 3(c)(i) of Schedule L or with (f) above, shall be entitled to cast the number of votes allotted to the member. The member shall be deemed to have participated in the election of the Executive Director entitled to cast the number of votes allotted to the member.”
4. The following shall be added to paragraph 5 of Schedule D: “(f) When an Executive Director is entitled to cast the number of votes allotted to a member pursuant to Article XII, Section 3(i)(v), the Councillor appointed by the group whose members elected such Executive Director shall be entitled to vote and cast the number of votes allotted to such member. The member shall be deemed to have participated in the appointment of the Councillor entitled to vote and cast the number of votes allotted to the member.”
Appendix I 2 Basle Committee Amendment of the 1988 Capital Accord
Monitoring the Capital Accord1
1. Amendment of the 1988 Capital Accord
In concluding the 1988 agreement to establish a common measurement system and a minimum standard for capital adequacy of international banks, the Basle Committee experienced difficulty in defining those general provisions or general loan-loss reserves which could qualify for inclusion in capital and agreed to work towards further clarity in this respect. The basic principle was that where provisions have been created against identified losses or in respect of demonstrable deterioration in the value of particular assets, they should not be included in the capital base which should all be available to absorb unidentified losses.
Following discussion in the Committee and public consultation, the capital agreement was revised in November 1991 to ensure greater consistency. The amendment is intended to be fully effective by the end of 1993 at the latest. In the agreement as amended, provisions are divided into three categories. First, provisions made with respect to identified deterioration in the value of particular assets should not be part of capital. Second, other provisions made with respect to credit risk which do not reflect any identified deterioration in the value of particular assets may be included in capital, but only in supplementary capital. Third, certain general funds originating from retained earnings may be included in core capital on condition that they meet the following criteria:
allocations to such funds must be made out of post-tax retained earnings or out of pre-tax earnings adjusted for all potential tax liabilities;
the funds and movements into or out of them must be disclosed separately in the bank’s published accounts;
the funds must be available to a bank to meet losses for unrestricted and immediate use as soon as they occur; and
losses cannot be charged directly to the funds but must be taken through the profit and loss account.
The full text of the amendment follows at the end of this chapter.
2. Implementation of the Capital Agreement
(i) In Member Countries
The capital agreement has now been fully incorporated within the supervisory framework of all member countries. There are, however, a few differences in the way in which the capital agreement has been implemented. Banks in some countries are required to adhere to standards beyond those called for in the agreement and, in certain instances, the treatment of supplementary capital elements and the transitional arrangements differ. Some variation also reflects differing legal and accounting practices in member countries. So by the end of 1992, when the transition arrangements expire, further convergence is expected.
Since the capital requirements were introduced, banks in all countries have been keen to improve their capital strength, in many cases beyond the minimum ratios, and markets themselves have put more focus on capital adequacy in their assessment of banks’ safety and soundness. Based on figures for major banks collected from member countries, the capital ratios of large international banks have increased considerably and exceeded the prospective minimum standard of 8% with few exceptions at end-1991. This improvement in capital adequacy was partly due to the decreasing rate of growth of risk assets, but mainly to increases in capital, both core and supplementary capital, reflecting both new issues and retained profits.
Another feature is the improvement in the quality of capital in that provisions earmarked against country risk have now been excluded from supplementary capital in more countries in advance of the deadline of end-1993 specified in the 1991 amendment, while banks’ provisioning levels are now more clearly adequate.
(ii) In Non-Member Countries
Virtually all countries outside the membership of the Basle Committee with international banks of significant size have introduced, or are in the process of introducing, arrangements based on the capital agreement. For example, all EC countries have been required to implement the EC Directives on Solvency Ratio and Own Funds, which are closely based on the capital agreement, by the beginning of 1993 at the latest. Also, many other countries have implemented or have already committed themselves to implement the capital agreement. In some cases adjustments have been made for local circumstances with respect to the risk weighting of assets, but these have been of minor significance. Furthermore, a number of countries have applied the capital standard not only to international banks but also to banks operating domestically and in some cases with higher minimum ratios than required in the capital agreement.
3. Interpretation of the Capital Agreement
Since the Committee published the capital agreement, it has dealt with a number of technical issues concerning the interpretation of certain of its provisions. Although in many cases interpretation can be left to national supervisors, in some cases an agreed interpretation was felt preferable to avoid competitive inequalities. At the sixth ICBS in Frankfurt, a text describing a number of such interpretations was made available to participants. Since then, the Committee agreed as a transitional arrangement that, in certain narrowly-defined cases, preferred stock issued by overseas subsidiaries of banks unable to issue such capital themselves could be counted as core capital until such time as the legal impediments were removed or, at the latest, until the end of June 1995.
4. Text of the Amendment of the Basle Capital Accord in Respect of the Inclusion of General Provisions/General Loan-Loss Reserves in Capital
1. Banking supervisors in the Group of Ten countries, with the approval of their central-bank Governors, have agreed to implement the attached changes to the Basle capital accord of July 1988. The changes affect paragraphs 18–21 of the accord and two sections of Annex 1, paragraph D.
2. The amended text is virtually the same as that contained in the proposals issued on 21st February 1991. The only change made has been to replace the word “future” with other wording in two parts of the text which referred to the fact that general provisions are created against the possibility of future losses. This is because the accounting profession has noted that law and accounting practice in a number of countries prohibits the setting-up of provisions for unidentified losses that relate to unknown conditions which could arise in the future, requiring this to be done by transfer to a separate reserve.
3. It is intended that these amendments be fully implemented by member countries as soon as possible, and at the latest by the end of 1993. Until that date the existing arrangements will apply, that is to say the limits in paragraph 21 of the 1988 paper will apply in the period between the end of 1990 and the end of 1993.
4. In order to ensure that the proposals are having the desired effect of achieving further convergence and improving the quality of capital, the Committee will keep these arrangements under periodic review. Such a review would include, inter alia, an assessment of the following aspects:
(i) that disclosed reserves and equivalent general funds (such as the EC’s Fund for general banking risks) are being or are likely to be used in the way anticipated;
(ii) that the level of the limit on general provisions/general loan-loss reserves in tier 2 capital is appropriate;
(iii) that differing tax arrangements are adequately catered for.
Amendments to the Basle Capital Accord
A. Replacement for Paragraphs 18–21
(iii) General provisions/general loan-loss reserves
18. General provisions or general loan-loss reserves are created against the possibility of losses not yet identified. Where they do not reflect a known deterioration in the valuation of particular assets, these reserves qualify for inclusion in tier 2 capital. Where, however, provisions or reserves have been created against identified losses or in respect of an identified deterioration in the value of any asset or group or subsets of assets, they are not freely available to meet unidentified losses which may subsequently arise elsewhere in the portfolio and do not possess an essential characteristic of capital. Such provisions or reserves should therefore not be included in the capital base.
19. The supervisory authorities represented on the Committee undertake to ensure that the supervisory process takes due account of any identified deterioration in value. They will also ensure that general provisions or general loan-loss reserves will only be included in capital if they are not intended to deal with the deterioration of particular assets, whether individual or grouped.
20. This would mean that all elements in general provisions or general loan loss reserves designed to protect a bank from identified deterioration in the quality of specific assets (whether foreign or domestic) should be ineligible for inclusion in capital. In particular, elements that reflect identified deterioration in assets subject to country risk, in real estate lending and in other problem sectors would be excluded from capital.
21. General provisions/general loan-loss reserves that qualify for inclusion in tier 2 under the terms described above do so subject to a limit of 1.25 percentage points of weighted risk assets.
B. Amendments to Paragraph D of Annex 1
Indent (i) (first sentence)
Tier 1: includes only permanent shareholders’ equity (issued and fully paid ordinary shares/common stock and perpetual non-cumulative preference shares) and disclosed reserves (created or increased by appropriations of retained earnings or other surplus, e.g. share premiums, retained profit, general reserves and legal reserves). Disclosed reserves also include general funds (such as a Fund for general banking risks in certain EC countries) of the same quality that meet the following criteria:
allocations to the funds must be made out of post-tax retained earnings or out of pre-tax earnings adjusted for all potential tax liabilities;
the funds and movements into or out of them must be disclosed separately in the bank’s published accounts;
the funds must be available to a bank to meet losses for unrestricted and immediate use as soon as they occur;
losses cannot be charged directly to the funds but must be taken through the profit and loss account.
Indent (ii) (c)
General provisions/general loan-loss reserves: provisions or loan-loss reserves held against presently unidentified losses are freely available to meet losses which subsequently materialise and therefore qualify for inclusion within supplementary elements. Provisions ascribed to identified deterioration of particular assets or known liabilities, whether individual or grouped, should be excluded. Furthermore, general provisions/general loan-loss reserves eligible for inclusion in tier 2 will be limited to a maximum of 1.25 percentage points of weighted risk assets.
C. Amendment to the Transitional Arrangements (Section IV and Annex 4)
The transitional arrangement will remain as specified in the agreement, subject to the extension of the transitional period until end-1993 for the implementation of the arrangements described above.
Appendix I 3 Basle Committee Paper on Minimum Standards for the Supervision of International Banking Groups and Their Cross-Border Establishments
Strengthening International Cooperation Between Banking Supervisory Authorities1
Reproduced below is the text of a paper circulated to supervisors in the summer of 1992. It reflects a review of international supervisory coordination in the light not only of the BCCI affair but also of other recent developments, such as the events in the Atlanta branch of the Banca Nazionale del Lavoro. The conclusion of the Committee was that the Basle Concordat and its supplement of 1990 were soundly based but that the time had come for supervisory authorities to strengthen their commitment to implement the principles contained in them. The Committee thus reinforced the Concordat, which has a “best-efforts” character, with a document setting out minimum standards.
The members of the Basle Committee are themselves committed to implementing the minimum standards and are urging the supervisory authorities in other countries to adopt them too. The Committee intends to monitor their implementation in its ongoing review of the supervision of international banks. By doing so, the Committee believes it should be possible to increase assurances that in [the] future no international bank can operate without being subject to effective consolidated supervision.
The standards do not and cannot anticipate each and every practical application. As is the tradition of understandings reached in the Committee, notably the 1988 capital accord, the standards need to allow flexibility of implementation according to differing legal and structural circumstances in different countries. For this reason, the paper is deliberately couched in general terms. Moveover, the recommendations are addressed to individual supervisor authorities in their relations with others. It is, of course, also possible for groups of countries to apply the same standards through negotiated agreements for the harmonisation of supervisory rules and mutual recognition. This has, for example, already been achieved in the European Community’s banking legislation which comes into effect on 1st January 1993 and which is fully in keeping with the standards.
Minimum Standards for the Supervision of International Banking Groups and their Cross-Border Establishments
I. Introduction
In 1975, the Basle Committee obtained the agreement of the G-10 Governors to a paper setting out principles for the supervision of banks’ foreign establishments. These arrangements, revised in 1983 and now better known as the Concordat, took the form of recommended guidelines for best practice, and members of the Committee undertook to work towards their implementation according to the means available to them. Subsequently, in April 1990, certain practical aspects of these principles were elaborated in a supplement to the Concordat.
Following recent developments, the Committee has reviewed the arrangements for coordination of the supervision of international banking. While the principles of the Concordat and its supplement are still viewed as being sound, members of the Committee now recognise that there needs to be a greater effort to ensure that these principles can be applied in practice. Accordingly certain of these principles have been reformulated as minimum standards, set out below, which G-10 supervisory authorities expect each other to observe.
The supervisory authorities represented on the Basle Committee will be taking the necessary steps to ensure that their own supervisory arrangements meet the standards as soon as possible. Furthermore, the Committee will monitor members’ experience in implementing them with a view to determining what further refinements are needed as part of its ongoing efforts to enhance cooperation in the supervision of international banks. The Committee is making this paper available to bank supervisory authorities throughout the world and is urging them to join with the authorities represented on the Committee in adhering to the minimum standards.
The Committee has also reviewed the April 1990 supplement to the Concordat on “Information flows between banking supervisory authorities” which provides practical guidance for ongoing contact and collaboration among supervisory authorities. The Committee’s conclusion is that the nature and extent of information-sharing possible amongst supervisory authorities must continue to be determined largely on a case-by-case basis and cannot, at this time, be usefully expressed in minimum standards. Nevertheless, consistent with the April 1990 supplement, the Committee believes that supervisory authorities should undertake an affirmative commitment to cooperate, on a best-efforts basis, with supervisory authorities from other countries on all prudential matters pertaining to international banks, and, in particular, in respect of the investigation of documented allegations of fraud, criminal activity, or violations of banking laws. In addition, both the Committee and its members will continue their efforts to reduce impediments to the sharing of information among supervisory authorities.
II. Minimum Standards for Supervision
Banking groups are increasingly complex organisations and may have several tiers of ownership within them. In some cases, a banking group’s home-country consolidated supervisory authority will also be the authority directly responsible for the supervision of the group’s lead and subsidiary banks. However, in other cases, there will be one authority responsible for the consolidated supervision of the banking group as a whole (the banking group’s home-country authority) and different authorities responsible for the consolidated supervision of individual banks (and such banks’ own subsidiaries) that are owned or controlled by the group (the bank’s home-country authority). This may occur, for example, where a banking subsidiary chartered in one country, which is seeking to create an establishment in a second country, is itself owned by a banking group subject to home-country consolidated supervision in a third country. A host-country authority must be aware of these distinctions between immediate and higher-level home-country authorities. Except where specified, the term home-country authority includes both types of authority.
The following four minimum standards are to be applied by individual supervisory authorities in their own assessment of their relations with supervisory authorities in other countries. In particular, a host-country authority, into whose jurisdiction a bank or banking group is seeking to expand, is called upon to determine whether that bank or banking group’s home-country supervisory authority2 has the necessary capabilities to meet these minimum standards. In making this determination, host-country authorities should review the other authority’s statutory powers, past experience in their relations, and the scope of the other authority’s administrative practices. Some authorities may initially need to make either statutory or administrative changes in order to comply with these new standards; therefore, in cases where an authority fails to meet one or more of these standards, recognition should be given to the extent to which the authority is actively working to establish the necessary capabilities to permit it to meet all aspects of these minimum standards.
1. All international banking groups and international banks should be supervised by a home-country authority that capably performs consolidated supervision
As a condition for the creation and maintenance of cross-border banking establishments, a host-country authority should assure itself that the relevant bank and, if different, the banking group is subject to the authority of a supervisor with the practical capability of performing consolidated supervision. To meet this minimum standard, the home-country supervisory authority should (a) receive consolidated financial and prudential information on the bank’s or banking group’s global operations, have the reliability of this information confirmed to its own satisfaction through on-site examination or other means, and assess the information as it may bear on the safety and soundness of the bank or banking group, (b) have the capability to prevent corporate affiliations or structures that either undermine efforts to maintain consolidated financial information or otherwise hinder effective supervision of the bank or banking group, and (c) have the capability to prevent the bank or banking group from creating foreign banking establishments in particular jurisdictions.
2. The creation of a cross-border banking establishment should receive the prior consent of both the host-country supervisory authority and the bank’s and, if different, banking group’s home-country supervisory authority
Consent by a host-country authority for the inward creation of a cross-border banking establishment should only be considered if the appropriate home-country authorities have first given their consent to the bank or banking group’s outward expansion. Outward consent by a home-country authority should always be made contingent upon the subsequent receipt of inward consent from the host authority. Thus, in the absence of consent by both the host-country authority and the bank’s home-country authority and, if different, the banking group’s home-country authority, cross-border expansion will not be permitted. As a matter of procedure, a host-country authority should seek to assure itself that consent has been given by the supervisory authority directly responsible for the entity seeking to create an establishment; this authority, in turn, should assure itself that consent is given by the next higher tier supervisory authority, if any, which may perform consolidated supervision with respect to the entity as part of a banking group.
While the safety and soundness of a bank should be judged by its overall condition, in reviewing proposals for inward and outward expansion, host-country and home-country authorities should, at a minimum, give weight to (a) the strength of the bank’s and banking group’s capital and (b) the appropriateness of the bank’s and banking group’s organisation and operating procedures for the effective management of risks, on a local and consolidated basis respectively. In judging these two criteria, a host-country authority should be particularly concerned with the level of support that the parent is capable of providing to the proposed establishment.
The business activities of major international banking groups increasingly cut across traditional supervisory categories. Individual activities or products may be managed on a centralised or decentralised basis, without particular regard to corporate form or the location of a bank’s or group’s head office. Because of this, before giving consent to the creation of a cross-border establishment, the host-country authority and the bank’s and banking group’s home-country authorities should each review the allocation of supervisory responsibilities recommended in the Concordat in order to determine whether its application to the proposed establishment is appropriate.
If, as a result of the establishment’s proposed activities or the location and structure of the bank’s or the banking group’s management, either authority concludes that the division of supervisory responsibilities suggested in the Concordat is not appropriate, then that authority has the responsibility to initiate consultations with the other authority so that they reach an explicit understanding on which authority is in the best position to take primary responsibility either generally or in respect of specific activities. A similar review should be undertaken by all authorities if there is a significant change in the bank’s or banking group’s activities or structure.
Inaction on the part of either authority will be construed as an acceptance of the division of responsibilities established in the Concordat. Thus each authority is responsible for making a deliberate choice between accepting its responsibilities under the Concordat or initiating consultations on an alternative allocation of supervisory responsibilities for the case at hand.
3. Supervisory authorities should possess the right to gather information from the cross-border banking establishments of the banks or banking groups for which they are the home-country supervisor
As a condition for giving either inward or outward consent for the creation of a cross-border banking establishment, a supervisory authority should establish an understanding with the other authority that they may each gather information to the extent necessary for effective home-country supervision, either through on-site examination or by other means satisfactory to the recipient, from the cross-border establishments located in one another’s jurisdictions of banks or banking groups chartered or incorporated in their respective jurisdictions. Thus, consent for inward expansion by a prospective host-country authority should generally be contingent upon there being such an understanding, with the foreign bank’s or banking group’s home-country authority, that each authority may gather such information from their respective bank’s and banking group’s foreign establishments. Similarly, consent for outward expansion by the home-country authority should generally be contingent upon there being such an understanding with the host-country authority. Through such bilateral arrangements, all home-country authorities should be able to improve their ability to review the financial condition of their banks’ and banking groups’ cross-border banking establishments.
4. If a host-country authority determines that any one of the foregoing minimum standards is not met to its satisfaction, that authority could impose restrictive measures necessary to satisfy its prudential concerns consistent with these minimum standards, including the prohibition of the creation of banking establishments
In considering whether to consent to the creation of a banking establishment by a foreign bank or foreign banking group, or in reviewing any other proposal by a foreign bank or banking group which requires its consent, a host-country authority should determine whether the bank or banking group is subject to consolidated supervision by an authority that has—or is actively working to establish—the necessary capabilities to meet these minimum standards. First, the host-country authority should determine whether the bank or banking group is chartered or incorporated in a jurisdiction with which the host-country authority has a mutual understanding for the gathering of information from cross-border establishments. Secondly, the host-country authority should determine whether consent for outward expansion has been given by the appropriate home-country authorities. Thirdly, the host-country authority should determine whether the bank and, if different, the banking group is supervised by a home-country authority which has the practical capability of performing consolidated supervision.
If these minimum standards are not met with respect to a particular bank or banking group, and the relevant home-country authorities are unwilling or unable to initiate the effort to take measures to meet these standards, the host-country authority should prevent the creation in its jurisdiction of any cross-border establishments by that bank or banking group. However, in its sole discretion, the host-country authority may alternatively choose to permit the creation of establishments by such a bank or banking group, subject to whatever prudential restrictions on the scope and nature of the establishment’s operations which the host-country authority deems necessary and appropriate to address its prudential concerns, provided that the host-country authority itself also accepts the responsibility to perform adequate supervision of the bank’s or banking group’s local establishments on a “stand-alone” consolidated basis.
Thus, if a bank or banking group is not subject to the level of supervision and supervisory cooperation required by these minimum standards, and the relevant supervisory authority is not actively working to establish the necessary capabilities, that bank or banking group will only be permitted to expand its operations into jurisdictions whose authorities are adhering to these minimum standards if the host-country authority itself accepts the responsibility to perform supervision of the bank or banking group’s local establishments consistent with these minimum standards.
Appendix I 4 Organization of American States Model Regulations Concerning Laundering Offences Connected to Illicit Drug Trafficking and Related Offences
Introduction 1
Considering the provisions of the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances signed in Vienna, Austria on December 20, 1988 and in force since November 11, 1990 and the mandate contained in point 6 of the Declaration and Program of Action of Ixtapa, approved at the Ministerial Meeting of Ixtapa, Mexico on April 20 1990, the General Assembly of the Organization of American States (OAS) recommends to the member states, pursuant to the basic provisions of their respective legal systems, that they adopt the norms contained in the following Model Regulations.2
These Model Regulations have been prepared reconciling, whenever pertinent, the legal systems prevailing in the Inter-American region.
Article 1 DEFINITIONS
The following definitions shall be applicable throughout the text of these Regulations except when another is expressly indicated:
1. “Convention” means the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which was signed in Vienna, Austria, on December 20, 1988, and entered into force on November 11, 1990.
2. “Forfeiture” means the permanent deprivation of property by order of a court or other competent authority.
3. “Freezing” or “seizure” means temporarily prohibiting the transfer, conversion, disposition or movement of property or temporarily assuming custody or control of property on the basis of an order issued by a court or other competent authority.
4. “Illicit traffic” means the offences set forth in the Convention and in these Regulations.
5. “Instrumentality” means something that is used in or intended for use in any manner in the commission of illicit traffic or related offences.
6. “Person” means any entity, natural or juridical, including among others, a corporation, partnership, trust or estate, joint stock company, association, syndicate, joint venture, or other unincorporated organization or group, capable of acquiring rights or entering into obligations.
7. “Proceeds” means any property derived from or obtained, directly or indirectly, through the commission of illicit traffic or related offences.
8. “Property” means assets of every kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments evidencing title to, or interest in, such assets.
Article 2 LAUNDERING OFFENCES
1. A criminal offence is committed by any person who converts or transfers property and knows, should have known, or is intentionally ignorant that such property is proceeds from illicit traffic or related offences.
2. A criminal offence is committed by any person who acquires, possesses, or uses property and knows, should have known, or is intentionally ignorant that such property is proceeds from illicit traffic or related offences.
3. A criminal offence is committed by any person who conceals, disguises or impedes the establishment of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property and knows, should have known, or is intentionally ignorant that such property is proceeds from illicit traffic or related offences.
4. A criminal offence is committed by any person who participates in, associates with, conspires to commit, attempts to commit, aids and abets, facilitates and counsels, incites publicly or privately the commission of any of the offences established in accordance with this Article, or who assists any person participating in such an offence or offences to evade the legal consequences of his actions.
5. Knowledge, intent or purpose required as an element of any offence set forth in this Article may be inferred from objective, factual circumstances.
6. An offence defined in this Article shall be investigated, tried, judged and sentenced by a court or other competent authority as an offence distinct from other illicit traffic or related offences.
Article 3 JURISDICTION
The offences defined in Article 2 shall be investigated, tried, judged and sentenced by a court or other competent authority regardless of whether or not the illicit traffic or related offences occurred in another territorial jurisdiction, without prejudice to extradition when applicable in accordance with the law.
Article 4 PREVENTIVE MEASURES RELATING TO PROPERTY, PROCEEDS OR INSTRUMENTALITIES
In accordance with the law, the court or other competent authority shall issue, at any time, without prior notification or hearing, a freezing or seizure order, or any other preventive or provisional measure intended to preserve the availability of property, proceeds or instrumentalities connected to illicit traffic or related offences, for its eventual forfeiture.
Article 5 FORFEITURE OF PROPERTY, PROCEEDS OR INSTRUMENTALITIES
1. When a person is convicted of an illicit traffic or related offence, the court shall order that the property, proceeds or instrumentalities connected to such an offence be forfeited and disposed of in accordance with the law.
2. When, as a result of any act or omission of the person convicted, any of the property, proceeds or instrumentalities described in the previous paragraph cannot be forfeited, the court shall order the forfeiture of any other property of the person convicted, for an equivalent value or shall order the person convicted to pay a fine of such value.
Article 6 BONA FIDE THIRD PARTIES
1. The measures and sanctions referred to in Articles 4 and 5 shall apply without prejudice to the rights of bona fide third parties.
2. In accordance with the law, proper notification shall be made so that all those claiming a legitimate legal interest in property, proceeds or instrumentalities may appear in support of their claims.
3. A third party’s lack of good faith may be inferred, at the discretion of the court or other competent authority, from the objective circumstances of the case.
4. In accordance with the law, the court or other competent authority shall return the property, proceeds or instrumentalities to the claimant, when it has been demonstrated to its satisfaction that:
a) the claimant has a legitimate legal interest in the property, proceeds or instrumentalities;
b) no participation, collusion or involvement with respect to illicit traffic or related offences which are the object of the proceedings can be imputed to the claimant;
c) the claimant lacked knowledge and was not intentionally ignorant of the illegal use of the property, proceeds or instrumentalities, or if he had knowledge, did not freely consent to its illegal use;
d) the claimant did not acquire any right in the property, proceeds or instrumentalities from a person proceeded against under circumstances that give rise to a reasonable inference that any right was transferred for the purpose of avoiding the eventual subsequent forfeiture of the property, proceeds or instrumentalities, and;
e) the claimant did all that could reasonably be expected to prevent the illegal use of the property, proceeds or instrumentalities.
Article 7 DISPOSITION OF FORFEITED PROPERTY, PROCEEDS OR INSTRUMENTALITIES
Whenever property, proceeds or instrumentalities that are not required to be destroyed and that are not harmful to the public are forfeited under Article 5, the court or other competent authority may, in accordance with the law:
a) retain them for official use, or transfer them to any government agency that participated directly or indirectly in their freezing, seizure, or forfeiture;
b) sell them and transfer the proceeds from such sale to any government agency that participated directly or indirectly in their freezing, seizure, or forfeiture. It may also deposit the proceeds from the sale into the Special Fund provided for in the Inter-American Program of Action of Rio de Janeiro, or into other Funds to be used by the competent authorities in their fight against illicit traffic, prevention of the unlawful use of drugs, treatment, rehabilitation or social reintegration of those affected by its use;
c) transfer the property, proceeds or instrumentalities, or the proceeds from their sale, to any private entity dedicated to the prevention of the unlawful use of drugs, treatment, rehabilitation or social reintegration of those affected by its use.
d) transfer the object of the forfeiture or the proceeds from its sale to any other country which participated directly or indirectly in the freezing, seizure, or forfeiture of the property, if such a transfer is authorized by an international agreement; or
e) transfer the object of the forfeiture or the proceeds from its sale to intergovernmental bodies specializing in the fight against illicit traffic, prevention of the unlawful use of drugs, treatment, rehabilitation or social reintegration of those affected by its use.
Article 8 PROPERTY, PROCEEDS OR INSTRUMENTALITIES OF FOREIGN OFFENCES
The court or other competent authority may order, in accordance with the law, the freezing, seizure, or forfeiture of any property, proceeds or instrumentalities in its territorial jurisdiction when they are connected to illicit traffic or related offences committed against the laws of another country, and when that offence would have been an offence if committed within its jurisdiction.
Article 9 FINANCIAL INSTITUTIONS AND ACTIVITIES
1. For the purpose of these Regulations, financial institutions are, among others:
a) a commercial bank, trust company, savings and loan association, building and loan association, savings bank, industrial bank, credit union, or other thrift institution or establishment authorized to do business under the domestic banking laws, whether these be publicly or privately owned, or mixed;
b) a broker or dealer in securities;
c) a currency dealer or exchanger;
2. Likewise, those persons carrying out the following activities shall be considered to be financial institutions:
a) a systematic or substantial cashing of checks;
b) a systematic or substantial issuance, sale or redemption of traveler’s checks or money orders;
c) a systematic or substantial transmitting of funds;
d) any other activity subject to supervision by government bank or other financial institution authorities.
Article 10 IDENTIFICATION OF CLIENTS AND MAINTENANCE OF RECORDS
1. Financial institutions shall maintain accounts in the name of the accountholder. They may not keep anonymous accounts or accounts which are in fictitious or incorrect names.
2. Financial institutions shall record and verify by reliable means, the identity, representative capacity, domicile, legal capacity, occupation or business purpose of persons, as well as other identifying information on those persons, whether they be occasional or usual clients, through the use of documents such as identity documents, passports, birth certificates, driver’s license, partnership contracts and incorporation papers, or any other official or private documents, when establishing or conducting business relations, especially when opening new accounts or passbooks, entering into fiduciary transactions, renting of safe deposit boxes, or performing cash transactions over an amount specified by the competent authority.
3. Financial institutions shall take reasonable measures to obtain and record information about the true identity of the person on whose behalf an account is opened or a transaction is conducted, if there are any doubts that a client is acting on his/her own behalf, particularly in the case of a juridical person who is not conducting any commercial, financial, or industrial operations in the State where it has its headquarters or domicile.
4. Financial institutions shall maintain during the period in which an operation is in effect, and for at least five years after the conclusion of the transaction, the records of the information and documentation required in this Article.
5. Financial institutions shall maintain records on customer identification, account files, and business correspondence as determined by the competent authority, for at least five years after the account has been closed.
6. Financial institutions shall also maintain records to enable the reconstruction of financial transactions in excess of an amount specified by the competent authority, for at least five years after the conclusion of the transaction.
Article 11 AVAILABILITY OF RECORDS
1. Financial institutions shall comply promptly, and within the period of time to be established, with information requests from the competent authorities concerning the records of information and documentation referred to in the previous Article, for use in criminal, civil, or administrative investigations, prosecutions, or proceedings, as the case may be, regarding illicit traffic or related offences, or violations of the provisions of these Regulations.
Financial institutions shall not notify any person, other than a court, competent authority or other person authorized by law, that information has been requested by or furnished to a court or other competent authority.
2. The competent authorities shall share with other national competent authorities said information, in accordance with the law, and when it concerns illicit traffic or related offences, or violations of the provisions of these Regulations.
The competent authorities shall treat as confidential the information referred to in this Article, except insofar as such information is necessary for use in criminal, civil, or administrative investigations, prosecutions, or proceedings, as the case may be, regarding illicit traffic or related offences, or violations of the provisions of these Regulations.
3. The competent authorities may share such information with the competent authorities of other States, in accordance with the law.
4. The legal provisions referring to bank secrecy or confidentiality shall not be an impediment to compliance with this Article, when the information is requested by or shared with the court or other competent authority.
Article 12 RECORDING AND REPORTING OF CASH TRANSACTIONS
1. Each financial institution shall record, on a form designed by the competent authority, each cash transaction involving a domestic or foreign currency transaction exceeding an amount specified by the competent authority.
2. The form referred to in the previous paragraph shall include, at a minimum, the following data for each transaction:
a) the identity, signature, and address of the person who conducts physically the transaction;
b) the identity and address of the person in whose name the transaction is conducted;
c) the identity and address of the beneficiary or the person on whose behalf the transaction is conducted, as applicable;
d) the identity of the accounts affected by the transaction, if any;
e) the type of transaction involved, such as deposit, withdrawal, exchange of currency, check cashing, purchase of certified or cashier’s checks or money orders, or other payment or transfer by, through, or to such financial institution;
f) the identity of the financial institution where the transaction occurred; and
g) the date, time, and amount of the transaction.
3. This record shall be recorded, accurately and completely, by the financial institution on the day the transaction has occurred and shall be maintained for a period of five years from the date of the transaction.
4. Multiple cash transactions in domestic or foreign currency which, altogether, exceed a specified amount, shall be treated as a single transaction if they are undertaken by or on behalf of any one person during any one day or any other period established by the competent authority. In such a case, when a financial institution, its employees, officers or agents have knowledge of these transactions, they shall record these transactions on the form determined by the competent authority.
5. For transactions conducted on their own account between the financial institutions defined in Article 9 paragraph 1 (a) that are subject to supervision by the domestic banking and financial authorities, recording on the form referred to in this Article shall not be required.
6. These records shall be available to the court or other competent authority, in accordance with the law, for use in criminal, civil or administrative investigations, prosecutions or proceedings, as the case may be, connected to illicit traffic or related offences, or violations of the provisions of these Regulations.
7. When it deems advisable, the competent authority may establish that financial institutions file with it, within such time as the competent authorities may establish, the form referred to in paragraphs 1, 2 and 3 of this Article. This form shall serve as evidence or as an official report, and shall be used for the same purposes as referred to in paragraph 6 of this Article.
8. Financial institutions shall not notify any person, other than a court, competent authority or other person authorized by law, that information has been requested by or furnished to a court or other competent authority.
9. The legal provision referring to bank secrecy or confidentiality shall not be an impediment to compliance with this Article, when the information is requested by or shared with the court or other competent authority.
Article 13 REPORTING OF SUSPICIOUS FINANCIAL TRANSACTIONS
1. Financial institutions shall pay special attention to all complex, unusual or large transactions, whether completed or not, and to all unusual patterns of transactions, and to insignificant but periodic transactions, which have no apparent economic or lawful purpose.
2. Upon suspicion that the transactions described in paragraph 1 of this Article could constitute or be related to illicit activities, financial institutions shall promptly report the suspicious transactions to the competent authorities.
3. Financial institutions shall not notify any person, other than a court, competent authority or other person authorized by law, that information has been requested by or furnished to a court or other competent authority.
4. When the report referred to in paragraph 2 of this Article is made in good faith, the financial institutions and their employees, staff, directors, owners or other representatives as authorized by law, shall be exempted from criminal, civil and/or administrative liability, as the case may be, for complying with this Article or for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, regardless of the result of the communication.
Article 14 LIABILITY OF A FINANCIAL INSTITUTION
1. Financial institutions, or their employees, staff, directors, owners or other authorized representatives who, acting as such, participate in illicit traffic or related offences, shall be subject to more severe sanctions.
2. Financial institutions shall be liable, in accordance with the law, for the actions of their employees, staff, directors, owners or other authorized representatives who, acting as such, participate in the commission of any offence described in. Article 2 of these Regulations. Such liability may include, among other measures, the imposition of a fine, temporary suspension of business or charter, or suspension or revocation of the license to operate as a financial institution.
3. A criminal offence is committed by a financial institution or its employees, staff, director, owners or other authorized representatives who, acting as such, wilfully fail to comply with the obligations in Articles 10 through 13 of these Regulations, or who wilfully make a false or falsified record or report as referred to in the above mentioned Articles.
4. Without prejudice to criminal and/or civil liabilities for offences connected to illicit traffic or related offences, financial institutions that fail to comply with the obligations described in Articles 10 through 13 and 15 of these Regulations, shall be subject to other sanctions, such as imposition of a fine, temporary suspension of business or charter, or suspension or revocation of the license to operate as a financial institution.
Article 15 MANDATORY COMPLIANCE PROGRAMS IN FINANCIAL INSTITUTIONS
1. Financial institutions, pursuant to the regulation and supervision referred to in Article 17 of these Regulations shall adopt, develop and implement internal programs, policies, procedures and controls to guard and detect against the offences described in Article 2 of these Regulations. Such programs shall include, at a minimum:
a) the establishment of procedures to ensure high standards of integrity of their employees and a system to evaluate the personal, employment and financial history of these employees;
b) on-going employee training programs, such as “know-your-client” programs, and instructing employees in the responsibilities indicated in Articles 10 through 13 of these Regulations;
c) an independent audit function to check compliance with the programs.
2. Financial institutions shall also designate compliance officers at management level in charge of the application of the internal programs and procedures, including proper maintenance of records and reporting of suspicious transactions. These officers shall function as liaison with the competent authorities.
Article 16 PROVISIONS FOR OTHERS RESPONSIBLE
When it deems advisable, the competent authority shall extend the application of the relevant provisions of these Regulations relating to financial institutions, to any type of economic activities when a transaction is carried out in cash and in excess of an amount specified by the competent authority, such as:
a) the sale or transfer of real estate, weapons, metals, art, archaeological objects, jewelry, automobiles, boats, planes, or other consumer durables, collectibles, or travel or entertainment-related services;
b) casino or other gambling operations; or
c) professional services.
Article 17 OBLIGATIONS OF THE COMPETENT AUTHORITIES
1. In accordance with the law, the competent authorities, and especially those with regulatory and supervisory power over financial institutions shall, among other obligations:
a) grant, deny, suspend or cancel licenses or permits for the operation of financial institutions;
b) adopt the necessary measures to prevent and/or avoid any person who is unsuitable from controlling, or participating, directly or indirectly, in the directorship, management or operation of a financial institution;
c) examine and supervise financial institutions, and regulate and oversee effective compliance with the recordkeeping and reporting obligations specified in these Regulations;
d) verify, through regular examinations, that the financial institutions have and apply the mandatory compliance programs referred to in Article 15 of these Regulations;
e) provide other competent authorities with the information obtained from financial institutions in conformity with these Regulations, including that information which results from an examination of any financial institution;
f) prescribe instructions or recommendations to assist financial institutions in detecting suspicious patterns of behaviour in their clients. These guidelines shall be developed taking into account modern and secure techniques of money management and will serve as an educational tool for financial institutions’ personnel;
g) cooperate with other competent authorities and lend technical assistance in investigations, prosecutions or proceedings relating to the offences described in Article 2 of these Regulations, and other illicit traffic and related offences.
2. The competent authorities, and especially those with regulatory and supervisory power over financial institutions shall, in accordance with the law, report promptly to other competent authorities regarding any information received from financial institutions concerning suspicious transactions or activities that could be related to the offences described in Article 2 of these Regulations and other illicit traffic or related offences.
3. The competent authorities, and especially those with regulatory and supervisory power over financial institutions shall, in accordance with the law, cooperate closely with the competent authorities from other States in investigations, proceedings or prosecutions relating to the offences described in Article 2 of these Regulations, other illicit traffic or related offences, and to violations of the laws and administrative regulations dealing with financial institutions.
Article 18 INTERNATIONAL COOPERATION
1. The court or other competent authority shall cooperate with the court or other competent authority of another State, taking the appropriate measures to provide assistance in matters concerning illicit traffic or related offences, in accordance with these Regulations, and within the limits of their respective legal systems.
2. The court or other competent authority may receive a request from the court or other competent authority of another State to identify, trace, freeze, seize or forfeit the property, proceeds, or instrumentalities connected to illicit traffic or related offences, and may take appropriate actions, including those contained in Articles 4 and 5 of these Regulations.
3. A final judicial order or judgment that provides for the forfeiture of property, proceeds or instrumentalities connected to illicit traffic or related offences, issued by a court or other competent authority of another State, may be recognized as evidence that the property, proceeds or instrumentalities referred to by such order or judgement may be subject to forfeiture in accordance with the law.
4. The court or other competent authority may receive and take appropriate measures with respect to a request from a court or other competent authority from another State, for assistance related to a civil, criminal, or administrative investigation, prosecution or proceeding, as the case may be, involving illicit traffic or a related offence, or violations of any provision established in these Regulations. Such assistance may include providing original or certified copies of relevant documents and records, including those of financial institutions and government agencies; obtaining testimony in the requested State; facilitating the voluntary presence or availability in the requesting State of persons, including those in custody, to give testimony; locating or identifying persons; servicing of documents; examining objects and places; executing searches and seizures; providing information and evidentiary items; and provisional measures.
5. The legal provisions referring to bank secrecy or confidentiality shall not be an impediment to compliance with this Article, when the information is requested by or shared with the court or other competent authority.
6. Assistance provided pursuant to this Article shall be undertaken in accordance with the law.
Article 19 BANK SECRECY OR CONFIDENTIALITY
The legal provisions referring to bank secrecy or confidentiality shall not be an impediment to compliance with these Regulations, when the information is requested by or shared with the court or other competent authority, in accordance with the law.
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Recommendations of the Group of Experts to CICAD
The Group of Experts requests that CICAD consider and adopt the Model Regulations and present them to the next General Assembly of the OAS, for its possible adoption by the member states.
To facilitate the adoption of the Model Regulations, the Group of Experts recommends that CICAD:
Periodically consider the effectiveness of the Model Regulations, to assess the extent to which recommended norms have been adopted and implemented by the member states, facilitate the widest dissemination of information to the member states regarding the Model Regulations, and recommend those additional activities needed to expedite their adoption and application.
Provide the necessary technical collaboration to the member states which request it, for the adoption and implementation of the Model Regulations and assist in obtaining the financial resources needed for this purpose.
Convene periodical seminars and workshops to provide the competent authorities, the judiciary and law enforcement agencies of the member states with a forum to exchange experiences in the fight against laundering offences and related offences, difuse information in this regard, and discuss new trends and techniques.
Establish a close working relationship with the United Nations and other international, regional and governmental bodies and private sector organizations.
On the basis of the Model Regulations the Group of Experts recommends that CICAD urge the member states of the OAS to consider:
Designating the domestic competent authorities with regulatory and supervisory power over the financial institutions included in the Model Regulations and transmitting their names to the General Secretariat of the OAS and to the member states.
Designating an authority or authorities, as may be necessary, competent to receive or process all the requests for international cooperation referred to in the Model Regulations and transmitting their names to the General Secretariat of the OAS and to the member states.
Responding promptly to any specific request for cooperation by the competent authorities of other member states made pursuant to the Model Regulations and advising, as soon as possible, on any impediment or obstacle to such requests.
Ensuring the establishment of national and/or international communications for the sharing of information on matters related to laundering offences, financial institutions and transactions, illicit traffic and related offences, and the identification, freezing, seizure or forfeiture of property, proceeds or instrumentalities.
Furthermore, the Group of Experts recommends that CICAD suggest to the member states of the OAS that they consider the possibility of:
Applying the relevant provisions of the Regulations to laundering connected with other serious offences.
Establishing more severe penal, civil and/or administrative sanctions for the offences mentioned in Article 2, when the person involved holds a public office and that offence is connected with the office in question.
Studying and examining the feasibility and convenience of requiring the recording and/or reporting of the transportation, from one member state to another, of large sums of cash in excess of a specified amount.
Studying and examining the feasibility and convenience of forwarding to other member states information that might be useful in the investigation of the offences referred to in the Model Regulations, without the need for a prior request.
Appendix II European Community Documents
Appendix II 1 Treaty Establishing the European Community, as Amended by the Treaty on European Union
[Selected Provisions]
TITLE III: Free Movement of Persons, Services, and Capital
Chapter 4 (Capital and Payments)
Article 73b
1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between member-States and between member-States and third countries shall be prohibited.
2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between member-States and between member-States and third countries shall be prohibited.
Article 73c
1. The provisions of Article 73b shall be without prejudice to the application to third countries of any restrictions which exist on 31 December 1993 under national or Community law adopted in respect of the movement of capital to or from third countries involving direct investment (including investment in real estate), establishment, the provision of financial services or the admission of securities to capital markets.
2. Whilst endeavouring to achieve the objective of free movement of capital between member-States and third countries to the greatest extent possible and without prejudice to the other Chapters of this Treaty, the Council may, acting by a qualified majority on a proposal from the Commission, adopt measures on the movement of capital to or from third countries involving direct investment (including investment in real estate), establishment, the provision of financial services or the admission of securities to capital markets.
Unanimity shall be required for measures under this paragraph which constitute a step back in Community law as regards the liberalisation of the movement of capital to or from third countries.
Article 73d
1. The provisions of Article 73b shall be without prejudice to the right of member-States:
(a) to apply the relevant provisions of their tax law which distinguish between tax-payers who are not in the same situation with regard to their place of residence or with regard to the place where their capital is invested;
(b) to take all requisite measures to prevent infringements of national law and regulations, in particular in the field of taxation and the prudential supervision of financial institutions, or to lay down procedures for the declaration of capital movements for purposes of administrative or statistical information, or to take measures which are justified on grounds of public policy or public security.
2. The provisions of this Chapter shall be without prejudice to the applicability of restrictions on the right of establishment which are compatible with this Treaty.
3. The measures and procedures referred to in paragraphs 1 and 2 shall not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital and payments as defined in Article 73b.
Article 73e
By way of derogation from Article 73b, member-States which, on 31 December 1993, enjoy a derogation on the basis of existing Community law, shall be entitled to maintain, until 31 December 1995 at the latest, restrictions on movements of capital authorised by such derogations as exist on that date.
Article 73f
Where, in exceptional circumstances, movements of capital to or from third countries cause, or threaten to cause, serious difficulties for the operation of economic and monetary union, the Council, acting by a qualified majority on a proposal from the Commission and after consulting the ECB, may take safeguard measures with regard to third countries for a period not exceeding six months if such measures are strictly necessary.
Article 73g
1. If, in the case envisaged in Article 228a, action by the Community is deemed necessary, the Council may, in accordance with the procedure provided for in Article 228a, take the necessary urgent measures on the movement of capital and on payments as regards the third countries concerned.
2. Without prejudice to Article 224 and as long as the Council has not taken measures pursuant to paragraph 1, a member-State may, for serious political reasons and on grounds of urgency, take unilateral measures against a third country with regard to capital movements and payments. The Commission and the other member-States shall be informed of such measures by the date of their entry into force at the latest.
The Council may, acting by a qualified majority on a proposal from the Commission, decide that the member-State concerned shall amend or abolish such measures. The President of the Council shall inform the European Parliament of any such decision taken by the Council.
* * * * *
TITLE VI: Economic and Monetary Policy
Chapter 1 (Economic Policy)
Article 102a
Member-States shall conduct their economic policies with a view to contributing to the achievement of the objectives of the Community, as defined in Article 2, and in the context of the broad guidelines referred to in Article 103(2).
The member-States and the Community shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 3a.
Article 103
1. Member-States shall regard their economic policies as a matter of common concern and shall co-ordinate them within the Council, in accordance with the provisions of Article 102a.
2. The Council shall, acting by a qualified majority on a recommendation from the Commission, formulate a draft for the broad guidelines of the economic policies of the member-States and of the Community, and shall report its findings to the European Council.
The European Council shall, acting on the basis of this report from the Council, discuss a conclusion on the broad guidelines of the economic policies of the member-States and of the Community.
On the basis of this conclusion, the Council shall, acting by a qualified majority, adopt a recommendation setting out these broad guidelines. The Council shall inform the European Parliament of its recommendation.
3. In order to ensure closer co-ordination of economic policies and sustained convergence of the economic performances of the member-States, the Council shall, on the basis of reports submitted by the Commission, monitor economic developments in each of the member-States and in the Community as well as the consistency of economic policies with the broad guidelines referred to in paragraph 2, and regularly carry out an overall assessment.
For the purpose of this multilateral surveillance, member-States shall forward information to the Commission about important measures taken by them in the field of their economic policy and such other information as they deem necessary.
4. Where it is established, under the procedure referred to in paragraph 3, that the economic policies of a member-State are not consistent with the broad guidelines referred to in paragraph 2 or that they risk jeopardising the proper functioning of economic and monetary union, the Council may, acting by a qualified majority on a recommendation from the Commission, make the necessary recommendations to the member-State concerned.
The Council may, acting by a qualified majority on a proposal from the Commission, decide to make its recommendations public.
The President of the Council and the Commission shall report to the European Parliament on the results of multilateral surveillance. The President of the Council may be invited to appear before the competent Committee of the European Parliament if the Council has made its recommendations public.
5. The Council, acting in accordance with the procedure referred to in Article 189c, may adopt detailed rules for the multilateral surveillance procedure referred to in paragraphs 3 and 4 of this Article.
Article 103a
1. Without prejudice to any other procedures provided for in this Treaty, the Council may, acting unanimously on a proposal from the Commission, decide upon the measures appropriate to the economic situation, in particular if severe difficulties arise in the supply of certain products.
2. Where a member-State is in difficulties or is seriously threatened with severe difficulties caused by exceptional occurrences beyond its control, the Council may, acting unanimously on a proposal from the Commission, grant, under certain conditions, Community financial assistance to the member-State concerned. Where the severe difficulties are caused by natural disasters, the Council shall act by qualified majority. The President of the Council shall inform the European Parliament of the decision taken.
Article 104
1. Overdraft facilities or any other type of credit facility with the ECB or with the central banks of the member-States (hereinafter referred to as ‘national central banks’) in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law or public undertakings of member-States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.
2. The provisions of paragraph 1 shall not apply to publicly-owned credit institutions, which in the context of the supply of reserves by central banks shall be given the same treatment by national central banks and the ECB as private credit institutions.
Article 104a
1. Any measure, not based on prudential considerations, establishing privileged access by Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law or public undertakings of member-States to financial institutions shall be prohibited.
2. The Council, acting in accordance with the procedure referred to in Article 189c, shall, before 1 January 1994, specify definitions for the application of the prohibition referred to in paragraph 1.
Article 104b
1. The Community shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any member-State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A member-State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law or public undertakings of another member-State, without prejudice to mutual financial guarantees for the joint execution of a specific project.
2. If necessary, the Council, acting in accordance with the procedure referred to in Article 189c, may specify definitions for the application of the prohibitions referred to in Article 104 and in this Article.
Article 104c
1. Member-States shall avoid excessive government deficits.
2. The Commission shall monitor the development of the budgetary situation and of the stock of government debt in the member-States with a view to identifying gross errors. In particular it shall examine compliance with budgetary discipline on the basis of the following two criteria:
(a) whether the ratio of the planned or actual government deficit to gross domestic product exceeds a reference value, unless
— either the ratio has declined substantially and continuously and reached a level that comes close to the reference value;
— or, alternatively, the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value;
(b) whether the ratio of government debt to gross domestic product exceeds a reference value, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace.
The reference values are specified in the Protocol on the excessive deficit procedure annexed to this Treaty.
3. If a member-State does not fulfil the requirements under one or both of these criteria, the Commission shall prepare a report. The report of the Commission shall also take into account whether the government deficit exceeds government investment expenditure and take into account all other relevant factors, including the medium term economic and budgetary position of the member-State.
The Commission may also prepare a report if, notwithstanding the fulfilment of the requirements under the criteria, it is of the opinion that there is a risk of an excessive deficit in a member-State.
4. The Committee provided for in Article 109c shall formulate an opinion on the report of the Commission.
5. If the Commission considers that an excessive deficit in a member-State exists or may occur, the Commission shall address an opinion to the Council.
6. The Council shall, acting by a qualified majority on a recommendation from the Commission, and having considered any observations which the member-State concerned may wish to make, decide after an overall assessment whether an excessive deficit exists.
7. Where the existence of an excessive deficit is decided according to paragraph 6, the Council shall make recommendations to the member-State concerned with a view to bringing that situation to an end within a given period. Subject to the provisions of paragraph 8, these recommendations shall not be made public.
8. Where it establishes that there has been no effective action in response to its recommendations within the period laid down, the Council may make its recommendations public.
9. If a member-State persists in failing to put into practice the recommendations of the Council, the Council may decide to give notice to the member-State to take, within a specified time limit, measures for the deficit reduction which is judged necessary by the Council in order to remedy the situation.
In such a case, the Council may request the member-State concerned to submit reports in accordance with a specific timetable in order to examine the adjustment efforts of that member-State.
10. The rights to bring actions provided for in Articles 169 and 170 may not be exercised within the framework of paragraphs 1 to 9 of this Article.
11. As long as a member-State fails to comply with a decision taken in accordance with paragraph 9, the Council may decide to apply or, as the case may be, intensify one or more of the following measures:
— to require that the member-State concerned shall publish additional information, to be specified by the Council, before issuing bonds and securities;
— to invite the European Investment Bank to reconsider its lending policy towards the member-State concerned;
— to require that the member-State concerned makes a noninterest-bearing deposit of an appropriate size with the Community until the excessive deficit has, in the view of the Council, been corrected;
— to impose fines of an appropriate size.
The President of the Council shall inform the European Parliament of the decisions taken.
12. The Council shall abrogate some or all of its decisions as referred to in paragraphs 6 to 9 and 11 to the extent that the excessive deficit in the member-State concerned has, in the view of the Council, been corrected.
If the Council previously has made public recommendations, it shall, as soon as the decision under paragraph 8 has been abrogated, make a public statement that an excessive deficit in the member-State concerned no longer exists.
13. When taking the decisions referred to in paragraphs 7 to 9, 11 and 12, the Council shall act on a recommendation from the Commission by a majority of two thirds of the votes of its members weighted in accordance with Article 148(2) and excluding the votes of the representative of the member-State concerned.
14. Further provisions relating to the implementation of the procedure described in this Article are set out in the Protocol on the excessive deficit procedure annexed to this Treaty.
The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the ECB, adopt the appropriate provisions which shall then replace the said Protocol.
Subject to the other provisions of this paragraph the Council shall, before January 1994, acting by a qualified majority on a proposal from the Commission and after consulting the European Parliament, lay down detailed rules and definitions for the application of the provisions of the said Protocol.
Chapter 2 (Monetary Policy)
Article 105
1. The primary objective of the ESCB shall be to maintain price stability. Without prejudice to the objective of price stability, the ESCB shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2.
The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 3a.
2. The basic tasks to be carried out through the ESCB shall be:
— to define and implement the monetary policy of the Community;
— to conduct foreign exchange operations consistent with the provisions of Article 109;
— to hold and manage the official foreign reserves of the member-States;
— to promote the smooth operation of payment systems.
3. The third indent of paragraph 2 shall be without prejudice to the holding and management by the governments of member-States of foreign exchange working balances.
4. The ECB shall be consulted:
— on any proposed Community act in its fields of competence;
— by national authorities regarding any draft legislative provision in its fields of competence, but within the limits and under the conditions set out by the Council in accordance with the procedure laid down in Article 106(6).
The ECB may submit opinions to the appropriate Community institutions or bodies or to national authorities on matters within its fields of competence.
5. The ESCB shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system.
6. The Council may, acting unanimously on a proposal from the Commission and after consulting the ECB and after receiving the assent of the European Parliament, confer upon the ECB specific tasks concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings.
Article 105a
1. The ECB shall have the exclusive right to authorise the issue of bank notes within the Community. The ECB and the national central banks may issue such notes.
The bank notes issued by the ECB and the national central banks shall be the only such notes to have the status of legal tender within the Community.
2. Member-States may issue coins subject to approval by the ECB of the volume of the issue. The Council may, acting in accordance with the procedure referred to in Article 189c and after consulting the ECB, adopt measures to harmonise the denominations and technical specifications of all coins intended for circulation to the extent necessary to permit their smooth circulation within the Community.
Article 106
1. The ESCB shall be composed of the ECB and of the national central banks.
2. The ECB shall have legal personality.
3. The ESCB shall be governed by the decision-making bodies of the ECB which shall be the Governing Council and the Executive Board.
4. The Statute of the ESCB is laid down in a Protocol annexed to this Treaty.
5. Articles 5.1, 5.2, 5.3, 17, 18, 19.1, 22, 23, 24, 26, 32.2, 32.3, 32.4, 32.6, 33.1(a) and 36 of the Statute of the ESCB may be amended by the Council, acting either by a qualified majority on a recommendation from the ECB and after consulting the Commission or unanimously on a proposal from the Commission and after consulting the ECB. In either case, the assent of the European Parliament shall be required.
6. The Council, acting by a qualified majority either on a proposal from the Commission and after consulting the European Parliament and the ECB, or on a recommendation from the ECB and after consulting the European Parliament and the Commission, shall adopt the provisions referred to in Articles 4, 5.4, 19.2, 20, 28.1, 29.2, 30.4 and 34.3 of the Statute of the ESCB.
Article 107
When exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and the Statute of the ESCB, neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a member-State or from any other body.
The Community institutions and bodies and the governments of the member-States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks.
Article 108
Each member-State shall ensure, at the latest at the date of the establishment of the ESCB, that its national legislation including the statutes of its national central bank is compatible with this Treaty and the Statute of the ESCB.
Article 108a
1. In order to carry out the tasks entrusted to the ESCB, the ECB shall, in accordance with the provisions of this Treaty and under the conditions laid down in the Statute of the ESCB:
— make regulations to the extent necessary to implement the tasks defined in Article 3.1, first indent, Articles 19.1, 22 or 25.2 of the Statute of the ESCB and in cases which shall be laid down in the acts of the Council referred to in Article 106(6);
— take decisions necessary for carrying out the tasks entrusted to the ESCB under this Treaty and the Statute of the ESCB;
— make recommendations and deliver opinions.
2. A regulation shall have general application. It shall be binding in its entirety and directly applicable in all member-States.
Recommendations and opinions shall have no binding force.
A decision shall be binding in its entirety upon those to whom it is addressed.
Articles 190 to 192 shall apply to regulations and decisions adopted by the ECB.
The ECB may decide to publish its decisions, recommendations and opinions.
3. Within the limits and under the conditions adopted by the Council under the procedure laid down in Article 106(6), the ECB shall be entitled to impose fines or periodic penalty payments on undertakings for failure to comply with obligations under its regulations and decisions.
Article 109
1. By way of derogation from Article 228, the Council may, acting unanimously on a recommendation from the ECB or from the Commission, and after consulting the ECB in an endeavour to reach a consensus consistent with the objective of price stability, after consulting the European Parliament, in accordance with the procedure in paragraph 3 for determining the arrangements, conclude formal agreements on an exchange rate system for the ECU in relation to non-Community currencies.
The Council may, acting by a qualified majority on a recommendation from the ECB or from the Commission, and after consulting the ECB in an endeavour to reach a consensus consistent with the objective of price stability, adopt, adjust or abandon the central rates of the ECU within the exchange rate system.
The President of the Council shall inform the European Parliament of the adoption, adjustment or abandonment of the ECU central rates.
2. In the absence of an exchange rate system in relation to one or more non-Community currencies as referred to in paragraph 1, the Council, acting by a qualified majority either on a recommendation from the Commission and after consulting the ECB, or on a recommendation from the ECB, may formulate general orientations for exchange rate policy in relation to these currencies.
These general orientations shall be without prejudice to the primary objective of the ESCB to maintain price stability.
3. By way of derogation from Article 228, where agreements concerning monetary or foreign exchange regime matters need to be negotiated by the Community with one or more States or international organisations, the council, acting by a qualified majority on a recommendation from the Commission and after consulting the ECB, shall decide the arrangements for the negotiation and for the conclusion of such agreements.
These arrangements shall ensure that the community expresses a single position. The Commission shall be fully associated with the negotiations. Agreements concluded in accordance with this paragraph shall be binding on the institutions of the Community, on the ECB and on member-States.
4. Subject to paragraph 1, the Council shall, on a proposal from the Commission and after consulting the ECB, acting by a qualified majority decide on the position of the Community at international level as regards issues of particular relevance to economic and monetary union and, acting unanimously, decide its representation in compliance with the allocation of powers laid down in Articles 103 and 105.
5. Without prejudice to Community competence and Community agreements as regards Economic and Monetary Union, member-States may negotiate in international bodies and conclude international agreements.
Chapter 3 (Institutional Provisions)
Article 109a
1. The Government Council of the ECB shall comprise the members of the Executive Board of the ECB and the Governors of the national central banks.
2. (a) The executive Board shall comprise the President, the Vice-President and four other members.
(b) The President, the Vice-President and the other members of the Executive Board shall be appointed from among persons of recognised standing and professional experience in monetary or banking matters by common accord of the Governments of the member-States at the level of Heads of State or of Government, on a recommendation from the Council, after it has consulted the European Parliament and the Governing Council of the ECB.
Their term of office shall be eight years and shall not be renewable. Only nationals of member-States may be members of the Executive Board.
Article 109b
1. The President of the Council and a member of the Commission may participate, without having the right to vote, in meetings of the Governing Council of the ECB.
The President of the Council may submit a motion for deliberation to the Governing Council of the ECB.
2. The President of the ECB shall be invited to participate in Council meetings when the Council is discussing matters relating to the objectives and tasks of the ESCB.
3. The ECB shall address an annual report on the activities of the ESCB and on the monetary policy of both the previous and current year to the European Parliament, the Council and the Commission, and also to the European Council.
The President of the ECB shall present this report to the Council and to the European Parliament, which may hold a general debate on that basis.
The President of the ECB and the other members of the Executive Board may, at the request of the European Parliament or on their own initiative, be heard by the competent Committees of the European Parliament.
Article 109c
1. In order to promote co-ordination of the policies of member-States to the full extent needed for the functioning of the internal market, a Monetary Committee with advisory status is hereby set up.
It shall have the following tasks:
— to keep under review the monetary and financial situation of the member-States and of the Community and the general payments system of the member-States and to report regularly thereon to the Council and to the Commission;
— to deliver opinions at the request of the Council or of the Commission, or on its own initiative for submission to those institutions;
— without prejudice to Article 151, to contribute to the preparation of the work of the Council referred to in Articles 73f, 73g, 103(2), (3), (4) and (5), 103a, 104a, 104b, 104c, 109e(2), 109f(6), 109h, 109i, 109j(2) and 109k(1);
— to examine, at lease once a year, the situation regarding the movement of capital and the freedom of payments, as they result from the application of this Treaty and of measures adopted by the Council; the examination shall cover all measures relating to capital movements and payments; the Committee shall report to the commission and to the Council on the outcome of this examination.
The member-States and the Commission shall each appoint two members of the Monetary Committee.
2. At the start of the third stage, an Economic and Financial Committee shall be set up. The Monetary Committee provided for in paragraph 1 shall be dissolved.
The Economic and Financial Committee shall have the following tasks:
— to deliver opinions at the request of the Council or of the Commission, or on its own initiative for submission to those institutions;
— to keep under review the economic and financial situation of the member-States and of the Community and to report regularly thereon to the Council and to the Commission, in particular on financial relations with third countries and international institutions;
— without prejudice to Article 151, to contribute to the preparation of the work of the Council referred to in Articles 73f, 73g, 103(2), (3), (4) and (5), 103a, 104a, 104b, 104c, 105(6), 105a(2), 106(5) and (6), 109, 109h, 109i(2) and (3), 109k(2), 1091(4) and (5), and to carry out other advisory and preparatory tasks assigned to it by the Council;
— to examine, at least once a year, the situation regarding the movement of capital and the freedom of payments, as they result from the application of this Treaty and of measures adopted by the Council; the examination shall cover all measures relating to capital movements and payments; the Committee shall report to the Commission and to the council on the outcome of this examination.
The member-States, the Commission and the ECB shall each appoint no more than two members of the Committee.
3. The Council shall, acting by a qualified majority on a proposal from the Commission and after consulting the ECB and the Committee referred to in this Article, lay down detailed provisions concerning the composition of the Economic and Financial Committee. The President of the Council shall inform the European Parliament of such a decision.
4. In addition to the tasks set out in paragraph 2, if and as long as there are member-States with a derogation as referred to in Articles 109k and 1091, the Committee shall keep under review the monetary and financial situation and the general payments system of those member-States and report regularly thereon to the Council and to the Commission.
Article 109d
For matters within the scope of Articles 103(4), 104c with the exception of paragraph 14, 109, 109j, 109k and 1091(4) and (5), the Council or a member-State may request the Commission to make a recommendation or a proposal, as appropriate. The Commission shall examine this request and submit its conclusions to the Council without delay.
Chapter 4 (Transitional Provisions)
Article 109e
1. The second stage for achieving economic and monetary union shall begin on 1 January 1994.
2. Before that date
(a) each member-State shall:
— adopt, where necessary, appropriate measures to comply with the prohibitions laid down in Article 73b, without prejudice to Article 73e, and in Articles 104 and 104a(1);
— adopt, if necessary, with a view to permitting the assessment provided for in subparagraph (b), multiannual programmes intended to ensure the lasting convergence necessary for the achievement of economic and monetary union, in particular with regard to price stability and sound public finances;
(b) the Council shall, on the basis of a report from the Commission, assess the progress made with regard to economic and monetary convergence, in particular with regard to price stability and sound public finances, and the progress made with the implementation of Community law concerning the internal market.
3. The provisions of Articles 104, 104a(1), 104b(1) and 104c with the exception of paragraphs 1, 9, 11 and 14 shall apply from the beginning of the second stage.
The provisions of Articles 103a(2), 104c(1), (9) and (11), 105, 105a, 107, 109, 109a, 109b and 109c(2) and (4) shall apply from the beginning of the third stage.
4. In the second stage, member-States shall endeavour to avoid excessive government deficits.
5. During the second stage, each member-State shall, as appropriate, start the process leading to the independence of its central bank, in accordance with Article 108.
Article 109f
1. At the start of the second stage, a European Monetary Institute (hereinafter referred to as ‘EMI’) shall be established and take up its duties; it shall have legal personality and be directed and managed by a Council, consisting of a President and the Governors of the national central banks, one of whom shall be Vice-President.
The President shall be appointed by common accord of the Governments of the member-States at the level of Heads of State or of Government, on a recommendation from, as the case may be, the Committee of Governors of the central banks of the member-States (hereinafter referred to as ‘Committee of Governors’) or the Council of the EMI, and after consulting the European Parliament and the Council. The President shall be selected from among persons of recognised standing and professional experience in monetary or banking matters. Only nationals of member-States may be President of the EMI. The Council of the EMI shall appoint the Vice-President.
The Statute of the EMI is laid down in a Protocol annexed to this Treaty.
The Committee of Governors shall be dissolved at the start of the second stage.
2. The EMI shall:
— strengthen co-operation between the national central banks;
— strengthen the co-ordination of the monetary policies of the member-States, with the aim of ensuring price stability;
— monitor the functioning of the European Monetary System;
— hold consultations concerning issues falling within the competence of the national central banks and affecting the stability of financial institutions and markets;
— take over the tasks of the European Monetary Co-operation Fund, which shall be dissolved; the modalities of dissolution are laid down in the Statute of the EMI;
— facilitate the use of the ECU and oversee its development, including the smooth functioning of the ECU clearing system.
3. For the preparation of the third stage, the EMI shall:
— prepare the instruments and the procedures necessary for carrying out a single monetary policy in the third stage;
— promote the harmonisation, where necessary, of the rules and practices governing the collection, compilation and distribution of statistics in the areas within its field of competence;
— prepare the rules for operations to be undertaken by the national central banks in the framework of the ESCB;
— promote the efficiency of cross-border payments;
— supervise the technical preparation of ECU bank notes.
At the latest by 31 December 1996, the EMI shall specify the regulatory, organisational and logistical framework necessary for the ESCB to perform its tasks in the third stage. This framework shall be submitted for decision to the ECB at the date of its establishment.
4. The EMI, acting by a majority of two thirds of the members of its Council may:
— formulate opinions or recommendations on the overall orientation of monetary policy and exchange rate policy as well as on related measures introduced in each member-State;
— submit opinions or recommendations to Governments and to the Council on policies which might affect the internal or external monetary situation in the Community and, in particular, the functioning of the European Monetary System;
— make recommendations to the monetary authorities of the member-States concerning the conduct of their monetary policy.
5. The EMI, acting unanimously, may decide to publish its opinions and its recommendations.
6. The EMI shall be consulted by the Council regarding any proposed Community act within its field of competence.
Within the limits and under the conditions set out by the Council, acting by a qualified majority on a proposal from the Commission and after consulting the European Parliament and the EMI, the EMI shall be consulted by the authorities of the member-States on any draft legislative provision within its field of competence.
7. The Council may, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the EMI, confer upon the EMI other tasks for the preparation of the third stage.
8. Where this Treaty provides for a consultative role for the ECB, references to the ECB shall be read as referring to the EMI before the establishment of the ECB.
Where this Treaty provides for a consultative role for the EMI, references to the EMI shall be read, before 1 January 1994, as referring to the Committee of Governors.
9. During the second stage, the term ‘ECB’ used in Articles 173, 175, 176, 177, 180 and 215 shall be read as referring to the EMI.
Article 109g
The currency composition of the ECU basket shall not be changed. From the start of the third stage, the value of the ECU shall be irrevocably fixed in accordance with Article 1091(4).
Article 109h
1. Where a member-State is in difficulties or is seriously threatened with difficulties as regards its balance of payments either as a result of an overall disequilibrium in its balance of payments, or as a result of the type of currency at its disposal, and where such difficulties are liable in particular to jeopardise the functioning of the Common Market or the progressive implementation of the common commercial policy, the Commission shall immediately investigate the position of the State in question and the action which, making use of all the means at its disposal, that State has taken or may take in accordance with the provisions of this Treaty.
The Commission shall state what measures it recommends the State concerned to take.
If the action taken by a member-State and the measures suggested by the Commission do not prove sufficient to overcome the difficulties which have arisen or which threaten, the Commission shall, after consulting the Committee referred to in Article 109c, recommend to the Council the granting of mutual assistance and appropriate methods therefor.
The Commission shall keep the Council regularly informed of the situation and of how it is developing.
2. The Council, acting by a qualified majority, shall grant such mutual assistance; it shall adopt directives or decisions laying down the conditions and details of such assistance, which may take such forms as:
(a) a concerted approach to or within any other international organisations to which member-States may have recourse;
(b) measures needed to avoid deflection of trade where the State which is in difficulties maintains or reintroduces quantitative restrictions against third countries;
(c) the granting of limited credits by other member-States, subject to their agreement.
3. If the mutual assistance recommended by the Commission is not granted by the Council or if the mutual assistance granted and the measures taken are insufficient, the Commission shall authorise the State which is in difficulties to take protective measures, the conditions and details of which the Commission shall determine.
Such authorisation may be revoked and such conditions and details may be changed by the Council acting by a qualified majority.
4. Subject to Article 109k(6), this Article shall cease to apply from the beginning of the third stage.
Article 109i
1. Where a sudden crisis in the balance of payments occurs and a decision within the meaning of Article 109h(2) is not immediately taken, the member-State concerned may, as a precaution, take the necessary protective measures. Such measures must cause the least possible disturbance in the functioning of the Common Market and must not be wider in scope than is strictly necessary to remedy the sudden difficulties which have arisen.
2. The Commission and the other member-States shall be informed of such protective measures not later than when they enter into force. The Commission may recommend to the Council the granting of mutual assistance under Article 109h.
3. After the Commission has delivered an opinion and the Committee referred to in Article 109c has been consulted, the Council may, acting by a qualified majority, decide that the State concerned shall amend, suspend or abolish the protective measures referred to above.
4. Subject to Article 109k(6), this Article shall cease to apply from the beginning of the third stage.
Article 109j
1. The Commission and the EMI shall report to the Council on the progress made in the fulfilment by the member-States of their obligations regarding the achievement of economic and monetary union.
These reports shall include an examination of the compatibility between each member-State’s national legislation, including the statutes of its national central bank, and Articles 107 and 108 of this Treaty and the Statute of the ESCB. The reports shall also examine the achievement of a high degree of sustainable convergence by reference to the fulfilment by each member-State of the following criteria:
— the achievement of a high degree of price stability; this will be apparent from a rate of inflation which is close to that of, at most, the three best performing member-States in terms of price stability;
— the sustainability of the government financial position; this will be apparent from having achieved a government budgetary position without a deficit that is excessive as determined in accordance with Article 104c(6);
— the observance of the normal fluctuation margins provided for by the Exchange Rate Mechanism of the European Monetary System, for at least two years, without devaluing against the currency of any other member-State;
— the durability of convergence achieved by the member-State and of its participation in the Exchange Rate Mechanism of the European Monetary System being reflected in the long-term interest rate levels.
The four criteria mentioned in this paragraph and the relevant periods over which they are to be respected are developed further in a Protocol annexed to this Treaty.
The reports of the Commission and the EMI shall also take account of the development of the ECU, the results of the integration of markets, the situation and development of the balances of payments on current account and an examination of the development of unit labour costs and other price indices.
2. On the basis of these reports, the council, acting by a qualified majority on a recommendation from the Commission, shall assess:
— for each member-State, whether it fulfils the necessary conditions for the adoption of a single currency;
— whether a majority of the member-States fulfil the necessary conditions for the adoption of a single currency, and recommend its findings to the Council, meeting in the composition of the Heads of State or of Government. The European Parliament shall be consulted and forward its opinion to the Council, meeting in the composition of the Heads of State or of Government.
3. Taking due account of the reports referred to in paragraph 1 and the opinion of the European Parliament referred to in paragraph 2, the Council, meeting in the composition of Heads of State or of Government, shall, acting by a qualified majority, not later than 31 December 1996:
— decide, on the basis of the recommendations of the Council referred to in paragraph 2, whether a majority of the member-States fulfil the necessary conditions for the adoption of a single currency;
— decide whether it is appropriate for the Community to enter the third stage, and if so
— set the date for the beginning of the third stage.
4. If by the end of 1997 the date for the beginning of the third stage has not been set, the third stage shall start on 1 January 1999. Before 1 July 1998, the Council, meeting in the composition of Heads of State or of Government, after a repetition of the procedure provided for in paragraphs 1 and 2, with the exception of the second indent of paragraph 2, taking into account the reports referred to in paragraph 1 and the opinion of the European Parliament, shall, acting by a qualified majority and on the basis of the recommendations of the Council referred to in paragraph 2, confirm which member-States fulfil the necessary conditions for the adoption of a single currency.
Article 109k
1. If the decision has been taken to set the date in accordance with Article 109j(3), the council shall, on the basis of its recommendations as referred to in Article 109j(2), acting by a qualified majority on a recommendation from the Commission, decide whether any, and if so which, member-States shall have a derogation as defined in paragraph 3 of this Article. Such member-States shall in this Treaty be referred to as ‘Member States with a derogation’.
If the Council has confirmed which member-States fulfil the necessary conditions for the adoption of a single currency, in accordance with Article 109j(4), those member-States which do not fulfil the conditions shall have a derogation as defined in paragraph 3 of this Article. Such member-States shall in this Treaty be referred to as ‘Member-States with a derogation’.
2. At least once every two years, or at the request of a member-State with a derogation, the Commission and the ECB shall report to the Council in accordance with the procedure laid down in Article 109j(1). After consulting the European Parliament and after discussion in the Council, meeting in the composition of the Heads of State or of Government, the Council shall, acting by a qualified majority on a proposal from the Commission, decide which member-States with a derogation fulfil the necessary conditions on the basis of the criteria set out in Article 109j(1), and abrogate the derogations of the member-States concerned.
3. A derogation referred to in paragraph 1 shall entail that the following Articles do not apply to the member-State concerned: Article 104c(9) and (11), 105(1), (2), (3) and (5), 105a, 108a, 109, and 109a(2)(b). The exclusion of such a member-State and its national central bank from rights and obligations within the ESCB is laid down in Chapter IX of the Statute of the ESCB.
4. In Articles 105(1), (2) and (3), 105a, 108a, 109 and 109a(2)(b), ‘Member-States’ shall be read as ‘Member-States without a derogation’.
5. The voting rights of the member-States with a derogation shall be suspended for the Council decisions referred to in the Articles of this Treaty mentioned in paragraph 3. In that case, by way of derogation from Articles 148 and 189a(1), a qualified majority shall be defined as two thirds of the votes of the representatives of the member-States without a derogation weighted in accordance with Article 148(2), and unanimity of those member-States shall be required for an act requiring unanimity.
6. Articles 109h and 109i shall continue to apply to a member-State with a derogation.
Article 109l
1. Immediately after the decision on the date for the beginning of the third stage has been taken in accordance with Article 109j(3), or, as the case may be, immediately after 1 July 1998:
— the Council shall adopt the provisions referred to in Article 106(6);
— the governments of the member-States without a derogation shall appoint, in accordance with the procedure set out in Article 50 of the Statute of the ESCB, the President, the Vice-President and the other members of the Executive Board of the ECB.
If there are member-States with a derogation, the number of members of the Executive Board may be smaller than provided for in Article 11.1 of the Statute of the ESCB, but in no circumstances shall it be less than four.
As soon as the Executive Board is appointed, the ESCB and the ECB shall be established and shall prepare for their full operation as described in this Treaty and the Statute of the ESCB. The full exercise of their powers shall start from the first day of the third stage.
2. As soon as the ECB is established, it shall if necessary, take over functions of the EMI. The EMI shall go into liquidation upon the establishment of the ECB; the modalities of liquidation are laid down in the Statute of the EMI.
3. If and as long as there are member-States with a derogation, and without prejudice to Article 106(3) of this Treaty, the General Council of the ECB referred to in Article 45 of the Statute of the ESCB shall be constituted as a third decision-making body of the ECB.
4. At the starting date of the third stage, the Council shall, acting with the unanimity of the member-States without a derogation, on a proposal from the Commission and after consulting the ECB, adopt the conversion rates at which their currencies shall be irrevocably fixed and at which irrevocably fixed rate the ECU shall be substituted for these currencies, and the ECU will become a currency in its own right. This measure shall by itself not modify the external value of the ECU. The Council shall, acting according to the same procedure, also take the other measures necessary for the rapid introduction of the ECU as the single currency of those member-States.
5. If it is decided, according to the procedure set out in Article 109k(2), to abrogate a derogation, the Council shall, acting with the unanimity of the member-States without a derogation and the member-State concerned, on a proposal from the Commission and after consulting the ECB, adopt the rate at which the ECU shall be substituted for the currency of the member-State concerned, and take the other measures necessary for the introduction of the ECU as the single currency in the member-State concerned.
Article 109m
1. Until the beginning of the third stage, each member-State shall treat its exchange rate policy as a matter of common interest. In so doing, member-States shall take account of the experience acquired in co-operation within the framework of the European Monetary System (EMS) and in developing the ECU, and shall respect existing powers in this field.
2. From the beginning of the third stage and for as long as a member-State has a derogation, paragraph 1 shall apply by analogy to the exchange rate policy of that member-State.
Appendix II 1a EC Regulation Specifying Definitions for the Application of the Prohibitions Referred to in Articles 104 and 104b(1) of the Treaty
Council Regulation (EC) 3603/931 of 13 December 1993
Specifying Definitions for the Application of the Prohibitions Referred to in Articles 104 and 104b(1) of the Treaty
The Council of the European Union,
Having regard to the Treaty establishing the European Community, and in particular Article 104b(2) thereof,
Having regard to the proposal from the Commission,2
In cooperation with the European Parliament,3
Whereas Articles 104 and 104b(1) of the Treaty are directly applicable; whereas the terms featuring in Articles 104 and 104b(1) may be specified, if necessary;
Whereas the terms ‘overdraft facilities’ and ‘other types of credit facility’ used in Article 104 of the Treaty should be defined, particularly with reference to the treatment of claims existing at 1 January 1994;
Whereas it is desirable that the national central banks participating in the third stage of Economic and Monetary Union should enter such Union having on their balance sheets claims negotiable under market conditions, in particular to give the required flexibility to the monetary policy of the European System of Central Banks and to permit a standard contribution from the various national central banks participating in monetary union to the monetary income to be distributed among them;
Whereas the central banks which, after 1 January 1994, still hold claims against the public sector which are non-negotiable or are subject to conditions which are not market conditions should be authorized subsequently to convert such claims into negotiable fixed-maturity securities under market conditions;
Whereas paragraph 11 of the Protocol on certain provisions relating to the United Kingdom of Great Britain and Northern Ireland stipulates that the Government of the United Kingdom may maintain its ‘ways and means’ facility with the Bank of England if and so long as the United Kingdom does not move to the third stage; whereas it is appropriate to make provision for the conversion of the amount of this facility into marketable debt at a fixed maturity and on market terms if the United Kingdom moves to stage three of EMU;
Whereas the Protocol on Portugal lays down that ‘Portugal is hereby authorized to maintain the facility afforded to the Autonomous Regions of the Azores and Madeira to benefit from an interest-free credit facility with the Banco de Portugal under the terms established by existing Portuguese law’; and that ‘Portugal commits itself to pursue its best endeavours in order to put an end to the abovementioned facility as soon as possible’;
Whereas Member States must take appropriate measures to ensure that the prohibitions referred to in Article 104 of the Treaty are applied effectively and fully; whereas, in particular, purchases made on the secondary market must not be used to circumvent the objective of that Article;
Whereas, within the limits laid down in this Regulation, the direct acquisition by the central bank of one Member State of marketable debt instruments issued by the public sector of another Member State does not help to shield the public sector from the discipline of market mechanisms where such purchases are conducted for the sole purpose of managing foreign exchange reserves;
Whereas, notwithstanding the role assigned to the Commission pursuant to Article 169 of the Treaty, it is for the European Monetary Institute and, thereafter, for the European Central Bank, pursuant to Articles 109f(9) and 180 of the Treaty, to ensure that national central banks honour the obligations laid down by the Treaty;
Whereas intra-day credits by the central banks may assist the smooth operation of payment systems; whereas, therefore, intra-day credits in the public sector are compatible with the objectives of Article 104 of the Treaty, provided that no extension to the following day is possible;
Whereas the function of fiscal agent exercised by the central banks should not be impeded; whereas, even if clearing by the central banks of cheques issued by third parties for the public sector’s account may occasionally involve a credit, Article 104 of the Treaty should not be regarded as prohibiting such operations, provided that they do not result overall in a credit for the public sector;
Whereas the holding by the central banks of coins issued by the public sector and credited to the public sector constitutes an interest-free form of credit for the public sector; whereas, however, if only limited amounts are involved, this practice does not interfere with the principle of Article 104 of the Treaty; whereas, therefore, in view of the difficulties which would arise from total prohibition of this form of credit, it may be permitted within the limits laid down in this Regulation;
Whereas, following unification, the Federal Republic of Germany has particular difficulty in complying with the limit set on such assets; whereas it is appropriate in those circumstances to authorize a higher percentage for a limited period;
Whereas the financing by the central banks of obligations falling upon the public sector vis-à-vis the International Monetary Fund or resulting from the implementation of the medium-term financial assistance facility set up within the Community results in foreign claims which have all the characteristics of reserve assets; whereas it is, therefore, appropriate to authorize them;
Whereas public undertakings are covered by the prohibition in Articles 104 and 104b(1); whereas they are defined in Commission Directive 80/723/EEC of 25 June 1980 on the transparency of financial relations between Member States and public undertakings,4
HAS ADOPTED THIS REGULATION:
Article 1
1. For the purposes of Article 104 of the Treaty:
(a) ‘overdraft facilities’ means any provision of funds to the public sector resulting or likely to result in a debit balance;
(b) ‘other type of credit facility’ means:
(i) any claim against the public sector existing at 1 January 1994, except for fixed-maturity claims acquired before that date;
(ii) any financing of the public sector’s obligations vis-à-vis third parties;
(iii) without prejudice to Article 104(2) of the Treaty, any transaction with the public sector resulting or likely to result in a claim against that sector.
2. The following shall not be regarded as ‘debt instruments’ within the meaning of Article 104 of the Treaty: securities acquired from the public sector to ensure the conversion into negotiable fixed-maturity securities under market conditions of:
fixed-maturity claims acquired before 1 January 1994 which are not negotiable or not under market conditions, provided that the maturity of the securities is not subsequent to that of the aforementioned claims;
the amount of the ‘ways and means’ facility maintained by the United Kingdom Government with the Bank of England until the date, if any, on which the United Kingdom moves to stage three of EMU.
Article 2
1. During stage two of EMU, purchases by the national central bank of one Member State of marketable debt instruments issued by the public sector of another Member State shall not be considered direct purchases within the meaning of Article 104 of the Treaty, provided that such purchases are conducted for the sole purpose of managing foreign exchange reserves.
2. During stage three of EMU, the following purchases conducted for the sole purpose of managing foreign exchange reserves shall not be considered direct purchases within the meaning of Article 104 of the Treaty:
purchases by the national central bank of a Member State not participating in stage three of EMU, from the public sector of another Member State, of marketable debt instruments of the latter,
purchases by the European Central Bank or the national central bank of a Member State participating in stage three of EMU, from the public sector of a Member State not participating in stage three, of marketable debt instruments of the latter.
Article 3
For the purposes of this Regulation,
‘public sector’ means Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law or public undertakings of Member States.
‘National central banks’ means the central banks of the Member States and the Luxembourg Monetary Institute.
Article 4
Intra-day credits by the European Central Bank or the national banks to the public sector shall not be considered as a credit facility within the meaning of Article 104 of the Treaty, provided that they remain limited to the day and that no extension is possible.
Article 5
Where the European Central Bank or the national central banks receive from the public sector, for collection, cheques issued by third parties and credit the public sector’s account before the drawee bank has been debited, this operation shall not be considered as a credit facility within the meaning of Article 104 of the Treaty if a fixed period of time corresponding to the normal period for the collection of cheques by the central bank of the Member State concerned has elapsed since receipt of the cheque, provided that any float which may arise is exceptional, is of a small amount and averages out in the short term.
Article 6
The holding by the European Central Bank or the national central banks of coins issued by the public sector and credited to the public sector shall not be regarded as a credit facility within the meaning of Article 104 of the Treaty where the amount of these assets remains at less than 10% of the coins in circulation.
Until 31 December 1996, this figure shall be 15% for Germany.
Article 7
The financing by the European Central Bank or the national central banks of obligations falling upon the public sector vis-à-vis the International Monetary Fund or resulting from the implementation of the medium-term financial assistance facility set up by Regulation (EEC) No 1969/88 5 shall not be regarded as a credit facility within the meaning of Article 104 of the Treaty.
Article 8
1. For the purposes of Articles 104 and 104b(1) of the Treaty, ‘public undertaking’ shall be defined as any undertaking over which the State or other regional or local authorities may directly or indirectly exercise a dominant influence by virtue of their ownership of it, their financial participation therein or the rules which govern it.
A dominant influence on the part of the public authorities shall be presumed when these authorities, directly or indirectly in relation to an undertaking:
(a) hold the major part of the undertaking’s subscribed capital;
(b) control the majority of the votes attaching to shares issued by the undertaking; or
(c) can appoint more than half of the members of the undertaking’s administrative, managerial or supervisory body.
2. For the purposes of Articles 104 and 104b(1) of the Treaty, the European Central Bank and the national central banks do not form part of the public sector.
Article 9
This Regulation shall enter into force on 1 January 1994.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 13 December 1993.
For the Council
The President
Ph. MAYSTADT
Appendix II 1b EC Regulation Specifying Definitions for the Application of the Prohibition of Privileged Access Referred to in Article 104a of the Treaty
Council Regulation (EC) 3604/ 931 of 13 December 1993
Specifying Definitions for the Application of the Prohibition of Privileged Access Referred to in Article 104a of the Treaty
The Council of the European Union,
Having regard to the Treaty establishing the European Community, and in particular Article 104a(2) thereof,
Having regard to the proposal from the Commission,2
In cooperation with the European Parliament,3
Whereas the prohibition of privileged access to financial institutions, as laid down in Article 104a of the Treaty, forms an essential element of the submission of the public sector in its financing operations to the discipline of the market mechanism and so makes a contribution to the strengthening of budgetary discipline; whereas, moreover, it places the Member States on an equal footing as regards public sector access to financial institutions;
Whereas the Council must specify definitions for the application of such prohibition;
Whereas the Member States and the Community must act with due regard for the principle of an open market economy in which there is free competition;
Whereas, in particular, this Regulation cannot affect the methods for organizing markets complying with that principle;
Whereas this Regulation does not seek to interfere with any operation of public financial institutions complying with the same principle;
Whereas Article 104a of the Treaty prohibits measures establishing privileged access; whereas the types of acts concerned by this prohibition should be specified; whereas the commitments freely made by financial institutions in the framework of contractual relations unquestionably cannot be affected;
Whereas the same Article provides that prudential considerations may justify departure from the principle of this prohibition; whereas laws, regulations or administrative actions may not, however, under the cover of prudential consideration, be used to establish disguised privileged access;
Whereas public undertakings are covered by the same prohibition; whereas they are defined in Commission Directive 80/723/EEC of 25 June 1980 on the transparency of financial relations between the Member States and public undertakings;4
Whereas, for reasons of monetary policy, financial institutions and, in particular, credit institutions may be obliged to hold claims against the European Central Bank and/or national central banks;
Whereas the European Central Bank and national central banks may not, as public authorities, take measures establishing privileged access; whereas the rules on mobilization or pledging of debt instruments enacted by the European Central Bank or by national central banks must not be used as a means of circumventing the prohibition of privileged access;
Whereas, in order to avoid any circumvention of the prohibition, the definitions in Community law of the various types of financial institution should be supplemented by a reference to those institutions engaging in financial activities which have not yet been harmonized at Community level, such as, for instance, branches of third-country establishments, holding and factoring companies, uncoordinated undertakings for collective investment in transferable securities (UCITS), institutions for retirement provision, etc.,
HAS ADOPTED THIS REGULATION:
Article 1
1. For the purposes of Article 104a of the Treaty, ‘any measure establishing privileged access’ shall be defined as any law, regulation or any other binding legal instrument adopted in the exercise of public authority which:
obliges financial institutions to acquire or to hold liabilities of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law or public undertakings of Member States (hereinafter referred to as ‘public sector’), or
confers tax advantages which may benefit only financial institutions or financial advantages which do not comply with the principles of a market economy, in order to encourage the acquiring or the holding by those institutions of such liabilities.
2. Privileged access shall not be regarded as being established by those measures which give rise to:
obligations for funding social housing under special terms such as, inter alia, an obligation to centralize funds with public financial institutions, when the funding terms prevailing for the public sector are identical to those for funding of the same nature granted to private borrowers for the same purposes,
the obligation to centralize funds with a public credit institution, in so far as such a constraint is an integral part, as at 1 January 1994, of the organization of a particular network of credit institutions or of specific savings arrangements designed for households and intended to provide the whole of the network or the specific arrangements with financial security. The use of such centralized funds must be determined by the management bodies of the public credit institution concerned and comply with the principle of a market economy where there is free competition,
obligations to finance the repair of disaster damage, provided that the conditions for financing repairs are not more favourable when damage is sustained by the public sector than when it is sustained by the private sector.
Article 2
For the purposes of Article 104a of the Treaty, ‘prudential considerations’ shall be those which underlie national laws, regulations or administrative actions based on, or consistent with, EC law and designed to promote the soundness of financial institutions so as to strengthen the stability of the financial system as a whole and the protection of the customers of those institutions.
Article 3
1. For the purposes of Article 104a of the Treaty, ‘public undertaking’ shall be defined as any undertaking over which the State or other regional or local authorities may exercise directly or indirectly a dominant influence by virtue of their ownership of it, their financial participation therein or the rules which govern it.
A dominant influence on the part of the State or other regional or local authorities shall be presumed when these authorities, directly or indirectly in relation to an undertaking:
(a) hold the major part of the undertaking’s subscribed capital;.
(b) control the majority of the votes attaching to shares issued by the undertaking; or.
(c) can appoint more than half of the members of the undertaking’s administrative, managerial or supervisory body.
2. Without prejudice to their obligation as public authorities not to take measures establishing privileged access within the meaning of Article 104a of the Treaty, the European Central Bank and the national central banks shall not, for the purposes of this Article, be considered as forming part of the public sector.
3. ‘National central banks’ means the central banks of the Member States and the Luxembourg Monetary Institute.
Article 4
1. For the purposes of Article 104a of the Treaty, ‘financial institutions’ means:
credit institutions as defined in the first indent of Article 1 of Directive 77/780/EEC,5
insurance undertakings as defined in Article 1, point (a) of Directive 92/49/EEC,6
assurance undertakings as defined in Article 1, point (a) of Directive 92/96/EEC,7
UCITS as defined in Article 1(2) of Directive 85/611/EEC,8
investment firms as defined in Article 1(2) of Directive 93/22/EEC,9
other undertakings the activities of which are similar to those of the undertakings referred to in the previous indents or the principal activity of which is to acquire holdings of financial assets or to transform financial claims.
2. The following institutions do not form part of the financial institutions defined in paragraph 1:
the European Central Bank and national central banks,
post office financial services when they form part of the general government sector defined in accordance with the European System of Integrated Economic Accounts or when their main activity is to act as the financial agent of government, and
the institutions which are part of the general government sector defined in accordance with the European System of Integrated Economic Accounts or the liabilities of which correspond completely to a public debt.
Article 5
This Regulation shall enter into force on 1 January 1994.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 13 December 1993.
For the Council
The President
Ph. MAYSTADT
Appendix II 2 Protocol on the Statute of the European System of Central Banks and of the European Central Bank
[Annexed to E.C. Treaty (Article 4a)]
CHAPTER I CONSTITUTION OF THE ESCB
Article 1 (The European System of Central Banks)
1. The European System of Central Banks (ESCB) and the European Central Bank (ECB) shall be established in accordance with Article 4a of this Treaty; they shall perform their tasks and carry on their activities in accordance with the provisions of this Treaty and of this Statute.
2. In accordance with Article 106(1) of this Treaty, the ESCB shall be composed of the ECB and of the central banks of the member-States (‘national central banks’). The Institut Monétaire Luxembourgeois will be the central bank of Luxembourg.
CHAPTER II OBJECTIVES AND TASKS OF THE ESCB
Article 2 (Objectives)
In accordance with Article 105(1) of this Treaty, the primary objective of the ESCB shall be to maintain price stability.
Without prejudice to the objective of price stability, it shall support the general economic policies in the Community with a view to contributing to the achievement of the objectives of the Community as laid down in Article 2 of this Treaty.
The ESCB shall act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources, and in compliance with the principles set out in Article 3a of this Treaty.
Article 3 (Tasks)
1. In accordance with Article 105(2) of this Treaty, the basic tasks to be carried out through the ESCB shall be:
— to define and implement the monetary policy of the Community;
— to conduct foreign exchange operations consistent with the provisions of Article 109 of this Treaty;
— to hold and manage the official foreign reserves of the member-States;
— to promote the smooth operation of payment systems.
2. In accordance with Article 105(3) of this Treaty, the third indent of Article 3.1 shall be without prejudice to the holding and management by the governments of member-States of foreign exchange working balances.
3. In accordance with Article 105(5) of this Treaty, the ESCB shall contribute to the smooth conduct of policies pursued by the competent authorities relating to the prudential supervision of credit institutions and the stability of the financial system.
Article 4 (Advisory functions)
In accordance with Article 105(4) of this Treaty:
(a) the ECB shall be consulted:
— on any proposed Community act in its fields of competence;
by national authorities regarding any draft legislative provision in its fields of competence, but within the limits and under the conditions set out by the Council in accordance with the procedure laid down in Article 42;
(b) the ECB may submit opinions to the appropriate Community institutions or bodies or to national authorities on matters in its fields of competence.
Article 5 (Collection of statistical information)
1. In order to undertake the tasks of the ESCB, the ECB, assisted by the national central banks, shall collect the necessary statistical information either from the competent national authorities or directly from economic agents. For these purposes it shall co-operate with the Community institutions or bodies and with the competent authorities of the member-States or third countries and with international organisations.
2. The national central banks shall carry out, to the extent possible, the tasks described in Article 5.1.
3. The ECB shall contribute to the harmonisation, where necessary, of the rules and practices governing the collection, compilation and distribution of statistics in the areas within its fields of competence.
4. The Council, in accordance with the procedure laid down in Article 42, shall define the natural and legal persons subject to reporting requirements, the confidentiality regime and the appropriate provisions for enforcement.
Article 6 (International co-operation)
1. In the field of international co-operation involving the tasks entrusted to the ESCB, the ECB shall decide how the ESCB shall be represented.
2. The ECB and, subject to its approval, the national central banks may participate in international monetary institutions.
3. Articles 6.1 and 6.2 shall be without prejudice to Article 109(4) of this Treaty.
CHAPTER III: ORGANISATION OF THE ESCB
Article 7 (Independence)
In accordance with Article 107 of this Treaty, when exercising the powers and carrying out the tasks and duties conferred upon them by this Treaty and this Statute, neither the ECB, nor a national central bank, nor any member of their decision-making bodies shall seek or take instructions from Community institutions or bodies, from any government of a member-State or from any other body. The Community institutions and bodies and the governments of the member-States undertake to respect this principle and not to seek to influence the members of the decision-making bodies of the ECB or of the national central banks in the performance of their tasks.
Article 8 (General principle)
The ESCB shall be governed by the decision-making bodies of the ECB.
Article 9 (The European Central Bank)
1. The ECB which, in accordance with Article 106(2) of this Treaty, shall have legal personality, shall enjoy in each of the member-States the most extensive legal capacity accorded to legal persons under its law; it may, in particular, acquire or dispose of movable and immovable property and may be a party to legal proceedings.
2. The ECB shall ensure that the tasks conferred upon the ESCB under Article 105(2), (3), and (5) of this Treaty are implemented either by its own activities pursuant to this Statute or through the national central banks pursuant to Articles 12.1 and 14.
3. In accordance with Article 106(3) of this Treaty, the decision-making bodies of the ECB shall be the Governing Council and the Executive Board.
Article 10 (The Governing Council)
1. In accordance with Article 109a(1) of this Treaty, the Governing Council shall comprise the members of the Executive Board of the ECB and the Governors of the national central banks.
2. Subject to Article 10.3, only members of the Governing Council present in person shall have the right to vote. By way of derogation from this rule, the Rules of Procedure referred to in Article 12.3 may lay down that members of the Governing Council may cast their vote by means of teleconferencing. These rules shall also provide that a member of the Governing Council who is prevented from voting for a prolonged period may appoint an alternate as a member of the Governing Council.
Subject to Articles 10.3 and 11.3, each member of the Governing Council shall have one vote. Save as otherwise provided for in this Statute, the Governing Council shall act by a simple majority. In the event of a tie, the President shall have the casting vote.
In order for the Governing Council to vote, there shall be a quorum of two-thirds of the members. If the quorum is not met, the President may convene an extraordinary meeting at which decisions may be taken without regard to the quorum.
3. For any decisions to be taken under Articles 28, 29, 30, 32, 33 and 51, the votes in the Governing Council shall be weighted according to the national central banks’ shares in the subscribed capital of the ECB. The weights of the votes of the members of the Executive Board shall be zero. A decision requiring a qualified majority shall be adopted if the votes cast in favour represent at least two thirds of the subscribed capital of the ECB and represent at least half of the shareholders. If a Governor is unable to be present, he may nominate an alternate to cast his weighted vote.
4. The proceedings of the meetings shall be confidential. The Governing Council may decide to make the outcome of its deliberations public.
5. The Governing Council shall meet at least ten times a year.
Article 11 (The Executive Board)
1. In accordance with Article 109a(2)(a) of this Treaty, the Executive Board shall comprise the President, the Vice-President and four other members.
The members shall perform their duties on a full-time basis. No member shall engage in any occupation, whether gainful or not, unless exemption is exceptionally granted by the Governing Council.
2. In accordance with Article 109a(2)(b) of this Treaty, the President, the Vice-President and the other Members of the Executive Board shall be appointed from among persons of recognised standing and professional experience in monetary or banking matters by common accord of the governments of the member-States at the level of the Heads of State or of Government, on a recommendation from the Council after it has consulted the European Parliament and the Governing Council.
Their term of office shall be eight years and shall not be renewable.
Only nationals of member-States may be members of the Executive Board.
3. The terms and conditions of employment of the members of the Executive Board, in particular their salaries, pensions and other social security benefits shall be the subject of contracts with the ECB and shall be fixed by the Governing Council on a proposal from a Committee comprising three members appointed by the Governing Council and three members appointed by the Council. The members of the Executive Board shall not have the right to vote on matters referred to in this paragraph.
4. If a member of the Executive Board no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct, the Court of Justice may, on application by the Governing Council or the Executive Board, compulsorily retire him.
5. Each member of the Executive Board present in person shall have the right to vote and shall have, for that purpose, one vote. Save as otherwise provided, the Executive Board shall act by a simple majority of the votes cast. In the event of a tie, the President shall have the casting vote. The voting arrangements shall be specified in the Rules of Procedure referred to in Article 12.3.
6. The Executive Board shall be responsible for the current business of the ECB.
7. Any vacancy on the Executive Board shall be filled by the appointment of a new member in accordance with Article 11.2.
Article 12 (Responsibilities of the decision-making bodies)
1. The Governing Council shall adopt the guidelines and take the decisions necessary to ensure the performance of the tasks entrusted to the ESCB under this Treaty and this Statute. The Governing Council shall formulate the monetary policy of the Community including, as appropriate, decisions relating to intermediate monetary objectives, key interest rates and the supply of reserves in the ESCB, and shall establish the necessary guidelines for their implementation.
The Executive Board shall implement monetary policy in accordance with the guidelines and decisions laid down by the Governing Council. In doing so the Executive Board shall give the necessary instructions to national central banks. In addition the Executive Board may have certain powers delegated to it where the Governing Council so decides.
To the extent deemed possible and appropriate and without prejudice to the provisions of this Article, the ECB shall have recourse to the national central banks to carry out operations which form part of the tasks of the ESCB.
2. The Executive Board shall have responsibility for the preparation of meetings of the Governing Council.
3. The Governing Council shall adopt Rules of Procedure which determine the internal organisation of the ECB and its decision-making bodies.
4. The Governing Council shall exercise the advisory functions referred to in Article 4.
5. The Governing Council shall take the decisions referred to in Article 6.
Article 13 (The President)
1. The President or, in his absence, the Vice-President shall chair the Governing Council and the Executive Board of the ECB.
2. Without prejudice to Article 39, the President or his nominee shall represent the ECB externally.
Article 14 (National central banks)
1. In accordance with Article 108 of this Treaty, each member-State shall ensure, at the latest at the date of the establishment of the ESCB, that its national legislation, including the statutes of its national central bank, is compatible with this Treaty and this Statute.
2. The statutes of the national central banks shall, in particular, provide that the term of office of a Governor of a national central bank shall be no less than five years.
A Governor may be relieved from office only if he no longer fulfils the conditions required for the performance of his duties or if he has been guilty of serious misconduct.
A decision to this effect may be referred to the Court of Justice by the Governor concerned or the Governing Council on grounds of infringement of this Treaty or of any rule of law relating to its application. Such proceedings shall be instituted within two months of the publication of the decision or of its notification to the plaintiff or, in the absence thereof, of the day on which it came to the knowledge of the latter, as the case may be.
3. The national central banks are an integral part of the ESCB and shall act in accordance with the guidelines and instructions of the ECB. The Governing Council shall take the necessary steps to ensure compliance with the guidelines and instructions of the ECB, and shall require that any necessary information be given to it.
4. National central banks may perform functions other than those specified in this Statute unless the Governing Council finds, by a majority of two thirds of the votes cast, that these interfere with the objectives and tasks of the ESCB. Such functions shall be performed on the responsibility and liability of national central banks and shall not be regarded as being part of the functions of the ESCB.
Article 15 (Reporting commitments)
1. The ECB shall draw up and publish reports on the activities of the ESCB at least quarterly.
2. A consolidated financial statement of the ESCB shall be published each week.
3. In accordance with Article 109b(3) of this Treaty, the ECB shall address an annual report on the activities of the ESCB and on the monetary policy of both the previous and the current year to the European Parliament, the Council and the Commission, and also to the European Council.
4. The reports and statements referred to in this Article shall be made available to interested parties free of charge.
Article 16 (Bunk notes)
In accordance with Article 105a(1) of this Treaty, the Governing Council shall have the exclusive right to authorise the issue of bank notes within the Community.
The ECB and the national central banks may issue such notes. The bank notes issued by the ECB and the national central banks shall be the only such notes to have the status of legal tender within the Community.
The ECB shall respect as far as possible existing practices regarding the issue and design of bank notes.
CHAPTER IV MONETARY FUNCTIONS AND OPERATIONS OF THE ESCB
Article 17 (Accounts with the ECB and the national central banks)
In order to conduct their operations, the ECB and the national central banks may open accounts for credit institutions, public entities and other market participants and accept assets, including book-entry securities, as collateral.
Article 18 (Open market and credit operations)
1. In order to achieve the objectives of the ESCB and to carry out its tasks, the ECB and the national central banks may:
— operate in the financial markets by buying and selling outright (spot and forward) or under repurchase agreement and by lending or borrowing claims and marketable instruments, whether in Community or in non-Community currencies, as well as precious metals;
— conduct credit operations with credit institutions and other market participants, with lending being based on adequate collateral.
2. The ECB shall establish general principles for open market and credit operations carried out by itself or the national central banks, including for the announcement of conditions under which they stand ready to enter into such transactions.
Article 19 (Minimum reserves)
1. Subject to Article 2, the ECB may require credit institutions established in member-States to hold minimum reserves on accounts with the ECB and national central banks in pursuance of monetary policy objectives. Regulations concerning the calculation and determination of the required minimum reserves may be established by the Governing Council. In cases of non-compliance the ECB shall be entitled to levy penalty interest and to impose other sanctions with comparable effect.
2. For the application of this Article, the Council shall, in accordance with the procedure laid down in Article 42, define the basis for minimum reserves and the maximum permissible ratios between those reserves and their basis, as well as the appropriate sanctions in cases of non-compliance.
Article 20 (Other instruments of monetary control)
The Governing Council may, by a majority of two thirds of the votes cast, decide upon the use of such other operational methods of monetary control as it sees fit, respecting Article 2.
The Council shall, in accordance with the procedure laid down in Article 42, define the scope of such methods if they impose obligations on third parties.
Article 21 (Operations with public entities)
1. In accordance with Article 104 of this Treaty, overdrafts or any other type of credit facility with the ECB or with the national central banks in favour of Community institutions or bodies, central governments, regional, local or other public authorities, other bodies governed by public law or public undertakings of member-States shall be prohibited, as shall the purchase directly from them by the ECB or national central banks of debt instruments.
2. The ECB and national central banks may act as fiscal agents for the entities referred to in Article 21.1.
3. The provisions of this Article shall not apply to publicly-owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the ECB as private credit institutions.
Article 22 (Clearing and payment systems)
The ECB and national central banks may provide facilities, and the ECB may make regulations, to ensure efficient and sound clearing and payment systems within the Community and with other countries.
Article 23 (External operations)
The ECB and national central banks may:
— establish relations with central banks and financial institutions in other countries and, where appropriate, with international organisations;
— acquire and sell spot and forward all types of foreign exchange assets and precious metals; the term ‘foreign exchange asset’ shall include securities and all other assets in the currency of any country or units of account and in whatever form held;
— hold and manage the assets referred to in this Article;
— conduct all types of banking transactions in relations with third countries and international organisations, including borrowing and lending operations.
Article 24 (Other operations)
In addition to operations arising from their tasks, the ECB and national central banks may enter into operations for their administrative purposes or for their staff.
CHAPTER V PRUDENTIAL SUPERVISION
Article 25 (Prudential supervision)
1. The ECB may offer advice to and be consulted by the Council, the Commission and the competent authorities of the member-States on the scope and implementation of Community legislation relating to the prudential supervision of credit institutions and to the stability of the financial system.
2. In accordance with any decision of the Council under Article 105(6) of this Treaty, the ECB may perform specific tasks concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings.
CHAPTER VI FINANCIAL PROVISIONS OF THE ESCB
Article 26 (Financial accounts)
1. The financial year of the ECB and national central banks shall begin on the first day of January and end on the last day of December.
2. The annual accounts of the ECB shall be drawn up by the Executive Board, in accordance with the principles established by the Governing Council.
The accounts shall be approved by the Governing Council and shall thereafter be published.
3. For analytical and operational purposes, the Executive Board shall draw up a consolidated balance sheet of the ESCB, comprising those assets and liabilities of the national central banks that fall within the ESCB.
4. For the application of this Article, the Governing Council shall establish the necessary rules for standardising the accounting and reporting of operations undertaken by the national central banks.
Article 27 (Auditing)
1. The accounts of the ECB and national central banks shall be audited by independent external auditors recommended by the Governing Council and approved by the Council.
The auditors shall have full power to examine all books and accounts of the ECB and national central banks and obtain full information about their transactions.
2. The provisions of Article 188b of this Treaty shall only apply to an examination of the operational efficiency of the management of the ECB.
Article 28 (Capital of the ECB)
1. The capital of the ECB, which shall become operational upon its establishment, shall be 5,000 million ECUs.
The capital may be increased by such amounts as may be decided by the Governing Council acting by the qualified majority provided for in Article 10.3, within the limits and under the conditions set by the Council under the procedure laid down in Article 42.
2. The national central banks shall be the sole subscribers to and holders of the capital of the ECB. The subscription of capital shall be according to the key established in accordance with Article 29.
3. The Governing Council, acting by the qualified majority provided for in Article 10.3, shall determine the extent to which and the form in which the capital shall be paid up.
4. Subject to Article 28.5, the shares of the national central banks in the subscribed capital of the ECB may not be transferred, pledged or attached.
5. If the key referred to in Article 29 is adjusted, the national central banks shall transfer among themselves capital shares to the extent necessary to ensure that the distribution of capital shares corresponds to the adjusted key.
The Governing Council shall determine the terms and conditions of such transfers.
Article 29 (Key for capital subscription)
1. When in accordance with the procedure referred to in Article 1091(1) of this Treaty the ESCB and the ECB have been established, the key for subscription of the ECB’s capital shall be established. Each national central bank shall be assigned a weighting in this key which shall be equal to the sum of:
— 50 per cent. of the share of its respective member-State in the population of the Community in the penultimate year preceding the establishment of the ESCB;
— 50 per cent. of the share of its respective member-State in the gross domestic product at market prices of the Community as recorded in the last five years preceding the penultimate year before the establishment of the ESCB;
The percentages shall be rounded up to the nearest multiple of 0.05 per cent. points.
2. The statistical data to be used for the application of this Article shall be provided by the Commission in accordance with the rules adopted by the Council under the procedure provided for in Article 42.
3. The weightings assigned to the national central banks shall be adjusted every five years after the establishment of the ESCB by analogy with the provisions laid down in Article 29.1.
The adjusted key shall apply with effect from the first day of the following year.
4. The Governing Council shall take all other measures necessary for the application of this Article.
Article 30 (Transfer of foreign reserve assets to the ECB)
1. Without prejudice to Article 28, the ECB shall be provided by the national central banks with foreign reserve assets, other than member-States’ currencies, ECUs, IMF reserve positions and SDRs, up to an amount equivalent to 50,000 million ECUs. The Governing Council shall decide upon the proportion to be called up by the ECB following its establishment and the amounts called up at later dates.
The ECB shall have the full right to hold and manage the foreign reserves that are transferred to it and to use them for the purposes set out in this Statute.
2. The contributions of each national central bank shall be fixed in proportion to its share in the subscribed capital of the ECB.
3. Each national central bank shall be credited by the ECB with a claim equivalent to its contribution.
The Governing Council shall determine the denomination and remuneration of such claims.
4. Further calls of foreign reserve assets beyond the limit set in Article 30.1 may be effected by the ECB, in accordance with Article 30.2, within the limits and under the conditions set by the Council in accordance with the procedure laid down in Article 42.
5. The ECB may hold and manage IMF reserve positions and SDRs and provide for the pooling of such assets.
6. The Governing Council shall take all other measures necessary for the application of this Article.
Article 31 (Foreign reserve assets held by national central banks)
1. The national central banks shall be allowed to perform transactions in fulfilment of their obligations towards international organisations in accordance with Article 23.
2. All other operations in foreign reserve assets remaining with the national central banks after the transfers referred to in Article 30, and member-States’ transactions with their foreign exchange working balances shall, above a certain limit to be established within the framework of Article 31.3, be subject to approval by the ECB in order to ensure consistency with the exchange rate and monetary policies of the Community.
3. The Governing Council shall issue guidelines with a view to facilitating such operations.
Article 32 (Allocation of monetary income of national central banks)
1. The income accruing to the national central banks in the performance of the ESCB’s monetary policy function (hereinafter referred to as ‘monetary income’) shall be allocated at the end of each financial year in accordance with the provisions of this Article.
2. Subject to Article 32.3, the amount of each national central bank’s monetary income shall be equal to its annual income derived from its assets held against notes in circulation and deposit liabilities to credit institutions. These assets shall be earmarked by national central banks in accordance with guidelines to be established by the Governing Council.
3. If, after the start of the third stage, the balance sheet structure of the national central banks do not, in the judgment of the Governing Council, permit the application of Article 32.2, the Governing Council, acting by a qualified majority, may decide that, by way of derogation from Article 32.2, monetary income shall be measured according to an alternative method for a period of not more than five years.
4. The amount of each national central bank’s monetary income shall be reduced by an amount equivalent to any interest paid by that central bank on its deposit liabilities to credit institutions in accordance with Article 19.
The Governing Council may decide that national central banks shall be indemnified against costs incurred in connection with the issue of bank notes or in exceptional circumstances for specific losses arising from monetary policy operations undertaken for the ESCB.
Indemnification shall be in a form deemed appropriate in the judgment of the Governing Council; these amounts may be offset against the national central banks’ monetary income.
5. The sum of the national central banks’ monetary income shall be allocated to the national central banks in proportion to their paid-up shares in the capital of the ECB, subject to any decision taken by the Governing Council pursuant to Article 33.2.
6. The clearing and settlement of the balances arising from the allocation of monetary income shall be carried out by the ECB in accordance with guidelines established by the Governing Council.
7. The Governing Council shall take all other measures necessary for the application of this Article.
Article 33 (Allocation of net profits and losses of the ECB)
1. The net profit of the ECB shall be transferred in the following order:
(a) an amount to be determined by the Governing Council, which may not exceed 20 per cent. of the net profit, shall be transferred to the general reserve fund subject to a limit equal to 100 per cent. of the capital;
(b) the remaining net profit shall be distributed to the shareholders of the ECB in proportion to their paid-up shares.
2. In the event of a loss incurred by the ECB, the shortfall may be offset against the general reserve fund of the ECB and, if necessary, following a decision by the Governing Council, against the monetary income of the relevant financial year in proportion and up to the amounts allocated to the national central banks in accordance with Article 32.5.
CHAPTER VII GENERAL PROVISIONS
Article 34 (Legal acts)
1. In accordance with Article 108a of this Treaty, the ECB shall:
— make regulations to the extent necessary to implement the tasks defined in Article 3.1, first indent, Articles 19.1, 22 or 25.2 and in cases which shall be laid down in the acts of the Council referred to in Article 42;
— take decisions necessary for carrying out the tasks entrusted to the ESCB under this Treaty and this Statute;
— make recommendations and deliver opinions.
2. A regulation shall have general application. It shall be binding in its entirety and directly applicable in all member-States.
Recommendations and opinions shall have no binding force.
A decision shall be binding in its entirety upon those to whom it is addressed.
Articles 190 and 192 of this Treaty shall apply to regulations and decisions adopted by the ECB.
The ECB may decide to publish its decisions, recommendations and opinions.
3. Within the limits and under the conditions adopted by the Council under the procedure laid down in Article 42, the ECB shall be entitled to impose fines or periodic penalty payments on undertakings for failure to comply with obligations under its regulations and decisions.
Article 35 (Judicial control and related matters)
1. The acts or omissions of the ECB shall be open to review or interpretation by the Court of Justice in the cases and under the conditions laid down in this Treaty.
The ECB may institute proceedings in the cases and under the conditions laid down in this Treaty.
2. Disputes between the ECB, on the one hand, and its creditors, debtors or any other person, on the other, shall be decided by the competent national courts, save where jurisdiction has been conferred upon the Court of Justice.
3. The ECB shall be subject to the liability regime provided for in Article 215 of this Treaty.
The national central banks shall be liable according to their respective national laws.
4. The Court of Justice shall have jurisdiction to give judgment pursuant to any arbitration clause contained in a contract concluded by or on behalf of the ECB, whether that contract be governed by public or private law.
5. A decision of the ECB to bring an action before the Court of Justice shall be taken by the Governing Council.
6. The Court of Justice shall have jurisdiction in disputes concerning the fulfilment by a national central bank of obligations under this Statute.
If the ECB considers that a national central bank has failed to fulfil an obligation under this Statute, it shall deliver a reasoned opinion on the matter after giving the national central bank concerned the opportunity to submit its observations.
If the national central bank concerned does not comply with the opinion within the period laid down by the ECB, the latter may bring the matter before the Court of Justice.
Article 36 (Staff)
1. The Governing Council, on a proposal from the Executive Board, shall lay down the conditions of employment of the staff of the ECB.
2. The Court of Justice shall have jurisdiction in any dispute between the ECB and its servants within the limits and under the conditions laid down in the conditions of employment.
Article 37 (Seat)
Before the end of 1992, the decision as to where the seat of the ECB will be established shall be taken by common accord of the governments of the member-States at the level of Heads of State or of Government.
Article 38 (Professional secrecy)
1. Members of the governing bodies and the staff of the ECB and the national central banks shall be required, even after their duties have ceased, not to disclose information of the kind covered by the obligation of professional secrecy.
2. Persons having access to data covered by Community legislation imposing an obligation of secrecy shall be subject to such legislation.
Article 39 (Signatories)
The ECB shall be legally committed to third parties by the President or by two members of the Executive Board or by the signatures of two members of the staff of the ECB who have been duly authorised by the President to sign on behalf of the ECB.
Article 40 (Privileges and immunities)
The ECB shall enjoy in the territories of the member-States such privileges and immunities as are necessary for the performance of its tasks, under the conditions laid down in the Protocol on the Privileges and Immunities of the European Communities annexed to the Treaty establishing a Single Council and a Single Commission of the European Communities.
CHAPTER VIII AMENDMENT OF THE STATUTE AND COMPLEMENTARY LEGISLATION
Article 41 (Simplified amendment procedure)
1. In accordance with Article 106(5) of this Treaty, Articles 5.1, 5.2, 5.3, 17, 18, 19.1, 22, 23, 24, 26, 32.2, 32.3, 32.4, 32.6, 33.1(a) and 36 of this Statute may be amended by the Council, acting either by a qualified majority on a recommendation from the ECB and after consulting the Commission, or unanimously on a proposal from the Commission and after consulting the ECB. In either case the assent of the European Parliament shall be required.
2. A recommendation made by the ECB under this Article shall require a unanimous decision by the Governing Council.
Article 42 (Complementary legislation)
In accordance with Article 106(6) of this Treaty, immediately after the decision on the date for the beginning of the third stage, the Council, acting by a qualified majority either on a proposal from the Commission and after consulting the European Parliament and the ECB, or on a recommendation from the ECB and after consulting the European Parliament and the Commission, shall adopt the provisions referred to in Articles 4, 5.4, 19.2, 20, 28.1, 29.2, 30.4 and 34.3 of this Statute.
CHAPTER IX TRANSITIONAL AND OTHER PROVISIONS FOR THE ESCB
Article 43 (General Provisions)
1. A derogation as referred to in Article 109k(1) of this Treaty shall entail that the following Articles of this Statute shall not confer any rights or impose any obligations on the member-State concerned: 3, 6, 9.2, 12.1, 14.3, 16, 18, 19, 20, 22, 23, 26.2, 27, 30, 31, 32, 33, 34, 50 and 52.
2. The central banks of member-States with a derogation as specified in Article 109k(1) of this Treaty shall retain their powers in the field of monetary policy according to national law.
3. In accordance with Article 109k(4) of this Treaty, ‘member-States’ shall be read as ‘member-States without a derogation’ in the following Articles of this Statute: 3, 11.2, 19, 34.2 and 50.
4. ‘National central banks’ shall be read as ‘central banks of member-States without a derogation’ in the following Articles of this Statute: 9.2, 10.1, 10.3, 12.1, 16, 17, 18, 22, 23, 27, 30, 31, 32, 33.2 and 52.
5. ‘Shareholders’ shall be read as ‘central banks of member-States without a derogation’ in Articles 10.3 and 33.1.
6. ‘Subscribed capital of the ECB’ shall be read as ‘capital of the ECB subscribed by the central banks of member-States without a derogation’ in Articles 10.3 and 30.2.
Article 44 (Transitional tasks of the ECB)
The ECB shall take over those tasks of the EMI which, because of the derogations of one or more member-States, still have to be performed in the third stage.
The ECB shall give advice in the preparations for the abrogation of the derogations specified in Article 1091 of this Treaty.
Article 45 (The General Council of the ECB)
1. Without prejudice to Article 106(3) of this Treaty, the General Council shall be constituted as a third decision-making body of the ECB.
2. The General Council shall comprise the President and Vice-President of the ECB and the Governors of the national central banks. The other members of the Executive Board may participate, without having the right to vote, in meetings of the General Council.
3. The responsibilities of the General Council are listed in full in Article 47 of this Statute.
Article 46 (Rules of procedure of the General Council)
1. The President or, in his absence, the Vice-President of the ECB shall chair the General Council of the ECB.
2. The President of the Council and a member of the Commission may participate, without having the right to vote, in meetings of the General Council.
3. The President shall prepare the meetings of the General Council.
4. By way of derogation from Article 12.3, the General Council shall adopt its Rules of Procedure.
5. The Secretariat of the General Council shall be provided by the ECB.
Article 47 (Responsibilities of the General Council)
1. The General Council shall:
— perform the tasks referred to in Article 44;
— contribute to the advisory functions referred to in Articles 4 and 25.1.
2. The General Council shall contribute to:
— the collection of statistical information as referred to in Article 5;
—the reporting activities of the ECB as referred to in Article 15;
—the establishment of the necessary rules for the application of Article 26 as referred to in Article 26.4;
—the taking of all other measures necessary for the application of Article 29 as referred to in Article 29.4;
—the laying down of the conditions of employment of the staff of the ECB as referred to in Article 36.
3. The General Council shall contribute to the necessary preparations for irrevocably fixing the exchange rates of the currencies of member-States with a derogation against the currencies, or the single currency, of the member-States without a derogation, as referred to in Article 109l(5) of this Treaty.
4. The General Council shall be informed by the President of the ECB of decisions of the Governing Council.
Article 48 (Transitional provisions for the capital of the ECB)
In accordance with Article 29.1 each national central bank shall be assigned a weighting in the key for subscription of the ECB’s capital.
By way of derogation from Article 28.3, central banks of member-States with a derogation shall not pay up their subscribed capital unless the General Council, acting by a majority representing at least two thirds of the subscribed capital of the ECB and at least half of the shareholders, decides that a minimal percentage has to be paid up as a contribution to the operational costs of the ECB.
Article 49 (Deferred payment of capital, reserves and provisions of the ECB)
1. The central bank of a member-State whose derogation has been abrogated shall pay up its subscribed share of the capital of the ECB to the same extent as the central banks of other member-States without a derogation, and shall transfer to the ECB foreign reserve assets in accordance with Article 30.1. The sum to be transferred shall be determined by multiplying the ECU value at current exchange rates of the foreign reserve assets which have already been transferred to the ECB in accordance with Article 30.1, by the ratio between the number of shares subscribed by the national central bank concerned and the number of shares already paid up by the other national central banks.
2. In addition to the payment to be made in accordance with Article 49.1, the central bank concerned shall contribute to the reserves of the ECB, to those provisions equivalent to reserves, and to the amount still to be appropriated to the reserves and provisions corresponding to the balance of the profit and loss account as at 31 December of the year prior to the abrogation of the derogation. The sum to be contributed shall be determined by multiplying the amount of the reserves, as defined above and as stated in the approved balance sheet of the ECB, by the ratio between the number of shares subscribed by the central bank concerned and the number of shares already paid up by the other central banks.
Article 50 (Initial appointment of the members of the Executive Board)
When the Executive Board of the ECB is being established, the President, the Vice-President and the other members of the Executive Board shall be appointed by common accord of the governments of the member-States at the level of Heads of State or of Government, on a recommendation from the Council and after consulting the European Parliament and the Council of the EMI. The President of the Executive Board shall be appointed for eight years. By way of derogation from Article 11.2, the Vice-President shall be appointed for four years and the other members of the Executive Board for terms of office of between five and eight years. No term of office shall be renewable. The number of members of the Executive Board may be smaller than provided for in Article 11.1, but in no circumstance shall it be less than four.
Article 51 (Derogation from Article 32)
1. If, after the start of the third stage, the Governing Council decides that the application of Article 32 results in significant changes in national central banks’ relative income positions, the amount of income to be allocated pursuant to Article 32 shall be reduced by a uniform percentage which shall not exceed 60 per cent in the first financial year after the start of the third stage and which shall decrease by at least 12 percentage points in each subsequent financial year.
2. Article 51.1 shall be applicable for not more than five financial years after the start of the third stage.
Article 52 (Exchange of bank notes in Community currencies)
Following the irrevocable fixing of exchange rates, the Governing Council shall take the necessary measures to ensure that bank notes denominated in currencies with irrevocably fixed exchange rates are exchanged by the national central banks at their respective par values.
Article 53 (Applicability of the transitional provisions)
If and as long as there are member-States with a derogation Articles 43 to 48 shall be applicable.
Appendix II 3 Protocol on the Excessive Deficit Procedure
[Annexed to E.C. Treaty (Article 104c)]
Article 1
The reference values referred to in Article 104c(2) of this Treaty are:
— 3 percent for the ratio of the planned or actual government deficit to gross domestic product at market prices;
— 60 percent for the ratio of government debt to gross domestic product at market prices.
Article 2
In Article 104c of this Treaty and in this Protocol:
— government means general government, that is central government, regional or local government and social security funds, to the exclusion of commercial operations, as defined in the European System of Integrated Economic Accounts;
— deficit means net borrowing as defined in the European System of Integrated Economic Accounts;
—investment means gross fixed capital formation as defined in the European System of Integrated Economic Accounts;
—debt means total gross debt at nominal value outstanding at the end of the year and consolidated between and within the sectors of general government as defined in the first indent.
Article 3
In order to ensure the effectiveness of the excessive deficit procedure, the governments of the member-States shall be responsible under this procedure for the deficits of general government as defined in the first indent of Article 2. The member-States shall ensure that national procedures in the budgetary area enable them to meet their obligations in this area deriving from this Treaty. The member-States shall report their planned and actual deficits and the levels of their debt promptly and regularly to the Commission.
Article 4
The statistical data to be used for the application of this Protocol shall be provided by the Commission.
Appendix II 3a EC Regulation on the Application of the Protocol on the Excessive Deficit Procedure Annexed to the Treaty Establishing the European Community
Council Regulation (EC) 3605/931 of 22 November 1993
on the application of the protocol on the excessive deficit procedure annexed to the Treaty Establishing the European Community
The Council of the European Union,
Having regard to the Treaty establishing the European Community, and in particular the third subparagraph of Article 104c(14) thereof,
Having regard to the proposal from the Commission,2
Having regard to the opinion of the European Parliament,3
Whereas the definitions of ‘government’, ‘deficit’ and ‘investment’ are laid down in the Protocol on the excessive deficit procedure by reference to the European System of Integrated Economic Accounts (ESA);4 whereas precise definitions referring to the classification codes of ESA are required; whereas these definitions may be subject to revision in the context of the necessary harmonization of national statistics or for other reasons; whereas any revision of ESA will be decided by the Council in accordance with the rules on competence and procedure laid down in the Treaty;
Whereas the definition of ‘debt’ laid down in the Protocol on the excessive deficit procedure needs to be amplified by a reference to the classification codes of ESA;
Whereas Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonization of the compilation of gross national product at market prices5 provides an adequate, detailed definition of gross domestic product at market prices;
Whereas, pursuant to the terms of the Protocol on the excessive deficit procedure, the Commission is required to provide the statistical data to be used in that procedure;
Whereas detailed rules are required to organize the prompt and regular reporting by the Member States to the Commission of their planned and actual deficits and of the levels of their debt;
Whereas, pursuant to Article 104c(2) and (3) of the Treaty, the Commission is to monitor the development of the budgetary situation and of the stock of government debt in the Member States and to examine compliance with budgetary discipline on the basis of criteria relating to government deficit and government debt; whereas, if a Member State does not fulfil the requirements under one or both criteria, the Commission must take into account all relevant factors; whereas the Commission has to examine whether there is a risk of an excessive deficit in a Member State,
HAS ADOPTED THIS REGULATION:
SECTION 1. Definitions
Article 1
1. For the purposes of the Protocol on the excessive deficit procedure and of this Regulation, the terms given in the following paragraphs are defined according to the European System of Integrated Economic Accounts (ESA). The codes in brackets refer to ESA, second edition.
2. ‘Government’ means the sector of general government (S60), that is central government (S61), local government (S62) and social security funds (S63), to the exclusion of commercial operations, as defined in ESA. The exclusion of commercial operations means that the sector of general government (S60) comprises only institutional units producing non-market services as their main activity.
3. ‘Government deficit (surplus)’ means the net borrowing (net lending) (N5) of the sector of general government (S60), as defined in ESA. The interest comprised in the government deficit is the sum of interest (R41), as defined in ESA.
4. ‘Government investment’ means the gross fixed capital formation (P41) of the sector of general government (S60), as defined in ESA.
5. ‘Government debt’ means the total gross debt at nominal value outstanding at the end of the year of the sector of general government (S60), with the exception of those liabilities the corresponding financial assets of which are held by the sector of general government (S60). Government debt is constituted by the liabilities of general government in the following categories: currency and deposits (F20 and F30), bills and short-term bonds (F40), long-term bonds (F50), other short-term loans (F79) and other medium and long-term loans (F89) as defined in ESA.
The nominal value of a liability outstanding at the end of the year is the face value.
The nominal value of an index-linked liability corresponds to its face value adjusted by the index-related capital uplift accrued to the end of the year.
Liabilities denominated in foreign currencies shall be converted into the national currency at the representative market exchange rate prevailing on the last working day of each year.
Article 2
Gross domestic product means gross domestic product at market prices (GDP mp), as defined in Article 2 of Directive 89/130/EEC, Euratom.
Article 3
1. Planned government deficit figures mean the figures established for the current year by the Member States consistent with the most recent decisions of their budgetary authorities.
2. Actual government deficit and government debt level figures mean estimated, provisional, half-finalized or final results for a past year.
SECTION 2. Rules and coverage of reporting
Article 4
1. As from the beginning of 1994, Member States shall report to the Commission their planned and actual government deficits and levels of government debt twice a year, the first time before 1 March of the current year (year n) and the second time before 1 September of year n.
2. Before 1 March of year n, Member States:
shall report to the Commission their planned government deficit for year n, an up-to-date estimate of their actual government deficit for year n-1 and their actual government deficits for years n-2, n-3 and n-4,
shall simultaneously provide the Commission for years n, n-1 and n-2 with their corresponding public accounts budget deficits according to the definition which is given most prominence nationally and with the figures which explain the transition between this public accounts budget deficit and their government deficit. The figures explaining this transition which are provided to the Commission shall include, in particular, the figures for net borrowing of the subsectors S61, S62 and S63,
shall report to the Commission their estimate of the level of actual government debt at the end of year n-1 and their levels of actual government debt for years n-2, n-3 and n-4,
shall simultaneously provide the Commission for years n-1 and n-2 with the figures which explain the contributions of their government deficit and the other relevant factors contributing to the variation in the level of their government debt.
3. Before 1 September of year n, Member States shall report to the Commission:
their updated planned government deficit for year n and their actual government deficits for years n-1, n-2, n-3 and n-4 and shall comply with the requirements of the second indent of paragraph 2,
their actual level of government debt for years n-1, n-2, n-3 and n-4, and shall comply with the requirements of the fourth indent of paragraph 2.
4. The figures for the planned government deficit reported to the Commission in accordance with paragraphs 2 and 3 shall be expressed in national currency and in budget years.
The figures for actual government deficit and actual government debt level reported to the Commission in accordance with paragraphs 2 and 3 shall be expressed in national currency and in calendar years, with the exception of the up-to-date estimates for year n-1, which may be expressed in budget years.
Where the budget year differs from the calendar year, Member States shall also report to the Commission their figures for actual government deficit and actual government debt level in budget years for the two budget years preceding the current budget year.
Article 5
Member States shall, in accordance with the procedure laid down in Article 4 (1), (2) and (3), provide the Commission with the figures for their government investment expenditure and interest expenditure.
Article 6
Member States shall provide the Commission with a forecast of their gross domestic product for year n and the actual amount of their gross domestic product for years n-1, n-2, n-3 and n-4, under the same timing conditions as those indicated in Article 4(1).
Article 7
In the event of a revision of ESA to be decided on by the Council in accordance with the rules on competence and procedure laid down in the Treaty, the Commission shall introduce the new references to ESA into Articles 1 and 4.
Article 8
This Regulation shall enter into force on 1 January 1994. This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 22 November 1993.
For the Council
The President
Ph. MAYSTADT
Appendix II 4 Protocol on the Convergence Criteria Referred to in Article 109j of the Treaty Establishing the European Community
[Annexed to E.C. Treaty (Article 109j)]
Article 1
The criterion on price stability referred to in the first indent of Article 109j(1) of this Treaty shall mean that a member-State has a price performance that is sustainable and an average rate of inflation, observed over a period of one year before the examination, that does not exceed by more than 1½ percentage points that of, at most, the three best performing member-States in terms of price stability. Inflation shall be measured by means of the consumer price index (CPI) on a comparable basis, taking into account differences in national definitions.
Article 2
The criterion on the government budgetary position referred to in the second indent of Article 109j(1) of this Treaty shall mean that at the time of the examination the member-State is not the subject of a Council decision under Article 104c(6) of this Treaty that an excessive deficit exists.
Article 3
The criterion on participation in the Exchange Rate Mechanism of the European Monetary System referred to in the third indent of Article 109j(1) of this Treaty shall mean that a member-State has respected the normal fluctuation margins provided for by the Exchange Rate Mechanism of the European Monetary System without severe tensions for at least the last two years before the examination. In particular, the member-State shall not have devalued its currency’s bilateral central rate against any other member-State’s currency on its own initiative for the same period.
Article 4
The criterion on the convergence of interest rates referred to in the fourth indent of Article 109j(1) of this Treaty shall mean that, observed over a period of one year before the examination, a member-State has had an average nominal long-term interest rate that does not exceed by more than 2 percentage points that of, at most, the three best performing member-States in terms of price stability. Interest rates shall be measured on the basis of long term government bonds or comparable securities, taking into account differences in national definitions.
Article 5
The statistical data to be used for the application of this Protocol shall be provided by the Commission.
Article 6
The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament, the EMI or the ECB as the case may be, and the Committee referred to in Article 109c, adopt appropriate provisions to lay down the details of the convergence criteria referred to in Article 109j of this Treaty, which shall then replace this Protocol.
Appendix II 5 EC Directive on the Annual Accounts and Consolidated Accounts of Banks and Other Financial Institutions
Council Directive1 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions (86/635/EEC)
The Council of the European Communities,
Having regard to the Treaty establishing the European Community, and in particular Article 54 (3)(g) thereof,
Having regard to the proposal from the Commission, 2
Having regard to the opinion of the European Parliament, 3
Having regard to the opinion of the Economic and Social Committee, 4
Whereas Council Directive 78/ 660/ EEC of 25 July 1978, based on Article 54(3)(g) of the Treaty, on the annual accounts of certain types of companies, 5 as last amended by Directive 84/ 569/ EEC,6 need not be applied to banks and other financial institutions, hereafter referred to as ‘credit institutions’, pending subsequent coordination; whereas in view of the central importance of these undertakings in the Community, such coordination is necessary;
Whereas Council Directive 83/ 349/ EEC of 13 June 1983, based on Article 54(3)(g) of the Treaty, on consolidated accounts,7 provides for derogations for credit institutions only until expiry of the deadline imposed for the application of this Directive; whereas this Directive must therefore also include provisions specific to credit institutions in respect of consolidated accounts;
Whereas such coordination has also become urgent because more and more credit institutions are operating across national borders; whereas for creditors, debtors and members and for the general public improved comparability of the annual accounts and consolidated accounts of these institutions is of crucial importance;
Whereas in virtually all the Member States of the Community credit institutions within the meaning of Council Directive 77/780/EEC of 12 December 1977 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions,8 having many different legal forms, are in competition with one another in the banking sector; whereas it therefore seems advisable not to confine coordination in respect of these credit institutions to the legal forms covered by Directive 78/660/EEC but rather to opt for a scope which includes all companies and firms as defined in the second paragraph of Article 58 of the Treaty;
Whereas as far as financial institutions are concerned the scope of this Directive should however be confined to those financial institutions taking one of the legal forms referred to in Directive 78/660/EEC; whereas financial institutions which are not subject to that Directive must automatically come under this Directive;
Whereas a link with coordination in respect of credit institutions is necessary because aspects of the provisions governing annual accounts and consolidated accounts will have an impact on other areas of that coordination, such as authorization requirements and the indicators used for supervisory purposes;
Whereas although, in view of the specific characteristics of credit institutions, it would appear appropriate to adopt a separate Directive on the annual accounts and consolidated accounts of such institutions, this does not imply a new set of rules separate from those under Directives 78/660/EEC and 83/349/EEC; whereas such separate rules would be neither appropriate nor consistent with the principles underlying the coordination of company law since, given the important role which they play in the Community economy, credit institutions cannot be excluded from a framework of rules devised for undertakings generally; whereas, for this reason, only the particular characteristics of credit institutions have been taken into account and this Directive deals only with exceptions to the rules contained in Directives 78/660/EEC and 83/349/EEC;
Whereas the structure and content of the balance sheets of credit institutions differ in each Member State; whereas this Directive must therefore prescribe the same layout, nomenclature and terminology for the balance sheets of all credit institutions in the Community; whereas derogations should be allowed if necessitated by the legal form of an institution or by the special nature of its business;
Whereas, if the annual accounts and consolidated accounts are to be comparable, a number of basic questions regarding the disclosure of various transactions in the balance sheet and off the balance sheet must be settled;
Whereas, in the interests of greater comparability, it is also necessary that the content of the various balance sheet and off-balance sheet items be determined precisely;
Whereas the same applies to the layout and definition of the items in the profit and loss account;
Whereas the comparability of figures in the balance sheet and profit and loss account also depends crucially on the values at which assets and liabilities are entered in the balance sheet;
Whereas, in view of the particular risks associated with banking and of the need to maintain confidence, provision should be made for the possibility of introducing a liabilities item in the balance sheet entitled ‘Fund for general banking risks’; whereas it would appear advisable for the same reasons that the Member States be permitted, pending subsequent coordination, to allow credit institutions some discretion, especially in the valuation of loans and advances and of certain securities; whereas, however, in this last case the Member States should allow these same credit institutions to create the ‘Fund for general banking risks’ mentioned above; whereas it would also appear appropriate to permit the Member States to allow credit institutions to set of certain charges and income in the profit and loss account;
Whereas, in view of the special nature of credit institutions, certain changes are also necessary with regard to the notes on the accounts;
Whereas, in the desire to place on the same footing as many credit institutions as possible, as was the case with Directive 77/780/EEC, the relief under Directive 78/660/EEC is not provided for in the case of small and medium-sized credit institutions; whereas, nevertheless, if in the light of experience such relief were to prove necessary it would be possible to provide for it in subsequent coordination; whereas for the same reasons the scope allowed the Member States under Directive 83/349/EEC to exempt parent undertakings from the consolidation requirement if the undertakings to be consolidated do not together exceed a certain size has not been extended to credit institutions;
Whereas the application of the provisions on consolidated accounts to credit institutions requires certain adjustments to some of the rules applicable to all industrial and commercial companies; whereas explicit rules have been provided for in the case of mixed groups and exemption from subconsolidation may be made subject to additional conditions;
Whereas, given the scale on which banking networks extend beyond national borders and their constant development, the annual accounts and consolidated accounts of a credit institution having its head office in one Member State should be published in all the Member States in which it is established;
Whereas the examination of problems which arise in connection with the subject matter of this Directive, notably concerning its application, requires the cooperation of representatives of the Member States and the Commission in a contact committee; whereas, in order to avoid the proliferation of such committees, it is desirable that such cooperation take place in the Committee provided for in Article 52 of Directive 78/660/EEC; whereas, nevertheless, when examining problems concerning credit institutions, the Committee will have to be appropriately constituted;
Whereas, in view of the complexity of the matter, the credit institutions covered by this Directive must be allowed a longer period than usual to implement its provisions;
Whereas provision should be made for the review of certain provisions of this Directive after five years’ experience of its application, in the light of the aims of greater transparency and harmonization,
HAS ADOPTED THIS DIRECTIVE:
Section 1. Preliminary provisions and scope
Article 1
1. Articles 2, 3, 4(1), (3) to (5), 6, 7, 13, 14, 15(3) and (4), 16 to 21, 29 to 35, 37 to 41, 42 first sentence, 45(1), 46, 48 to 50, 51(1), 54, 56 to 59 and 61 of Directive 78/660/EEC shall apply to the institutions mentioned in Article 2 of this Directive, except where this Directive provides otherwise.
2. Where reference is made in Directives 78/660/EEC and 83/349/EEC to Articles 9 and 10 (balance sheet) or to Articles 23 to 26 (profit and loss account) of Directive 78/660/EEC, such references shall be deemed to be references to Articles 4 (balance sheet) or to Articles 27 and 28 (profit and loss account) of this Directive.
3. References in Directive 78/660/EEC and 83/349/EEC to Articles 31 to 42 of Directive 78/660/EEC shall be deemed to be references to those Articles, taking account of Articles 35 to 39 of this Directive.
4. Where reference is made in the aforementioned provisions of Directive 78/660/EEC to balance sheet items for which this Directive makes no equivalent provision, such references shall be deemed to be references to the items in Article 4 of this Directive which include the assets and liabilities in question.
Article 2
1. The coordination measures prescribed by this Directive shall apply to
(a) credit institutions within the meaning of the first indent of Article 1 of Directive 77/780/EEC which are companies or firms as defined in the second paragraph of Article 58 of the Treaty;
(b) financial institutions having one of the legal forms referred to in Article 1(1) of Directive 78/660/EEC which, on the basis of paragraph 2 of that Article, are not subject to that Directive.
For the purposes of this Directive ‘credit institutions’ shall also include financial institutions unless the context requires otherwise.
2. The Member States need not apply this Directive to:
(a) the credit institutions listed in Article 2(2) of Directive 77/780/EEC;
(b) institutions of the same Member State which, as defined in Article 2(4)(a) of Directive 77/780/EEC, are affiliated to a central body in that Member State. In that case, without prejudice to the application of this Directive to the central body, the whole constituted by the central body and its affiliated institutions must be the subject of consolidated accounts including an annual report which shall be drawn up, audited and published in accordance with this Directive;
(c) the following credit institutions:
- in Greece: ETEBA (National Investment Bank for Industrial Development) and
(Investment Bank), - in Ireland: Industrial and Provident Societies,
- in the United Kingdom: Friendly Societies and Industrial and Provident Societies.
4. Without prejudice to Article 2(3) of Directive 78/660/EEC and pending subsequent coordination, the Member States may:
(a) in the case of the credit institutions referred to in Article 2(1)(a) of this Directive which are not companies of any of the types listed in Article 1(1) of Directive 78/660/EEC, lay down rules derogating from this Directive where derogating rules are necessary because of such institutions’ legal form;
(b) in the case of specialized credit institutions, lay down rules derogating from this Directive where derogating rules are necessary because of the special nature of such institutions’ business.
Such derogating rules may provide only for adaptations to the layout, nomenclature, terminology and content of items in the balance sheet and the profit and loss account; they may not have the effect of permitting the institutions to which they apply to provide less information in their annual accounts than other institutions subject to this Directive.
The Member States shall inform the Commission of those credit institutions, possibly by category, within six months of the end of the period stipulated in Article 47(2). They shall inform the Commission of the derogations laid down to that end.
These derogations shall be reviewed within 10 years of the notification of this Directive. The Commission shall, if appropriate, submit suitable proposals. It shall also submit an interim report within five years of the notification of this Directive.
Section 2. General provisions concerning the balance sheet and the profit and loss account
Article 3
In the case of credit institutions the possibility of combining items pursuant to Article 4(3)(a) or (b) of Directive 78/660/EEC shall be restricted to balance sheet and profit and loss account sub-items preceded by lower-case letters and shall be authorized only under the rules laid down by the Member States to that end.
Section 3. Layout of the balance sheet
Article 4
The Member States shall prescribe the following layout for the balance sheet.
Assets
1. Cash in hand, balances with central banks and post office banks
2. Treasury bills and other bills eligible for refinancing with central banks:
(a) Treasury bills and similar securities
(b) Other bills eligible for refinancing with central banks (unless national law prescribes that such bills be shown under Assets items 3 and 4)
3. Loans and advances to credit institutions:
(a) repayable on demand
(b) other loans and advances
4. Loans and advances to customers
5. Debt securities including fixed-income securities:
(a) issued by public bodies
(b) issued by other borrowers, showing separately:
- own-debt securities (unless national law requires their deduction from liabilities)
6. Shares and other variable-yield securities
7. Participating interests, showing separately:
- participating interests in credit institutions (unless national law requires their disclosure in the notes on the accounts)
8. Shares in affiliated undertakings, showing separately:
- shares in credit institutions (unless national law requires their disclosure in the notes on the accounts)
9. Intangible assets as described under Assets headings B and C.I. of Article 9 of Directive 78/ 660/ EEC, showing separately:
- formation expenses, as defined by national law and in so far as national law permits their being shown as an asset (unless national law requires their disclosure in the notes on the accounts)
- goodwill, to the extent that it was acquired for valuable consideration (unless national law requires their disclosure in the notes on the accounts)
10. Tangible assets as described under Assets heading C.II of Article 9 of Directive 78/ 660/ EEC, showing separately:
- land and buildings occupied by a credit institution for its own activities (unless national law requires their disclosure in the notes on the accounts)
11. Subscribed capital unpaid, showing separately:
- called-up capital (unless national law provides for called-up capital to be included under liabilities, in which case capital called but not yet paid must be included either in this Assets item or in Assets item 14)
12. Own shares (with an indication of their nominal value or, in the absence of a nominal value, their accounting par value to the extent that national law permits their being shown in the balance sheet)
13. Other assets
14. Subscribed capital called but not paid (unless national law requires that called-up capital be shown under Assets item 11)
15. Prepayments and accrued income
16. Loss for the financial year (unless national law provides for its inclusion under Liabilities item 14)
Total assets
Liabilities
1. Amounts owed to credit institutions:
(a) repayable on demand
(b) with agreed maturity dates or periods of notice
2. Amounts owed to customers:
(a) savings deposits, showing separately:
- those repayable on demand and those with agreed maturity dates or periods of notice where national law provides for such a breakdown (unless national law provides for such information to be given in the notes on the accounts)
(b) other debts
(ba) repayable on demand
(bb) with agreed maturity dates or periods of notice
3. Debts evidenced by certificates:
(a) debt securities in issue
(b) others
4. Other liabilities
5. Accruals and deferred income
6. Provisions for liabilities and charges:
(a) provisions for pensions and similar obligations
(b) provisions for taxation
(c) other provisions
7. Profit for the financial year (unless national law provides for its inclusion under Liabilities item 14)
8. Subordinated liabilities
9. Subscribed capital (unless national law provides for called-up capital to be shown under this item. In that case, the amounts of subscribed capital and paid-up capital must be shown separately)
10. Share premium account
11. Reserves
12. Revaluation reserve
13. Profit or loss brought forward
14. Profit or loss for the financial year (unless national law requires that this item be shown under Assets item 16 or Liabilities item 7)
Total liabilities
Off-balance sheet items
1. Contingent liabilities, showing separately:
acceptances and endorsements
guarantees and assets pledged as collateral security
2. Commitments, showing separately:
commitments arising out of sale and repurchase transactions
Article 5
The following must be shown separately as sub-items of the items in question:
claims, whether or not evidenced by certificates, on affiliated undertakings and included in Assets items 2 to 5,
claims, whether or not evidenced by certificates, on undertakings with which a credit institution is linked by virtue of a participating interest and included in Assets items 2 to 5,
liabilities, whether or not evidenced by certificates, to affiliated undertakings and included in Liabilities items 1, 2, 3 and 8.
liabilities, whether or not evidenced by certificates, to undertakings with which a credit institution is linked by virtue of a participating interest and included in Liabilities items 1, 2, 3 and 8.
Article 6
1. Subordinated assets shall be shown separately as sub-items of the items of the layout and the sub-items created in accordance with Article 5.
2. Assets, whether or not evidenced by certificates, are subordinated if, in the event of winding up or bankruptcy, they are to be repaid only after the claims of other creditors have been met.
Article 7
The Member States may permit the disclosure of the information referred to in Articles 5 and 6, duly broken down into the various relevant items, in the notes on the accounts.
Article 8
1. Assets shall be shown under the relevant balance sheet headings even where the credit institution drawing up the balance sheet has pledged them as security for its own liabilities or for those of third parties or has otherwise assigned them as security to third parties.
2. A credit institution shall not include in its balance sheet assets pledged or otherwise assigned to it as security unless such assets are in the form of cash in the hands of that credit institution.
Article 9
1. Where a loan has been granted by a syndicate consisting of a number of credit institutions, each credit institution participating in the syndicate shall disclose only that part of the total loan which it has itself funded.
2. If in the case of a syndicated loan such as described in paragraph 1 the amount of funds guaranteed by a credit institution exceeds the amount which it has made available any, additional guarantee portion shall be shown as contingent liability (in Off-balance sheet item 1, second indent).
Article 10
1. Funds which a credit institution administers in its own name but on behalf of third parties must be shown in the balance sheet if the credit institution acquires legal title to the assets concerned. The total amount of such assets and liabilities shall be shown separately or in the notes on the accounts, broken down according to the various Assets and Liabilities items. However, the Member States may permit the disclosure of such funds off the balance sheet provided there are special rules whereby such funds can be excluded from the assets available for distribution in the event of the winding-up of a credit institution (or similar proceedings).
2. Assets acquired in the name of and on behalf of third parties must not be shown in the balance sheet.
Article 11
Only those amounts which can at any time be withdrawn without notice or for which a maturity or period of notice of 24 hours or one working day has been agreed shall be regarded as repayable on demand.
Article 12
1. Sale and repurchase transactions shall mean transactions which involve the transfer by a credit institution or customer (the ‘transferor’) to another credit institution or customer (the ‘transferee’) of assets, for example, bills, debts or transferable securities, subject to an agreement that the same assets will subsequently be transferred back to the transferor at a specified price.
2. If the transferee undertakes to return the assets on a date specified or to be specified by the transferor, the transaction in question shall be deemed to be a genuine sale and repurchase transaction.
3. If, however, the transferee is merely entitled to return the assets at the purchase price or for a different amount agreed in advance on a date specified or to be specified, the transaction in question shall be deemed to be a sale with an option to repurchase.
4. In the case of the sale and repurchase transactions referred to in paragraph 2, the assets transferred shall continue to appear in the transferor’s balance sheet; the purchase price received by the transferor shall be shown as an amount owed to the transferee. In addition, the value of the assets transferred shall be disclosed in a note in the transferor’s accounts. The transferee shall not be entitled to show the assets transferred in his balance sheet; the purchase price paid by the transferee shall be shown as an amount owed by the transferor.
5. In the case of the sale and repurchase transactions referred to in paragraph 3, however, the transferor shall not be entitled to show in his balance sheet the assets transferred; those items shall be shown as assets in the transferee’s balance sheet. The transferor shall enter under Off-balance sheet item 2 an amount equal to the price agreed in the event of repurchase.
6. No forward exchange transactions, options, transactions involving the issue of debt securities with a commitment to repurchase all or part of the issue before maturity of any similar transactions shall be regarded as sale and repurchase transactions within the meaning of this Article.
Section 4. Special provisions relating to certain balance sheet items
Article 13
Assets: Item 1 - Cash in hand, balances with central banks and post office banks
1. Cash in hand shall comprise legal tender including foreign notes and coins.
2. This item may include only balances with the central banks and post office banks of the country or countries in which a credit institution is established. Such balances must be readily available at all times. Other claims on such bodies must be shown as loans and advances to credit institutions (Assets item 3) or as loans and advances to customers (Assets item 4).
Article 14
Assets: Item 2 - Treasury bills and other bills eligible far refinancing with central banks
1. This item shall comprise, under (a), treasury bills and similar securities, i.e. treasury bills, treasury certificates and similar debt instruments issued by public bodies which are eligible for refinancing with the central banks of the country or countries in which a credit institution is established. Those debt instruments issued by public bodies which fail to meet the above condition shall be shown under Assets sub-item 5(a).
2. This item shall comprise, under (b), bills eligible for refinancing with central banks, i.e. all bills held in portfolio that were purchased from credit institutions or from customers to the extent that they are eligible, under national law, for refinancing with the central banks of the country or countries in which a credit institution is established.
Article 15
Assets: Item 3 - Loans and advances to credit institutions
1. Loans and advances to credit institutions shall comprise all loans and advances arising out of banking transactions to domestic or foreign credit institutions by the credit institution drawing up the balance sheet, regardless of their actual designations.
The only exception shall be loans and advances represented by debt securities or any other security, which must be shown under Assets item 5.
2. For the purposes of this Article credit institutions shall comprise all undertakings on the list published in the Official Journal of the European Communities pursuant to Article 3(7) of Directive 77/780/EEC, as well as central banks and official domestic and international banking organizations and all private and public undertakings which are not established in the Community but which satisfy the definition in Article 1 of Directive 77/780/EEC.
Loans and advances to undertakings which do not satisfy the above conditions shall be shown under Assets item 4.
Article 16
Assets: Item 4 - Loans and advances to customers
Loans and advances to customers shall comprise all types of assets in the form of claims on domestic and foreign customers other than credit institutions, regardless of their actual designations.
The only exception shall be loans and advances represented by debt securities or any other security, which must be shown under Assets item 5.
Article 17
Assets: Item 5 - Debt securities including fixed-income securities
1. This item shall comprise negotiable debt securities including fixed-income securities issued by credit institutions, by other undertakings or by public bodies; such securities issued by the latter, however, shall be included only if they are not to be shown under Assets item 2.
2. Securities bearing interest rates that vary in accordance with specific factors, for example the interest rate on the inter-bank market or on the Euromarket, shall also be regarded as debt securities including fixed-income securities.
3. Only repurchased and negotiable own-debt securities may be included in sub-item 5(b).
Article 18
Liabilities: Item 1 - Amounts owed to credit institutions
1. Amounts owed to credit institutions shall include all amounts arising out of banking transactions owed to other domestic or foreign credit institutions by the credit institution drawing up the balance sheet, regardless of their actual designations.
The only exception shall be liabilities represented by debt securities or by any other security, which must be shown under Liabilities item 3.
2. For the purposes of this Article credit institutions shall comprise all undertakings on the list published in the Official Journal of the European Communities pursuant to Article 3(7) of Directive 77/780/EEC, as well as central banks and official domestic and international banking organizations and all private and public undertakings which are not established in the Community but which satisfy the definition in Article 1 of Directive 77/780/EEC.
Article 19
Liabilities: Item 2 - Amounts owed to customers
1. Amounts owed to customers shall include all amounts owed to creditors that are not credit institutions within the meaning of Article 18, regardless of their actual designations.
The only exception shall be liabilities represented by debt securities or by any other security, which must be shown under Liabilities item 3.
2. Only deposits which satisfy the conditions laid down in national law shall be treated as savings deposit.
3. Savings bonds shall be shown under the corresponding sub-item only if they are not represented by negotiable certificates.
Article 20
Liabilities: Item 3 - Debts evidenced by certificates
1. This items shall include both debt securities and debts for which negotiable certificates have been issued, in particular deposit receipts, ‘ bons de caisse’ and liabilities arising out of own acceptances and promissory notes.
2. Only acceptances which a credit institution has issued for its own refinancing and in respect of which it is the first party liable (‘drawee’) shall be treated as own acceptances.
Article 21
Liabilities: Item 8 - Subordinated liabilities
Where it has been contractually agreed that, in the event of winding up or of bankruptcy, liabilities, whether or not evidenced by certificates, are to be repaid only after the claims of all other creditors have been met, the liabilities in question shall be shown under this item.
Article 22
Liabilities: Item 9 - Subscribed capital
This item shall comprise all amounts, regardless of their actual designations, which, in accordance with the legal structure of the institution concerned, are regarded under national law as equity capital subscribed by the shareholders or other proprietors.
Article 23
Liabilities: Item 11 - Reserves
This item shall comprise all the types of reserves listed in Article 9 of Directive 78/660/EEC under Liabilities item A.IV, as defined therein. The Member States may also prescribe other types of reserves if necessary for credit institutions the legal structures of which are not covered by Directive 78/660/EEC.
The types of reserve referred to in the first paragraph shall be shown separately, as sub-items of Liabilities item 11, in the balance sheets of the credit institutions concerned, with the exception of the revaluation reserve which shall be shown under item 12.
Article 24
Off-balance sheet: Item 1 - Contingent liabilities
This item shall comprise all transactions whereby an institution has underwritten the obligations of a third party.
Notes on accounts shall state the nature and amount of any type of contingent liability which is material in relation to an institution’s activities.
Liabilities arising out of the endorsement of rediscounted bills shall be included in this item only if national law does not require otherwise. The same shall apply to acceptances other than own acceptances.
Sureties and assets pledged as collateral security shall include all guarantee obligations incurred and assets pledged as collateral security on behalf of third parties, particularly in respect of sureties and irrevocable letters of credit.
Article 25
Off-balance sheet: Item 2 - Commitments
This item shall include every irrevocable commitment which could give rise to a risk.
Notes on accounts shall state the nature and amount of any type of commitment which is material in relation to an institution’s activities.
Commitments arising out of sale and repurchase transactions shall include commitments entered into by a credit institution in the context of sale and repurchase transactions (on the basis of firm agreements to sell with options to repurchase) within the meaning of Article 12(3).
Section 5. Layout of the Profit and Loss Account
Article 26
For the presentation of the profit and loss account, the Member States shall prescribe one or both of the layouts provided for in Articles 27 and 28. If a Member State prescribes both layouts it may allow undertakings to choose between them.
Article 27
Vertical layout
1. Interest receivable and similar income, showing separately that arising from fixed-income securities
2. Interest payable and similar charges
3. Income from securities:
(a) Income from shares and other variable-yield securities
(b) Income from participating interests
(c) Income from shares in affiliated undertakings
4. Commissions receivable
5. Commissions payable
6. Net profit or net loss on financial operations
7. Other operating income
8. General administrative expenses:
(a) Staff costs, showing separately:
wages and salaries
social security costs, with a separate indication of those relating to pensions
(b) Other administrative expenses
9. Value adjustments in respect of Assets items 9 and 10
10. Other operating charges
11. Value adjustments in respect of loans and advances and provisions for contingent liabilities and for commitments
12. Value re-adjustments in respect of loans and advances and provisions for contingent liabilities and for commitments
13. Value adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings
14. Value re-adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings
15. Tax on profit or loss on ordinary activities
16. Profit or loss on ordinary activities after tax
17. Extraordinary income
18. Extraordinary charges
19. Extraordinary profit or loss
20. Tax on extraordinary profit or loss
21. Extraordinary profit or loss after tax
22. Other taxes not shown under the preceding items
23. Profit or loss for the financial year
Article 28
Horizontal layout
A. Charges
Interest payable and similar charges
Commissions payable
Net loss on financial operations
General administrative expenses:
(a) Staff costs, showing separately:
wages and salaries
social security costs, with a separate indication of those relating to pensions
(b) Other administrative expenses
Value adjustments in respect of Assets items 9 and 10
Other operating charges
Value adjustments in respect of loans and advances and provisions for contingent liabilities and for commitments
Value adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings
Tax on profit and loss on ordinary activities
Profit or loss on ordinary activities after tax
Extraordinary charges
Tax on extraordinary profit or loss
Extraordinary loss after tax
Other taxes not shown under the preceding items
Profit for the financial year
B. Income
Interest receivable and similar income, showing separately that arising from fixed-income securities
Income from securities:
(a) Income from shares and other variable-yield securities
(b) Income from participating interests
(c) Income from shares in affiliated undertakings
Commissions receivable
Net profit on financial operations
Value re-adjustments in respect of loans and advances and provisions for contingent liabilities and for commitments
Value re-adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings
Other operating income
Profit or loss on ordinary activities after tax
Extraordinary income
Extraordinary profit after tax
Loss for the financial year
Section 6. Special provisions relating to certain items in the profit and loss accounts
Article 29
Article 27, items 1 and 2 (vertical layout)
Article 28, items A1 and B1 (horizontal layout)
Interest receivable and similar income and interest payable and similar charges
These items shall include all profits and losses arising out of banking activities, including:
(1) all income from assets entered under Assets items 1 to 5 in the balance sheet, however calculated. Such income shall also include income arising from the spreading on a time basis of the discount on assets acquired at an amount below, and liabilities contracted at an amount above, the sum payable at maturity;
(2) all charges arising out of liabilities entered under Liabilities items 1, 2, 3 and 8, however calculated. Such charges shall also include charges arising from the spreading on a time basis of the premium on assets acquired at an amount above, and liabilities contracted at an amount below, the sum payable at maturity;
(3) income and charges resulting from covered forward contracts, spread over the actual duration of the contract and similar in nature to interest;
(4) fees and commission similar in nature to interest and calculated on a time basis or by reference to the amount of the claim or liability.
Article 30
Article 27, item 3 (vertical layout)
Article 28, item B2 (horizontal layout)
Income from shares and other variable-yield securities, from participating interests, and from shares in affiliated undertakings
This item shall comprise all dividends and other income from variable-yield securities, from participating interest and from shares in affiliated undertakings. Income from shares in investment companies shall also be included under this item.
Article 31
Article 27, items 4 and 5 (vertical layout)
Article 28, items A2 and B3 (horizontal layout)
Commissions receivable and commissions payable
Without prejudice to Article 29, commissions receivable shall include income in respect of all services supplied to third parties, and commissions payable shall include charges for services rendered by third parties, in particular
commissions for guarantees, loans administration on behalf of other lenders and securities transactions on behalf of third parties,
commissions and other charges and income in respect of payment transactions, account administration of securities,
commissions for foreign currency transactions and for the sale and purchase of coin and precious metals on behalf of third parties,
commissions charged for brokerage services in connection with savings and insurance contracts and loans.
Article 32
Article 27, item 6 (vertical layout) Article
28, item A3 or item B4 (horizontal layout)
Net profit or net loss on financial operations
This item covers:
the net profit or loss on transactions in securities which are not held as financial fixed assets together with value adjustments and value re-adjustments on such securities, taking into account, where Article 36(2) has been applied, the difference resulting from application of that article; however, in those Member States which exercise the option provided for in Article 37, these net profits or losses and value adjustments and value re-adjustments shall be included only in so far as they relate to securities included in a trading portfolio;
the net profit or loss on exchange activities, without prejudice to Article 29, point 3;
the net profits and losses on other buying and selling operations involving financial instruments, including precious metals.
Article 33
Article 27, items 11 and 12 (vertical layout) Article
28, items A7 and B5 (horizontal layout)
Value adjustments in respect of loans and advances and provisions for contingent liabilities and for commitments
Value re-adjustments in respect of loans and advances and provisions for contingent liabilities and for commitments
1. These items shall include, on the one hand, charges for value adjustments in respect of loans and advances to be shown under Assets items 3 and 4 and provisions for contingent liabilities and for commitments to be shown under Off-balance sheet items 1 and 2 and, on the other hand, credits from the recovery of written-off loans and advances and amounts written back following earlier value adjustments and provisions.
2. In those Member States which exercise the option provided for in Article 37, this item shall also include the net profit or loss on transactions in securities included in Assets items 5 and 6 which are neither held as financial fixed assets as defined in Article 35(2) nor included in a trading portfolio, together with value adjustment and value re-adjustments on such securities taking into account, where Article 36(2) has been applied, the difference resulting from application of that article. The nomenclature of this item shall be adapted accordingly.
3. The Member States may permit the charges and income covered by these items to be set off against each other, so that only a net item (income or charge) is shown.
4. Value adjustments in respect of loans and advances to credit institutions, to customers, to undertakings with which a credit institution is linked by virtue of participating interest and to affiliated undertakings shall be shown separately in the notes on the accounts where they are material. This provision need not be applied if a Member State permits setting-off pursuant to paragraph 3.
Article 34
Article 27, items 13 and 14 (vertical layout)
Article 28, items A8 and B5 (horizontal layout)
Value adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings
Value re-adjustments in respect of transferable securities held as financial fixed assets, participating interests and shares in affiliated undertakings
1. These items shall include, on the one hand, charges for value adjustments in respect of assets shown in Assets items 5 to 8 and, on the other hand, all the amounts written back following earlier value adjustments, in so far as the charges and income relate to transferable securities held as financial fixed assets as defined in Article 35(2), participating interests and shares in affiliated undertakings.
2. The Member States may permit the charges and income covered by these items to be set off against each other, so that only a net item (income or charge) is shown.
3. Value adjustments in respect of these transferable securities, participating interests and shares in affiliated undertakings shall be shown separately in the notes on the accounts where they are material. This provision need not be applied if a Member State permits setting off pursuant to paragraph 2.
Section 7. Valuation Rules
Article 35
1.Assets items 9 and 10 must always be valued as fixed assets. The assets included in other balance sheet items shall be valued as fixed assets where they are intended for use on a continuing basis in the normal course of an undertaking’s activities.
2. Where reference is made to financial fixed assets in Section 7 of Directive 78/660/EEC, this term shall in the case of credit institutions be taken to mean participating interests, shares in affiliated undertakings and securities intended for use on a continuing basis in the normal course of an undertaking’s activities.
3.(a) Debt securities including fixed-income securities held as financial fixed assets shall be shown in the balance sheet at purchase price. The Member States may, however, require or permit such debt securities to be shown in the balance sheet at the amount repayable at maturity.
(b) Where the purchase price of such debt securities exceeds the amount repayable at maturity the amount of the difference must be charged to the profit and loss account. The Member States may, however, require or permit the amount of the difference to be written off in instalments so that it is completely written off by the time when the debt securities are repaid. The difference must be shown separately in the balance sheet or in the notes on the accounts.
(c) Where the purchase price of such debt securities is less than the amount repayable at maturity, the Member States may require or permit the amount of the difference to be released to income in installments over the period remaining until repayment. The difference must be shown separately in the balance sheet or in the notes on the accounts.
Article 36
1. Where transferable securities which are not held as financial fixed assets are shown in the balance sheet at purchase price, credit institutions shall disclose in the notes on their accounts the difference between the purchase price and the higher market value of the balance sheet date.
2. The Member States may, however, require or permit those transferable securities to be shown in the balance sheet at the higher market value at the balance sheet date. The difference between the purchase price and the higher market value shall be disclosed in the notes on the accounts.
Article 37
1. Article 39 of Directive 78/660/EEC shall apply to the valuation of credit institutions’ loans and advances, debt securities, shares and other variable-yield securities which are not held as financial fixed assets.
2. Pending subsequent coordination, however, the Member States may permit:
(a) loans and advances to credit institutions and customers (Assets items 3 and 4) and debt securities, shares and other variable-yield securities included in Assets items 5 and 6 which are neither held as financial fixed assets as defined in Article 35(2) nor included in a trading portfolio to be shown at a value lower than that which would result from the application of Article 39(1) of Directive 78/660/EEC, where that is required by the prudence dictated by the particular risks associated with banking. Nevertheless, the difference between the two values must not be more than 4% of the total amount of the assets mentioned above after application of the aforementioned Article 39;
(b) that the lower value resulting from the application of subparagraph (a) be maintained until the credit institution decides to adjust it;
(c) where a Member State exercises the option provided for in sub-paragraph (a), neither Article 36(1) of this Directive nor Article 40(20) of Directive 78/660/EED shall apply.
Article 38
1. Pending subsequent coordination, those Member States which exercise the option provided for in Article 37 must permit and those member States which do not exercise that option may permit the introduction of a Liabilities item 6A entitled ‘Fund for general banking risks’. That item shall include those amounts which a credit institution decides to put aside to cover such risks where that is required by the particular risks associated with banking.
2. The net balance of the increases and decreases of the ‘Fund for general banking risks’ must be shown separately in the profit and loss account.
Article 39
1. Assets and liabilities denominated in foreign currency shall be translated at the spot rate of exchange ruling on the balance sheet date. The Member States may, however, require or permit assets held as financial fixed assets and tangible and intangible assets, not covered or not specifically covered in either the spot or forward markets, to be translated at the rates ruling on the dates of their acquisition.
2. Uncompleted forward and spot exchange transactions shall be translated at the spot rates of exchange ruling on the balance sheet date.
The Member States may, however, require forward transactions to be translated at the forward rate ruling on the balance sheet date.
3. Without prejudice to Article 29(3), the differences between the book values of the assets, liabilities and forward transactions and the amounts produced by translation in accordance with paragraphs 1 and 2 shall be shown in the profit and loss account. The Member States may, however, require or permit differences produced by translation in accordance with paragraphs 1 and 2 to be included, in whole or in part, in reserves not available for distribution, where they arise on assets held as financial fixed assets, on tangible and intangible assets and on any transactions undertaken to cover those assets.
4. The Member States may provide that positive translation differences arising out of forward transactions, assets or liabilities not covered or not specifically covered by other forward transactions, or by assets or liabilities shall not be shown in the profit and loss account.
5. If a method specified in Article 59 of Directive 78/660/EEC is used, the Member States may provide that any translation differences shall be transferred, in whole or in part, directly to reserves. Positive and negative translation differences transferred to reserves shall be shown separately in the balance sheet or in the notes on the accounts.
6. The Member States may require or permit translation differences arising on consolidation out of the re-translation of an affiliated undertaking’s capital and reserves or the share of a participating interest’s capital and reserves at the beginning of the accounting period to be included, in whole or in part, in consolidated reserves, together with the translation differences arising on the translation of any transactions undertaken to cover that capital and those reserves.
7. The Member States may require or permit the income and expenditure of affiliated undertakings and participating interests to be translated on consolidation at the average rates of exchange ruling during the accounting period.
Section 8. Contents of the notes on the accounts
Article 40
1. Article 43(1) of Directive 78/660/EEC shall apply, subject to Article 37 of this Directive and to the following provisions.
2. In addition to the information required under Article 43(1)(5) of Directive 78/660/EEC, credit institutions shall disclose the following information relating to Liabilities item 8 (Subordinated liabilities):
(a) in respect of each borrowing which exceeds 10% of the total amount of the subordinated liabilities:
(i) the amount of the borrowing, the currency in which it is denominated, the rate of interest and the maturity date or the fact that it is a perpetual issue;
(ii) whether there are any circumstances in which early repayment is required;
(iii) the terms of the subordination, the existence of any provisions to convert the subordinated liability into capital or some other form of liability and the terms of any such provisions.
(b) an overall indication of the rules governing other borrowings.
3. (a) In place of the information required under Article 43(1) (6) of Directive 78/660/EEC, credit institutions shall in the notes on their accounts state separately for each of the Assets items 3(b) and 4 and the Liabilities items 1(b), 2(a), 2(b) (bb) and 3(b) the amounts of those loans and advances and liabilities on the basis of their remaining maturity as follows:
not more than three months,
more than three months but not more than one year,
more than one year but not more than five years,
more than five years.
For Assets item 4, loans and advances on call and at short notice must also be shown.
If loans and advances or liabilities involve payment by installments, the remaining maturity shall be the period between the balance sheet date and the date on which each instalment falls due.
However, for five years after the date referred to in Article 47(2) the Member States may require or permit the listing by maturity of the assets and liabilities referred to in this Article to be based on the originally agreed maturity or period of notice. In that event, where a credit institution has acquired an existing loan not evidenced by a certificate, the Member States shall require classification of that loan to be based on the remaining maturity as at the date on which it was acquired. For the purposes of this subparagraph, the originally agreed maturity for loans shall be the period between the date of first drawing and the date of repayment; the period of notice shall be deemed to be the period between the date on which notice is given and the date on which repayment is to be made; if loans and advances or liabilities are redeemable by installments, the agreed maturity shall be the period between the date on which such loans and advances or liabilities arose and the date on which the last installment falls due. Credit institutions shall also indicate for the balance sheet items referred to in this subparagraph what proportion of those assets and liabilities will become due within one year of the balance sheet date.
(b) Credit institutions shall, in respect of Assets item 5 (Debt securities including fixed-income securities) and Liabilities item 3(a) (Debt securities in issue), indicate what proportion of assets and liabilities will become due within one year of the balance sheet date.
(c) The Member States may require the information referred to in subparagraphs (a) and (b) to be given in the balance sheet.
(d) Credit institutions shall give particulars of the assets which they have pledged as security for their own liabilities or for those of third parties (including contingent liabilities); the particulars should be in sufficient detail to indicate for each Liabilities time and for each Off-balance sheet item the total amount of the assets pledged as security.
4. Where credit institutions have to provide the information referred to in Article 43(1)(7) of Directive 78/66/EEC in Off-balance sheet items, such information need not be repeated in the notes on the accounts.
5. In place of the information required under Article 43(1)(8) of Directive 78/660/EEC, a credit institution shall indicate in the notes on its accounts the proportion of its income relating to items 1, 3, 4, 6 and 7 or Article 27 or to items B1, B2, B3, B4 and B7 of Article 28 by geographical markets, in so far as, taking account of the manner in which the credit institution is organized, those markets differ substantially from one another. Article 45(1)(b) of Directive 78/660/EEC shall apply.
6. The reference in Article 43(1)(9) of Directive 78/660/EEC to Article 23(6) of that Directive shall be deemed to be a reference to Article 27(8) or Article 28(A4) of this Directive.
7. By way of derogation from Article 43 (1)(13) of Directive 78/660/EEC, credit institutions need disclose only the amounts of advances and credits granted to the members of their administrative, managerial and supervisory bodies, and the commitments entered into on their behalf by way of guarantees of any kind. That information must be given in the form of a total for each category.
Article 41
1. The information prescribed in Article 15(3) of Directive 78/660/EEC must be given in respect of assets held as fixed assets as defined in Article 35 of this Directive. The obligation to show value adjustments separately shall not, however, apply where a Member State has permitted set-offs between value adjustments pursuant to Article 34(2) of this Directive. In that event value adjustments may be combined with other items.
2. The Member States shall require credit institutions to give the following information as well as in the notes on their accounts:
(a) a breakdown of the transferable securities shown under Assets items 5 to 8 into listed and unlisted securities;
(b) a breakdown of the transferable securities shown under Assets items 5 and 6 into securities which, pursuant to Article 35, are or are not held as financial fixed assets and the criterion used to distinguish between the two categories of transferable securities;
(c) the value of leasing transactions, apportioned between the relevant balance sheet items;
(d) a breakdown of Assets item 13, Liabilities item 4, items 10 and 18 in the vertical layout or A6 and A11 in the horizontal layout and items 7 and 17 in the vertical layout or B7 and B9 in the horizontal layout in the profit and loss account into their main component amounts, where such amounts are important for the purpose of assessing the annual accounts, as well as explanations of their nature and amount;
(e) the charges paid on account of subordinated liabilities by a credit institution in the year under review;
(f) the fact that an institution provides management and agency services to third parties where the scale of business of that kind is material in relation to the institution’s activities as a whole;
(g) the aggregate amount of assets and of liabilities denominated in foreign currencies translated into the currency in which the annual accounts are drawn up;
(h) a statement of the types of unmatured forward transactions outstanding at the balance sheet date indicating, in particular, for each type of transaction, whether they are made to a material extent for the propose of hedging the effects of fluctuations in interest rates, exchange rates and market prices, and whether they are made to a material extent for dealing proposes. These types of transaction shall include all those in connection with which the income or expenditure is to be included in Article 27, item 6, Article 28, items A3 or B4 or Article 29(3), for example, foreign currencies, precious metals, transferable securities, certificates of deposit and other assets.
Section 9, Provisions relating to consolidated accounts
Article 42
1. Credit institutions shall draw up consolidated accounts and consolidated annual reports in accordance with Directive 83/349/EEC, in so far as this section does not provide otherwise.
2. Insofar as a Member State does not have recourse to Article 5 of Directive 83/349/EEC, paragraph 1 of this Article shall also apply to parent undertakings the sole object of which is to acquire holdings in subsidiary undertakings and to manage such holdings and turn them to profit, where those subsidiary undertakings are either exclusively or mainly credit institutions.
Article 43
1. Directive 83/349/EEC shall apply, subject to Article 1 of this Directive and paragraph 2 of this Article.
2. (a) Articles 4, 6, 15 and 40 of Directive 83/349/EEC shall not apply.
(b) The Member States may make application of Article 7 of Directive 83/349/EEC subject to the following additional conditions:
the parent undertaking must have declared that it guarantees the commitments entered into by the exempted undertaking; the existence of that declaration shall be disclosed in the accounts of the exempted undertaking;
the parent undertaking must be a credit institution within the meaning of Article 2(l)(a) of this Directive.
(c) The information referred to in the first two indents of Article 9(2) of Directive 83/349/EEC, namely:
the amount of the fixed assets and
the net turnover shall be replaced by:
the sum of items 1, 2, 4, 6 and 7 in Article 27 or B1, B2, B3, B4 and B7 in Article 28 of this Directive.
(d) Where, as a result of applying Article 13(3)(c) of Directive 83/349/EEC, a subsidiary undertaking which is a credit institution is not included in consolidated accounts but where the shares of that undertaking are temporarily held as a result of a financial assistance operation with a view to the reorganization or rescue of the undertaking in question, the annual accounts of that undertaking shall be attached to the consolidated accounts and additional information shall be given in the notes on the accounts concerning the nature and terms of the financial assistance operation.
(e) A Member State may also apply Article 12 of Directive 83/349/EEC to two or more credit institutions which are not connected as described in Article 1(1) or (2) of that Directive but are managed on a unified basis other than pursuant to a contract or provisions in the memorandum or articles of association.
(f) Article 14 of Directive 83/349/EEC, with the exception of paragraph 2, shall apply subject to the following provision.
Where a parent undertaking is a credit institution and where one or more subsidiary undertakings to be consolidated do not have that status, those subsidiary undertakings shall be included in the consolidation if their activities are a direct extension of banking or concern services ancillary to banking, such as leasing, factoring, the management of unit trusts, the management of dataprocessing services or any other similar activity.
(g) For the purposes of the layout of consolidated accounts:
Articles 3, 5 to 26 and 29 to 34 of this Directive shall apply;
the reference in Article 17 of Directive 83/349/EEC to Article 15(3) of Directive 78/660/EEC shall apply to the assets deemed to be fixed assets pursuant to Article 35 of this Directive.
(h) Article 34 of Directive 83/349/EEC shall apply in respect of the contents of the notes on consolidated accounts, subject to Articles 40 and 41 of this Directive.
Section 10. Publication
Article 44
1. The duly approved annual accounts of credit institutions, together with the annual reports and the reports by the persons responsible for auditing the accounts shall be published as laid down by national law in accordance with Article 3 of Directive 68/151/EEC.
National law may, however, permit the annual report not to be published as stipulated above. In that case, it shall be made available to the public at the company’s registered office in the Member State concerned. It must be possible to obtain a copy of all or part of any such report on request. The price of such a copy must not exceed its administrative cost.
2. Paragraph 1 shall also apply to the duly approved consolidated accounts, the consolidated annual reports and the reports by the persons responsible for auditing the accounts.
3. However, where a credit institution which has drawn up annual accounts or consolidated accounts is not established as one of the types of company listed in Article 1(1) of Directive 78/660/EEC and is not required by its national law to publish the documents referred to in paragraphs 1 and 2 of this Article as prescribed in Article 3 of Directive 68/151/EEC, it must at least make them available to the public at its registered office or, in the absence of a registered office, at its principal place of business. It must be possible to obtain copies of such documents on request. The prices of such copies must not exceed their administrative cost.
4. The annual accounts and consolidated accounts of a credit institution must be published in every Member State in which that credit institution has branches within the meaning of the third indent of Article 1 of Directive 77/780/EEC. Such Member States may require that those documents be published in their official languages.
5. The Member States shall provide for appropriate sanctions for failure to comply with the publication rules referred to in this Article.
Section 11. Auditing
Article 45
A Member State need not apply Article 2(1) (b)(iii) of Directive 84/253/EEC to public savings banks where the statutory auditing of the documents of those undertakings referred to in Article 1(1) of that Directive is reserved to an existing supervisory body for those savings banks at the time of the entry into force of this Directive and where the person responsible complies at least with the conditions laid down in Article 3 to 9 of Directive 84/253/EEC.
Section 12. Final provisions
Article 46
The Contact Committee established in accordance with Article 52 of Directive 78/660/EEC shall, when meeting as constituted appropriately, also have the following functions:
(a) to facilitate, without prejudice to Articles 169 and 170 of the Treaty, harmonized application of this Directive through regular meetings dealing in particular with practical problems arising in connection with its application:
(b) to advise the Commission, if necessary, on additions or amendments to this Directive.
Article 47
1. The Member States shall bring into force the laws, regulations and administrative provisions necessary for them to comply with this Directive by 31 December 1990. They shall forthwith inform the Commission thereof.
2. A Member State may provide that the provisions referred to in paragraph 1 shall first apply to annual accounts and consolidated accounts for financial years beginning on 1 January 1993 or during the calendar year 1993.
3. The Member States shall communicate to the Commission the texts of the main provisions of national law which they adopt in the field governed by this Directive.
Article 48
Five years after the date referred to in Article 47(2), the Council, acting on a proposal from the Commission, shall examine and if need be revise all those provisions of this Directive which provide for Member State options, together with Articles 2(1), 27, 28 and 41, in the light of the experience acquired in applying this Directive and in particular of the aims of greater transparency and harmonization of the provisions referred to by this Directive.
Article 49
This Directive is addressed to the Member States.
Done at Brussels, 8 December 1986.
For the Council
The President
N. LAWSON
Appendix II 6 EC Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering
Council Directive1 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering (91/308/EEC)
The Council of the European Communities,
Having regard to the Treaty establishing the European Economic Community, and in particular Article 57 (2), first and third sentences, and Article 100a thereof,
Having regard to the proposal from the Commission,2
In cooperation with the European Parliament,3
Having regard to the opinion of the Economic and Social Committee,4
Whereas when credit and financial institutions are used to launder proceeds from criminal activities (hereinafter referred to as ‘money laundering’), the soundness and stability of the institution concerned and confidence in the financial system as a whole could be seriously jeopardized, thereby losing the trust of the public;
Whereas lack of Community action against money laundering could lead Member States, for the purpose of protecting their financial systems, to adopt measures which could be inconsistent with completion of the single market;
Whereas, in order to facilitate their criminal activities, launderers could try to take advantage of the freedom of capital movement and freedom to supply financial services which the integrated financial area involves, if certain coordinating measures are not adopted at Community level;
Whereas money laundering has an evident influence on the rise of organized crime in general and drug trafficking in particular;
Whereas there is more and more awareness that combating money laundering is one of the most effective means of opposing this form of criminal activity, which constitutes a particular threat to Member States’ societies;
Whereas money laundering must be combated mainly by penal means and within the framework of international cooperation among judicial and law enforcement authorities, as has been undertaken, in the field of drugs, by the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, adopted on 19 December 1988 in Vienna (hereinafter referred to as the ‘Vienna Convention’) and more generally in relation to all criminal activities, by the Council of Europe Convention on laundering, tracing, seizure and confiscation of proceeds of crime, opened for signature on 8 November 1990 in Strasbourg;
Whereas a penal approach should, however, not be the only way to combat money laundering, since the financial system can play a highly effective role;
Whereas reference must be made in this context to the recommendation of the Council of Europe of 27 June 1980 and to the declaration of principles adopted in December 1988 in Basle by the banking supervisory authorities of the Group of Ten, both of which constitute major steps towards preventing the use of the financial system for money laundering;
Whereas money laundering is usually carried out in an international context so that the criminal origin of the funds can be better disguised;
Whereas measures exclusively adopted at a national level, without taking account of international coordination and cooperation, would have very limited effects;
Whereas any measures adopted by the Community in this field should be consistent with other action undertaken in other international fora;
Whereas in this respect any Community action should take particular account of the recommendations adopted by the financial action task force on money laundering, set up in July 1989 by the Paris summit of the seven most developed countries;
Whereas the European Parliament has requested, in several resolutions, the establishment of a global Community programme to combat drug trafficking, including provisions on prevention of money laundering;
Whereas for the purposes of this Directive the definition of money laundering is taken from that adopted in the Vienna Convention;
Whereas, however, since money laundering occurs not only in relation to the proceeds of drug-related offences but also in relation to the proceeds of other criminal activities (such as organized crime and terrorism), the Member States should, within the meaning of their legislation, extend the effects of the Directive to include the proceeds of such activities, to the extent that they are likely to result in laundering operations justifying sanctions on that basis;
Whereas prohibition of money laundering in Member States’ legislation backed by appropriate measures and penalties is a necessary condition for combating this phenomenon;
Whereas ensuring that credit and financial institutions require identification of their customers when entering into business relations or conducting transactions, exceeding certain thresholds, are necessary to avoid launderers’ taking advantage of anonymity to carry out their criminal activities;
Whereas such provisions must also be extended, as far as possible, to any beneficial owners;
Whereas credit and financial institutions must keep for at least five years copies or references of the identification documents required as well as supporting evidence and records consisting of documents relating to transactions or copies thereof similarly admissible in court proceedings under the applicable national legislation for use as evidence in any investigation into money laundering;
Whereas ensuring that credit and financial institutions examine with special attention any transaction which they regard as particularly likely, by its nature, to be related to money laundering is necessary in order to preserve the soundness and integrity of the financial system as well as to contribute to combating this phenomenon;
Whereas to this end they should pay special attention to transactions with third countries which do not apply comparable standards against money laundering to those established by the Community or to other equivalent standards set out by international fora and endorsed by the Community;
Whereas, for those purposes, Member States may ask credit and financial institutions to record in writing the results of the examination they are required to carry out and to ensure that those results are available to the authorities responsible for efforts to eliminate money laundering;
Whereas preventing the financial system from being used for money laundering is a task which cannot be carried out by the authorities responsible for combating this phenomenon without the cooperation of credit and financial institutions and their supervisory authorities;
Whereas banking secrecy must be lifted in such cases;
Whereas a mandatory system of reporting suspicious transactions which ensures that information is transmitted to the abovementioned authorities without alerting the customers concerned, is the most effective way to accomplish such cooperation;
Whereas a special protection clause is necessary to exempt credit and financial institutions, their employees and their directors from responsibility for breaching restrictions on disclosure of information;
Whereas the information received by the authorities pursuant to this Directive may be used only in connection with combating money laundering;
Whereas Member States may nevertheless provide that this information may be used for other purposes;
Whereas establishment by credit and financial institutions of procedures of internal control and training programmes in this field are complementary provisions without which the other measures contained in this Directive could become ineffective;
Whereas, since money laundering can be carried out not only through credit and financial institutions but also through other types of professions and categories of undertakings, Member States must extend the provisions of this Directive in whole or in part, to include those professions and undertakings whose activities are particularly likely to be used for money laundering purposes;
Whereas it is important that the Member States should take particular care to ensure that coordinated action is taken in the Community where there are strong grounds for believing that professions or activities the conditions governing the pursuit of which have been harmonized at Community level are being used for laundering money;
Whereas the effectiveness of efforts to eliminate money laundering is particularly dependent on the close coordination and harmonization of national implementing measures;
Whereas such coordination and harmonization which is being carried out in various international bodies requires, in the Community context, cooperation between Member States and the Commission in the framework of a contact committee;
Whereas it is for each Member State to adopt appropriate measures and to penalize infringement of such measures in an appropriate manner to ensure full application of this Directive.
HAS ADOPTED THIS DIRECTIVE:
Article 1
For the purpose of this Directive:
‘credit institution’ means a credit institution, as defined as in the first indent of Article 1 of Directive 77/780/EEC5, as last amended by Directive 89/646/EEC6, and includes branches within the meaning of the third indent of that Article and located in the Community, of credit institutions having their head offices outside the Community,
‘financial institution’ means an undertaking other than a credit institution whose principal activity is to carry out one or more of the operations included in numbers 2 to 12 and number 14 of the list annexed to Directive 89/646/EEC, or an insurance company duly authorized in accordance with Directive 79/267/EEC7, as last amended by Directive 90/619/EEC8, in so far as it carries out activities covered by that Directive; this definition includes branches located in the Community of financial institutions whose head offices are outside the Community,
‘money laundering’ means the following conduct when committed intentionally:,
the conversion or transfer of property, knowing that such property is derived from criminal activity or from an act of participation in such activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such activity to evade the legal consequences of his action,
the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from criminal activity or from an act of participation in such activity,
the acquisition, possession or use of property, knowing, at the time of receipt, that such property was derived from criminal activity or from an act of participation in such activity,
participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions mentioned in the foregoing paragraphs.
Knowledge, intent or purpose required as an element of the abovementioned activities may be inferred from objective factual circumstances.
Money laundering shall be regarded as such even where the activities which generated the property to be laundered were perpetrated in the territory of another Member State or in that of a third country.
‘property’ means assets of every kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments evidencing title to or interests in such assets.
‘criminal activity’ means a crime specified in Article 3 (1) (a) of the Vienna Convention and any other criminal activity designated as such for the purposes of this Directive by each Member State.
‘competent authorities’ means the national authorities empowered by law or regulation to supervise credit or financial institutions.
Article 2
Member States shall ensure that money laundering as defined in this Directive is prohibited.
Article 3
1. Member States shall ensure that credit and financial institutions require identification of their customers by means of supporting evidence when entering into business relations, particularly when opening an account or savings accounts, or when offering safe custody facilities.
2. The identification requirement shall also apply for any transaction with customers other than those referred to in paragraph 1, involving a sum amounting to ECU 15,000 or more, whether the transaction is carried out in a single operation or in several operations which seem to be linked. Where the sum is not known at the time when the transaction is undertaken, the institution concerned shall proceed with identification as soon as it is apprised of the sum and establishes that the threshold has been reached.
3. By way of derogation from paragraphs 1 and 2, the identification requirements with regard to insurance policies written by insurance undertakings within the meaning of Directive 79/267/EEC, where they perform activities which fall within the scope of that Directive shall not be required where the periodic premium amount or amounts to be paid in any given year does or do not exceed ECU 1,000 or where a single premium is paid amounting to ECU 2,500 or less. If the periodic premium amount or amounts to be paid in any given year is or are increased so as to exceed the ECU 1,000 threshold, identification shall be required.
4. Member States may provide that the identification requirement is not compulsory for insurance policies in respect of pension schemes taken out by virtue of a contract of employment or the insured’s occupation, provided that such policies contain no surrender clause and may not be used as collateral for a loan.
5. In the event of doubt as to whether the customers referred to in the above paragraphs are acting on their own behalf, or where it is certain that they are not acting on their own behalf, the credit and financial institutions shall take reasonable measures to obtain information as to the real identity of the persons on whose behalf those customers are acting.
6. Credit and financial institutions shall carry out such identification, even where the amount of the transaction is lower than the threshold laid down, wherever there is suspicion of money laundering.
7. Credit and financial institutions shall not be subject to the identification requirements provided for in this Article where the customer is also a credit or financial institution covered by this Directive.
8. Member States may provide that the identification requirements regarding transactions referred to in paragraphs 3 and 4 are fulfilled when it is established that the payment for the transaction is to be debited from an account opened in the customer’s name with a credit institution subject to this Directive according to the requirements of paragraph 1.
Article 4
Member States shall ensure that credit and financial institutions keep the following for use as evidence in any investigation into money laundering:
in the case of identification, a copy or the references of the evidence required, for a period of at least five years after the relationship with their customer has ended,
in the case of transactions, the supporting evidence and records, consisting of the original documents or copies admissible in court proceedings under the applicable national legislation for a period of at least five years following execution of the transactions.
Article 5
Member States shall ensure that credit and financial institutions examine with special attention any transaction which they regard as particularly likely, by its nature, to be related to money laundering.
Article 6
Member States shall ensure that credit and financial institutions and their directors and employees cooperate fully with the authorities responsible for combating money laundering:
by informing those authorities, on their own initiative, of any fact which might be an indication of money laundering,
by furnishing those authorities, at their request, with all necessary information, in accordance with the procedures established by the applicable legislation.
The information referred to in the first paragraph shall be forwarded to the authorities responsible for combating money laundering of the Member State in whose territory the institution forwarding the information is situated. The person or persons designated by the credit and financial institutions in accordance with the procedures provided for in Article 11(1) shall normally forward the information.
Information supplied to the authorities in accordance with the first paragraph may be used only in connection with the combating of money laundering. However, Member States may provide that such information may also be used for other purposes.
Article 7
Member States shall ensure that credit and financial institutions refrain from carrying out transactions which they know or suspect to be related to money laundering until they have apprised the authorities referred to in Article 6. Those authorities may, under conditions determined by their national legislation, give instructions not to execute the operation. Where such a transaction is suspected of giving rise to money laundering and where to refrain in such manner is impossible or is likely to frustrate efforts to pursue the beneficiaries of a suspected money-laundering operation, the institutions concerned shall apprise the authorities immediately afterwards.
Article 8
Credit and financial institutions and their directors and employees shall not disclose to the customer concerned nor to other third persons that information has been transmitted to the authorities in accordance with Articles 6 and 7 or that a money laundering investigation is being carried out.
Article 9
The disclosure in good faith to the authorities responsible for combating money laundering by an employee or director of a credit or financial institution of the information referred to in Articles 6 and 7 shall not constitute a breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, and shall not involve the credit or financial institution, its directors or employees in liability of any kind.
Article 10
Member States shall ensure that if, in the course of inspections carried out in credit or financial institutions by the competent authorities, or in any other way, those authorities discover facts that could constitute evidence of money laundering, they inform the authorities responsible for combating money laundering.
Article 11
Member States shall ensure that credit and financial institutions:
establish adequate procedures of internal control and communication in order to forestall and prevent operations related to money laundering,
take appropriate measures so that their employees are aware of the provisions contained in this Directive. These measures shall include participation of their relevant employees in special training programmes to help them recognize operations which may be related to money laundering as well as to instruct them as to how to proceed in such cases.
Article 12
Member States shall ensure that the provisions of this Directive are extended in whole or in part to professions and to categories of undertakings, other than the credit and financial institutions referred to in Article 1, which engage in activities which are particularly likely to be used for money-laundering purposes.
Article 13
1. A contact committee (hereinafter referred to as ‘the Committee’) shall be set up under the aegis of the Commission. Its function shall be:
(a) without prejudice to Articles 169 and 170 of the Treaty, to facilitate harmonized implementation of this Directive through regular consultation on any practical problems arising from its application and on which exchanges of view are deemed useful;
(b) to facilitate consultation between the Member States on the more stringent or additional conditions and obligations which they may lay down at national level;
(c) to advise the Commission, if necessary, on any supplements or amendments to be made to this Directive or on any adjustments deemed necessary, in particular to harmonize the effects of Article 12;
(d) to examine whether a profession or a category of undertaking should be included in the scope of Article 12 where it has been established that such profession or category of undertaking has been used in a Member State for money laundering.
2. It shall not be the function of the Committee to appraise the merits of decisions taken by the competent authorities in individual cases.
3. The Committee shall be composed of persons appointed by the Member States and of representatives of the Commission. The secretariat shall be provided by the Commission. The chairman shall be a representative of the Commission. It shall be convened by its chairman, either on his own initiative or at the request of the delegation of a Member State.
Article 14
Each Member State shall take appropriate measures to ensure full application of all the provisions of this Directive and shall in particular determine the penalties to be applied for infringement of the measures adopted pursuant to this Directive.
Article 15
The Member States may adopt or retain in force stricter provisions in the field covered by this Directive to prevent money laundering.
Article 16
1. Member States shall bring into force the laws, regulations and administrative decisions necessary to comply with this Directive before 1 January 1993 at the latest.
2. Where Member States adopt these measures, they shall contain a reference to this Directive or shall be accompanied by such reference on the occasion of their official publication. The methods of making such a reference shall be laid down by the Member States.
3. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field governed by this Directive.
Article 17
One year after 1 January 1993, whenever necessary and at least at three yearly intervals thereafter, the Commission shall draw up a report on the implementation of this Directive and submit it to the European Parliament and the Council.
Article 18
This Directive is addressed to the Member States.
Done at Luxembourg, 10 June 1991.
For the Council
The President
J.C. JUNCKER
Statement by the representatives of the Governments of the Member States meeting within the Council
The representatives of the Governments of the Member States, meeting within the Council,
Recalling that the Member States signed the United Nations Convention against illicit traffic in narcotic drugs and psychotropic substances, adopted on 19 December 1988 in Vienna;
Recalling also that most Member States have already signed the Council of Europe Convention on laundering, tracing, seizure and confiscation of proceeds of crime on 8 November 1990 in Strasbourg;
Conscious of the fact that the description of money laundering contained in Article 1 of Council Directive 91/308/EEC derives its wording from the relevant provisions of the aforementioned Conventions;
Hereby undertake to take all necessary steps by 31 December 1992 at the latest to enact criminal legislation enabling them to comply with their obligations under the aforementioned instruments.
Appendix II 7 EC Directive on the Supervision of Credit Institutions on a Consolidated Basis
Council Directive1 6 April 1992 on the supervision of credit institutions on a consolidated basis (92/30/EEC) as corrected2
The Commission of the European Communities,
Having regard to the Treaty establishing the European Economic Community, and in particular the first and third sentences of Article 57(2) thereof,
Having regard to the proposal from the Commission,
In cooperation with the European Parliament,3
Having regard to the opinion of the Economic and Social Committee,4
Whereas Council Directive 83/350/EEC of 13 June 1983 on the supervision of credit institutions on a consolidated basis5 established the necessary framework for the introduction of supervision of credit institutions on a consolidated basis; whereas, following the transposition of that Directive into the national law of the Member States, the principle of supervision on a consolidated basis is now applied throughout the Community;
Whereas, in order to be effective, supervision on a consolidated basis must be applied to all banking groups, including those the parent undertakings of which are not credit institutions; whereas the competent authorities must hold the necessary legal instruments to be able to exercise such supervision;
Whereas, in the case of groups with diversified activities the parent undertakings of which control at least one credit institution subsidiary, the competent authorities must be able to assess the financial situation of a credit institution in such a group; whereas, pending subsequent coordination, the Member States may lay down appropriate methods of consolidation for the achievement of the objective of this Directive; whereas the competent authorities must at least have the means of obtaining from all undertakings within a group the information necessary for the performance of their function; whereas cooperation between the authorities responsible for the supervision of different financial sectors must be established in the case of groups of undertakings carrying on a range of financial activities;
Whereas rules limiting the risks taken by a credit institution on the mixed-activity holding company of which it is a subsidiary, as well as those taken on the other subsidiaries of the same mixed-activity holding company, can be particularly useful; whereas it would, however, appear to be preferable to settle this question in a more systematic manner in the framework of a future Directive on the limitation of large exposures;
Whereas the Member States can, furthermore, refuse or withdraw banking authorization in the case of certain group structures considered inappropriate for carrying on banking activities, in particular because such structures could not be supervised effectively; whereas in this respect the competent authorities have the powers mentioned in Article 8(1)(c) of the First Council Directive (77/780/EEC) of 12 December 1977 on the coordination of the laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions6 and in Articles 5 and 11 of the Second Council Directive (89/646/EEC) of 15 December 1989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions,7 in order to ensure the sound and prudent management of credit institutions;
Whereas the Member States can equally apply appropriate supervision techniques to groups with structures not covered by this Directive; whereas, if such structures become common, this Directive should be extended to cover them;
Whereas supervision on a consolidated basis must take in all activities defined in the Annex to Directive 89/646/EEC; whereas all undertakings principally engaged in such activities must therefore be included in supervision on a consolidated basis; whereas, as a result, the definition of a financial institution given in Directive 83/350/EEC must be widened to cover such activities;
Whereas, regarding the consolidation of financial institutions involved in activities principally subject to market risks and subject to particular rules of supervision, the coordination of the methods for the consolidated supervision of market risks is possible in the framework of Community harmonization of capital adequacy of investment firms and credit institutions, for which the Commission has introduced a proposal for a Directive; whereas such harmonization concerns, inter alia, the conditions which must be applied when offsetting opposing positions in the group and the case where these financial institutions are subject to specific supervisory rules regarding their financial stability; whereas this implies that, until the future Directive on capital adequacy to cover market risks is brought into effect, the competent authorities shall include in consolidated supervision financial institutions which are principally exposed to market risks, in accordance with methods determined by those authorities in the light of the particular nature of the risks involved;
Whereas, following the adoption of Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions,8 which, together with the Seventh Council Directive (83/349/EEC) of 13 June 1983 on consolidated accounts,9 established the rules of consolidation applicable to consolidated accounts published by credit institutions, it is now possible to define more precisely the methods to be used in prudential supervision exercised on a consolidated basis;
Whereas this Directive is fully in keeping with the objectives defined in the Single European Act; whereas it will, in particular, ensure the homogeneous application throughout the Community of prudential rules established by other Community legislation, which must be observed on a consolidated basis; whereas this Directive is, in particular, necessary for the correct application of Council Directive 89/ 299/ EEC of 17 April 1989 on the own funds of credit institutions;10
Whereas supervision of credit institutions on a consolidated basis must be aimed at, in particular, protecting the interests of the depositors of the said institutions and at ensuring the stability of the financial system;
Whereas it is desirable that agreement should be reached, on the basis of reciprocity, between the Community and third countries with a view to allowing the practical exercise of consolidated supervision over the largest possible geographical area;
Whereas the amendments to be made to Directive 83/350/EEC are so considerable that it is preferable that it be wholly replaced by this Directive,
Has Adopted this Directive:
Article 1. Definitions
For the purposes of this Directive:
‘credit institution’ shall mean a credit institution within the meaning of the first indent of Article 1 of Directive 77/780/EEC, or any private or public undertaking which corresponds to the definition in the first indent of Article 1 of Directive 77/780/EEC and has been authorized in a third country,
‘financial institution’ shall mean an undertaking, other than a credit institution, the principal activity of which is to acquire holdings or to carry on one or more of the activities referred to in numbers 2 to 12 of the list appearing in the Annex to Directive 89/646/EEC,
‘financial holding company’ shall mean a financial institution the subsidiary undertakings of which are either exclusively or mainly credit institutions or financial institutions, one at least of such subsidiaries being a credit institution,
‘mixed-activity holding company’ shall mean a parent undertaking, other than a financial holding company or a credit institution, the subsidiaries of which include at least one credit institution,
‘ancillary banking services’ undertaking shall mean an undertaking the principal activity of which consists in owning or managing property, managing data-processing services, or any other similar activity which is ancillary to the principal activity of one or more credit institution,
‘participation’ shall mean the ownership, direct or indirect, of 20% or more of the voting rights or capital of an undertaking,
‘parent undertaking’ shall mean a parent undertaking within the meaning of Article 1(1) of the Directive 83/349/EEC and any undertaking which, in the opinion of the competent authorities, effectively exercises a dominant influence over another undertaking,
‘subsidiary’ shall mean a subsidiary undertaking within the meaning of Article 1(1) of Directive 83/349/EEC and any undertaking over which, in the opinion of the competent authorities, a parent undertaking effectively exercises a dominant influence. All subsidiaries of subsidiary undertakings shall also be considered subsidiaries of the undertaking that is their original parent,
‘competent authorities’ shall mean the national authorities which are empowered by law or regulation to supervise credit institutions.
Article 2. Scope
This Directive shall apply to credit institutions that have obtained the authorization referred to in Article 3 of Directive 77/780/EEC, financial holding companies and mixed-activity holding companies which have their head offices in the Community.
The institutions permanently excluded by Article 2 of Directive 77/780/EEC, with the exception, however, of the Member States’ central banks, shall be treated as financial institutions for the purposes of this Directive.
Article 3. Supervision on a consolidated basis of credit institutions
1. Every credit institution which has a credit institution or a financial institution as a subsidiary or which holds a participation in such institutions shall be subject, to the extent and in the manner prescribed in Article 5, to supervision on the basis of its consolidated financial situation. Such supervision shall be exercised at least in the areas referred to in paragraphs 5 and 6.
2. Every credit institution the parent undertaking of which is a financial holding company shall be subject, to the extent and in the manner prescribed in Article 5, to supervision on the basis of the consolidated financial situation of that financial holding company. Such supervision shall be exercised at least in the areas referred to in paragraphs 5 and 6. The consolidation of the financial situation of the financial holding company shall not in any way imply that the competent authorities are required to play a supervisory role in relation to the financial holding company standing alone.
3. The Member States or the competent authorities responsible for exercising supervision on a consolidated basis pursuant to Article 4 may decide in the cases listed below that a credit institution, financial institution or auxiliary banking services undertaking which is a subsidiary or in which a participation is held need not be included in the consolidation:
if the undertaking that should be included is situated in a third country where there are legal impediments to the transfer of the necessary information,
if, in the opinion of the competent authorities, the undertaking that should be included is of negligible interest only with respect to the objectives of monitoring credit institutions and in all cases if the balance sheet total of the undertaking that should be included is less than the smaller of the following two amounts: ECU 10 million or 1% of the balance sheet total of the parent undertaking or the undertaking that holds the participation. If several undertakings meet the above criteria, they must nevertheless be included in the consolidation where collectively they are of non-negligible interest with respect to the aforementioned objectives, or
if, in the opinion of the competent authorities responsible for exercising supervision on a consolidated basis, the consolidation of the financial situation of the undertaking that should be included would be inappropriate or misleading as far as the objectives of the supervision of credit institutions are concerned.
4. When the competent authorities of a Member State do not include a credit institution subsidiary in supervision on a consolidated basis under one of the cases provided for in the second and third indents of paragraph 3, the competent authorities of the Member State in which that credit institution subsidiary is situated may ask the parent undertaking for information which may facilitate their supervision of that credit institution.
5. Supervision of solvency, and of the adequacy of own funds to cover market risks and control of large exposures, as governed by the relevant Community acts in force, shall be exercised on a consolidated basis in accordance with this Directive. Member States shall adopt any measures necessary, where appropriate, to include financial holding companies in consolidated supervision, in accordance with paragraph 2.
Compliance with the limits set in Article 12(1) and (2) of Directive 89/646/EEC shall be supervised and controlled on the basis of the consolidated or sub-consolidated financial situation of the credit institution.
6. The competent authorities shall ensure that, in all the undertakings included in the scope of the supervision on a consolidated basis that is exercised over a credit institution in implementation of paragraphs 1 and 2, there are adequate internal control mechanisms for the production of any data and information which would be relevant for the purposes of supervision on a consolidated basis.
7. Without prejudice to specific provisions contained in other Directives, Member States may waive application, on an individual or sub-consolidated basis, of the rules laid down in paragraph 5 to a credit institution that, as a parent undertaking, is subject to supervision on a consolidated basis, and to any subsidiary of such a credit institution which is subject to their authorization and supervision and is included in the supervision on a consolidated basis of the credit institution which is the parent company. The same exemption option shall be allowed where the parent undertaking is a financial holding company which has its head office in the same Member State as the credit institution, provided that it is subject to the same supervision as that exercised over credit institutions, and in particular the standards laid down in paragraph 5.
In both cases, steps must be taken to ensure that capital is distributed adequately within the banking group.
If the competent authorities do apply those rules individually to such credit institutions, they may, for the purpose of calculating own funds, make use of the provision in the last subparagraph of Article 2(1) of Directive 89/299/EEC.
8. Where a credit institution the parent of which is a credit institution has been authorized and is situated in another Member State, the competent authorities which granted that authorization shall apply the rules laid down in paragraph 5 to that institution on an individual or, when appropriate, a subconsolidated basis.
9. Notwithstanding the requirements of paragraph 8, the competent authorities responsible for authorizing the subsidiary of a parent undertaking which is a credit institution may, by bilateral agreement, delegate their responsibility for supervision to the competent authorities which authorized and supervise the parent undertaking. The Commission must be kept informed of the existence and content of such agreements. It shall forward such information to the competent authorities of the other Member States and to the Banking Advisory Committee.
10. Member States shall provide that their competent authorities responsible for exercising supervision on a consolidated basis may ask the subsidiaries of a credit institution or a financial holding company which are not included within the scope of supervision on a consolidated basis for the information referred to in Article 6. In such a case, the procedures for transmitting and verifying the information laid down in that Article shall apply.
Article 4. Competent authorities responsible for exercising supervision on a consolidated basis
1. Where a parent undertaking is a credit institution, supervision on a consolidated basis shall be exercised by the competent authorities that authorized it under Article 3 of Directive 77/780/EEC.
2. Where the parent of a credit institution is a financial holding company, supervision on a consolidated basis shall be exercised by the competent authorities which authorized that credit institution under Article 3 of Directive 77/780/EEC.
However, where credit institutions authorized in two or more Member States have as their parent the same financial holding company, supervision on a consolidated basis shall be exercised by the competent authorities of the credit institution authorized in the Member State in which the financial holding company was set up.
If no credit institution subsidiary has been authorized in the Member State in which the financial holding company was set up, the competent authorities of the Member States concerned (including those of the Member State in which the financial holding company was set up) shall seek to reach agreement as to who amongst them will exercise supervision on a consolidated basis. In the absence of such agreement, supervision on a consolidated basis shall be exercised by the competent authorities that authorized the credit institution with the greatest balance sheet total; if that figure is the same, supervision on a consolidated basis shall be exercised by the competent authorities which first gave the authorization referred to in Article 3 of Directive 77/780/EEC.
3. The competent authorities concerned may by common agreement waive the rules laid down in the first and second subparagraphs of paragraph 2.
4. The agreements referred to in the third subparagraph of paragraph 2 and in paragraph 3 shall provide for procedures for cooperation and for the transmission of information such that the objective of this Directive may be achieved.
5. Where Member States have more than one competent authority for the prudential supervision of credit institutions and financial institutions, Member States shall take the requisite measures to organize coordination between such authorities.
Article 5. Form and extent of consolidation
1. The competent authorities responsible for exercising supervision on a consolidated basis must, for the purposes of supervision, require full consolidation of all the credit institutions and financial institutions which are subsidiaries of a parent undertaking.
However, proportional consolidation may be prescribed where, in the opinion of the competent authorities, the liability of a parent undertaking holding a share of the capital is limited to that share of that capital because of the liability of the other shareholders or members whose solvency is satisfactory. The liability of the other shareholders and members must be clearly established, if necessary by means of formal, signed commitments.
2. The competent authorities responsible for carrying out supervision on a consolidated basis must, in order to do so, require the proportional consolidation of participations in credit institutions and financial institutions managed by an undertaking included in the consolidation together with one or more undertakings not included in the consolidation, where those undertakings’ liability is limited to the share of the capital they hold.
3. In the case of participations or capital ties other than those referred to in paragraphs 1 and 2, the competent authorities shall determine whether and how consolidation is to be carried out. In particular, they may permit or require use of the equity method. That method shall not, however, constitute inclusion of the undertakings concerned in supervisory on a consolidated basis.
4. Without prejudice to paragraphs 1, 2 and 3, the competent authorities shall determine whether and how consolidation is to be carried out in the following cases:
where, in the opinion of the competent authorities, a credit institution exercises a significant influence over one or more credit institutions or financial institutions, but without holding a participation or other capital ties in these institutions.
where two or more credit institutions or financial institutions are placed under single management other than pursuant to a contract or clauses of their memoranda or articles of association,
where two or more credit institutions or financial institutions have administrative, management or supervisory bodies with the same persons constituting a majority.
In particular, the competent authorities may permit, or require use of, the method provided for in Article 12 of Directive 83/349/EEC. That method shall not, however, constitute inclusion of the undertakings concerned in consolidated supervision.
5. Where consolidated supervision is required pursuant to Article 3(1) and (2), ancillary banking services undertakings shall be included in consolidations in the cases, and in accordance with the methods, laid down in paragraphs 1 to 4, of this Article.
Article 6. Information to be supplied by mixed-activity holding companies and their subsidiaries
1. Pending further coordination of consolidation methods, Member States shall provide that, where the parent undertaking of one or more credit institutions is a mixed-activity holding company, the competent authorities responsible for the authorization and supervision of those credit institutions shall, by approaching the mixed-activity holding company and its subsidiaries either directly or via credit institution subsidiaries, require them to supply any information which would be relevant for the purposes of supervising the credit institution subsidiaries.
2. Member States shall provide that their competent authorities may carry out, or have carried out by external inspectors, on-the-spot inspections to verify information received from mixed-activity holding companies and their subsidiaries. If the mixed-activity holding company or one of its subsidiaries is an insurance undertaking, the procedure laid down in Article 7(4) may also be used. If a mixed-activity holding company or one of its subsidiaries is situated in a Member State other than that in which the credit institution subsidiary is situated, on-the-spot verification of information shall be carried out in accordance with the procedure laid down in Article 7(7).
Article 7. Measures to facilitate the application of this Directive
1. Member States shall take the necessary steps to ensure that there are no legal impediments preventing the undertakings included within the scope of supervision on a consolidated basis, mixed-activity holding companies and their subsidiaries, or subsidiaries of the kind covered in Article 3(10), from exchanging amongst themselves any information which would be relevant for the purposes of supervision in accordance with this Directive.
2. Where a parent undertaking and any of its subsidiaries that are credit institutions are situated in different Member States, the competent authorities of each Member State shall communicate to each other all relevant information which may allow or aid the exercise of supervision on a consolidated basis.
Where the competent authorities of the Member State in which a parent undertaking is situated do not themselves exercise supervision on a consolidated basis pursuant to Article 4, they may be invited by the competent authorities responsible for exercising such supervision to ask the parent undertaking for any information which would be relevant for the purposes of supervision on a consolidated basis and to transmit it to these authorities.
3. Member States shall authorize the exchange between their competent authorities of the information referred to in paragraph 2, on the understanding that, in the case of financial holding companies, financial institutions or ancillary banking services undertakings, the collection or possession of information shall not in any way imply that the competent authorities are required to play a supervisory role in relation to those institutions or undertakings standing alone.
Similarly, Member States shall authorize their competent authorities to exchange the information referred to in Article 6 on the understanding that the collection or possession of information does not in any way imply that the competent authorities play a supervisory role in relation to the mixed-activity holding company and those of its subsidiaries which are not credit institutions, or to subsidiaries of the kind covered in Article 3(10).
4. Where a credit institution, financial holding company or mixedactivity holding company controls one or more subsidiaries which are insurance companies or other undertakings providing investment services which are subject to authorization, the competent authorities and the authorities entrusted with the public task of supervising insurance undertakings or those other undertakings providing investment services shall cooperate closely. Without prejudice to their respective responsibilities, those authorities shall provide one another with any information likely to simplify their task and to allow supervision of the activity and overall financial situation of the undertakings they supervise.
5. Information received pursuant to this Directive and in particular any exchange of information between competent authorities which is provided for in this Directive shall be subject to the obligation of professional secrecy defined in Article 12 of Directive 77/780/EEC.
6. The competent authorities responsible for supervision on a consolidated basis shall establish lists of the financial holding companies referred to in Article 3(2). Those lists shall be communicated to the competent authorities of the other Member States and to the Commission.
7. Where, in applying this Directive, the competent authorities of one Member State wish in specific cases to verify the information concerning a credit institution, a financial holding company, a financial institution, an ancillary banking services undertaking, a mixed-activity holding company, a subsidiary of the kind covered in Article 6 or a subsidiary of the kind covered in Article 3(10), situated in another Member State, they must ask the competent authorities of that other Member State to have that verification carried out. The authorities which receive such a request must, within the framework of their competence, act upon it either by carrying out the verification themselves, by allowing the authorities who made the request to carry it out, or by allowing an auditor or expert to carry it out.
8. Without prejudice to their provisions of criminal law, Member States shall ensure that penalties or measures aimed at ending observed breaches or the causes of such breaches may be imposed on financial holding companies and mixed-activity holding companies, or their effective managers, that infringe laws, regulations or administrative provisions enacted to implement this Directive. In certain cases, such measures may require the intervention of the courts. The competent authorities shall cooperate closely to ensure that the abovementioned penalties or measures produce the desired results, especially when the central administration or main establishment of a financial holding company or of a mixed-activity holding company is not located at its head office.
Article 8. Third countries
1. The Commission may submit proposals to the Council, either at the request of a Member State or on its own initiative, for the negotiation of agreements with one or more third countries regarding the means of exercising supervision on a consolidated basis over:
credit institutions the parent undertakings of which have their head offices situated in a third country, and
credit institutions situated in third countries the parent undertakings of which, whether credit institutions or financial holding companies, have their head offices in the Community.
2. The agreements referred to in paragraph 1 shall in particular seek to ensure both:
that the competent authorities of the Member States are able to obtain the information necessary for the supervision, on the basis of their consolidated financial situations, of credit institutions or financial holding companies situated in the Community and which have as subsidiaries credit institutions or financial institutions situated outside the Community, or which hold participations in such institutions,
that the competent authorities of third countries are able to obtain the information necessary for the supervision of parent undertakings the head offices of which are situated within their territories and which have as subsidiaries credit institutions or financial institutions situated in one or more Member States, or which hold participations in such institutions.
3. The Commission and the Advisory Committee set up under Article 11 of Directive 77/780/EEC shall examine the outcome of the negotiations referred to in paragraph 1 and the resulting situation.
Article 9. Final provisions
1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive before 1 January 1993. They forthwith inform the Commission thereof.
When Member States adopt the abovementioned measures, the measures shall contain a reference to this Directive or be accompanied by such reference on the occasion of their official publication. The methods of making such a reference shall be laid down by the Member States.
2. Notwithstanding the provisions of Article 3(5) and until the future Directive on capital adequacy to cover market risks is brought into effect, the competent authorities shall include in consolidated supervision financial institutions which are principally exposed to market risks in accordance with methods to be determined by those authorities in the light of the particular nature of the risks involved.
3. Member States shall communicate to the Commission the texts of the main provisions of internal law which they adopt in the field governed by this Directive.
Article 10
1. Directive 83/350/EEC is hereby repealed with effect from 1 January 1993.
2. In the following provisions, the words ‘Directive 83/350/EEC’ shall be replaced by ‘Directive 92/350/EEC’:
Article 5 of Directive 89/299/EEC,
Articles 12(6), 13(3) and the fifth indent of the first subparagraph of Article 18(2) of Directive 89/646/EEC,
Article 3(3) of Directive 89/647/EEC.
3. In Article 1, point 5, of Directive 89/646/EEC and the first indent of Article 2(1) of Directive 89/647/EEC, the definition of competent authorities shall be replaced by the following:
‘the national authorities which are empowered by law or regulation to supervise credit institutions’.
4. In Article 15(2) of Directive 89/646/EEC the words ‘Article 5(4) of Directive 83/350/EEC shall be replaced by ‘Article 7(7) of Directive 92/30/EEC’.
Article 11
This Directive is addressed to the Member States.
Done at Luxembourg, 6 April 1992.
For the Council
The President
João PINHEIRO
Appendix II 8 EC Directive on the Monitoring and Control of Large Exposures of Credit Institutions
Council Directive1 21 December 1992 on the monitoring and control of large exposures of credit institutions (92/121/EEC)
The Council of the European Communities,
Having regard to the Treaty establishing the European Economic Community, and in particular the first and third sentences of Article 57(2) thereof,
Having regard to the proposal from the Commission,2
In cooperation with the European Parliament,3
Having regard to the opinion of the Economic and Social Committee,4
Whereas this Directive comes within the framework of the aims set out in the Commission’s White Paper on completing the internal market;
Whereas the essential rules for monitoring large exposures of credit institutions should be harmonized; whereas Member States should still be able to adopt provisions more stringent than those provided for by this Directive;
Whereas this Directive has been the subject of consultation with the Banking Advisory Committee, which, under Article 6(4) of Council Directive 77/780/EEC of 12 December 1977 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of credit institutions,5 is responsible for making suggestions to the Commission with a view to coordinating the coefficients applicable in the Member States;
Whereas the monitoring and control of a credit institution’s exposures is an integral part of its supervision; whereas an excessive concentration of exposures to a single client or group of connected clients may result in an unacceptable risk of loss; whereas such a situation may be considered prejudicial to the solvency of a credit institution;
Whereas common guidelines for monitoring and controlling credit institutions’ large exposures were initially introduced by Commission recommendation 87/62/EEC;6 whereas that instrument was chosen because it permitted the gradual adjustment of existing systems and the establishment of new systems without dislocating the Community’s banking system; whereas, now that that first phase is over, a binding instrument applicable to all Community credit institutions should be adopted;
Whereas in a unified banking market credit institutions are engaged in direct competition with one another and monitoring requirements throughout the Community should therefore be equivalent; whereas, to that end, the criteria applied to determining the concentration of exposures must be the subject of legally binding rules at Community level and cannot be left entirely to the discretion of the Member States; whereas the adoption of common rules will therefore best serve the Community’s interests, since it will prevent differences in the conditions of competition, while strengthening the Community’s banking system;
Whereas, for the precise accounting technique to be used for the assessment of exposures reference is made to Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions7;
Whereas Council Directive 89/647/EEC of 18 December 1989 on a solvency ratio for credit institutions8 includes a list of credit risks which may be incurred by credit institutions; whereas that list should therefore be used for the definition of exposures for the purposes of this Directive; whereas it is not, however, appropriate to refer on principle to the weightings or degrees of risk laid down in that Directive; whereas those weightings and degrees of risk were devised for the purpose of establishing a general solvency requirement to cover the credit risk of credit institutions; whereas, in the context of the regulation of large exposures, the aim is to limit the maximum loss that a credit institution may incur through any single client or group of connected clients; whereas it is therefore appropriate to adopt a prudent approach in which, as a general rule, account is taken of the nominal value of exposures, but no weightings or degrees of risk are applied;
Whereas, when a credit institution incurs an exposure to its own parent undertaking or to other subsidiaries of its parent undertaking, particular prudence is necessary; whereas the management of exposures incurred by credit institutions must be carried out in a fully autonomous manner, in accordance with the principles of sound banking management, without regard to any considerations other than those principles; whereas the Second Council Directive 89/646/EEC of 15 December 1989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions9 requires that where the influence exercised by persons directly or indirectly holding a qualifying participation in a credit institution is likely to operate to the detriment of the sound and prudent management of that institution, the competent authorities shall take appropriate measures to put an end to that situation; whereas, in the field of large exposures, specific standards should also be laid down for exposures incurred by a credit institution to its own group and in such cases more stringent restrictions are justified than for other exposures; whereas more stringent restrictions need not, however, be applied where the parent undertaking is a financial holding company or a credit institution or where the other subsidiaries are either credit or financial institutions or undertakings offering ancillary banking services, provided that all such undertakings are covered by the supervision of the credit institution on a consolidated basis; whereas in such cases the consolidated monitoring of the group of undertakings allows for an adequate level of supervision, and does not require the imposition of more stringent limits on exposure; whereas under this approach banking groups will also be encouraged to organize their structures in such a way as to allow consolidated monitoring, which is desirable because a more comprehensive level of monitoring is possible;
Whereas, in order to ensure harmonious application of this Directive, Member States should be allowed to provide for the two-stage application of the new limits; whereas, for smaller credit institutions, a longer transitional period may be warranted inasmuch as too rapid an application of the 25% rule could reduce their lending activity too abruptly;
Whereas implementing powers of the same type as those which the Council reserved for itself in Directive 89/299/EEC on the own funds of credit institutions10 were granted to the Commission in Directive 89/646/EEC;
Whereas, taking account of the specific characteristics of the sector in question, it is appropriate to give the Committee set up by Article 22 of Directive 89/646/EEC the role of assisting the Commission in exercising the powers conferred on it under the procedure laid down in Article 2 (Procedure III, Variant (b)) of Council Decision 87/373/EEC of 13 July 1987 laying down the procedures for the exercise of implementing powers conferred on the Commission;11
Whereas, with regard to the monitoring of large exposures concerning activities which are principally exposed to market risks, the necessary coordination of monitoring methods can be ensured under a Community act on the capital adequacy of investment firms and credit institutions; whereas that implies that until Community legislation on the aforementioned large exposures is adopted the monitoring of large exposures relating to activities which are principally exposed to market risks, such as the trading portfolio underwriting commitments for the issue of securities and claims related to the settlement of securities transactions may be left to the competent authorities of each Member State,
Has Adopted this Directive:
Article 1. Definitions
For the purposes of this Directive:
(a) “credit institution” shall mean a credit institution as defined in the first indent of Article 1 of Directive 77/780/EEC, including such a credit institution’s branches in third countries, and any private or public undertaking, including its branches, which satisfies the definition in the first indent of Article 1 of Directive 77/780/EEC and which has been authorized in a third country;
(b) “competent authorities” shall mean the competent authorities as defined in the ninth indent of Article 1 of Council Directive 92/30/EEC of 6 April 1992 on the supervision of credit institutions on a consolidated basis;12
(c) “parent undertaking” shall mean a parent undertaking as defined in the seventh indent of Article 1 of Directive 92/30/EEC;
(d) “subsidiary undertaking” shall mean a subsidiary undertaking as defined in the eighth indent of Article 1 of Directive 92/30/EEC;
(e) “financial holding company” shall mean a financial holding company as defined in the third indent of Article 1 of Directive 92/30/EEC;
(f) “financial institution” shall mean a financial institution as defined in the second indent of Article 1 of Directive 92/30/EEC;
(g) “ancillary banking-services undertaking” shall mean an undertaking as defined in the fifth indent of Article 1 of Directive 92/30/EEC;
(h) “exposures” shall mean the assets and off-balance-sheet items referred to in Article 6 of Directive 89/647/EEC and in Annexes I and III thereto, without application of the weightings or degrees of risk there provided for; the risks referred to in the aforementioned Annex III must be calculated in accordance with one of the methods set out in Annex II to that Directive, without application of the weightings for counterparty risk; all elements entirely covered by own funds may, with the agreement of the competent authorities, be excluded from the definition of exposures provided that such own funds are not included in the calculation of the solvency ratio or of other monitoring ratios provided for in Community acts; exposures shall not include:
in the case of foreign exchange transactions, exposures incurred in the ordinary course of settlement during the 48 hours following payment, or
in the case of transactions for the purchase or sale of securities, exposures incurred in the ordinary course of settlement during the five working days following payment or delivery of the securities, whichever is the earlier;
(i) “Zone A” shall mean the zone referred to in the second indent of Article 2(1) of Directive 89/647/EEC;
(j) “Zone B” shall mean the zone referred to in the third indent of Article 2(1) of Directive 89/647/EEC;
(k) “own funds” shall mean the own funds of a credit institution as defined in Directive 89/299/EEC;
(1) “control” shall mean the relationship between a parent undertaking and a subsidiary, as defined in Article 1 of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking;
(m) “group of connected clients” shall mean:
two or more natural or legal persons who, unless it is shown otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other or others, or
two or more natural or legal persons between whom there is no relationship of control as defined in the first indent but who are to be regarded as constituting a single risk because they are so interconnected that, if one of them were to experience financial problems, the other or all of the others would be likely to encounter repayment difficulties.
Article 2. Scope
This Directive shall apply to credit institutions which have obtained the authorization referred to in Article 3 of Directive 77/780/EEC.
Member States need not, however, apply this Directive to:
(a) the institutions listed in Article 2(2) of Directive 77/780/EEC, or
(b) the institutions in the same Member State which, as defined in Article 2(4)(a) of Directive 77/780/EEC, are affiliated to a central body established in that Member State, provided that, without prejudice to the application of this Directive to the central body, the whole as constituted by the central body and its affiliated institutions is subject to global monitoring.
Article 3. Reporting of large exposures
1. A credit institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its own funds.
2. A credit institution shall report every large exposure within the meaning of paragraph 1 to the competent authorities. Member States shall provide that that reporting is to be carried out, at their discretion, in accordance with one of the following two methods:
reporting of all large exposures at least once a year, combined with reporting during the year of all new large exposures and any increases in existing large exposures of at least 20% with respect to the previous communication,
reporting of all large exposures at least four times a year.
3. Exposures exempted under Article 4(7)(a), (b), (c), (d), (f), (g) and (h) need not, however, be reported as laid down in paragraph 2. The reporting frequency laid down in the second indent of paragraph 2 may be reduced to twice a year for the exposures referred to in Article 4(7)(e) and (i) to (s), (8), (9) and (10).
4. The competent authorities shall require that every credit institution have sound administrative and accounting procedures and adequate internal control mechanisms for the purpose of identifying and recording all large exposures and subsequent changes to them, as defined and required by this Directive, and for that of monitoring those exposures in the light of each credit institution’s own exposure policies.
Where a credit institution invokes paragraph 3, it shall keep a record of the grounds advanced for at least one year after the event giving rise to the dispensation, so that the competent authorities may establish whether it is justified.
Article 4. Limits on large exposures
1. A credit institution may not incur an exposure to a client or group of connected clients the value of which exceeds 25% of its own funds.
2. Where that client or group of connected clients is the parent undertaking or subsidiary of the credit institution and/or one or more subsidiaries of that parent undertaking, the percentage laid down in paragraph 1 shall be reduced to 20%. Member States may, however, exempt the exposures incurred to such clients from the 20% limit if they provide for specific monitoring of such exposures by other measures or procedures. They shall inform the Commission and the Banking Advisory Committee of the content of such measures or procedures.
3. A credit institution may not incur large exposures which in total exceed 800% of its own funds.
4. Member States may impose limits more stringent than those laid down in paragraphs 1, 2 and 3.
5. A credit institution shall at all times comply with the limits laid down in paragraphs 1, 2 and 3 in respect of its exposures. If in an exceptional case exposures exceed those limits, that fact must be reported without delay to the competent authorities which may, where the circumstances warrant it, allow the credit institution a limited period of time in which to comply with the limits.
6. Member States may fully or partially exempt from the application of paragraphs 1, 2 and 3 exposures incurred by a credit institution to its parent undertaking, to other subsidiaries of that parent undertaking or to its own subsidiaries, in so far as those undertakings are covered by the supervision on a consolidated basis to which the credit institution itself is subject, in accordance with Directive 92/30/EEC or with equivalent standards in force in a third country.
7. Member States may fully or partially exempt the following exposures from the application of paragraphs 1, 2 and 3:
(a) asset items constituting claims on Zone A central governments or central banks;
(b) asset items constituting claims on the European Communities;
(c) asset items constituting claims carrying the explicit guarantees of Zone A central governments or central banks or of the European Communities;
(d) other exposures attributable to, or guaranteed by, Zone A central governments or central banks or the European Communities;
(e) asset items constituting claims on and other exposures to Zone B central governments or central banks which are denominated and, where applicable, funded in the national currencies of the borrowers;
(f) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of Zone A central government or central bank securities, or securities issued by the European Communities or by Member State regional or local authorities for which Article 7 of Directive 89/647/EEC lays down a zero weighting for solvency purposes;
(g) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of cash deposits placed with the lending institution or with a credit institution which is the parent undertaking or a subsidiary of the lending institution;
(h) asset items and other exposures secured, to the satisfaction of the competent authorities, by collateral in the form of certificates of deposit issued by the lending institution or by a credit institution which is the parent undertaking or a subsidiary of the lending institution and lodged with either of them;
(i) asset items constituting claims on and other exposures to credit institutions, with a maturity of one year or less, but not constituting such institutions’ own funds as defined in Directive 89/299/EEC;
(j) asset items constituting claims on and other exposures to those institutions which are not credit institutions but which fulfil the conditions referred to in Article 8(2) of Directive 89/647/EEC, with a maturity of one year or less, and secured in accordance with the same paragraph;
(k) bills of trade and other similar bills, with a maturity of one year or less, bearing the signatures of other credit institutions;
(1) debt securities as defined in Article 22(4) of Directive 85/611/EEC;13
(m) pending subsequent coordination, holdings in the insurance companies referred to in Article 12(3) of Directive 89/646/EEC up to 40% of the own funds of the credit institution acquiring such a holding;
(n) asset items constituting claims on regional or central credit institutions with which the lending institution is associated in a network in accordance with legal or statutory provisions and which are responsible, under those provisions, for cash-clearing operations within the network;
(o) exposures secured, to the satisfaction of the competent authorities, by collateral in the form of securities other than those referred to in (f) provided that those securities are not issued by the credit institution itself, its parent company or one of their subsidiaries, or by the client or group of connected clients in question. The securities used as collateral must be valued at market price, have a value that exceeds the exposures guaranteed and be either traded on a stock exchange or effectively negotiable and regularly quoted on a market operated under the auspices of recognized professional operators and allowing, to the satisfaction of the competent authorities of the Member State of origin of the credit institution, for the establishment of an objective price such that the excess value of the securities may be verified at any time. The excess value required shall be 100%; it shall, however, be 150% in the case of shares and 50% in the case of debt securities issued by credit institutions, Member State regional or local authorities other than those referred to in Article 7 of Directive 89/647/EEC, and in the case of debt securities issued by the European Investment Bank and multilateral development banks as defined in Article 2 of Directive 89/647/EEC. Securities used as collateral may not constitute credit institutions’ own funds as defined in Directive 89/229/EEC;
(p) loans secured, to the satisfaction of the competent authorities, by mortgages on residential property and leasing transactions under which the lessor retains full ownership of the residential property leased for as long as the lessee has not exercised his option to purchase, in both cases up to 50% of the value of the residential property concerned. The value of the property shall be calculated, to the satisfaction of the competent authorities, on the basis of strict valuation standards laid down by law, regulation or administrative provisions. Valuation shall be carried out at least once a year. For the purposes of this subparagraph residential property shall mean a residence to be occupied or let by the borrower;
(q) 50% of the medium/low-risk off-balance-sheet items referred to in Annex I to Directive 89/647/EEC;
(r) subject to the competent authorities’ agreement, guarantees other than loan guarantees which have a legal or regulatory basis and are given for their members by mutual guarantee schemes possessing the status of credit institutions as defined in Article 1(a), subject to a weighting of 20% of their amount.
Member States shall inform the Commission of the use they make of this option in order to ensure that it does not result in distortions of competition. Within five years of the adoption of this Directive, the Commission shall submit to the Council a report accompanied, if necessary, by appropriate proposals;
(s) the low-risk off-balance-sheet items referred to in Annex I to Directive 89/647/EEC, to the extent that an agreement has been concluded with the client or group of connected clients under which the exposure may be incurred only if it has been ascertained that it will not cause the limits applicable under paragraphs 1, 2 and 3 to be exceeded.
8. For the purposes of paragraphs 1, 2 and 3, Member States may apply a weighting of 20% to asset items constituting claims on Member State regional and local authorities and to other exposures to or guaranteed by such authorities; subject to the conditions laid down in Article 7 of Directive 89/647/EEC, however, Member States may reduce that rate to 0%.
9. For the purposes of paragraphs 1, 2 and 3, Member States may apply a weighting of 20% to asset items constituting claims on and other exposures to credit institutions with a maturity of more than one but not more than three years and a weighting of 50% to asset items constituting claims on credit institutions with a maturity of more than three years, provided that the latter are represented by debt instruments that were issued by a credit institution and that those debt instruments are, in the opinion of the competent authorities, effectively negotiable on a market made up of professional operators and are subject to daily quotation on that market, or the issue of which was authorized by the competent authorities of the Member State of origin of the issuing credit institution. In no case may any of these items constitute own funds within the meaning of Directive 89/299/EEC.
10. By way of derogation from paragraphs 7 (i) and 9, Member States may apply a weighting of 20% to asset items constituting claims on and other exposures to credit institutions, regardless of their maturity.
11. Where an exposure to a client is guaranteed by a third party, or by collateral in the form of securities issued by a third party under the conditions laid down in paragraph 7(o), Member States may:
treat the exposure as having been incurred to the third party rather than to the client, if the exposure is directly and unconditionally guaranteed by that third party, to the satisfaction of the competent authorities,
treat the exposure as having been incurred to the third party rather than to the client, if the exposure defined in paragraph 7(o) is guaranteed by collateral under the conditions there laid down.
12. Within five years of the date referred to in Article 8(1), the Council shall, on the basis of a report from the Commission, examine the treatment of interbank exposures provided for in paragraphs 7(i), 9 and 10. The Council shall decide on any changes to be made on a proposal from the Commission.
Article 5. Supervision on a consolidated or unconsolidated basis
1. If the credit institution is neither a parent undertaking nor a subsidiary, compliance with the obligations imposed in Article 3 and 4 or in any other Community provision applicable to this area shall be monitored on an unconsolidated basis.
2. In the other cases, compliance with the obligations imposed in Articles 3 and 4 or in any other Community provision applicable to this area shall be monitored on a consolidated basis in accordance with Directive 92/30/EEC.
3. Member States may waive monitoring on an individual or subconsolidated basis of compliance with the obligations imposed in Articles 3 and 4 or in any other Community provision applicable to this area by a credit institution which, as a parent undertaking, is subject to monitoring on a consolidated basis and by any subsidiary of such a credit institution which is subject to their authorization and supervision and is covered by monitoring on a consolidated basis.
Member States may also waive such monitoring where the parent undertaking is a financial holding company established in the same Member State as the credit institution, provided that that company is subject to the same monitoring as credit institutions.
In the cases referred to in the first and second subparagraphs measures must be taken to ensure the satisfactory allocation of risks within the group.
4. Where a credit institution the parent undertaking of which is a credit institution has been authorized and has its registered office in another Member State, the competent authorities which granted that authorization shall require compliance with the obligations imposed in Articles 3 and 4 or in any other Community provision applicable to this area on an individual basis or, when appropriate, a subconsolidated basis.
5. Notwithstanding paragraph 4, the competent authorities responsible for authorizing the subsidiary of a parent undertaking which is a credit institution which has been authorized by and has its registered office in another Member State may, by way of bilateral agreement, transfer responsibility for monitoring compliance with the obligations imposed in Articles 3 and 4 or in any other Community provision applicable to this area to the competent authorities which have authorized and which monitor the parent undertaking. The Commission and the Banking Advisory Committee shall be kept informed of the existence and content of such agreements.
Article 6. Transitional provisions relating to exposures in excess of the limits
1. If, when this Directive is published in the Official Journal of the European Communities, a credit institution has already incurred an exposure or exposures exceeding either the large exposure limit or the aggregate large exposure limit laid down in this Directive, the competent authorities shall require the credit institution concerned to take steps to have that exposure or those exposures brought within the limits laid down in this Directive.
2. The process of having such an exposure or exposures brought within authorized limits shall be devised, adopted, implemented and completed within the period which the competent authorities consider consistent with the principle of sound administration and fair competition. The competent authorities shall inform the Commission and the Banking Advisory Committee of the schedule for the general process adopted.
3. A credit institution may not take any measure which would cause the exposures referred to in paragraph 1 to exceed their level on the date of the publication of this Directive in the Official Journal of the European Communities.
4. The period applicable under paragraph 2 shall expire no later than 31 December 2001. Exposures with a longer maturity, for which the lending institution is bound to observe the contractual terms, may be continued until their maturity.
5. Until 31 December 1998, Member States may increase the limit laid down in Article 4(1) to 40% and the limit laid down in Article 4(2) to 30%. In such cases and subject to paragraphs 1 to 4, the time limit for bringing the exposures existing at the end of this period within the limits laid down in Article 4 shall expire on 31 December 2001.
6. In the case of credit institutions the own funds of which, as defined in Article 2(1) of Directive 89/299/EEC, do not exceed ECU 7 million, and only in the case of such institutions, Member States may extend the time limits laid down in paragraph 5 by five years.
Member States that avail themselves of the option provided for in this paragraph shall take steps to prevent distortions of competition and shall inform the Commission and the Banking Advisory Committee thereof.
7. In the cases referred to in paragraphs 5 and 6, an exposure may be considered a large exposure if its value is equal to or exceeds 15% of own funds.
8. Until 31 December 2001 Member States may substitute a frequency of at least twice a year for the frequency of notification of large exposures referred to in the second indent of Article 3(2).
9. Member States may fully or partially exempt from the application of Article 4(1), (2) and (3) exposures incurred by a credit institution consisting of mortgage loans as defined in Article 11(4) of Directive 89/647/EEC concluded within eight years of the date laid down in Article 8(1) of this Directive, as well as property leasing transactions as defined in Article 11(5) of Directive 89/647/EEC concluded within eight years of the date laid down in Article 8(1) of this Directive, in both cases up to 50% of the value of the property concerned.
10. Without prejudice to paragraph 4, Portugal may, until 31 December 1998, fully or partially exempt from the application of Article 4(1) and (3) exposures incurred by a credit institution to Electricidade de Portugal (EDP) and Petrogal.
Article 7. Subsequent amendments
1. Technical amendments to the following points shall be adopted in accordance with the procedure laid down in paragraph 2:
the clarification of definitions to take account of developments on financial markets,
the clarification of definitions to ensure the uniform application of this Directive,
the alignment of the terminology and of the wording of the definitions on those in subsequent instruments concerning credit institutions and related matters,
the clarification of the exemptions provided for in Article 4(5) to (10).
2. The Commission shall be assisted by the committee provided for in the first subparagraph of Article 22(2) of Directive 89/646/EEC.
The Commission representative shall submit to the committee a draft of the measures to be taken. The committee shall deliver its opinion on that draft within a time limit which the chairman may lay down according to the urgency of the matter. The opinion shall be delivered by the majority laid down in Article 148(2) of the Treaty in the case of decisions which the Council is required to adopt on a proposal from the Commission. The votes of the Member States’ representatives on the committee shall be weighted as laid down in that Article. The chairman shall not vote.
The Commission shall adopt the measures envisaged if they are in accordance with the committee’s opinion.
If the measures envisaged are not in accordance with the committee’s opinion, or if no opinion is delivered, the Commission shall, without delay, submit to the Council a proposal concerning the measures to be taken. The Council shall act by a qualified majority.
If the Council does not act within three months of the referral to it the Commission shall adopt the measures proposed unless the Council has decided against those measures by a simple majority.
Article 8. Final provisions
1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 1 January 1994. They shall forthwith inform the Commission thereof.
When Member States adopt these measures, they shall include a reference to this Directive or be accompanied by such a reference on the occasion of their official publication. The manner in which such a reference is to be made shall be laid down by the Member States.
2. Member States shall communicate to the Commission the texts of the main provisions of national law which they adopt in the field governed by this Directive.
3. Pending Community legislation on the monitoring on a consolidated or non-consolidated basis of large exposures concerning activities which are principally exposed to market risks the Member States shall deal with such large exposures in accordance with methods which they shall determine, having regard to the particular nature of the risks involved.
Article 9
This Directive is addressed to the Member States.
Done at Brussels, 21 December 1992.
For the Council
The President
D. HURD
Appendix II 9 EC Directive on Investment Services in the Securities Field
Council Directive1 10 May 1993 on investment services in the securities field (93/ 22/ EEC)
The Council of European Communities,
Having regard to the Treaty establishing the European Economic Community, and in particular Article 57(2) thereof,
Having regard to the proposal from the Commission,2
In cooperation with the European Parliament,3
Having regard to the opinion of the Economic and Social Committee,4
Whereas this Directive constitutes an instrument essential to the achievement of the internal market, a course determined by the Single European Act and set out in timetable form in the Commission’s White Paper, from the point of view both of the right of establishment and of the freedom to provide financial services, in the field of investment firms;
Whereas firms that provide the investment services covered by this Directive must be subject to authorization by their home Member States in order to protect investors and the stability of the financial system;
Whereas the approach adopted is to effect only the essential harmonization necessary and sufficient to secure the mutual recognition of authorization and of prudential supervision systems, making possible the grant of a single authorization valid throughout the Community and the application of the principle of home Member State supervision; whereas, by virtue of mutual recognition, investment firms authorized in their home Member States may carry on any or all of the services covered by this Directive for which they have received authorization throughout the Community by establishing branches or under the freedom to provide services;
Whereas the principles of mutual recognition and of home Member State supervision require that the Member States’ competent authorities should not grant or should withdraw authorization where factors such as the content of programmes of operations, the geographical distribution or the activities actually carried on indicate clearly that an investment firm has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within the territory of which it intends to carry on or does carry on the greater part of its activities; whereas, for the purposes of this Directive, an investment firm which is a legal person must be authorized in the Member State in which it has its registered office; whereas an investment firm which is not a legal person must be authorized in the Member State in which it has its head office; whereas, in addition, Member States must require that an investment firm’s head office must always be situated in its home Member State and that it actually operates there;
Whereas it is necessary, for the protection of investors, to guarantee the internal supervision of every firm, either by means of two-man management or, where that is not required by this Directive, by other mechanisms that ensure an equivalent result;
Whereas in order to guarantee fair competition, it must be ensured that investment firms that are not credit institutions have the same freedom to create branches and provide services across frontiers as is provided for by the Second Council Directive (89/646/EEC) of 15 December 1989 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions;5
Whereas an investment firm should not be able to invoke this Directive in order to carry out spot or forward exchange transactions other than as services connected with the provision or investment services; whereas, therefore, the use of a branch solely for such foreign-exchange transactions would constitute misuse of the machinery of this Directive;
Whereas an investment firm authorized in its home Member State may carry on business throughout the Community by whatever means it deems appropriate; whereas, to that end it may, if it deems it necessary, retain tied agents to receive and transmit orders for its account and under its full and unconditional responsibility; whereas, in these circumstances, such agents’ business must be regarded as that of the firm; whereas, moreover, this Directive does not prevent a home Member State from making the status of such agents subject to special requirements; whereas should the investment firm carry on cross-border business, the host Member State must treat those agents as being the firm itself; whereas, moreover, the door-to-door selling of transferable securities should not be covered by this Directive and the regulation thereof should remain a matter for national provisions;
Whereas ‘transferable securities’ means those classes of securities which are normally dealt in on the capital market, such as government securities, shares in companies, negotiable securities giving the right to acquire shares by subscription or exchange, depositary receipts, bonds issued as part of a series, index warrants and securities giving the right to acquire such bonds by subscription;
Whereas ‘money-market instruments’ means those classes of instruments which are normally dealt in on the money market such as treasury bills, certificates of deposit and commercial paper;
Whereas the very wide definitions of transferable securities and money-market instruments included in this Directive are valid only for this Directive and consequently in no way affect the various definitions of financial instruments used in national legislation for other purposes such as taxation; whereas, furthermore, the definition of transferable securities covers negotiable instruments only; whereas, consequently, shares and other securities equivalent to shares issued by bodies such as building societies and industrial and provident societies, ownership of which cannot in practice be transferred except by the issuing body’s buying them back, are not covered by this definition;
Whereas ‘instrument equivalent to a financial-futures contract’ means a contract which is settled by a payment in cash calculated by reference to fluctuations in interest or exchange rates, the value of any instrument listed in Section B of the Annex or an index of any such instruments;
Whereas, for the purposes of this Directive, the business of the reception and transmission of orders also includes bringing together two or more investors thereby bringing about a transaction between those investors;
Whereas no provision in this Directive affects the Community provisions or, failing such, the national provisions regulating public offers of the instruments covered by this Directive; whereas the same applies to the marketing and distribution of such instruments;
Whereas Member States retain full responsibility for implementing their own monetary-policy measures, without prejudice to the measures necessary to strengthen the European Monetary System;
Whereas it is necessary to exclude insurance undertakings the activities of which are subject to appropriate monitoring by the competent prudential-supervision authorities and which are coordinated at Community level and undertakings carrying out reinsurance and retrocession activities;
Whereas undertakings which do not provide services for third parties but the business of which consists in providing investment services solely for their parent undertakings, for their subsidiaries, or for other subsidiaries of their parent undertakings should not be covered by this Directive;
Whereas the purpose of this Directive is to cover undertakings the normal business of which is to provide third parties with investment services on a professional basis; whereas its scope should not therefore cover any person with a different professional activity (e.g. a barrister or solicitor) who provides investment services only on an incidental basis in the course of that other professional activity, provided that that activity is regulated and the relevant rules do not prohibit the provision, on an incidental basis, of investment services; whereas it is also necessary for the same reason to exclude from the scope of this Directive persons who provide investment services only for producers or users of commodities to the extent necessary for transactions in such products where such transactions constitute their main business;
Whereas firms which provide investment services consisting exclusively in the administration of employee-participation schemes and which therefore do not provide investment services for third parties should not be covered by this Directive;
Whereas it is necessary to exclude from the scope of this Directive central banks and other bodies performing similar functions as well as public bodies charged with or intervening in the management of the public debt, which concept covers the investment thereof; whereas, in particular, this exclusion does not cover bodies that are partly or wholly State-owned the role of which is commercial or linked to the acquisition of holdings;
Whereas it is necessary to exclude from the scope of this Directive any firms or persons whose business consists only of receiving and transmitting orders to certain counterparties and who do not hold funds or securities belonging to their clients; whereas, therefore, they will not enjoy the right of establishment and freedom to provide services under the conditions laid down in this Directive, being subject, when they wish to operate in another Member State, to the relevant provisions adopted by that State;
Whereas it is necessary to exclude from the scope of this Directive collective investment undertakings whether or not coordinated at Community level, and the depositaries or managers of such undertakings, since they are subject to specific rules directly adapted to their activities;
Whereas, where associations created by a Member State’s pension funds to permit the management of their assets confine themselves to such management and do not provide investment services for third parties, and where the pension funds are themselves subject to the control of the authorities charged with monitoring insurance undertakings, it does not appear to be necessary to subject such associations to the conditions for taking up business and for operation imposed by this Directive;
Whereas this Directive should not apply to ‘agenti di cambio’ as defined by Italian law since they belong to a category the authorization of which is not to be renewed, their activities are confined to the national territory and they do not give rise to a risk of the distortion of competition;
Whereas the rights conferred on investment firms by this Directive are without prejudice to the right of Member States, central banks and other national bodies performing similar functions to choose their counterparties on the basis of objective, non-discriminatory criteria;
Whereas responsibility for supervising the financial soundness of an investment firm will rest with the competent authorities of its home Member State pursuant to Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions,6 which coordinates the rules applicable to market risk;
Whereas a home Member State may, as a general rule, establish rules stricter than those laid down in this Directive, in particular as regards authorization conditions, prudential requirements and the rules of reporting and transparency;
Whereas the carrying on of activities not covered by this Directive is governed by the general provisions of the Treaty on the right of establishment and the freedom to provide services;
Whereas in order to protect investors an investor’s ownership and other similar rights in respect of securities and his rights in respect of funds entrusted to a firm should in particular be protected by being kept distinct from those of the firm; whereas this principle does not, however, prevent a firm from doing business in its name but on behalf of the investor, where that is required by the very nature of the transaction and the investor is in agreement, for example stock lending;
Whereas the procedures for the authorization of branches of investment firms authorized in third countries will continue to apply to such firms; whereas those branches will not enjoy the freedom to provide services under the second paragraph of Article 59 of the Treaty or the right of establishment in Member States other than those in which they are established; whereas, however, requests for the authorization of subsidiaries or of the acquisition of holdings by undertakings governed by the laws of third countries are subject to a procedure intended to ensure that Community investment firms receive reciprocal treatment in the third countries in question;
Whereas the authorizations granted to investment firms by the competent national authorities pursuant to this Directive will have Community-wide, and no longer merely nationwide application, and existing reciprocity clauses will henceforth have no effect; whereas a flexible procedure is therefore needed to make it possible to assess reciprocity on a Community basis; whereas the aim of this procedure is not to close the Community’s financial markets but rather, as the Community intends to keep its financial markets open to the rest of the world, to improve the liberalization of the global financial markets in third countries; whereas, to that end, this Directive provides for procedures for negotiating with third countries and, as a last resort, for the possibility of taking measures involving the suspension of new applications for authorization and the restriction of new authorizations;
Whereas one of the objectives of this Directive is to protect investors; whereas it is therefore appropriate to take account of the different requirements for protection of various categories of investors and of their levels of professional expertise;
Whereas the Member States must ensure that there are no obstacles to prevent activities that receive mutual recognition from being carried on in the same manner as in the home Member State, as long as they do not conflict with laws and regulations protecting the general good in force in the host Member State;
Whereas a Member State may not limit the right of investors habitually resident or established in that Member State to avail themselves of any investment service provided by an investment firm covered by this Directive situated outside that Member State and acting out with that Member State;
Whereas in certain Member States clearing and settlement functions may be performed by bodies separate from the markets on which transactions are effected; whereas, accordingly, any reference in this Directive to access to and membership of regulated markets should be read as including references to access to and membership of bodies performing clearing and settlement functions for regulated markets;
Whereas each Member State must ensure that within its territory, treatment of all investment firms authorized in any Member State and likewise all financial instruments listed on the Member States’ regulated markets is non-discriminatory; whereas investment firms must all have the same opportunities of joining or having access to regulated markets; whereas, regardless of the manner in which transactions are at present organized in the Member States, it is therefore important, subject to the conditions imposed by this Directive, to abolish the technical and legal restrictions on access to the regulated markets within the framework of this Directive;
Whereas some Member States authorize credit institutions to become members of their regulated markets only indirectly, by setting up specialized subsidiaries; whereas the opportunity which this Directive gives credit institutions of becoming members of regulated markets directly without having to set up specialized subsidiaries constitutes a significant reform for those Member States and all its consequences should be reassessed in the light of the development of the financial markets; whereas, in view of those factors, the report which the Commission will submit to the Council on this matter no later than 31 December 1998 will have to take account of all the factors necessary for the Council to be able to reassess the consequences for those Member States, and in particular the danger of conflicts of interest and the level of protection afforded to investors;
Whereas it is of the greatest importance that the harmonization of compensation systems be brought into effect on the same date as this Directive; whereas, moreover, until the date on which a Directive harmonizing compensation systems is brought into effect, host Member States will be able to impose application of their compensation systems on investment firms including credit institutions authorized by other Member States, where the home Member States have no compensation systems or where their systems do not offer equivalent levels of protection;
Whereas the structure of regulated markets must continue to be governed by national law, without thereby forming an obstacle to the liberalization of access to the regulated markets of host Member States for investment firms authorized to provide the services concerned in their home Member States; whereas, pursuant to that principle, the law of the Federal Republic of Germany and the law of the Netherlands govern the activities Kursmakler and hoekmannen respectively so as to ensure that they do not exercise their functions in parallel with other functions; whereas it should be noted that Kursmakler and hoekmannen may not provide services in other Member States; whereas no one, whatever his home Member State, may claim to act as a Kursmakler or a hoekman without being subject to the same rules on incompatibility as result from the status of Kursmakler or hoekman;
Whereas it should be noted that this Directive cannot affect the measures taken pursuant to Council Directive 79/279/EEC of 5 March 1979 coordinating the conditions for the admission of securities to official stock-exchange listing;7
Whereas the stability and sound operation of the financial system and the protection of investors presuppose that a host Member State has the right and responsibility both to prevent and to penalize any action within its territory by investment firms contrary to the rules of conduct and other legal or regulatory provisions it has adopted in the interest of the general good and to take action in emergencies; whereas, moreover, the competent authorities of the host Member State must, in discharging their responsibilities, be able to count on the closest cooperation with the competent authorities of the home Member State, particularly as regards business carried on under the freedom to provide services; whereas the competent authorities of the home Member State are entitled to be informed by the competent authorities of the host Member State of any measures involving penalties on an investment firm or restrictions on its activities which the latter have taken vis-à-vis the investment firms which the former have authorized so as to be able to perform their function of prudential supervision efficiently; whereas to that end cooperation between the competent authorities of home and host Member States must be ensured;
Whereas, with the two-fold aim of protecting investors and ensuring the smooth operation of the markets in transferable securities, it is necessary to ensure that transparency of transactions is achieved and that the rules laid down for that purpose in this Directive for regulated markets apply both to investment firms and to credit institutions when they operate on the market;
Whereas examination of the problems arising in the areas covered by the Council Directives on investment services and securities, as regards both the application of existing measures and the possibility of closer coordination in the future, requires cooperation between national authorities and the Commission within a committee; whereas the establishment of such a committee does not rule out other forms of cooperation between supervisory authorities in this field;
Whereas technical amendments to the detailed rules laid down in this Directive may from time to time be necessary to take account of new developments in the investment-services sector; whereas the Commission will make such amendments as are necessary, after referring the matter to the committee to be set up in the securities-markets field,
Has Adopted this Directive:
TITLE I. Definition and scope
Article 1
For the purposes of this Directive:
‘investment service’ shall mean any of the services listed in Section A of the Annex relating to any of the instruments listed in Section B of the Annex that are provided for a third party;
‘investment firm’ shall mean any legal person the regular occupation or business of which is the provision of investment services for third parties on a professional basis.
For the purposes of this Directive, Member States may include as investment firms undertakings which are not legal persons if:
their legal status ensures a level of protection for third parties’ interests equivalent to that afforded by legal persons, and
they are subject to equivalent prudential supervision appropriate to their legal form.
However, where such natural persons provide services involving the holding of third parties’ funds or transferable securities, they may be considered as investment firms for the purposes of this Directive only if, without prejudice to the other requirements imposed in this Directive and in Directive 93/6/EEC, they comply with the following conditions:
the ownership rights of third parties in instruments and funds belonging to them must be safeguarded, especially in the event of the insolvency of a firm or of its proprietors, seizure, set-off or any other action by creditors of the firm or of its proprietors,
an investment firm must be subject to rules designed to monitor the firm’s solvency and that of its proprietors,
an investment firm’s annual accounts must be audited by one or more persons empowered, under national law, to audit accounts,
where a firm has only one proprietor, he must make provision for the protection of investors in the event of the firm’s cessation of business following his death, his incapacity or any other such event.
No later than 31 December 1997 the Commission shall report on the application of the second and third subparagraphs of this point and, if appropriate, propose their amendment or deletion.
Where a person provides one of the services referred to in Section A(1)(a) of the Annex and where that activity is carried on solely for the account of and under the full and unconditional responsibility of an investment firm, that activity shall be regarded as the activity not of that person but of the investment firm itself;
‘credit institution’ shall mean a credit institution as defined in the first indent of Article 1 of Directive 77/780/EEC8 with the exception of the institutions referred to in Article 2(2) thereof;
‘transferable securities’ shall mean:
shares in companies and other securities equivalent to shares in companies,
bonds and other forms of securitized debt which are negotiable on the capital market and
any other securities normally dealt in giving the right to acquire any such transferable securities by subscription or exchange or giving rise to a cash settlement excluding instruments of payment;
‘money-market instruments’ shall mean those classes of instruments which are normally dealt in on the money market;
‘home Member State’ shall mean:
(a) where the investment firm is a natural person, the Member State in which his head office is situated;
(b) where the investment firm is a legal person, the Member State in which its registered office is situated or, if under its national law it has no registered office, the Member State in which its head office is situated;
(c) in the case of a market, the Member State in which the registered office of the body which provides trading facilities is situated or, if under its national law it has no registered office, the Member State in which that body’s head office is situated;
‘host Member State’ shall mean the Member State in which an investment firm has a branch or provides services;
‘branch’ shall mean a place of business which is a part of an investment firm, which has no legal personality and which provides investment services for which the investment firm has been authorized; all the places of business set up in the same Member State by an investment firm with headquarters in another Member State shall be regarded as a single branch;
‘competent authorities’ shall mean the authorities which each Member State designates under Article 22;
‘qualifying holding’ shall mean any direct or indirect holding in an investment firm which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the investment firm in which that holding subsists.
For the purposes of this definition, in the context of Articles 4 and 9 and of the other levels of holding referred to in Article 9, the voting rights referred to in Article 7 of Directive 88/627/EEC9 shall be taken into account;
‘parent undertaking’ shall mean a parent undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC;10
‘subsidiary’ shall mean a subsidiary undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC; any subsidiary of a subsidiary undertaking shall also be regarded as a subsidiary of the parent undertaking which is the ultimate parent of those undertakings;
‘regulated market’ shall mean a market for the instruments listed in Section B of the Annex which:
appears on the list provided for in Article 16 drawn up by the Member State which is the home Member State as defined in Article 1(6)(c),
functions regularly,
is characterized by the fact that regulations issued or approved by the competent authorities define the conditions for the operation of the market, the conditions for access to the market and, where Directive 79/279/EEC is applicable, the conditions governing admission to listing imposed in that Directive and, where that Directive is not applicable, the conditions that must be satisfied by a financial instrument before it can effectively be dealt in on the market,
requires compliance with all the reporting and transparency requirements laid down pursuant to Articles 20 and 21;
‘control’ shall mean control as defined in Article 1 of Directive 83/349/EEC.
Article 2
This Directive shall apply to all investment firms. Only paragraph 4 of this Article and Articles 8(2), 10, 11, 12, first paragraph, 14(3) and (4), 15, 19 and 20, however, shall apply to credit institutions the authorization of which, under Directives 77/780/EEC and 89/646/EEC, covers one or more of the investment services listed in Section A of the Annex to this Directive.
This Directive shall not apply to:
(a) insurance undertakings as defined in Article 1 of Directive 73/239/EEC 11 or Article 1 of Directive 79/267/EEC 12 or undertakings carrying on the reinsurance and retrocession activities referred to in Directive 64/225/EEC;13
(b) firms which provide investment services exclusively for their parent undertakings, for their subsidiaries or for other subsidiaries of their parent undertakings;
(c) persons providing an investment service where that service is provided in an incidental manner in the course of a professional activity and that activity is regulated by legal or regulatory provisions or a code of ethics governing the profession which do not exclude the provision of that service;
(d) firms that provide investment services consisting exclusively in the administration of employee-participation schemes;
(e) firms that provide investment services that consist in providing both the services referred to in (b) and those referred to in (d);
(f) the central banks of Member States and other national bodies performing similar functions and other public bodies charged with or intervening in the management of the public debt;
(g) firms
which may not hold clients’ funds or securities and which for that reason may not at any time place themselves in debt with their clients, and
which may not provide any investment service except the reception and transmission of orders in transferable securities and units in collective investment undertakings, and
which in the course of providing that service may transmit orders only to
(i) investment firms authorized in accordance with this Directive;
(ii) credit institutions authorized in accordance with Directives 77/780/EEC and 89/646/EEC;
(iii) branches of investment firms or of credit institutions which are authorized in a third country and which are subject to and comply with prudential rules considered by the competent authorities as at least as stringent as those laid down in this Directive, in Directive 89/646/EEC or in Directive 93/6/EEC;
(iv) collective investment undertakings authorized under the law of a Member State to market units to the public and to the managers of such undertakings;
(v) investment companies with fixed capital, as defined in Article 15(4) of Directive 77/91/EEC,14 the securities of which are listed or dealt in on a regulated market in a Member State;
the activities of which are governed at national level by rules or by a code of ethics;
(h) collective investment undertakings whether coordinated at Community level or not and the depositaries and managers of such undertakings;
(i) persons whose main business is trading in commodities amongst themselves or with producers or professional users of such products and who provide investment services only for such producers and professional users to the extent necessary for their main business;
(j) firms that provide investment services consisting exclusively in dealing for their own account on financial-futures or options markets or which deal for the accounts of other members of those markets or make prices for them and which are guaranteed by clearing members of the same markets. Responsibility for ensuring the performance of contracts entered into by such firms must be assumed by clearing members of the same markets;
(k) associations set up by Danish pension funds with the sole aim of managing the assets of pension funds that are members of those associations;
(1) ‘agenti di cambio’ whose activities and functions are governed by Italian Royal Decree No. 222 of 7 March 1925 and subsequent provisions amending it, and who are authorized to carry on their activities under Article 19 of Italian Law No. 1 of 2 January 1991.
No later than 31 December 1998 and at regular intervals thereafter the Commission shall report on the application of paragraph 2 in conjunction with Section A of the Annex and shall, where appropriate, propose amendments to the definition of the exclusions and the services covered in the light of the operation of this Directive.
The rights conferred by this Directive shall not extend to the provision of services as counterparty to the State, the central bank or other Member State national bodies performing similar functions in the pursuit of the monetary, exchange-rate, public-debt and reserves management policies of the Member State concerned.
TITLE II. Conditions for taking up business
Article 3
1. Each Member State shall make access to the business of investment firms subject to authorization for investment firms of which it is the home Member State. Such authorization shall be granted by the home Member State’s competent authorities designated in accordance with Article 22. The authorization shall specify the investment services referred to in Section A of the Annex which the undertaking is authorized to provide. The authorization may also cover one or more of the non-core services referred to in Section C of the Annex. Authorization within the meaning of this Directive may in no case be granted for services covered only by Section C of the Annex.
2. Each Member State shall require that:
any investment firm which is a legal person and which, under its national law, has a registered office shall have its head office in the same Member State as its registered office,
any other investment firm shall have its head office in the Member State which issued its authorization and in which it actually carries on its business.
3. Without prejudice to other conditions of general application laid down by national law, the competent authorities shall not grant authorization unless:
an investment firm has sufficient initial capital in accordance with the rules laid down in Directive 93/6/EEC having regard to the nature of the investment service in question,
the persons who effectively direct the business of an investment firm are of sufficiently good repute and are sufficiently experienced.
The direction of a firm’s business must be decided by at least two persons meeting the above conditions. Where an appropriate arrangement ensures that the same result will be achieved, however, particularly in the cases provided for in the last indent of the third subparagraph of Article 1(2), the competent authorities may grant authorization to investment firms which are natural persons or, taking account of the nature and volume of their activities, to investment firms which are legal persons where such firms are managed by single natural persons in accordance with their articles of association and national laws.
4. Member States shall also require that every application for authorization be accompanied by a programme of operations setting out inter alia the types of business envisaged and the organizational structure of the investment firm concerned.
5. An applicant shall be informed within six months of the submission of a complete application whether or not authorization has been granted. Reasons shall be given whenever an authorization is refused.
6. An investment firm may commence business as soon as authorization has been granted.
7. The competent authorities may withdraw the authorization issued to an investment firm subject to this Directive only where that investment firm:
(a) does not make use of the authorization within 12 months, expressly renounces the authorization or ceased to provide investment services more than six months previously unless the Member State concerned has provided for authorization to lapse in such cases;
(b) has obtained the authorization by making false statements or by any other irregular means;
(c) no longer fulfills the conditions under which authorization was granted;
(d) no longer complies with Directive 93/6/EEC;
(e) has seriously and systematically infringed the provisions adopted pursuant to Articles 10 or 11; or
(f) falls within any of the cases where national law provides for withdrawal.
Article 4
The competent authorities shall not grant authorization to take up the business of investment firms until they have been informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings and of the amounts of those holdings.
The competent authorities shall refuse authorization if, taking into account the need to ensure the sound and prudent management of an investment firm, they are not satisfied as to the suitability of the aforementioned shareholders or members.
Article 5
In the case of branches of investment firms that have registered offices outwith the Community and are commencing or carrying on business, the Member States shall not apply provisions that result in treatment more favourable than that accorded to branches of investment firms that have registered offices in Member States.
Article 6
The competent authorities of the other Member State involved shall be consulted beforehand on the authorization of any investment firm which is:
a subsidiary of an investment firm or credit institution authorized in another Member State,
a subsidiary of the parent undertaking of an investment firm or credit institution authorized in another Member State, or
controlled by the same natural or legal persons as control an investment firm or credit institution authorized in another Member State.
TITLE III. Relations with third countries
Article 7
1. The competent authorities of the Member States shall inform the Commission:
(a) of the authorization of any firm which is the direct or indirect subsidiary of a parent undertaking governed by the law of a third country;
(b) whenever such a parent undertaking acquires a holding in a Community investment firm such that the latter would become its subsidiary.
In both cases the Commission shall inform the Council until such time as a committee on transferable securities is set up by the Council acting on a proposal from the Commission.
When authorization is granted to any firm which is the direct or indirect subsidiary of a parent undertaking governed by the law of a third country, the competent authorities shall specify the structure of the group in the notification which they address to the Commission.
2. The Member States shall inform the Commission of any general difficulties which their investment firms encounter in establishing themselves or providing investment services in any third country.
3. Initially no later than six months before this Directive is brought into effect and thereafter periodically the Commission shall draw up a report examining the treatment accorded to Community investment firms in third countries, in the terms referred to in paragraphs 4 and 5, as regards establishment, the carrying on of investment services activities and the acquisition of holdings in third-country investment firms. The Commission shall submit those reports to the Council together with any appropriate proposals.
4. Whenever it appears to the Commission, either on the basis of the reports provided for in paragraph 3 or on the basis of other information, that a third country does not grant Community investment firms effective market access comparable to that granted by the Community to investment firms from that third country, the Commission may submit proposals to the Council for an appropriate mandate for negotiation with a view to obtaining comparable competitive opportunities for Community investment firms. The Council shall act by a qualified majority.
5. Whenever it appears to the Commission, either on the basis of the reports referred to in paragraph 3 or on the basis of other information, that Community investment firms in a third country are not granted national treatment affording the same competitive opportunities as are available to domestic investment firms and that the conditions of effective market access are not fulfilled, the Commission may initiate negotiations in order to remedy the situation.
In the circumstances described in the first subparagraph it may also be decided, at any time and in addition to the initiation of negotiations, in accordance with the procedure to be laid down in the Directive by which the Council will set up the committee referred to in paragraph 1, that the competent authorities of the Member States must limit or suspend their decisions regarding requests pending or future requests for authorization and the acquisition of holdings by direct or indirect parent undertakings governed by the law of the third country in question. The duration of such measures may not exceed three months.
Before the end of that three-month period and in the light of the results of the negotiations the Council may, acting on a proposal from the Commission, decide by a qualified majority whether the measures shall be continued.
Such limitations or suspensions may not be applied to the setting up of subsidiaries by investment firms duly authorized in the Community or by their subsidiaries, or to the acquisition of holdings in Community investment firms by such firms or subsidiaries.
6. Whenever it appears to the Commission that one of the situations described in paragraphs 4 and 5 obtains, the Member States shall inform it at its request:
(a) of any application for the authorization of any firm which is the direct or indirect subsidiary of a parent undertaking governed by the law of the third country in question;
(b) whenever they are informed in accordance with Article 10 that such a parent undertaking proposes to acquire a holding in a Community investment firm such that the latter would become its subsidiary.
This obligation to provide information shall lapse whenever agreement is reached with the third country referred to in paragraph 4 or 5 or when the measures referred to in the second and third subparagraphs of paragraph 5 cease to apply.
7. Measures taken under this Article shall comply with the Community’s obligations under any international agreements, bilateral or multilateral, governing the taking up or pursuit of the business of investment firms.
TITLE IV. Operating conditions
Article 8
1. The competent authorities of the home Member States shall require that an investment firm which they have authorized comply at all times with the conditions imposed in Article 3(3).
2. The competent authorities of the home Member State shall require that an investment firm which they have authorized comply with the rules laid down in Directive 93/6/EEC.
3. The prudential supervision of an investment firm shall be the responsibility of the competent authorities of the home Member State whether the investment firm establishes a branch or provides services in another Member State or not, without prejudice to those provisions of this Directive which give responsibility to the authorities of the host Member State.
Article 9
1. Member States shall require any person who proposes to acquire, directly or indirectly, a qualifying holding in an investment firm first to inform the competent authorities, telling them of the size of his intended holding. Such a person shall likewise inform the competent authorities if he proposes to increase his qualifying holding so that the proportion of the voting rights or of the capital that he holds would reach or exceed 20, 33, or 50% or so that the investment firm would become his subsidiary.
Without prejudice to paragraph 2, the competent authorities shall have up to three months from the date of the notification provided for in the first subparagraph to oppose such a plan if, in view of the need to ensure sound and prudent management of the investment firm, they are not satisfied as to the suitability of the person referred to in the first subparagraph. If they do not oppose the plan, they may fix a deadline for its implementation.
2. If the acquirer of the holding referred to in paragraph 1 is an investment firm authorized in another Member State or the parent undertaking of an investment firm authorized in another Member State or a person controlling an investment firm authorized in another Member State and if, as a result of that acquisition, the firm in which the acquirer proposes to acquire a holding would become the acquirer’s subsidiary or come under his control, the assessment of the acquisition must be the subject of the prior consultation provided for in Article 6.
3. Member States shall require any person who proposes to dispose, directly or indirectly, of a qualifying holding in an investment firm first to inform the competent authorities, telling them of the size of his holding. Such a person shall likewise inform the competent authorities if he proposes to reduce his qualifying holding so that the proportion of the voting rights or of the capital held by him would fall below 20, 33 or 50% or so that the investment firm would cease to be his subsidiary.
4. On becoming aware of them, investment firms shall inform the competent authorities of any acquisitions or disposals of holdings in their capital that cause holdings to exceed or fall below any of the thresholds referred to in paragraphs 1 and 3.
At least once a year they shall also inform the competent authorities of the names of shareholders and members possessing qualifying holdings and the sizes of such holdings as shown, for example, by the information received at annual general meetings of shareholders and members or as a result of compliance with the regulations applicable to companies listed on stock exchanges.
5. Member States shall require that, where the influence exercised by the persons referred to in paragraph 1 is likely to be prejudicial to the sound and prudent management of an investment firm, the competent authorities take appropriate measures to put an end to that situation. Such measures may consist, for example, in injunctions, sanctions against directors and those responsible for management or suspension of the exercise of the voting rights attaching to the shares held by the shareholders or members in question.
Similar measures shall apply to persons failing to comply with the obligation to provide prior information imposed in paragraph 1. If a holding is acquired despite the opposition of the competent authorities, the Member States shall, regardless of any other sanctions to be adopted, provide either for exercise of the corresponding voting rights to be suspended, for the nullity of the votes cast or for the possibility of their annulment.
Article 10
Each home Member State shall draw up prudential rules which investment firms shall observe at all times. In particular, such rules shall require that each investment firm:
have sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing, and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees,
make adequate arrangements for instruments belonging to investors with a view to safeguarding the latter’s ownership rights, especially in the event of the investment firm’s instruments for its own account except with the investors’ express consent,
make adequate arrangements for funds belonging to investors with a view to safeguarding the latter’s rights and, except in the case of credit institutions, preventing the investment firm’s using investors’ funds for its own accounts,
arrange for records to be kept of transactions executed which shall at least be sufficient to enable the home Member State’s authorities to monitor compliance with the prudential rules which they are responsible for applying; such records shall be retained for periods to be laid down by the competent authorities,
be structured and organized in such a way as to minimize the risk of clients’ interests being prejudiced by conflicts of interest between the firm and its clients or between one of its clients and another. Nevertheless, where a branch is set up the organizational arrangements may not conflict with the rules of conduct laid down by the host Member State to cover conflicts of interest.
Article 11
1. Member States shall draw up rules of conduct which investment firms shall observe at all times. Such rules must implement at least the principles set out in the following indents and must be applied in such a way as to take account of the professional nature of the person for whom the service is provided. The Member States shall also apply these rules where appropriate to the non-core services listed in Section C of the Annex. These principles shall ensure that an investment firm:
acts honestly and fairly in conducting its business activities in the best interests of its clients and the integrity of the market,
acts with due skill, care and diligence, in the best interests of its clients and the integrity of the market,
has and employs effectively the resources and procedures that are necessary for the proper performance of its business activities,
seeks from its clients information regarding their financial situations, investment experience and objectives as regards the services requested,
makes adequate disclosure of relevant material information in its dealings with its clients,
tries to avoid conflicts of interests and, when they cannot be avoided, ensures that its clients are fairly treated, and
complies with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of its clients and the integrity of the market.
2. Without prejudice to any decisions to be taken in the context of the harmonization of the rules of conduct, their implementation and the supervision of compliance with them shall remain the responsibility of the Member State in which a service is provided.
3. Where an investment firm executes an order, for the purposes of applying the rules referred to in paragraph 1 the professional nature of the investor shall be assessed with respect to the investor from whom the order originates, regardless of whether the order was placed directly by the investor himself or indirectly through an investment firm providing the service referred to in Section A(1)(a) of the Annex.
Article 12
Before doing business with them, a firm shall inform investors which compensation fund or equivalent protection will apply in respect of the transactions envisaged, what cover is offered by whichever system applies, or if there is no fund or compensation.
The Council notes the Commission’s statement to the effect that it will submit proposals on the harmonization of compensation systems covering transactions by investment firms by 31 July 1993 at the latest. The Council will act on those proposals within the shortest possible time with the aim of bringing the systems proposed into effect on the same date as this Directive.
Article 13
This Directive shall not prevent investment firms authorized in other Member States from advertising their services through all available means of communication in their host Member States, subject to any rules governing the form and the content of such advertising adopted in the interest of the general good.
TITLE V. The right of establishment and the freedom to provide services
Article 14
1. Member States shall ensure that investment services and the other services listed in Section C of the Annex may be provided within their territories in accordance with Articles 17, 18 and 19 either by the establishment of a branch or under the freedom to provide services by any investment firm authorized and supervised by the competent authorities of another Member State in accordance with this Directive, provided that such services are covered by the authorization.
This Directive shall not affect the powers of host Member States in respect of the units of collective investment undertakings to which Directive 85/ 611/ EEC15 does not apply.
2. Member States may not make the establishment of a branch or the provision of services referred to in paragraph 1 subject to any authorization requirement, to any requirement to provide endowment capital or to any other measure having equivalent effect.
3. A Member State may require that transactions relating to the services referred to in paragraph 1 must, where they satisfy all the following criteria, be carried out on a regulated market:
the investor must be habitually resident or established in that Member State,
the investment firm must carry out such transactions through a main establishment, through a branch situated in that Member State or under the freedom to provide services in that Member State,
the transaction must involve an instrument dealt in on a regulated market in that Member State.
4. Where a Member State applies paragraph 3 it shall give investors habitually resident or established in that Member State the right not to comply with the obligation imposed in paragraph 3 and have the transactions referred to in paragraph 3 carried out away from a regulated market. Member States may make the exercise of this right subject to express authorization, taking into account investors’ differing needs for protection and in particular the ability of professional and institutional investors to act in their own best interests. It must in any case be possible for such authorization to be given in conditions that do not jeopardize the prompt execution of investors’ orders.
5. The Commission shall report on the operation of paragraphs 3 and 4 not later than 31 December 1998 and shall, if appropriate, propose amendments thereto.
Article 15
1. Without prejudice to the exercise of the right of establishment or the freedom to provide services referred to in Article 14, host Member States shall ensure that investment firms which are authorized by the competent authorities of their home Member States to provide the services referred to in Section A(1)(b) and (2) of the Annex can, either directly or indirectly, become members of or have access to the regulated markets in their host Member States where similar services are provided and also become members of or have access to the clearing and settlement systems which are provided for the members of such regulated markets there.
Member States shall abolish any national rules or laws or rules of regulated markets which limit the number of persons allowed access thereto. If, by virtue of its legal structure or its technical capacity, access to a regulated market is limited, the Member State concerned shall ensure that its structure and capacity are regularly adjusted.
2. Membership of or access to a regulated market shall be conditional on investment firms’ complying with capital adequacy requirements and home Member States’ supervising such compliance in accordance with Directive 93/6/EEC.
Host Member States shall be entitled to impose additional capital requirements only in respect of matters not covered by that Directive.
Access to a regulated market, admission to membership thereof and continued access or membership shall be subject to compliance with the rules of the regulated market in relation to the constitution and administration of the regulated market and to compliance with the rules relating to transactions on the market, with the professional standards imposed on staff operating on and in conjunction with the market, and with the rules and procedures for clearing and settlement. The detailed arrangements for implementing these rules and procedures may be adapted as appropriate, inter alia to ensure fulfilment of the ensuing obligations, provided, however, that Article 28 is complied with.
3. In order to meet the obligation imposed in paragraph 1, host Member States shall offer the investment firms referred to in that paragraph the choice of becoming members of or of having access to their regulated markets either:
directly, by setting up branches in the host Member States, or
indirectly, by setting up subsidiaries in the host Member States or by acquiring firms in the host Member States that are already members of their regulated markets or already have access thereto.
However, those Member States which, when this Directive is adopted, apply laws which do not permit credit institutions to become members of or have access to regulated markets unless they have specialized subsidiaries may continue until 31 December 1996 to apply the same obligation in a non-discriminatory way to credit institutions from other Member States for purposes of access to those regulated markets.
The Kingdom of Spain, the Hellenic Republic and the Portuguese Republic may extend that period until 31 December 1999. One year before that date the Commission shall draw up a report, taking into account the experience acquired in applying this Article and shall if appropriate, submit a proposal. The Council may, acting by qualified majority on the basis of that proposal, decide to review those arrangements.
4. Subject to paragraphs 1, 2 and 3, where the regulated market of the host Member State operates without any requirement for a physical presence the investment firms referred to in paragraph 1 may become members of or have access to it on the same basis without having to be established in the host Member State. In order to enable their investment firms to become members of or have access to host Member States’ regulated markets in accordance with this paragraph home Member States shall allow those host Member States’ regulated markets to provide appropriate facilities within the home Member States’ territories.
5. This Article shall not affect the Member States’ right to authorize or prohibit the creation of new markets within their territories.
6. This Article shall have no effect:
in the Federal Republic of Germany, on the regulation of the activities of Kursmakler, or
in the Netherlands, on the regulation of the activities of hoekmannen.
Article 16
For the purposes of mutual recognition and the application of this Directive, it shall be for each Member State to draw up a list of the regulated markets for which it is the home Member State and which comply with its regulations, and to forward that list for information, together with the relevant rules of procedures and operation of those regulated markets, to the other Member States and the Commission. A similar communication shall be effected in respect of each change to the aforementioned list or rules. The Commission shall publish the lists of regulated markets and updates thereto in the Official Journal of the European Communities at least once a year.
No later than 31 December 1996 the Commission shall report on the information thus received and, where appropriate, propose amendments to the definition of regulated market for the purposes of this Directive.
Article 17
1. In addition to meeting the conditions imposed in Article 3, any investment firm wishing to establish a branch within the territory of another Member State shall notify the competent authorities of its home Member State.
2. Member States shall require every investment firm wishing to establish a branch within the territory of another Member State to provide the following information when effecting the notification provided for in paragraph 1:
(a) the Member State within the territory of which it plans to establish a branch;
(b) a programme of operations setting out inter alia the types of business envisaged and the organizational structure of the branch;
(c) the address in the host Member State from which documents may be obtained;
(d) the names of those responsible for the management of the branch.
3. Unless the competent authorities of the home Member State have reason to doubt the adequacy of the administrative structure or the financial situation of an investment firm, taking into account the activities envisaged, they shall, within three months of receiving all the information referred to in paragraph 2, communicate that information to the competent authorities of the host Member State and shall inform the investment firm concerned accordingly.
They shall also communicate details of any compensation scheme intended to protect the branch’s investors.
Where the competent authorities of the home Member State refuse to communicate the information referred to in paragraph 2 to the competent authorities of the host Member State, they shall give reasons for their refusal to the investment firm concerned within three months of receiving all the information. That refusal or failure to reply shall be subject to the right to apply to the courts in the home Member States.
4. Before the branch of an investment firm commences business the competent authorities of the host Member State shall, within two months of receiving the information referred to in paragraph 3, prepare for the supervision of the investment firm in accordance with Article 19 and, if necessary, indicate the conditions, including the rules of conduct, under which, in the interest of the general good, that business must be carried on in the host Member State.
5. On receipt of a communication from the competent authorities of the host Member State or on the expiry of the period provided for in paragraph 4 without receipt of any communication from those authorities, the branch may be established and commence business.
6. In the event of a change in any of the particulars communicated in accordance with paragraph 2(b), (c) or (d), an investment firm shall give written notice of that change to the competent authorities of the home and host Member States at least one month before implementing the change so that the competent authorities of the Member State may take a decision on the change under paragraph 3 and the competent authorities of the host Member State may do so under paragraph 4.
7. In the event of a change in the particulars communicated in accordance with the second subparagraph of paragraph 3, the authorities of the home Member State shall inform the authorities of the host Member State accordingly.
Article 18
1. Any investment firm wishing to carry on business within the territory of another Member State for the first time under the freedom to provide services shall communicate the following information to the competent authorities of its home Member State:
the Member State in which it intends to operate,
a programme of operations stating in particular the investment service or services which it intends to provide.
2. The competent authorities of the home Member State shall, within one month of receiving the information referred to in paragraph 1, forward it to the competent authorities of the host Member State. The investment firm may then start to provide the investment service or services in question in the host Member State.
Where appropriate, the competent authorities of the host Member State shall, on receipt of the information referred to in paragraph 1, indicate to the investment firm the conditions, including the rules of conduct, with which, in the interest of the general good, the providers of the investment services in question must comply in the host Member State.
3. Should the content of the information communicated in accordance with the second indent of paragraph 1 be amended, the investment firm shall give notice of the amendment in writing to the competence authorities of the home Member State and of the host Member State before implementing the change, so that the competent authorities of the host Member State may, if necessary, inform the firm of any change or addition to be made to the information communicated under paragraph 2.
Article 19
1. Host Member States may, for statistical purposes, require all investment firms with branches within their territories to report periodically on their activities in those host Member States to the competent authorities of those host Member States.
In discharging their responsibilities in the conduct of monetary policy, without prejudice to the measures necessary for the strengthening of the European Monetary System, host Member States may within their territories require all branches of investment firms originating in other Member States to provide the same particulars as national investment firms for that purpose.
2. In discharging their responsibilities under this Directive, host Member States may require branches of investment firms to provide the same particulars as national firms for that purpose.
Host Member States may require investment firms carrying on business within their territories under the freedom to provide services to provide the information necessary for the monitoring of their compliance with the standards set by the host Member State that apply to them, although those requirements may not be more stringent than those which the same Member State imposes on established firms for the monitoring of their compliance with the same standards.
3. Where the competent authorities of a host Member State ascertain that an investment firm that has a branch or provides services within its territory is in breach of the legal or regulatory provisions adopted in that State pursuant to those provisions of this Directive which confer powers on the host Member State’s competent authorities, those authorities shall require the investment firm concerned to put an end to its irregular situation.
4. If the investment firm concerned fails to take the necessary steps, the competent authorities of the host Member State shall inform the competent authorities of the home Member State accordingly. The latter shall, at the earliest opportunity, take all appropriate measures to ensure that the investment firm concerned puts an end to its irregular situation. The nature of those measures shall be communicated to the competent authorities of the host Member State.
5. If, despite the measures taken by the home Member State or because such measures prove inadequate or are not available in the State in question, the investment firm persists in violating the legal or regulatory provisions referred to in paragraph 2 in force in the host Member State, the latter may, after informing the competent authorities of the home Member State, take appropriate measures to prevent or to penalize further irregularities and, in so far as necessary, to prevent that investment firm from initiating any further transactions within its territory. The Member State shall ensure that within their territories it is possible to serve the legal documents necessary for those measures on investment firms.
6. The foregoing provisions shall not affect the powers of host Member States to take appropriate measures to prevent or to penalize irregularities committed within their territories which are contrary to the rules of conduct introduced pursuant to Article 11 as well as to other legal or regulatory provisions adopted in the interest of the general good. This shall include the possibility of preventing offending investment firms from initiating any further transactions within their territories.
7. Any measure adopted pursuant to paragraphs 4, 5 or 6 involving penalties or restrictions on the activities of an investment firm must be properly justified and communicated to the investment firm concerned. Every such measure shall be subject to the right to apply to the courts in the Member State which adopted it.
8. Before following the procedure laid down in paragraphs 3, 4 or 5 the competent authorities of the host Member State may, in emergencies, take any precautionary measures necessary to protect the interests of investors and others for whom services are provided. The Commission and the competent authorities of the other Member States concerned must be informed of such measures at the earliest opportunity.
After consulting the competent authorities of the Member States concerned, the Commission may decide that the Member State in question must amend or abolish those measures.
9. In the event of the withdrawal of authorization, the competent authorities of the host Member State shall be informed and shall take appropriate measures to prevent the investment firm concerned from initiating any further transactions within its territory and to safeguard investors’ interests. Every two years the Commission shall submit a report on such cases to the committee set up at a later stage in the securities field.
10. The Member States shall inform the Commission of the number and type of cases in which there have been refusals pursuant to Article 17 or measures have been taken in accordance with paragraph 5. Every two years the Commission shall submit a report on such cases to the committee set up at a later date in the securities field.
Article 20
1. In order to ensure that the authorities responsible for the markets and for supervision have access to the information necessary for the performance of their duties, home Member States shall at least require:
(a) without prejudice to steps taken in implementation of Article 10, that investment firms keep at the disposals of the authorities for at least five years the relevant data on transactions relating to the services referred to in Article 14(1) which they have carried out in instruments dealt in on a regulated market, whether such transactions were carried out on a regulated market or not;
(b) that investment firms report to competent authorities in their home Member States all the transactions referred to in (a) where those transactions cover:
shares or other instruments giving access to capital,
bonds and other forms of securitized debt,
standardized forward contracts relating to shares or
standardized options on shares.
Such reports must be made available to the relevant authority at the earliest opportunity. The time limit shall be fixed by that authority. It may be extended to the end of the following working day where operational or practical reasons so dictate but in no circumstances may it exceed that limit.
Such reports must, in particular, include details of the names and numbers of the instruments bought or sold, the dates and times of the transactions, the transaction prices and means of identifying the investment firms concerned.
Home Member States may provide that the obligation imposed in (b) shall, in the case of bonds and other forms of securitized debt, apply only to aggregated transactions in the same instrument.
2. Where an investment firm carries out a transaction on a regulated market in its host Member State, the home Member State may waive its own requirements as regards reporting if the investment firm is subject to equivalent requirements to report the transaction in question to the authorities in charge of that market.
3. Member States shall provide that the report referred to in paragraph 1(b) shall be made either by the investment firm itself or by a trade-matching system, or through stock-exchange authorities or those of another regulated market.
4. Member States shall ensure that the information available in accordance with this Article is also available for the proper application of Article 23.
5. Each Member State may, in a non-discriminatory manner, adopt or maintain provisions more stringent in the field governed by this Article with regard to substance and form in respect of the conservation and reporting of data relating to transactions:
carried out on a regulated market of which it is the home Member State or
carried out by investment firms of which it is the home Member State.
Article 21
1. In order to enable investors to assess at any time the terms of a transaction they are considering and to verify afterwards the conditions in which it has been carried out, each competent authority shall, for each of the regulated markets which it has entered on the list provided for in Article 16, take measures to provide investors with the information referred to in paragraph 2. In accordance with the requirements imposed in paragraph 2, the competent authorities shall determine the form in which and the precise time within which the information is to be provided, as well as the means by which it is to be made available, having regard to the nature, size and needs of the market concerned and of the investors operating on that market.
2. The competent authorities shall require for each instrument at least:
(a) publication at the start of each day’s trading on the market of the weighted average price, the highest and the lowest prices and the volume dealt in on the regulated market in question for the whole of the preceding day’s trading;
(b) in addition, for continuous order-driven and quote-driven markets, publication:
at the end of each hour’s trading on the markets of the weighted average price and the volume dealt in on the regulated market in question for a six-hour trading period ending so as to leave two hours’ trading on the market before publication, and
every 20 minutes, of the weighted average price and the highest and lowest prices on the regulated market in question for a two-hour trading period ending so as to leave one hour’s trading on the market before publication.
Where investors have prior access to information on the prices and quantities for which transactions may be undertaken:
(i) such information shall be available at all times during market trading hours;
(ii) the terms announced for a given price and quantity shall be terms on which it is possible for an investor to carry out such a transaction.
The competent authorities may delay or suspend publication where that proves to be justified by exceptional market conditions or, in the case of small markets, to preserve the anonymity of firms and investors. The competent authorities may apply special provisions in the case of exceptional transactions that are very large in scale compared with average transactions in the security in question on that market and in the case of highly illiquid securities defined by means of objective criteria and made public. The competent authorities may also apply more flexible provisions, particularly as regards publication deadlines, for transactions concerning bonds and other forms of securitized debt.
3. In the field governed by this Article each Member State may adopt or maintain more stringent provisions or additional provisions with regard to the substance and form in which information must be made available to investors concerning transactions carried out on regulated markets of which it is the home Member State, provided that those provisions apply regardless for the Member State in which the issuer of the financial instrument is located or of the Member State on the regulated market of which the instrument was listed for the first time.
4. The Commission shall report on the application of this Article no later than 31 December 1997; the Council may, on a proposal from the Commission, decide by a qualified majority to amend this Article.
TITLE VI. Authorities responsible for authorization and supervision
Article 22
1. Member States shall designate the competent authorities which are to carry out the duties provided for in this Directive. They shall inform the Commission thereof, indicating any division of those duties.
2. The authorities referred to in paragraph 1 must be either public authorities, bodies recognized by national law or bodies recognized by public authorities expressly empowered for that purpose by national law.
3. The authorities concerned must have all the powers necessary for the performance of their functions.
Article 23
1. Where there are two or more competent authorities in the same Member State, they shall collaborate closely in supervising the activities of investment firms operating in that Member State.
2. Member States shall ensure that such collaboration takes place between such competent authorities and the public authorities responsible for the supervision of financial markets, credit and other financial institutions and insurance undertakings, as regards the entities which those authorities supervise.
3. Where, through the provision of services or by the establishment of branches, an investment firm operates in one or more Member States other than its home Member State the competent authorities of all the Member States concerned shall collaborate closely in order more effectively to discharge their respective responsibilities in the area covered by this Directive.
They shall supply one another on request with all the information concerning the management and ownership of such investment firms that is likely to facilitate their supervision and all information likely to facilitate the monitoring of such firms. In particular, the authorities of the home Member State shall cooperate to ensure that the authorities of the host Member State collect the particulars referred to in Article 19(2).
In so far as it is necessary for the purpose of exercising their powers of supervision, the competent authorities of the home Member State shall be informed by the competent authorities of the host Member State of any measures taken by the host Member State pursuant to Article 19(6) which involve penalties imposed on an investment firm or restrictions on an investment firm’s activities.
Article 24
1. Each host Member State shall ensure that, where an investment firm authorized in another Member State carries on business within its territory through a branch, the competent authorities of the home Member State may, after informing the competent authorities of the host Member State, themselves or through the intermediary of persons they instruct for the purpose carry out on-the-spot verification of the information referred to in Article 23(3).
2. The competent authorities of the home Member State may also ask the competent authorities of the host Member State to have such verification carried out. Authorities which receive such requests must, within the framework of their powers, act upon them by carrying out the verifications themselves, by allowing the authorities who have requested them to carry them out or by allowing auditors or experts to do so.
3. This Article shall not affect the right of the competent authorities of a host Member State, in discharging their responsibilities under this Directive, to carry out on-the-spot verifications of branches established within their territory.
Article 25
1. Member States shall provide that all persons who work or who have worked for the competent authorities, as well as auditors and experts instructed by the competent authorities, shall be bound by the obligation of professional secrecy. Accordingly no confidential information which they may receive in the course of their duties may be divulged to any person or authority whatsoever, save in summary or aggregate form such that individual investment firms cannot be identified, without prejudice to cases covered by criminal law.
Nevertheless, where an investment firm has been declared bankrupt or is being compulsorily wound up, confidential information which does not concern third parties involved in attempts to rescue that investment firm may be divulged in civil or commercial proceedings.
2. Paragraph 1 shall not prevent the competent authorities of different Member States from exchanging information in accordance with this Directive or other Directives applicable to investment firms. That information shall be subject to the conditions of professional secrecy imposed in paragraph 1.
3. Member States may conclude cooperation agreements providing for exchanges of information with the competent authorities of third countries only if the information disclosed is covered by guarantees of professional secrecy at least equivalent to those provided for in this Article.
4. Competent authorities receiving confidential information under paragraph 1 or 2 may use it only in the course of their duties:
to check that the conditions governing the taking up of the business of investment firms are met and to facilitate the monitoring, on a non-consolidated or consolidated basis, of the conduct of that business, especially with regard to the capital adequacy requirements imposed in Directive 93/6/EEC, administrative and accounting procedures and internal-control mechanisms,
to impose sanctions,
in administrative appeals against decisions by the competent authorities, or
in court proceedings initiated under Article 26.
5. Paragraphs 1 and 4 shall not preclude the exchange of information:
(a) within a Member State, where there are two or more competent authorities, or
(b) within a Member State or between Member States, between competent authorities and
authorities responsible for the supervision of credit institutions, other financial organizations and insurance undertakings and the authorities responsible for the supervision of financial markets,
bodies responsible for the liquidation and bankruptcy of investment firms and other similar procedures and
persons responsible for carrying out statutory audits of the accounts of investment firms and other financial institutions in the performance of their supervisory functions, or the disclosure to bodies which administer compensation schemes of information necessary for the performance of their functions. Such information shall be subject to the conditions of professional secrecy imposed in paragraph 1.
6. This Article shall not prevent a competent authority from disclosing to those central banks which do not supervise credit institutions or investment firms individually such information as they may need to act as monetary authorities. Information received in this context shall be subject to the conditions of professional secrecy imposed in paragraph 1.
7. This Article shall not prevent the competent authorities from communicating the information referred to in paragraphs 1 to 4 to a clearing house or other similar body recognized under national law for the provision of clearing or settlement services for one of their Member State’s markets if they consider that it is necessary to communicate the information in order to ensure the proper functioning of those bodies in relation to defaults or potential defaults by market participants. The information received shall be subject to the conditions of professional secrecy imposed in paragraph 1. The Member States shall, however, ensure that information received under paragraph 2 may not be disclosed in the circumstances referred to in this paragraph without the express consent of the competent authorities which disclosed it.
8. In addition, notwithstanding the provisions referred to in paragraphs 1 and 4, Member States may, by virtue of provisions laid down by law, authorize the disclosure of certain information to other departments of their central government administrations responsible for legislation on the supervision of credit institutions, financial institutions, investment firms and insurance undertakings and to inspectors instructed by those departments.
Such disclosures may, however, be made only where necessary for reasons of prudential control.
Member States shall, however, provide that information received under paragraphs 2 and 5 and that obtained by means of the on-the-spot verifications referred to in Article 24 may never be disclosed in the cases referred it in this paragraph except with the express consent of the competent authorities which disclosed the information or of the competent authorities of the Member State in which the on-the-spot verification was carried out.
9. If, at the time of the adoption of this Directive, a Member State provides for the exchange of information between authorities in order to check compliance with the laws on prudential supervision, on the organization, operation and conduct of commercial companies and on the regulation of financial markets, that Member State may continue to authorize the forwarding of such information pending coordination of all the provisions governing the exchange of information between authorities for the entire financial sector but not in any case after 1 July 1996.
Member States shall, however, ensure that, where information comes from another Member State, it may not be disclosed in the circumstances referred to in the first subparagraph without the express consent of the competent authorities which disclosed it and it may be used only for the purposes for which those authorities gave their agreement.
The Council shall effect the coordination referred to in the first sub-paragraph on the basis of a Commission proposal. The Council notes the Commission’s statement to the effect that it will submit proposals by 31 July 1993 at the latest. The Council will act on those proposals within the shortest possible time with the intention of bringing the rules proposed into effect on the same date as this Directive.
Article 26
Member States shall ensure that decisions taken in respect of an investment firm under laws, regulations and administrative provisions adopted in accordance with this Directive are subject to the right to apply to the courts; the same shall apply where no decision is taken within six months of its submission in respect of an application for the authorization which provides all the information required under the provisions in force.
Article 27
Without prejudice to the procedures for the withdrawal of authorization or to the provisions of criminal law, Member States shall provide that their respective competent authorities may, with regard to investment firms or those who effectively control the business of such firms that infringe laws, regulations or administrative provisions concerning the supervision or carrying on of their activities, adopt or impose in respect of them measures or penalties aimed specifically at ending observed breaches or the causes of such breaches.
Article 28
Member States shall ensure that this Directive is implemented without discrimination.
TITLE VII. Final provisions
Article 29
Pending the adoption of a further Directive laying down provisions adapting this Directive to technical progress in the areas specified below, the Council shall, in accordance with Decision 87/373/EEC,16 20 acting by a qualified majority on a proposal from the Commission, adopt any adaptations which may be necessary, as follows:
expansion of the list in Section C of the Annex,
adaptation of the terminology of the lists in the Annex to take account of developments on financial markets,
the areas in which the competent authorities must exchange information as listed in Article 23,
clarification of the definitions in order to ensure uniform application of this Directive in the Community,
clarification of the definitions in order to take account in the implementation of this Directive of developments on financial markets,
the alignment of terminology and the framing of definitions in accordance with subsequent measures on investment firms and related matters,
the other tasks provided for in Article 7(5).
Article 30
1. Investment firms already authorized in their home Member States to provide investment services before 31 December 1995 shall be deemed to be so authorized for the purpose of this Directive, if the laws of those Member States provide that to take up such activities they must comply with conditions equivalent to those imposed in Articles 3(3) and 4.
2. Investment firms which are already carrying on business on 31 December 1995 and are not included among those referred to in paragraph 1 may continue their activities provided that, no later than 31 December 1996 and pursuant to the provisions of their home Member States, they obtain authorization to continue such activities in accordance with the provisions adopted in implementation of this Directive.
Only the grant of such authorization shall enable such firms to qualify under the provisions of this Directive on the right of establishment and the freedom to provide services.
3. Where before the date of the adoption of this Directive investment firms have commenced business in other Member States either through branches or under the freedom to provide services, the authorities of each home Member State shall, between 1 July and 31 December 1995, communicate, for the purposes of Articles 17(1) and (2) and 18, to the authorities of each of the other Member States concerned the list of firms that comply with this Directive and operate in those States, indicating the business carried on.
4. Natural persons authorized in a Member State on the date of the adoption of this Directive to offer investment services shall be deemed to be authorized under this Directive, provided that they fulfill the requirements imposed in Article 1(2), second subparagraph, second indent, and third subparagraph, all four indents.
Article 31
No later than 1 July 1995 Member States shall adopt the laws, regulations and administrative provisions necessary for them to comply with this Directive.
These provisions shall enter into force no later than 31 December 1995. The Member States shall forthwith inform the Commission thereof.
When Member States adopt the provisions referred to in the first paragraph they shall include a reference to this Directive or accompany them with such a reference on the occasion of their official publication. The manner in which such references are to be made shall be laid down by the Member States.
Article 32
This Directive is addressed to the Member States.
Done at Brussels, 10 May 1993.
For the Council
The President
N. HELVEG PETERSEN
Annex
Section A
Services
(a) Reception and transmission, on behalf of investors, of orders in relation to one or more of the instruments listed in Section B.
(b) Execution of such orders other than for own account.
Dealing in any of the instruments listed in Section B for own account.
Managing portfolios of investments in accordance with mandates given by investors on a discriminatory, client-by-client basis where such portfolios include one or more of the instruments listed in Section B.
Underwriting in respect of issues of any of the instruments listed in Section B and/or the placing of such issues.
Section B
Instruments
(a) Transferable securities.
(b) Units in collective investment undertakings.
Money-market instruments.
Financial-futures contracts, including equivalent cash settled instruments.
Forward interest-rate agreements (FRAs).
Interest-rate, currency and equity swaps.
Options to acquire or dispose of any instruments falling within this section of the Annex, including equivalent cash-settled instruments. This category includes in particular options on currency and on interest rates.
Section C
Non-core services
Safekeeping and administration in relation to one or more of the instruments listed in Section B.
Safe custody services.
Granting credits or loans to an investor to allow him to carry out a transaction in one or more of the instruments listed in Section B, where the firm granting the credit or loan is involved in the transaction.
Advice to undertakings on capital structure, industrial strategy and related matters and advice and service relating to mergers and the purchase of undertakings.
Services related to underwriting.
Investment advice concerning one or more of the instruments listed in Section B.
Foreign-exchange service where these are connected with the provision of investment services.
Appendix II 10 EC Directive on the Capital Adequacy of Investment Firms and Credit Institutions
Council Directive1 15 March 1993 on the capital adequacy of investment firms and credit institutions (93/ 6/ EEC)
The Council of the European Communities,
Having regard to the Treaty establishing the European Economic Community, and in particular the first and third sentences of Article 57 (2) thereof,
Having regard to the proposal from the Commission2,
In cooperation with the European Parliament3,
Having regard to the opinion of the Economic and Social Committee4,
Whereas the main objective of Council Directive 93/ 22/ EEC of 10 May 1993 on investment services in the securities field5 is to allow investment firms authorized by the competent authorities of their home Member States and supervised by the same authorities to establish branches and provide services freely in other Member States;
Whereas that Directive accordingly provides for the coordination of the rules governing the authorization and pursuit of the business of investment firms;
Whereas that Directive does not, however, establish common standards for the own funds of investment firms nor indeed does it establish the amounts of the initial capital of such firms;
Whereas it does not establish a common framework for monitoring the risks incurred by the same firms;
Whereas it refers, in several of its provisions, to another Community initiative, the objective of which would be precisely to adopt coordinated measures in those fields;
Whereas the approach that has been adopted is to effect only the essential harmonization that is necessary and sufficient to secure the mutual recognition of authorization and of prudential supervision systems;
Whereas the adoption of measures to coordinate the definition of the own funds of investment firms, the establishment of the amounts of their initial capital and the establishment of a common framework for monitoring the risks incurred by investment firms are essential aspects of the harmonization necessary for the achievement of mutual recognition within the framework of the internal financial market;
Whereas it is appropriate to establish different amounts of initial capital depending on the range of activities that investment firms are authorized to undertake;
Whereas existing investment firms should be permitted, under certain conditions, to continue their business even if they do not comply with the minimum amount of initial capital fixed for new firms;
Whereas the Member States may also establish rules stricter than those provided for in this Directive;
Whereas this Directive forms part of the wider international effort to bring about approximation of the rules in force regarding the supervision of investment firms and credit institutions (hereinafter referred to collectively as ‘institutions’);
Whereas common basic standards for the own funds of institutions are a key feature in an internal market in the investment services sector, since own funds serve to ensure the continuity of institutions and to protect investors;
Whereas in a common financial market, institutions, whether they are investment firms or credit institutions, engage in direct competition with one another;
Whereas it is therefore desirable to achieve equality in the treatment of credit institutions and investment firms;
Whereas, as regards credit institutions, common standards are already established for the supervision and monitoring of credit risks in Council Directive 89/647/EEC of 18 December 1989 on a solvency ratio for credit institutions;6
Whereas it is necessary to develop common standards for market risks incurred by credit institutions and provide a complementary framework for the supervision of the risks incurred by institutions, in particular market risks, and more especially position risks, counterparty/settlement risks and foreign-exchange risks;
Whereas it is necessary to introduce the concept of a ‘trading book’ comprising positions in securities and other financial instruments which are held for trading purposes and are subject mainly to market risks and exposures relating to certain financial services provided to customers;
Whereas it is desirable that institutions with negligible trading-book business, in both absolute and relative terms, should be able to apply Directive 89/647/EEC, rather than the requirements imposed in Annexes I and II to this Directive;
Whereas it is important that monitoring of settlement/delivery risks should take account of the existence of systems offering adequate protection that reduces that risk;
Whereas, in any case, institutions must comply with this Directive as regards the coverage of the foreign-exchange risks on their overall business;
Whereas lower capital requirements should be imposed for positions in closely correlated currencies, whether statistically confirmed or arising out of binding intergovernmental agreements, with a view in particular to the creation of the European Monetary Union;
Whereas the existence, in all institutions, of internal systems for monitoring and controlling interest-rate risks on all of their business is a particularly important way of minimizing such risks;
Whereas, consequently, such systems must be subject to overview by the competent authorities;
Whereas Council Directive 92/121/EEC of 21 December 1992 on the monitoring and control of large exposures of credit institutions7 is not aimed at establishing common rules for monitoring large exposures in activities which are principally subject to market risks;
Whereas that Directive makes reference to another Community initiative intended to adopt the requisite coordination of methods in that field;
Whereas it is necessary to adopt common rules for the monitoring and control of large exposures incurred by investment firms;
Whereas the own funds of credit institutions have already been defined in Council Directive 89/299/EEC of 17 April 1989 on the own funds of credit institutions8;
Whereas the basis for the definition of the own funds of institutions should be that definition;
Whereas, however, there are reasons why for the purposes of this Directive the definition of the own funds of institutions may differ from that in the aforementioned Directive in order to take account of the particular characteristics of the activities carried on by those institutions which mainly involve market risks;
Whereas Council Directive 92/30/EEC of 6 April 1992 on the supervision of credit institutions on a consolidated basis9 states the principle of consolidation;
Whereas it does not establish common rules for the consolidation of financial institutions which are involved in activities principally subject to market risks;
Whereas that Directive makes reference to another Community initiative intended to adopt coordinated measures in that field;
Whereas Directive 92/30/EEC does not apply to groups which include one or more investment firms but no credit institutions;
Whereas it was, however, felt desirable to provide a common framework for the introduction of the supervision of investment firms on a consolidated basis;
Whereas technical adaptations to the detailed rules laid down in this Directive may from time to time be necessary to take account of new developments in the investment services field;
Whereas the Commission will accordingly propose such adaptations as are necessary;
Whereas the Council should, at a later stage, adopt provision for the adaptation of this Directive to technical progress in accordance with Council Decision 87/373/EEC of 13 July 1987 laying down the procedures for the exercise of implementing powers conferred on the Commission10;
Whereas meanwhile the Council itself, on a proposal from the Commission, should carry out such adaptations;
Whereas provision should be made for the review of this Directive within three years of the date of its application in the light of experience, developments on financial markets and work in international fora of regulatory authorities;
Whereas that review should also include the possible review of the list of areas that may be subject to technical adjustment;
Whereas this Directive and Directive 93/22/EEC on investment services in the securities field are so closely interrelated that their entry into force on different dates could lead to the distortion of competition,
Has Adopted this Directive:
Article 1
1. Member States shall apply the requirements of this Directive to investment firms and credit institutions as defined in Article 2.
2. A Member State may impose additional or more stringent requirements on the investment firms and credit institutions that it has authorized.
Article 2. Definitions
For the purposes of this Directive:
1. credit institutions shall mean all institutions that satisfy the definition in the first indent of Article 1 of the First Council Directive (77/780/EEC) of 12 December 1977 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions11 which are subject to the requirements imposed by Directive 89/647/EEC;
2. investment firms shall mean all institutions that satisfy the definition in point 2 of Article 1 of Directive 93/22/EEC, which are subject to the requirements imposed by the same Directive, excluding:
- credit institutions,
- local firms as defined in 20, and
- firms which only receive and transmit orders from investors without holding money or securities belonging to their clients and which for that reason may not at any time place themselves in debit with their clients;
3. institutions shall mean credit institutions and investment firms;
4. recognized third-country investment firms shall mean firms which, if they were established within the Community, would be covered by the definition of investment firm in 2, which are authorized in a third country and which are subject to and comply with prudential rules considered by the competent authorities as at least as stringent as those laid down in this Directive;
5. financial instruments shall mean the instruments listed in Section B of the Annex to Directive 93/22/EEC;
6. the trading book of an institution shall consist of:
(a) its proprietary positions in financial instruments which are held for resale and/or which are taken on by the institution with the intention of benefiting in the short term from actual and/or expected differences between their buying and selling prices, or from other price or interest-rate variations, and positions in financial instruments arising from matched principal broking, or positions taken in order to hedge other elements of the trading book;
(b) the exposures due to the unsettled transactions, free deliveries and over-the-counter (OTC) derivative instruments referred to in paragraphs 1, 2, 3 and 5 of Annex II, the exposures due to repurchase agreements and securities lending which are based on securities included in the trading book as defined in (a) referred to in paragraph 4 of Annex II, those exposures due to reverse repurchase agreements and securities-borrowing transactions described in the same paragraph, provided the competent authorities so approve, which meet either the conditions (i), (ii), (iii) and (v) or conditions (iv) and (v) as follows:
(i) the exposures are marked to market daily following the procedures laid down in Annex II;
(ii) the collateral is adjusted in order to take account of material changes in the value of the securities involved in the agreement or transaction in question, according to a rule acceptable to the competent authorities;
(iii) the agreement or transaction provides for the claims of the institution to be automatically and immediately offset against the claims of its counter-party in the event of the latter’s defaulting;
(iv) the agreement or transaction in question is an interprofessional one;
(v) such agreements and transactions are confined to their accepted and appropriate use and artificial transactions, especially those not of a short-term nature, are excluded; and
(c) those exposures in the form of fees, commission, interest, dividends and margin on exchange-traded derivatives which are directly related to the items included in the trading book referred to in paragraph 6 of Annex II.
Particular items shall be included in or excluded from the trading book in accordance with objective procedures including, where appropriate, accounting standards in the institution concerned, such procedures and their consistent implementation being subject to review by the competent authorities;
7. parent undertaking, subsidiary undertaking and financial institution shall be defined in accordance with Article 1 of Directive 92/30/EEC;
8. financial holding company shall mean a financial institution the subsidiary undertakings of which are either exclusively or mainly credit institutions, investment firms or other financial institutions, one of which at least is a credit institution or an investment firm;
9. risk weightings shall mean the degrees of credit risk applicable to the relevant counter-parties under Directive 89/647/EEC. However, assets constituting claims on and other exposures to investment firms or recognized third-country investment firms and exposures incurred to recognized clearing houses and exchanges shall be assigned the same weighting as that assigned where the relevant counterparty is a credit institution;
10. over-the-counter (OTC) derivative instruments shall mean the interest-rate and foreign-exchange contracts referred to in Annex II to Directive 89/647/EEC and off-balance-sheet contracts based on equities, provided that no such contracts are traded on recognized exchanges where they are subject to daily margin requirements and, in the case of foreign-exchange contracts, that every such contract has an original maturity of more than 14 calendar days;
11. regulated market shall mean a market that satisfies the definition given in Article 1(13) of Directive 93/22/EEC;
12. qualifying items shall mean long and short positions in the assets referred to in Article 6(1)(b) of Directive 89/647/EEC and in debt instruments issued by investment firms or by recognized third-country investment firms. It shall also mean long and short positions in debt instruments provided that such instruments meet the following conditions: such instruments must firstly be listed on at least one regulated market in a Member State or on a stock exchange in a third country provided that that exchange is recognized by the competent authorities of the relevant Member State; and secondly both be considered by the institution concerned to be sufficiently liquid and, because of the solvency of the issuer, be subject to a degree of default risk which is comparable to or lower than that of the assets referred to in Article 6(1)(b) of Directive 89/647/EEC; the manner in which the instruments are assessed shall be subject to scrutiny by the competent authorities, which shall overturn the judgment of the institution if they consider that the instruments concerned are subject to too high a degree of default risk to be qualifying items.
Notwithstanding the foregoing and pending further coordination, the competent authorities shall have the discretion to recognize as qualifying items instruments which are sufficiently liquid and which, because of the solvency of the issuer, are subject to a degree of default risk which is comparable to or lower than that of the assets referred to in Article 6(1)(b) of Directive 89/647/EEC. The default risk associated with such instruments must have been evaluated at such a level by at least two credit-rating agencies recognized by the competent authorities or by only one such credit-rating agency so long as they are not rated below such a level by any other credit-rating agency recognized by the competent authorities.
The competent authorities may, however, waive the condition imposed in the preceding sentence if they judge it inappropriate in the light of, for example, the characteristics of the market, the issuer, the issue, or some combination of those characteristics.
Furthermore, the competent authorities shall require the institutions to apply the maximum weighting shown in Table 1 in paragraph 14 of Annex I to instruments which show a particular risk because of the insufficient solvency of the issuer or liquidity.
The competent authorities of each Member State shall regularly provide the Council and the Commission with information concerning the methods used to evaluate the qualifying items, in particular the methods used to assess the degree of liquidity of the issue and the solvency of the issuer;
13. central government items shall mean long and short positions in the assets referred to in Article 6(1)(a) of Directive 89/647/EEC and those assigned a weighting of 0% in Article 7 of the same Directive;
14. convertible shall mean a security which, at the option of the holder, can be exchanged for another security, usually the equity of the issuer;
15. warrant shall mean an instrument which gives the holder the right to purchase a number of shares of common stock or bonds at a stipulated price until the warrant’s expiry date. They may be settled by the delivery of the securities themselves or their equivalent in cash;
16. covered warrant shall mean an instrument issued by an entity other than the issuer of the underlying instrument which gives the holder the right to purchase a number of shares of common stock or bonds at a stipulated price or a right to secure a profit or avoid a loss by reference to fluctuations in an index relating to any of the financial instruments listed in Section B of the Annex to Directive 93/22/EEC until the warrant’s expiry date;
17. repurchase agreement and reverse repurchase agreement shall mean any agreement in which an institution or its counter-party transfers securities or guaranteed rights relating to title to securities where that guarantee is issued by a recognized exchange which holds the rights to the securities and the agreement does not allow an institution to transfer or pledge a particular security to more than one counter-party at one time, subject to a commitment to repurchase them (or substituted securities of the same description) at a specified price on a future date specified, or to be specified, by the transferor, being a repurchase agreement for the institution selling the securities and a reverse repurchase agreement for the institution buying them.
A reverse repurchase agreement shall be considered an interprofessional transaction when the counter-party is subject to prudential coordination at Community level or is a Zone A credit institution as defined in Directive 89/647/EEC or is a recognized third-country investment firm or when the agreement is concluded with a recognized clearing house or exchange;
18. securities lending and securities borrowing shall mean any transaction in which an institution or its counter-party transfers securities against appropriate collateral subject to a commitment that the borrower will return equivalent securities at some future date or when requested to do so by the transferor, being securities lending for the institution transferring the securities and securities borrowing for the institution to which they are transferred.
Securities borrowing shall be considered an interprofessional transaction when the counterparty is subject to prudential coordination at Community level or is a Zone A credit institution as defined in Directive 89/647/EEC or is a recognized third-country investment firm or when the transaction is concluded with a recognized clearing house or exchange;
19. clearing member shall mean a member of the exchange or the clearing house which has a direct contractual relationship with the central counterparty (market guarantor); non-clearing members must have their trades routed through a clearing member;
20. local firm shall mean a firm dealing only for its own account on a financial-futures or options exchange or for the accounts of or making a price to other members of the same exchange and guaranteed by a clearing member of the same exchange. Responsibility for ensuring the performance of contracts entered into by such a firm must be assumed by a clearing member of the same exchange, and such contracts must be taken into account in the calculation of the clearing member’s overall capital requirements so long as the local firm’s positions are entirely separate from those of the clearing member;
21. delta shall mean the expected change in an option price as a proportion of a small change in the price of the instrument underlying the option;
22. for the purposes of paragraph 4 of Annex I, long position shall mean a position in which an institution has fixed the interest rate it will receive at some time in the future, and short position shall mean a position in which it has fixed the interest rate it will pay at some time in the future;
23. own funds shall mean own funds as defined in Directive 89/299/EEC. This definition may, however, be amended in the circumstances described in Annex V;
24. initial capital shall mean items 1 and 2 of Article 2(1) of Directive 89/299/EEC;
25. original own funds shall mean the sum of items 1, 2 and 4, less the sum of items 9, 10 and 11 of Article 2(1) of Directive 89/299/EEC;
26. capital shall mean own funds;
27. modified duration shall be calculated using the formula set out in paragraph 26 of Annex I.
Article 3. Initial Capital
1. Investment firms which hold clients’ money and/or securities and which offer one or more of the following services shall have initial capital of ECU 125,000:
the reception and transmission of investors’ orders for financial instruments,
the execution of investors’ orders for financial instruments,
the management of individual portfolios of investments in financial instruments, provided that they do not deal in any financial instruments for their own account or underwrite issues of financial instruments on a firm commitment basis.
The holding of non-trading-book positions in financial instruments in order to invest own funds shall not be considered as dealing for the purposes set out in the first paragraph or for the purposes of paragraph 2.
The competent authorities may, however, allow an investment firm which executes investors’ orders for financial instruments to hold such instruments for its own account if:
such positions arise only as a result of the firm’s failure to match investors’ orders precisely,
the total market value of all such positions is subject to a ceiling of 15% of the firm’s initial capital,
the firm meets the requirements imposed in Articles 4 and 5, and
such positions are incidental and provisional in nature and strictly limited to the time required to carry out the transaction in question.
2. Member States may reduce the amount referred to in paragraph 1 to ECU 50,000 where a firm is not authorized to hold clients’ money or securities, to deal for its own account, or to underwrite issues on a firm commitment basis.
3. All other investment firms shall have initial capital of ECU 730,000.
4. The firms referred to in the second and third indents of Article 2 (2) shall have initial capital of ECU 50,000 in so far as they benefit from freedom of establishment or provide services under Articles 14 or 15 of Directive 93/22/EEC.
5. Notwithstanding paragraphs 1 to 4, Member States may continue the authorization of investment firms and firms covered by paragraph 4 in existence before this Directive is applied the own funds of which are less than the initial capital levels specified for them in paragraphs 1 to 4. The own funds of such firms shall not fall below the highest reference level calculated after the date of notification of this Directive. That reference level shall be the average daily level of own funds calculated over a six-month period preceding the date of calculation. It shall be calculated every six months in respect of the corresponding preceding period.
6. If control of a firm covered by paragraph 5 is taken by a natural or legal person other than the person who controlled it previously, the own funds of that firm must attain at least the level specified for it in paragraphs 1 to 4, except in the following situations:
(i) in the case of the first transfer by inheritance after the application of this Directive, subject to the competent authorities’ approval, for not more than 10 years after that transfer;
(ii) in the case of a change in the composition of a partnership, as long as at least one of the partners at the date of the application of this Directive remains in the partnership, for not more than 10 years after the date of the application of this Directive.
7. In certain specific circumstances and with the consent of the competent authorities, however, in the event of a merger of two or more investment firms and/or firms covered by paragraph 4, the own funds of the firm produced by the merger need not attain the level specified in paragraphs 1 to 4. Nevertheless, during any period when the levels specified in paragraphs 1 to 4 have not been attained, the own funds of the new firm may not fall below the merged firms’ total own funds at the time of the merger.
8. The own funds of investment firms and firms covered by paragraph 4 may not fall below the level specified in paragraphs 1 to 5 and 7. If they do, however, the competent authorities may, where the circumstances justify it, allow such firms a limited period in which to rectify their situations or cease their activities.
Article 4. Provisions against risks
1. The competent authorities shall require institutions to provide own funds which are always more than or equal to the sum of:
(i) the capital requirements, calculated in accordance with Annexes I, II and VI, for their trading-book business;
(ii) the capital requirements, calculated in accordance with Annex III, for all of their business activities;
(iii) the capital requirements imposed in Directive 89/647/EEC for all of their business activities, excluding both their trading-book business and their illiquid assets it they are deducted from own funds under paragraph 2(d) of Annex V;
(iv) the capital requirements imposed in paragraph 2. Irrespective of the amount of the capital requirement referred to in (i) to (iv) the own-funds requirement for investment firms shall never be less than the amount prescribed in Annex IV.
2. The competent authorities shall require institutions to cover the risks arising in connection with business that is outside the scope of both this Directive and Directive 89/647/EEC and considered to be similar to the risks covered by those Directives by adequate own funds.
3. If the own funds held by an institution fall below the amount of the own funds requirement imposed in paragraph 1, the competent authorities shall ensure that the institution in question takes appropriate measures to rectify its situation as quickly as possible.
4. The competent authorities shall require institutions to set up systems to monitor and control the interest-rate risk on all of their business, and those systems shall be subject to overview by the competent authorities.
5. Institutions shall be required to satisfy their competent authorities that they employ systems which can calculate their financial positions with reasonable accuracy at any time.
6. Notwithstanding paragraph 1, the competent authorities may allow institutions to calculate the capital requirements for their trading-book business in accordance with Directive 89/647/EEC rather than in accordance with Annexes I and II to this Directive provided that:
(i) the trading-book business of such institutions does not normally exceed 5% of their total business;
(ii) their total trading-book positions do not normally exceed ECU 1.5 million; and
(iii) the trading-book business of such institutions never exceeds 6% of their total business and their total trading-book positions never exceed ECU 20 million.
7. In order to calculate the proportion that trading-book business bears to total business as in paragraph 6(i) and (iii), the competent authorities may refer either to the size of the combined on- and off-balance-sheet business, to the profit and loss account or to the own funds of the institutions in question, or to a combination of those measurements. When the size of on- and off-balance-sheet business is assessed, debt instruments shall be valued at their market prices or their principal values, equities at their market prices and derivatives according to the nominal or market values of the instruments underlying them. Long positions and short positions shall be summed regardless of their signs.
8. If an institution should happen for more than a short period to exceed either or both of the limits imposed in paragraph 6(i) and (ii) or to exceed either or both of the limits imposed in paragraph 6(iii), it shall be required to meet the requirements imposed in Article 4(1)(i) rather than those of Directive 89/647/EEC in respect of its trading-book business and to notify the competent authority.
Article 5. Monitoring and control of large exposures
1. Institutions shall monitor and control their large exposures in accordance with Directive 92/121/EEC.
2. Notwithstanding paragraph 1, those institutions which calculate the capital requirements for their trading-book business in accordance with Annexes I and II shall monitor and control their large exposures in accordance with Directive 92/121/EEC subject to the modifications laid down in Annex VI to this Directive.
Article 6. Valuation of positions for reporting purposes
1. Institutions shall mark to market their trading books on a daily basis unless they are subject to Article 4(6).
2. In the absence of readily available market prices, for example in the case of dealing in new issues on the primary markets, the competent authorities may waive the requirement imposed in paragraph 1 and require institutions to use alternative methods of valuation provided that those methods are sufficiently prudent and have been approved by competent authorities.
Article 7. Supervision on a consolidated basis
General principles
1. The capital requirements imposed in Articles 4 and 5 for institutions which are neither parent undertakings nor subsidiaries of such undertakings shall be applied on a solo basis.
2. The requirements imposed in Articles 4 and 5 for:
any institution which has a credit institution within the meaning of Directive 92/30/EEC, an investment firm or another financial institution as a subsidiary or which holds a participation in such an entity, and
any institution the parent undertaking of which is a financial holding company
shall be applied on a consolidated basis in accordance with the methods laid down in the above mentioned Directive and in paragraphs 7 to 14 of this Article.
3. When a group covered by paragraph 2 does not include a credit institution, Directive 92/30/EEC shall apply, subject to the following adaptations:
financial holding company shall mean a financial institution the subsidiary undertakings of which are either exclusively or mainly investment firms or other financial institutions one at least of which is an investment firm,
mixed-activity holding company shall mean a parent undertaking, other than a financial holding company or an investment firm, the subsidiaries of which include at least one investment firm,
competent authorities shall mean the national authorities which are empowered by law or regulation to supervise investment firms,
every reference to credit institutions shall be replaced by a reference to investment firms,
the second subparagraph of Article 3(5) of Directive 92/30/EEC shall not apply,
in Articles 4(1) and (2) and 7(5) of Directive 92/30/EEC each reference to Directive 77/780/EEC shall be replaced by a reference to Directive 93/22/EEC,
for the purposes of Articles 3(9) and 8(3) of Directive 92/30/EEC the references to the Banking Advisory Committee shall be substituted by references to the Council and the Commission,
the first sentence of Article 7(4) of Directive 92/30/EEC shall be replaced by the following:
‘Where an investment firm, a financial holding company or a mixed-activity holding company controls one or more subsidiaries which are insurance companies, the competent authorities and the authorities entrusted with the public task of supervising insurance undertakings shall cooperate closely’.
4. The competent authorities required or mandated to exercise supervision of groups covered by paragraph 3 on a consolidated basis may, pending further coordination on the supervision of such groups on a consolidated basis and where the circumstances justify it, waive that obligation provided that each investment firm in such a group:
(i) uses the definition of own funds given in paragraph 9 of Annex V;
(ii) meets the requirements imposed in Articles 4 and 5 on a solo basis;
(iii) sets up systems to monitor and control the sources of capital and funding of all other financial institutions within the group.
5. The competent authorities shall require investment firms in a group which has been granted the waiver provided for in paragraph 4 to notify them of those risks, including those associated with the composition and sources of their capital and funding, which could undermine their financial positions. If the competent authorities then consider that the financial positions of those investment firms is not adequately protected, they shall require them to take measures including, if necessary, limitations on the transfer of capital from such firms to group entities.
6. Where the competent authorities waive the obligation of supervision on a consolidated basis provided for in paragraph 4 they shall take other appropriate measures to monitor the risks, namely large exposures, of the whole group, including any undertakings not located in a Member State.
7. Member States may waive the application of the requirements imposed in Articles 4 and 5, on an individual or subconsolidated basis, to an institution which, as a parent undertaking, is subject to supervision on a consolidated basis, and to any subsidiary of such an institution which is subject to their authorization and supervision and is included in the supervision on a consolidated basis of the institution which is its parent company.
The same right of waiver shall be granted where the parent undertaking is a financial holding company which has its head office in the same Member State as the institution, provided that it is subject to the same supervision as that exercised over credit institutions or investment firms, and in particular the requirements imposed in Articles 4 and 5.
In both cases, if the right of waiver is exercised measures must be taken to ensure the satisfactory allocation of own funds within the group.
8. Where an institution the parent undertaking of which is an institution has been authorized and is situated in another Member State, the competent authorities which granted that authorization shall apply the rules laid down in Articles 4 and 5 to that institution on a individual or, where appropriate, a subconsolidated basis.
9. Notwithstanding paragraph 8, the competent authorities responsible for authorizing the subsidiary of a parent undertaking which is an institution may, by a bilateral agreement, delegate their responsibility for supervising the subsidiary’s capital adequacy and large exposures to the competent authorities which authorized and supervise the parent undertaking. The Commission must be kept informed of the existence and content of such agreements. It shall forward such information to the competent authorities of the other Member States and to the Banking Advisory Committee and to the Council, except in the case of groups covered by paragraph 3.
Calculating the consolidated requirements
10. Where the rights of waiver provided for in paragraphs 7 and 9 are not exercised, the competent authorities may, for the purpose of calculating the capital requirements set out in Annex I and the exposures to clients set out in Annex VI on a consolidated basis, permit net positions in the trading book of one institution to offset positions in the trading book of another institution according to the rules set out in Annexes I and VI respectively.
In addition, they may allow foreign-exchange positions subject to Annex III in one institution to offset foreign-exchange positions subject to Annex III in another institution in accordance with the rules set out in Annex III.
11. The competent authorities may also permit offsetting of the trading book and of the foreign-exchange positions of undertakings located in third countries, subject to the simultaneous fulfillment of the following conditions:
(i) those undertakings have been authorized in a third country and either satisfy the definition of credit institution given in the first indent of Article 1 of Directive 77/780/EEC or are recognized third-country investment firms;
(ii) such undertakings comply, on a solo basis, with capital adequacy rules equivalent to those laid down in this Directive;
(iii) no regulations exist in the countries in question which might significantly affect the transfer of funds within the group.
12. The competent authorities may also allow the offsetting provided for in paragraph 10 between institutions within a group that have been authorized in the Member State in question, provided that:
(i) there is a satisfactory allocation of capital within the group;
(ii) the regulatory, legal or contractual framework in which the institutions operate is such as to guarantee mutual financial support within the group.
13. Furthermore, the competent authorities may allow the offsetting provided for in paragraph 10 between institutions within a group that fulfill the conditions imposed in paragraph 12 and any institution included in the same group which has been authorized in another Member State provided that that institution is obliged to fulfil the capital requirements imposed in Articles 4 and 5 on a solo basis.
Definition of consolidated own funds
14. In the calculation of own funds on a consolidated basis Article 5 of Directive 89/299/EEC shall apply.
15. The competent authorities responsible for exercising supervision on a consolidated basis may recognize the validity of the specific own-funds definitions applicable to the institutions concerned under Annex V in the calculation of their consolidated own funds.
Article 8. Reporting requirements
1. Member States shall require that investment firms and credit institutions provide the competent authorities of their home Member States with all the information necessary for the assessment of their compliance with the rules adopted in accordance with this Directive. Member States shall also ensure that institutions’ internal control mechanisms and administrative and accounting procedures permit the verification of their compliance with such rules at all times.
2. Investment firms shall be obliged to report to the competent authorities in the manner specified by the latter at least once every month in the case of firms covered by Article 3(3), at least once every three months in the case of firms covered by Article 3(1) and at least once every six months in the case of firms covered by Article 3(2).
3. Notwithstanding paragraph 2, investment firms covered by Article 3(1) and (3) shall be required to provide the information on a consolidated or subconsolidated basis only once every six months.
4. Credit institutions shall be obliged to report in the manner specified by the competent authorities as often as they are obliged to report under Directive 89/647/EEC.
5. The competent authorities shall oblige institutions to report to them immediately any case in which their counterparties in repurchase and reverse repurchase agreements or securities-lending and securities-borrowing transactions default on their obligations. The Commission shall report to the Council on such cases and their implications for the treatment of such agreements and transactions in this Directive not more than three years after the date referred to in Article 12. Such reports shall also describe the way that institutions meet those of conditions (i) to (v) in Article 2(6)(b) that apply to them, in particular that referred to in condition (v). Furthermore it shall give details of any changes in the relative volume of institutions’ traditional lending and their lending through reverse repurchase agreements and securities-borrowing transactions. If the Commission concludes on the basis of this report and other information that further safeguards are needed to prevent abuse it shall make appropriate proposals.
Article 9. Competent authorities
1. Member States shall designate the authorities which are to carry out the duties provided for in this Directive. They shall inform the Commission thereof, indicating any division of duties.
2. The authorities referred to in paragraph 1 must be public authorities or bodies officially recognized by national law or by public authorities as part of the supervisory system in operation in the Member State concerned.
3. The authorities concerned must be granted all the powers necessary for the performance of their tasks, and in particular that of overseeing the constitution of trading books.
4. The competent authorities of the various Member States shall collaborate closely in the performance of the duties provided for in this Directive, particularly when investment services are provided on a services basis or through the establishment of branches in one or more Member States. They shall on request supply one another with all information likely to facilitate the supervision of the capital adequacy of investment firms and credit institutions, in particular the verification of their compliance with the rules laid down in this Directive. Any exchange of information between competent authorities which is provided for in this Directive in respect of investment firms shall be subject to the obligation of professional secrecy imposed in Article 25 of Directive 93/22/EEC and, as regards credit institutions, to the obligation imposed in Article 12 of Directive 77/780/EEC, as amended by Directive 89/646/EEC.
Article 10
Pending adoption of a further Directive laying down provisions for adapting this Directive to technical progress in the areas specified below, the Council shall, acting by qualified majority on a proposal from the Commission, in accordance with Decision 87/373/EEC, adopt those adaptations which may be necessary, as follows:
clarification of the definitions in Article 2 in order to ensure uniform application of this Directive throughout the Community,
clarification of the definitions in Article 2 to take account of developments on financial markets,
alteration of the amounts of initial capital prescribed in Article 3 and the amount referred to in Article 4 (6) to take account of developments in the economic and monetary field,
the alignment of terminology on and the framing of definitions in accordance with subsequent acts on institutions and related matters.
Article 11. Transitional provisions
1. Member States may authorize investment firms subject to Article 30 (1) of Directive 93/22/EEC the own funds of which are on the day of the application of this Directive lower than the levels specified in Article 3(1) to (3) of this Directive. Thereafter, however, the own funds of such investment firms must fulfil the conditions laid down in Article 3(5) to (8) of this Directive.
2. Notwithstanding paragraph 14 of Annex I, Member States may set a specific-risk requirement for any bonds assigned a weighting of 10% under Article 11(2) of Directive 89/647/EEC equal to half the specific-risk requirement for a qualifying item with the same residual maturity as such a bond.
Article 12. Final provisions
1. Member States shall bring into force the laws, regulations and administrative provisions necessary for them to comply with this Directive by the date fixed in the second paragraph of Article 31 of Directive 93/22/EEC. They shall forthwith inform the Commission thereof. When Member States adopt these provisions they shall include a reference to this Directive or add such a reference on the occasion of their official publication. The manner in which such references are to be made shall be laid down by the Member States.
2. Member States shall communicate to the Commission the main provisions of national law which they adopt in the field covered by this Directive.
Article 13
The Commission shall as soon as possible submit to the Council proposals for capital requirements in respect of commodities trading, commodity derivatives and units of collective-investment undertakings.
The Council shall decide on the Commission’s proposals no later than six months before the date of application of this Directive.
Article 14. Review clause
Within three years of the date referred to in Article 12, acting on a proposal from the Commission, the Council shall examine and, if necessary, revise this Directive in the light of the experience acquired in applying it, taking into account market innovation and, in particular, developments in international fora of regulatory authorities.
Article 15
This Directive is addressed to the Member States.
Done at Brussels, 15 March 1993.
For the Council
The President
M. JELVED
ANNEX I
POSITION RISK
Introduction
Netting
1. The excess of an institution’s long (short) positions over its short (long) positions in the same equity, debt and convertible issues and identical financial futures, options, warrants and covered warrants shall be its net position in each of those different instruments. In calculating the net position the competent authorities shall allow positions in derivative instruments to be treated, as laid down in paragraphs 4 to 7, as positions in the underlying (or notional) security or securities. Institutions’ holdings of their own debt instruments shall be disregarded in calculating specific risk under paragraph 14.
2. No netting shall be allowed between a convertible and an offsetting position in the instrument underlying it, unless the competent authorities adopt an approach under which the likelihood of a particular convertible’s being converted is taken into account or have a capital requirement to cover any loss which conversion might entail.
3. All net positions, irrespective of their signs, must be converted on a daily basis into the institution’s reporting currency at the prevailing spot exchange rate before their aggregation.
Particular instruments
4. Interest-rate futures, forward-rate agreements (FRAs) and forward commitments to buy or sell debt instruments shall be treated as combinations of long and short positions. Thus a long interest-rate futures position shall be treated as a combination of a borrowing maturing on the delivery date of the futures contract and a holding of an asset with maturity date equal to that of the instrument or notional position underlying the futures contract in question. Similarly a sold FRA will be treated as a long position with a maturity date equal to the settlement date plus the contract period, and a short position with maturity equal to the settlement date. Both the borrowing and the asset holding shall be included in the Central government column of Table 1 in paragraph 14 in order to calculate the capital required against specific risk for interest-rate futures and FRAs. A forward commitment to buy a debt instrument shall be treated as a combination of a borrowing maturing on the delivery date and a long (spot) position in the debt instrument itself. The borrowing shall be included in the central government column of Table 1 for purposes of specific risk, and the debt instrument under whichever column is appropriate for it in the same table. The competent authorities may allow the capital requirement for an exchange-traded future to be equal to the margin required by the exchange if they are fully satisfied that it provides an accurate measure of the risk associated with the future and that the method used to calculate the margin is equivalent to the method of calculation set out in the remainder of this Annex.
5. Options on interest rates, debt instruments, equities, equity indices, financial futures, swaps and foreign currencies shall be treated as if they were positions equal in value to the amount of the underlying instrument to which the option refers, multiplied by its delta for the purposes of this Annex. The latter positions may be netted off against any offsetting positions in the identical underlying securities or derivatives. The delta used shall be that of the exchange concerned, that calculated by the competent authorities or, where that is not available or for OTC options, that calculated by the institution itself, subject to the competent authorities’ being satisfied that the model used by the institution is reasonable.
However, the competent authorities may also prescribe that institutions calculate their deltas using a methodology specified by the competent authorities.
The competent authorities shall require that the other risks, apart from the dealt risk, associated with options are safeguarded against. The competent authorities may allow the requirement against a written exchange-traded option to be equal to the margin required by the exchange if they are fully satisfied that it provides an accurate measure of the risk associated with the option and that the method used to calculate the margin is equivalent to the method of calculation set out in the remainder of this Annex for such options. In addition they may allow the requirement on a bought exchange-traded or OTC option to be the same as that for the instrument underlying it, subject to the constraint that the resulting requirement does not exceed the market value of the option. The requirement against a written OTC option shall be set in relation to the instrument underlying it.
6. Warrants and covered warrants shall be treated in the same way as options under paragraph 5.
7. Swaps shall be treated for interest-rate risk purposes on the same basis as on-balance-sheet instruments. Thus an interest-rate swap under which an institution receives floating-rate interest and pays fixed-rate interest shall be treated as equivalent to a long position in a floating-rate instrument of maturity equivalent to the period until the next interest fixing and a short position in a fixed-rate instrument with the same maturity as the swap itself.
8. However, institutions which mark to market and manage the interest-rate risk on the derivative instruments covered in paragraphs 4 to 7 on a discounted-cash-flow basis may use sensitivity models to calculate the positions referred to above and may use them for any bond which is amortized over its residual life rather than via one final repayment of principal. Both the model and its use by the institution must be approved by the competent authorities. These models should generate positions which have the same sensitivity to interest-rate changes as the underlying cash flows. This sensitivity must be assessed with reference to independent movements in sample rates across the yield curve, with at least one sensitivity point in each of the maturity bands set out in Table 2 of paragraph 18. The positions shall be included in the calculation of capital requirements according to the provisions laid down in paragraphs 15 to 30.
9. Institutions which do not use models under paragraph 8 may instead, with the approval of the competent authorities, treat as fully offsetting any positions in derivative instruments covered in paragraphs 4 to 7 which meet the following conditions at least:
(i) the positions are of the same value and denominated in the same currency;
(ii) the reference rate (for floating-rate positions) or coupon (for fixed-rate positions) is closely matched;
(iii) the next interest-fixing date or, for fixed coupon positions, residual maturity corresponds with the following limits:
less than one month hence: same day;
between one month and one year hence: within seven days;
over one year hence: within 30 days.
10. The transferor of securities or guaranteed rights relating to title to securities in a repurchase agreement and the lender of securities in a securities lending shall include these securities in the calculation of its capital requirement under this Annex provided that such securities meet the criteria laid down in Article 2(6)(a).
11. Positions in units of collective-investment undertakings shall be subject to the capital requirements of Directive 89/647/EEC rather than to position-risk requirements under this Annex.
| Central government items |
Qualifying items | |||
|---|---|---|---|---|
| Up to 6 months |
Over 6 and up to 24 months |
Over 24 months |
Other items |
|
| 0,00% | 0,25% | 1,00% | 1,60% | 8,00% |
| Central government items |
Qualifying items | |||
|---|---|---|---|---|
| Up to 6 months |
Over 6 and up to 24 months |
Over 24 months |
Other items |
|
| 0,00% | 0,25% | 1,00% | 1,60% | 8,00% |
| Maturity band | Annual interest rate change in % |
|||
|---|---|---|---|---|
| Zone | Coupon of 3% or more |
Coupon of less than 3% |
Weighting (in %) |
|
| (1) | (2) | (3) | (4) | (5) |
| One | 0 ≤ 1 month | 0 ≤ 1 month | 0,00 | — |
| >1 ≤ 3 months | >1 ≤ 3 months | 0,20 | 1,00 | |
| >3 ≤ 6 months | >3 ≤ 6 months | 0,40 | 1,00 | |
| >6 ≤ 12 months | >6 ≤ 12 months | 0,70 | 1,00 | |
| Two | >1 ≤ 2 years | >1,0 ≤ 1,9 years | 1,25 | 0,90 |
| >2 ≤ 3 years | >1,9 ≤ 2,8 years | 1,75 | 0,80 | |
| >3 ≤ 4 years | >2,8 ≤ 3,6 years | 2,25 | 0,75 | |
| Three | >4 ≤ 5 years | >3,6 ≤ 4,3 years | 2,75 | 0,75 |
| >5 ≤ 7 years | >4,3 ≤ 5,7 years | 3,25 | 0,70 | |
| >7 ≤ 10 years | >5,7 ≤ 7,3 years | 3,75 | 0,65 | |
| >10 ≤ 15 years | >7,3 ≤ 9,3 years | 4,50 | 0,60 | |
| >15 ≤ 20 years | >9,3 ≤ 10,6 years | 5,25 | 0,60 | |
| > 20 years | >10,6 ≤ 12,0 years | 6,00 | 0,60 | |
| >12,0 ≤ 20,0 years | 8,00 | 0,60 | ||
| > 20,0 years | 12,50 | 0,60 | ||
| Maturity band | Annual interest rate change in % |
|||
|---|---|---|---|---|
| Zone | Coupon of 3% or more |
Coupon of less than 3% |
Weighting (in %) |
|
| (1) | (2) | (3) | (4) | (5) |
| One | 0 ≤ 1 month | 0 ≤ 1 month | 0,00 | — |
| >1 ≤ 3 months | >1 ≤ 3 months | 0,20 | 1,00 | |
| >3 ≤ 6 months | >3 ≤ 6 months | 0,40 | 1,00 | |
| >6 ≤ 12 months | >6 ≤ 12 months | 0,70 | 1,00 | |
| Two | >1 ≤ 2 years | >1,0 ≤ 1,9 years | 1,25 | 0,90 |
| >2 ≤ 3 years | >1,9 ≤ 2,8 years | 1,75 | 0,80 | |
| >3 ≤ 4 years | >2,8 ≤ 3,6 years | 2,25 | 0,75 | |
| Three | >4 ≤ 5 years | >3,6 ≤ 4,3 years | 2,75 | 0,75 |
| >5 ≤ 7 years | >4,3 ≤ 5,7 years | 3,25 | 0,70 | |
| >7 ≤ 10 years | >5,7 ≤ 7,3 years | 3,75 | 0,65 | |
| >10 ≤ 15 years | >7,3 ≤ 9,3 years | 4,50 | 0,60 | |
| >15 ≤ 20 years | >9,3 ≤ 10,6 years | 5,25 | 0,60 | |
| > 20 years | >10,6 ≤ 12,0 years | 6,00 | 0,60 | |
| >12,0 ≤ 20,0 years | 8,00 | 0,60 | ||
| > 20,0 years | 12,50 | 0,60 | ||
Specific and general risks
12. The position risk on a traded debt instrument or equity (or debt or equity derivative) shall be divided into two components in order to calculate the capital required against it. The first shall be its specific-risk component—this is the risk of a price change in the instrument concerned due to factors related to its issuer or, in the case of a derivative, the issuer of the underlying instrument. The second component shall cover its general risk—this is the risk of a price change in the instrument due (in the case of a traded debt instrument or debt derivative) to a change in the level of interest rates or (in the case of an equity or equity derivative) to a broad equity-market movement unrelated to any specific attributes of individual securities.
Traded Debt Instruments
13. The institution shall classify its net positions according to the currency in which they are denominated and shall calculate the capital requirement for general and specific risk in each individual currency separately.
Specific risk
14. The institution shall assign its net positions, as calculated in accordance with paragraph 1, to the appropriate categories in Table 1 on the basis of their residual maturities and then multiply them by the weightings shown. It shall sum its weighted positions (regardless of whether they are long or short) in order to calculate its capital requirement against specific risk.
General risk
(a) Maturity-based
15. The procedure for calculating capital requirements against general risk involves two basic steps. First, all positions shall be weighted according to maturity (as explained in paragraph 16), in order to compute the amount of capital required against them. Second, allowance shall be made for this requirement to be reduced when a weighted position is held alongside an opposite weighted position within the same maturity band. A reduction in the requirement shall also be allowed when the opposite weighted positions fall into different maturity bands, with the size of this reduction depending both on whether the two positions fall into the same zone, or not, and on the particular zones they fall into. There are three zones (groups or maturity bands) altogether.
16. The institution shall assign its net positions to the appropriate maturity bands in column 2 or 3, as appropriate, in Table 2 appearing in paragraph 18. It shall do so on the basis of residual maturity in the case of fixed-rate instruments and on the basis of the period until the interest rate is next set in the case of instruments on which the interest rate is variable before final maturity. It shall also distinguish between debt instruments with a coupon of 3% or more and those with a coupon of less than 3% and thus allocate them to column 2 or column 3 in Table 2. It shall then multiply each of them by the weighing for the maturity band in question in column 4 in Table 2.
17. It shall then work out the sum of the weighted long positions and the sum of the weighted short positions in each maturity band. The amount of the former which are matched by the latter in a given maturity band shall be the matched weighted position in that band, while the residual long or short position shall be the unmatched weighted position for the same band. The total of the matched weighted positions in all bands then be calculated.
18. The institution shall compute the totals of the unmatched weighted long positions for the bands included in each of the zones in Table 2 in order to derive the unmatched weighted long position for each zone. Similarly the sum of the unmatched weighted short positions for each band in a particular zone shall be summed to compute the unmatched weighted short position for that zone. That part of the unmatched weighted long position for a given zone that is matched by the unmatched weighted short position for the same zone shall be the matched weighted position for that zone. That part of the unmatched weighted long or unmatched weighted short position for a zone that cannot be thus matched shall be the unmatched weighted position for that zone.
19. The amount of the unmatched weighted long (short) position in zone one which is matched by the unmatched weighted short (long) position in zone two shall then be computed. This shall be referred to in paragraph 23 as the matched weighted position between zones one and two. The same calculation shall then be undertaken with regard to that part of the unmatched weighted position in zone two which is left over and the unmatched weighted position in zone three in order to calculate the matched weighted position between zones two and three.
20. The institution may, if it wishes, reverse the order in paragraph 19 so as to calculate the matched weighted position between zones two and three before working out that between zones one and two.
21. The remainder of the unmatched weighted position in zone one shall then be matched with what remains of that for zone three after the latter’s matching with zone two in order to derive the matched weighted position between zones one and three.
22. Residual positions, following the three separate matching calculations in paragraphs 19, 20 and 21, shall be summed.
23. The institution’s capital requirement shall be calculated as the sum of:
(a) 10% of the sum of the matched weighted positions in all maturity bands;
(b) 40% of the matched weighted position in zone one;
(c) 30% of the matched weighted position in zone two;
(d) 30% of the matched weighted position in zone three;
(e) 40% of the matched weighted position between zones one and two and between zones two and three (see paragraph 19);
(f) 150% of the matched weighted position between zones one and three;
(g) 100% of the residual unmatched weighted positions.
(b) Duration-based
24. The competent authorities in a Member State may allow institutions in general or on an individual basis to use a system for calculating the capital requirement for the general risk on traded debt instruments which reflects duration instead of the system set out in paragraphs 15 to 23, provided that the institution does so on a consistent basis.
25. Under such a system the institution shall take the market value of each fixed-rate debt instrument and thence calculate its yield to maturity, which is implied discount rate for that instrument. In the case of floating-rate instruments, the institution shall take the market value of each instrument and thence calculate its yield on the assumption that the principal is due when the interest rate can next be changed.
- 26. The institution shall then calculate the modified duration of each debt instrument on the basis of the formula:
Where: r = yield to maturity (see paragraph 25),
Ct = cash payment in time t,
m = total maturity (see paragraph 25).
27. The institution shall then allocate each debt instrument to the appropriate zone in Table 3. It shall do so on the basis of the modified duration of each instrument.
28. The institution shall then calculate the duration-weighted position for each instrument by multiplying its market price by its modified duration and by the assumed interest-rate change for an instrument with that particular modified duration (see column 3 in Table 3).
29. The institution shall work out its duration-weighted long and its duration-weighted short positions within each zone. The amount of the former which are matched by the latter within each zone shall be the matched duration-weighted position for that zone. The institution shall then calculate the unmatched duration-weighted positions for each zone. It shall then follow the procedures laid down for unmatched weighted positions in paragraphs 19 to 22.
30. The institution’s capital requirement shall then be calculated as the sum of:
(a) 2% of the matched duration-weighted position for each zone;
(b) 40% of the matched duration-weighted positions between zones one and two and between zones two and three;
(c) 150% of the matched duration-weighted position between zones one and three;
(d) 100% of the residual unmatched duration-weighted positions.
Equities
31. The institution shall sum all its net long positions and all its net short positions in accordance with paragraph 1. The sum of the two figures shall be its overall gross position. The difference between them shall be its overall net position.
Specific risk
32. It shall multiply its overall gross position by 4% in order to calculate its capital requirement against specific risk.
33. Notwithstanding paragraph 32, the competent authorities may allow the capital requirement against specific risk to be 2% rather than 4% for those portfolios of equities that an institution holds which meet the following conditions:
(i) the equities shall not be those of issuers which have issued traded debt instruments that currently attract an 8% requirement in Table 1 appearing in paragraph 14;
(ii) the equities must be adjudged highly liquid by the competent authorities according to objective criteria;
(iii) no individual position shall comprise more than 5% of the value of the institution’s whole equity portfolio. However, the competent authorities may authorize individual positions of up to 10% provided that the total of such positions does not exceed 50% of the portfolio.
General risk
34. Its capital requirement against general risk shall be its overall net position multiplied by 8%.
Stock-index futures
35. Stock-index futures, the delta-weighted equivalents of options in stock-index futures and stock indices collectively referred to hereafter as ‘stock-index futures’, may be broken down into positions in each of their constituent equities. These positions may be treated as underlying positions in the equities in question; therefore, subject to the approval of the competent authorities, they may be netted against opposite positions in the underlying equities themselves.
36. The competent authorities shall ensure that any institution which has netted off its positions in one or more of the equities constituting a stock-index future against one or more positions in the stock-index future itself has adequate capital to cover the risk of loss caused by the future’s values not moving fully in line with that of its constituent equities; they shall also do this when an institution holds opposite positions in stock-index futures which are not identical in respect of either their maturity or their composition or both.
37. Notwithstanding paragraphs 35 and 36, stock-index futures which are exchange traded and—in the opinion of the competent authorities—represent broadly diversified indices shall attract a capital requirement against general risk of 8%, but no capital requirement against specific risk. Such stock-index futures shall be included in the calculation of the overall net position in paragraph 31, but disregarded in the calculation of the overall gross position in the same paragraph.
38. If a stock-index future is not broken down into its underlying positions, it shall be treated as if it were an individual equity. However, the specific risk on this individual equity can be ignored if the stock-index future in question is exchange traded and, in the opinion of the competent authorities, represents a broadly diversified index.
Underwriting
39. In the case of the underwriting of debt and equity instruments, the component authorities may allow an institution to use the following procedure in calculating its capital requirements. Firstly, it shall calculate the net positions by deducting the underwriting positions which are subscribed or sub-underwritten by third parties on the basis of formal agreements; secondly, it shall reduce the net positions by the following reduction factors:
• working day 0: 100% • working day 1: 90% • working days 2 to 3: 75% • working day 4: 50% • working day 5: 25% • after working day 5: 0% • working day 0: 100% • working day 1: 90% • working days 2 to 3: 75% • working day 4: 50% • working day 5: 25% • after working day 5: 0% Working day zero shall be the working day on which the institution becomes unconditionally committed to accepting a known quantity of securities at an agreed price.
Thirdly, it shall calculate its capital requirements using the reduced underwriting positions. The competent authorities shall ensure that the institution holds sufficient capital against the risk of loss which exists between the time of the initial commitment and working day 1.
ANNEX II
SETTLEMENT AND COUNTER-PARTY RISK
Settlement/Delivery Risk
1. In the case transactions in which debt instruments and equities (excluding repurchase and reverse repurchase agreements and securities lending and securities borrowing) are unsettled after their due delivery dates, an institution must calculate the price difference to which it is exposed. This is the difference between the agreed settlement price for the debt instrument or equity in question and its current market value, where the difference could involve a loss for the institution. It must multiply this difference by the appropriate factor in column A of the table appearing in paragraph 2 in order to calculate its capital requirement.
2. Notwithstanding paragraph 1, an institution may, at the discretion of its competent authorities, calculate its capital requirements by multiplying the agreed settlement price of every transaction which is unsettled between 5 and 45 working days after its due date by the appropriate factor in column B of the table below. As from 46 working days after the due date it shall take the requirement to be 100% of the price difference to which it is exposed as in column A.
| Number of working days after due settlement date |
Column A (%) |
Column B (%) |
|---|---|---|
| 5 - 15 | 8 | 0,5 |
| 16 - 30 | 50 | 4,0 |
| 31 - 45 | 75 | 9,0 |
| 46 or more | 100 | (see paragraph 2) |
| Number of working days after due settlement date |
Column A (%) |
Column B (%) |
|---|---|---|
| 5 - 15 | 8 | 0,5 |
| 16 - 30 | 50 | 4,0 |
| 31 - 45 | 75 | 9,0 |
| 46 or more | 100 | (see paragraph 2) |
Counter-Party Risk
Free deliveries
3.1. An institution shall be required to hold capital against counter-party risk if:
(i) it has paid for securities before receiving them or it has delivered securities before receiving payment for them; and
(ii) in the case of cross-border transactions, one day or more has elapsed since it made that payment or delivery.
3.2. The capital requirement shall be 8% of the value of the securities or cash owed to the institution multiplied by the risk weighting applicable to the relevant counter-party.
Repurchase and reverse repurchase agreements and securities lending and borrowing
4.1. In the case of repurchase agreements and securities lending based on securities included in the trading book the institution shall calculate the difference between the market value of the securities and the amount borrowed by the institution or the market value of the collateral, where that difference is positive. In the case of reverse repurchase agreements and securities borrowing the institution shall calculate the difference between the amount the institution has lent or the market value of the collateral and the market value of the securities it has received, where that difference is positive.
The competent authorities shall take measures to ensure that the excess collateral given is acceptable.
Furthermore, the competent authorities may allow institutions not to include the amount of excess collateral in the calculations described in the first two sentences of this paragraph if the amount of excess collateral is guaranteed in such a way that the transferor is always assured that the excess collateral will be returned to it in the event of defaults of its counter-party.
Accrued interest shall be included in calculating the market value of amounts lent or borrowed and collateral.
4.2. The capital requirement shall be 8% of the figure produced in accordance with paragraph 4.1, multiplied by the risk weighting applicable to the relevant counter-party.
OTC derivative instruments
5. In order to calculate the capital requirement on their OTC derivative instruments, institutions shall apply Annex II to Directive 89/647/EEC in the case of interest-rate and exchange-rate contracts; bought OTC equity options and covered warrants shall be subject to the treatment accorded to exchange-rate contracts in Annex II to Directive 89/647/EEC.
The risk weightings to be applied to the relevant counter-parties shall be determined in accordance with Article 2(9) of this Directive.
Other
6. The capital requirements of Directive 89/647/EEC shall apply to those exposures in the form of fees, commission, interest, dividends and margin in exchange-traded futures or options contracts which are neither covered in this Annex of Annex I nor deducted from own funds under paragraph 2(d) of Annex V and which are directly related to the items included in the trading book.
The risk weightings to be applied to the relevant counter-parties shall be determined in accordance with Article 2(9) of this Directive.
ANNEX III
FOREIGN-EXCHANGE RISK
1. If an institution’s overall net foreign-exchange position, calculated in accordance with the procedure set out below, exceeds 2% of its total own funds, it shall multiply the excess by 8% in order to calculate its own-funds requirement against foreign-exchange risk.
2. A two-stage calculation shall be used.
3.1. Firstly, the institution’s net open position in each currency (including the reporting currency) shall be calculated. This position shall consist of the sum of the following elements (positive or negative):
the net spot position (i.e. all asset items less all liability items, including accrued interest, in the currency in question),
the net forward position (i.e. all amounts to be received less all amounts to be paid under forward exchange transactions, including currency futures and the principal on currency swaps not included in the spot position),
irrevocable guarantees (and similar instruments) that are certain to be called,
net future income/expenses not yet accrued but already fully hedged (at the discretion of the reporting institution and with the prior consent of the competent authorities, net future income/expenses not yet entered in accounting records but already fully hedged by forward foreign-exchange transactions may be included here). Such discretion must be exercised on a consistent basis,
the net delta (or delta-based) equivalent of the total book of foreign-currency options,
the market value of other (i.e. non-foreign-currency) options,
any positions which an institution has deliberately taken in order to hedge against the adverse effect of the exchange rate on its capital ratio may be excluded from the calculation of net open currency positions. Such positions should be of a non-trading or structural nature and their exclusion, and any variation of the terms of their exclusion, shall require the consent of the competent authorities. The same treatment subject to the same conditions as above may be applied to positions which an institution has which relate to items that are already deducted in the calculation of own funds.
3.2. The competent authorities shall have the discretion to allow institutions to use the net present value when calculating the net open position in each currency.
4. Secondly, net short and long positions in each currency other than the reporting currency shall be converted at spot rates into the reporting currency. They shall then be summed separately to form the total of the net short positions and the total of the net long positions respectively. The higher of these two totals shall be the institution’s overall net foreign-exchange position.
5. Notwithstanding paragraphs 1 to 4 and pending further coordination, the competent authorities may prescribe or allow institutions to use alterative procedures for the purposes of this Annex.
6. Firstly, the competent authorities may allow institutions to provide lower capital requirements against positions in closely correlated currencies than those which would result from applying paragraphs 1 to 4 to them. The competent authorities may deem a pair of currencies to be closely correlated only if the likelihood of a loss—calculated on the basis of daily exchange-rate data for the preceding three or five years—occurring on equal and opposite positions in such currencies over the following 10 working days, which is 4% or less of the value of the matched position in question (valued in terms of the reporting currency) has a probability of at least 99%, when an observation period of three years is used, or 95%, when an observation period of five years is used. The ownfunds requirement on the matched position in two closely correlated currencies shall be 4% multiplied by the value of the matched position. The capital requirement on unmatched positions in closely correlated currencies, and all positions in other currencies, shall be 8% multiplied by the higher of the sum of the net short or the net long positions in those currencies after the removal of matched positions in closely correlated currencies.
7. Secondly, the competent authorities may allow institutions to apply an alternative method to those outlined in paragraphs 1 to 6 for the purposes of this Annex. The capital requirement produced by this method must be sufficient:
(i) to exceed the losses, if any, that would have occurred in at least 95% of the rolling 10-working-day periods over the preceding five years, or, alternatively, in at least 99% of the rolling 10-working-day periods over the preceding three years, had the institution begun each such period with its current positions;
(ii) on the basis of an analysis of exchange-rate movements during all the rolling 10-working-day periods over the preceding five years, to exceed the likely loss over the following 10-workingday holding period 95% or more of the time, or, alternatively, to exceed the likely loss 99% or more of the time where the analysis of exchange-rate movements covers only the preceding three years; or
(iii) irrespective of the size of (i) or (ii) to exceed 2% of the net open position as measured in paragraph 4.
8. Thirdly, the competent authorities may allow institutions to remove positions in any currency which is subject to a legally binding intergovernmental agreement to limit its variation relative to other currencies covered by the same agreement from whichever of the methods described in paragraphs 1 to 7 that they apply. Institutions shall calculate their matched positions in such currencies and subject them to a capital requirement no lower than half of the maximum permissible variation laid down in the intergovernmental agreement in question in respect of the currencies concerned. Unmatched positions in those currencies shall be treated in the same way as other currencies.
Notwithstanding the first paragraph, the competent authorities may allow the capital requirement on the matched positions in currencies of the Member States participating in the second stage of the European monetary union to be 1.6% multiplied by the value of such matched positions.
9. The competent authorities shall notify the Council and Commission of the methods, if any, that they are prescribing or allowing in respect of paragraphs 6 to 8.
10. The Commission shall report to the Council on the methods referred to in paragraph 9 and, where necessary and with due regard to international developments, shall propose a more harmonized treatment of foreign-exchange risk.
11. Net positions in composite currencies may be broken down into the component currencies according to the quotas in force.
ANNEX IV
OTHER RISKS
Investment firms shall be required to hold own funds equivalent to one quarter of their preceding year’s fixed overheads. The competent authorities may adjust that requirement in the event of a material change in a firm’s business since the preceding year. Where a firm has not completed a year’s business, including the day it starts up, the requirement shall be a quarter of the fixed overheads figure projected in its business plan unless an adjustment to that plan is required by the authorities.
ANNEX V
OWN FUNDS
1. The own funds of investment firms and credit institutions shall be defined in accordance with Directive 89/299/EEC.
For the purposes of this Directive, however, investment firms which do not have one of the legal forms referred to in Article 1(1) of the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies shall nevertheless be deemed to fall within the scope of Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions.
2. Not withstanding paragraph 1, the competent authorities may permit those institutions which are obliged to meet the own-funds requirements laid down in Annexes I, II, III, IV and VI to use an alternative definition when meeting those requirements only. No part of the own funds thus provided may be used simultaneously to meet other own-funds requirements. This alternative definition shall include the following items (a), (b) and (c) less item (d), the deduction of that item being left to the discretion of competent authorities:
(a) own funds as defined in Directive 89/299/EEC excluding only items (12) and (13) of Article 2(1) of the same Directive for those investment firms which are required to deduct item (d) of this paragraph from the total of items (a), (b) and (c) of this paragraph;
(b) an institution’s net trading-book profits net of any foreseeable charges or dividends, less net losses on its other business provided that none of those amounts has already been included in item (a) of this paragraph under item 2 or 11 of Article 2(1) of Directive 89/299/EEC;
(c) subordinated loan capital and/or the items referred to in paragraphs 5, subject to the conditions set out in paragraphs 3 to 7;
(d) illiquid assets as defined in paragraph 8.
3. The subordinated loan capital referred to in paragraph 2(c) shall have an initial maturity of at least two years. It shall be fully paid up and the loan agreement shall not include any clause providing that in specified circumstances other than the winding up of the institution the debt will become repayable before the agreed repayment date, unless the competent authorities approve the repayment. Neither the principal nor the interest on such subordinated loan capital may be repaid if such repayment would mean that the own funds of the institution in question would then amount to less than 100% of the institution’s overall requirements.
In addition, an institution shall notify the competent authorities of all repayments on such subordinated loan capital as soon as its own funds fall below 120% of its overall requirements.
4. The subordinated loan capital referred to in paragraph 2(c) may not exceed a maximum of 150% of the original own funds left to meet the requirements laid down in Annexes I, II, III, IV and VI and may approach that maximum only in particular circumstances acceptable to the relevant authorities.
5. The competent authorities may permit institutions to replace the subordinated loan capital referred to in paragraphs 3 and 4 with items 3 and 5 to 8 of Article 2(1) of Directive 89/299/EEC.
6. The competent authorities may permit investment firms to exceed the ceiling for subordinated loan capital prescribed in paragraph 4 if they judge it prudentially adequate and provided that the total of such subordinated loan capital and the items referred to in paragraph 5 does not exceed 200% of the original own funds left to meet the requirements imposed in Annexes I, II, III, IV and VI, or 250% of the same amount where investment firms deduct item 2(d) referred to in paragraph 2 when calculating own funds.
7. The competent authorities may permit the ceiling for subordinated loan capital prescribed in paragraph 4 to be exceeded by a credit institution if they judge it prudentially adequate and provided that the total of such subordinated loan capital and the items referred to in paragraph 5 does not exceed 250% of the original own funds left to meet the requirements imposed in Annexes I, II, III and VI.
8. Illiquid assets include:
tangible fixed assets (except to the extent that land and buildings may be allowed to count against the loans which they are securing),
holdings in, including subordinated claims on, credit or financial institutions which may be included in the own funds of such institutions, unless they have been deducted under items 12 and 13 of Article 2(1) of Directive 89/299/EEC or under paragraph 9(iv) of this Annex.
Where shares in a credit or financial institution are held temporarily for the purpose of a financial assistance operation designed to reorganize and save that institution, the competent authorities may waive this provision. They may also waive it in respect of those shares which are included in the investment firm’s trading book,
-
holdings and other investments, in undertakings other than credit institutions and other financial institutions, which are not readily marketable,
deficiencies in subsidiaries,
deposits made, other than those which are available for repayment within 90 days, and also excluding payments in connection with margined futures or options contracts,
loans and other amounts due, other than those due to be repaid within 90 days,
physical stocks, unless they are subject to the capital requirements imposed in Article 4(2) and provided that such requirements are not less stringent than those imposed in Article 4(1)(iii).
9. Those investment firms included in a group subject to the waiver described in Article 7(4) shall calculate their own funds in accordance with paragraphs 1 to 8 subject to the following modifications:
(i) the illiquid assets referred to in paragraph 2(d) shall be deducted;
(ii) the exclusion referred to in paragraph 2(a) shall not cover those components of items 12 and 13 of Article 2(1) of Directive 89/299/EEC which an investment firm holds in respect of undertakings included in the scope of consolidation as defined in Article 7(2) of this Directive;
(iii) the limits referred to in Article 6(1)(a) and (b) of Directive 89/299/EEC shall be calculated with reference to the original own funds less those components of items 12 and 13 of Article 2(1) of Directive 89/299/EEC described in (ii) which are elements of the original own funds of the undertakings in question;
(iv) those components of items 12 and 13 of Article 2(1) of Directive 89/299/EEC referred to in (iii) shall be deducted from the original own funds rather than from the total of all items as prescribed in Article 6(1)(c) of the same Directive for the purposes, in particular, of paragraphs 4 to 7 of this Annex.
ANNEX VI
LARGE EXPOSURES
1. Institutions referred to in Article 5(2) shall monitor and control their exposures to individual clients and groups of connected clients as defined in Directive 92/121/EEC, subject to the following modifications.
2. The exposures to individual clients which arise on the trading book shall be calculated by summing the following items (i), (ii) and (iii):
(i) the excess-where positive-of an institution’s long positions over its short positions in all the financial instruments issued by the client in question (the net position in each of the different instruments being calculated according to the methods laid down in Annex I);
(ii) in the case of the underwriting of a debt or an equity instrument, the institution’s exposure shall be its net exposure (which is calculated by deducting those underwriting positions which are subscribed or sub-underwritten by third parties on the basis of a formal agreement) reduced by the factors set out in paragraph 39 of Annex I.
Pending further coordination, the competent authorities shall require institutions to set up systems to monitor and control their underwriting exposures between the time of the initial commitment and working day one in the light of the nature of the risks incurred in the markets in question;
(iii) the exposures due to the transactions, agreements and contracts referred to in Annex II with the client in question, such exposures being calculated in the manner laid down in that Annex, without application of the weightings for counter-party risk.
3. Thereafter, the exposures to groups of connected clients on the trading book shall be calculated by summing the exposures to individual clients in a group, as calculated in paragraph 2.
4. The overall exposures to individual clients or groups of connected clients shall be calculated by summing the exposures which arise on the trading book and the exposures which arise on the non-trading book, taking into account Article 4(6) to (12) of Directive 92/121/EEC. In order to calculate the exposure on the non-trading book, institutions shall take the exposure arising from assets which are deducted from their own funds by virtue of paragraph 2(d) of Annex V to be zero.
5. Institutions’ overall exposures to individual clients and groups of connected clients calculated in accordance with paragraph 4 shall be reported in accordance with Article 3 of Directive 92/121/EEC.
6. That sum of the exposures to an individual client or group of connected clients shall be limited in accordance with Article 4 of Directive 92/121/EEC subject to the transitional provisions of Article 6 of the same Directive.
7. Notwithstanding paragraph 6 the competent authorities may allow assets constituting claims and other exposures on investment firms, on recognized third-country investment firms and recognized clearing houses and exchanges in financial instruments to be subject to the same treatment accorded to those on credit institutions in Article 4(7)(i), (9) and (10) of Directive 92/121/EEC.
8. The competent authorities may authorize the limits laid down in Article 4 of Directive 92/121/EEC to be exceeded subject to the following conditions being met simultaneously:
1. the exposure on the non-trading book to the client or group of clients in question does not exceed the limits laid down in Directive 92/121/EEC, calculated with reference to own funds as defined in Directive 89/299/EEC, so that the excess arises entirely on the trading book;
2. the firm meets an additional capital requirement on the excess in respect of the limits laid down in Article 4(1) and (2) of Directive 92/121/EEC. This shall be calculated by selecting those components of the total trading exposure to the client or group of clients in question which attract the highest specific-risk requirements in Annex I and/or requirements in Annex II, the sum of which equals the amount of the excess referred to in I; where the excess has not persisted for more than 10 days, the additional capital requirement shall be 200% of the requirements referred to in the previous sentence, on these components.
Excess over the limits Factors (on the basis of a percentage of own funds) (1) (2) Up to 40% 200% From 40% to 60% 300% From 60% to 80% 400% From 80% to 100% 500% From 100% to 250% 600% Over 250% 900% Excess over the limits Factors (on the basis of a percentage of own funds) (1) (2) Up to 40% 200% From 40% to 60% 300% From 60% to 80% 400% From 80% to 100% 500% From 100% to 250% 600% Over 250% 900% As from 10 days after the excess has occurred, the components of the excess, selected in accordance with the above criteria, shall be allocated to the appropriate line in column I of the table below in ascending order of specific-risk requirement in Annex I and/or requirements in Annex II. The institution shall then meet an additional capital requirement equal to the sum of the specific-risk requirements in Annex I and or the Annex II requirements on these components multiplied by the corresponding factor in column 2;
3. where 10 days or less has elapsed since the excess occurred, the trading-book exposure to the client or group of connected clients in question must not exceed 500% of the institution’s own funds;
4. any excesses which have persisted for more than 10 days must not, in aggregate, exceed 600% of the institution’s own funds;
5. institutions must report to the competent authorities every three months all cases where the limits laid down in Article 4(1) and (2) of Directive 92/121/EEC have been exceeded during the preceding three months. In each case in which the limits have been exceeded the amount of the excess and the name of the client concerned must be reported.
9. The competent authorities shall establish procedures, of which they shall notify the Council and the Commission, to prevent institutions from deliberately avoiding the additional capital requirements that they would otherwise incur on exposures exceeding the limits laid down in Article 4(1) and (2) of Directive 92/121/EEC once those exposures have been maintained for more than 10 days, by means of temporarily transferring the exposures in question to another company, whether within the same group or not, and/or by undertaking artificial transactions to close out the exposure during the 10-day period and create a new exposure. Institutions shall maintain systems which ensure that any transfer which has this effect is immediately reported to the competent authorities.
10. The competent authorities may permit those institutions which are allowed to use the alternative definition of own funds under paragraph 2 of Annex V to use that definition for the purposes of paragraphs 5, 6, and 8 of this Annex provided that the institutions concerned are required, in addition, to meet all of the obligations set out in Articles 3 and 4 of Directive 92/121/EEC, in respect of the exposures which arise outside their trading books by using own funds as defined in Directive 89/299/EEC.
Appendix III European Documents on Bank-Consumer Relations
Appendix III 1 Code of Banking Practice Prepared by the British Bankers’ Association, the Building Societies Association, and the Association for Payment Clearing Services
Good Banking 1
Preface
This Code sets out the standards of good banking practice to be observed by banks, building societies and card issuers in their relations with personal customers in the United Kingdom. Individual customers will find the Code helpful in understanding how every bank, building society or card issuer subscribing to the Code is expected to behave towards them.
It is a voluntary Code which allows competition and market forces to operate to encourage higher standards for the benefit of customers.
The Code first came into effect on 16 March 1992 and it was stated then that it would be reviewed from time to time. This second edition is issued in the light of the first review. It will be effective from 28 March 1994, except for paragraph 5.3.
All institutions subscribing to the second edition of the Code will ensure that their staff are aware of it. They have also agreed to make copies of the Code available or to inform customers about how to obtain them.
This Code will be reviewed from time to time and another revision will be completed by March 1997.
There is a list of definitions of banking terms after the end of the Code.
Code of Banking Practice
1.0 INTRODUCTION
1.1 This second edition of the Code has been prepared by the British Bankers’ Association (BBA), The Building Societies Association (BSA), and the Association for Payment Clearing Services (APACS) in the light of a review carried out by an independent committee following the receipt of submissions from Government Departments, consumer and other organisations, the Banking and Building Societies Ombudsmen and members of the public.
1.2 The Code has been written to promote good banking practice. Specific services may have their own terms and conditions which will comply with the principles contained in the Code.
1.3 The Code is in three parts:
Part A—Governing Principles Part
Part B—Customers, their Banks and Building Societies—is addressed to banks and building societies who adopt the Code and offer personal customers (‘customers’ for short throughout the Code) banking services such as current accounts, deposit and other savings accounts, overdrafts and loans, and various services delivered by the use of plastic cards.
Part C—Customers and their Cards—is addressed to banks, building societies and others who adopt the Code and provide financial services by means of plastic cards. All such providers are called card issuers in the Code.
PART A—Governing Principles
2.0 GOVERNING PRINCIPLES
2.1 The governing principles of the Code are:
(a) to set out the standards of good banking practice which banks, building societies and card issuers will follow in their dealings with their customers;
(b) that banks, building societies and card issuers will act fairly and reasonably in all their dealings with their customers;
(c) that banks, buildings societies and card issuers will help customers to understand how their accounts operate and will seek to give them a good understanding of banking services;
(d) to maintain confidence in the security and integrity of banking and card payment systems. Banks, building societies and card issuers must recognise that their systems and technology need to be reliable to protect their customers and themselves.
2.2 Banks, building societies and card issuers will comply with all relevant legislation, judicial decisions and codes of conduct or similar documents which are observed by members of the BBA, BSA and APACS.
2.3 The Code requires banks, building societies and card issuers to provide certain information to customers. This will usually be at the time when an account is opened. Information will also be available to customers from branches, if any, of the bank, building society or card issuer. Banks, building societies and card issuers will provide additional information and guidance about specific services at any time on request.
PART B—Customers, their Banks and Building Societies
3.0 OPENING AN ACCOUNT
3.1 Banks and building societies are required by law to satisfy themselves about the identity of a person seeking to open an account to assist in protecting their customers, members of the public and themselves against fraud and other misuse of the banking system.
3.2 Banks and building societies will provide to prospective customers details of the identifications needed.
4.0 TERMS AND CONDITIONS
4.1 Written terms and conditions of a banking service will be expressed in plain language and will provide a fair balanced description of the relationship between the customer and bank or building society.
4.2 Banks and building societies will tell customers how any variation of the terms and conditions will be notified. Banks and building societies will give customers reasonable notice before any variation takes effect.
4.3 Banks and building societies should issue to their customers, if there are sufficient changes in a 12 month period to warrant it, a single document to provide a consolidation of the variations made to their terms and conditions over that period.
4.4 Banks and building societies will provide new customers with a written summary or explanation of the key features of the more common services that they provide. This will include an explanation, when accounts are held in the names of more than one customer, of the rights and responsibilities of each customer.
4.5 Banks and building societies will not close customers’ accounts without first giving reasonable notice.
4.6 To help customers manage their accounts and check entries, banks and building societies will provide them with regular statements of account. Except where this would be inappropriate to the nature of the account (e.g. where passbooks are issued) this should be at no less than 12 monthly intervals but customers will be encouraged to request statements at shorter intervals.
5.0 CHARGES AND DEBIT INTEREST (PAYABLE BY CUSTOMERS)
5.1 Banks and building societies will provide customers with details of the basis of charges, if any, payable in connection with the operation of their accounts. These will be in the form of published tariffs covering basic account services which will
be given or sent to customers:
(a) when accounts are opened;
(b) at any time on request;
and be available in branches.
Details of any changes will also be given or sent to customers and be available in branches before the changes are implemented.
5.2 Charges for services outside the tariff will be advised on request or at the time the service is offered.
5.3 Banks and building societies will introduce systems to come into effect by 31 December 1996 to ensure that they will give no less than 14 days’ notice of the amount to be deducted from their customers’ current and savings accounts in respect of interest and charges for account activity that have accumulated during the charging period.
Banks and building societies which have not introduced such systems will disregard the charges to be applied to customers’ accounts for any charging period if those were incurred solely as a result of the application of charges for the previous charging period.
5.4 Banks and building societies will tell customers the interest rates applicable to their accounts, the basis on which interest is calculated and when it will be charged to their accounts. These will include the rates applicable when accounts are overdrawn without prior agreement or exceed the agreed borrowing limit. Banks and building societies will explain also the basis on which they may vary interest rates.
5.5 When banks and building societies change interest rates with immediate effect they will effectively publicise those changes, for example by notices in their branches, if any, or in the press, or on statements.
6.0 CREDIT INTEREST (PAYABLE TO CUSTOMERS)
6.1 Banks and building societies will make information about the rates on interest bearing accounts which they offer (whether or not these are open to new customers) freely available and accessible to customers by one or more effective means, for example:
(a) notices and/or leaflets in branches;
(b) press advertisements;
(c) personal notice;
(d) a branch/central telephone service.
6.2 Banks and building societies will tell customers the interest rates applicable to their accounts, the basis on which interest is calculated and when it will be paid to their accounts. Banks and building societies will explain also the basis on which they may vary interest rates.
6.3 When banks and building societies change interest rates with immediate effect they will effectively publicise those changes, for example by notices in their branches, if any, or in the press, or on statements.
7.0 HANDLING CUSTOMERS’ COMPLAINTS
7.1 Each bank and building society will have its own internal procedures for handling customers’ complaints fairly and expeditiously.
7.2 Banks and building societies will inform their customers that they have a complaints procedure. Customers who wish to make a complaint will be told how to do so and what further steps are available if they believe that the complaint has not been dealt with satisfactorily either at branch or more senior level within the bank or building society.
7.3 Banks and building societies will ensure that all their staff who deal directly with customers are made aware of their institution’s internal complaints procedure and are able to help customers by giving correct information about it.
7.4 Banks subscribing to the Code will be expected to belong to one or other of the following:
The Banking Ombudsman Scheme;
The Finance and Leasing Association Conciliation and Arbitration Schemes; or
The Consumer Credit Trade Association Arbitration Scheme.
Building societies have to belong to the Building Societies Ombudsman Scheme or another authorised scheme.
Banks and building societies will provide details of the applicable scheme to customers using such methods as leaflets, notices in branches or in appropriate literature, showing their current addresses and telephone numbers.
8.0 CONFIDENTIALITY OF CUSTOMER INFORMATION
8.1 Banks and building societies will observe a strict duty of confidentiality about their customers, (and former customers’) affairs and will not disclose details of customers’ accounts or their names and addresses to any third party, including other companies in the same group, other than in the four exceptional cases permitted by law, namely:
(i) where a bank or building society is legally compelled to do so;
(ii) where there is a duty to the public to disclose;
(iii) where the interests of a bank or building society require disclosure;
(iv) where disclosure is made at the request, or with the consent, of the customer.
8.2 Banks and building societies will not use exception (iii) above to justify the disclosure for marketing purposes of details of customers’ accounts or their names and addresses to any third party, including other companies within the same group.
8.3 Banks and building societies will give customers at least 28 days’ notice if they intend to disclose to Credit Reference Agencies information on undisputed personal debts which are in default and where no satisfactory proposals for repayment have been received following formal demand.
Banks and building societies will inform customers that, where they have acquired the legal right to sell mortgaged or charged property, this information may be disclosed to Credit Reference Agencies.
Any other disclosure to Credit Reference Agencies shall be with the customer’s consent.
8.4 Banks and building societies will at all times comply with the Data Protection Act when obtaining and processing customers’ data.
Banks and building societies will explain to their customers that customers have the right of access, under the Data Protection Act 1984, to their personal records held on computer files.
9.0 STATUS ENQUIRIES (BANKERS’ REFERENCES)
9.1 Banks and building societies will on request:
(a) advise customers whether they provide bankers’ references or bankers’ opinions in reply to status enquiries made about their customers;
(b) explain how the system of Status Enquiries (Bankers’ References) works.
10.0 MARKETING OF SERVICES
10.1 Except in response to a customer’s specific request, banks and building societies will not pass customers’ names and addresses to other companies in the same group for marketing purposes, in the absence of express written consent. Banks and building societies will not make the provision of basic banking services conditional on customers giving such written consent. For this purpose ‘basic banking services’ include the opening and the maintenance of accounts for money transmission by means of cheques and other debit instruments.
10.2 Banks and building societies will give new customers at the time they open their accounts the opportunity to give instructions that they do not wish to receive marketing material.
10.3 Banks and building societies will remind customers from time to time, and at least once every three years, of their right to give instructions at any time that they do not wish to receive marketing material.
10.4 Banks and building societies will not use direct mail indiscriminately and in particular will exercise restraint and be selective:
(a) where customers are minors; and
(b) when marketing loans and overdrafts.
11.0 MARKETING AND PROVISION OF CREDIT
11.1 Banks and building societies in their advertising and promotional material will tell customers and potential customers that all lending will be subject to appraisal of their financial standing by the banks and building societies concerned.
11.2 Banks and building societies will act responsibly and prudently in marketing. All advertising will comply with the British Code of Advertising Practice, The British Code of Sales Promotion Practice, and other relevant Codes of Practice of similar standing.
In particular banks and building societies will ensure that all advertising and promotional literature is fair and reasonable, does not contain misleading information and complies with all relevant legislation.
11.3 In considering whether or not to lend, banks and building societies will take account of information which may include:
prior knowledge of their customers’ financial affairs gained from past dealings;
information obtained from Credit Reference Agencies;
information supplied by applicant;
credit scoring;
age of applicants; and
applicants’ ability to repay, with the aim of avoiding over-commitment by an applicant.
11.4 Banks and building societies will give due consideration to cases of hardship. They will encourage customers who are in financial difficulty to let them know as soon as possible and will use their best endeavours to give practical information and, subject to normal commercial judgement, will try to help.
12.0 AVAILABILITY OF FUNDS
12.1 Banks and building societies will provide customers with details of how their accounts operate, including information about:
how and when they may stop a cheque or countermand other types of payments;
when funds can be withdrawn after a cheque or other payment has been credited to the account;
out of date cheques.
13.0 FOREIGN EXCHANGE SERVICES AND CROSS-BORDER PAYMENTS
13.1 Banks and building societies will provide customers with details of the exchange rate and the charges which will apply to foreign exchange transactions or, when this is not possible, the basis on which they will be calculated.
13.2 Banks and building societies will provide customers wishing to effect cross-border payments with details of the services they offer. In doing so, they will provide, as a minimum:
(a) a basic description of the appropriate services available and the manner in which they can be used;
(b) information as to when money sent abroad on customers’ instructions will usually reach its destination or, when an exact date cannot be given, the latest date by which the money might be expected to arrive;
(c) the details of any commission or charges payable by customers to their bank or building society including a warning where agents’ charges may also be incurred.
14.0 GUARANTEES AND OTHER TYPES OF THIRD PARTY SECURITY
14.1 Banks and building societies will advise private individuals proposing to give them a guarantee or other security for another person’s liabilities:
i) that by giving the guarantee or third party security he or she might become liable instead of or as well as that other person;
iii) whether the guarantee or third party security will be unlimited as to amount or, if this is not the case, what the limit of the liability will be;
iii) that he or she should seek independent legal advice before entering into the guarantee or third party security.
14.2 Guarantees and other third party security documentation will contain clear and prominent notice to the above effect.
PART C—Customers and their Cards
15.0 OPENING AN ACCOUNT
15.1 Card issuers are required by law to satisfy themselves about the identity of a person seeking to open an account or to obtain a card to assist in protecting their customers, members of the public and themselves against fraud and other misuse of the banking and card processing systems.
15.2 Card issuers will provide to prospective customers details of the identification needed.
16.0 TERMS AND CONDITIONS
16.1 The written terms and conditions of a card service will be expressed in plain language and will provide a fair and balanced description of the relationship between the customer and the card issuer.
16.2 Card issuers will tell customers how any variation of the terms and conditions will be notified. Card issuers will give customers reasonable notice before any variation takes effect.
16.3 Card issuers should issue to their customers, if there are sufficient changes in a 12 month period to warrant it, a single document providing a consolidation of the variations made to their terms and conditions over that period.
16.4 Card issuers will publish changes to their credit card interest rates in their branches or in the press or in the statement of account sent to credit card holders, or by all those methods when such changes are made with immediate effect.
16.5 Card issuers will tell credit card holders how frequently they will receive a demand for payment and the period within which payment should be made.
17.0 ISSUE OF CARDS
17.1 Card issuers will issue cards to customers only when they have been requested in writing or to replace or renew cards that have already been issued.
17.2 Card issuers will tell customers if a card issued by them has more than one function Card issuers will comply with requests from customers not to issue Personal Identification Numbers (PINs) where customers do not wish to use the functions operated by a PIN.
18.0 SECURITY OF CARDS
18.1 Card issuers will issue PINs separately from cards and will advise the PIN only to the customer.
18.2 Card issuers will tell customers of their responsibility to take care of their cards and PINs in order to prevent fraud. Card issuers will emphasize to customers that:
(a) they should not allow anyone else to use their card and PIN;
(b) they should take reasonable steps to keep the card safe and the PIN secret at all times;
(c) they should never write the PIN on the card or on anything usually kept with it;
(d) they should never write the PIN down without making a reasonable attempt to disguise it;
(e) they should destroy any PIN advice promptly on receipt.
18.3 When customers are provided with an opportunity to select their own PIN, card issuers should encourage them to do so to help them remember the PIN.
19.0 LOST CARDS
19.1 Card issuers will inform customers that they must tell their cards issuers as soon as reasonably practicable after they find that:
(a) their card has been lost or stolen;
(b) someone else knows their PIN.
19.2 Card issuers will tell customers, and will remind them at regular intervals on their statement or by other means, of the place and the telephone number where they can give the details of a lost or stolen card at any time of the day or night. Card issuers will arrange for that telephone number to be included in British Telecom Phone Books.
19.3 Card issuers will act on telephone notification but may ask customers also to confirm in writing any details given by telephone.
19.4 Card issuers, on request, will inform customers whether they accept notification of loss or theft of a card from card notification organisations.
19.5 Card issuers on being advised of a loss, theft or possible misuse of a card or that the PIN has become known to someone else will take action to prevent further use of the card.
20.0 LIABILITY FOR LOSS
20.1 Card issuers will bear the full losses incurred:
(a) in the event of misuse when the card has not been received by the customer;
(b) for all transactions not authorised by the customer after the card issuer has been told that the card has been lost or stolen or that someone else knows or may know the PIN (subject to 20.4 below);
(c) if faults have occurred in the machines, or other systems used, which cause customers to suffer direct loss unless the fault was obvious or advised by a message or notice on display.
20.2 Card issuers’ liability will be limited to those amounts wrongly charged to customers’ accounts and any interest on those amounts.
20.3 Customers’ liability for transactions not authorised by them will be limited to a maximum of £50 in the event of misuse before the card issuer has been notified that a card has been lost or stolen or that someone else knows the PIN (subject to 20.4 below).
20.4 Customers will be held liable for all losses if they have acted fraudulently. They may be held liable for all losses if they have acted with gross negligence. Gross negligence may be construed as including failures to comply with any of the requirements of paragraph 18.2 if such failures have caused those losses.
20.5 In cases of disputed transactions the burden of proving fraud or gross negligence or that a card has been received by a customer will lie with the card issuer. In such cases card issuers will expect customers to co-operate with them in their investigations.
21.0 RECORDS
21.1 To help customers manage their accounts and check entries card issuers will provide customers with a written record on their statement of account of all payments and withdrawals made.
21.2 Card issuers will inform customers that they should tell them as soon as reasonably practicable if they receive a statement of account that includes an item which seems to be wrong.
22.0 HANDLING CUSTOMERS’ COMPLAINTS
22.1 Each card issuer will have its own internal procedures for handling customers’ complaints fairly and expeditiously.
22.2 Card issuers will inform their customers that they have a complaints procedure. Customers who wish to make a complaint will be told how to do so and what further steps are available to them if they believe that the complaint has not been dealt with satisfactorily by the card issuer.
22.3 Card issuers will ensure that all their staff who deal directly with customers are made aware of their internal complaints procedures and are able to help customers by giving correct information about them.
22.4 Card issuers subscribing to the Code will be expected to belong to one or other of the following:
The Banking Ombudsman Scheme;
The Building Societies Ombudsman Scheme or another authorised scheme;
The Finance and Leasing Association; Conciliation and Arbitration Schemes;
The Consumer Credit Trade Association Arbitration Scheme; or
The Retail Credit Group Mediation and Arbitration Schemes.
Card issuers will provide details of the applicable scheme to customers using such methods as leaflets, notices or in appropriate literature, showing their current addresses and telephone numbers.
Definitions
These Definitions explain the meaning of words and terms used in the Code. They are not precise legal or technical definitions.
Availability of Funds
Cheques paid into an account are ‘uncleared’ and they may be returned unpaid by the bank or building society on which they are drawn. Customers may not be permitted to draw against uncleared cheques. Cheques which are not returned unpaid become cleared and form part of a ‘cleared balance’.
When returning cheques unpaid (see ‘Unpaid Cheques’ below), banks and building societies have to abide by very strict time limits.
Customers may enquire about the timescale involved to establish which part of their balances are cleared and therefore available for withdrawal.
Cash paid directly into an account at the branch at which it is held forms part of a cleared balance.
Card Notification Organisations
Companies which will at the request of a card holder maintain a record of all the cards held by the card holder and notify card issuers of the loss or theft of those cards.
Cards
A general term for any plastic card which may be used to pay for goods and services or to withdraw cash. Cards which store value on the card, i.e. pre-payment cards, are excluded from this definition.
Common examples are:
Credit Card—a card which allows customers to buy on credit and to obtain cash advances. Customers receive regular statements and may pay the balance in full, or in part, usually subject to a certain minimum. Interest is payable on outstanding balances.
Charge Card—similar to a credit card. It enables customers to pay for purchases, and in some cases to obtain cash advances. When the monthly statement is received the balance must be paid in full.
Debit Card—a card, operating as a substitute for a cheque, that can be used to obtain cash or make a payment at a point of sale. The customer’s account is subsequently debited for such a transaction without deferment of payment.
Budget Card—similar to a credit card but customers agree to pay a fixed amount into their card account each month.
Store Card—similar to a budget card or charge card, but issued by particular companies or retail groups for use at their own outlets.
Cash Card—a card used to obtain cash and other services from an ATM (Automated Teller Machine/Cash Machine).
Cheque Guarantee Card—a card issued by a bank or building society which guarantees the payment of a cheque up to the amount shown on the card provided its conditions of use are followed.
Eurocheque Card—a specific cheque guarantee card which can be used either with special eurocheques to pay for goods or services, or by itself to withdraw cash from machines, in the UK and other countries.
Countermand
A customer’s instruction to a bank or building society to cancel or override a previous instruction to make a payment or transfer of funds, e.g. by stopping a cheque.
Credit Reference Agencies
Organisations licensed under the Consumer Credit Act 1974 to hold information about individuals. Banks, building societies and card issuers may refer to these agencies to assist with various decisions, e.g. whether or not to open an account or to provide loans or grant credit.
Credit Scoring
A method of assessing risk based, on statistical analysis of previous lending experience and other factors; used, for example, to help in deciding whether a loan should be granted.
Cross-Border Payments
A payment in sterling or a foreign currency between the UK and another country.
Guarantee
An undertaking given by a person (the guarantor) promising to pay the debts of another person if that other person fails to do so.
Ombudsmen Schemes
Banks and building societies have separate independent Ombudsman Schemes. The Ombudsmen resolve complaints made by customers against a bank or building society when customers have been unable to resolve such complaints themselves with their bank or building society. In addition, the Finance and Leasing Association and the Consumer Credit Trade Association operate arbitration and conciliation procedures. Their current addresses and telephone numbers are:
The Office of the Banking Ombudsman, 70 Gray’s Inn Road, London WC1X 8NB, Tel: 071 404 9944;
The Office of the Building Societies Ombudsmen, Grosvenor Gardens House, 35–37 Grosvenor Gardens, London SW1X 7AW, Tel: 071 491 0044;
Finance and Leasing Association, 18 Upper Grosvenor Street, London W1X 9PB, Tel: 071 491 2783;
The Consumer Credit Trade Association, 159 Great Portland Street, London W1N 6NR, Tel: 071 636 7564.
Personal Customers
A private individual who maintains an account (including a joint account with another private individual or an account held as an executor or trustee, but excluding the accounts of sole traders, clubs and societies) or who takes other services from a bank or building society.
PIN—Personal Identification Number
A confidential number provided on a strictly confidential basis by a card issuer to a card holder. Use of this number by the customer will allow the card to be used either to withdraw cash from an Automated Teller Machine or to authorise payment for goods or services in retail or other outlets by means of a special terminal.
Published Tariff
A list of prices for basic account services provided by a bank or building society.
Security
A general word used to describe items of value such as title deeds, share certificates, life policies, etc. which represent property. Under a secured loan the lender has the right to sell the security if the loan is not repaid.
Status Enquiries (Bankers’ References)
An opinion as to a customer’s ability to support or undertake a financial transaction or commitment. It is given to the enquirer by a bank or building society on request, subject to the express consent of the customer concerned.
Third Party Security
Security provided by a person who is not the borrower.
Unpaid Cheques
A cheque which is not paid for one of a number of reasons, the most common of which are:
Refer to drawer—this frequently means that there is not sufficient money in the drawer’s account. The recipient of the cheque (the payee) should ask the person issuing the cheque (the drawer) why it has not been paid.
Refer to drawer, Please represent—similar to the above, but used when the bank or building society expects money to be available to pay the cheque in the near future and therefore suggests it is presented again for payment.
Post-dated—the cheque cannot be paid because its date is some time in the future.
Out of date—the cheque has not been paid because its date is too old, normally meaning more than six months ago.
Effects not cleared—there is money in the account of the drawer of the cheque but not available as cleared balances, because it is not yet certain that cheques recently credited to the account will be paid.
Words and figures differ—the amount of the cheque written in words is different from the amount written in numbers.
Orders not to pay—the issuer (drawer) of the cheque has instructed his or her bank or building society not to pay the cheque, i.e. to stop payment.
Signature Differs—the signature on the cheque is different from that recorded by the bank or building society.
Written Terms and Conditions
Those provisions governing a banking service which are produced in written form. They will be expressed in clear and straightforward language but the precise wording of some contracts must, of necessity, be in technical or legal language.
Appendix III 2 General Business Conditions Prepared by the Association of German Banks
General Business Conditions1
Basic Rules Governing the Relationship Between the Customer and the Bank
1. Scope of application and amendments of these Business Conditions and the Special Conditions for particular business relations
(1) Scope of application
The General Business Conditions govern the entire business relationship between the customer and the bank’s domestic offices (hereinafter referred to as the “Bank”). In addition, particular business relations (such as securities transactions, ec service, use of cheques, savings accounts) are governed by Special Conditions, which contain deviations from, or complements to, these General Business Conditions; they are agreed with the customer when the account is opened or an order is given. If the customer also maintains business relations with foreign offices, the Bank’s lien (No. 14 of these Business Conditions) also secures the claims of such foreign offices.
(2) Amendments
Any amendments of these Business Conditions and the Special Conditions will be notified to the customer in writing. They shall be deemed to have been approved unless the customer objects thereto in writing. Upon notification of such amendments, the Bank shall expressly draw the customer’s attention to this consequence. The customer’s objection must be dispatched to the Bank within one month from the notification of the amendments.
2. Banking secrecy and disclosure of banking affairs
(1) Banking secrecy
The Bank has the duty to maintain secrecy about any customer-related facts and evaluations of which it may have knowledge (banking secrecy). The Bank may only disclose information concerning the customer if it is legally required to do so or if the customer has consented thereto or if the Bank is authorized to disclose banking affairs.
(2) Disclosure of banking affairs
Any disclosure of details of banking affairs comprises statements and comments of a general nature concerning the economic status, the creditworthiness and solvency of the customer; no information will be disclosed as to amounts of balances of accounts, of savings deposits, of securities deposits or of other assets entrusted to the Bank or as to amounts drawn under a credit facility.
(3) Prerequisites for the disclosure of banking affairs
The Bank is entitled to disclose banking affairs concerning legal entities and on businesspersons registered in the Commercial Register, provided that the inquiry relates to their business activities. The Bank does not, however, disclose any information if it has received instructions to the contrary from the customer. Details of banking affairs concerning other persons, in particular private customers and associations, are disclosed by the Bank only if such persons have expressly agreed thereto, either generally or in an individual case. Details of banking affairs are disclosed only if the requesting party has substantiated its justified interest in the information requested and there is no reason to assume that the disclosure of such information would be contrary to the customer’s legitimate concerns.
(4) Recipients of disclosed banking affairs
The Bank discloses details of banking affairs only to its own customers as well as to other credit institutions for their own purposes or those of their customers.
3. Liability of the Bank; contributory negligence of the customer
(1) Principles of liability
In performing its obligations, the Bank shall be liable for any negligence on the part of its staff and of those persons whom it may call in for the performance of its obligations. As far as the Special Conditions for particular business relations or other agreements contain diverging provisions, such provisions shall prevail. In the event that the customer has contributed to the occurrence of the loss by any own fault (e.g. by violating the duties to cooperate as mentioned in No. 11 of these Business Conditions), the principles of contributory negligence shall determine the extent to which the Bank and the customer shall have to bear the loss.
(2) Orders passed on to third parties
If the contents of an order are such that the Bank typically entrusts a third party with its further execution, the Bank performs the order by passing it on to the third party in its own name (order passed on to a third party). This applies, for example, to obtaining information on banking affairs from other credit institutions or to the custody and administration of securities in other countries. In such cases, the liability of the Bank shall be limited to the careful selection and instruction of the third party.
(3) Disturbance of business
The Bank shall not be liable for any losses caused by force majeure, riot, war or natural events or due to other occurrences for which the Bank is not responsible (e.g. strike, lock-out, traffic hold-ups, administrative acts of domestic or foreign high authorities).
4. Set-off limitations on the part of the customer
The customer may only set off claims against those of the Bank if the customer’s claims are undisputed or have been confirmed by a final court decision.
5. Right of disposal upon the death of the customer
Upon the death of the customer, the Bank may, in order to clarify the right of disposal, demand the production of a certificate of inheritance, a certificate of executorship or further documents required for such purposes; any documents in a foreign language must, if the Bank so requests, be submitted in a German translation. The Bank may waive the production of a certificate of inheritance or a certificate of executorship if an official or certified copy of the testamentary disposition (last will or contract of inheritance) together with the relevant record of probate proceedings is presented. The Bank may consider any person designated therein as heir or executor as the entitled person, allow this person to dispose of any assets and, in particular, make payment or delivery to this person, thereby discharging its obligations. This shall not apply if the Bank is aware that the person designated therein is not entitled to dispose (e.g. following challenge or invalidity of the will) or if this has not come to the knowledge of the Bank due to its own negligence.
6. Applicable law and place of jurisdiction for customers who are business persons or public-law entities
(1) Applicability of German law
German law shall apply to the business relationship between the customer and the Bank.
(2) Place of jurisdiction for domestic customers
If the customer is a businessperson other than a “Minderkaufmann” (small trader) and if the business relation in dispute is attributable to the conducting of such businessperson’s trade, the Bank may sue such customer before the court having jurisdiction for the bank office keeping the account or before any other competent court; the same applies to legal entities under public law and separate funds under public law. The Bank itself may be sued by such customers only before the court having jurisdiction for the bank office keeping the account.
(3) Place of jurisdiction for foreign customers
The agreement upon the place of jurisdiction shall also apply to customers who conduct a comparable trade or business abroad and to foreign institutions which are comparable with domestic legal entities under public law or a domestic separate fund under public law.
Keeping of Accounts
7. Periodic balance statements
(1) Issue of periodic balance statements
Unless otherwise agreed upon, the Bank issues a periodic balance statement for a current account at the end of each calendar quarter, thereby clearing the claims accrued by both parties during this period (including interest and charges imposed by the Bank). The Bank may charge interest on the balance arising therefrom in accordance with No. 12 of these Business Conditions or any other agreements entered into with the customer.
(2) Time allowed for objections; approval by silence
Any objections a customer may have concerning the incorrectness or incompleteness of a periodic balance statement must be raised not later than within one month following its receipt; if the objections are made in writing, it is sufficient to dispatch these within the period of one month. Failure to make objections in due time will be considered approval. When issuing the periodic balance statement, the Bank will expressly draw the customer’s attention to this consequence. The customer may demand a correction of the periodic balance statement even after expiry of this period, but must then prove that the account was either wrongly debited or mistakenly not credited.
8. Reverse entries and correction entries made by the Bank
(1) Prior to issuing a periodic balance statement
Incorrect credit entries on current accounts (e.g. due to a wrong account number) may be reversed by the Bank through a debit entry prior to the issue of the next periodic balance statement to the extent that the Bank has a repayment claim against the customer; in this case, the customer may not object to the debit entry on the grounds that a disposal of an amount equivalent to the credit entry had already been made (reverse entry).
(2) After issuing a periodic balance statement
If the Bank ascertains an incorrect credit entry after a periodic balance statement has been issued and if the Bank has a repayment claim against the customer, it will debit the account of the customer with the amount of its claim (correction entry). If the customer objects to the correction entry, the Bank will re-credit the account with the amount in dispute and assert its repayment claim separately.
(3) Notification to the customer; calculation of interest
The Bank will immediately notify the customer of any reverse entries and correction entries made. With respect to the calculation of interest, the Bank shall effect the entries retroactively as of the day on which the incorrect entry was made.
9. Collection orders
(1) Conditional credit entries effected upon presentation of documents
If the Bank credits the countervalue of cheques and direct debits prior to their payment, this is done on condition of payment, even if these items are payable at the Bank itself. If the customer surrenders other items, instructing the Bank to collect an amount due from a debtor (e.g. interest coupons), and if the Bank effects a credit entry for such amount, this is done under the reserve that the Bank will obtain the amount. This reserve shall also apply if the items are payable at the Bank itself. If cheques or direct debits are not paid or if the Bank does not obtain the amount under the collection order, the Bank will cancel the conditional credit entry regardless of whether or not a periodic balance statement has been issued in the meantime.
(2) Payment of direct debits and of cheques made out by the customer
Direct debits and cheques are paid if the debit entry has not been cancelled prior to the end of the second bank working day after it was made. Cheques payable in cash are deemed to have been paid once their amount has been paid to the presenting party. Cheques are also deemed to have been paid as soon as the Bank dispatches an advice of payment. Direct debits and cheques presented through the clearing office of a “Landeszentralbank” are paid if they are not returned to the clearing office by the time stipulated by the Landeszentralbank.
10. Risks inherent in foreign currency accounts and transactions
(1) Execution of orders relating to foreign currency accounts
Foreign currency accounts of the customer serve to effect the cashless settlement of payments to and disposals by the customer in foreign currency. Disposals of credit balances on foreign currency accounts (e.g. by means of transfer orders to the debit of the foreign currency credit balance) are settled through or by banks in the home country of the currency unless the Bank executes them entirely within its own organisation.
(2) Credit entries for foreign currency transactions with the customer
If the Bank concludes a transaction with the customer (e.g. a forward exchange transaction) under which it owes the provision of an amount in a foreign currency, it will discharge its foreign currency obligation by crediting the account of the customer in the respective currency, unless otherwise agreed upon.
(3) Temporary limitation of performance by the Bank
The Bank’s duty to execute a disposal order to the debit of a foreign currency credit balance (paragraph 1) or to discharge a foreign currency obligation (paragraph 2) shall be suspended to the extent that and for as long as the Bank cannot or can only restrictedly dispose of the currency in which the foreign currency credit balance or the obligation is denominated, due to political measures or events in the country of the respective currency. To the extent that and for as long as such measures or events persist, the Bank is not obligated either to perform at some other place outside the country of the respective currency, in some other currency (including Deutsche Mark) or by providing cash. However, the Bank’s duty to execute a disposal order to the debit of a foreign currency credit balance shall not be suspended if the Bank can execute it entirely within its own organisation. The right of the customer and of the Bank to set off mutual claims due in the same currency against each other shall not be affected by the above provisions.
Duties of the Customer to Cooperate
11. Duties of the customer to cooperate
(1) Change in the customer’s name, address or powers of representation towards the Bank
A proper settlement of business requires that the customer notify the Bank without delay of any changes in the customer’s name and address, as well as the termination of, or amendment to, any powers of representation towards the Bank conferred to any person (in particular, a power of attorney). This notification duty also exists where the powers of representation are recorded in a public register (e.g. the Commercial Register) and any termination thereof or any amendments thereto are entered in that register.
(2) Clarity of order
Orders of any kind must unequivocally show their contents. Orders that are not clearly worded may lead to queries, which may result in delays. In particular, when giving orders to credit an account (e.g. transfer orders), the customer must ensure the correctness and completeness of the name of the payee, as well as of the account number and the bank code number stated. Amendments, confirmations or repetitions of orders must be designated as such.
(3) Special reference to urgency in connection with the execution of an order
If the customer feels that an order requires particularly prompt execution (e.g. because a money transfer must be credited to the payee’s account by a certain date), the customer shall notify the Bank of this fact separately. For orders given on a printed form, this must be done separately from the form.
(4) Examination of and objections to, notification received from the Bank
The customer must immediately examine statements of account, security transaction statements, statements of securities and of investment income, other statements, advices of execution of orders, as well as information on expected payments and consignments (advices) as to their correctness and completeness and immediately raise any objections relating thereto.
(5) Notice to the Bank in case of non-receipt of statements
The customer must notify the Bank immediately if periodic balance statements and securities statements are not received. The duty to notify the Bank also exists if other advices expected by the customer (e.g. security transaction statements, statements of account after execution of customer orders or payments expected by the customer) are not received.
Cost of Bank Services
12. Interest, charges, and out-of-pocket expenses
(1) Interest and charges in private banking
Interest and charges for loans and services customary in private banking are set out in the “Price Display—Standard rates for private banking” (Preisaushang) and, in addition, in the “Price List” (Preisverzeichnis). If a customer makes use of a loan or service listed therein and if no divergent agreement has been entered into between the bank and the customer, the interest and charges stated in the then valid Price Display or Price List are applicable. For any services not stated therein which are provided following the instructions of the customer, or which are believed to be in the interests of the customer and which can, in the given circumstances, only be expected to be provided against remuneration, the Bank may at its reasonable discretion determine the charges (Section 315 of the German Civil Code—Bürgerliches Gesetzbuch).
(2) Interest and charges other than for private banking
The amount of interest and charges other than for private banking shall, in the absence of any other agreement, be determined by the Bank at its reasonable discretion (Section 315 of the German Civil Code).
(3) Changes in interest and charges
In the case of variable interest rate loans, the interest rate will be adjusted in accordance with the terms of the respective loan agreement.
(4) Customer’s right of termination in case of changes in interest and charges
Interest adjustments and changes in charges according to paragraph 3 will be notified to the customer by the Bank. If the charges are increased, the customer may, unless otherwise agreed, terminate with immediate effect the business relationship affected thereby within one month from the notification of the change. If the customer terminates the business relationship, any such increased interest and charges shall not be applied to the terminated business relationship. The Bank will allow an adequate period of time for the settlement.
(5) Out-of-pocket expenses
The customer shall bear all out-of-pocket expenses which are incurred when the Bank carries out the instructions or acts in the presumed interests of the customer (in particular, telephone costs, postage) or when credit security is furnished, administered, released or realised (in particular, notarial fees, storage charges, cost of guarding items serving as collatoral).
(6) Peculiarities relating to consumer loans
The interest and costs (charges, out-of-pocket expenses) for those loan agreements which require the written form pursuant to Section 4 of the Consumer Credit Act (Verbraucherkreditgesetz) are determined by the provisions of such contract documentation. If an interest rate is not stated therein, the legal interest rate shall apply; costs not stated therein are not owed (Section 6(2) of the Consumer Credit Act). For overdraft credits pursuant to Section 5 of the Consumer Credit Act, the interest rate shall be determined by the Price Display and the information provided by the Bank to the customer.
Security for the Bank’s Claims Against the Customer
13. Providing or increasing security
(1) Right of the Bank to request security
The Bank may demand that the customer provide the usual form of security for any claims that may arise from the banking relationship, even if such claims are conditional (e.g. indemnity for amounts paid under a guarantee issued on behalf of the customer). If the customer has assumed a liability for another customer’s obligations towards the Bank (e.g. as a surety), the Bank is, however, not entitled to demand that security be provided or increased for the debt resulting from such liability incurred before the maturity of the debt.
(2) Changes in the risk
If the Bank, upon the creation of claims against the customer, has initially dispensed wholly or partly with demanding that security be provided or increased, it may nonetheless make such a demand at a later time, provided, however, that circumstances occur or become known which justify a higher risk assessment of the claims against the customer. This may, in particular, be the case if
the economic status of the customer has changed or threatens to change in a negative manner or
the value of the existing security has deteriorated or threatens to deteriorate.
The Bank has no right to demand security if it has been expressly agreed that the customer either does not have to provide any security or must only provide that security which has been specified. For loans subject to the Consumer Credit Act, the Bank is entitled to demand that security be provided or increased only to the extent that such security is mentioned in the loan agreement; when, however, the net loan amount exceeds DM 100.000,—, the Bank may demand that security be provided or increased even if the loan agreement does not contain any or any exhaustive indications as to security.
(3) Setting a time period for providing or increasing security
The Bank will allow adequate time to provide or increase security. If the Bank intends to make use of its right of termination without notice according to No. 19 (2) of these Business Conditions, should the customer fail to comply with the obligation to provide or increase security within such time period, it will draw the customer’s attention to this consequence before doing so.
14. Lien in favour of the Bank
(1) Agreement on the lien
The customer and the Bank agree that the Bank acquires a lien on the securities and chattels which, within the scope of banking business, have come or may come into the possession of a domestic office of the Bank. The Bank also acquires a lien on any claims which the customer has or may in future have against the Bank arising from the banking relationship (e.g. credit balances).
(2) Secured claims
The lien serves to secure all existing, future and contingent claims arising from the banking relationship which the Bank with all its domestic and foreign offices is entitled to against the customer. If the customer has assumed a liability for another customer’s obligation towards the Bank (e.g. as a surety), the lien shall not secure the debt resulting from the liability incurred before the maturity of the debt.
(3) Exemptions from the lien
If funds or other assets come into the power of disposal of the Bank under the reserve that they may only be used for a specified purpose (e.g. deposit of cash for payment of a bill of exchange), the Bank’s lien does not extend to these assets. The same applies to shares issued by the Bank itself (own shares) and to securities which the Bank keeps in safe custody abroad for the customer’s account. Moreover, the lien extends neither to the profit participation rights/profit participation certificates (GenuBrechte/GenuBscheine) issued by the bank itself nor to the bank’s subordinated obligations confirmed by document or unconfirmed.
(4) Interest and dividend coupons
If securities are subject to the Bank’s lien, the customer is not entitled to demand the delivery of the interest and dividend coupons pertaining to such securities.
15. Security interests in items for collection and discounted bills of exchange
(1) Transfer of ownership by way of security
The Bank acquires ownership by way of security of any cheques and bills of exchange deposited for collection at the time such items are deposited. The Bank acquires absolute ownership of discounted bills of exchange at the time of the purchase of such items; if it re-debits discounted bills of exchange to the account, it retains the ownership by way of security in such bills of exchange.
(2) Assignment by way of security
The claims underlying the cheques and bills of exchange shall pass to the bank simultaneously with the acquisition of ownership in the cheques and bills of exchange; the claims also pass to the Bank if other items are deposited for collection (e.g. direct debits, documents of commercial trading).
(3) Special-purpose items for collection
If items for collection are deposited with the Bank under the reserve that their countervalue may only be used for a specified purpose, the transfer or assignment of ownership by way of security does not extend to these items.
(4) Secured claims of the Bank
The ownership transferred or assigned by way of security serves to secure any claims which the Bank may be entitled to against the customer arising from the customer’s current account when items are deposited for collection or arising as a consequence of the re-debiting of unpaid items for collection or discounted bills of exchange. Upon request of the customer, the Bank retransfers to the customer the ownership by way of security of such items and of the claims that have passed to it if it does not, at the time of such request, have any claims against the customer that need to be secured or if it does not permit the customer to dispose of the countervalue of such items prior to their final payment.
16. Limitation of the claim to security and obligation to release
(1) Cover limit
The Bank may demand that security be provided or increased until the realisable value of all security corresponds to the total amount of all claims arising from the banking business relationship (cover limit).
(2) Release
If the realisable value of all security exceeds the cover limit on a more than temporary basis, the Bank shall, at the customer’s request, release security items as it may choose in the amount exceeding the cover limit; when selecting the security items to be released, the Bank will take into account the legitimate concerns of the customer or of any third party having provided security for the customer’s obligations. To this extent, the Bank is also obliged to execute orders of the customer relating to the items subject to the lien (e.g. sale of securities, repayment of savings deposits).
(3) Special agreements
If for a specific security item assessment criteria other than the realisable value, another cover limit or another limit for the release of security have been agreed, these other criteria or limits shall apply.
17. Realisation of security
(1) Option of the Bank
In case of realisation, the Bank may choose between several security items. When realising security and selecting the items to be realised, the Bank will take into account the legitimate concerns of the customer and any third party who may have provided security for the obligations of the customer.
(2) Credit entry for proceeds under the turnover tax law
If the transaction of realisation is subject to turnover tax, the Bank will provide the customer with a credit entry for the proceeds, such entry being deemed to serve as invoice for the supply of the item given as security and meeting the requirements of the turnover tax law (Umsatzsteuerrecht).
Termination
18. Termination rights of the customer
(1) Right of termination at any time
The customer may at any time, without notice, terminate the business relationship as a whole or particular business relationships (e.g. the use of cheques) if neither a term nor a diverging termination clause has been agreed therefor.
(2) Termination for reasonable cause
If a term or a diverging termination provision has been agreed for a particular business relationship, such relationship may only be terminated without notice if there is reasonable cause therefor which makes it unacceptable to the customer to continue the business relationship, after having given due consideration to the legitimate concerns of the Bank.
19. Termination rights of the Bank
(1) Termination upon notice
Upon observing an adequate notice period, the Bank may at any time terminate the business relationship as a whole or particular relationships for which neither a term nor a diverging termination provision has been agreed (e.g. the chequing agreement authorizing the use of the cheque card and cheque forms). In determining the notice period, the Bank will take into account the legitimate concerns of the customer. The minimum termination notice for the keeping of current accounts and securities accounts is one month.
(2) Termination of loans with no fixed term
Loans and loan commitments for which neither a fixed term nor a diverging termination provision has been agreed may be terminated at any time by the Bank without notice. When exercising this right of termination, the Bank will give due consideration to the legitimate concerns of the customer.
(3) Termination for reasonable cause without notice
Termination of the business relationship as a whole or of particular relationships without notice is permitted if there is reasonable cause which makes it unacceptable to the Bank to continue the business relationship, after having given due consideration to the legitimate concerns of the customer. Such cause is given in particular if the customer has made incorrect statements as to the customer’s financial status, provided such statements were of significant importance for the Bank’s decision concerning the granting of credit or other operations involving risks for the Bank (e.g. the delivery of the cheque card), or if a substantial deterioration occurs or threatens to occur in the customer’s financial status, jeopardizing the discharge of obligations towards the Bank. The Bank may also terminate the business relationship without notice if the customer fails to comply, within the required time period allowed by the Bank, with the obligation to provide or increase security according to No. 13(2) of these Business Conditions or to the provisions of some other agreement.
(4) Termination of consumer loans in the event of default
Where the Consumer Credit Act contains specific provisions for the termination of a consumer loan subsequent to a payment default, the Bank may only terminate the business relationship as provided therein.
(5) Settlement following termination
The Bank shall allow the customer a reasonable time period for the settlement, in particular for the repayment of a loan, unless it is necessary to attend immediately thereto (e.g. the return of the cheque forms in the event of termination of a chequing agreement).
Protection of Deposits
20. Deposit Protection Fund
The Bank is a member of the Deposit Protection Fund of the Association of German Banks (Einlagensicherungsfonds des Bundesverbandes deutscher Banken e.V.) (hereinafter referred to as “Deposit Protection Fund”). To the extent that the Deposit Protection Fund or its mandatory makes payments to a customer, the respective amount of the customer’s claims against the Bank is transferred simultaneously to the Deposit Protection Fund. The same applies if in the absence of instructions from the customer the Deposit Protection Fund makes payments into an account which is opened in favour of the customer at another bank. The Bank shall be entitled to disclose to the Deposit Protection Fund or its mandatory all relevant information and to place necessary documents at their disposal.
Appendix III 3 General Conditions Prepared by the Netherlands Bankers’ Association
General Conditions1
1. Scope
All relations between the Bank’s branch-offices in the Netherlands and the Customer shall be subject to these General Conditions.
2. Duty of care of the Bank
When executing orders of the Customer and when performing other agreements with the Customer, the Bank shall exercise due care and in doing so the Bank shall take into account the Customer’s interests to the best of its ability. In all other transactions with the Customer, the Bank shall exercise due care as well.
The Bank shall be liable if any shortcoming in the execution of the aforesaid orders or in the performance of any other agreements referred to above, or any shortcoming in the fulfillment of any other obligation towards the Customer, is imputable to the Bank. None of the following articles may be construed as affecting this principle.
3. Use of the services of third parties
The Bank shall be entitled to use the services of third parties in executing orders of the Customer and in performing other agreements with the Customer and also to place goods and documents of title of the Customer in the custody of third parties in the name of the Bank.
Without prejudice to the Bank’s liability pursuant to article 10, the Bank shall not be liable for any shortcomings of such third parties, if it can prove that it has exercised due care in selecting these third parties. Should the Bank not be liable for the shortcomings of these third parties and should the Customer have suffered damages, the Bank shall in any case assist the Customer as much as possible in undoing his damage.
4. The Bank or third parties as the other party
In executing orders for the purchase and sale of goods and documents of title, the Bank shall be entitled, at its option, to deal with itself or third parties as the other party.
5. Risk of dispatches
If the Bank, by order of the Customer, dispatched moneys or securities to the Customer or to third parties, such dispatch shall be at the Bank’s risk.
If the Bank, by order of the Customer, dispatches other goods or documents of title to the Customer or to third parties, such dispatch shall be at the Customer’s risk.
6. Statement of address by the Customer
The Customer shall inform the Bank of the address to which documents intended for him are to be sent. The Customer shall give written notice of any changes of address.
7. Orders etc. intended for several branch-offices
Orders, statements and communications from the Customer to the Bank must be addressed separately to each of the branch-offices of the Bank for which these orders, statements and communications are intended, unless the Bank has expressly designated another address.
If written orders, statements and communications are intended for a branch-office of the Bank—expressly stated by the Customer—other than the branch-office that received these documents, the latter branch-office shall forward such documents.
8. Changes in the powers of the Customer
Changes in the powers of the Customer or of his representatives or agents shall, notwithstanding their entry in public registers, only be operative against the Bank after the Bank has been notified thereof in writing.
9. Use of forms
The Customer must see to it that orders, statements and communications to the Bank are clear and that they contain the correct data. Forms must be fully completed by the Customer. Other data carriers or means of communication approved by the Bank must be used by the Customer in accordance with the directions of the Bank.
The Bank shall be entitled not to execute orders if such orders have been given without the use of forms drawn up or approved by the Bank or of other data carriers or means of communications approved by the Bank. The Bank may require communications to be made in a specific form.
10. Execution of payment orders
The Bank guarantees the proper execution within a reasonable time of correctly given orders for the transfer of amounts in Dutch guilders, provided that such orders can be processed entirely within the giro-circuit in the Netherlands of the banks associated with the Bankgirocentrale (Bank Giro Centre).
Any shortcomings in the execution of such payment orders will oblige the Bank to indemnify the Customer, up to a maximum of five hundred Dutch guilders per payment order, for the damage suffered as a result, without prejudice to the provisions of article 31 and without prejudice to the Bank’s obligation—unless otherwise agreed—to see to it that these payment orders will as yet be executed properly and without further costs. The aforesaid maximum of five hundred guilders cannot be invoked by the Bank if the shortcoming in question is imputable to the Bank.
If, in case of correctly given payment orders which cannot be processed entirely within the said giro-circuit, the payee’s account as specified by the Customer should fail to be credited, the Bank shall upon Customer’s request and free of charge make inquiries and try to achieve that the credit entry will be made as yet. Within four weeks of receipt by the Bank of such request, the Bank shall furnish the Customer with a written statement concerning the results of the inquiries, stating the relevant data.
If the Customer wishes payment orders as referred to in the first paragraph of this article to be executed by or on a specific date, such execution must be expressly agreed upon with the Bank.
The above provisions are without prejudice to the Bank’s authority not to execute payment orders if the balance of the account does not allow such execution or if such execution is barred by an attachment of the Customer’s account or by other comparable circumstances.
11. Evidential force of Bank’s records
As against the Customer, an abstract from the Bank’s records signed by the Bank, shall serve as prima facie evidence, subject to evidence to the contrary produced by the Customer.
12. Examination of bank documents
If the Bank finds that it has made a mistake in any confirmation, statement of account, note or other statement to the Customer, the Bank shall be bound to notify the Customer without delay.
The Customer is obliged to examine the confirmations, statements of account, notes or other statements sent to him by the Bank immediately upon receipt. In addition, the Customer must check whether orders given by him or on his behalf have been executed correctly by the Bank. When finding any inaccuracy or incompleteness, the Customer is obliged to notify the Bank without delay.
In the above cases, the Bank shall be obliged to rectify its mistakes and errors.
13. Approval of bank documents
If the Customer has not contested the contents of confirmations, statements of accounts, notes or other statements of the Bank to the Customer within twelve months after such documents can reasonably be deemed to have reached the Customer, the contents of such documents shall be deemed to have been approved by the Customer. If such documents contain any arithmetical errors, the Bank shall be entitled and be bound to rectify such errors, even after the expiry of the said twelve months’ period.
14. Loss etc. of forms
The forms, data carriers and means of communication which the Bank has put at the disposal of the Customer, must be kept and handled by the Customer with care.
If the Customer becomes aware of any irregularity such as loss, theft or misuse with respect to these forms, data carriers or means of communication, he shall inform the Bank without delay. Up to the moment such information is received by the Bank, the consequences of the use of forms, data carriers or means of communication shall be for the account and at the risk of the Customer, unless the Customer proves that the Bank is to blame. After that moment, these consequences shall be for the account and at the risk of the Bank, unless the Bank proves that the Customer is guilty of intent or gross negligence.
Any information concerning irregularities must be confirmed by the Customer to the Bank in writing.
The provisions of this article shall apply if and to the extent that any special terms and conditions applying to the specific services rendered by the Bank do not contain any different provisions.
In the event notice of termination of the relationship between the Customer and the Bank has been given, the Customer shall return to the Bank unused forms as well as other data carriers and means of communication put at his disposal by the Bank.
15. Crediting and debiting of interest
At such times as will be determined by the Bank, but at least once a year, the Bank shall credit or debit, as the case may be, the current interest to the account of the Customer. If the time at which the current interest is credited to that account, does not coincide with the time at which the current interest is debited to such account, the Bank shall inform the Customer in writing.
16. Commissions and fees
The Bank is entitled to charge commissions and fees to the Customer for its services. If the amount of these commissions and fees has not been previously agreed upon between the Customer and the Bank, the Bank shall charge its usual commissions and fees. The Bank shall see to it that information about this is available at its branch-offices.
17. Credit entries subject to proviso
Each credit entry is made subject to the proviso that, if the Bank is still to receive the counter-value for such entry, such counter-value will timely and duly come into its possession. Failing this, the Bank shall be entitled to reverse the credit entry. If the Customer’s guilder account has been credited on account of documents denominated in a foreign currency or on account of other items which, as far as the guilder-equivalent is concerned, are subject to fluctuations in value, the reversal shall be effected by making a debit entry up to the amount for which the Customer could have acquired such foreign currency or such items on the day of the reversal.
18. Pledge
All goods and documents of title which are in the possession or will come into the possession of the Bank or of a third party on the Bank’s behalf from or for the benefit of the Customer on any account whatsoever, and all present or future claims of the Customer vis-a-vis the Bank on any account whatsoever, are and will be pledged to the Bank to secure any obligations of the Customer to the Bank on any account whatsoever.
The pledge referred to above shall be deemed to have been created each time such goods and documents of title come into the possession of the Bank, or of a third party on its behalf, or—in case of the aforesaid claims—each time such claims arise.
In the event the Customer wishes to dispose of part of the collateral, the Bank shall release such part of the collateral, provided that the balance of the collateral remaining after such release offers sufficient cover for any claim the Bank has or will have on the Customer.
The Bank shall not be entitled to sell the collateral unless the Customer’s debt to the Bank has become due and payable. In addition, the Bank shall not sell the collateral before it has given notice of default to the Customer. As part of its right to sell the collateral, the Bank is irrevocably authorized to collect pledged claims of the Customer on the Bank. The Bank’s right to sell the collateral is limited to the extent of Customer’s debt.
After the Bank has exercised its right to sell the collateral, it shall give the Customer written notice within a reasonable period of time.
19. Right of set-off
The Bank shall at all times be entitled to set off all and any claims it has on the Customer, whether or not due and payable or whether or not contingent, against any counterclaims of the Customer on the Bank, whether due and payable or not, regardless of the currency in which such claims are denominated.
If, however, the claim of the Bank on the Customer or the counterclaim of the Customer on the Bank is not yet due and payable - and provided the Bank’s claim and the Customer’s counterclaim are denominated in the same currency - the Bank shall not exercise its right of set-off except in the event an attachment is levied upon the Customer’s counterclaim or recovery is sought from such counterclaim in any other way, or in the event a right in rem is created thereon or the Customer assigns his counterclaim.
Claims denominated in foreign currency shall be set off at the rate of exchange of the day of set-off.
If possible, the Bank shall inform the Customer in advance that it will exercise its right of set-off.
20. Giving security
The Customer is obliged to provide, upon demand adequate security for the fulfillment of his existing obligations towards the Bank. If a security granted has become inadequate, the Customer is obliged to supplement or replace such security upon demand. Any demand as referred to above shall be made in writing and shall specify the reason for such demand. The extent of the security so demanded must bear a reasonable proportion to the amount of the relative obligations of the Customer.
21. Immediately due for payment
If the Customer, after having been given notice of default, fails to perform any of its obligation towards the Bank, the Bank shall be entitled to make the Customer’s debts to the Bank immediately due and payable by giving notice. Such notice shall be in writing and shall specify the reason for the giving thereof.
22. Custody of securities (Vabef banks)
The custody of securities which form part of a collective deposit within the meaning of the Wet giraal effectenverkeer (Securities Giro Administration and Transfer Act) shall be subject to the provisions of this Act and to the provision set forth in the next sentence. To the extent these securities are susceptible of drawings by lot, the Bank shall see to it that, each time a drawing takes place, there shall be allotted to each Customer individually an amount of securities—designated for redemption—corresponding to his entitlement.
The custody in the Netherlands of all other securities is assumed by .............. Effectenbewaarbedrijf N.V. (........... Securities Custody Company). Such custody is subject to the “Rules for the Custody of Securities”, which are set forth below, after the final articles of these General Conditions.
22. Custody of securities (niet-Vabef banken met uitzondering van Rabobanken en Spaarbanken)
The custody of securities which form part of a collective deposit within the meaning of the Wet giraal effectenverkeer, (Securities Giro Administration and Transfer Act) shall be subject to the provisions of this Act and to the provision set forth in the next sentence. To the extent these securities are susceptible of drawings by lot, the Bank shall see to it that, each time a drawing takes place, there shall be allotted to each Customer individually an amount of securities—designated for redemption—corresponding to his entitlement.
The custody of other securities than those referred to in the first paragraph, which are held in the Netherlands for the Customer by the Bank itself, shall be subject to the provisions set forth below in this article. The Bank is bound to see to it that the serial numbers of the said securities are recorded at all times and for each individual Customer separately. In addition, the Bank shall be bound to notify the Customer of the serial numbers of these securities to the extent they are subject to drawings by lot or to the extent the custody relates to securities for which special rights are attached to specific serial numbers and in other cases whenever the Customer requests the Bank to do so.
22. Custody of securities (Rabo banken en Spaarbanken)
The custody of securities which form part of a collective deposit within the meaning of the Wet giraal effectenverkeer, (Securities Giro Administration and Transfer Act) shall be subject to the provisions of this Act and to the provision set forth in the next sentence. To the extent these securities are subject to drawings by lot, the Bank shall see to it that, each time a drawing takes place, there shall be allotted to each Customer individually an amount of securities—designated for redemption—corresponding to his entitlement.
If the custody relates to other securities than those referred to in the first paragraph, the Bank shall notify the Customer of the serial numbers of securities which are held in the Netherlands for the Customer in the custody of the Bank itself or—subject to the obligation to notify the serial numbers—in the custody of third parties.
23. Use of the services of third parties for the custody of securities
The securities of the Customer which the Bank, pursuant to article 3, has placed in the custody of third parties, shall form part of the aggregate of securities deposited in the name of the Bank with such third parties in one of the Bank’s general securities deposits. The Bank shall not be bound to see to it that the serial numbers of these securities are recorded separately for each individual Customer.
23. Use of the services of third parties for the custody of securities (Rabobanken en Spaarbanken)
The securities of the Customer which the Bank, pursuant to article 3 has placed in the custody of third parties, shall form part of the aggregate of securities deposited in the name of the Bank with such third parties in one of the Bank’s general securities deposits. The Bank shall not be bound to see to it that the serial numbers of these securities are recorded separately for each individual Customer, unless these securities are held for the Customer—subject to the obligation to notify the serial numbers—in the custody of third parties in the Netherlands.
24. Administration of securities deposits
The Bank is charged with the administration of the Customer’s securities deposit to the extent such securities deposit consists of securities admitted to the official quotation on the Official Market or the Parallel Market of the Amsterdam Stock Exchange.
The duties incidental to this administration include inter alia the duty to collect interests, redemption payments and dividends, to exercise or realise subscription rights, to obtain new coupon or dividend sheets, to effect conversions and to lodge securities for the purpose of meetings.
If, pursuant to article 3, the Bank has placed securities of the Customer in the custody of third parties, such third parties shall be charged with the duties incidental to the administration of these securities, without prejudice to the Bank’s liability pursuant to article 3 and without prejudice to the Bank’s obligation to pass on to the Customer any amounts received by the Bank from such third parties for the benefit of the Customer on account of interest, redemption payments, dividend or on any other account.
25. Securities to which the pledge does not attach
The pledge referred to in article 18 does not attach to securities deposited with the Bank exclusively for specific purposes such as the collection of interests, redemption payments and dividends, obtaining new coupon or dividend sheets, effecting conversions or attending meetings.
26. Terms of orders in respect of securities; reduction of the limit
The Bank will keep orders in respect of securities on its books for a period of time to be determined by the Bank.
As from the day on which securities are quoted ex-dividend or ex-rights of subscription, any limit set by the Customer for the purchase or sale of such securities shall be reduced by the arithmetical value of the dividend or the subscription right, as the case may be, but only if such reduction of the limit arises from the regulations or customs applying to the securities in question.
27. Defective securities
The Bank shall be liable for any defects of securities acquired by the Customer as a result of transactions concluded by the Bank with itself as the other party, or as the result of transactions in securities admitted to the official quotation of the Official Market or the Parallel Market of the Amsterdam Stock Exchange.
If, pursuant to the above provision, the Bank is liable, it shall, at the Customer’s option, either as yet deliver securities of the same kind but without defects or refund the amount charged, together with interest thereon, in both cases against return of the securities originally acquired by the Customer.
28. Costs
All costs of legal assistance incurred by the Bank in court proceedings or in proceedings before a committee for the settlement of disputes on account of a dispute between the Customer and the Bank, shall be for the account of the Customer or for the account of the Bank, as the case may be, if and to the extent such costs are brought for the account of either party according to the decision of such court or such committee.
Any costs the Bank has to incur in or out of court, should the Bank become involved in legal proceedings or disputes between the Customer and a third party, shall be for the Customer’s account.
Without prejudice to the above provisions, all other costs of the Bank to which the relationship with the Customer gives rise, shall be for the Customer’s account, subject to the requirement of reasonableness.
29. Laws of the Netherlands—disputes
The laws of the Netherlands shall govern the relations between the Customer and the Bank.
Disputes between the Customer and the Bank shall be brought before the competent Netherlands Court.
Notwithstanding the foregoing, the Customer, if acting as the plaintiff, is entitled—subject to the relative rules of the Geschillencommissie Bankbedrijf (Complaints Committee for Banking Business) and the Klachtencommissies Effectenbedrijf en Optiebeurs (Committees of Good Offices of the Amsterdam Stock Exchange and the Options Exchange), to which rules the Bank submits—to bring disputes before these committees.
Notwithstanding the second paragraph of this article, the Bank, if acting as the plaintiff, is entitled to bring a dispute not before a Netherlands court, but before the foreign court having jurisdiction over the Customer.
30. Notice to terminate the relationship
Both the Customer and the Bank may terminate the relationship between the Customer and the Bank. If the relationship is terminated by the Bank, it shall, upon request, inform the Customer of the reason for such termination.
After notice of termination has been given, the existing individual agreements between the Customer and the Bank shall be settled as soon as possible but subject to the applicable time periods. During such settlement the present General Conditions shall remain in full force.
31. Liability of the Bank
Without prejudice to the other provisions of these General Conditions, the Bank shall not be liable if it proves that a shortcoming in the execution of orders and other agreements or a shortcoming in the fulfillment of any other obligation towards the Customer is not imputable to the Bank nor attributable to it by virtue of the law, any agreement or generally prevailing views.
To the extent that the disclaimer set forth hereinafter is not included in the preceding paragraph, but without prejudice to the provisions of article 2, the Bank shall not be liable if it proves that a shortcoming as referred to above is the result of international conflicts, violent or armed actions, measures taken by any government or by De Nederlandsche Bank N.V., (The Dutch Central Bank), labour disturbances among the staff of the Bank or of third parties whose services are used by the Bank, boycotts, power failures or breakdowns in communication links or equipment of the Bank or of third parties whose services are used by the Bank.
Should any circumstance as referred to in the preceding paragraph occur, then the Bank shall take such measures as may reasonably be required from it in order to reduce the resulting adverse effects for the Customer.
32. Deviation from the General Conditions
Any deviation from the present General Conditions may only be invoked, if such deviation has been agreed upon in writing or if it is an established fact both for the Customer and for the Bank that such deviation has been agreed. If a deviation has been orally agreed upon, the Customer and the Bank shall lay down such deviation in writing without delay.
33. Amendment of and addition to the General Conditions
Amendments of and addition to the present General Conditions shall not take effect until after representative Dutch consumers’ and employers’ organizations have been consulted about these amendments and additions and also about the manner in which the Customer will be notified of their contents. Such notification will in any case have to be made before the expiry of the term of thirty days referred to below.
The amendments and additions adopted after such consultations shall be filed at the Registrar’s Office of the District Court of Amsterdam. Such filing shall be announced by a publication to that effect in at least three daily newspapers with national circulation. The amendments and additions which have been filed in this manner shall be binding upon the Bank and the Customer as of the thirtieth day after the date of the abovementioned publication.
The present General Conditions have been drawn up in consultation with the consumers’ organisations “Consumentenbond” and “Konsumenten Kontakt” within the framework of the Committee for Consumer Affairs of the Social and Economic Council (SER).
Appendix IV U.S. Banking Legislation
Appendix IV 1 Foreign Bank Supervision Enhancement Act of 1991, Subtitle A of Title II of the FDIC Improvement Act
[Selected Provisions]
TITLE II—Regulatory Improvement
Subtitle A—Regulation of Foreign Banks
Section 201. SHORT TITLE.
This subtitle may be cited as the “Foreign Bank Supervision Enhancement Act of 1991”.
Section 202. REGULATION OF FOREIGN BANK OPERATIONS.
(a) Establishment and Termination of Foreign Bank Offices in the United States.—Section 7 of the International Banking Act of 1978 (12 U.S.C. § 3105) is amended by striking subsection (d) and inserting the following new subsections:
“(d) Establishment of Foreign Bank Offices in the United States.—
“(1) Prior approval required.—No foreign bank may establish a branch or an agency, or acquire ownership or control of a commercial lending company, without the prior approval of the Board.
“(2) Required standards for approval.—The Board may not approve an application under paragraph (1) unless it determines that—
“(A) the foreign bank engages directly in the business of banking outside of the United States and is subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country; and
“(B) the foreign bank has furnished to the Board the information it needs to adequately assess the application.
“(3) Standards for approval.—In acting on any application under paragraph (1), the Board may take into account—
“(A) whether the appropriate authorities in the home country of the foreign bank have consented to the proposed establishment of a branch, agency or commercial lending company in the United States by the foreign bank;
“(B) the financial and managerial resources of the foreign bank, including the bank’s experience and capacity to engage in international banking;
“(C) whether the foreign bank has provided the Board with adequate assurances that the bank will make available to the Board such information on the operations or activities of the foreign bank and any affiliate of the bank that the Board deems necessary to determine and enforce compliance with this Act, the Bank Holding Company Act of 1956, and other applicable Federal law; and
“(D) whether the foreign bank and the United States affiliates of the bank are in compliance with applicable United States law.
“(4) Factor.—In acting on an application under paragraph (1), the Board shall not make the size of the foreign bank the sole determinant factor, and may take into account the needs of the community as well as the length of operation of the foreign bank and its relative size in its home country. Nothing in this paragraph shall affect the ability of the Board to order a State branch, agency, or commercial lending company subsidiary to terminate its activities in the United States pursuant to any standard set forth in this Act.
“(5) Establishment of conditions.—Consistent with the standards for approval in paragraph (2), the Board may impose such conditions on its approval under this subsection as it deems necessary.
“(e) Termination of Foreign Bank Offices in the United States.—
“(1) Standards for termination.—The Board, after notice and opportunity for hearing and notice to any appropriate State bank supervisor, may order a foreign bank that operates a State branch or agency or commercial lending company subsidiary in the United States to terminate the activities of such branch, agency, or subsidiary if the Board finds that—
“(A) the foreign bank is not subject to comprehensive supervision or regulation on a consolidated basis by the appropriate authorities in its home country; or
“(B)(i) there is reasonable cause to believe that such foreign bank, or any affiliate of such foreign bank, has committed a violation of law or engaged in an unsafe or unsound banking practice in the United States; and
“(ii) as a result of such violation or practice, the continued operation of the foreign bank’s branch, agency or commercial lending company subsidiary in the United States would not be consistent with the public interest or with the purposes of this Act, the Bank Holding Company Act of 1956, or the Federal Deposit Insurance Act.
However, in making findings under this paragraph, the Board shall not make size the sole determinant factor, and may take into account the needs of the community as well as the length of operation of the foreign bank and its relative size in its home country. Nothing in this paragraph shall affect the ability of the Board to order a State branch, agency, or commercial lending company subsidiary to terminate its activities in the United States pursuant to any standard set forth in this Act.
“(2) Discretion to deny hearing.—The Board may issue an order under paragraph (1) without providing for an opportunity for a hearing if the Board determines that expeditious action is necessary in order to protect the public interest.
“(3) Effective date of termination order.—An order issued under paragraph (1) shall take effect before the end of the 120-day period beginning on the date such order is issued unless the Board extends such period.
“(4) Compliance with state and federal law.—Any foreign bank required to terminate activities conducted at offices or subsidiaries in the United States pursuant to this subsection shall comply with the requirements of applicable Federal and State law with respect to procedures for the closure or dissolution of such offices or subsidiaries.
“(5) Recommendation to agency for termination of a federal branch or agency.—The Board may transmit to the Comptroller of the Currency a recommendation that the license of any Federal branch or Federal agency of a foreign bank be terminated in accordance with section 4(i) if the Board has reasonable cause to believe that such foreign bank or any affiliate of such foreign bank has engaged in conduct for which the activities of any State branch or agency may be terminated under paragraph (i).
“(6)Enforcement of orders.—
“(A) In general.—In the case of contumacy of any office or subsidiary of the foreign bank against which the Board or, in the case of an order issued under section 4(i), the Comptroller of the Currency has issued an order under paragraph (1) or a refusal by such office or subsidiary to comply with such order, the Board or the Comptroller of the Currency may invoke the aid of the district court of the United States within the jurisdiction of which the office or subsidiary is located.
“(B) Court order.—Any court referred to in subparagraph (A) may issue an order requiring compliance with an order issued under paragraph (1).
“(7) Criteria relating to foreign supervision.—Not later than 1 year after the date of enactment of this subsection, the Board, in consultation with the Secretary of the Treasury, shall develop and publish criteria to be used in evaluating the operation of any foreign bank in the United States that the Board has determined is not subject to comprehensive supervision or regulation on a consolidated basis. In developing such criteria, the Board shall allow reasonable opportunity for public review and comment.
“(f) Judicial Review.—
“(1) Jurisdiction of United States courts of appeals.—Any foreign bank—
“(A) whose application under subsection (d) or section 10(a) has been disapproved by the Board;
“(B) against which the Board has issued an order under subsection (e) or section 10(b);or
“(C) against which the Comptroller of the Currency has issued an order under section 4(i) of this Act,
may obtain a review of such order in the United States court of appeals for any circuit in which such foreign bank operates a branch, agency, or commercial lending company that has been required by such order to terminate its activities, or in the United States Court of Appeals for the District of Columbia Circuit, by filing a petition for review in the court before the end of the 30-day period beginning on the date the order was issued.
“(2) Scope of judicial review.—Section 706 of title 5, United States Code (other than paragraph (2)(F) of such section) shall apply with respect to any review under paragraph (1).
“(g) Consultation With State Bank Supervisor.—The Board shall request and consider any views of the appropriate State bank supervisor with respect to any application or action under subsection (d) or (e).
“(h) Limitations on Powers of State Branches and Agencies.—
“(1) In general.—After the end of the 1-year period beginning on the date of enactment of the Federal Deposit Insurance Corporation Improvement Act of 1991, a State branch or State agency may not engage in any type of activity that is not permissible for a Federal branch unless—
“(A) the Board has determined that such activity is consistent with sound banking practice; and
“(B) in the case of an insured branch, the Federal Deposit Insurance Corporation has determined that the activity would pose no significant risk to the deposit insurance fund.
“(2) Single borrower lending limit.—A State branch or State agency shall be subject to the same limitations with respect to loans made to a single borrower as are applicable to a Federal branch or Federal agency under section 4(b).
“(3) Other authority not affected.—This section does not limit the authority of the Board or any State supervisory authority to impose more stringent restrictions.”.
Section 203. CONDUCT AND COORDINATION OF EXAMINATIONS
(a) Authority of Board To Conduct and Coordinate Examinations.—Section 7(c) of the International Banking Act of 1978 (12 U.S.C. § 3105(b)) is amended—
(1) by striking paragraph (1) and inserting the following new paragraph:
“(1) Examination of branches, agencies, and affiliates.—
“(A) In general.—The Board may examine each branch or agency of a foreign bank, each commercial lending company or bank controlled by 1 or more foreign banks or 1 or more foreign companies that control a foreign bank, and other office or affiliate of a foreign bank conducting business in any State.
“(B) Coordination of examinations.—
“(i) In general.—The Board shall coordinate examinations under this paragraph with the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and appropriate State bank supervisors to the extent such coordination is possible.
“(ii) Simultaneous examinations.—The Board may request simultaneous examinations of each office of a foreign bank and each affiliate of such bank operating in the United States.
“(C) Annual on-site examination.—Each branch or agency of a foreign bank shall be examined at least once during each 12-month period (beginning on the date the most recent examination of such branch or agency ended) in an on-site examination.
“(D) Cost of examinations.—The cost of any examination under subparagraph (A) shall be assessed against and collected from the foreign bank or the foreign company that controls the foreign bank, as the case may be.”; and
(2) in paragraph (2), by inserting “Reporting requirements.—” before “Each branch”.
Section 204. SUPERVISION OF THE REPRESENTATIVE OFFICES OF FOREIGN BANKS.
Section 10 of the International Banking Act of 1978 (12 U.S.C. § 3107) is amended to read as follows:
“SEC. 10. REPRESENTATIVE OFFICES.
“(a) Prior Approval To Establish Representative Offices.—
“(1) In general.—No foreign bank may establish a representative office without the prior approval of the Board.
“(2) Standards for approval.—In acting on any application under this paragraph to establish a representative office, the Board shall take into account the standards contained in section 7(d)(2) and may impose any additional requirements that the Board determines to be necessary to carry out the purposes of this Act.
“(b) Termination of Representative Offices.—The Board may order the termination of the activities of a representative office of a foreign bank on the basis of the standards, procedures, and requirements applicable under paragraphs (1), (2), and (3) of section 7(d) with respect to branches and agencies.
“(c) Examinations.—The Board may make examinations of each representative office of a foreign bank, the cost of which shall be assessed against and paid by such foreign bank.
“(d) Compliance With State Law.—This Act does not authorize the establishment of a representative office in any State in contravention of State law.”.
Section 205. REPORTING OF STOCK LOANS.
Section 7(j)(9) of the Federal Deposit Insurance Act (12 U.S.C. § 1817(j)(9)) is amended to read as follows:
“(9) Reporting of stock loans.—
“(A) Report required.—Any financial institution and any affiliate of any financial institution that has credit outstanding to any person or group of persons which is secured, directly or indirectly, by shares of an insured depository institution shall file a consolidated report with the appropriate Federal banking agency for such insured depository institution if the extensions of credit by the financial institution and such institution’s affiliates, in the aggregate, are secured, directly or indirectly, by 25 percent or more of any class of shares of the same insured depository institution.
Section 206. COOPERATION WITH FOREIGN SUPERVISORS.
The International Banking Act of 1978 (12 U.S.C. § 3101 et seq.) is amended by adding at the end the following new section:
“SEC. 15. COOPERATION WITH FOREIGN SUPERVISORS.
“(a) Disclosure of Supervisory Information to Foreign Supervisors.—Notwithstanding any other provision of law, the Board, Comptroller of the Currency, Federal Deposit Insurance Corporation, and Director of the Office of Thrift Supervision may disclose information obtained in the course of exercising supervisory or examination authority to any foreign bank regulatory or supervisory authority if the Board, Comptroller, Corporation, or Director determines that such disclosure is appropriate and will not prejudice the interests of the United States.
“(b) Requirement of Confidentiality.—Before making any disclosure of any information to a foreign authority, the Board, Comptroller of the Currency, Federal Deposit Insurance Corporation, and Director of the Office of Thrift Supervision shall obtain, to the extent necessary, the agreement of such foreign authority to maintain the confidentiality of such information to the extent possible under applicable law.”
This text is reproduced with permission from the Basle Committee on Banking Supervision. It consists of Chapter IV of the Report on International Developments in Banking Supervision (Report number 8, September 1992) prepared and distributed by the Basle Committee on Banking Supervision. The Report on International Convergence of Capital Measurement and Capital Standards (July 1988), known as the 1988 Capital Accord, is reprinted in 1 Current Legal Issues Affecting Central Banks 487 (Robert C. Effros ed., 1992).
This text is reproduced with permission from the Basle Committee on Banking Supervision. It consists of Chapter III of the Report on International Developments in Banking Supervision (Report number 8, September 1992) prepared and distributed by the Basle Committee on Banking Supervision.
In some countries, supervisory responsibility is shared among two or more authorities. The word “authority” is used to include all relevant authorities in any one country.
Copyright 1992, Organization of American States. Reproduced with the permission of the General Secretariat of the Organization of American States.
The General Assembly of the Organization of American States resolved to adopt the Model Regulations and to request the Permanent Council to transmit to the governments of the member states the Recommendations of the Group of Experts to CICAD. AG/RES. 1198 (XXII-O/92), 8th plennary session, (May 23, 1992).
OJ No. L 332, 31.12.1993, p.1.
OJ No. C 324, 1.12.1993, p.5; and OJ No. C 340, 17.12.1993, p.3.
OJ No. C 329, 6.12.1993, and Decision of 2 December 1993, OJ No. C 342, 20.12.1993, p.18.
OJ No. L 195, 29.7.1980, p.35. Directive as last amended by Directive 93/84/EEC (OJ No. L 254, 12.10.1993, p.16).
Council Regulation (EEC) No. 1969/88 of 24 June 1988 establishing a single facility providing medium-term financial assistance for Member States’ balance of payments (OJ No. L 178, 8.7.1988, p.1).
OJ No. L 332, 31.12.1993, p.1.
OJ No. C 324, 1.12.1993, p.7; and OJ No. C 340, 17.12.1993, p.6.
OJ No. C 329, 6.12.1993, and Decision of 2 December 1993, OJ No. C 342, 20.12.1993, p.18.
OJ No. L 195, 29.7.1980, p.35. Directive as last amended by Directive 93/84/EEC (OJ No. L 254, 12.10.1993, p.16).
Council Directive 77/780/EEC of 12 December 1977 on the coordination of the laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of credit institutions (OJ No. L 322, 17.12.1977, p. 30). Directive as last amended by Directive 89/646/EEC (OJ No. L 386, 30.12.1989, p. 1).
Council Directive 92/49/EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life insurance (third Directive on insurance other than life insurance) (OJ No. L 228, 11.8.1992, p. 1).
Council Directive 92/96/EEC of 10 November 1992 on the coordination of laws, regulations and administrative provisions relating to direct life insurance (third Directive on life insurance) (OJ No. L 360, 9.12.1992, p.1).
Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (OJ No. L 375, 31.12.1985, p. 3). Directive as amended by Directive 88/220/EEC (OJ No. L 100, 19.4.1988, p. 31).
Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field (OJ No. L 141, 11.6.1993, p.27).
OJ No. L 332, 31.12.1993, p.7.
OJ No. C 324, 1.12.1993, p.8; and OJ No. C 340, 17.12.1993, p.8.
OJ No. C 329, 6.12.1993.
Statistical Office of the European Communities, European System of Integrated Economic Accounts (ESA), second edition.
OJ No. L 49, 21.2.1989, p.26.
OJ No. L 372, 31.12.1986, p.1.
OJ No. C 130, 1.6.1981, p.1; OJ No. C 83, 24.3.1984, p.6; and OJ No. C 351, 31.12.1985, p.24.
OJ No. C 242, 12.9.1983, p.33; and OJ No. C 163, 10.7.1978, p.60.
OJ No. C 112, 3.5.1982, p.60.
OJ No. L 222, 14.8.1978, p.11.
OJ No. L 314, 4.12.1984, p.28.
OJ No. L 193, 18.7.1983, p.1.
OJ No. L 322, 17.12.1977, p.30.
OJ No. L 166, 28.6.1991, p.77.
OJ No. C 106, 28.4.1990, p.6; and OJ No. C 319, 19.12.1990, p.9.
OJ No. C 324, 24.12.1990, p.264; and OJ No. C 129, 20.5.1991.
OJ No. C 332, 31.12.1990, p.86.
OJ No. L 322, 17.12.1977, p.30.
OJ No. L 386, 30.12.1989, p.1.
OJ No. L 63, 13.3.1979, p.1.
OJ No. L 330, 29.11.1990, p.50.
OJ No. L 110, 28.4.1992, p.52.
OJ No. L 280, 24.9.1992, p.54.
OJ No. C 326, 16.12.1991, p.106; and OJ No. C 94, 13.4.1992.
OJ No. C 102, 18.4.1991, p.19.
OJ No. L 193, 18.7.1983, p.18.
OJ No. L 322, 17.12.1977, p.30. Directive as last amended by Directive 89/646/EEC (0) No. L 386, 30.12.1989, p.17.
OJ No. L 386, 30.12.1989, p.1.
OJ No. L 372, 31.1986, p.1.
OJ No. L 193, 18.7.1983, p.1. Directive as last amended by Directive 90/605/EEC (OJ No. L 317, 16.11.1990, p.60).
OJ No. L 124, 5.5.1989, p.16.
OJ No. L 29, 5.2.1993, p.1.
OJ No. C 123, 9. 5.1991, p. 18 and OJ No. C 175, 11.7.1992, p.4.
OJ No. C 150, 15.6.1992, p. 74 and OJ No. C 337, 21.12.1992.
OJ No. C 339, 31.12.1991, p.35.
OJ No. L 322, 17.12.1977, p.30. Directive last amended by Directive 89/646/EEC (OJ No. L 386, 30.12.1989, p.1).
OJ No. L 33, 4.2.1987, p.10.
OJ No. L 372, 31.12.1986, p.1.
OJ No. L 386, 30.12.1989, p.14.
OJ No. L 386, 30.12.1989, p.1. Directive amended by Directive 92/30/EEC (OJ No. L 110, 28. 4.1992, p. 52).
OJ No. L 124, 5.5.1989, p. 16.
OJ No. L 197, 18.7.1987, p. 33.
OJ No. L 110, 28.4.1992, p. 52.
OJ No. L 375, 31.12.1985, p. 3. Directive as amended by Directive 88/220/EEC (OJ No. L 100, 19.4.1988, p. 31).
OJ No. L141,11.6.1993, p. 27.
OJ No. C 43, 22.2.1989, p. 7; and OJ No. C 42, 22.2.1990, p. 7.
OJ No. C 304, 4.12.1989, p. 39; and OJ No. C 115, 26.4.1993.
OJ No. C 298, 27.11.1989, p. 6.
OJ No. L 386, 30.12.1989, p. 1. Directive as last amended by Directive 92/30/EEC (OJ No. L 110, 28.4.1992, p. 52).
OJ No. L 141, p.1.
OJ No. L 66, 16.3.1979, p. 21. Directive last amended by the Act of Accession of Spain and Portugal.
OJ No. L 322, 17.12.1977, p. 30. Directive as last amended by Directive 89/646/EEC (OJ No. L 386, 30.12.1989, p. 1).
OJ No. L 348, 17.12.1988, p. 62.
OJ No. L 193, 18.7.1983, p. 1. Directive last amended by Directive 90/605/EEC (OJ No. L 317, 16.11.1990, p. 60).
OJ No. L 228, 16.8.1973, p. 3. Directive last amended by Directive 90/619/EEC (OJ No. L 330, 29.11.1990, p. 50).
OJ No. L 63, 13. 3.1979, p. 1. Directive last amended by Directive 90/618/EEC (OJ No. L 330, 29.11.1990, p. 44).
OJ No. 56, 4.4.1964, p. 878/64.
OJ No. L 26, 30.1.1977, p. 1. Directive last amended by the Act of Accession of Spain and Portugal.
OJ No. L 375, 31.12.1985, p. 3. Directive last amended by Directive 88/220/EEC (OJ No. L 100, 19.4.1988, p. 31).
OJ No. L 197, 18.7.1987, p. 33.
OJ No. L 141, 11.6.1993, p. 1.
OJ No. C 152, 21.6.1990, p. 6; and OJ No. C 50, 25.2.1992, p. 5.
OJ No. C 326, 16.12.1991, p. 89; and OJ No. C 337, 21.12.1992, p. 114.
OJ No. C 69, 18.3.1991, p. 1.
See OJ No. L 141, p. 27 (1993).
OJ No. L 386, 30. 12. 1989, p. 14. Directive as amended by Directive 92/30/EEC (OJ No. L 110, 28.4.1992, p. 52).
OJ No. L 29, 5.2.1993, p. 1.
OJ No. L 124, 5. 5. 1989, p. 16. Directive as last amended by Directive 92/30/EEC (OJ No. L 110, 24.9.1992, p. 52).
OJ No. L 110, 28. 4.1992, p. 52.
OJ No. L 197, 18.7.1987, p. 33.
OJ No. L 322, 17. 12. 1977, p. 30. Directive as amended by Directive 89/646/EEC (OJ No. L 386, 30.12.1989, p. 1).
This text, Good Banking (2d ed., March 1994), is reproduced with the permission of the Code of Banking Practice Review Committee. Good Banking is a voluntary Code of Practice drawn up by the British Bankers’ Association, the Building Societies Association, and the Association for Payment Clearing Services, (the Associations) to be observed by the banks, building societies and card issuers in their relations with personal customers.
Enquiries about and requests for copies of the Code should be addressed to the Associations. Their current addresses and telephone numbers are: British Bankers’ Association, 10 Lombard Street, London EC3V 9EL, Telephone: 071 623 4001; Building Societies Association, 3 Saville Row, London W1X 1AF, Telephone: 071 437 0655; Association for Payment Clearing Services, Mercury House, Triton Court, 14 Finsbury Square, London EC2A 1BR, Telephone: 071 711 6200. This second edition is issued following a review by an independent committee - the Code of Banking Practice Review Committee—whose address is: 10 Lombard Street London EC3V 9AP, Telephone: 071 283 8315.
This text, General Business Conditions, was drawn up by the Bundesverband deutscher Banken and is reproduced their permission. The general business conditions applicable to German savings banks contain certain variations from these General Business Conditions. The present translation is furnished for the customer’s convenience only. The original German text of the General Business Conditions is binding in all respects. In the event of any divergence between the English and the German texts, constructions, meanings, or interpretations, the German text, construction, meaning or interpretation shall govern exclusively.
This text, General Conditions, is reproduced with the permission of the Netherlands Bankers’ Association. It is a translation of the original Dutch text, which is currently being revised. This translation is furnished for the customer’s convenience only. The original Dutch text is be binding and shall prevail in case of any variance between the Dutch text and the English translation.
Notes
Introduction (Effros)
“Je veux que la Banque … soit dans la main du Gouvernement mais qu’ elle n’y soit pas trop.” Geneviève Iacono, Le nouveau statut de la Banque de France, une étape vers l’union économique et monétaire, Recueil Dalloz Sirey 89 (March 1994)(quoting Napoleon).
See chapters 15A, 15B, and 15C herein; see generally Rosa Maria Lastra, The Independence of the European System of Central Banks, 33 Harvard International Law Journal 475(1992).
Milton Friedman, Monetary Policy: Theory and Practice, 14 Journal of Money, Credit, and Banking 118 (February 1982). See also Lester Thurow, in Newsweek, March 1, 1982, at 29 (quoted in King Banaian, Leroy O. Laney, and Thomas D. Willett, Central Bank Independence: An International Comparison, Federal Reserve Bank of Dallas Economic Review 2, note 4 (March 1983)); see also Robert D. Auerbach, Politics and the Federal Reserve, 43 Contemporary Policy Issues 57 (Fall 1985)(stating “[a] new system is needed to translate the political premiums for long-run price stability and full employment into long-run monetary policy. The Federal Reserve should be part of the Treasury so that political signals can be given efficiently. The U.S. President should take full responsibility for the country’s monetary policy.”)
See Section 2A of the Federal Reserve Act, 12 U.S.C. § 225a (1988), which provides: [t]he Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long-run growth of the monetary and credit aggregates commensurate with the economy’s long-run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates…
See also Reserve Bank Act of Australia, 1959, § 10(2)(b).
See Central Bank of Kenya Act § 4 (as of 1984); Monetary Law Act of Sri Lanka (chapter 422), as amended as of August 25, 1988, § 5(d); Law No. 73–118 of May 30, 1973, Establishing the Central Bank of Mauritania and Setting Forth Its Statutes, Art. 33.
See Bank of Sierra Leone Act, 1963, as amended as of 1983, § 5(c) Sierra Leone Gazette 1963, No. 6; Organic Law of the Bank of Cape Verde, Decree-Law 52-D/90, Art. 3 Boletim Oficial de Cabo Verde, No. 26, Suplemento at 21 (July 4, 1990).
Quoted in Lord O’Brien of Lothbury, The Independence of Central Banks, Address Before the Société Royale d’Economie Politique de Belgique 18 (Dec. 14, 1977).
Id. at 18–19.
Thus, the records of inflation rates in France and Japan, where the central banks traditionally enjoyed less independence than in certain other countries, do not appear to have been excessive.
Michiel Hendrik de Kock, Central Banking 14 (4th ed., 1974).
Treaty Establishing the European Community, March 25, 1957, 298 U.N.T.S. 11, as amended by the Treaty on European Union, done at Maastricht, Feb. 7, 1992, Art. 105(1), 1992 Official Journal (C 191) 1 [hereinafter “E.C. Treaty”], reprinted herein as Appendix II(1); Protocol on the Statute of the European System of Central Banks and of the European Central Bank, annexed to the Maastricht Treaty, supra, Art. 2, reprinted herein as Appendix II(2).
E.C. Treaty, supra note 11, Art. 105(2).
Id. Art. 107; Protocol, supra note 11, Art. 7.
E.C. Treaty, supra note 11, Art. 104(1); Protocol, supra note 11, Art. 21(1).
Protocol, supra note 11, Art. 27(1).
Id. Art. 14(2).
Id. Art. 14(2).
Id. Art. 38.
This introduction is derived in part from Effros, The Maastricht Treaty, Independence of the Central Bank, and Implementing Legislation, in Frameworks for Monetary Stability 279 (Tomás J.T. Baliño and Carlo Cottarelli eds., 1994).
Chapter 1A, “Members’ Rights and Obligations Under the IMF’s Articles of Agreement” (Gianviti)
International Monetary Fund, Articles of Agreement, Art. XXIX(a) (1993).
Id. Art. XXIX(b).
Agreement between the United Nations and the International Monetary Fund, Nov. 15, 1947, Art. VIII, reprinted in Selected Decisions and Selected Documents of the International Monetary Fund 519, at 522 (19th issue, 1994).
Articles of Agreement, supra note 1, Art. V, § 3(b).
Id. Art. XVIII, §2(e).
Id. Art. XIX, § 2.
Id. Art. VIII, § 2(a).
Id. Art. V, § 2(b), last sentence.
Agreement between the United Nations and the International Monetary Fund, supra note 2, Art. I, paragraph 2.
Id. Art. VI; U.N. Charter, Arts. 41 and 42, reprinted in International Organizations and Integration, I.A.2.a (P.J.G. Kapteyn et al. eds., 1981).
The Fund’s general resources are those that are held in the General Resources Account (as distinguished from those held in the Special Disbursement Account).
Articles of Agreement, supra note 1, Art. V, § 3(b)(ii).
Id. Art. I, in fine.
Id. Art. XII, § 5(a).
The two CFA franc zones are le franc de la coopération financière en Afrique centrale, consisting of Cameroon, the Central African Republic, Chad Congo, Equatorial Guinea, and Gabon, and le franc de la communauté financière de l’Afrique de l’Ouest, consisting of Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal, and Togo.
Articles of Agreement, supra note 1, Art. VI, § 3.
Decision No. 541-(56/39), July 25, 1956, reprinted in Selected Decisions, supra note 3, at 283.
The Third Amendment of the Articles of Agreement entered into force on November 11, 1992. As a result of the Third Amendment, new provisions were added to the Articles, in Article XXVI, § 2 and in a new Schedule L, as well as in Article XII, § 3(i) and Schedule D. The Third Amendment is reprinted in Appendix I(1) of this volume.
Chapter 1B, “The Third Amendment to the IMF’s Articles of Agreement” (Gianviti)
International Monetary Fund, Articles of Agreement, Art. XXVI, § 2(a) (1993).
Id. Art. XXVI, § 2(c).
IMF, Executive Board Minutes, EBM/ 84/ 54, 37–38, reprinted in Selected Decisions of the International Monetary Fund 59 (19th issue, 1994).
Report of the Executive Board to the Board of Governors on the Proposed Third Amendment of the Articles of Agreement of the International Monetary Fund (May 30, 1990). The Third Amendment is reprinted in Appendix I(1) of this volume.
See Appendix I(1).
IMF, Press Release No. 92/ 82 (Nov. 11, 1992).
Chapter 1C, “The IMF’s Technical Assistance Activities” (Holder)
The purposes of the International Monetary Fund are
(i) To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.
(ii) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.
(iii) To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.
(iv) To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.
(v) To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.
(vi) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.
International Monetary Fund, Articles of Agreement, Art. I (1993).
See generally id. Art. IV.
In 1964, also, the Executive Board created the IMF institute, thus consolidating the IMF’s technical assistance efforts in the training field.
Articles of Agreement, supra note 1, Art. V § 2(b).
Id.
Under the IMF’s present rules, the Managing Director approves official travel to member countries; the authority to accept technical assistance assignments is delegated to departments. Technical assistance rendered to nonmember or international agencies is to be approved by the Executive Board. IMF, By-Laws, Rules and Regulations, Rule N-16, 46–49 (50th issue, 1994).
Procedures for Dealing with Members with Overdue Financial Obligations to the Fund, Executive Board Meetings 89/100 and 89/ 101, July 27, 1989, reprinted in Selected Decisions and Selected Documents of the International Monetary Fund 61,65 (19th issue, 1994) [hereinafter “Selected Decisions”].
See generally IMF, Annual Report of the Executive Board for the Financial Tear Ended April 30, 1992, at 178 (1992).
Establishment of the Enhanced Structural Adjustment Facility Trust, Decision No. 8759-(87/176) ESAF (December 18, 1987), as amended reprinted in Selected Decisions, supra note 7, at 21.
IMF, Proposed Second Amendment to the Articles of Agreement of the International Monetary Fund: A Report by the Executive Directors to the Board of Governors, Part II, Commentary on the Proposed Amendment of the Articles of Agreement, Chapter D, section 2 (1976).
IMF, Press Release No. 91/ 34 (July 23, 1991).
Articles of Agreement, supra note 1, Art. X.
Id. Art. XXXI § 2(g).
To give some indication of the growth of this involvement, during the period 1946–1956, the IMF gave technical assistance to thirty-seven member countries and one nonmember country. In the fifteen years preceding 1979, members of the Legal Department participated in over sixty technical assistance missions. During fiscal year 1991–1992, the Legal Department participated in fifty-five missions.
The courses of the Joint Vienna Institute began in September 1992, under interim arrangements, pending the formalization of an agreement. The Agreement for the Establishment of the Joint Vienna Institute came into force on August 19, 1994. See 33 International Legal Materials 1508 (1994); Selected Decisions, supra note 7, 178.
Chapter 2, “Developments at the International Bank for Reconstruction and Development” (Rigo)
J.B. Howard, Law as a Resource of Development, 1 International Development Review 9 (1976).
Ibrahim F.I. Shihata, Law and the Development Process, 9 The Bank’s World 12–14 (1990).
Ibrahim F.I. Shihata, The World Bank in a Changing World: Selected Essays 85 (Fraziska Tschofen and Antonio R. Parra eds., 1991).
Id. at 89.
Shihata, supra note 2, at 14.
John Henry Merryman, Comparative Law and Social Change: On the Origins, Style, Decline & Revival of the Law and Development Movement, 25 The American Journal of Comparative Law 457, 483 (1977).
Report on Indonesia: Priorities for Commercial Law Reforms for Private Sector Development, revised draft 33, Box 3.3 (1990) (unpublished World Bank legal department material).
Nicolette de Witt, Review of “Housing: Enabling Markets to Work” (unpublished World Bank legal department material).
E. Wymeersch, Report on the Recovery of Bank Loans 36 (1988) (unpublished material, on file with author).
Id. at 38.
N. Lichtenstein, Address on Law and Public Enterprise Reform, Hanoi (1992).
John Nellis, Contract Plans, A Review of International Experience, in Control of State-Owned Enterprises 279, 321–322 (Ravi Ramamurti & Raymond Vernon eds., 1991).
A. Rigo and H.J. Grus, The Rule of Law 9–12 (1992) (unpublished material, on file with author).
Draft Policy Note on Legal Reform in the Former Soviet Republics 2 (March 1992) (unpublished World Bank legal department material).
Memorandum from P. Benoit and J.F. Dupuy to Andrés Rigo on the subject of a proposed regional project to strengthen creditor/debtor rights system within UMOA 2 (July 12, 1991).
Chapter 3, “Developments at the International Finance Corporation” (Khairallah)
International Finance Corporation, Annual Report 1993, Introduction.
IFC, Articles of Agreement, Art. 1 (as amended through April 28, 1993).
Annual Report 1993, supra note 1, Introduction.
Id. at 21–22, 94, and 110.
Id. at 93.
Id. at 68.
Id. at 96.
See id. at 1, 98, and 145–147.
See id. at 20–21.
See id. at 2 and 20–21.
Id. at 11.
Id. at 25–26.
Id. at 78.
Since 1991, there have been several new members, including Albania, Algeria, Belarus, Bulgaria, the Central African Republic, Equatorial Guinea, the Kyrgyz Republic, the Lao People’s Democratic Republic, Lithuania, Mongolia, Namibia, Romania, the Russian Federation, and Switzerland. Id. at 1 and 145–147.
Id. at 1.
Chapter 4, “Developments at the Inter-American Development Bank” (Niehuss)
Inter-American Development Bank, Agreement Establishing the Inter-American Development Bank, as amended, Art. 1 § 1 (1988)[hereinafter “Charter”].
Id. Art. 1 § 2(a)(ii).
Inter-American Development Bank, 1992 Annual Report 37–42.
Charter, supra note 1, Art. IV; see World Bank Annual Report 1991, at 3.
Charter, supra note 1.
Id. Art. XI.
United States: Broadbent v. Organization of American States, 202 U.S. App. D.C. 27, 628 F.2d 27 (1980): Mendaro v. World Bank, 717 F.2d 610 (D.C. Cir. 1983). Argentina: Gondra c. El Banco Interamericano de Desarrollo, Corte Suprema de Justicia de la Nación (June 22, 1993). France: Chemidlin v. International Bureau of Weights and Measures, Tribunal Civil of Versailles, 1945. Italy: Mrs. C. v. ICEM (Intergovernmental Committee for European Migration), Supreme Court of Cassation (Plenary for Civil Matters), 1973.
See 1992 Annual Report, supra note 3, at 11.
Id.
Chapter 5A, “Economic Policy Coordination and the Freedom to Effect Financial Transactions in the European Community” (Smits)
Treaty on the European Union, done at Maastricht, Feb. 7, 1992, 1992 Official Journal (C 191) 1, reprinted in 31 International Legal Materials 247 (1992) [hereinafter Maastricht Treaty].
Treaty Establishing the European Community, Mar. 25, 1957, as amended by the Maastricht Treaty, supra note 1 [hereinafter E.C. Treaty]. Selected provisions are reprinted as Appendix II(1).
Danish Constitution, Arts. 19 and 42, reprinted in 5 Constitutions of the Countries of the World (Blaustein & Flanz eds., 1985).
See 1992 Official Journal (C 348). The Danish instrument of ratification was deposited with the Italian Republic in compliance with the Maastricht Treaty. Article R(1) of that Treaty states that “[t]his Treaty shall be ratified by the High Contracting Parties in accordance with their respective constitutional requirements. The instruments of ratification shall be deposited with the government of the Italian Republic.” Maastricht Treaty, supra note 1, Art. R(1).
See E.C. Treaty, supra note 2.
E.C. Treaty, supra note 2, Art. 4(1).
Resolution of the European Council on the Establishment of the European Monetary System (EMS) and Related Matters, Part A, para. 1.1 and 1.2, reprinted in Monetary Committee of the European Communities, Compendium of Community Monetary Texts 43 (1986); see also, e.g., Agreement of 13 March 1979 Between the Central Banks of the Member States of the European Economic Community Laying Down the Operating Procedures for the European Monetary System, reprinted in Compendium of Community Monetary Texts, supra, at 47.
See generally Resolution of the European Council, supra note 7; Agreement of 13 March 1979, supra note 7.
On July 30, 1993, at a meeting of the Monetary Committee of the EC, upon the request of Mr. Theo Waigel, Minister of Finance of Germany, the Ministers of Finance and central bank governors decided to widen temporarily the marginal intervention thresholds of the ERM to +/− 15 percent.
See generally Council-Commission of the E.C., Report to the Council and the Commission on the Realisation by Stages of Economic and Monetary Union in the Community (“Werner Report”), Supplement to E.C. Bulletin 11–1970, Oct. 8, 1970.
See generally Committee for the Study of Economic and Monetary Union, Report on Economic and Monetary Union in the European Community (“Delors Report”), April 12, 1989.
As of November 1, 1993, the date of entry into force of the Treaty on European Union, the term “European Community” instead of European Economic Community, is to be used. Popular references are to the “European Union,” the umbrella for the EC and the two intergovernmental pillars of European integration.
Maastricht Treaty, supra note 1, Arts. A-F.
Id. Art. G.
Id. Arts. L-S.
Id. Art. J.
Id. Art. K.
Delors Report, supra note 11.
Council Directive 88/36 of June 24, 1988 for the Implementation of Article 67 of the Treaty, 1988 Official Journal (L 178) 5, Art. 9, reprinted in 1 Financial Services and EEC Law II.A.131 (Martijn van Empel ed., 1994).
E.C. Treaty, supra note 2, Art. 109j.
Id. para. 1.
Gesetz über die Deutsche Bundesbank (Deutsche Bundesbank Act of July 26, 1957), Bundesgesetzblatt (Federal Law Gazette) of July 30, 1957 (as amended through December 1992).
E.C. Treaty, supra note 2, Art. 109j(2).
Id. 109j(3).
Id. 109j(4). Of course, since the temporary widening of the fluctuation bands in 1993, the question arises of how to implement the condition. See Annual Report 1994 of the European Monetary Institute 55–56 (EMI, Frankfurt au Main, 1995).
Id. 109j(5).
Statement made by member of U.K. delegation during discussions in Maastricht (unpublished).
International Monetary Fund, Articles of Agreement, Art. VIII, § 2(a) (1993).
However, a Member State may not exercise these controls of capital transfers in a manner that restricts payments for current transactions or unduly delays transfers of funds in settlement of commitments subject to certain exceptions. Id. Art. VI, § 3.
E.C. Treaty, supra note 2, Art. 736.
Id. Art. 73c.
Id. Art. 73d.
Id. Art. 73f.
Id. Art. 73e. This provision applied only to Greece, which before a July 1, 1994, deadline abolished any remaining restrictions. Thus, Article 73e is no longer applied.
Id. Art. 73f.
Id. Art. 73g.
Id. Art. 103.
Id.
Council Decision of 12 March 1990 on the Attainment of Progressive Convergence of Economic Policies and Performance During Stage One of Economic and Monetary Union, 1990 Official Journal (L 78) 23.
IMF, supra note 29, Art. IV § 3.
E.C. Treaty, supra note 2, Art. 104c(1).
Protocol on the Excessive Deficit Procedure, annexed to the E.C. Treaty, supra note 2, 1992 Official Journal (C 191) 84, reprinted herein as Appendix II(3); see also Appendix II(3a).
Id. Art. 1.
E.C. Treaty, supra note 2, Art. 104c(5).
Id. Art. 104c(7).
Id. Art. 104c(8).
Id. Art. 104c(11).
Id. Art. 104c(2).
Id. Art. 104c(3).
Id. Art. 104c(4).
Id. Art. 104c(5).
Id. Art. 104c(13).
Id. Art. 104.
Id. Art. 104a.
Id. Art. 104b.
Judgment of the French Constitutional Council (Conseil Constitutionnel) of April 9, 1992, in Case 92–308 (1992), Journal Officiel de la République Française 5354 (1992).
Constitutional Law (Loi Constitutionnelle) No. 92–554 of June 25, 1992, Journal Officiel de la République Française 8406 (1992).
Judgment of the Federal Constitutional Court of Germany (Bundesverfassungsgericht) of October 12, 1993, 2 BvR 2134/92 and 2 BvR 2159/92 (1993);see also René Smits, A Single Currency for Europe and the Karlsruhe Court in Legal Issues of European Integration No. 2 at 115 (1994).
Council Regulation 3603/93 of 13 December 1993 Specifying Definitions for the Application of the Prohibitions Referred to in Articles 104 and 104b of the Treaty, 1993 Official Journal (L 332) 1 reprinted herein as Appendix II 1(a) and Council Regulation 3604/93 of 13 December 1993 Specifying Definitions for the Application of the Prohibition of Privileged Access Referred to in Article 104a of the Treaty, 1993 Official Journal (L 332) 4, reprinted herein as Appendix II 1(b).
Council Recommendation 94/480 of 11 July 1994 on the Broad Guidelines of the Economic Policies of the Member States and the Community, 1994 Official Journal (L 200)38.
Protocol, supra, note 43. The procedure was further specified by Council Regulation 3605/93 of 22 November 1993 on the Application of the Protocol on the Excessive Deficit Procedure Annexed to the Treaty Establishing the European Community, 1993 Official Journal (L 332) 7, reprinted herein as Appendix II(3a).
The Recommendations of the Council for putting an end to situations of excessive public deficit, formally adopted on November 7, 1994, were published in Europe Documents No. 1908 (November 9, 1994).
See European Monetary Institute, 1994 Annual Report (1995). See European Monetary Institute, 1994 Annual Report (1995). The monetary union plank of ‘Maastricht’ is the subject of the next chapter by Jean-Victor Louis, Chapter 5B.
E.C. Treaty, supra note 2, Art. 1099l(4).
Id. Art. 109g.
Council Directive 88/361, supra, note 20.
Council Regulation 2471/94 of 10 October 1994 Introducing a Further Discontinuation of the Economic and Financial Relations between the European Community and the Areas of Bosnia-Herzegovina under the Control of Bosnian Serbs Forces, 1994 Official Journal (L 266) 1.
Chapter 5B, “European Monetary Union and the European System of Central Banks” (Louis)
Treaty Establishing the European Community, Mar. 25, 1957, Art. 3a(2), as amended by the Treaty on the European Union, done at Maastricht, Feb. 7, 1992, 1992 Official Journal (C 191) 1 [hereinafter E.C. Treaty]. Selected provisions are reprinted as Appendix II(1). The Treaty on the European Union was entered into on November 1, 1993, after ratification by the 12 member states.
Id. Art. 109f(2). The ECU is a “basket” of EC currencies. This means that its value is defined as a sum of specified amounts of each currency.
Id. Arts. 109j and 109l.
See generally Committee for the Study of Economic and Monetary Union, Report on Economic and Monetary Union in the European Community (“Delors Report”), April 12, 1989.
E.C. Treaty, supra note 1, Arts. 109j and 109l.
Id. Art. 103 et seq.
Id. Arts. 105(2) and 109c(1).
“At the start of the third stage, an Economic and Financial Committee shall be set up. The Monetary Committee provided for in paragraph 1 shall be dissolved.” Id. Art. 109c(2).
The Committee of Central Bank Governors was dissolved at the start of the second stage. Id. Art. 109e(5) and 109f(1). The Governors of the national central banks became part of the European Monetary Institute. Id. Art. 109f(1).
Council Regulation 907/73 of 3 April 1973 Establishing a European Monetary Cooperation Fund, 1990 Official Journal (L 89) 2.
Id. Art. 109f(2).
Id. Art. 109f(1).
See generally id. Art. 109f.
Id. Art. 109l.
Protocol on the Statute of the European System of Central Banks and of the European Central Banks, annexed to the Treaty on European Union, supra note 1, 1992 Official Journal (C 191) 68, reprinted herein as Appendix II(2) [hereinafter Protocol].
Id. Art. 29.1.
Id. Art. 33.
See generally Protocol, supra note 15; E.C. Treaty, supra note 1, Art. 104 et seq.
E.C. Treaty, supra note 1, Art. 236. Article N of the Maastricht Treaty is essentially the same as Article 236 of the Treaty. Article N, however, contains the added proviso that “[t]he European Central Banks shall also be consulted in the case of institutional changes in the monetary area.” Treaty on European Union, supra note 1, Art. N.
E.C. Treaty, supra note 1, Art. 105; Protocol, supra note 15, Art. 2.
Protocol, supra note 15, Art. 2.
Id. Art. 3.1.
Id. Art. 12.1.
Id. Art. 3.1.
See generally E.C. Treaty, supra note 1, Art. 109.
Protocol, supra note 15, Art. 3.1.
“Without prejudice to Article 28, the ECB shall be provided by the national central banks with foreign reserve assets, other than member states’ currencies, ECUs, IMF reserve positions and SDRs, up to an amount equivalent to ECU 50,000 million. The Governing Council shall decide upon the proportion to be called up by the ECB following its establishment and the amounts called up at later dates. The ECB shall have the full right to hold and manage the foreign reserves that are transferred to it and to use them for the purposes set out in this Statute.” Id. Art. 30.1.
Id. Art. 30.5.
Pursuant to the International Monetary Fund’s Articles of Agreement, under the section “Other holders,”
the Fund may prescribe:
(i) as holders, non-members, members that are non-participants, institutions that perform functions of a central bank for more than one member, and other official entities;…
International Monetary Fund, Articles of Agreement, Art. XVII § 3 (1993).
Protocol, supra note 15, Art. 3.1.
Id. Art. 3.3.
Id. Art. 25.2.
Id. Art. 4.
Id. Art. 5.
Id. Art. 16.
Id. Arts. 7 and 107.
Id. Art. 14.
Id. Arts. 10–12.
Id. Art. 10.
Id. Art. 11.2.
Id. Arts. 10.2 and 10.3.
Id. Arts. 10 and 11.
Id. Art. 12.1.
Id.
Id.
Id. Art. 14.3.
Id. Art. 35.6.
E.C. Treaty, supra note 1, Art. 109b(3).
See 12 U.S.C. § 225a (1988).
Chapters 5A and 5B, Comment (Lichtenstein)
See Peter Marsh, Optimism About Union Dims—Europe Has Embarked on the Arduous Task of Making EMU a Reality, Financial Times, May 29, 1992, at 4; A Protest Vote in Germany, Financial Times, April 6, 1992, at 14.
Protocol on the Statute of the European System of Central Banks and of the European Central Banks, Art. 35.6, 1992 Official Journal (C 191) 68, reprinted herein as Appendix II(2).
Treaty Establishing the European Community, Mar. 25, 1957, Art. 105(1), 298 U.N.T.S. 11, as amended by the Treaty on the European Union, done at Maastricht, Feb. 7, 1992, 1992 Official Journal (C 191) 1. Selected provisions are reprinted as Appendix II(1).
Peter Kenen, an international monetary economist, raised this issue in EMU After Maastricht, which was published by the Group of Thirty, a private group of bankers and economists with headquarters in Washington, D.C. Peter Kenen, EMU After Maastricht 25 (1992).
Second Council Directive 89/646 of 15 December 1989 on the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking Up and Pursuit of the Business of Credit Institutions and Amending Directive 77/780, Art. 3, 1989 Offical Journal (L 386) 1, as corrected, reprinted in 2 Current Legal Issues Affecting Central Banks 264 (Robert C. Effros ed., 1994).
Kenen, supra note 4, at 25.
Chapter 6, “EC Directives on Investment Services and the Capital Adequacy of Investment Firms and Credit Institutions” (Clarotti)
Second Council Directive 89/646 of 15 December 1989 on the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking Up and Pursuit of the Business of Credit Institutions amending Directive 77/780/EEC (as corrected), 1989 Official Journal (L 386) 1, and as corrected 1990 Official Journal (L 83) 128 and 1990 Official Journal (L 158) 87 [hereinafter “Second Banking Directive”], reprinted in 2 Current Legal Issues Affecting Central Banks 264 (Robert C. Effros ed., 1994); Council Directive 89/299 of 17 April 1989 on the Own Funds of Credit Institutions (as amended by Directive 91/633 of 3 December 1991), 1991 Official Journal (L 339) 33, and Directive 92/16 of 16 March 1992, 1992 Official Journal (L 75) 48, reprinted in 2 Current Legal Issues Affecting Central Banks, supra, 287; Council Directive 89/647 of 18 December 1989 on a Solvency Ratio for Credit Institutions (as amended by Directive 91/31 of 19 December 1990), 1989 Official Journal (L 386) 14, reprinted in 2 Current Legal Issues Affecting Central Banks, supra, 297.
The Agreement on the European Economic Area was signed on May 2, 1992, and entered into force on January 1, 1994. The Agreement included the 12 EU countries and the following EFTA countries: Austria, Finland, Iceland, Norway, and Sweden. Since January 1, 1995, Austria, Finalnd, and Sweden joined the European Union. During 1995, Liechtenstein will join the European Economic Area.
Council Directive 85/611 of 20 December 1985 on the Coordination of Laws, Regulations and Administrative Provisions Relating to Undertakings for Collective Investment in Transferable Securities (UCITS) (as amended by Council Directive 88/220), 1985 Official Journal (L 375) 3, reprinted in 3 Financial Services and EEC Law V.A.154 (Martijn van Empel ed., 1994).
Council Directive 98/298 of 17 April 1989 Coordinating the Requirements for the Drawing-up, Scrutiny and Distribution of the Prospectus to be Published when Transferable Securities are Offered to the Public, 1989 Official Journal (L 124) 8, reprinted in 3 Financial Services and EEC Law, supra note 3, at V.A.219.
Council Directive 90/211 of 23 April 1990 amending Council Directive 80/390 in Respect of the Mutual Recognition of Public Offer Prospectuses as Stock-Exchange Listing Particulars, 1990 Official Journal (L 112) 24, reprinted in 3 Financial Services and EEC Law, supra note 3, at V.A.302.
See EC Finance Ministers Agree on Common Share Listing Prospectus, AFX News (Dec. 13, 1993). Council Directive 94/18/EC of May 30, 1994, amending Directive 80/390/EEC coordinating the requirements for the drawing up, scrutiny, and distribution of the listing particulars to be published for the admission of securities to offical stock exchange listings, 1994 Offical Journal (L 135).
Council Directive 93/22 of 10 May 1993 on Investment Services in the Securities Field, 1993 Official Journal (L 141) 27 [hereinafter ISD]; reprinted herein as Appendix II(9).
Council Directive 93/6 of 15 March 1993 on the Capital Adequacy of Investment Firms and Credit Institutions, 1993 Official Journal (L 141) 1 [hereinafter CAD]; reprinted herein as Appendix II(10).
Id. preamble.
ISD, supra note 7, Art. 31; CAD, supra note 8, Art. 12.
ISD, supra note 7, Art. 1(2).
Id. Art. 1(1).
Id. Art. 1(6).
Id. Art. 1(7).
Id. Art. 15.
Id. Art. 3(1).
Id. Art. 15.
Id. Art. 10.
Id. Art. 11.
See id. Arts. 8(3) and 18(2).
See id. Art. 10.
Id. Arts. 11 and 13.
Id. Arts. 19 and 23.
Id. Art. 29.
The Single European Act, 1987 Official Journal (L 169) 1, (1987) corrected by 1987 Official Journal (L 304) 46, reprinted in 25 International Legal Materials 503 (1987); Art. 145, 3rd indent.
ISD, supra note 7, Art. 1(2).
See supra note 1.
Id. Arts. 8(2), 11, and 14; see also Art. 2(1).
Id. preamble (stating “[w]here this Directive constitutes an instrument essential to the achievement of the internal market, a course determined by the Single European Act and set out in a timetable form in the Commission’s White Paper, from the point of view both of the right of establishment and of the freedom to provide financial services, in the field of investment firms …”).
Id. (providing further “[w]hereas the approach adopted is to effect only the essential harmonization necessary and sufficient to secure the mutual recognition of authorization and of prudential supervision systems, making possible the grant of a single authorization valid throughout the Community and the application of the principle of home Member State supervision …”).
Id. and see note 1.
ISD, supra note 7, Preamble.
Id.
Id.
Id. Preamble and Art. 5.
Id. Art. 3(3).
Id.
Id. Art. 3(4).
Id. Art. 4.
Id.
Id. Art. 6.
Id. Art. 5.
Id. Art. 3(4).
Id. Art. 3(5).
Id. Art. 3(6).
CAD, supra note 8.
ISD, supra note 7, Art. 10.
See id. Art. 15.
Id. Art. 21.
Id. Art. 14.
See supra note 1.
CAD, supra note 8.
Id. preamble.
Id. Art. 3.
Id.
Second Banking Directive, supra note 1, Art. 4.
CAD, supra note 8, Art. 4.
Id.
Id. Annex V/ 2.
See id. Art. 4(1)(iii).
The Basle Committee on Banking Regulations and Supervisory Practices (since renamed the Basle Committee on Banking Supervision), Report of the Basle Committee on International Convergence of Capital Measurement and Capital Standards (1988), reprinted in 1 Current Legal Issues Affecting Central Banks 487 (Robert C. Effros ed., 1992), as amended by The Amendment of the 1988 Capital Accord, in Report on International Developments in Banking Supervision 19 (Report Number 8, September 1992), reprinted herein as Appendix I(2).
CAD Annex V/2.
Id. Annex V/4, 6, and 7.
Id. Art. 2(6).
Id. Art. 7(3); Council Directive 92/30 of 6 April 1992 on the Supervision of Credit Institutions on a Consolidated Basis, 1992 Official Journal (L 280) 54 (as amended), reprinted herein as Appendix II(7).
CAD, supra note 8, Art. 7(4).
Id. Art. 5.
Id. Art. 2(6)(a).
Id. Art. 2(6)(b).
Id.
Id. Art. 2(18);see also id. Art. 2(17).
Basle Committee on Banking Supervision, The Supervisory Recognition of Netting for Capital Adequacy Purposes (Consultative Proposal) (1993), The Supervisory Treatment of Market Risks (Consultative Proposal) (1993), Measurement of Banks’ Exposure to Interest Rate Risk (Consultative Proposal) (1993).
CAD, supra note 8.
CAD, Art. 4(b) (i), (ii), and (iii).
Id. Annex I(33).
Id. Annex III(1).
CAD, supra note 8, Art. 14.
Chapter 6, Comment (Glassman)
Second Council Directive 89/646 of 15 December 1989 on the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking Up and Pursuit of the Business of Credit Institutions and Amending Directive 77/780 (as corrected), 1989 Official Journal (L 386) 1, and as corrected 1990 Official Journal (L 83) 128 and 1990 Official Journal (L 158) 87 [hereinafter the Second Banking Directive], reprinted in 2 Current Legal Issues Affecting Central Banks 264 (Robert C. Effros ed., 1994).
First Council Directive 79/267 of 5 March 1979 on the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking Up and Pursuit of the Business of Direct Life Assurance (as amended), 1979 Official Journal (L 63) 1; Council Directive 90/619 of 8 November 1990 on the Coordination of Laws, Regulations and Administrative Provisions Relating to Direct Life Assurance, Laying Down Provisions to Facilitate the Effective Exercise of Freedom to Provide Services and Amending Directive 79/267 (as amended), 1990 Official Journal (L 330) 50; Council Directive 92/96 of 10 November 1992 on the Coordination of Laws, Regulations and Administrative Provisions Relating to Direct Life Assurance and Amending Directives 79/267 and 90/619, 1992 Official Journal (L 360) 1.
Council Directive 93/22 of 10 May 1993 on Investment Services in the Securities Field, 1993 Official Journal (L 141) 27 [hereinafter ISD], reprinted herein as Appendix II(9); Council Directive 93/6 of 15 March 1993 on the Capital Adequacy of Investment Firms and Credit Institutions, 1993 Official Journal (L 141) 1, reprinted herein as Appendix II(10).
The Second Banking Directive, supra note 1; ISD, supra note 3.
See the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Public Law No. 103–328, 108 Stat. 2338 (1994).
See 15 U.S.C. §§ 77a et seq. (1988 and Supp. V 1993).
See e.g., 12 U.S.C. §§ 221a and 377 (1988).
However, after December 18, 1992, federally insured state banks may not engage as principals in any type of activity that is not permissible for a national bank unless the FDIC determines the activity would pose no significant risk to the deposit insurance fund and the bank is in compliance with applicable capital standards. See 12 U.S.C. § 1831a (Supp. V 1993).
See Investment Company Institute v. Camp, 401 U.S. 617 (1971); Virgil Mattingly, The Line Between Investment and Commercial Banking, in 2 Current Legal Issues Affecting Central Banks 145, 152–153 (Robert C. Effros ed., 1994); Charles Horn, The Legal Barrier Between U.S. Investment and Commercial Banking 279, 294–305, in 1 Current Legal Issues Affecting Central Banks 279 (Robert C. Effros ed., 1992).
See the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, supra note 5, § 101(a).
Chapter 7A, “Legal Aspects of Transforming the Economy in Central and Eastern Europe” (Harmathy)
See e.g., Constitution (Basic Law) of the Estonian Soviet Socialist Republic, Arts. 10–12, reprinted in Gisbert H. Flanz & Jefri J. Ruchit, Estonia, in VI Constitutions of the Countries of the World 12–18 (Albert P. Blaustein & Gisbert H. Flanz eds., 1992).
Poland, Hungary, the Czech and Slovak Republics, Bulgaria, and Romania are among the countries preparing to join the European Union. Commission Launches Detailed Pre-Accession Strategy for Central and Eastern Europe, European Commission Press Release, IP/94/755 (July 27, 1994), reprinted as Commission Launches Detailed East Europe Strategy, The Reuter European Community Report (July 28, 1994).
Chapter 7B, “Legal Aspects of Economic Reform in Eastern Europe” (Mozolin)
Gazette of the RSFSR Congress of People’s Deputies and Supreme Soviet, [hereinafter Gazette], No. 30, Item 416 (1990).
Gazette, No.29, Item 416 (1990).
Gazette, No. 3, Item 89 (1992).
Gazette, No. 30, Item 418 (1990).
Gazette, No.29, at 1008 (1990).
Gazette, No. 27, at 357 (1990).
Collected Decisions of RSFSR Government, No. 6, at 92 (1991).
Gazette, No. 27, Item 927 (1991).
Gazette, No. 28, Item 959 (1991).
Gazette, No. 3, Item 93 (1992).
Gazette, No. 7, Item 312 (1992).
Gazette, No. 27, Item 925 (1992).
Gazette, No. 28, Item 1617 (1992).
Economic i Zhizn, Economicheskaya Gazeta, Feb. 5, 1992 at 18–19.
Gazette, No. 11, Item 327 (1992).
Rossiyskaya Gazeta, April 7, 1992, at 4–5.
Chapter 8, “The Debt Crisis and Its Resolution” (Truman)
This paper represents the views of the author and should not be interpreted as reflecting those of the Board of Governors of the Federal Reserve System or other members of its staff.
See Maxwell Watson, Donald Mathieson, Russell Kincaid, and Eliot Kalter, International Capital Markets and Prospects, IMF Occasional Paper No. 43 (1986).
Statement of the Honorable James A. Baker, III, Secretary of the Treasury of the United States before the Joint Annual Meeting of the International Monetary Fund and the World Bank, Oct. 8, 1985, Seoul, Korea, reprinted in Foreign Debts in the Present and a New International Economic Order 291 (Detlev Dicke ed., 1986). Secretary Baker proposed:
If the debt problem is to be solved, there must be a “Program for Sustained Growth,” incorporating three essential and mutually reinforcing elements:
— First and foremost, the adoption by principal debtor countries of comprehensive macroeconomic and structural policies, supported by the international financial institutions, to promote growth and balance of payments adjustment, and to reduce inflation.
— Second, a continued central role for the IMF, in conjunction with increased and more effective structural adjustment lending by the multilateral development banks (MDBs), both in support of the adoption by principal debtors of market-oriented policies for growth.
— Third, increased lending by the private banks in support of comprehensive economic adjustment programs.
I want to emphasize that the United States does not support a departure from the case-by-case debt strategy we adopted three years ago. This approach has served us well; we should continue to follow it. It recognizes the inescapable fact that the particular circumstances of each country are different. Its main components, fundamental adjustment measures within the debtor nations and conditionality in conjunction with lending, remain essential to the restoration of external balance and longer-term growth.
Id. in Dicke at 293.
See id. in Dicke at 294.
Nicholas F. Brady, A Reexamination of the Debt Strategy in Third World Debt: The Next Phase 69 (Edward R. Fried and Philip H. Trezise eds., 1989). Secretary Brady stated:
The experience of the past four years demonstrates that the fundamental principles of the current strategy remain sound:
— growth is essential to the resolution of debt problems;
— debtor nations will not achieve sufficient levels of growth without reform;
— debtor nations have a continuing need for external resources; and
— solutions must be undertaken on a case-by-case basis…
Any new approach must continue to emphasize the importance of stronger growth in debtor nations, as well as the need for debtor country reforms and adequate financial support to achieve that growth. Success is possible only if efforts are truly cooperative. To succeed we must have the commitment and involvement of all parties.
First and foremost, debtor nations must focus particular attention on the adoption of policies that can better encourage new investment flows, strengthen domestic savings, and promote the return of flight capital. These are the policies that will foster confidence in both domestic and foreign investors. They are essential for reducing the future stock of debt and sustaining strong growth. Specific measures in these areas should be part of any new IMF and World Bank programs
….
Second, the creditor community—the commercial banks, international financial institutions, and creditor governments—should provide more effective and timely financial support….
Id. at 70 and 72.
The following countries, known collectively as the “Baker Fifteen,” were the target of Secretary of the Treasury Baker’s debt initiative: Argentina, Bolivia, Brazil, Chile, Colombia, Cote d’Ivoire, Ecuador, Mexico, Morocco, Nigeria, Peru, the Philippines, Uruguay, Venezuela, and the former Yugoslavia. See Alberto Gonzalo Santos, Beyond Baker and Brady: Deeper Debt Reduction for Latin American Sovereign Debtors, 66 N.Y. University Law Review 66(1991).
Bank for International Settlements, International Banking and Financial Markets Developments (various issues).
IMF, World Economic Outlook 182 (October 1990).
IMF, Private Market Financing for Developing Countries 29 (December 1991).
BIS, supra note 7.
The Paris Club, which was organized in 1956, is not an official organization and it has no fixed membership. The participants in the negotiations are the major creditor countries and the debtor countries requesting the rescheduling of their debt. For a more detailed explanation, see Karen Hudes, Coordination of Paris and London Club Reschedulings, 17 N.Y. University Journal of International Law and Politics 553 (1985).
Hobart Rowen, The Debt Disaster of 82—Can It Happen Again?., Washington Post, June 4, 1992, at A29.
Chapter 8, Comment (MacLean)
Common Regime of Treatment of Foreign Capital and of Trademarks, Patents, Licenses, and Royalties, Decision No. 24 of the Commission of the Cartagena Agreement, Dec. 31, 1970 (as amended), reprinted in 11 International Legal Materials 126 (1972); Agreement on Andean Subregional Integration, (The Cartagena Agreement, Creating the Andean Common Market), Gaceta Oficial del Acuerdo de Cartagena, Year V, No. 32 (July 26, 1988), reprinted in 28 International Legal Materials 1165 (1989).
Statement of the Honorable James A. Baker, III, Secretary of the Treasury of the United States before the Joint Annual Meeting of the International Monetary Fund and the World Bank, Oct. 8, 1985, Seoul, Korea, reprinted in Foreign Debts in the Present and a New International Economic Order 291 (Detlev Dicke ed., 1986); Nicholas F. Brady, A Reexamination of the Debt Strategy in Third World Debt: The Next Phase 69 (Edward R. Fried and Philip H. Trezise eds., 1989).
GATT Praises Peru’s Trade Reforms, Reuters, Feb. 8, 1994.
See supra note 2.
Decision 220 of the Commission of the Cartagena Agreement, Common Regime for Treatment of Foreign Capital and on Trademarks, Patents, Licenses, and Royalties, Official Gazette of the Andean Pact, May 18, 1987, reprinted in 27 International Legal Materials 974 (1988).
See the next chapter, Hernan Felipe Errázuriz, Legal Aspects of Economic Reforms in Latin America: The Case of Chile.
Convention Establishing the Multilateral Investment Guarantee Agency, Seoul, Korea, Oct. 11, 1985, reprinted in 24 International Legal Materials 1598 (1985); Convention on the Settlement of Investment Disputes between States and Nationals of Other States, March 18, 1965, 17 U.S.T. 1270, 575 U.N.T.S. 159, Doc. ICSID/15 (1985), reprinted in 4 International Legal Materials 532 (1965); Foreign Assistance Act of 1969, Pub. L. 91–175, 83 Stat. 805, Title IV (1969), current version at 22 U.S.C. §§ 2191–2200a (1988 and Supp. V 1993).
See Cesar A. Bunge, The Calvo Doctrine and the Codes of Conduct for Transnational Corporations (1987); Donald R. Shea, The Calvo Clause: A Problem of Inter-American and International Law and Diplomacy (1955).
Peru Making Strides in Liberalizing Foreign Trade, GATT Report Says, 11 International Trade Reporter 223 (Feb. 9, 1994).
Chapter 9, “Legal Aspects of Economic Reform in Latin America: The Case of Chile” (Errázuriz)
Dominique Hachette, Privatization in Chile: An Economic Appraisal 4–5 (1993).
Id. at 12 (chart showing a GDP growth rate of 5.7 percent for 1986, 5.7 percent for 1987, 7.4 percent for 1988, and 10 percent for 1989).
World Bank Atlas (December 1992).
See Terms of Reference of the Economic Commission for Latin America, ECOSOC Resolution 106 (VI) (February 25 and March 5, 1948)(as amended), reprinted in I.A. International Organization and Integration 11.1. d.ii (P.J.G. Kapteyn et al. eds., 1981).
Law 15.020, Diario Oficial of November 27, 1962; Law 16.640, Diario Oficial of July 28, 1967, and Law 17.450, Diario Oficial of July 16, 1971. See also Jay A. Sigler et al., Chile, in IV Constitutions of the Countries of the World 12–18 (Albert P. Blaustein and Gisbert H. Flanz eds., 1991).
Political Constitution of the Republic of Chile, as by Law 16.615, Diario Official of January 20, 1967.
Law 16.640, supra note 5, Arts. 89 and 132.
Agreement on Andean Subregional Integration, (The Cartagena Agreement, Creating the Andean Common Market), Gaceta Oficial del Acuerdo de Cartagena, Year V, No. 32 (July 26, 1988), reprinted in 28 International Legal Materials 1165 (1989); Common Regime of Treatment of Foreign Capital and of Trademarks, Patents, Licenses, and Royalties, Decision No. 24 of the Commission of the Cartagena Agreement, Dec. 31, 1970 (as amended) (hereinafter “Decision No. 24”), reprinted in 11 International Legal Materials 126 (1972).
Decision No. 24, supra note 8, Arts. 4 and 41.
Id. Art. 37.
Political Constitution of the Republic of Chile, Decree-Law No. 3464, Diario Oficial of Aug. 11, 1980, reprinted in IV Constitutions of the Countries of the World, supra note 5; see Sigler et al., supra note 5, at 28–29.
Political Constitution of the Republic of Chile, supra note 11, Art. 62.
Id. Art. 19.
Id. Arts. 97 and 98.
Id. Art. 62.
Decree-law 600 of 1974, as amended by Laws 18.65, 18.682, 18.840, 18.904, and 19.207, Diario Oficial of December 10, 1981, November 30, 1985, December 31, 1987, October 10, 1989, January 25, 1990, and March 31, 1993.
Id. Arts. 4, 5, 8, 9, and 11.
Law 18.840 (Organic Law establishing the Central Bank of Chile), Diario Oficial of October 10, 1989, Arts. 42 and 49.
See U.S. Commerce Secretary: Chile Is Next For Free Trade Accord With U.S., Associated Press, July 1, 1994; Leon Hadar, A Case of “Trade Exhaustion” in Washington, Business Times, July 14, 1994.
Law No. 18.840, supra note 18, Arts. 7 and 8.
Id. Art. 7.
Id. Art. 6.
Id. Arts. 49 and 50.
Id. Art. 19.
Political Constitution of the Republic of Chile, supra note 11.
Law No. 18.840, supra note 18, Arts. 49 and 50.
Id. Art. 27 and Political Constitution of the Republic of Chile, supra note 11, Art. 98.
Article 98 provides:
The Central Bank may only perform transactions with financial institutions, either public or private; in no way whatsoever may it act as collateral thereof nor secure documents issued by the State, its Bodies or Enterprises.
No public expenditure or loan may be financed with direct or indirect credits of the Central Bank.
However, in case of a foreign war or the menace of such a war, as determined by the National Security Council, the Central Bank may secure, grant or finance credits to the State and public or private entities.
The Central Bank may not adopt any agreement which should represent, in a direct or indirect manner, the establishment of different or discriminatory norms or requirements in relation to persons, institutions or entities performing transactions of the same nature.
Political Constitution of the Republic of Chile, supra note 11, Art. 98.
See Hadar, supra note 19.
Banco Central, Compendio Estadístico (1988).
Banco Central, Boletin Mensual ( December 1994).
See Hachette, supra note 1, at 33.
See id.
See Mary Jean Bowman et al., The Political Economy of Public Support of Higher Education: Studies in Chile, France and Malaysia (World Bank Discussion Paper) (1986).
Chapter 9, Comment (Aguirre-Carrillo)
See Emily S. Rosenberg and Norman L. Rosenberg, American Reformers Abroad: The Kemmerer Missions in South America, 1923–1931, and Robert N. Seidel, House Calls of the Money Doctor: The Kemmerer Missions to Latin America, 1917–1931, both in Money Doctors, Foreign Debts, and Economic Reforms in Latin America from the 1980s to the Present (Paul W. Drake ed., 1994).
New central banking laws have been enacted in most Latin American countries, including the following: Chile, Law NO 18.840, October 1989; El Salvador, Decree-law NO 746, 1991; Colombia, Law NO 31, 1992; Peru, Organic Law of the Central Reserve Bank of Peru, Decree-law NO 26123, 1992; Nicaragua, Monetary Law, Decree-law NO 1, 1992 and Central Banking Law, Decree-law NO 42, 1992; Argentina, Organic Charter of the Central Bank, Law NO 24.144, September 1992; Venezuela, Law of the Central Bank of Venezuela, December 4, 1992; and, Mexico, Law of the Bank of Mexico, December 29, 1993.
See, for example, Articles 7 to 14 of the Central Banking Law of Nicaragua, supra note 2.
For example, provisions empowering the central banks to impose direct credit limits on banks or establishing direct controls on interest rates for indefinite periods are becoming less prevalent in the new central bank laws.
Most Latin American countries have enacted new banking laws or introduced significant reforms to the old ones. A representative sample of these new laws is the following: Chile, General Banking Law № 18576, November 1986; Mexico, Law of Credit Institutions, July 18, 1990, as amended; El Salvador, General Banking Law, Decree № 765, 1991; Colombia, Organic Statute of the Financial System, Decree № 663, 1993; Peru, General Law of Banking and Financial Institutions, Decree-law № 770, 1993; Bolivia, Law of Banks and Financial Institutions, Law № 1488, 1993; and, Venezuela, General Law of Banks and Financial Institutions, Decree № 3228, 1993.
Chapter 10, “Developments in the U.S. Banking Scene: The S&L Crisis and Bank Failures” (Byrne)
The Resolution Trust Corporation Completion Act, Public Law No. 103–204, 107 Stat. 2369 (1993) (amending 12 U.S.C. § 1441a (Supp. V 1993)).
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Public Law No. 101–73, § 401(a)(l), 103 Stat. 183, 354 (1989) [hereinafter “FIRREA”].
12 U.S.C. § 1811 (Supp. V 1993).
See generally 12 U.S.C. § 1821 (Supp. V 1993).
The definition of “tangible capital” is found in 12 U.S.C. § 1464(t)(9)(C) (Supp. V 1993), which provides:
The term “tangible capital” means core capital minus any intangible assets (as intangible assets are defined by the comptroller of the currency for national banks).
FIRREA, supra note 2 (codified as amended primarily at 12 U.S.C. § 1811 et seq.).
The Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102–242, 105 Stat. 2236 (1991) (codified as amended primarily at 12 U.S.C. § 1811 et seq.) [hereinafter “FDICIA”].
FIRREA, supra note 2, § 211.
Id. §212.
See, e.g., id. § 221.
Id. § 215.
Id. §§ 101, 307.
See, e.g., id. § 221.
See generally id. Title IX.
Id.
Id.
Id.
12 U.S.C. § 1824(a) (Supp. V 1993).
Id. § 1824.
Id. § 1817(b)(1).
Id. § 1824.
Id. § 1825(c)(5).
Id. § 1817.
See, e.g., id. § 347(b) (Supp. V 1993).
See generally id. § 1831o (Supp. V 1993).
Id. § 1831o(a)(1).
Id. § 1831o(a)(2).
Id. § 1831o(b).
Id. § 1831o(e)-(i).
See generally 12 U.S.C. § 1831p-1 (Supp. V 1993).
Id.
Id. § 1823(c)(4)(A)(i) (Supp. V 1993).
Id. § 1823(c)(4)(A)(ii).
Id. § 1823(c)(4)(G).
Id. § 1823(c)(8).
FDICIA, supra note 7, § 143(a).
Id. § 143(b).
28 U.S.C. § 2680(a) (1988); United States v. Gaubert, 499 U.S. 315 (1991).
Texas American Bancstares v. Clarke, 954 F.2d 329 (5th Cir. 1992).
Federal Deposit Insurance Corp. v. Bank of Boulder, 911 F.2d 1466 (10th Cir. 1990), cert. denied, 499 U.S. 904 (1991).
Wells Fargo Asia Ltd. v. Citibank, N.A., 660 F. Supp. 946 (S.D.N.Y. 1987), on remand, 695 F. Supp. 1450 (S.D.N.Y. 1988), aff’d, 852 F.2d 657 (2d Cir. 1988), vacated and remanded, 495 U.S. 660 (1990), aff’d, 936 F.2d 723 (2d Cir. 1991), cert. denied, 112 S.Ct. 2990 (1992).
In 1994, Congress enacted the Riegle Community Development and Regulatory Improvement Act, Public Law No. 103–325, 108 Stat. 2160 (1994), which limits U.S. parent banks’ liability on deposits made in foreign branches. Section 326 of the law provides:
Section 326. Limiting Potential Liability on Foreign Accounts.
(a) Amendment to the Federal Reserve Act.—The Federal Reserve Act (12 U.S.C. § 221 et seq.) is amended by inserting after section 25B the following new section:
“SECTION 25C. Potential Liability on Foreign Accounts.
(a) Exceptions From Repayment Requirement.—A member bank shall not be required to repay any deposit made at a foreign branch of the bank if the branch cannot repay the deposit due to—
(1) an act of war, insurrection, or civil strife; or
(2) an action by a foreign government or instrumentality (whether de jure or de facto) in the country in which the branch is located;
unless the member bank has expressly agreed in writing to repay the deposit under those circumstances.
(b) Regulations.—The Board and the Comptroller of the Currency may jointly prescribe such regulations as they deem necessary to implement this section.”.
(b) Conforming Amendments to the Federal Deposit Insurance Act.—
(1) In general.—Section 18 of the Federal Deposit Insurance Act (12 U.S.C. § 1828) is amended by inserting after subsection (p) the following new subsection:
“(q) Sovereign Risk.—Section 25C of the Federal Reserve Act shall apply to every nonmember insured bank in the same manner and to the same extent as if the nonmember insured bank were a member bank.”
(2) Conforming amendment.—Subparagraph (A) of section 3(1)(5) of the Federal Deposit Insurance Act (12 U.S.C. § 1813(1)(5)) is amended to read as follows:
“(A) any obligation of a depository institution which is carried on the books and records of an office of such bank or savings association located outside of any State, unless—
(i) such obligation would be a deposit if it were carried on the books and records of the depository institution, and would be payable at, an office located in any State; and
(ii) the contract evidencing the obligation provides by express terms, and not by implication, for payment at an office of the depository institution located in any State; and.”
(c) Existing Claims Not Affected.—Section 25C of the Federal Reserve Act (as added by subsection (a)) shall not be applied retroactively and shall not be construed to affect or apply to any claim or cause of action addressed by that section arising from events or circumstances that occurred before the date of enactment of this Act.
See, e.g., BNA Banking Daily, March 11, 1992; In re Gutfreund, SEC Administrative Proceeding, File No. 3–7930 (December 3, 1992); Securities, Former Salomon Officials Named in SEC Suit and Administrative Action, Daily Report for Executives, Dec. 4, 1992; SEC v. Mozer, DC SNY, 92 Civ. No. 8694 (RPP) (December 2, 1992); SEC Fines Former Salomon Managing Director Murphy, The Reuters Business Report, Dec. 30, 1993; Salomon Case Ends, Mozer Fined $1.1 Million, The Legal Intelligencer, July 18, 1994, at 12; In the Matter of Daiwa Securities America, Inc., and William M. Brachfeld, Release No. 34–31924, 53 SEC Dkt. 1698 (Feb. 25, 1993); William R. McLucas and John Polise, A Critical Examination of the SEC’s Enforcement Process, Insights, Jan. 1994, at 3.
Chapter 10, Comment (Horn)
Until recently, the Douglas Amendment forbade bank holding companies from acquiring out-of-state banks unless the acquisition were of a kind that a state’s statute specifically authorized. Bank Holding Company Act (BHCA), Ch. 240, § 3(d), 70 Stat. 133 (1956). In Northeast Bancorp, Inc. v. Board of Governors, 472 U.S. 159 (1985), the Supreme Court upheld the constitutionality of two state statutes (Massachusetts and Connecticut) that authorized a bank holding company from another New England state to acquire banks in their states if that bank holding company’s New England home state granted reciprocal privileges to their bank holding companies. First, the Court concluded that the statutes “were of the kind contemplated by the Douglas Amendment to lift its bar against interstate acquisitions.” Id. at 173. Second, the Court concluded that: (a) the statutes did not violate the commerce clause because Congress, in the Douglas Amendment, had authorized such statutes; (b) the statutes did not violate the compact clause, because even if the state actions were a compact, the statutes did not enhance the region’s political power or impact the federal structure; and (c) the statutes did not violate the equal protection clause, because the rational basis test was met. Id. at 17–178. See Brainerd, Northeast Bancorp, Inc. v. Board of Governors: Green Light for Regional Interstate Banking, 35 American University Law Review 387 (1985)(analyzing the Supreme Court’s decision). However, in 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act was enacted. Public Law No. 103–328, 108 Stat. 2338 (1994). It amended section 3(d) of the BHCA and provides for interstate banking and branching by bank holding companies, subject to certain conditions. Id. § 101. Until recently, pursuant to the McFadden Act, national banks were only permitted to branch intrastate to the extent state banks were authorized by statute to open branch offices. Ch. 89, § 23, 48 Stat. 189, 190 (1933). However, section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, supra, amended the McFadden Act and provides for interstate banking and branching by national banks, subject to certain conditions.
See the discussion on this point in the next chapter, William P. Bowden, Prospects for Banking Reform in the United States.
Chapter 10, Comment (Comizio)
Depository Institutions Deregulation and Monetary Control Act of 1980, Public Law No. 96–221, 94 Stat. 132 (1980).
Id. § 308.
Id. Title II, §§ 201–210.
Garn-St. Germain Act Depository Institutions of 1982, Public Law No. 97–330, 96 Stat. 1496 (1982).
Competitive Equality Banking Act, Public Law No. 100–86, 101 Stat. 552 (1987).
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Public Law No. 101–73, 103 Stat. 183 (1989).
Id. § 215.
Chapter 11, “Prospects for Banking Reform in the United States” (Bowden)
The Glass-Steagall Act of 1933 is composed of Sections 16, 20, 21, and 32 of the Banking Act of 1933 (Act of June 16, 1933, ch. 89, 48 Stat. 162), codified at 12 U.S.C. §§ 24 (Seventh), 78, 377–78 (1933).
12 U.S.C. §§ 24 (Seventh) and 92 (Supp. V 1993). Concerning Bank Holding Companies, see 12 U.S.C. § 1843(c)(8) (1988). See generally Barry A. Abbott, James E. Scott, and Ford Barrett, Banks and Insurance: An Update, 43 Business Lawyer 1005 (1988).
The Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102–242, 105 Stat. 2236 (1991) (codified as amended primarily at 12 U.S.C. § 1811 et seq.) [hereinafter “FDICIA”]; S. 1886, 100th Cong., 2d Sess. (1988).
Major banking reform legislation is again under consideration in Congress that would substantially eliminate the remaining prohibitions against banking organizations engaging in securities underwriting and distribution activities and that might also increase the permissible scope of insurance activities by such organizations.
Until recently, pursuant to the McFadden Act, national banks were only permitted to branch intrastate to the extent state banks were authorized by statute to open branch offices. Ch. 89, § 23, 48 Stat. 189, 190 (1933). However, section 102 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Public Law No. 103–328, 108 Stat. 2338 (1994), amended the McFadden Act and provides for interstate banking and branching by national banks, subject to certain conditions.
Until recently, the Douglas Amendment for bade bank holding companies from acquiring out-of-state banks unless the acquisition were of a kind that a state’s statute specifically authorized. Bank Holding Company Act (BHCA), Ch. 240, § 3(d), 70 Stat. 133 (1956). In Northeast Bancorp, Inc. v. Board of Governors, 472 U.S. 159 (1985), the Supreme Court upheld the constitutionality of two state statutes (Massachusetts and Connecticut) that authorized a bank holding company from another New England state to acquire banks in their states if that bank holding company’s New England home state granted reciprocal privileges to their bank holding companies. In 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act, supra note 5, was enacted. It amended section 3(d) of the BHCA and provides for interstate banking and branching by bank holding companies, subject to certain conditions. Id. § 101.
See H.R. 6, 102d Cong., 1st Sess. (1991); S. 543, 102d Cong., 1st Sess. (1991).
However, in 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act was enacted. Public Law No. 103–328, 108 Stat. 2338 (1994). Under the new act, the Federal Reserve is authorized to approve an application by a bank holding company to acquire a bank in any state without regard to whether this is prohibited under state law. This authority is subject to certain limitations including a concentration limit that restricts the percentage of deposits that a banking organization controls on a national and state basis.
The new law also authorizes the federal banking authorities to approve mergers between banks with different home states without regard to whether this is prohibited under state law (subject to a state option). Certain restrictions on branching acquisitions and mergers apply. The law authorizes either the acquisition of a bank in another state or, if a state expressly permits, the acquisition of a single branch without the rest of the bank. States may, before June 1, 1997, opt out of interstate mergers (although not with respect to distressed banks). In addition, the law permits federal regulators to authorize banks to establish branches across state lines under certain circumstances. See generally Murray A. Indick and Satish M. Kini, The Interstate Banking and Branching Efficiency Act: New Options, New Problems, 112 Banking Law Journal 100 (1995).
Foreign Bank Supervision and Enforcement Act of 1991, Title II, Subtitle A, of FDICIA, supra note 3, §§ 202 and 204.
See H.R. 4166, 101st Congress, 2d Sess. (1990) and S. 572, 102d Cong., 1st Sess. (1991).
For more on this subject, see the next chapter, Peter J. Wallison.
International Banking Act of 1978 (IBA), Public Law No. 95–369, 92 Stat. 607 (1978).
Id. § 5.
Id. § 7.
Id. § 8.
12 U.S.C. § 611 (1988).
International Banking Act, supra note 12, § 6.
U.S. Department of Treasury, National Treatment Study (1990).
Foreign Bank Supervision and Enforcement Act of 1991, supra note 9; see also Deborah Burand, Regulation of Foreign Banks’ Entry into the United States under the FBSEA: Implementation and Implications, 24 Law & Policy in International Business 1089 (1993); Robert C. Effros, Comments on “Regulation of Foreign Banks’ Entry into the United States under FBSEA: Implementation and Implications,” A Paper Presented by Deborah Burand, 24 Law & Policy in International Business 1125 (1993).
See The Basle Committee on Banking Regulations and Supervisory Practices, Report of the Basle Committee on International Convergence of Capital Measurement and Capital Standards (1988), reprinted in 1 Current Legal Issues Affecting Central Banks 487 (Robert C. Effros ed., 1992), as amended by Amendment of the 1988 Capital Accord, in Report on International Developments in Banking Supervision 19 (Report number 8 Sept. 1992), reprinted herein as Appendix I(2).
International Lending and Supervision Act of 1983, Title IX of Public Law No. 98–181, 97 Stat. 1153, 1278 (1983).
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Public Law No. 101–73, § 401, 103 Stat. 183, 354 (1989).
Crime Control Act of 1990, Public Law No. 101–647, 104 Stat. 4789 (1990).
FDICIA, supra note 3.
Chapter 11, Comment (Carnell)
See Regulators Fear S&Ls May Face New Threat, Chicago Tribune, Oct. 30, 1994, at 10. The Federal Deposit Insurance Corporation Improvement Act of 1991,
Public Law No. 102–242, 105 Stat. 2236 (1991) [hereinafter “FDICIA”].
Glass-Steagall Act of 1933 is composed of Sections 16, 20, 21, and 32 of the Banking Act of 1933 (Act of June 16, 1933, ch. 89, 48 Stat. 162), codified at 12 U.S.C. §§ 24 (Seventh), 78, and 377–78 (1933).
FDICIA, supra note 1.
Chapter 12, “The Decline of National Treatment in U.S. Financial Services Trade Policy” (Wallison)
International Banking Act of 1978, Public Law No. 95–369, 92 Stat. 607 (1978) [hereinafter “IBA”].
S. Rep. 95–1073, 95th Congress, 2d Sess. 2 (1978).
See note 6 and accompanying text.
IBA, supra note 1, at §§ 4 and 8 (codified in part as 12 U.S.C. §§ 3102 and 3106 (1989)).
Id.
U.S. Department of the Treasury, Report to Congress on Foreign Government Treatment of U.S. Commercial Banking Organizations 1 (1979) (footnote omitted). The Treasury Department defined the concept of national treatment in similar words in: U.S. Department of the Treasury, Report to Congress on Foreign Government Treatment of U.S. Commercial Banking Organizations: 1984 Update 1 (1984); U.S. Department of the Treasury, National Treatment Study: 1986 Update 26 (1986); and U.S. Department of the Treasury, National Treatment Study 31 (1990).
National Treatment Study, supra note 6, at 31.
See Fair Trade in Financial Services Act: Hearings on S. 2028 Before the Subcommittee on Trade of the House Committee on Ways and Means, 102nd Cong., 1st Sess., at 6, 25, and 27 (July 29, 1991)(statements of Senator Donald W. Riegle, Jr., and Representative Richard A. Gephardt).
Fair Trade in Financial Services Act of 1990, S. 2028 and H.R. 697, 101st Congress, 2d Sess. (1990); see also Fair Trade in Financial Services Act of 1993, H.R. 3248 and H.R. 3565, 103d Congress, 1st Sess. (1993); National Treatment in Banking Act of 1994, H.R. 4926, 103d Cong., 2d Sess. (1994); Fair Trade in Financial Services Act of 1995, H.R. 19, 104th Cong., 1st Sess. (1995).
Federal Deposit Insurance Corporation Improvement Act, Public Law No. 102–242, 105 Stat. 2236 (1991) [hereinafter FDICIA].
Foreign Bank Supervision Enhancement Act, Title II, Subtitle A, of FDICIA, supra note 10, § 214(j); U.S. Department of the Treasury and Board of Governors of the Federal Reserve System, Subsidiary Requirement Study (undated).
Board of Governors of the Federal Reserve System and Secretary of the Department of the Treasury, Capital Equivalency Report (June 19, 1992).
Treasury and the Board were also required, in conjunction with the report, to establish “guidelines” for adjustments, to be used by the Board in converting data on foreign bank capital to the “equivalent risk-based capital and leverage requirements for U.S. banks.” Foreign Bank Supervision Enhancement Act, supra note 11, § 215. The purpose of these guidelines is to determine whether a foreign bank’s capital level is “equivalent” to that imposed on U.S. banking organizations, in connection with applications to the Board.
Capital Equivalency Report, supra note 12, at 3 and 7.
Subsidiary Requirement Study, supra note 11, at 1.
Id. at 2–3.
Id. at 4.
Chapter 12, Comment (O’Day)
See Fair Trade in Financial Services Act of 1990, S. 2028 and H.R. 697, 101st Congress, 2d Sess. (1990); Fair Trade in Financial Services Act of 1993, H.R. 3248 and H.R. 3565, 103d Congress, 1st Sess. (1993); National Treatment in Banking Act of 1994, H.R. 4926, 103d Congress, 2d Sess. (1994); Fair Trade in Financial Services Act of 1995, H.R. 19, 104th Congress, 1st Sess. (1995).
See Trade Negotiations Committee of the GATT Secretariat, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations (Dec. 15, 1993).
Trade Negotiations Committee, General Agreement on Trade in Services [hereinafter GATS], in Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, supra note 2, at II-A1B.
Canada-Mexico-United States: North American Free Trade Agreement, Chapter 14, Arts. 1405 and 1410, December 8, 11, 14, and 17, 1992, reprinted in 32 I.L.M. 605, 658–659 (1993).
Annex on Financial Services, para. 2, attached to the GATS, supra note 3.
GATS, supra note 3, Art. XVII.
The Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102–242, 105 Stat. 2236 (1991).
Board of Governors of the Federal Reserve System and Secretary of the Department of the Treasury, Capital Equivalency Report (June 19, 1992); U.S. Department of the Treasury and Board of Governors of the Federal Reserve System, Subsidiary Requirement Study (undated).
See Robert Trigaux, Fed Slaps Fine on Greek Bank for Violations, American Banker, Sept. 27, 1989, at 3.
Foreign Bank Supervision Enhancement Act, Subtitle A of Title II of the Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102–242, § 215, 105 Stat. 2236 (1991), reprinted herein as Appendix IV.
12 Code of Federal Regulations Part 211, Subpart B (1994).
See note 1 supra.
Chapter 13, “Banking Law Developments in the United Kingdom” (Pigott)
The Companies Act 1985 (Bank Accounts) Regulations 1991, 1991 Statutory Instruments No. 2705, Part II, § 2, 6714 (1994); Council Directive 86/635 of 8 December 1986 on the Annual Accounts and Consolidated Accounts of Banks and Other Financial Institutions, 1986 Official Journal (L 372) 1, reprinted herein as Appendix II(5).
Banking Coordination (Second Council Directive) Regulations 1992, 1992 Statutory Instruments No. 3218.; Second Council Directive 89/646 of 15 December 1989 on the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking Up and Pursuit of the Business of Credit Institutions and Amending Directive 77/780 (as corrected), 1989 Official Journal (L 386) 1, and as corrected 1990 Official Journal (L 83) 128 and 1990 Official Journal (L 158) 87, reprinted in 2 Current Legal Issues Affecting Central Banks 264 (Robert C. Effros ed., 1994).
The Criminal Justice Act 1993, U.K. Statutes 2153 (1993); Andrew Haynes, Recent Developments in Money Laundering Legislation in the United Kingdom, 9 Journal of International Banking Law 58 (February 1994).
Council Directive 91/308 of 10 June 1991 on Prevention of the Use of the Financial System for the Purpose of Money Laundering, 1991 Official Journal (L 166) 77, reprinted herein as Appendix II(6).
Council Directive 92/30 of 6 April 1992 on the Supervision of Credit Institutions on a Consolidated Basis, 1992 Official Journal (L 110) 52, as corrected, 1992 Official Journal (L 280) 54, reprinted herein as Appendix II(7).
Financial Services Act 1986, 4 U.K. Statutes 2045 (1986).
Council Directive 93/ 6 of 15 March 1993 on the Capital Adequacy of Investment Firms and Credit Institutions, 1993 Official Journal (L 141) 1, reprinted herein as Appendix II(10).
Legal Risk Review Committee, Reducing Uncertainty—The Way Forward, Consultation Paper 1 (February 1992).
Hazell v. Hammersmith and Fulham L.B.C., 2 Appeal Cases 1 (1992); see Reducing Uncertainty, supra note 8, Consultation Paper, at 1.
Hazell v. Hammersmith and Fulham L.B.C., supra note 9.
Reducing Uncertainty, supra note 8, Consultation Paper, at 10–11.
Legal Risk Review Committee, Final Report of the Legal Risk Review Committee (October 1992).
Good Banking (2d ed., 1994) reprinted herein as Appendix III(3); see R.B. Jack, Banking Services in the United Kingdom: The Law and Practice Report, in 2 Current Legal Issues Affecting Central Banks, supra note 2, at 103.
Good Banking, supra note 14, paragraph 2.1.
Banking Act 1987, § 11, 1 U.K. Statutes 567 (1987).
Id. at Schedule 3, subparagraph 4(7).
Richard Dale, BCCI: Regulatory Rights and Wrongs, Financial Regulation Report 1 (July/August 1991).
Bank of England, Report and Accounts 1992, at 7 (1992).
Banking Act 1987, supra note 16, § 59.
Richard Dale, International Banking Deregulation: The Great Banking Experiment (1992).
Id. at 203–204.
Chapter 14, “Overview of Developments in Canadian Financial Services Law” (Crawford)
Bank Act, Statutes of Canada, 1992, c. 46.
Banking Law Amendment Act, Statutes of Canada 1980–81–82–83, c.40. See id. §§ 50x et seq. (regarding the regulation of foreign banks).
Id. § 24.
Id. § 422 repealed and replaced by Statutes of Canada 1993 c.44 to exempt NAFTA country banks; repealed entirely S.C. 1994 c.47, s.25.
Id.
Id. § 468.
The Bank Act, supra note 1.
Id. § 381.
Id. § 377.
World Trade Organization Implementation Act, Statutes of Canada 1994 c.47, s.17.
Id. §§ 486 et seq.
Id. § 489.
Id. § 486.
Id. § 488.
Id. §§ 488 et seq.
Id. §§ 159 and 163.
See e.g. Financial Institutions Depositors Compensation Act, Statutes of Canada 1985 c. C-79.
Canada Deposit Insurance Corporation Act, as amended, Revised Statutes of Canada 1985, Chapter C-3.
Statutes of Canada 1992, c.26.
Id. § 39.1.
Id.
Id. § 39.11.
Id. § 39.13.
Id. § 39.14.
Id. § 39.15.
Id. § 39.19.
Id. § 39.23.
Id. § 39.27.
Id. § 39.15.
Bankruptcy Act, Revised Statutes of Canada 1985, Chapter B-3.
11 U.S.C. §§ 1101 et seq. (1988 and Supp. 1993) (regarding reorganization).
Companies’ Creditors Arrangement Act, Revised Statutes of Canada 1985, Chapter C-25.
See Bank of New York v. Olympia & York Florida Equity Corp. (In re Hollywell Corp.), 913 F.2d 873, 880 (11th Cir. 1990).
Canada Deposit Insurance Corporation Act, supra note 17, § 39.15 (2.1), (2.3)(c), (3), and (4).
Bankruptcy: Swap Agreements and Forward Contracts, Public Law No. 101–311, 104 Stat. 267 (1990)(amending various sections of the bankruptcy code, including 11 U.S.C. § 546, and inserting 11 U.S.C. § 560).
See Bank Committee on Banking Regulations and Supervisory Practices, Report of the Basle Committee on International Convergence of Capital Measurement and Capital Standards (July 1988), reprinted in 1 Current Legal Issues Affecting Central Banks 487 (Robert C. Effros ed., 1992). Bank for International Settlements, Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries (November 1990).
2 All England Reports 390 (1975).
Civil Code of Québec, Arts. 1169–1172 (1992); see e.g. National Trust Co. v. Mead 2 S.C.R. 410, 427 per Wilson V (1990).
Winding-Up Act, Revised Statutes of Canada 1985, chapter W-11, s. 73.
For a fuller exposition of the author’s views on netting, see Crawford, The Legal Foundations of Netting Agreements for Foreign Exchange Contracts, 22 Canadian Business Law Journal 163 (1993).
Chapter 14, Comment (Jacklin)
See Chapters 5A, 5B, and 6, infra.
The Foreign Bank Supervision Enhancement Act of 1991, Title II, Subtitle A, of the Federal Deposit Insurance Corporation Improvement Act, Public Law No. 102–242, § 202, 105 Stat. 2236, 2286 (1991) [hereinafter “FDICIA”].
12 U.S.C. § 3105(d)(2)(A) (Supp. V 1993).
Basle Committee on Banking Regulations and Supervisory Practices, Report of the Basle Committee on International Convergence of Capital Measurement and Capital Standards Annex 3 (July 1988), reprinted in 1 Current Legal Issues Affecting Central Banks (Robert C. Effros, ed., 1992).
Bankruptcy: Swap Agreements and Forward Contracts, Public Law No. 101–311, 104 Stat. 267 (1990)(amending various sections of the Bankruptcy Code, including 11 U.S.C. § 546, and inserting 11 U.S.C. § 560); FDICIA, supra note 2, at Title IV, Subtitle A.
Chapter 15A, “The U.S. Federal Reserve System” (Mattingly)
National banks, approximately four thousand in number, are also members of the Federal Reserve System but are regulated by the Office of the Comptroller of the Currency within the Department of the Treasury. State-chartered banks that are not members of the System are subject to regulation by the Federal Deposit Insurance Corporation and the state banking supervisory authorities.
Benjamin H. Beckhart, The Federal Reserve System 8–9 (1972).
Roger T. Johnson, Historical Beginnings…The Federal Reserve 10 (Mary J. Coyle ed., 1977).
Federal Reserve Act, ch. 6, 38 Stat. 251 (1913) (codified as amended in scattered sections of 12 U.S.C).
Id. § 4.
Id.
Id. § 14.
Id. §§ 10–11.
Beckhart, supra note 2, at 33.
Federal Reserve Act, supra note 4, § 12.
Id.
House Committee on Banking and Currency, Changes in the Banking and Currency System of the United States, H.R. Rep. No. 69, 63d Cong., 1st Sess., 18 (1913).
Federal Reserve Act, supra note 4, § 10, para. 1.
Id.
Id. § 10, para. 2.
Banking Act of 1933, ch. 89, 48 Stat. 162 (1933) (codified as amended in scattered sections of 12 U.S.C).
Id. § 8.
Banking Act of 1935, ch. 614, 49 Stat. 684 (1935) (codified as amended in scattered sections of 12 U.S.C).
Id. § 205.
Id. §§ 203(b) and 205.
Banking Act of 1933, supra note 16, § 6(a).
Banking Act of 1935, supra note 18, § 203(b).
Id. § 203(a).
Banking Act of 1933, supra note 16, § 6(b).
31 U.S.C. § 714(b)(2) (1988 & Supp. V 1993).
Bray Hammond, Banks and Politics in America from the Revolution to the Civil War 314 (1957).
Federal Reserve Act, supra note 4, § 4.
Id.
Id.
Id.
Id.
“Analysis of Bank Deposit Insurance Fund Losses,” Unpublished Staff Report to the House Committee on Banking, Finance and Urban Affairs, 102d Cong., 1st Sess. (1991).
Federal Reserve Act, supra note 4, § 2A, 12 U.S.C. 225a (1988).
Id.
Id.
Id.
12 Code of Federal Regulations § 264.735–6(b) (1994).
12 U.S.C. § 3910 (1988) and 31 U.S.C. § 714 (1988 & Supp. V 1993).
5 U.S.C. Appendix 3, § 1 et seq. (Supp. V 1993).
S. 713, 102dCong., 1st Sess. (1991); H.R. 1505, 102d Cong., 1st Sess. (1991).
H.R. 1214, 103d Cong., 1st Sess. (1993); S. 1633, 103d Cong., 1st Sess. (1993); S. 1895, 103d Cong., 2d Sess. (1994).
Chapter 15B, “The Swedish Central Bank” (Sparve)
See Treaty on European Union, done at Maastricht, Feb. 7, 1992, Arts. 105 and 107, 1992 Official Journal (C 191) 1, as it amends the Treaty Establishing the European Community, Mar. 25, 1957, 298 U.N.T.S. 11 (hereinafter “E.C. Treaty”). The E.C. Treaty, as amended, is reprinted herein as Appendix II(1). Protocol on the Statute of the European System of Central Banks and of the European Central Banks, annexed to the Treaty on European Union, supra, Arts. 2 and 7, 1992 Official Journal (C 191) 68, reprinted herein as Appendix II (2).
National Bank Law of December 23, 1953, as amended on December 15, 1978, Art. 2, para. 2 (translation provided by the Swiss National Bank, dated May 15, 1987); Law Concerning the Deutsche Bundesbank of 26 July 1957 as amended up to October 22, 1992 (Gesetz über die Deutsche Bundesbank), Federal Law Gazette (Bundesgesetzblatt), Part I, § 13 July 30, 1957, reprinted in Deutsche Bundesbank, The Monetary Policy of the Bundesbank 128, 133 (1994).
Law Concerning the Deutsche Bundesbank, supra note 2, § 13; see the next chapter, Bertold Wahlig, Independence of Central Banks: The Model of the Deutsche Bundesbank.
Law Concerning the Deutsche Bundesbank, supra note 2, § 13.
The Sveriges Riksbank Act, as amended, 1988:1385, Art. 42 (stating “[p]rior to the Riksbank making a monetary policy decision of major importance, the Cabinet Minister appointed by the Government, shall be consulted. If such consultation is not possible and if there is exceptional cause the Riksbank may make such a decision without consultation.”).
National Bank Law of December 23, 1953, supra note 2, Art. 2, para. 2; Law Concerning the Deutsche Bundesbank, supra note 2, § 13(3).
Sveriges Riksbank Act, supra note 5, Art. 31.
Law Concerning the Deutsche Bundesbank, supra note 2, § 7(3).
National Bank Law of December 23, 1953, supra note 2, Arts. 40 and 42.
See Act on the Bank of Finland No. 365, as amended, No. 504 of June 11, 1993; The National Bank of Denmark Act (Lov om Danmarks Nationalbank), Act No. 116 of April 7, 1936, as amended, Art. 6 (providing that Governors must resign “before the expiration of the month in which they complete their 70th year.”); Statute of the Bank of Italy, as amended, Royal Decree No. 1067 of July 11, 1936, § 4, Art. 25.
The Instrument of Government, Chapter 9, Art. 12, reprinted in XVIII Constitutions of the Countries of the World, Sweden, 82, 103 (A.P. Blaustein and G.H. Flanz, eds., looseleaf).
Protocol, supra note 1, Art. 14.2.
The National Bank of Denmark Act, supra note 10, Art. 4(a).
Sveriges Riksbank Act, supra note 5, Art. 31.
Id.
Id.
Article 49 of the Sveriges Riksbank Act, supra note 5, in part provides “[t]he Riksbank’s Profit and Loss Account and Balance Sheet are approved by the Riksdag, which also determines the distribution of the Riksbank’s profit.” Parliament approves each year the proposed transfer of the annual net revenue by the Governing Board, since 1988 according to guidelines adopted by the Governing Board for the disposition of the Riksbank’s net revenue stating “that the base should be the average of the annual results, before balance-sheet allocations, for the most recent five years.” See Riksbank’s Annual Report 1988, at 44–46.
Law Concerning the Deutsche Bundesbank, supra note 2, § 3.
E.C. Treaty, supra note 1, Art. 105.1; Reserve Bank of New Zealand Act 1989, 1989 N.Z. Stat. No. 157, Art. 8 (stating “[t]he primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices.”); see R. Lindsay Knight, Central Bank Independence in New Zealand, in The Evolving Role of Central Banks (Patrick Downes and Reza Vaez-Zadeh, eds., 1991).
National Bank Law of December 23, 1953, supra note 2, Art. 2, para. 1 (providing “[t]he principal task of the National Bank is to regulate the country’s money circulation, to facilitate payment transactions, and to pursue a credit and monetary policy serving the interests of the country as a whole.”) and Art. 14; 12 U.S.C. §§ 248 and 2251 (1988).
E.C. Treaty, supra note 1, Art. 105.1.
Chapter 15C, “The Model of the Deutsche Bundesbank” (Wahlig)
Treaty on the European Union, 1992 Official Journal (C 191) 1, reprinted in 31 International Legal Materials 247 (1992)(done at Maastricht, Feb. 7, 1992) [hereinafter “Maastricht Treaty”], which amends the Treaty Establishing the European Community, Mar. 25, 1957, 298 U.N.T.S. 11 [hereinafter “E.C. Treaty”]; reprinted herein as Appendix II(1).
Committee for the Study of Economic and Monetary Union, Report on Economic and Monetary Union in the European Community (the “Delors Report”), 18–19, April 12, 1989.
E.C. Treaty, supra note 1, Art. 107.
Id. Art. 105(1).
Id. Art. 104(1).
Protocol on the Statute of the European System of Central Banks and of the European Central Banks, annexed to the Treaty on European Union, supra note 1, Art. 14.2, 1992 Official Journal (C 191) 68, reprinted herein as Appendix II(2).
Id. Arts. 28, 29, 32, and 33.
E.C. Treaty, supra note 1, Art. 108.
Law Concerning the Deutsche Bundesbank of 26 July 1957 as amended up to October 22, 1992 (Gesetz über die Deutsche Bundesbank), Federal Law Gazette (Bundesgesetzblatt), Part I, July 30, 1957, reprinted in Deutsche Bundesbank, The Monetary Policy of the Bundesbank 128 (1994).
Id. § 3.
Id. § 12 (first sentence).
Id. § 12 (second sentence).
Id. §§ 14–18.
Id. § 12.
Id. § 13.
Id.
Stazung der Deutschen Bundesbank § 2, Bundesanzeiger No. 7 of January 13, 1959.
Law on Foreign Trade and Payments of April 28, 1961 (Aussenwirtschaftsgesetz), Federal Law Gazette (Bundesgesetzblatt), Part I, no. 29, 481 (1961), reprinted in U.S. Department of Commerce, World Trade Information Service, Part I., no. 61–63, 1 (1961).
The Banking Act of July 10, 1961, as amended (Gesetz über das Kreditwesen), Federal Law Gazette (Bundesgesetzblatt), Part I, 881, July 15, 1961.
Law Concerning the Deutsche Bundesbank, supra note 9, § 13(2).
Id. § 13(3).
Chapter 16, “Government Securities Market Regulation: The Case of Salomon Brothers” (Doty)
Securities and Exchange Commission Litigation Release No. 13246, 51 SEC Dkt. 1133 (May 20, 1992). The staff’s investigation, conducted principally by a small group of talented and hardworking attorneys in the SEC’s Division of Enforcement, involved the Commission’s close collaboration with the Department of the Treasury, the Federal Reserve Board and the New York Federal Reserve Bank, the Department of Justice, and the U.S. Attorney’s Office.
This may be due to differences among countries in public financing requirements and/or regulatory schemes.
Barnaby J. Feder, Salomon Violations Detailed, N.Y. Times, August 15, 1991, at 1.
Debt securities are issued with maturities ranging from 3 months to 30 years and are distributed to the investing public through regular auctions of bills, notes, and bonds, conducted by the U.S. Treasury with the Federal Reserve Banks serving as fiscal agent. Until recently, the Treasury used a sealed bid, multiple price auction procedure in which significant participants (determined by the principal amount of their bids) bid against one another. Bids are based on yield with securities allocated to the lowest bidders until the amount of the offer is covered; the amount awarded at the high yield is prorated based on the principal amount of the bids at that yield to obtain the offering amount. Department of the Treasury, Securities and Exchange Commission, Board of Governors of the Federal Reserve System, Joint Report on the Government Securities Market A-2 (January 1992) [hereinafter Joint Report]. The Treasury has begun to experiment with other price auction formats in auctions for treasury notes.
Memorandum from the Bureau of Public Debt, Department of the Treasury (May 28, 1992). U.S. Treasury securities differ from corporate securities because of the absence of any appreciable credit risk, i.e., risk of default caused by issuer insolvency. As a result, in addition to offering an investment in which principal is safe, Treasury securities serve as essential instruments for managing interest rate exposure for firms, especially financial institutions, both nationally and globally.
United States Department of the Treasury, Treasury Bulletin (March 1992).
The average daily trading volume of equities on the New York Stock Exchange during September of 1991, for example, was only $6 billion dollars. Joint Report, supra note 4, A-7.
Primary dealers bidding for their own accounts were awarded approximately 72 percent of the Treasury securities awarded to private investors during the January 1990 through September 1991 period. Id. B-55.
In 1990, the 35 percent limitation was extended to the amount bid. Prior to adoption of this rule, individual bidders could submit bids in excess of the 35 percent limitation to ensure a higher securities proration where there were insufficient securities at the auction price to enable bidders to obtain the amount for the bid. Id. A-5, 6.
The when-issued market is believed to promote more efficient auctions by giving potential auction bidders (both competitive and noncompetitive) an opportunity to assess both market demand and the likely average yield, thus serving a price discovery function. Id. A-6.
In the “repo” or repurchase market, parties enter into a contract that sets forth the price and other terms of two separate transactions: a sale of an asset (Treasury security) and a forward agreement to purchase that asset. The repo seller thereby obtains funds in exchange for securities and agrees to repurchase the same security at a point set forth in the contract. The difference between the sale price in the first transaction and the purchase price in the second transaction reflects a return on the funds of the temporary holder of the Treasury securities. In a squeeze, the temporary purchaser of the securities in the repo transaction will accept a much lower rate of interest on its funds (as much as a 200-basis point difference on an overnight transaction sometimes referred to as a “special” repo rate) to obtain the security in short supply. Id. A-1, B-1, and C-6.
Conflict of Interest Will Not Trigger Automatic Disqualification of Counsel, 62 Anti-Trust and Trade Regulation Report No. 1564 at 597, (May 7, 1992).
Linda Grant, Taming the Bond Buccaneers at Salomon Brothers; How Warren Buffet and Friends Swept Up After the Salomon Scandal, Possibly Saving the Firm from Federal Regulators Furious After a Decade of Skulduggery on Wall Street, Los Angeles Times, Feb. 16, 1992 (Magazine), at 22.
Philip Robinson, Legal Firm in Salomon Enquiry Resigns, The Times, Sept. 2, 1992 (Business).
The three officers were: John Gutfreund, Chairman of Salomon; Thomas Strauss, President of Salomon; and, John Meriwether, Vice Chairman of Salomon and head of Salomon’s fixed-income trading.
Securities and Exchange Commission v. Salomon, Inc., No. 92–3691 (DC SNY).
The alleged books and records violations concerned records, such as trading blotters, that the firm was required to maintain under federal securities law. Securities and Exchange Act of 1934, June 6, 1934, ch. 404, title I, § 17(a), 48 Stat. 881 (1934) (current version 15 U.S.C.§78q).
GSEs are private corporations chartered by Congress to facilitate lending for various purposes Congress has deemed socially important, such as education, agriculture, and residential housing. GSEs issue common stock and unsecured debt to finance their activities, like any other private corporation. Neither the common stock nor the unsecured debt of the GSEs, however, is backed by the full faith and credit of the U.S. Government.
Joint Report, supra note 4, D-1 through D-6.
Id. D-2.
Exchange Act Release No. 30255, 50 S.E.C. Dkt. 1308 (January 1992).
Hearings on H.R. 3927, The Government Securities Reform Act, and H.R. 4450, The Government Securities Auction Reform Act, Before the Subcomm. on Domestic Monetary Policy of the House Comm. on Banking, Finance and Urban Affairs, 102d Cong., 2nd Sess. (1992) (testimony and statement of Richard C. Breeden, [former] Chairman of the U.S. Securities and Exchange Commission at 5–9, 16–22, 72–96).
In July 1991, before the disclosure of Salomon, the Senate passed The Government Securities Act Amendments of 1991. S. 1247, 102d Cong., 1st Sess. (1991). This act would have reauthorized Treasury’s rule-making authority under the Government Securities Act of 1986, authorized new sales practice rules for government securities dealers to be developed and implemented by the NASD and the appropriate regulatory agencies for financial institutions (subject to Treasury’s veto), and required the SEC, the Treasury, and the Federal Reserve to monitor and evaluate the effectiveness of private sector efforts to provide public access to price and volume information relating to transactions in government securities.
Another Senate bill, the Government Securities Offerings Enforcement Act of 1991, focused on fraud in the primary market, and would have made it an explicit violation of the federal securities laws to submit a false or misleading written statement to any issuer of government securities in connection with the primary issuance of such securities. The bill also would have temporarily reauthorized the Treasury’s rule-making authority until October 1, 1992. S. 1699, 102d Cong., 1st Sess.(1991).
See Joint Report, supra note 4. The Federal Reserve Bank of New York also played an important consultative role in the preparation of the report.
This bill was referred to as The Government Securities Act of 1992. H.R. 3927, 102d Cong., 1st Sess. (1992) [hereinafter “1992 House bill”]. Another House bill was more limited and focused on the enhancement of procedures for the establishment and monitoring of automated access systems, single price auctions for government securities, and the continuous marketing of short-term government securities. H.R. 4450, 102d Cong., 2d Sess. (1992).
See supra note 23.
The Government Securities Act of 1986, October 28, 1986, Public Law No. 99–571, 100 Stat. 3208 (1986) (codified as amended in scattered sections of 5 U.S.C., 7 U.S.C., 12 U.S.C., 26 U.S.C., 31 U.S.C., but primarily in 15 U.S.C. § 78o-5) [hereinafter Government Securities Act of 1986].
Prior to enactment of the Government Securities Act of 1986, government securities brokers and dealers were subject to the general securities anti-fraud provisions in connection with government securities transactions. This feature was not altered by the GSA. Id. title I, § 15C (codified as amended in 15 U.S.C. § 78o-5).
Id. title I, § 15C(a)(1)(A), (B)(i) and (A)(2) (codified as amended in 15 U.S.C § 78o-5(a)(l)(A),(B)(i)and(A)(2)).
Id. title I, § 15C(b)(l) (codified as amended in 15 U.S.C. § 78o-5(b)(l)). The Treasury eventually adopted regulations for government securities brokers and dealers patterned after regulations applied by the SEC to ordinary registered brokers and dealers. See, e.g., 52 Fed. Reg. 27910; Joint Report, supra note 4, A-6.
See generally the Government Securities Act of 1986, supra note 25, title I (codified as amended in scattered sections of 5 U.S.C., 7 U.S.C., 12 U.S.C., 26 U.S.C., 31 U.S.C., but primarily in 15 U.S.C. § 78o-5).
Joint Report, supra note 4, B-4 through B-16 (discussing the various issues surrounding a policy to “reopen” a Treasury auction).
Treasury Department Statement (September 11, 1991).
S. 1699, supra note 23. This legislation would supplement existing authority under the anti-fraud provisions of the federal securities laws that already cover fraudulent or manipulative conduct in the distribution and trading of government securities.
The Federal Reserve Board believes such authority is unnecessary in light of other measures undertaken by the Treasury.
See generally Testimony of Richard C. Breeden, supra note 22.
Brandon Becker, Market Transparency, Address Before the Financial Times Conference on International Securities Markets on Limiting Market Risks (May 12, 1992); James R. Doty, Colloquium: The Role of the Securities and Exchange Commission in an Internationalized Marketplace, 60 Fordham L. Rev. 77, 79–81 (May 1992).
See United States General Accounting Office, Report to Congressional Committees, U.S. Government Securities, More Transaction Information and Investor Protection Measures are Needed 81–83 (September 1990).
Joint Report, supra note 4, 26.
Id. Two other examples of private information systems include Telerate Systems, Inc., and the Government Securities Clearing Corporation. Telerate Systems, Inc., disseminates to its customers pricing information provided to it by Cantor Fitzgerald, Inc. a major interdealer broker. The Government Securities Clearing Corporation, an SEC-registered clearing agency, collects and stores information about a significant percentage of government securities transactions. Id.
The specific information needed to be able to construct an audit trail varies with the type of securities transaction, but generally requires information regarding the security, the terms of the transaction, the account that is purchasing the security, the counterparty to the transaction, and the time of execution. As a practical matter, the ability to construct an audit trail requires information that can be obtained in a machine-readable format.
In the equity markets, audit trail systems are maintained by self-regulatory organizations subject to SEC oversight such as the exchanges or the National Association of Securities Dealers.
For example, times at which transactions occurred (crucial for establishing an audit trail) could not always be determined from certain firms’ records, or that methods that were used by firms to record time of execution were not consistently followed. One example of inadequate record keeping encountered by SEC staff in the Salomon investigation concerned allocation of securities obtained in any given auction between a firm’s proprietary accounts and its customer accounts. Without such information, it is virtually impossible to determine whether firms are submitting unauthorized bids.
1992 House bill, supra note 25.
The principal duty imposed by the proposed statutory provision is a maintenance requirement. Such records would be subject to examination by the relevant regulatory agencies, but firms would be required to furnish such information only in response to requests identifying the specific information sought. Id.
See generally 15 U.S.C. § 78o-3 (Supp. 1993).
The Treasury generally supports this proposal, but insists that it be given “veto” authority over any sales practice rules adopted by the NASD.
1992 House bill, supra note 25.
Letter from Richard C. Breeden, [former] Chairman of the U.S. Securities and Exchange Commission, to the Honorable Edward J. Markey, Chairman of the Subcommittee on Telecommunications and Finance, U.S. House of Representatives (June 27, 1991).
Wall Street Journal, June 12, 1992, at 1.
1992 House bill, supra note 25.
In re Gutfreund, SEC Administrative Proceeding, File No. 3–7930, 12/3/92; see also Securities, Former Salomon Officials Named in SEC Suit and Administrative Action, Daily Report for Executives, December 4, 1992.
Gutfreund agreed in a settlement with the SEC to not take a position as Chairman or CEO with an SEC-regulated company, and to pay a fine of $100,000. Strauss paid a civil penalty of $75,000 and agreed to not be associated for six months with any SEC-regulated industry. Meriwether agreed to pay a $50,000 fine and a three-month suspension from association with securities firms. The American Lawyer, March 1993, at 94.
Id.
SEC v. Mozer, DC SNY, 92 Civ. No. 8694 (RPP) (12/ 2/ 92).
SEC Fines Former Salomon Managing Director Murphy, The Reuters Business Report, Dec. 30, 1993.
Salomon Case Ends, Mozer Fined $1.1 Million, The Legal Intelligencer, July 18, 1994, at 12.
In the Matter of Daiwa Securities America, Inc., and William M. Brachfeld, Release No. 34–31924, 53 SEC Dkt. 1698 (Feb. 25, 1993).
William R. McLucas and John Polise, A Critical Examination of the SEC’s Enforcement Process, Insights, Jan. 1994, at 3.
58 Fed. Reg. 412; 31 C.F.R. § 349, 356 (January 5, 1993).
H.R. 618, 103rd Cong., 1st Sess. (1993).
1992 House bill, supra note 25.
S.422, 103rd Cong., 1st Sess. (1993).
S. 1247, supra note 23.
S. 1699, supra note 23.
In 1993, Congress enacted the Government Securities Act Amendments of 1993. Public Law 103–202, § 1(a), Dec. 17, 1993, 107 Stat.2344 (1993).
Chapter 16, Comment (Carroll)
See, e.g., 12 U.S.C. § 4201 et seq. (Supp. V 1993) and 18 U.S.C. § 1344 (Supp. V 1993) (concerning fraud against bank and financial institutions).
Securities and Exchange Act of 1933, May 27, 1933, ch. 38, 48 Stat. 74 (1933); Securities and Exchange Act of 1934, June 6, 1934, ch. 404, 48 Stat. 881 (1934).
See Patrick Harverson, Sunshine Breaks Through the Clouds over Salomon, Financial Times, May 22, 1992, at 26; Simon Tisdall, Salomon Pays US Government $290M over Bond Scandal, The Guardian, May 21, 1992, at 14.
Chapter 17, “Anatomy of an International Banking Scandal” (Moscow)
See, e.g., Richard Dale, Regulatory Consequences of the BCCI Collapse: US, UK, EC, Basle Committee—Current Issues in International Supervision in International Banking Regulation and Supervision: Change and Transformation in the 1990’s (J.J. Norton, Chia-Jui Cheng, and I. Fletcher, eds., 1994).
N.Y. Banking Law § 342 (McKinney 1994).
David Shore, College Bound Tale a Great Whodunit, South Florida Business Journal, March 19, 1992 at 1; Jeffrey Kanige, Judge in Racketeering Case Boots Defense Lawyer; Cites Potential Conflicts and Possible Ineffective Assistance Claim, New Jersey Law Journal, June 8, 1992, at 3; David Sedore, Chase Scam Con Man Cannon Still on the Loose, South Florida Business Journal, September 16, 1991, at 6; U.K. Investors May Gain from Fraud Deal, The Times, March 3, 1990 (Business).
Such a unit has been established at the Federal Reserve Bank of New York. They reached the conclusion that it was necessary, after observing what the New York detectives could do.
There are three levels of bank “secrecy” that warrant discussion. There is an obvious interest in privacy, in that no one wants his financial affairs to be open to his competitors, his neighbors, or perhaps, his family. At that level, only bona fide criminal investigators and bank regulators can get access to the data. At the next level of secrecy, only bank regulators can get access to the identifying information on bank accounts and financial transactions; police officers cannot. At the third level, not even bank regulators can obtain identifying information necessary to see if transactions involve relating parties or are being conducted at arms’ length.
In 1987, bank regulators from Luxembourg, France, Spain, the Cayman Islands, Hong Kong, Switzerland, the United Kingdom, and the United Arab Emirates created the College of Regulators to supervise the BCCI. Max Hall, The BCCI Affair, Banking World, September 1991, at 10.
See generally Committee on Banking Regulations and Supervisory Practices, Revised Basle Concordat on Principles for the Supervision of Bank’s Foreign Establishments (1983) and Supplement to the Concordat (1990), reprinted in 1 Current Legal Issues Affecting Central Banks 475 (Robert C. Effros ed., 1992); see also Charles Freeland, The Work of the Basle Committee, reprinted in 2 Current Issues Affecting Central Banks 231 (Robert C. Effros ed., 1994); C.J. Thompson, The Basle Concordat: International Collaboration in Banking Supervision, reprinted in 1 Current Legal Issues Affecting Central Banks, supra, at 331.
Chapter 18, “Work of the Basle Committee” (Ryback)
See Joseph F. Sinkey, Problem and Failed Institutions in the Commercial Banking Industry (1979).
Id.
See Robert E. Lamy and G. Rodney Thompson, Penn Square, Problem Loans, and Insolvency Risk, 9 Journal of Financial Research 103 (1986).
See Committee on Banking Regulations and Supervisory Practices, Revised Basle Concordat and Supplement (1990), reprinted in 1 Current Legal Issues Affecting Central Banks 475 (Robert C. Effros ed., 1992); C.J. Thompson, The Basle Concordat: International Collaboration in Banking Supervision, 1 Current Legal Issues, supra, at 331.
Basle Committee on Banking Supervision, Amendment of the 1988 Capital Accord, in Report on International Developments in Banking Supervision 23–25 (Report number 8, September 1992), reprinted herein as Appendix I(2).
Basle Committee on Banking Supervision, Minimum Standards for the Supervision of International Banking Groups and Their Cross-Border Establishments, in Report on International Developments in Banking Supervision 11–18, supra note 5, reprinted herein as Appendix I(3).
See Committee on Banking Regulations and Supervisory Practices, Report on International Convergence of Capital Measurement and Capital Standards (1988), reprinted in 1 Current Legal Issues Affecting Central Banks, supra note 4, at 487; see also note 5, supra.
Basle Committee on Banking Supervision, The Supervisory Treatment of Market Risks (Consultative Proposal) (1993).
See herein chapter 17, John Moscow, Anatomy of an International Banking Scandal.
See James R. Kraus, Overview: Foreign Banks Face Hurdles, American Banker, April 19, 1993, at 2A.
See James R. Kraus, Foreign Banks Control 45% of Corporate Loans in U.S., American Banker, June 15, 1992, at 1.
Minimum Standards Paper, supra note 6.
Id.
Foreign Bank Supervision Enhancement Act, Title II, Subtitle A, of the Federal Deposit Insurance Corporation Improvement Act, Public Law No. 102–242, § 206, 105 Stat. 2236 (1991).
Id. § 202.
Chapter 18, Comment (Key)
See Sydney J. Key and Hal S. Scott, International Trade in Banking Services: A Conceptual Framework, Occasional Paper, No. 35 (Group of Thirty, Washington, D.C., 1991).
See Basle Committee on Banking Regulations and Supervisory Practices, Report on International Convergence of Capital Measurement and Capital Standards (1988), reprinted in Current Legal Issues Affecting Central Banks 487 (Robert C. Effros ed., 1992), as amended by Amendments of the 1988 Capital Accord, in Report on International Developments in Banking Supervision 23–25 (Report number 8, September 1992), reprinted herein as Appendix I(2).
See Sydney J. Key, Mutual Recognition: Integration of the Financial Sector in the European Community, 75 Federal Reserve Bulletin (September 1989).
Treaty Establishing the European Community, as amended by the Treaty on European Union, done at Maastricht, Feb. 7, 1992, Art. 4, 1992 Official Journal (C 191) 1.
See Josephine Steiner, Textbook on EEC Law 24 (3rd ed., 1992).
Council Directive 92/30 on the Supervision of Credit Institutions on a Consolidated Basis, 1992 O.J. (L 110) 52, as corrected 1992 Official Journal (L 280) 52.
See Marieke van den Bersh, Patrick Pearson, and René Smits, Institutional Arrangements (August 1993), in Banking and EC Law (Martijn van Empel and René Smits eds., looseleaf).
E.C. Treaty, supra note 4, Art. 170.
See Second Council Directive 89/646 of 15 December 1989 on the Coordination of Laws, Regulations and Administrative Provisions Relating to the Taking Up and Pursuit of the Business of Credit Institutions and Amending Directive 77/780, 1989 Official Journal (L 386) 1, as corrected, 1990 Official Journal (L 83) 128 and 1990 Offical Journal (L 158) 87, reprinted in 2 Current Legal Issues Affecting Central Banks 264 (Robert C. Effros ed., 1994).
The Federal Deposit Insurance Corporation Improvement Act of 1991, Public Law No. 102–242, 105 Stat.2236 (1991).
Basle Committee on Banking Supervision, Minimum Standards for the Supervision of International Banking Groups and their Cross-Border Establishments, in Report on International Developments in Banking Supervision 11–18 (Report number 8, September 1992), reprinted herein as Appendix I(3).
Chapter 19, “Salient Features of the UNCITRAL Bills and Notes Convention” (Herrmann)
United Nations Convention on International Bills of Exchange and International Promissory Notes, U.N. Doc. A/43/820 (Nov. 21, 1988)[hereinafter U.N. Convention], reprinted in 1 Current Legal Issues Affecting Central Banks 555 (Robert C. Effros ed., 1992); see John A. Spanogle, The Proposed UNCITRAL Convention on International Bills of Exchange and International Promissory Notes, reprinted in 1 Current Legal Issues Affecting Central Banks, supra, at 461.
G.A. Res. 43/165, U.N. GAOR, 76th Sess. (Dec. 9, 1988).
United Nations, Multi-Lateral Treaties Deposited with the Secretary-General, Status as at 31 December 1990, ST/LEG/SER.E/9, at 376.
U.N. Convention, supra note 1, Art. 89.
Id. Art. 1(1) and (2).
Id. Arts. 2 and 3.
Id. Art. 3(1).
Id. Art. 3(2).
Id. Art. 2(1).
Id.
Id. Art. 2(2).
Id.
Id. Art. 2(1)(e).
Id. Art. 2(2)(d).
Id. Art. 88(1).
Id. Art. 88(2).
Id. Art. 2(3).
Id.
Id. Art. 14(2).
Id. Art 1(3).
Id. Art. 4.
A person is a holder if he is:
(a) The payee in possession of an instrument; or
(b) In possession of an instrument which has been endorsed to him, or on which the last endorsement is in blank, and on which there appears an uninterrupted series of endorsements, even if any endorsement was forged or was signed by an agent without authority.
Id. Art. 15(1).
Under the Convention, a “holder in due course” is referred to as a “protected holder.” Spanogle, supra note 1, 173.
A protected holder means the holder of an instrument which was complete when he took it or which was incomplete within the meaning of paragraph 1 of article 12 and was completed in accordance with authority given, provided that when he became a holder:
(a) He was without knowledge of a defense against liability on the instrument referred to in subparagraphs (a), (b), (c) and (e) of paragraph (1) of article 28;
(b) He was without knowledge of a valid claim to the instrument of any person;
(c) He was without knowledge of the fact that it had been dishonored by non-acceptance or by non-payment;
(d) The time-limit provided by article 55 for presentment of that instrument for payment had not expired; and
(e) He did not obtain the instrument by fraud or theft or participate in a fraud or theft concerning it.
U.N. Convention, supra note 1, Art. 29.
See U.N. Convention Arts. 27–32.
Id. Art. 15(3).
Id. Art. 15(1).
Id. Art. 32.
Id. Art. 28(2).
Id. Art. 31(1).
Id. Art. 31(2)(b).
Id. Art. 45.
Id. Art. 45(2).
Id. Arts. 46–48.
Id. Art. 46(3).
Id. Art. 46(1).
Id.
Id. Art. 46(3) and (4).
Id. Art. 46(4).
Id. Art. 46(5).
Id. Art. 47(4).
Id. Art. 47(4)(e).
Id. Art. 47(4)(d).
Id. Art. 8(6), (7), and (8).
Id. Art. 8(8).
Id. Art. 8(6).
Id.
Id. Art. 8(7).
Id. Art. 7(d).
Id.
Id. Art. 7(b).
Id. Art. 7(c).
Id. Art. 7(e).
Id. Art. 5(1).
Id. Art. 75(2).
Id. Art. 75(1) and (3)(a).
Id. Art. 76.
Id. Art. 5(k).
Id. Arts. 78–83.
Id. Art. 78(2)(b).
Id. Art. 60(3).
Id. Art. 61.
Id. Art. 84.
Id. Art. 84(1).
Id. Art. 84(2).
Id. Art. 38(2).
Id.
United Nations Commission on International Trade Law, Model Law on International Credit Transfers, Report of the United Nations Commission on International Trade Law on the Work of its Twenty-Fifth Session, 4–22 May, 1992, U.N.GAOR, 47th Sess., Supp. No. 17, U.N. Doc. A/47/17. The Model Law on International Credit Transfers [hereinafter Model Law] is reprinted in 2 Current Legal Issues Affecting Central Banks 312 (Robert C. Effros ed., 1994).
See Report of the United Nations, supra note 66, at 42–44.
Model Law, supra note 66, Art. 1(1).
See id. Art. 2(a).
Id. Art. 2(b).
Id. Art. I, note **.
72. Id. Art. 5(1).
73. Id. Art. 5.
Id.
Id. Art. 8(2).
Id. Arts. 8(4) and 10(2).
Id. Arts. 8(5) and 10(3).
Id. Art. 10(4).
Id. Art. 7(2)(c).
Id. Art. 7(2)(a).
Id. Art. 7(2)(b).
Id. Art. 7(2)(d).
Id. Art. 7(2)(e).
Id.
Id. Art. 9.
Id. Art. 8(2).
Id. Art. 11(1).
Id.
Id. Arts. 2(e) and 5.
Id. Art. 19(1).
Id.
Id. Art. 10(1).
Id. Art. 19, note ***.
Id. Art. 13.
Id. Art. 14(1).
Id. Art. 14(5).
Id. Art. 17(1).
Id.
Id. Art. 18.
Id.
Id. Art. Y.
Id. Art. Y(1).
Id.
Stand-by Letters of Credit and Guarantees, Report of the Secretary-General, U.N. Doc. A/CN.9/301, XIX Yearbook of the U.N. Commission on International Trade Law 46 (1988), The ICC Uniform Rules for Demand Guarantees (undated), reprinted in Roy Goode, Guide to the ICC Uniform Rules for Demand Guarantees 121 (1992).
International Chamber of Commerce, Uniform Customs and Practice for Documentary Credits (1993).
Thus, the Uniform Law focuses on such matters as the full recognition of independence and the full effect of agreed upon terms, including the validity period, irrespective of return of instrument or any national limitation period. Other matters covered by the Uniform Law include certainty about time of effectiveness, fraud, manifest abuse and possible other objections to payment, court jurisdiction, and conflicts of law.
The first complete draft text of a uniform law and its discussion by the Working Group are contained in UN documents A/CN.9/358 and 361. The Commission adopted in 1995 the draft UN Convention on Independent Guarantees and Stand-by Letters of Credit. United Nations Commission on International Trade Law, Report of the United Nations Commission on International Trade Law on the Work of Its Twenty-Eighth Session, 2–26 May 1995, U.N. GAOR, 50th Sess., Supp. No. 17, U.N. Doc. A/50/17, Annex I.
Chapter 19, Comment (Sono)
UN Commision on International Trade Law, Legal Guide on Eletronic Fund Transfers, U.N. Doc. A/CN.9/SER. B/1, U.N. Sales No. E.87.V.9 (1987).
United Nations Commission on International Trade Law, Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works, U.N. Doc. A/CN.9/SER.B/2, U.N. Sales No. E.87.V.10 (1988).
United Nations Commission on International Trade Law, Model Law on International Credit Transfers, Report of the United Nations Commission on International Trade Law on the Work of its Twenty-Fifth Session, 4–22 May, 1992, U.N.GAOR, 47th Sess., Supp. No. 17, U.N. Doc. A/47/17.
Biographical Sketches
EDITOR
Robert C. Effros received his undergraduate degree from Harvard College, his law degree from Harvard Law School and a master of laws (taxation) degree from Georgetown University. He served in the Legal Department of the Federal Reserve Bank of New York before joining the Legal Department of the International Monetary Fund in 1963. Mr. Effros, who currently serves as Assistant General Counsel (Legislation) of the Fund, has participated in many staff missions involving legislative drafting and advice on general banking and central banking laws of member countries of the Fund. He is an Adjunct Professor of banking law at the American University Washington College of Law. He is also the author of a number of articles on banking and financial matters that have appeared in legal and other journals, and the editor of Emerging Financial Centers: Legal and Institutional Framework (International Monetary Fund, 1982) and Current Legal Issues Affecting Central Banks (International Monetary Fund, vol. 1 (1992) and vol. 2 (1994)).
AUTHORS OF CHAPTERS
William P. Bowden, Jr. received his undergraduate degree from Williams College and his law degree from Columbia Law School. After law school, he was an attorney with the law firm of Davis Polk & Wardwell. Thereafter, he served as General Counsel of the Alaska Interstate Company, Associate General Counsel of Citibank, and then Deputy General Counsel of The Hongkong and Shanghai Banking Corporation’s Marine Midland subsidiary in New York. From 1991 until 1994, Mr. Bowden served as Chief Counsel for the Office of the Comptroller of the Currency. He is now the General Counsel of CS First Boston, Inc.
Alfred J.T. Byrne received both his undergraduate degree and his law degree from Washington and Lee University. Mr. Byrne was with CIGNA Corporation, where he was Managing Attorney of the Law Department and Senior Vice President and General Counsel of its Investment Group. Between 1990 and 1993, he served the Bush Administration as General Counsel of the Federal Deposit Insurance Corporation. Currently, he is the Senior Vice-President and General Counsel of New York Life Insurance Company. Mr. Byrne has written extensively on legal and regulatory issues affecting the banking and financial services industries.
Paolo Clarotti holds degrees in law and in economics from the University of Paris. In 1959, he was appointed an official on the European Community Commission. He has served as a principal administrator in the Banking and Insurance Division and an adviser to the Director of the Harmonization of Legislation. Since 1972, he has been head of the Banking and Financial Establishments Division. Mr. Clarotti has written extensively on banking and finance issues.
Bradley Crawford earned a Bachelor of Commerce and a Bachelor of Laws from the University of British Columbia and a Master of Laws with distinction from the London School of Economics and Political Science. He also studied at Gray’s Inn, London, England. Thereafter, he served on the Faculty of Law at the University of Toronto. In 1972, he joined the law firm of McCarthy & McCarthy (now McCarthy Tetrault), where he specializes in domestic and international banking law, personal property security, payment systems, and general commercial practice. In addition to his other work, Mr. Crawford has acted as legal consultant to the United Nations Commission on International Trade (1976–82); UNCITRAL representative for the Canadian Department of Justice (1982–93); Chairman of the Ontario Minister’s Advisory Committee, Personal Property Security Act (1976–94); and Chairman of the Legal and Control Issues Subcommittee, EDI Council of Canada (1989–93). Among his various legal publications and conference papers, Mr. Crawford is the author of a leading text on the law of banking and payment in Canada.
James R. Doty received his law degree from Yale Law School. He then joined the Houston office of the law firm Baker & Botts, where he specialized in corporate and securities law. In 1977, he was made a partner, and in 1987, he moved to the law firm’s Washington, D.C. office to head its corporate and securities practice. From 1990 to 1992, Mr. Doty served as General Counsel of the U.S. Securities and Exchange Commission, where he was responsible for advising the Commission with respect to administrative proceedings, preparing comments on legislation pending in Congress, and representing the Commission in judicial proceedings. Thereafter, he returned to the Washington office of Baker & Botts. Mr. Doty is the author of numerous articles regarding corporate and securities issues.
Hernán Felipe Errázuriz received his law degree from the Universidad Católica de Chile Law School. While at the Reserve Bank of Chile, he served successively as Deputy General Counsel, General Counsel, and Deputy Chairman. He has also functioned as Minister of Mining and Finance, Ambassador to the United States, and Minister of Foreign Affairs. Currently, he is a partner with the law firm of Guerrero, Olivos, Novoa y Errázuriz.
François Gianviti studied at the Sorbonne, the Paris School of Law, and New York University. He obtained a licence ès lettres from the Sorbonne in 1959, a licence en droit from the Paris School of Law in 1960, a diplôme d’études supérieures de droit pénal et science criminelle in 1961, a diplôme d’études supérieures de droit privé in 1962, and a doctorat d’Etat en droit in 1967. From 1967 to 1969, he was a Lecturer in Law, first at the Nancy School of Law and subsequently at the Caen School of Law. In 1969, Mr. Gianviti obtained the agrégation de droit privé et science criminelle of French universities and was appointed Professor of Law at the University of Besancon. From 1970 through 1974, he was seconded to the Legal Department of the International Monetary Fund, where he served as Counsellor and, subsequently, as Senior Counsellor. In 1974, he became Professor of Law at the University of Paris XII, where he taught civil and commercial law, banking and monetary law, and private international law. He served as Dean of its School of Law from 1979 through 1985. In 1986, Mr. Gianviti became Director of the Legal Department, and, in 1987, General Counsel of the International Monetary Fund. He is a member of the Committee on International Monetary Law of the International Law Association and has published a book on property and many articles on aspects of French and international law.
Attila Harmathy received his Juris Doctor from Eötvös Loránd University Law School (Budapest), and holds degrees as Candidate of Legal Sciences and Doctor of Legal Sciences. He has held various positions with the Institute for Legal and Administrative Sciences of the Hungarian Academy of Sciences. Since 1958, he has served as lecturer, reader, and professor at Eötvös Lórand University Law School, where he was Dean between 1990 and 1993. In addition, he also served as a member of the Cabinet of the Minister of Justice. He is a member of arbitration panels for the Hungarian Chamber of Commerce and the International Centre for the Settlement of Investment Disputes. Mr. Harmathy also has been the reporter of several international conferences, and has written numerous books and papers.
Gerold Herrmann received his doctor of jurisprudence degree from the University of Cologne and his master’s degree from the University of California at Berkeley. From 1970 to 1974, he taught law at the University of Cologne. In 1973, he became an Assistant at the Cologne Institute for Foreign and International Private Law. Since 1986, he has been a member of the Secretariat of the United Nations Commission on International Trade Law and the Secretary of various UNCITRAL Working Groups. Since 1991, he has been the Secretary of UNCITRAL and Chief of the International Trade Law Branch, Office of Legal Affairs, at the United Nations. Mr. Herrmann has written extensively on comparative law, unification of law, and international trade law, including arbitration and negotiable instruments law.
William E. Holder received his LL.B. and his B.A. from the University of Melbourne. He subsequently earned an LL.M. from Yale University and a Diploma from the Hague Academy of International Law. He has served as a Tutor in Law at the University of Melbourne, a Professor of Law at the University of Mississippi, a Reader in Law at the Australian National University, and as an advisor on international law for the Australian Department of Foreign Affairs. Mr. Holder joined the International Monetary Fund in 1976 and has served as Deputy General Counsel since 1986. He is the author of many articles on international law subjects.
Daoud L. Khairallah received a licence en droit from the Lebanese University Law School, Beirut Subsequently, he was sponsored by the Ford Foundation and the International Legal Center as an exchange scholar at the University of Michigan, Ann Arbor. There, he earned a Master of Comparative Law, a Master of Laws, and a Doctor of the Sciences of Law. Between 1973 and 1976, he entered private legal practice, acted as legal consultant on the Persian Gulf Arab States Law, and lectured in international law at the Lebanese University. Mr. Khairallah joined the International Finance Corporation in 1976 and served as Deputy General Counsel from 1989 to 1994. He currently serves as Deputy General Counsel, Administration Finance and Institutional Affairs for the Legal Department of the IBRD. Additionally, Mr. Khairallah has been an Adjunct Professor at Georgetown University’s Law Center and Center for Contemporary Arab Studies.
Jean-Victor Louis received his law degree and his agrégation from Brussels University (ULB). From 1967, he assumed successively the functions of secretary, director, director of research and president (1980–92) of the Institut d’Etudes Européennes of the ULB. He is a professor of EC law at the ULB. Since 1972, he has been a legal advisor of the National Bank of Belgium and currently serves as advisor to the Board of Directors and head of the Legal Department of the Bank. He is the Director of the “Cahiers de Droit Européen” and has chaired the Belgian Association for European Law from 1983 to 1985. He was a Visiting Professor at the University of Paris I Panthéon, Sorbonne, in 1986–1987 and the University of Nice in 1992–93, and a guest scholar at the Woodrow Wilson International Center for Scholars in 1988. He has written extensively on European Union institutional and monetary law.
J. Virgil Mattingly, Jr. received his J.D. from George Washington University. After four years of service as an attorney for the U.S. Army Judge Advocate General Corps, he joined the Federal Reserve System in 1974. Currently, he is General Counsel of the Board of Governors of the Federal Reserve System. Under his direction, the Legal Division is responsible for providing legal counsel to the Board on supervisory, regulatory, monetary, legislative, litigation, or other matters arising under the Board’s jurisdiction, as well as issues relating to the Board’s internal operations.
John W. Moscow received his J.D. from Harvard Law School. Thereafter, he joined the New York County District Attorney’s Office. Mr. Moscow was assigned to the Frauds Bureau, of which he was made Chief in 1985. He served as Deputy Chief of the Investigation Division of the District Attorney’s Office until June 1995, when he joined the Federal Reserve Bank of New York as Deputy General Counsel. Mr. Moscow has prosecuted cases involving tax fraud, securities fraud, bank fraud, and other cases involving embezzlement and theft, including BCCI.
Victor Pavlovich Mozolin holds a Doctor of Laws degree from the M.V. Lomonosov Law School, Moscow University. He has worked as senior research assistant of the Institute of State and Law at the Academy of Sciences of the Russian Federation and has taught Soviet law at Moscow University, the Peoples Friendship University, and Georgetown University. Mr. Mozolin acts as an arbitrator in the Court of Arbitration of the Chamber of Commerce and Industry of the Soviet Union and the Russian Federation. He is currently working in private practice. Mr. Mozolin has written extensively in books and articles on issues concerning Soviet and foreign civil and trade law.
Reinhard Munzberg studied law at the Universities of Erlangen and Wurzburg, where he received his Doctorate in Law. From 1972 to 1977, he worked in the Ministry of Finance, where by 1977, he was named Head of the Minister’s Office. The following year he became Head of the Minister’s Office, Ministry for Economic Cooperation, where he remained until becoming an Executive Director at the World Bank in 1981. In 1985, Mr. Munzberg began work with the International Monetary Fund as a consultant to the Administration Department. In 1986, he was appointed Assistant General Counsel of the Legal Department. He currently serves as Deputy General Counsel. Mr. Munzberg is the author of various articles on international legal issues.
John M. Niehuss received his law degree from the University of Michigan. He has served as Legal and Economic Adviser in the Zambian Ministry of Finance, International Vice President of Merrill Lynch, Assistant Director of the Council of International Economic Policy at the White House, and Assistant Deputy Secretary and Senior Assistant Deputy Secretary of the U.S. Treasury Department. In 1990, Mr. Niehuss was appointed Director of the Cofinancing and Financial Advisory Services Department at the World Bank. Since 1992, he has served as the General Counsel of the Inter-American Development Bank.
Hugh S. Pigott received his master’s degree from Cambridge University. He was articled to Coward Chance in 1952, qualified as a solicitor, and became a partner of the firm in 1960. The firm merged to become Clifford Chance and, until May 1992, he was Senior Partner of Clifford Chance’s International Banking Group. He was Honorary Legal Adviser to the U.K. Accounting Standards Committee from 1986 to 1990. From 1988 to 1993, he was a member of the Top Salaries Review Body, which advises the U.K. Prime Minister on the remuneration of the judiciary, senior civil servants, and senior officers of the armed forces. In 1992, he became a member of the Joint Disciplinary Scheme of the U.K. accounting profession. He is a Senior Visiting Fellow of Queen Mary and Westfield College, London University.
Andrés Rigo earned a law degree from the University of Madrid and a Ph.D. from the University of Cambridge. He served as an Associate Professor of International Law at the Universidad Autonoma of Madrid and as an adviser to the government of Venezuela on the law of the sea. In 1973, he joined the World Bank as an attorney. As Chief Counsel, he headed the Africa Division of the Legal Department. Mr. Rigo was appointed Assistant General Counsel, Operations in 1992 and Deputy General Counsel, Operations in November 1994.
William A. Ryback holds a B.S. degree in finance from Seton Hall University. He held various positions at the Office of the Comptroller of the Currency, including Director of Multinational and Regional Bank Policy. In 1986, he joined the Board of Governors of the Federal Reserve System, where he currently serves as Associate Director of International Supervisory Policy and Activities, Division of Banking Supervision and Regulations. In his present capacity, he is responsible for supervision of the regulatory oversight of foreign banks operating in the United States and the coordination of the System’s international supervisory functions. Additionally, he reviews and makes recommendations to the Board on applications for international expansion of banks and bank holding companies, and foreign banks operating in the United States. Mr. Ryback also serves as the Board of Governor’s representative on the Basle Committee on Banking Supervision.
René Smits studied law and sociology at the Free University in Amsterdam, specializing in European Community law and economics. In 1978, he joined the Nederlandsche Bank, which is the central bank of the Netherlands. After serving as chief of one of the banking supervision departments, he was appointed General Counsel of the Central Bank’s Legal Department. His activities have included assisting in preparation of EC banking supervisory rules and their implementation in the Netherlands, international negotiations, and legal work concerning IMF and EC monetary affairs. Mr. Smits is the author of articles on international organizations, EC monetary and banking law, and the legal aspects of development policy, and is also an editor of a commentary on EC banking regulations.
Robert Sparve received an LL.M. from Stockholm University. In 1973, after serving as an attorney in private practice, he joined the Sveriges Riksbank, the Swedish Central Bank. He currently serves as Director, Head of Secretariat of the Board, and Chief Legal Counselor. Mr. Sparve serves as an expert in government committees on economic policy and other financial issues.
Edwin M. Truman received his bachelor’s degree from Amherst College and his Ph.D. in economics from Yale University. He subsequently served as a member of Yale University’s Department of Economics. In 1972, he joined the Board of Governors of the Federal Reserve System as an Economist in the Division of International Finance. Mr. Truman then served the Division in various capacities. During 1973–74, he served on several technical groups of the Committee on Reform of the International Monetary System and Related Issues (Committee of Twenty). He currently serves as an Economist on the Federal Open Market Committee. His publications include works on European economic integration, international monetary economics, economic development, and the international debt problem. Mr. Truman received an honorary doctor of laws degree from Amherst College in 1988.
Bertold Wahlig studied at the law schools of the Universities of Mainz and Freiburg, Germany, receiving his law degree after fulfilling the practical requirements of the degree by practicing with various courts, offices, and law firms. Subsequently, he joined the legal department of the Deutsche Bundesbank, which is the German Central Bank. He now serves as General Counsel. In addition to his immediate work, Mr. Wahlig has attended UNCITRAL meetings and participated in UNCITRAL working groups as special adviser for the Ministry of Justice of the Federal Republic of Germany. Since 1985, he has been a member of the Committee on International Monetary Law of the International Law Association. Mr. Wahlig has published a number of articles concerning issues of monetary law.
Peter J. Wallison received his undergraduate degree from Harvard College and his law degree from Harvard Law School. Between 1972 and 1976, he served first as Special Assistant to New York’s Governor Nelson A. Rockefeller and, subsequently, as Counsel to the Vice President, when Mr. Rockefeller was Vice President of the United States. Thereafter, he joined the law firm of Rogers & Wells, New York, where he handled a diversity of corporate and securities matters. In 1981, Mr. Wallison was appointed General Counsel of the U.S. Treasury Department. In 1985, he joined the Washington, D.C. office of Gibson, Dunn & Crutcher. In 1986, he served one year as counsel to the President of the United States, before rejoining the Corporations Department of Gibson, Dunn & Crutcher. Mr. Wallison’s recent work has included advising foreign banks on their U.S. operations.
COMMENTATORS
Ernesto Aguirre-Carrillo received his law degree from the University Externado de Colombia, a Master of Laws in International Economic Law from the University of Paris I Pantheon, Sorbonne, a Master of Laws in Financial Legislation from the London School of Economics, and is a Ph.D. candidate in economics from the London School of Economics. He has served as the Director of the Department of Economic Law at the University Externado de Colombia, legal adviser to the Central Bank of Colombia, Superintendent of Banks of Colombia, and International Negotiator of the Colombian Government. Mr. Aguirre-Carrillo is currently Senior Counsel in the Legal Department of the International Monetary Fund.
Tobias M.C. Asser received his law degree from Leyden University, the Netherlands, and a Ph.D. in private international law from Cambridge University, England. Before he joined the Legal Department of the International Bank for Reconstruction and Development in 1968, he was a practicing attorney in Amsterdam. Among the positions in which he served at the IBRD were those of Assistant General Counsel, Operations, and Assistant General Counsel, Finance. In 1987, Mr. Asser transferred from the IBRD to the Legal Department of the International Monetary Fund, where he serves as Assistant General Counsel. Mr. Asser is also an Adjunct Professor at Georgetown University Law Center in Washington, D.C., where he teaches international financial law.
William M. Berenson holds a B.A. from Dartmouth College, an M.A. and a Ph.D. in Political Science from Vanderbilt University, and a J.D. from Boston University. During 1972 and 1973, he did research in Uruguay under a Ford Foundation Foreign Area Fellowship. He has worked on a broad range of issues in both the private and public sectors as a litigator and legal adviser. Currently, Mr. Berenson is the Acting Assistant Secretary for Legal Affairs and Director of the Department of General Legal Services for the General Secretariat of the Organization of American States and is an Adjunct Professor at American University’s Washington College of Law. He has also served as the Chairman of the International Development and Investment Committee of the Federal Bar Association.
Richard Scott Carnell earned his B.A. from Yale and a J.D. from Harvard Law School. After two years with the law firm Broad, Schultz, Larson & Wineberg, he became an attorney with the Board of Governors of the Federal Reserve System in Washington. From 1987 to 1989, he served as committee counsel and then senior counsel with the Senate Banking Committee. Mr. Carnell became the Assistant Secretary (Financial Institutions) for the U.S. Treasury Department in July 1993. He is the author of several publications on banking laws.
John K. Carroll received his B.A. from Yale University and his J.D. from New York University School of Law. After clerking at the United States District Court for the Southern District of New York, he joined the United States Attorney’s Office for the Southern District of New York. From early 1991 to November 1992, he was Chief of the Securities and Commodities Fraud Task Force. As Task Force Chief, he led the prosecution team in the Salomon Brothers government securities scandal and supervised other prosecutions in the areas of banking fraud, insider trading, penny stock fraud, and commodities fraud. In November 1992, Mr. Carroll joined the law firm of Rogers & Wells.
V. Gerard Comizio earned his B.A. from Fordham University, his J.D. from Pace University Law School, and his LL.M. in securities regulation from Georgetown University Law Center. From 1981 to 1984, Mr. Comizio was an attorney with the Division of Corporation Finance at the Securities and Exchange Commission, acting as Senior Attorney and Assistant Branch Chief in that division from 1983 to 1984. He then joined the Federal Home Loan Bank Board where he served in the Corporate and Securities Division, becoming its Director. Mr. Comizio served as the Deputy Chief Counsel for Securities and Corporate Structure in the Chief Counsel’s Office of the Office of Thrift Supervision. He is currently a partner in the Washington office of the law firm of Thacher, Proffitt & Wood. In addition to his work, he is the author and co-author of numerous articles on banking, securities, and financial institution matters. Mr. Comizio is currently an Adjunct Professor of banking law at the American University Washington College of Law.
Cynthia A. Glassman received her undergraduate degree from Wellesley College, and a masters degree and a Ph.D. in economics from the University of Pennsylvania. She has served as Senior Economist in the Office of Capital Markets Legislation for the U.S. Department of Treasury; economist for the Board of Governors of the Federal Reserve System in the Capital Markets Section; and, Chief of the Financial Reports Section, Federal Reserve Board. Currently, she is Managing Director of Furash & Company, a strategic and management firm for the financial services industry. Ms. Glassman has spoken and written extensively on the subjects of economics, banking, and finance.
Charles M. Horn graduated from Harvard College and received his law degree from Cornell Law School. Subsequently, he worked as an attorney in the Division of Market Regulation at the Securities Exchange Commission. After serving as Branch Chief in the Division of Enforcement, he moved to the Office of the Comptroller of the Currency, U.S. Department of Treasury, where, from 1986 to 1989, he served as Director of the Securities and Corporate Practices Division. Since 1989, he has been in private practice. Currently, he is a partner in the law firm of Mayer, Brown & Platt in Washington, D.C. Mr. Horn has spoken on a wide variety of topics concerning depository institutions, and has authored and co-authored numerous articles on banking and securities.
Nancy Jacklin graduated from Georgetown University School of Foreign Service and received her law degree from the Georgetown University Law Center. Between 1973 and 1982, she acted as an attorney-adviser (International Affairs) for the U.S. Department of Treasury, Office of the General Counsel. She then served as Assistant General Counsel (International Affairs) for the Board of Governors of the Federal Reserve System until 1975, when she joined Citibank N.A. Since 1992, she has been a partner with the law firm of Clifford Chance in New York. Ms. Jacklin is the author of a number of publications on banking and banking-related issues.
Sydney J. Key received her undergraduate and Ph.D. degrees from Harvard University. Since 1971, she has served as an economist for the Board of Governors of the Federal Reserve System in the Division of International Finance. In 1990, Dr. Key took leave from her position as economist with the Board of Governors to act as national expert in the E.C. Commission’s Directorate General XV, Financial Institutions and Company Law, where she worked on the development of the Commission’s proposal for a deposit-protection directive. She teaches European Union banking structure and regulation at the Morin Center for Banking Law Studies, Boston University School of Law. She is Staff Director for the Sub-Committee on International Development, Finance, Trade, and Monetary Policy; and Staff Director of the Committee on Banking, Finance, and Urban Affairs with the U.S. House of Representatives. Dr. Key has published numerous articles and papers on banking and financial subjects.
Cynthia Lichtenstein earned her undergraduate degree from Radcliffe College, a J.D. from Yale Law School, and a master’s in Comparative Law from the University of Chicago Law School. Since 1971, she has been a Professor of Law at Boston College Law School, where she specializes in international financial law. She also served as a special consultant to the New York law firm of Milbank, Tweed, Hadley & McCloy from 1985 to 1994. Ms. Lichtenstein has served as past President of the American Branch of the International Law Association (ILA), past Vice President and current Honorary Vice President of the American Society of International Law, member of the ILA’s International Monetary Law Committee, and as Rapporteur of the ILA’s Committee on International Securities Regulation, of which she is presently Chair. She has also spoken and written extensively on a broad range of international financial matters, including U.S. and foreign banking.
Roberto G. MacLean received his law degree and Doctor of Laws degree from the University of San Marcos University, Peru. After several years in private practice and after serving as Legal Counsel to the Central Reserve Bank of Peru, he was Justice of the Supreme Court of Peru from 1976 to 1980. Thereafter, he again served as Legal Counsel to the Central Reserve Bank of Peru and was appointed Ambassador of Peru to the United States (1991–1992). Mr. MacLean is currently a long-term consultant with the World Bank. He is a member of the Permanent Court of International Arbitration at the Hague and Judge at the Administrative Tribunal at the Inter-American Development Bank. Mr. MacLean has taught private international law at a number of universities around the world. Presently, he teaches comparative law and international trade law as an Adjunct Professor at Georgetown University Law Center. Additionally, he is the author of books on international topics and has published many articles on private international law, comparative law, and international trade law.
Kathleen M. O’Day graduated from Assumption College in Worcester, Massachusetts and received her J.D. from Boston College Law School. Ms. O’Day currently serves as Associate General Counsel in the Legal Division of the Board of Governors of the Federal Reserve System. Her areas of responsibility include legislative and regulatory matters relating to foreign banks operating in the United States and U.S. banks operating abroad, and issues arising in connection with international trade agreements.
Kazuaki Sono received his law degree and a masters of law degree from Kansai University. He was a Fulbright Scholar at Yale University Law School and earned a J.D. from the University of Washington Law School. Since 1973, he has been Professor of Law at Hokkaido University, Japan. Before his present position, he was Lecturer at Kansai University, Visiting Professor of Law at the University of Washington, and a Professor in Graduate School (International Division) at Sophia University in Tokyo. In addition to his academic positions, Mr. Sono served both as Chief of the International Trade Law Branch in the United Nations’ Office of Legal Affairs and Secretary of the United Nations Commission on International Trade Law from 1980 to 1985. He also served as Assistant General Counsel in the Legal Department of the International Monetary Fund from 1990 to 1993.
