ECB cites concerns over MNB-PSzÁF merger

Issues

The European Central Bank (ECB) has cited, in an opinion, a number of concerns regarding a draft law and decree that implement the merger of the National Bank of Hungary (MNB) and financial market regulator PSzÁF.

The opinion, dated October 7, is a follow-up to an opinion dated July 26 on the legislation that established the merger. The merger was approved by Parliament in the middle of September and came into force on October 1.

The ECB noted the draft law implementing the merger had been approved shortly after Hungarian authorities consulted with the bank, as a matter of urgency, but before it could adopt an opinion. The ECB said the Hungarian authorities had failed to comply with their duty to consult with it at an “appropriate stage” in the legislative process, preventing lawmakers from considering the opinion before their vote. “During the current consultation procedure, the new law on the [MNB] was adopted without taking into account all the ECB's observations as regards the [MNB]'s independence; therefore concerns remain regarding compliance with the principle of central bank independence enshrined in Article 130 of the Treaty.”

The follow-up opinion touches on some of the issues brought up in the opinion on the merger dated July 26. In that opinion, the ECB welcomed the integration and said it would “improve the [MNB]’s ability to safeguard financial stability and prevent or mitigate systemic risks.” In the follow-up opinion, the ECB said the draft legislation sent to it by the Hungarian authorities contained inconsistencies in references to the central bank and the financial market watchdog that failed to provide “an adequate level of legal certainty.”

ECB said that the period between the time the legislation is adopted and the merger takes place is too short and that the draft legislation had repealed some decrees adopted by the head of PSZAF, including one on the calculation and conditions for the financial market supervisory fee.

Until new financing rules are adopted, the MNB will be obliged to finance supervisory activities from existing resources, raising "serious concerns" from the ECB regarding the central bank's financial independence.

The ECB said the draft legislation would allow the MNB to withdraw the operating license of a credit institution only after obtaining the approval of the economy minister which is “not in line with the principle of supervisory independence.” The ECB said one of the amendments to the draft law repealed a provision allowing the MNB to forward statistical data to the ECB and the European System of Central Banks (ESCB) without the practice being considered an infringement.

Finally, the ECB noted the MNB's legal obligation to cooperate with the ESCB and the ECB in the field of statistics.

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