President signs Act on Integration of Financial Market Supervision

On 21 February 2006, President Václav Klaus signed a law providing for the integration of financial market supervision into the Czech National Bank. As of 1 April (the effective date of the act), the CNB will take over the activities of the Czech Securities Commission (CSC), the Office for Supervision of Insurance and Supplementary Pension Insurance and the Office for Supervision of Credit Unions. The Czech Republic will have an integrated financial market supervisory authority, which will mean lower costs for the state and for financial institutions, as well as higher quality supervision. 'The integration of the supervisors into a single functional unit reflects developments in the financial market, where the individual sectors are also concentrating into larger consolidated groups," says Zdeněk Tůma, CNB Governor.

Together with the integration of supervision, the process of preparing legislation governing the financial market will change as of 1 April 2006. 'Responsibility for preparing legislation in the financial market area will be delegated to the Ministry of Finance. This is a significant change compared to the current situation, where banking legislation is drafted by the CNB," emphasised Bohuslav Sobotka, First Deputy Prime Minister and Minister of Finance.

The CNB will continue to participate in the preparation of legislation by providing expert assistance. Conversely, draft implementing measures for all sectors of the financial market will be prepared by the CNB with the expert assistance of the Ministry of Finance. A Committee for the Financial Market will be established after 1 April 2006 as an advisory body to the CNB Bank Board. The Committee will comprise seven members, three of which will be elected by the Budget Committee of the Chamber of Deputies (the lower house of the Czech Parliament) at the proposal of the professional associations operating on the financial market, and two will be appointed by the Minister of Finance. The committee members will also include the Financial Arbiter and one member of the CNB Bank Board. This diverse membership should ensure that a wide range of expert opinions and interests of the market, the state and consumers are taken into account. The Committee will provide a platform for discussion of general conceptual issues concerning financial market supervision, new trends in this area and any systemic problems arising in the performance of supervision. The Committee will comment on the Report on Supervisory Activity which the CNB will present each year to the Government and Parliament.

The integration of supervision into the CNB is a result of co-operation among all the institutions involved - the CNB, the Ministry of Finance, the Czech Securities Commission and the Office for Supervision of Credit Unions. The complicated logistics of the process are being addressed by a project team and implementation team, which have been tasked with providing organisational, operational and technical support for the entire process. The implementation team is currently dealing with, among other things, property and operational relations and technical and security issues. The gradual takeover of archives and documentation is meanwhile ongoing.

Provision of information to the public will not be limited in any way by the integration of supervisors. Information on the supervision of insurance companies, pension funds and credit unions will be available on the CNB website under Financial Market Supervision. In the initial phase, the website of the Czech Securities Commission will be accessible via a link from the CNB website ( www.cnb.cz). The Commission's direct address ( www.sec.cz) will also be in operation for a limited time. The CNB will also take over and operate the CSC's Green Line on 800 160 170.

Close attention is also being paid to the interconnection of information systems. The smooth operation of such systems is of key importance to the integrated supervisory activities. We will now concentrate on testing the systems and checking the functioning of external links.

The organisational structure of the CNB will be extended as of 1 April to include two new departments (reporting directly to the Bank Board, i.e. BR-1): a Capital Market Regulation and Supervision Department and an Insurance Companies Regulation and Supervision Department. Supervision of pension funds, which was previously performed by both the Ministry of Finance and the CSC, will be integrated into the Capital Market Regulation and Supervision Department, while supervision of credit unions will be included in the existing Banking Regulation and Supervision Department.

The CNB has relocated 360 members of its staff in preparation for the arrival of around 150 new employees. The aim has been to create sufficient room for the new staff and, at the same time, to locate the individual departments in the building so that related work activities are situated next to each other. The move of the new employees is scheduled for the last week in March and the first weekend in April. The integrated supervisory authority will thus launch its activities on Monday, 3 April.

Before 1 April 2006, the central bank and the Ministry of Finance will sign an agreement specifying in detail the property necessary for supervisory activities, which is to pass to the CNB in compliance with the Integration Act. The CNB will then take over the respective activities and the specified property. Furthermore, the Ministry of Finance and the CNB are to conclude an agreement on co-operation in the preparation of legislation concerning the financial market. The remainder of 2006 will be devoted to detailed analyses, resulting in the integration of regulatory reporting and inspection work methodology, harmonisation of licensing procedures, and more cohesive legislation. The benefits of integrated supervision will thus manifest themselves not only in reduced state budget expenditure, but also to a significant extent in the supervised entities operating on the Czech financial market.

Press release of 2 February 2006: Information on the process of integration of financial market supervision