Bank of Slovenia’s position on the bill for the Act on Judicial Relief Granted to Holders of Qualified Bank Credit

At the Bank of Slovenia we welcome the government’s intention to regulate the judicial relief proceedings for former holders of qualified liabilities of banks. The adoption of a legal solution that provides for effective judicial relief and transparent processes is in the Bank of Slovenia’s interest. In this light we are providing our opinion and our proposed amendments to the bill for the Act on Judicial Relief Granted to Holders of Qualified Bank Credit. We are primarily highlighting the inadequacy of the solution provided in the bill that introduces the concept of the Bank of Slovenia’s objective liability, which in the event of deprivation being identified would entail unauthorised monetary funding, and would thus prejudice the Bank of Slovenia’s independence of activity. We are also proposing additions that would increase the transparency of proceedings, both in light of the participating experts and the definition of the role of all participants in proceedings of that time, and with regard to the disclosure of potential beneficiaries of the law.

The bill introduces the concept of the Bank of Slovenia’s objective liability for any deprivation on the part of former holders of qualified liabilities, which refers to any difference between the actual treatment of former qualified liabilities during the imposition of extraordinary measures and the treatment that was required on the basis of regulations and established practice. It requires the Bank of Slovenia to refund a difference of any type, irrespective of liability, i.e. even if any deprivation was not the result of unfair or unlawful conduct by the Bank of Slovenia. 

In this connection we draw attention to certain solutions contained in the bill that are substantively inadequate, and whose implementation would put the Bank of Slovenia in a position where it would be acting in contravention of the applicable legal arrangements. Our key points are given below:

1. Bank resolution and the financing of resolution measures is the task of the government, and not the central bank, as presumed by the bill. We note that this would also breach the principle that monetary financing is prohibited, which is a fundamental principle of the functioning of the Bank of Slovenia and the ECB defined in both national legislation and the legal framework of the Eurosystem.

2. Several institutions and organisations participated in the bank resolution processes, which the bill does not recognise. The key to assessing extraordinary measures is determining the content of practices, standards and methodologies as set out by the European Central Bank, the European Commission and the European Banking Authority. We therefore feel that the bill should provide for the direct involvement of the aforementioned institutions in the proceedings. At the request of the court they could provide the requisite clarifications with regard to the practices used in the implementation of EU regulations, and with regard to the practices and standards of bank supervision and bank resolution that were used by national authorities in EU Member States in 2013 and 2014.

3. The envisaged selection of experts to participate in the process of determining any deprivation is not appropriate. Determining and explaining facts relevant to the court’s decision will require very specific and in-depth knowledge of rules, practices, standards and methodologies in the area of bank supervision and bank resolution. The bill envisages this knowledge as merely desirable, rather than being a requirement, which would be the only proper approach to the issue in question. In Slovenia the circle of experts who have such knowledge and experience but did not conduct or take part in asset quality review inspections, stress tests or bank asset valuations is extremely limited; an additional constraint is the second paragraph of Article 245 of the ZPP, under which the court generally appoints experts from among persons considered court experts.

4. We are also advocating greater transparency in proceedings with regard to the potential beneficiaries of the law. At the Bank of Slovenia we are also drawing attention to the applicable legal commitments in the area of AML/CFT. In light of the legislation in this area, we therefore take the position that the bill should explicitly envisage the disclosure of the actual identities (and the submission of their special authorisation for representation in the proceedings) of all potential beneficiaries, i.e. including those entities that in relation to the former holders of qualified liabilities acted as custodians or held shares or bonds for the account of another.

Furthermore, the Bank of Slovenia draws attention to certain other deficiencies in the bill:

• We find the reversed burden of proof introduced by the bill, where there is no need for the plaintiffs to submit evidence supporting the initiation of proceedings, to be improper.
• The Bank of Slovenia is also of the opinion that the judicial relief proceedings could be conducted faster, and puts forward proposals in this direction.