1. 1 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 17– Economic and Monetary Policy Bilateral screening: Chapter 17 PRESENTATION OF MONTENEGRO Brussels, 2 5 February 2013

2. 2 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE AND PROHIBITION OF MONETARY FINANCING Darka Tomčić Central Bank of Montenegro darka.tomcic@cbcg.me @cbcg.me@cbcg.me

3. 3 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy LEGAL FRAMEWORK IN FORCE CONSTITUTION OF MONTENEGRO Central Bank of Montenegro Article 143 The Central Bank of Montenegro shall be an independent organization, responsible for monetary and financial stability and banking system operations. The Central Bank Council shall govern the Central Bank of Montenegro. The Central Bank Governor shall manage the Central Bank of Montenegro. * CENTRAL BANK OF MONTENEGRO LAW (OGM 40/10, 46/10) Subject Matter Article 1 This Law regulates the status, objectives, functions, performance and organisation of the Central Bank of Montenegro.

4. 4 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy SECONDARY LEGISLATION Secondary legislation: 1)Decision on Open Market Operations (OGM 15/11); 2)Decision on Detailed Conditions for Granting Liquidity Loans to Banks (OGM 15/11); 3)Decision on Granting Last-resort Financial Assistance (OGM 15/11); 4)Decision on International Reserves Management (OGM, 19/11); 5)Decision on the Supply of Banknotes and Coins (OGM 19/11); 6)Decision on Credit Registry (OGM 27/11; OGM 64/12;); 7)Decision on Detailed Requirements and Manner of Performing Bureau De Change Operations (OGM 27/11); 8)Decision on Determining Tariff for Calculating Fees Charged for the Central Bank of Montenegro Services (OGM 29/11; OGM 22/12); 9)Decision on the Chart of Accounts of the Central Bank of Montenegro (OGM 29/11); 10)Decision on Bank Reserve Requirement to Be Held with the Central Bank of Montenegro (OGM 35/11, 22/12, 61/12); 11)Decision on Authenticity and Fitness Checking and Recirculation of Euro Notes and Coins (OGM 35/11); 12)Decision on the Handling of Suspect Euro Notes and Coins and Other Activities Aimed at Protecting the Euro Against Counterfeiting (OGM 35/11).

5. 5 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy RELEVANT SOURCES OF LAW OF THE EUROPEAN UNION TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION (TFEU) P R O T O C O L (No 4) ON THE STATUTE OF THE EUROPEAN SYSTEM OF CENTRAL BANKS AND OF THE EUROPEAN CENTRAL BANK (Statute of the ESCB and of the ECB) The Central Bank of Montenegro Law (the CBCG Law) enacted in 2010 is highly compliant with the aforesaid relevant sources of law of the European Union.

6. 6 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy INSTITUTIONAL FRAMEWORK Competent authority in Montenegro The competent authority in Montenegro is the Central Bank of Montenegro that was established under the Law on the Central Bank of Montenegro (OGRM 52/00, 53/00, 47/01, 4/05) and which started operating in March 2001. After the enactment of the new Central Bank of Montenegro Law in 2010, the Central Bank continued operating under this law, being autonomous and independent in the management and disposal of assets it had acquired before the entry into force of this law. The Central Bank of Montenegro is an independent organisation with the legal personality.

7. 7 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE The Central Bank’s functional independence Central Bank Objectives (Article 4, the CBCG Law) The main objective of the Central Bank shall be to foster and maintain the financial system stability, including fostering and maintaining sound banking system and safe and efficient payment systems. The Central Bank shall contribute to achieving and maintaining the stability of prices. The Central Bank shall, without prejudice to pursuing its objectives, support the pursuing of economic policy of the Government of Montenegro, acting in accordance with the principles of free and open market and freedom of entrepreneurship and competition. The Central Bank shall have all powers required for pursuing the objectives under this Article. Due to the specific features of the monetary regime in Montenegro, the Central Bank’s objective cannot be fully compliant with the relevant sources of EU law at this point.

8. 8 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17 : Economic and Monetary Policy CENTRAL BANK INDEPENDENCE The Central Bank’s institutional independence (Article 7, the CBCG Law) The Central Bank shall be independent in pursuing objectives and exercising functions under this law. The Central Bank, members of its bodies and employees in the Central Bank shall be independent in the performance of their functions and their activities established under this and other laws and they may not receive or seek any instruction from the government and other bodies and organisations or any other entities. The state and other bodies and organizations and other persons may not exert any influence on the performance and decision-making of members of the Central Bank’s bodies. This Article fully transposes provisions under Article 130 TFEU and Article 7 of the Statute of the ESCB and of the ECB.

9. 9 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s institutional independence The main tasks and duties of the Central Bank (Article 14, the CBCG Law) Overseeing the maintenance of stability of the financial system as a whole Definition and use of monetary policy instruments (reserve requirements, liquidity loans for banks and financial assistance as the lender of last resort) Managing the international reserves Prudential supervision of banks Maintaining and promoting safe and sound operation of payment systems. Central Bank performs other activities in accordance with the Central Bank of Montenegro Law and other law. This Article transposes all provisions under Article 127 (paragraph 2)of the TFEU and Article 3 of the Statute of the ESCB and of the ECB, except with regard to exchange rate requirements under Article 219 of the TFEU.

10. 10 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s institutional independence Central Bank opinions The Government shall consult the Central Bank on any draft law concerning the financial system and affecting the attaining of objectives and exercising of functions of the Central Bank, and which shall be subject to the Central Bank opinion, before it is submitted to the Parliament. The Government shall submit to the Parliament the opinion of the Central Bank together with the proposal of the law (Article 40 of the CBCG Law). A Central Bank regulation specifies that the Central Bank also gives its opinions to all interested parties with regard to issues involving the implementation of provisions of the law and/or regulations concerning the functions of the Central Bank. This fully transposes provisions under Article 127 paragraph 4 of the Statute of the ESCB and of the ECB.

11. 11 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s personal independence The Council shall consist of seven members. Members of the Council shall be the Governor, Vice-Governor for the banking system supervision, Vice- Governor for the financial stability and payment system and four members. (Article 46 of the CBCG Law) Governor and members of the Council shall be appointed for the period of six years and may not serve more than two terms. (Article 49 of the CBCG Law) The Governor shall be appointed by the Parliament, upon the proposal of the President of Montenegro, Vice-Governors shall be appointed by the Parliament, upon the proposal of the Governor, while four members of the Council shall be appointed by the Parliament, upon the proposal of the working body of the Parliament responsible for financial affairs. (Article 50 of the CBCG Law)

12. 12 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s personal independence Eligibility to Serve on the Council and Incompatibility of Functions (Article 51, CBCG Law) A member of the Council must be a person having Montenegrin citizenship, holding a university degree, having a recognized personal reputation and professional experience in economics, banking, finances or law. A member of the Council may not be a member of a political organisation, a member of the Parliament, a member of the Government or person performing another function or duty as designated by the Parliament or the Government, except performing function or duty in international financial institutions, and he/she may not be performing a function or a duty in any local authority or trade union bodies. A member of the Council may not be a member of a body, an employee or external associate of a bank, a financial institution, or another legal person subject to supervision of the Central Bank. A member of the Council may be a person engaged in scientific or research work, except a person whose work or activity could affect his/her independence or conflict the interests of the Central Bank. A member of the Council may not hold 5% or more shares or stake in a bank or a financial institution and any other legal person subject to the Central Bank supervision, nor may hold 5% or more shares or stake in an audit firm. A member of the Council may not be a person for whom it has been established that he/she is subject to the conditions for the relieving of duty a Council member.

13. 13 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s personal independence Prevention of Conflict of Interest (Article 52 and 58, the CBCG Law) A member of the Council is obliged to perform his/her function in the Central Bank in the manner so that he/she shall not put his/her personal interest or interests of parties related with him/her before the interests of the Central Bank. The Governor and the Vice-Governors may not perform professionally any other function, job or duty, unless approved by the Council. The member of the Council shall submit to the Council a report on his/her accomplishment of direct or indirect financial interests and those of the related parties, in the manner to be prescribed by the Central Bank. Whenever a member of the Council is in any way connected with the subject matter of deciding or if he/she is indirectly or directly interested in that subject matter, the member concerned shall disclose his/her interest at the beginning of the discussion and shall not participate in the discussion and deciding on such a matter, but his/her presence shall be counted for the purpose of constituting a quorum.

14. 14 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s personal independence Relieving of Duty of Governor and a member of the Council (Article 53, the CBCG Law) A member of the Council shall be relieved of duty prior to the expiry of his/her term of office if: 1) it has been established, after his/her appointment, that he/she had been appointed based on inaccurate and/or incorrect information or if any of the circumstances has occurred; 2) he/she has been sentenced to unconditional prison or convicted of offence which makes him/her unworthy of performing the function of the Council member or has been subject to the prohibition of further conduct of work or duty imposed by the competent authority; 3) he/she has been guilty for serious misconduct in performing his/her function; 4) he/she has become a debtor in the bankruptcy proceedings. A member of the Council may be relieved of duty if he/she fails to perform his/her duties for a consecutive period of more than three months without approval of the Council, if he/she is unable to perform the functions of such an office because of illness for a consecutive period of more than six months or fails to submit or submits a false statement and the report under Article 52 of this law. A member of the Council may not be relieved of duty for reasons other than those specified under this law.

15. 15 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s personal independence Relieving of duty of a member of the Council (Article 92, the CBCG Law) Transitional provision of the 2010 CBCG Law reduce the term of office of members of the Council up to that time and prescribe the appointment of new Council members within 90 days following the entry into force of this law. Taking into account the aforesaid provisions, with regard to personal independence of the Central Bank, partial compliance with the relevant provisions of the EU legislation has been reached because of establishing numerous additional reasons for the relieving of duty of the Governor and members of the Council in relation to those defined under Article 14.2. of the Statute of the ESCB and of the ECB.

16. 16 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s personal independence Judicial Protection in Case of Relieving of Duty (Article 56, the CBCG Law) A decision on the removal from office of a Council member shall be final, and the discontented party may seek protection before the competent court within 30 days following the receipt of the decision on the relieving of duty. Prohibition of Employment of Council Members after the Expiry of Term of Office (Article 59, the CBCG Law) A former member of the Council shall not be a member of body or an employee of a bank, a financial institution or other legal person subject to the Central Bank supervision during the period of 12 months immediately following his/her expiry of the term of office, unless approved by the Council.

17. 17 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central bank’s financial independence Central Bank Property (Article 6, the CBCG Law) The Central Bank shall autonomously acquire, manage, use and dispose of the state property required for the exercising of its functions under this law. At the proposal of the Central Bank, the Parliament of Montenegro shall decide on the disposing of its property exceeding the amount of EUR 150,000,000. Protection of the Central Bank’s Property (Article 81, the CBCG Law) The Central Bank’s property and the property held and managed by the Central Bank, as well as income made on these bases may not be subject to any measure of prohibition of disposing or execution prior to the passing of the final judgment by the competent court. Central Bank Capital (Articles 11, 12 and 13, the CBCG Law) The Central Bank capital shall comprise the initial capital and reserves. The Central Bank shall have initial capital to the amount of EUR 50,000,000. The Central Bank reserves shall comprise general, special and revaluation reserves.

18. 18 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s financial independence Central Bank Income and Expenses (Articles 66 and 67, the CBCG Law) The Central Bank has its own income that it independently plans and allocates in accordance with the financial plan that it independently passes. Profit and Loss and Allocation of Distributable Profit (Articles 68 and 69, the CBCG Law) The Central Bank shall independently determine profits or losses of for each financial year in line with the International Financial Reporting Standards. Distributable profit shall be determined as follows: - to the amount of 50% of distributable profit until general reserves reach 10% of the total financial liabilities of the Central Bank; - A part of the profit may be allocated to special reserves to the amount determined by the Council that may not exceed 10% of the profit; - The remaining distributable profit shall make the revenue of the budget of Montenegro.

19. 19 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s financial independence Financial plan and Financial Reports (Articles 71 and 72, the CBCG law) The Central Bank shall plan its income and expenses for the following year in a financial plan which shall be passed by 31 December of the current year. The Central Bank shall prepare the financial reports in line with the International Accounting Standards and International Financial Reporting Standards. The Central Bank shall adopt annual financial reports for the previous year, with the independent external auditor’s opinion, by 30 April of the current year. The Central Bank shall submit the passed financial plan to the Government and the Parliament for information purposes. The Central Bank shall submit to the Parliament, for information purposes, annual financial reports with the independent external auditor’s opinion. The Central Bank shall publish annual financial reports on its website or via other electronic or printed media.

20. 20 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK INDEPENDENCE Central Bank’s financial independence Independent External Audit (Article 76, the CBCG Law) The audit of financial statements of the Central Bank shall be performed by an internationally recognized independent external auditor in accordance with the International Standards on Auditing. The internationally recognized independent external auditor shall have unrestricted access to business books, accounts and records and obtain information about transactions of the Central Bank. The auditor shall be appointed by the Council with the previously acquired approval of the working body of the Parliament responsible for financial affairs. The internationally recognised independent external auditor may perform the audit of financial statements of the Central Bank no longer than for consecutive three years.

21. 21 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy PROHIBITION OF MONETARY FINANCING Prohibition on Lending (Article 43, the CBCG Law) The Central Bank may not, either directly or indirectly, grant any loans to the Government, other state bodes and organisations, local self-government units or any other persons established by or in the majority ownership of the state or local self- government units neither it may purchase in the primary market debt securities issued by entities under paragraph 1 above. By way of exception, the Central Bank may, under the conditions stipulated under this law, grant credits to banks established or majority owned by the state. Depository and Banker of State Bodies and Organisations (Article 41, the CBCG Law) The Central Bank may accept deposits from the state bodies and organisations, open accounts thereof and provide financial services related thereto against orders of the state bodies and organisations up to the amount of deposited funds. The aforesaid legislative solutions fully transpose the principle of prohibition of monetary financing established under Article 123 of the TFEU and Article 21 of the Statute of the ESCB and of the ECB.

22. 22 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK COOPERATION Central Bank Cooperation with Government Authorities and Organisations (Article 8, the CBCG Law) The Central Bank may, for the purpose of pursuing the established objectives and without prejudice to its autonomy and independence, cooperate with the Government and other state bodies and organisations, and take any actions within its authority to promote this cooperation. International Cooperation (Article 9, the CBCG Law) The Central Bank may cooperate with other central banks, international financial institutions and organisations, which scope of activities is related to the objectives and functions of the Central Bank, and it may be a member of international institutions and participate in their work.

23. 23 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK REPORTING ACTIVITIES Submission of Central Bank Reports (Article 39, the CBCG Law) The Central Bank shall submit, as needed, but at least annually and by 30 April of the current year, the report on its prior year’s operations to the Parliament of Montenegro for its consideration. The Central Bank shall also publish reports on financial system stability and price stability matters which it shall submit to the Parliament and to the Government for information purposes, as needed, and at least once a year up to 30 June of the current year for the previous year. The Governor may initiate the speech and upon invitation speak before the Parliament and its bodies with regard to the monetary and financial stability and the functioning of the banking system (Article 45 (3), CBCG Law).

24. 24 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CENTRAL BANK BODIES The Central Bank is governed by the Council of the Central Bank whose competences are specified under article 44 of the CBCG Law, the key being: determining policies of the Central Bank and passing regulations and other acts necessary for the attainment of Central bank’s objective and the exercising of its functions. The Central Bank is managed by the Governor of the Central Bank, whose powers are specified under Article 45 of the CBCG Law, the key being: representing and acting on behalf of the Central Bank, organizing the work of the Central Bank, ensuring that the policy of the Central Bank and the Council decisions are implemented and passing legal acts which are not to be passed by the Council.

25. 25 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy LEGAL REMEDY OF CENTRAL BANK The legal acts of the Central Bank are: regulations passed in the form of decisions; binding individual acts in the form of orders; guidelines; instructions; recommendations, opinions. Administrative Penalties (Article 78, the CBCG Law) The Central Bank may impose administrative penalties, including pecuniary fines against all persons violating this Law or any other law or regulation with respect to the pursuing of objectives and the exercising of functions of the Central Bank.

26. 26 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter17: Economic and Monetary Policy LEGAL PROTECTION Legal protection (Article 83, the CBCG Law) A member of the Council, an employee of the Central Bank, or any person authorised by the Central Bank, shall not be held liable for damages that could be incurred during the performance of duties in accordance with the law and regulations passed on the basis of the law, unless it has been proved that the particular action has been performed deliberately or as an act of gross negligence. The Central Bank shall cover the expenses of the protection of the persons under paragraph 1 above in court proceedings concerning their performance.

27. 27 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy ASSESSEMENT OF COMPLIANCE In our opinion, the Central Bank of Montenegro Law is compliant with the relevant sources of EU law, except for the following: –Central Bank objective, exchange rate pursuant to Article 219 of the TFEU, and the ability of extending credits to third countries and international organisations due to the specific monetary arrangement in Montenegro; –disposal of assets exceeding 150 million euros; –reasons for the relieving of duty of members of the Council of the Central Bank and duration of the term of office of a Council member whose function has terminated before the expiry of his/her term of office. A detailed overview of compliance of the Central Bank of Montenegro Law with the Statute of the ESCB and of the ECB is presented in the transposition table.

28. 28 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy LEGISLATION FOR ADDITIONAL COMPLIANCE LAW ON STATE AUDIT INSTITUTION (OGRM 28/04, 27/06, 78/06 and OGM 17/07, 73/10, 40/11) – Articles 4, 5 and 25 (referring to the scope of audit of the Central Bank) LAW ON FOREIGN CURRENT AND CAPITAL OPERATIONS (OGRM 45/05 and OGM 62/08, 40/11) – Article 11 (referring to the Central Bank’s obligation to introduce protective measures with the consent of the Government) Numerous secondary legislation passed on the basis of the State Property Law that regulated the requirements for, and the manner of, use of the state property that is at the Central Bank of Montenegro's disposal. Convergence of secondary legislation expected in the first half of 2013.

29. 29 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy CONVERGENCE DYNAMICS The necessary compliance of the national legal framework will be performed with a view to its full harmonization with the relevant EU acquis governing this area. The process is scheduled to be completed by the end of 2014.

30. 30 Thank you for your attention! QUESTIONS