Commission Report 2002 (Slovakia)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 3: Freedom to provide services

Progress since the last Regular Report

Since last year's Regular Report, Slovakia has made good progress, mainly regarding financial services and enhancing administrative capacity.

In the field of the right of establishment and the freedom to provide services, some progress can be recorded. The Act on Lotteries and Similar Games, adopted by the Parliament in June 2002, will remove the requirement of Slovak nationality for the positions of director, financial director and casino managers from January 2003.

In the field of financial services, with regard to the banking sector, the amendment to the Act on the Protection of Bank Deposit entered into force in December 2001. The amendment partially aligned Slovak legislation with EC requirements. Banking deposits of legal persons of non-profit and non-business nature are now covered by a deposit protection scheme and the compensation amount for unavailable deposits has started to rise in order to reach the EC level upon accession. Membership of the scheme is compulsory for all banks. They are required to make contributions in proportion to their deposit base.

The new Act on the Insurance Industry entered into force in March 2002, though some provisions which will only enter into force upon accession. It has enhanced the supervisory powers of the Financial Market Supervision Authority over the insurance market in Slovakia.

Slovakia has achieved good progress since last year's report in the area of investment services and securities markets. The new Act on Securities and Investment Services came into force as of January 2002 and aims to transpose the acquis on investment services in the securities field and regarding rules of capital adequacy of investment firms and credit institutions. This Act established an Investor-Compensation Fund, which became operational in June 2002. The new Act on the Stock Exchange, which came into force in August 2002 - though certain provisions will only enter into force upon Slovakia's accession to the EU -, has aligned with the acquis the requirements for the listing and trading of securities on the stock exchange. With the adoption by the Parliament in June 2002 of an amendment to the Collective Investment Act, expected to come into force in January 2003, Slovakia took a further step towards implementing the acquis on collective investment.

With regard to financial supervision, further progress can be reported. The new Act on Financial Market Supervision, which entered into force in April 2002, has replaced the Financial Market Authority with the Financial Market Supervision Authority, which is no longer financed from the state budget but through contributions of financial market participants. The Slovak Government adopted the Integrated Financial Market Supervision Concept in March 2002, which sets up a gradual process for an integrated financial market supervision. In the first phase, the two existing supervisory bodies, i.e. the National Bank of Slovakia Supervision Department - which supervises credit institutions - and the Financial Market Supervision Authority - which oversees insurance companies and capital markets - will be strengthened and their co-operation will become closer. Legislative changes are expected to be adopted by 2004 with the aim of merging the two institutions by the end of 2005.

Concerning the protection of personal data and the free movement of such data, progress was achieved through the adoption of the new Act on Personal Data Protection, which came into force in September 2002. This Act will establish the new Personal Data Protection Office and has strengthened the independence of the Commissioner for the protection of personal data, who is currently appointed by the Parliament on a proposal from the Government.

As regards the information society regulations, the Act on Electronic Signature, which entered into force in May 2002, has defined the conditions for use of electronic signature as legally equivalent to hand-written signature.

Overall assessment

In the field of the right of establishment and freedom to provide services, Slovakia is considerably advanced. It has, in particular, removed a number of nationality and residence permit requirements. Ambiguities, however, remain as regards other potential restrictions to the right of establishment and free provision of services existing in the Slovak legislation. Slovakia needs to identify possible restrictions, and remove them before accession.

Slovak legislation is in line with the relevant banking acquis. The National Bank of Slovakia, as regulator of the banking industry, has issued rules and is implementing policies and practices which are similar to the Recommendations of the Basle Committee on Banking Supervision and in line with EC directives. The National Bank of Slovakia has started on-site examinations in all existing banks but should increase their frequency and has to continue upgrading the training and number of prudential supervisors. Further measures are needed in order to fully transpose the capital adequacy Directive for market risks and to implement the legislation on the deposit guarantee scheme and the schedule for meeting the EC minimum level of guarantee. The deposit guarantee scheme should be structured in such a way that it will, after accession, be able to cover foreign branches of Slovak banks.

As regards the insurance sector, there are still significant gaps in the implementation of the relevant acquis. Further progress in terms of legislative alignment and administrative capacity is therefore needed. Slovakia still has to transpose substantial parts of the Directives in the area of life and non-life insurance, insurance accounts and motor vehicles.

In the field of investment services and securities markets, Slovakia is well advanced. Nevertheless, on the investor compensation scheme, the alignment of the levels of compensation with the EC requirements needs to start as a matter of urgency.

At the same time, Slovakia has still to fully and accurately transpose the Directive on undertakings for collective investment in transferable securities (UCITS). The current different legal concepts of UCITS are not clearly identified. In particular, in view of the unlicensed pyramid scheme scandal leading to fraud of retail investors on a rather large scale, it is essential for Slovakia to demonstrate willingness and ability to fully and accurately implement the UCITS directive in order not to damage the single market for UCITS after accession.

The overall framework of supervision in the financial services sector in Slovakia has been strengthened. However, the newly created Financial Market Supervision Office should have the power to issue secondary legislation, currently vested in the Ministry of Finance in accordance with the Slovak Constitution. The Financial Market Supervision Office should be ensured to have operational independence from financial market participants. The Banking Supervision Department needs more legal enforcement powers, in particular regarding the shortage of qualified supervision resources. Supervisory standards need to be improved and early enforcement action against unlicensed non-banking financial institutions needs to be taken so as to avoid serious damage to investor confidence. In view of the future integration and merger of the two existing supervisory bodies, efforts should be made to strengthen their mutual co-ordination in the implementation of existing legislation.

Slovakia has advanced in the area of the protection of personal data and the free movement of such data both as regards legislative alignment and administrative capacity, although it still has to be assessed whether the amendments introduced by the 2002 Act actually overcome all the previous shortcomings. Further efforts will be needed to implement the new Act on personal Data Protection and public-awareness raising will be key for ensuring actual compliance with the law.

In the field of information society services, the e-commerce and the transparency Directives have to be transposed.

Conclusion

In its 1997 Opinion, the Commission concluded that Slovakia had taken some steps towards alignment with the acquis in the area of financial services and, in particular, that legislative approximation in the securities area was achievable over the medium term. However, it added that considerable efforts were needed both to adequately enforce the banking legislation, particularly in regard to the remaining state-owned banks, and to effectively adopt and implement the acquis in the insurance sector.

Since the Opinion, Slovakia has made steady progress in most areas of the chapter, both in terms of legislation and in bolstering the administrative and regulatory infrastructure required to supervise the financial services sector. Slovakia's alignment process is now well advanced, but further legislative alignment is still needed with regard to some aspects of the acquis, as well administrative strengthening.

Negotiations on this chapter have been provisionally closed. Slovakia has been granted a transitional period (until January 2007) with respect to investor compensation schemes. Slovakia is generally meeting the commitments it made in the accession negotiations in this field.

In order to complete preparations for membership, Slovakia's efforts now need to focus on completing legislative alignment in the insurance and UCITS (undertakings for collective investment in transferable securities) sectors and bolstering the administrative infrastructure necessary to further strengthen financial supervision, and eliminating provisions which discriminate against non-nationals as regards the right of establishment and freedom to provide services.

---

Next: Chapter 4: Free movement of
Up: 3.1. The chapters of the
Previous: Chapter 2: Free movement of