Commission Report (2002): Czech Republic

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

Chapter 3: Freedom to provide services

Progress since the last Regular Report

Good legislative progress has been made in relation to the banking sector since the last Regular Report. The gradual strengthening of administrative capacity has continued.

There have been no significant developments in the area of freedom of establishment and freedom to provide services.

In the field of financial services, transposition of the banking sector acquis has been largely completed. The ``harmonisation` amendment to the Act on Banks entered into force in May 2002, with some provisions applicable as of accession. The amendment to the Act on Banks addressed outstanding issues such as the reinforcement of consolidated banking supervision, deposit guarantees, stricter licensing rules, the recognition of licences issued in Member States and enhanced international co-operation on banking supervision; in a number of these areas secondary legislation will also be necessary. The adoption of such measures continues -- for instance the Czech National Bank`s Decree on the Prudential Rules of Parent Undertakings on a Consolidated Basis entered into force in August 2002.

There have been no particular legislative developments in the insurance sector, although some progress was made with the completion of the re-licensing of insurance companies in line with the 2001 Act on Insurance Companies. The new licences will allow companies to operate on the entire EC market after accession.

In the area of investment services and securities markets an amendment to the Securities Commission Act was adopted in June 2002, which reinforces the position of the Securities Commission, widening the obligations for information provision by market participants and granting the Securities Commission the authority to issue secondary legislation.

In the area of protection of personal data and free movement of such data, the amendment to the Act on Banks unfortunately is not in full compliance with the acquis.

There have been no major legislative developments in the area of the information society. An amendment to the Act on electronic signature entered into force in July 2002. The Czech Republic has continued to make progress toward transposition of the e-commerce directive with the adoption of a green paper and the establishment of a co-ordination committee. A Government order laying down the procedure for provision of information in the field of technical regulations in line with the acquis has been adopted.

Overall assessment

The Czech Republic should ensure that any obstacles to the right of establishment and the freedom to provide services (Articles 43 and 49 of the Treaty establishing the European Community) are identified and national legislation amended accordingly. Any licensing regime applicable to EC service providers must be in line with the acquis and proportionate. In particular, the existing trade licensing Act does not seem to meet these requirements.

In the banking sector, the amended Act on Banks dealing with regulation and banking supervision and the new Act on Payments have helped ensure a comprehensive transposition of the relevant acquis, although it is too early to judge their implementation. They also provide a base for necessary secondary legislation.

The Czech National Bank`s (CNB) Banking Supervision Group is generally effective. Organisational changes aim to enhance the independence and efficiency of banking supervision, which is divided between the regulation and supervision departments. CNB regulations provide the basis for implementation of many acquis requirements and international regulatory standards in areas such as a credit register and consolidated supervision. However, certain elements require further development. Also, co-operation between supervisory authorities should be strengthened. The ongoing removal of nonperforming loans from the banks` balance sheet should have a positive effect on this sector.The credit unions sector accounts for a small (and decreasing) portion of the Czech financial services sector. Many big credit unions have collapsed in recent years and the Czech Republic has set aside money for compensation. Tougher requirements have stabilised the sector, although regulation and supervision should be further improved.

Progress is necessary in insurance where the necessary legislative amendments should be completed. Whilst the Insurance Act of April 2000 was a positive development, it does not fully transpose the insurance acquis. In particular, core elements of the third generation of the life and non-life acquis are not yet fully implemented. This should be addressed with an amendment of the Act. Further transposition will be needed to cover insurance contracts, intermediaries, advisors and independent loss adjusters, the fourth motor directive and an amendment on motor third-party liability insurance.

The regulator, the Insurance and Pension Funds Supervision Office of the Ministry of Finance, has increased its staff to around 50 and on-site inspections have become more frequent. Mutual recognition in cross-border insurance business within the EU has been enhanced by re-licensing. The Office has autonomy within the Ministry of Finance, but remains a part of the Ministry. The intention to transform the Department into an independent supervisory body has not yet been finalised and should be addressed.

In the area of investment services and securities markets, amendments to the Acts on Securities, Bonds and the Stock Exchange marked significant progress and have been accompanied by a significant number of related decrees. However, new legislation on Capital Markets is needed to fully align with acquis principles on the functioning of capital markets. A new Act on Collective Investment is needed to replace the present Act on Investment Companies and Investment Funds, which does not transpose all the relevant acquis. Progress should also be made on a number of implementing decrees.

The competencies of the Ministry of Finance and the Securities Commission in capital markets supervision will need to be clarified to ensure that the independence of the Commission is beyond question. The Securities Commission was strengthened by a June 2002 amendment, which widened the obligations for information provision by market participants and gave it powers of secondary legislation. Staffing (133) is adequate, with no significant increases planned. Further strengthening of the independence of the Securities Commission would be welcome, particularly in terms of financial independence, with its operations not being funded from the State budget.

Legislation in the field of the protection of personal data is largely in line with the acquis. However, amendments to the 2000 Data Protection Act are still needed to make it fully compliant with the acquis. Furthermore, other relevant legislation must also respect the acquis.

The Office for Personal Data Protection (OPDP) is an independent supervisory authority responsible for this area; it performs the standard activities of an independent supervisor and is empowered to impose financial sanctions. The Office is operational and it has achieved important progress in ensuring compliance with the Law and raising awareness. However, lack of office space and low salaries make it difficult to hire all the personnel allocated in the budget and thus the Office remains understaffed. The Office is also responsible for the accreditation of certification authorities and supervision of the accredited authorities in the field of electronic signatures.

The Czech Republic has made good legislative progress in the information society field. Laws on Technical Requirements, Public Information Systems and Electronic Signatures have been in force since 2000, with further alignment to be completed upon accession. Elements of the Electronic Signatures Law will have to be reviewed. The Office for Public Information Systems co-ordinates and creates conditions for electronic commerce in the Czech Republic. No concrete legislative steps have yet been taken to transpose the e-commerce acquis but preparations continue.

Conclusion

In its 1997 Opinion, the Commission concluded that the situation in the financial sector was not satisfactory. There were doubts about transparency and free competition in the banking market and the crisis of the major privatised banks gave the impression that banking supervision needed to be strengthened. In the securities and insurance fields free, competitive markets with adequate supervision remained to be established. The same applied in the insurance field. As regards data protection, it was necessary to establish an independent body responsible for the supervision of the application of the law.

Since the Opinion, the Czech Republic has made significant progress in addressing these questions. In particular, transposition of the banking acquis has advanced well and regulation of the financial sector has improved. Also, the Office for Personal Data Protection has been established. Overall, alignment is on track and has reached a good level and administrative capacity is satisfactory.

Negotiations on this chapter have been provisionally closed. The Czech Republic has not requested any transitional arrangements. The Czech Republic is generally meeting the commitments it has made in the accession negotiations in this field.

In order to complete preparations for membership the Czech Republic`s efforts now need to focus on further alignment as regards trade licensing, insurance, investment services and securities sectors as well as on strengthening supervision of financial services.

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