Reports on Observance of Standards and
1. This chapter describes and assesses the transparency practices of the Czech Republic based on a self-assessment prepared by the authorities of the existence of good practices as outlined in the Code of Good Practices on Transparency in Monetary and Financial Policies. Box 1 highlights key aspects of this code.
Clarity of Roles, Responsibilities and Objectives
2. Monetary Policy. The central bank of the Czech Republic is the Czech National Bank (CNB). The CNB is responsible for the formulation and conduct of monetary policy. It was established in the Constitution (adopted on December 16, 1992) as the central bank and its specific functions are defined in the Act on the Czech National Bank of December 17, 1992 (No. 6/1993), henceforth referred to as the CNB Act. The CNB Act defines the operational structure of the central bank and the range of its activities. The CNB is directed by a Governor, two Vice Governors, and a board consisting of four other members. Monetary policy decisions are taken by majority vote by the CNB board. The Governor, Vice Governors and the members of the CNB board are appointed by the President of the Republic for renewable terms of six years.
3. The Constitution defines the CNB’s primary objective as that of safeguarding the stability of the Czech currency, and it is widely understood that achieving broad price stability is the ultimate goal of monetary policy (the next subsection provides more detail). The CNB Act provides specifically for the independence of monetary policy by stating that: "In providing for its primary objective, the CNB is independent of any instruction given by the Government." The act prohibits overdrafts on government accounts maintained at the CNB and sets a limit on the possibility to grant short-term credit to the government through the purchase of treasury bills. The Constitution provides for the central bank’s operational independence by requiring that any additional functions beyond those in the CNB Act imposed on the central bank be set out in specific laws. Thus, the CNB’s involvement in
fiscal operations and agency roles performed on behalf of the government are defined by law. Moreover, details of the specific arrangements in this regard are publicly available.3
4. Financial Policies. Financial policies encompass measures related to the regulation, supervision, and oversight of the financial and payment systems with the aim of promoting financial stability, market efficiency, and consumer protection. In the Czech Republic, financial institutions include universal and specialized banks, credit unions, insurance companies, investment and pension funds, and securities firms.
5. Supervision and regulation are undertaken by different entities, depending on the particular financial activity.4 Supervision of and regulations for the activities of universal and specialized banks are the responsibility of the CNB. In the case of securities firms and investment funds, the MOF issues regulations, and the SC is responsible for enforcement and preparation of drafts of government decrees. For pension funds, supervision is undertaken by the state supervisor of pension funds (which is within the MOF) in cooperation with the SC and the depositories of the individual pension funds. The MOF is responsible for supervising and regulating insurance companies. Credit unions and savings cooperatives are supervised and regulated by a separate institution under the general purview of the MOF.5 The payment system is owned and operated by the CNB and not subject to supervision by another agency. The rules for stock market clearing and settlement are defined in the Stock Exchange Act and the Stock Exchange Rules. Finally, accounting rules for all financial institutions are set by the MOF.6
Open Process for Formulating and Reporting Monetary and Financial Policies
6. Monetary Policy. The CNB has wide discretion, within the bounds of operational powers granted to it by the CNB Act and other laws, to implement monetary policy in order to meet the basic objective set out in the Constitution. The CNB Act requires the CNB to provide an annual report to Parliament and a quarterly report to the general public. These requirements are fulfilled through publication of an annual Report on Economic and Monetary Developments and a quarterly Inflation Report. The CNB also publishes a monthly bulletin including statistical data and commentary on recent developments, as well as summary minutes of its board meetings (with a delay of two weeks or less). In addition, all board decisions are published as a press release, with press conferences being conducted for key decisions.
7. The CNB has adopted an inflation targeting framework (see Box 2) and reports on its operations in the Inflation Report. While the CNB does not conduct formal consultations with the public prior to revising monetary regulations, important changes are announced through press releases that are also placed on the CNB website.
8. Financial Policies: Regulations are established on the basis of relevant laws, and implementing ordinances and provisions. Laws are debated and adopted in Parliament, while the relevant supervisory agencies—the CNB for banking and the MOF for all other areas—have the authority to issue regulations related to these laws. The relevant documents are all publicly available, with those related to the CNB and the SC also placed on the web pages of the respective institutions.7 The SC’s consultations with the MOF on its proposals for new regulations are open to the public.
9. The relationship between the financial supervisors (i.e., the CNB, MOF, and SC) is set out in the constituting laws of the respective bodies, and is supported by a trilateral agreement among the institutions concerned. The contents of the trilateral agreement and the extent of consultation among supervisors are focused on three basic areas: (i) exchange of information; (ii) cooperation in supervision; and (iii) common consultations and license information transfer.8 There is some overlap in that the same institution may be subject to supervision by different agencies concerned with separate aspects of its activities, and the mandates and powers of the different supervisors and how they coordinate their activities is not always clear.
Public Availability of Information
10. The presentation and release of the CNB’s monetary data follow the Fund’s SDDS requirements. The CNB maintains a publication program in which these data are made available, and much of the information is also posted on the CNB’s website. In addition to the aggregate balance sheet of the banking sector, which is published as part of the CNB’s monetary data, the central bank also disseminates financial data on the banking sector. These are published quarterly on an aggregate basis by the CNB in the form of a press release and also included in the CNB’s Annual Report.
11. The CNB issues an annual Banking Supervision Report, discussing regulatory issues and some selected indicators of the banking system. The SC publishes a monthly report of its own activities, as well as quarterly budget and activities reports, while its first annual report is about to be published. The supervisor for pensions issues quarterly reports on the drawing of contributions from the state budget, but no other information is disclosed. The new Act on Insurance, which is expected to become effective in early 2000, will oblige the MOF to issue an annual report on its supervisory activities. Aggregated data on the activities of non-bank financial institutions are currently not published by the MOF, although industry associations, for example of insurance companies and pension funds, do publish aggregate information on its membership.
Accountability and Assurance of Integrity by the Central Bank and Financial Supervisory Agencies
12. As required by the CNB Act and mentioned above, the central bank submits an annual Report on Economic and Monetary Developments to Parliament and a quarterly Inflation Report to the public. Financial statements of the CNB are audited by an external auditor and are included in the CNB’s Annual Report. The main avenue for accountability of the CNB remains the publication of the various reports and statements it issues regarding its activities and their subsequent scrutiny and discussion in the Parliament and by the general public. The SC provides budget reports to Parliament but, as an enforcement agency, the SC is ultimately held accountable through scrutiny of its enforcement actions during the judicial process (including appeals).
13. Pension funds and insurance companies are regulated by the MOF, which is held accountable in the same way as any government ministry, through the Minister and the Parliament. In the case of non-compliance, the insurance or pension funds supervisory authority initiates an administrative process that can lead to the imposition of regulatory provisions, including penalties, suspension of new business (for insurance companies), or the nomination of a property administrator (for pension funds). The scope of penalties is determined by the relevant laws and hence known to insurance companies and pension funds. Except in the case of revoking a license, the results of an administrative process are not made public.
B. IMF Staff Commentary
1Prepared by staff from the Monetary and Exchange Affairs Department (led by Mr. Ariyoshi) and the European I Department (led by Mr. Feldman), in consultation with the Czech authorities.
2The CNB is the successor institution to the State Bank of Czechoslovakia, which was dissolved in October 1992 when the Czechoslovak Federation split into two independent entities.
3For example, the specific rules and procedures that determine the CNB’s relationship with the fiscal authorities are in the CNB Act, Act No. 530/1990 on Bonds, and the Act on Budgetary Rules.
4The supervisory and regulatory authority of the respective entities are defined in the CNB Act (as concerns banking supervision), Act No. 87/95 (credit unions), Act No. 185/1991, as amended by Act No’s. 320/1995 and 149/1995 (insurance), Act No 42/94 (pension funds) and in the Act on the Securities Commission (No. 15, January 13, 1998) (investment funds and securities firms).
5While the office of Supervision over Savings Cooperatives is formally an independent institution, the MOF appoints its director, determines its statutes and rules governing its performance, and approves an annual report on its performance and its budget.
6Compliance with accounting rules is monitored by the relevant supervisory authority during on-site visits and off-site assessments.
7The SC web page is located at http://www.sec.cz
8Coordination between supervisors is limited by the obligations of confidentiality. The trilateral agreement defines when and how much information can be exchanged between supervisors, which information is exchanged automatically and which must be specifically requested, and provides a framework for regular meetings and consultations.