The Constitutional Court found No 186 / 2018 Coll.
The Constitutional Court found of 10 July 2018 sp. zn. Pl. ÚS 3 / 16 on the application for annulment of § 3 paragraph 4 of the Second Act No. 87 / 1995 Coll., on savings and credit cooperatives and certain measures related thereto and on the addition of the Act of the Czech National Council No. 586 / 1992 Coll., on income taxes, as amended, as amended
Valid
186
FIND
The Constitutional Court
On behalf of the Republic
The Constitutional Court decided under sp. zn. Pl. ÚS 3 / 16 on 10 July 2018 in a plenary composed of the President of the Court of Paul Rychetský and the Judges Louis David, Jaroslav Fenyk, Josef Fiale, Jan Filip, Jaromír Jirsy, Tomáš Lichovník, Jan Musil, Radovan Suchanek (Judge Rapporteur), Vojtěch Šimíček, Milady Tomková, David Uhír and Jiří Zemánek, on the proposal of a group of Senators, represented by JUDr Libor a German, a lawyer, based on the Czech National Council No 586 / 1992 Coll., on the revenue tax, as amended by Act No. 333 / 2014 Coll., on the Czech Parliament of Parliament of the Czech Republic as a party of the Czech Republic as a party of the Czech Republic as a party to the Czech Republic, represented by the Czech Republic as a member of the Czech Republic, and represented by the Czech Republic as a member of the Czech Republic by the Czech Republic, and by the Czech Republic by Jusil, and by the Czech Republic, and supplemented by
as follows:
Motion denied.
Reasons
Subject matter
1. On 4 February 2016, the Constitutional Court received a proposal from a group of 21 senators (hereinafter referred to as "the applicant '), under which Senator JUDr. Eliška Wagner, Ph.D., supplemented by the submissions of 27.9.2016 and 4.7.2017, to abolish the provisions of § 3 (4) of the Second Act No. 87 / 1995 Coll., on savings and credit cooperatives and certain measures related thereto and to supplement the Act of the Czech National Council No. 586 / 1992 Coll., on Income Tax, as amended, as amended, as amended by Act No. 333 / 2014 Coll., (hereinafter referred to as" Act on spore and credit cooperatives' or "Act No. 87 / 1995 Coll. ').
2. Act No. 333 / 2014 Coll., amending Act No. 87 / 1995 Coll., on savings and credit cooperatives and certain related measures and supplementing the Act No. 586 / 1992 Coll., on income taxes, as amended, as amended, Act No. 87 / 1995 Coll. was amended, inter alia, by adding to the provisions of § 3 (4) the sentence: "The aggregate balance of deposits of a member associated with interest or similar benefit must not exceed 10 times the sum of his basic contribution and the paid-up additional member contribution."
3. In the above amendment to the Act on savings and credit cooperatives, Parliament of the Czech Republic - on a proposal from the Government and at the initiative of the Czech National Bank (hereinafter referred to as the "CNB ') - amended a number of rules to address the growing instability in the cooperative reserve sector, including through the" 10-fold rule', which should increase the interest of members in the management of the cooperative reserve; However, it is this rule that the appellant considers unconstitutional for the reasons set out below.
Arguments of the appellant
4. As a result of the amended version of Paragraph 3 (4) of the Act on Savings and Credit Cooperatives, according to the appellant, one eleven of the total funds entered into the cooperative reserve is not protected by the deposit guarantee scheme, which according to it means that, for further elaborated reasons, "the clients of the cooperative are disadvantaged against the banks' clients' clients', thus violating Articles 1, 11 (1) and 26 (1) of the Charter of Fundamental Rights and Freedoms (hereinafter referred to as" the Charter '), Article 1 of the Constitution of the Czech Republic (hereinafter referred to as "the Constitution') and Article 1 of the Additional Protocol to the Convention on the Protection of Human Rights and Fundamental Freedoms (hereinafter referred to as" Additional Protocol to the Convention '), as a breach of the right of ownership of property, rights of undertakings (in the meaning that the contested legislation causes the so-of non-discrimination); Moreover, according to the appellant, the principle of predictability of law and the protection of legitimate expectations is violated by the contested part of the legal provision.
5. The appellant points out that the contested legal provision does not meet either the "nil 'step of the proportionality test in the form of the existence of a legitimate objective, since not only from Article 3 (4) of Act No 87 / 1995 Coll., but also from the explanatory note to Act No 333 / 2014 Coll. does not result in any legitimate objective, since it can hardly be a legitimate objective only" to strengthen the financial interest of members of cooperative advances'. And if the aim of the regulation should be to eliminate and prevent the emergence of some earlier problems in the cooperative segment, then the contested regulation cannot in any way fulfil that objective, since the only consequence of this measure is to "cut off" the deposit as a substantial source of financing of the credit activity. According to the appellant, interested public authorities will always give priority to a deposit with a bank whose remuneration the law does not require to become its shareholders, rather than to deposit funds with advances which are either not legally remunerated or will be remunerated, but the depositors will have to participate significantly in the capital of the reserve. The appellant therefore considers that the contested part of the legal provision is not aimed at eliminating some weaknesses in this financial market segment, but rather at liquidating the cooperative segment as a whole.
6. With reference to the content of the analysis of the rules on cooperative advances in the Federal Republic of Germany (annexed to the proposal under examination), the appellant points out that the cooperative's business activities need not be based exclusively on the principle of reciprocity and non-profit, referred to in the explanatory report to Act No 333 / 2014 Coll. The situation in the Federal Republic of Germany shows, according to the appellant, that cooperative advances may be a fully integral part of banking and that their activities do not necessarily involve excessive risk or any form of "moral hazard 'mentioned in the explanatory memorandum. The cooperative advances and banks are comparable entities both in terms of the products offered by them and in terms of the legal regulation of their business activities, and the only difference is that Member principle, which cannot, however, be considered to be a binding feature of cooperative advances.
7. The appellant demonstrates in its proposal the alleged "choking effect" of the contested legislation by claiming that, with the effectiveness of Law No 333 / 2014 Coll. there was a "dramatic decline in new deposits"; It is therefore only a matter of time before the cooperative reserves collapse economically and, therefore, when the entire cooperative reserve sector will be liquidated. The obvious and obvious effect of the liquidation is not only on the cooperative reserves themselves, but also on their members - depositors, who have a deposit in excess of the legal maximum amount of compensation granted from the Financial Market Guarantee System (formerly the Deposit Guarantee Fund) and persons who have a significant holding in the cooperative reserves. Moreover, it is problematic to perceive not only the limitation of the possibility of interest on the deposits of new members of cooperative advances, but also the fact that these restrictions will also affect existing deposits. As a result, the contractual conditions of existing co-operative clients are changed retroactively, which has a fundamental impact. In this context, the appellant also points to a very short period of legiskation, for which cooperative advances - especially smaller cooperative advances - did not have a real opportunity to react to such a substantial change in any way.
8. By priming the three-stage test of proportionality, applied or in the decision sp. zn. Pl. ÚS 3 / 02 of 13.8.2002 (N 105 / 27 of the SbNU 177; 405 / 2002 Coll.), the contested legislation will not, according to the appellant, stand at the first step since the criterion of the appropriateness of the measure applied is not met. If, according to the legislature, the main problem of the cooperative segment is to be backed up by the fact that their credit activity requires relatively expensive sources of funding, which forces the reserves to seek a more profitable location of assets, that is to say, to provide more expensive loans involving an inherent higher risk, then it can hardly lead to the elimination of the problem of non-interest (part of) deposits, since the only consequence of this measure is, on the contrary, only the inability to receive (new) deposits and to provide loans to its members; The result of the contested legal provision is therefore a de facto prohibition of the exercise of the essential activity of the cooperative reserve pursuant to § 1 (2) of Act No. 87 / 1995 Coll., on savings and credit cooperatives and certain measures related thereto and on the addition of the Czech National Council Act No. 586 / 1992 Coll., on Income Taxes, as amended, as amended. According to the appellant, the effective exercise of supervision of the compliance with already strict rules on the provision of credit and risk management associated with this business is primarily due to the current version of Act No 87 / 1995 Coll., Order of the Czech National Bank No. 163 / 2014 Coll., on the exercise of the activities of banks, savings and credit cooperatives and securities dealers, Regulation (EU) No 575 / 2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms, amending Directive 2002 / 87 / EC and repealing Directives 2006 / 48 / EC and 2006 / 49 / EC ("Directive 2013 / 36 / EU '). In this context, the appellant points out that the legislation in question imposes on cooperative advances a number of obligations which are identical or very similar to those imposed on banks (e.g. capital adequacy, exposure, liquidity and solvency rules). In addition, by Act No 333 / 2014 Coll. a number of other measures were laid down, e.g. in the form of setting the maximum amount of the balance sheet of the cooperative reserve, increasing the creation of a venture fund or the possibility of converting the reserve into a bank with lower requirements for minimum capital. According to the appellant, the regulator has already had sufficient effective tools under the existing rules on cooperative reserves to enable effective supervision in this segment. Finally, on the Margo Fitness Criteria, the appellant stresses that, if the legislator intended to avoid the repetition of" failure "of cooperative advances, it should be recalled that the cause of these" failures "was never moral hazard on the part of depositors - members of cooperative advances, but irresponsible or unlawful actions by employees in lending. This potential risk - if there is no undue interference in the division of power - is therefore to be addressed by the executive power through the supervisory authorities, not by the legislative power [the appellant refers in this context to the findings of the finding of 28.6.2005 sp. zn. ÚS 24 / 04 (N 130 / 37 SbNU 641; 327 / 2005 Sb.)].
9. By using the criterion of necessity, the appellant argues that it is not acceptable for a specific purpose, namely the reduction of risks in the cooperative sector, to be achieved by the de facto liquidation of the entire sector. It points out that "small savers who make up a significant part of their clients' advances, but even other clients will not be willing to accept the need for significantly higher member deposits... Similarly, the non-remuneration of their deposits with cooperative advances will be unacceptable to clients. Cooperative clients are interested in the most advantageous location of their funds, not investing in capital. A common client of a bookstore seeks an alternative to banking institutions, has no interest in participating in the management of the bookstore or investing in its capital." The contested provision therefore, according to the appellant, results in the paralyzation of the main business activities of cooperatives, although the purpose could be achieved by other, "less drastic means'. The legislator therefore considers the measure used to be disproportionate, since the negative consequences of its application undoubtedly exceed obvious positives, since the stabilisation of the cooperative reserve sector or the mitigation of its risk, can hardly be achieved by measures that effectively prevent or at least significantly restrict the ability of the advance to receive the necessary amount of deposits from its members.
10. Moreover, the contested legislation considers the appellant to be discriminatory as there is no eligible and justified criterion of differentiation within the meaning of Article 4 (3) of the Charter where the legislature does not impose a requirement of customer ownership in respect of banks, payment institutions or electronic money institutions for deposits - unlike cooperative advances. Banks, payment institutions, e-money institutions and co-financing facilities are considered by the appellant to be a group of comparable entities providing loans to its clients, whereby, in the case of banks and cooperative advances, credit institutions are subject to more or less identical regulation (and payment institutions and e-money institutions are subject to substantially less stringent regulation), with a break point representing the effectiveness of Act No. 433 / 2008 Coll., amending Act No. 21 / 1992 Coll., on Banks, as amended, which has brought together deposit insurance for banks and cooperative advances at a rate of 100% of the deposit equivalent of EUR 50 000 (or 100 000 respectively), with which the beginning of the economic growth of the cooperative advances representing the full competition of banks. Thus, in the direct discrimination test, the contested part of the legal provision cannot, according to the appellant, be maintained because comparable entities are treated differently - unreasonably and unjustifiably - and this is clearly linked to the burden of cooperative advances, in a situation where the measure in question does not pursue a legitimate interest, since it aims to regulate the risk that does not exist in the products in question. In the appellant's view, the contested provision also significantly interferes with the constitutionally guaranteed right to do business, as for the above reasons it makes it impossible for cooperative advances to continue their business activities.
11. In addition to the above, the appellant also challenges the constitutionality of the procedure for the adoption of the contested legislation, under which the contested part of the legal provision was added to the draft law "only after an inter-ministerial comment procedure ', which involved interested parties or representatives of the professional public" could not comment'.
12. In conclusion, the appellant then considers that the contested legislation is also contrary to European Union law and recalls that, according to the conclusions of the Court of Justice of the European Union's decision of 23 February 2006 in Case C-513 / 03, the prohibited measures which potentially infringe one of the four fundamental freedoms, namely the free movement of capital, also constitute measures which may deter the location of investments in a Member State. The contested provision is capable of discouraging a number of depositors from imposing their funds on cooperative advances. Moreover, the contested provision is also contrary to the free movement of services, since it effectively prevents domestic cooperative advances from offering their services in other Member States of the European Union. Finally, by not being subject to deposit guarantee, only 90,9% of the client's investment will in fact be insured, which, in the appellant's view, results in a contradiction of the contested provision with Article 6 (1) of Directive 2014 / 49 / EU of the European Parliament and of the Council on deposit guarantee schemes ("DGS II Directive ').
Proceedings before the Constitutional Court
13. The Constitutional Court pursuant to Article 69 of Act No. 182 / 1993 Coll., on the Constitutional Court, as amended, sent the proposal to Parliament chambers as parties to the proceedings and to the Government and the Ombudsman as authorities entitled to intervene as interveners.
Observation of Parliament's chambers
14. The Senate and the Chamber of Deputies, both in their observations of 11 March 2016 and 14 March 2016, signed by the Presidents of the individual chambers of Milan Štěm and Jan Hamánek, have only briefly summarized the course of the legislative process in which the amendment of Act No. 87 / 1995 Coll., on savings and credit cooperatives and certain measures related thereto and the addition of Act No. 586 / 1992 Coll., on Income Tax, as amended, as amended, by Act No. 333 / 2014 Coll.
Government observations
15. In its observations of 14 April 2016, the Government first pointed out that it considered the contested part of the legal provision to be consistent with the constitutional order, referring to the present case-law of the Constitutional Court, that the amendment of the legal parameters could be placed under one of the entrepreneurial risks that each undertaking must accept in the context of its investments, since the right to legitimate expectations cannot be inferred from the prohibition of change of law without further prejudice. At the same time, it stressed that a proper final report on the impact assessment of regulation ("RIA ') was drawn up on the draft amendment in question, which was based on recommendations from international organisations and was previously consulted with representatives of the relevant market; In addition, an appropriate period of legalisation was also chosen. At the beginning of its statement, the Government finally expressed the belief that the proposed proposal contains a number of inaccuracies which inadvertently distort the issue.
16. In its observations, the Government further emphasised that strengthening the real cooperative character of cooperatives backed up by the rule laid down in the contested legal provision is not an illogical excel of the legislator, but is proportionate to the purpose and initial intention of the legislator for the functioning of cooperatives. Consequently, the Government rejected the appellant's claim that the incriminated rule of ten times is retroactive. This rule is reflected in the terms of the deposit made by 30 June 2015 only from 2018, and only in a limited manner.
17. The Government strongly rejects the appellant's claim that the contested statutory provisions discriminate against cooperative advances due to the absence of a similar rule for banks, payment institutions and electronic money institutions. The appellant, in the view of the Government, ignores the fact that cooperative advances, although they are credit institutions, cannot be compared without further action to banks, from which both the legal form and the requirements for capital equipment and other specificities differ. There is then an even greater difference between co-operative backups on the one hand and payment institutions and electronic money institutions on the other. In fact, these entities are not entitled to provide loans and receive deposits because they are not credit institutions under the CRR, while it should also be pointed out in this context that they do not operate on a Member basis. Therefore, the appellant presented the test of direct discrimination cannot, in the view of the Government, be applied at all to the case as it is not comparable individuals or groups.
18. Consequently, the Government rejects the appellant's argument that the rule has as a result 10 times as much as the need to participate in the capital of cooperatives under the penalty of losing the remuneration of the funds; This claim, according to the Government, is not true. The amendment to the Act was not intended to limit interest income of "depositors' / members of cooperative advances, nor should it be, but to increase the interest of members on the direction and direction of the cooperative advance. The contested legislation is therefore intended to promote the participation of members in the direction and management of the cooperative reserve by eliminating the hitherto minimisation of the cooperative principle, in particular in the context of a situation where, prior to the effectiveness of this amendment, many cooperative members required a member contribution of only one crown. In doing so, the Government believes that if a member of a cooperative reserve were concerned about participating in its business through a member contribution, that is, if he did not believe in his cooperative reserve or the way in which it is managed, he would not even have reason to become a cooperative and entrust his savings to it. However, if he has done so so so so far, it is, according to the Government, a systemic error (and the existence of moral hazard - see below), which the contested legislation corrects.
19. In the next part of its statement, the Government responds to the appellant's claim that the relevant explanatory memorandum does not give a convincing explanation of what moral hazard is seen when the person deposits his funds with the cooperative reserve, not with the bank. The Government points out that the RIA report prepared by the Ministry of Finance explains in several places what moral hazard lies in the context, while presenting several possible methods of limiting it. In this context, the Government also points out that the problems of cooperative advances, in particular the lack of internal control systems and the high level of outstanding loans, are, according to the findings of supervisory practice, systemic in nature and result from the current principle of management of cooperatives, backed up by a narrow group of persons without effective internal control mechanisms and without control by their members. The current principle of governance is linked to excessive credit exposure to entities close to those managing such cooperative advances. In the cooperative backed-up sector, it is possible to find a proportion of loans in default that is four times the value of banks, which is also due to the fact that cooperative backups operate with significantly more expensive resources than the banking sector and must therefore seek a more profitable (and therefore more risky) location of assets. The problem of moral hazard is then seen in the fact that members of cooperative advances deposit their funds, knowing that they cannot lose them as a result of insurance, but at the same time they do not realize that they are not only "deposit clients," but also members of the cooperative reserve and therefore their co-owners. In this context, the Government recalls that the majority of internationally recognised principles of the World Council of Credit Unions (WOCCU) and the International Cooperative Alliance (ICA) are not respected in the Czech Republic because the cooperative reserves do not perform social functions (their members are essentially "anonymous clients'), but are engaged in profitable activities as profit-oriented entities - unlike most internationally associated cooperative advances characterised by non-profitability attributes (in the sense of" non-pro-profit ', not "non-profit').
20. If the appellant contends that the contested legislation constitutes a contradiction with the fundamental right to own and use property peacefully, the Government recalls that, as a result of the 10-fold rule, there will be no reduction in the assets of the operators concerned. In this context, neither the Government nor the appellant's argument that the application of this rule may cause a drain on some members, thereby reducing the size of the balance sheet total or the core capital of the cooperative reserve; in that case, it is a free decision by members of the cooperative reserve to allocate their available funds in accordance with the principle of maximising profit and optimising their portfolio. In the view of the Government, it is not possible to talk about the right of the cooperative reserve to increase (or not reduce) its assets; Consequently, the Government recalls Article 1 of the Additional Protocol to the Convention, according to which the State may adopt laws which it considers necessary to modify the use of assets in accordance with the general interest.
21. In its observations, the Government further disputes the appellant's claim that the contested legislation has a so-called choking effect. Such an effect, according to the Government, has not been demonstrated and must be regarded as mere speculation. The decline in new deposits following the effectiveness of the contested legislation is, according to the Government, largely due to the behaviour of the cooperative advances themselves, which resulted in a significant increase in deposits before 1 July 2015, followed by a logical decrease as the market was largely saturated and "frontloaded." According to the Government, the "suffocating effect 'cannot therefore be objectively demonstrated on the data available and cannot result from the appellant's alleged unequal competition between cooperative banks and banks, since both sectors do not focus on the same clientele, which is why they do not compete. Therefore, any future decline in deposits for cooperative advances should be considered, according to the Government, as a change in the market and an indication of a renewal of the membership principle (the government repeatedly points to the advertising campaign of one of the cooperative advances, which accentuates the benefits of a higher member deposit), not as evidence of the alleged" rumbling effect'.
22. The Government categorically rejects the appellant's assertion that banks and cooperative backups "represent comparable entities in terms of the regulation of their business activities and its content." The difference between these entities is very clear, especially as regards the requirement of a minimum amount of capital (CZK 500 million for banks versus CZK 35 million for cooperative advances), as regards the different legal form; From there, the basic difference is that, while the depositor does not have to be a shareholder of the bank, the depositor must also be a member of the cooperative reserve. Consequently, according to the Government, it is necessary to refute the appellants' argument that the public interested parties would "always give priority to a deposit with a bank whose remuneration the law does not require to become its shareholders and invest in the bank's capital before depositing funds with advances which are either not legally interest-bearing or interest-bearing, but the depositor will have to make a significant contribution to the capital of the bank '. The appellant overlooks the fact that investors make decisions on the basis of three main criteria: return, liquidity and risk. If, therefore, the quoted thesis should be paid, the cooperatives would have to fully replace the banking sector, which offers its clients a lower valuation of their deposits. In fact, however, investors also reflect the other two criteria and therefore clearly reflect their aversion to risk in the choice of credit institutions' products.
23. The appellant of the analysis submitted comparing cooperative advances with cooperative banks in the Federal Republic of Germany considers the government to be misleading, since the legislation in a foreign country cannot bind the Czech legislator to anything. At the same time, the Government recalls that while the appellant relies on its arguments only on a legal analysis of the rules governing cooperative enterprise backed up in a single foreign state, the Ministry of Finance has used the experience of international authorities, which are the International Monetary Fund and WOCCU bringing together most of the world's countries.
24. If the appellant criticises the rule tenfold, the government recalls that the incriminated rule only constitutes a partial measure whereby the regulator, together with the supervisory authority (i.e. the Czech National Bank), seeks to achieve greater stability in the cooperative reserve sector (e.g. the minimum amount of the member deposit has been set, the contributions to the reserve and risk fund have increased and a balance sheet ceiling of CZK 5 billion has been introduced). All these measures as a whole constitute a complex of measures and cannot be considered in isolation. Therefore, in the proportionality test, the contested legal provision is considered by the Government.
25. On the other hand, the Government states that although the balance sheet of the cooperative sector represents less than 1% of the regulatory capital, the Czech National Bank has in the past been forced to allocate more than 30% of its supervisory capacity to this sector. The government therefore considers that the solution to the problem can be seen precisely in the restoration of cooperative principles, namely an increase in the co-responsibility of each cooperative by increasing its participation in the management of the cooperative reserve. Thus, the ten-fold rule is not aimed at winding up the cooperative sector, but rather at strengthening the membership principle, which should, on the contrary, help in self-regulation and the subsequent recovery of that sector. According to the Government, it is not clear why the appellant presupposes that the depositor / member of the cooperative reserve will not want to participate in its business if it has confidence in the cooperative reserve, especially in a situation where its successful business can make a greater profit than if its deposits were only remunerated. With reference to the content of the relevant RIA report, the Government underlines that there are no more options to restore the Member State principle, which must also be considered the most appropriate and natural way of limiting risks in the cooperative reserve sector, as the different methods differ only in sub-parameters. Although it cannot be excluded that there will be some fluctuations in the amount of deposits and the number of members in the cooperative reserve sector, these movements should be considered as a result of the recovery of the entire sector, not as a symptom of its liquidation. In the view of the Government, it is therefore clear that the incriminated rule fulfils all parts of the three-stage proportionality test, therefore it cannot be regarded as contradictory to the right to engage in business under Article 26 (1) of the Charter.
26. Finally, at the end of its observations, the Government disputes that the contested legislation might be contrary to European Union law. If the appellant contends that the contested legal provision violates the free movement of capital, the Government refers to the argument put forward to it as being contradictory internally, stressing that the contested legislation does not in any way prevent the placing of a deposit from persons with domicile outside the Czech Republic. The Government strongly rejects the appellant's assertion that there is discrimination against the depositors of cooperative advances and violations of the DGS II Directive, and recalls that the contested directive, in Article 2, strictly distinguishes the position of the bank's client and member of the cooperative reserve, as a result of which this directive does not include member deposits in cooperative advances in the deposit guarantee scheme. At the same time, the Government recalls that the transposition period of this directive expired later than the entry into force of the contested legislation.
27. For recap reasons, the Government does not consider the application to be justified and therefore proposes that the Constitutional Court reject it.
Communication from the Ombudsman
28. The Ombudsman Mgr. Anna Shabatová, Ph.D., by letter of 25 February 2016, informed the Constitutional Court that, within the meaning of Article 69 (3) of Act No. 182 / 1993 Coll., on the Constitutional Court, as amended, does not exercise its right to intervene in this proceedings.
Replication of the appellant
29. Recapitulated observations were sent to the appellant, who responded to them by a reply received by the Constitutional Court on 1 August 2016, in which she responded only to the content of the Government's observations. In its reply, it first pointed out that the various claims made by the Government were either irrelevant or purposeful, totally rejecting its legal argument.
30. First of all, the appellant points out that the contested provision was included in the text of the amendment in question only on the basis of the comments made in the inter-ministerial comment procedure and had not been sufficiently discussed before, which, moreover, results from the content of the RIA report, which is why the Association of Cooperatives could not comment on it (hereinafter referred to as the Association). If the Government refers to previous market consultations, the appellant contends that it is not clear from the observations which bodies represent this "market 'and, moreover, does not provide any evidence of such consultations. If the Government refers to the WOCCU recommendation, the appellant considers the Government's argument to be purely purposeful and stresses that the cooperatives associated in WOCCU are not credit institutions within the meaning of the European CRD IV Directive and the CRD Regulation and are not subject to banking regulation, unlike the cooperative advances regulated by Act No 87 / 1995 Coll. And if the government refers to the International Monetary Fund Mission's assessment report, the appellant recalls that none of its recommendations contain a ten-fold rule. In addition, the appellant points out that the Government has not, in its observations, given the sole jurisdiction which would impose on cooperative advances the same obligations as banks, which would subject them to the regulation of credit institutions and, at the same time, consider them to be self-regulated non-profit-making persons governed by the principles of reciprocity (while at the same time arguing that the Government did not state in its observations why German legislation should not be suitable for comparison).
31. If the Government contends that the cooperative advances and banks are different institutions in "legal form, capital equipment and certain specific features', the appellant recalls that neither of the factors mentioned is relevant for assessing the comparability of these entities in terms of the regulation of their business activities, while the existence of certain distinct features does not exclude their comparability. According to the appellant, there can be no doubt that, from the point of view of public oversight, the two bodies are comparable (the amount of the capital is not considered relevant by the appellant because, according to the doctrine, it is not in a position to perform the necessary guarantee function; the capital adequacy and liquidity requirements that are identical for both banks and cooperatives are of greater importance).
32. If the government claims that the cooperative advances should be mutual, self-regulatory associations, the government ignores the fact that members of the elected bodies of the cooperative reserve can only be adequately educated professionals with adequate experience, in addition to the approval of the Czech National Bank (§ 6a and § 7 paragraphs 6 and 7 of Act No. 87 / 1995 Coll., on savings and credit cooperatives and some measures related thereto and on the addition of the Act of the Czech National Council No. 586 / 1992 Coll., on income taxes, as amended, as amended), not its members - small members of the public. The government's idea of managing and controlling the activities of the reserve company through its ordinary members (in terms of non-for- profit of the entity) is therefore not only virtually impracticable, but also in a clear violation of the current legislation, according to which in the Czech Republic at the latest from 1 April 2006, when the deposit guarantee scheme was unified, the cooperative reserve (like in the Federal Republic of Germany) actually became "small banks', which no longer function on the principles of historical" campaigns', inspired by the idealistic ideas of František Cyril Kampelík. Thus, the reference to the historical concept completely misses reality and cannot justify the different treatment of cooperative advances compared to banks. In this context, the appellant does not agree with the Government's assertion that the cooperative advances cannot be compared with the payment institutions and electronic money institutions, and points out with reference to the commentary literature that they can also provide loans and receive deposits, even if they are not deposits under Act No. 21 / 1992 Coll., on Banks, as amended. That is why, in the appellant's view, only a member principle cannot justify the clearly discriminatory treatment of the legislator with cooperative advances.
33. In its reply, the appellant reiterated the belief that the contested legislation was contrary to the DGS II Directive, since its purpose was not to "strengthen reciprocity," but to establish a practical co-participation of depositors, where, in the event of insolvency of the cooperative reserve, such depositor would receive only 90,9% of the funds it had put into it. Consequently, the appellant underlines that both the European and the Czech legislature in the past has abandoned the idea of "moral hazard" to the clients of credit institutions, since a normal depositor cannot, as an absolute layman, assess the financial health of the bank or the back-up to which he entrusts his funds. Responsibility for "financial health" lies primarily with the management of the credit institution and with the regulator in the exercise of supervision; therefore, according to the appellant, their obligations cannot be replaced by any non-statutory self-regulation by cooperative depositors. Therefore, in Directive 2014 / 49 / EU, the Commission has also undertaken to abolish the 10% participation of depositors in the payment of compensation from the deposit guarantee scheme established by Directive 2009 / 14 / EC of the European Parliament and of the Council amending Directive 94 / 19 / EC on deposit guarantee schemes as regards the amount of insurance and the deadline for payment.
34. The Government, according to the appellant, places particular emphasis on the question of "moral hazard" and seeks to give the impression that it is a specifically negative phenomenon of cooperative advances. However, the problems described by the government in its observations (e.g. exceeding the limits of engagement) are not only present in the cooperative sector, but also in the banking sector. The contested provision cannot therefore be an eligible instrument to eliminate or mitigate these phenomena. In this context, the appellant stresses that, according to the current methodology for calculating the amount of the contribution to the financial market guarantee system, the individual risk weight of the lending institution is taken into account, while it should be stressed that the individual risk profile of the individual cooperative advances is very low.
35. If, in its observations, the Government disputes the possibility that the contested legislation might infringe the right to peaceful use of property under Article 1 of the Additional Protocol to the Convention, the appellant, referring to the case law of the European Court of Human Rights (in particular to the judgment of 14 February 2008 No 55179 / 00 in the Glaser case against the Czech Republic), persists in the belief that the rule of ten times as many times as that of the Cooperative Advantages, which is in breach of the legitimate expectations of their depositors, which has an undeniable effect on their assets in the autonomous sense of Article 1 Additional Protocol to the Convention. If, according to the appellant, the contested provision demonstrably leads to a three-quarter reduction in new deposits, it is a situation comparable to a "run-on-the-bank ', and therefore there is no doubt that the rule of ten times that has a" choking effect' on the cooperative advances. In this conclusion, nothing can change according to the appellant or the fact that deposits with cooperative advances are insured up to EUR 100 000 out of 100%. In this context, the appellant underlines that, according to the RIA report, if one of the risk factors of the cooperative segment is backed up by the fact that these institutions receive more expensive resources while at the same time providing more expensive (and riskier) loans, the contested legislation - precisely as a result of the need to obtain new loans to maintain the necessary liquidity - it strengthens these risks, thus causing a completely opposite effect to the declared effect.
36. The Government's claim that the cooperative reserve segment is linked to 30% of the supervisory capacity of the Czech National Bank is considered unconvincing by the appellant, since not only is the government not evidenced by anything, but not by publicly available sources. Moreover, the proper exercise of supervision of credit institutions is a legal obligation of the Czech National Bank, which according to the author is budget independent and the cost of its operation covers the issue of money. If the Government points out in its comments on the cases of "failure 'of cooperative advances after 1999, the appellant points out that" failure' of cooperative advances around 2000 cannot be taken into account at all from the point of view of the current legislation, since from this point of view the relevant period starts only from 1 April 2006. Starting from this date, the appellant claims that "cooperative failures' have only occurred as a result of events (breach of exposure limits and excessive credit exposure to entities close to those managing cooperative reserves), which are only removable by strict supervision by the regulator, the Czech National Bank, while it is also clear that these infringements may occur with the same intensity in the case of banks (which has also happened in the past). It is logical, according to the appellant, to rely on the necessity of the contested provision, which effectively limits the acceptance of deposits, on a problem of excessive credit exposure.
37. If the Government questions the appellant's view that the contested provision, inter alia, infringes the principle of free movement of capital, the appellant persists in its reply, pointing out only briefly that the rule discriminates ten times as much as the Czech co-operative reserves on both the domestic market of financial services and on the markets of other Member States of the European Union, since other credit institutions are not subject to a similar requirement here and, at the same time, foreign credit institutions - including cooperative reserves - may compete on the Czech market with the Czech co-operative reserves without having to comply with the rule of a tenth-fold. Consequently, in its reply, the appellant reiterates the fact that, in the event of the bankruptcy of the cooperative, its member - contrary to the relevant European Union directive - will never receive 100% of the amount he has put into the reserve.
38. At the end of its reply, the appellant proposed, in the light of the information contained in it ("in particular the development of new deposits in cooperative advances'), with reference to Article 39 of Act No. 182 / 1993 Coll., on the Constitutional Court, as amended by Act No. 48 / 2002 Coll., the priority consideration (decision on it outside the order), because it considers that it is" not only a hypothetical threat of interference in constitutional rights, but also an intervention which is actually acting and is increasing over time '.
Observations of the Association of Cooperative Advances
39. The Constitutional Court sent unsolicited observations on the proposal under consideration on 4 August 2018 by the Association of Cooperative Advances, in its words as "amicus curiae." In its introduction, it pointed out that the contested part of the provision of Paragraph 3 (4) of Law No 87 / 1995 Coll. was inserted into the amendment in question "at the last minute ', which is why the Association had no opportunity to comment on the new rule. This rule considers the Association to be surprising, going against the principle that the regulation of activities on the so-called active side, i.e. those that appear in the accounting records as assets (i.e. loans), is a unifying element of the regulation of credit institutions; On the other hand, the contested rule regulates deposits, i.e. liabilities (resources) of cooperative advances. In the RIA report, the principles of WOCCU were often mentioned, as WOCCU mainly brings together cooperative backups which are not credit institutions within the meaning of European Union law. On the other hand, the cooperative advances that are credit institutions are combined in EABC (European Association of Cooperative Banks) and its members have around 20% of the European banking market of credit institutions (including as advanced markets as Germany and Austria). None of the principles recognised by EABC are in line with the introduction of the 10-fold rule. The RIA report and the explanatory memorandum, however, completely ignores the existence of EABC and focuses only on WOCCU principles for unclear reasons. At the end of its brief statement, the Association then recalls the problem of undistributed profit, which can be claimed at the end of membership. The new member cannot subscribe to his share with the premium, he can only acquire a share with a nominal value. According to the Association, therefore, there will be situations where, for many years, the generated undistributed profit will be paid to outgoing" short-term "members (e.g. depositors who have decided not to deposit funds in advance after a few months), which will further weaken the capital strength of the cooperative reserve (i.e. against the declared objectives of the new RIA adjustment) and, moreover, unfairly divide the undistributed profit (because it will not take into account the time factor).
Oral proceedings
40. According to Article 44 of Act No. 182 / 1993 Coll., on the Constitutional Court, as amended, the Constitutional Court decided on a case without oral hearing because it could not be expected to further clarify the case.
Active procedural legitimacy and management conditions
41. The applicant is a group of 21 senators, which is represented by that lawyer. The application for annulment of the contested part of the legal provision is based on § 64 paragraph 1 (b) of Act No. 182 / 1993 Coll., on the Constitutional Court. The application shall be accompanied by a signature document to which each Senator has individually confirmed that he is attached to the application. The appellant is therefore actively authorised to submit the proposal under consideration.
42. However, the Constitutional Court failed to see that, although a group of senators now considers that the unconstitutional part of the legal provision, or the so-called 10-fold rule, is now being challenged, a substantial part of that group (not counting senators and senators who did not exercise or were not present at the Senate meeting that day) did not make any comparison between the rules in question. However, that fact cannot without further prejudice to the active legitimacy of the proposing group of senators, it can therefore be concluded, with that reservation, that the proposal contains all the legal requirements required, that the application is not inadmissible pursuant to Article 66 of Law No 182 / 1993 Coll., on the Constitutional Court, as amended by Act No 48 / 2002 Coll., nor are the grounds for the termination of proceedings under Article 67 of Law No 182 / 1993 Coll., on the Constitutional Court, as amended by Law No 48 / 2002 Coll.
Assessment of the competence and method of acceptance of the contested provision
43. Pursuant to Article 68 (2) of Act No. 182 / 1993 Coll., on the Constitutional Court, as amended by Act No. 48 / 2002 Coll., the assessment of the constitutionality of the law with the constitutional order consists of answering the question whether the law was adopted and issued within the limits of the Constitution, whether it was adopted in a constitutionally prescribed manner and whether its content is in accordance with the constitutional order of the Czech Republic.
44. The contested provision of the second sentence in § 3 (4) of Act No. 87 / 1995 Coll. was inserted into this Act by Act No. 333 / 2014 Coll., amending Act No. 87 / 1995 Coll., on savings and credit cooperatives and certain measures related thereto and supplementing the Act No. 586 / 1992 Coll., on Income Taxes, as amended.
45. The Constitutional Court notes that Parliament was competent to adopt the Law under Article 15 (1) of the Constitution. From the statements of his chambers and publicly available documents relating to the legislative process, he also found that the Government of the Chamber of Deputies (Chamber of Deputies, 7th Election, 2013- 2017, Chamber of Deputies 253 / 0) submitted the draft law to the Chamber of Deputies on 3 July 2014. The Chamber of Deputies approved it at the third reading on 24 September 2014 at its 17th meeting (Resolution No 420), when 126 of the 152 Members present voted for it, 2 were opposed. The Senate discussed the bill at its 26th meeting on 23 October 2014 and returned it to the Chamber of Deputies with amendments (Senate, 9th term of office, 2012- 2014, Senate Press 344 / 1). 53 of the 57 senators present voted in favour, no one was against it. The Chamber of Deputies of 9 December 2014, at its 23rd meeting, remained on the originally approved bill (Resolution 551). 145 of the 163 Members present voted in favour, 13 opposed. The law adopted was delivered to the President of the Republic on 11 December 2014 and its publication in the Collection of Laws took place on 29 December 2014 in the amount of 131 under No 333 / 2014 Coll. These findings are sufficient to conclude that the law was adopted in a constitutional manner.
46. If the appellant contends that the contested rule was added to the draft law "only after the inter-ministerial reference procedure 'and therefore the interested parties" could not comment', it would be sufficient to recall that the Constitutional Court had already, in the decision of 18.8.2004 sp. zn. It is thus clear that this objection by the appellant itself cannot establish a conclusion on the non-constitutional legislative procedure [see also point 56 of the decision of 13.12.2016 sp. zl. ÚS 19 / 16 (8 / 2017 Coll.)].
Background to the constitutional review of the contested provision
47. For the purposes of the constitutional review of the contested legal rule, it is necessary, on the one hand, to determine the scope of the facts at issue and, on the other hand, to determine (and where appropriate, to define) the relevant circumstances which substantially affect the material in question. First of all, the question must be addressed if there is even room for constitutional review in the sense of whether the contested rule really is, or at least may be, contrary to a constitutional standard, in particular to some fundamental law.
Definition of the fundamental rights covered by the contested regulation
48. In the proposal under consideration, the applicant finds that the contested rule is inconsistent with Articles 1, 11 (1) and 26 (1) of the Charter, Article 1 of the Constitution and Article 1 of the Additional Protocol to the Convention. The Ministry of Finance stated in the RIA report that the amendment to the Act as a whole "will have a significant impact on the cooperative advances. However, it is not possible to quantify the overall impact, nor did market representatives provide an estimate." Although the Ministry's expected impact in the quoted passage is primarily related to the potential for a significant capital increase of the relevant cooperative reserve in the event of its gradual transformation into a bank, it is clear from other parts of the RIA report that the promoter also envisaged the possibility of the disappearance of certain cooperative advances as a direct consequence of the proposed legislation (see below for details), which in itself indicates the possibility of collisions with both the assets of the cooperative advances concerned and the property rights of their members. The constitutional dimension of the proposal under consideration is therefore already given for this reason, regardless of whether the remaining appellant is actually affected by the provisions of the constitutional order.
Definition of undisputed and disputed facts
49. The appellant and the Government, as a party and intervener to the proceedings in their submissions or observations, have submitted to the Constitutional Court a number of elements - and mostly refoulement - of claims based on a highly specialised legal-economic milieu. The Constitutional Court is not competent or qualified to resolve the "dispute 'in the sense that it should give a party the right, its role (and its obligation) is merely to assess whether the contested provision (s) will stand in the constitutional test or not. For this reason, only those among the parties to the proceedings will be considered in the context of the Constitutional Court's constitutional review as essential, that is to say only those facts which, in his view, may have a real impact on the substantive assessment of the question of constitutional conformity by the rule ten times.
50. More or less, it is possible to regard as an undisputed fact only the fact that, prior to the adoption of the contested legislation, the cooperative sector had long-term signs of instability (characterised by a series of losses of individual cooperative advances) and, at the same time, a degree of consensus between the public authorities and the cooperative sector that a certain change in the relevant legislation had to be addressed (also).
51. In addition to the Act No. 87 / 1995 Coll., or the Order of the Czech National Bank No. 163 / 2014 Coll., the relevant legislation of European Union law (namely the CRR Regulation and the DGS II and CRD IV Directives) should also be duly taken into account in the present case, but the question is whether or not the contested rule is compatible with these Union legislation. In this context, the first question is whether the 10-fold rule does not contradict the DGS II Directive, which states that all clients of credit institutions must have their deposits fully insured up to a value equivalent to EUR 100 000.
52. At the same time, it should be recalled that the present amendment to Act No 87 / 1995 Coll., which also contains the tenfold contested rule, according to the explanatory memorandum, pursues eight basic objectives (or the main principles on which the amendment is based): 1. setting the upper limit of the amount of the balance sheet total, 2. allowing a gradual transformation into a bank, 3. increasing the risk fund consisting of annual profits after tax, 4. increasing the contribution to the Financial Market Guarantee System, 5. setting the maximum amount of the loan granted to one member of the cooperative reserve, 6. strict limitation of the cooperative reserve shares to its members only, 7. The contested rule cannot therefore be seen in isolation, but as part of a recap of the core principles of the amended legislation on cooperative advance operations.
53. In this context, it is also appropriate to recall some of the facts contained in the RIA Final Report, in which, inter alia, the "supervisory experience ', i.e. the CNB, is recorded on pages 17 to 19. First of all, it is stated that as a result of the rule that the voting rights of individual members of the cooperative reserve correspond to the amount of their member deposits, the control of the cooperative reserve by one of its members (or members acting in agreement), according to the experience of ČNB, results in a" risk profile "of the cooperative reserve in many cases. This is mainly due to the fact that the controlling member has a decisive influence on the choice of members of the cooperative reserve bodies (board, credit committee, supervisory commission), thereby being able to assert its interests and effectively represent the cooperative advance on behalf of the owner. The other members of the cooperative reserve then remain essentially in the position of a client who has virtually no opportunity to influence its functioning. The information provided by ČNB shows that in the Czech Republic most cooperative advances are controlled by a group of members through so-called additional member deposits. This does not need to be apparent in view of the level of the shares of the Member States' deposits, as the shares may be held by several persons who are formally" independent '(do not act in agreement). In order to hold these shares, legal persons based in various tax havens are often used, where the possibility of proving the beneficial owner is very difficult. Moreover, in these cases, the membership shares are increased in such a way that they do not exceed a 10% share of the voting rights, as it would be necessary to obtain the agreement of the CNB on the acquisition of a qualifying holding and to undergo the screening procedure of the member and source origin. Following this, the RIA Report, p. 44, points out that "the vast majority of members of cooperative advances do not deposit additional deposits, as it is considered primarily to be a client entering the cooperative reserve for the use of products and services, not to affect its operation. Membership is therefore only a necessary condition, the fulfilment of which is in practice only formal. Absence of the importance of membership of the cooperative is particularly evident in cases where the cooperative reserve set by the amount of the member deposit is completely negligible, as is indicated by, for example, the membership deposits of up to CZK 1,000 and, in particular, the member deposits of CZK 1." The threat of tampering with the members of the cooperative is further developed on page 33 and on page 43 is accentuated by the fact that, despite the "collapse' of individual cooperative advances in 2009-2013, neither the deposits nor the members of cooperative advances have been significantly reduced. In this context, it is also worth noting that, according to the information on page 45, more than 80% of all depositors deposited more than CZK 100,000, with almost 34% of all depositors exceeding even the amount of CZK 1 million.
54. At this point, it is also necessary to recall, for the assessment of the draft, the key provisions of Act No. 87 / 1995 Coll., namely § 1 (4), that the cooperative reserve "is not a bank under the law governing the activities of banks', § 4b (2), according to which the statutes of the cooperative reserve may allow, in addition to the (compulsory) basic member deposit and the so-called additional member deposit [see also § 5 (i)]], which, according to § 4c (1), also has a fundamental influence on the possible amount of the settlement interest (former) member of the cooperative reserve.
55. First of all, it is necessary to describe as a contentious "fact 'the promoter of a draft law identified by" moral hazard' which he considers to be an inherent consequence of the existing legislation on the cooperative reserve sector. Consequently, the question whether the contested rule does not discriminate (inadmissible) against the cooperative advance if a part of its deposits deposited via fact is excluded from the deposit guarantee scheme; In this context, it is appropriate to clarify the content in the draft promiscue of the terms "member 'and" client'. As a result, although this does not directly result from the content of the individual submissions, the contentious fact also remains, in a way, the appellant's (even forgotten) question of what must actually be regarded as the essential character of the cooperative reserve (as a specific legal entity), which distinguishes it from other entities, first of all from "ordinary banks'. In the end, the issue of whether the contested rule causes a" choking effect '- while the appellant indicates in the level of the claim "choking effect', the government does not directly comment on this issue, but it is clear from the context of its observations that its existence as a possible consequence of the contested legislation does not in any way allow it.
56. At first, it is therefore appropriate to define briefly the recap of the contested facts.
Moral gambling
57. The concept of "moral hazard" can generally be defined as a situation where it is more advantageous for the entity (economically - at least in the medium term) to act in a way that is (or at least may be) at the same time at a disadvantage for the wider entity being part of it or for which it is even responsible in some way (if the wider entity is a legal entity). In other words, moral hazard occurs when potential sanctions for possible irresponsible behaviour are so low (or even none) that not only does the entity in question have no incentive to act more responsibly, or even - indirectly - motivate it (by bringing the interests of a wider group of people) to act manifestly irresponsible. In the case of the financial market or the market in credit products, that is to say, a person with a reasonable amount of funds available, which he intends to make the most of in the medium term, at the present zero risk of their potential (albeit partial) losses, may be subject to moral hazard in the sense that he will not be interested, or in any way, in which (first and foremost of how risky) sources the excess remuneration of the deposit is financed. In the context of the proposal under consideration, it is clear, as is also apparent from its content (see paragraph 10 above), that the turning point represents the effectiveness of Act No. 433 / 2008 Coll. - effectively implementing Council conclusions (EC) of 7 October 2008 - on the basis of which the consolidation of deposit guarantees for banks and cooperative advances was carried out at a rate of 100% of the deposit up to the equivalent of EUR 50 000, with which the appellant says "the beginning of the economic rise of cooperative advances representing full competition from banks." This fact, albeit in a completely different interpretation framework, was also pointed out by Mr Miroslav Kalousek, in his speech during the second reading of House Press 253, acting primarily in the political sense of this legislative change, reflecting the threat of "run on banks" at a time of "financial crisis."
58. The appellant argues in the proposal that none of the current failures of cooperative advances have been caused by moral hazard on the part of depositors. However, in the view of the Constitutional Court, this claim cannot be entirely accepted. In fact, if the appellant contends that the reason for such bankruptcy has always been the specific error of the persons responsible for granting the loans, it cannot be ignored that - if the incriminated conduct did not have a purely criminal background - such a failure, at least indirectly, may have been due to the fact that (as the appellant itself points out) the additional remuneration of the cooperative members' deposits must be financed by more expensive and therefore, by definition, more risky loans. Therefore, the alleged economic link cannot be disregarded when assessing the contested provision.
Client or member of cooperative backup
59. The author, as mentioned above, often confuses the concepts of the client of the cooperative reserve and member of the cooperative reserve or uses them as synonyms in the proposal and subsequent replication. However, it should be pointed out at this point that the use of the concept of co-operative is highly problematic in the sense that it shows that the meaning and purpose of the co-operative is not understood as an arbitrary legal institution or specific legal entity. While the client generally, in a given context, the client of a credit institution, has a relationship with the institution providing him with cash or services, which depends solely on a binding legal relationship based mostly on an account contract, a credit agreement (possibly some close to the inominate), or a contract governing another banking product, a member of the cooperative reserve company is primarily a member and, in that regard, also a member of a specific cooperative, i.e. in fact a member of a commercial corporation [§ 3 (4) of Act No. 90 / 2012 Coll., on commercial companies and cooperatives (Act on commercial corporations)]. If the appellant refers to the rules on cooperative advances in the Federal Republic of Germany, it should be pointed out that the legislation there is significantly different (unlike the Czech Republic, neither depositors nor creditors need to be members of such cooperative advances), and in addition it has undergone significantly different historical developments (according to the appellant's analysis, there was a substantial change in this respect already in the 1970s).
60. If, therefore, the appellant contends at a number of points in its proposal that the client of the cooperative reserve is in a disadvantaged position as a result of the contested rule compared to the bank's client, it is clear that it compares the incomparable (and thus loses sight of the substance and meaning of the specific rules of the cooperative advance), thereby weakening and priori the relevance of this comparison to the underlying argument. The fact that banks and co-operative backups as a credit institution of largo sense are subject to the same overarching European regulation cannot, without any further, base the judgment that they are indeed comparable institutions so that the legislator cannot selectively impose some (at least seemingly) comparative obligations. According to this logic, for example, it would certainly be a disadvantage for a public limited company to have a core capital of at least CZK 2 000 000, since other companies do not have this obligation, even though they are subject to the same overarching regulation (both in the Commercial Corporation Act and in the relevant parts of the Civil Code); There is perhaps no need to state in detail at this point that it is clearly not a discriminatory provision, since it is merely the expression (or consequence) of the differentiation of different types of companies, which depends on precisely the different internal mechanisms of their operation (with possible consequences for third parties) and the associated different rights and obligations of the members or persons authorised to act for these companies. It can only be noted that, although the appellant repeatedly points out that the cooperative advances must be regarded as credit institutions from the point of view of European Union law, it somewhat ignores that many of them do not in fact meet one of the basic criteria, namely the so-called initial capital under Article 12 of CRD IV of EUR 5 000 000.
61. The strict and consistent distinction between the client (which may exceptionally be a non-member - see Section 3 (5) of the Act on savings and credit cooperatives) and the member of the cooperative reserve is essential because the member of the cooperative reserve is not entitled - unlike the bank's client - to a full payment from the Financial Market Guarantee System, but only from the part of him that exceeds the amount of the member deposit (and does not exceed the equivalent of EUR 100 000), with which the DGS II [see Article 2 (1) (4), in conjunction with Article 5 (1) (b)]. In this respect, it should therefore be fully consistent with the Government's view that the contested rule does not conflict with Union law. It can hardly be contrary to the directive by a rule which, even indirectly, is expressly foreseen by the directive.
62. One of the key objections contained in the proposal under consideration (and also in the heading from the Association) is the following "axiom": cooperative backups, both in practice and in the context of Union law, perform the function of "small banks," the contested rule therefore discriminates against them, as it is a disadvantage compared to "ordinary banks" - a primacy of the percentage of deposit insurance. In the next part, therefore, it is necessary to address the question of what actually "makes a cooperative backup" and, at the same time, from a different perspective - namely from the point of view of the relevant legislation, what in general distinguishes cooperative advances from banks.
Defined features of the cooperative reserve
63. Both the applicant and the Association repeatedly emphasise in their submissions the impossibility of conclusions based on WOCCU recommendations (or ICA), with the argument that this international organisation of cooperative advances brings together only back-ups which operate on principles other than cooperative backups in the Czech Republic; Cooperative advances which are credit institutions are, according to the Association, associated in EABC, whose members hold roughly one fifth of the European banking market.
64. The Constitutional Court is aware that the legislation of cooperative advances in the Czech Republic is opposed to a clear classification either among WOCCU members or EACB members, with which the fact that according to the website of the two organisations is not a member of any of the domestic cooperative advances. However, following this finding, a crucial question is offered for the constitutional assessment of the case: what constitutes the essential character (s) of a cooperative reserve whose absence (at least materially) excludes the classification of such legal entity as a cooperative reserve? In other words, is it possible to identify the character (s) which distinguishes it or which undeniably distinguishes it from other legal entities?
65. In her proposal - with reference to the rules on cooperative advances in the Federal Republic of Germany - the appellant argues that the so-called Member State principle does not constitute a bond character of the cooperative reserve. The EACB website, which includes two "emblematic" cooperative backups of German provenance, nevertheless shows that one of the fundamental principles that connects internationally associated cooperative backups is the principle of "one member equals one vote," that is, the principle that was not implemented by Law No 87 / 1995 (cf. § 4 (6), second sentence), even though, according to the content of the RIA report, the absence of this principle is one of the reasons for the previous instability of the cooperative reserve sector. In this context, it is worth noting that the RIA report in question does not recommend a strict application of the "one member equals one vote 'principle due to excessive interference in existing assets in the cooperative reserve sector, and (therefore) rather prefers a different way of implementing the member principle, whereby a tenfold rule is presented as one of the preferred parametric variants.
66. Although it is not possible to identify at this point any character that should be met by each cooperative reserve, if it is to be classified as a cooperative reserve, it is appropriate to conclude on a case by case basis that each cooperative reserve should actually fulfil at least some of the partial aspects of the membership principle and therefore implement - albeit partially modified (contextual) - the "ideals' on which the cooperative reserve sector originally originated. Consequently, it should be noted that the appellant rejects any strengthening of the membership principle via fact, without, however, its proposal showing the relevant reason for such a position, or an alternative to such a legislative solution.
67. In this context, it is also appropriate to state that it is not clear from the proposal under consideration that the mere fact that the cooperative can offer its services only to its members, as a "small bank ', if the only factual difference - in addition to the significantly lower statutory capital of the company - is that the cooperative can offer its services only to its members, but that is in a situation where the compulsory Member contribution is only indirectly permitted by the proposal, which points to the provision of § 1 (2) of the Act, which is not - without further - to distinguish the" ordinary savers', which favour only the most possible (and at the same time insured) an assessment of their free funds from those who have a real interest in the operation of the cooperative as its members, and thus reasonably active members, and thus also in the present circumstances.
68. The Constitutional Court considers that, on the notional axis of banking - non-banking credit institutions may hold cooperative advances as a "sub-article 'in the sense that they may grant loans to their members which, on the one hand, banks would refuse to grant to them, on the other hand, although they would be provided by a non-bank loan provider, but under less favourable conditions than a cooperative deposit. However, if the cooperative is to perform such a role effectively, it is clear that the member principle must be consistently fulfilled in the sense that its members must have a real interest in the healthy management of such a cooperative reserve.
69. As a result of that observation, the question of whether, even for reasons further advanced, the application of the contested rule seems, first of all, to be material from the point of view of the constitutional review of the contested rule, whether its application would in fact constitute an existential threat to the cooperative reserve sector as a whole, and, if so, the appellant did not present any relevant distinctive character which, in the absence of the contested rule, would actually differ from the banks (and, where appropriate, other credit institutions), which would, in other words, constitute a value which would have to be provided for constitutional protection.
Choking effect
70. The so-called choking (choking) effect is not precisely defined in the previous case-law of the Constitutional Court, so it can generally be concluded that the "choking effect" is only considered in extreme cases where the State (most often in the form of a financial contribution or tax measure) provides the addressees with the obligation that the implementation of which is capable of causing the parties concerned real existential problems, i.e. to act in liquidation against them.
71. The appellant imports the "choking potential" of the contested rule from the fact that, after (partial) application of the rule, the 10-fold reduction in the volume of new deposits has occurred for all the cooperative advances observed. This is accompanied by a clear and logically correct consideration that the reduction in new deposits results in a reduction in the liquidity of the cooperative reserve, which in the medium term must lead to a reduction in the ability to provide new loans to its members and thus, in fact, a failure to fulfil the core function of the cooperative reserve.
72. On an abstract level, the appellant can thus be held to believe that, if the inherent problem of the cooperative segment is that their credit activity requires relatively expensive sources of funding, which forces them to seek more profitable - and thus more risky - location of assets, then this problem can hardly eliminate the measure which, according to the appellant, necessarily leads to a reduction in the ability of the cooperative to receive new deposits in so far. Without the Constitutional Court having the ambition to become the final arbitrator on whether the reduction of new deposits after 1 July 2015 constitutes a logical consequence of the previous "frontloading of the market ', as the Government argues, or, on the contrary, an undeniable indication of the" choking effect' of the rule of ten times as suggested by the appellant, it considers it necessary to state that the appellant's argument presented finds "one-dimensional 'in the sense that it builds on a very simplified preamble, according to which the reduction of new deposits is (must be) an inevitable consequence of the tenfold rule, since the individual" savers' will always place their free funds only where they obtain the highest possible appreciation under the current 100% insurance of such a deposit. However, the appellant (obviously unintended) confirms the merits of the legislator's conclusion (i.e. the Government and the Czech National Bank) that 100% deposit guarantee combined with the preference for maximum possible yield may lead to an increased risk of moral hazard among all stakeholders (see above). Following the Government's observations, it cannot be mentioned that, in the spirit of the author of the logic presented, the vast majority of "ordinary savers" would have to deposit their free funds, not for banks offering significantly lower interest but for cooperative advances. It is appropriate to add only to the margin of this question that, according to the data provided by the Association, new deposits have fallen since 1 July 2015, but it is also clear that in May and June 2015 there has been a significant increase (up to three times the current amount of deposits) and that already in February 2016 new deposits started to close to the volumes of February 2015 (about two thirds).
73. In order to assess whether the contested rule may have a "choking effect ', the Constitutional Court considers that the result in the previous paragraph of the debated controversy is not material, but rather to answer the question whether the legislator has allowed the persons concerned to respond to the enactment of the rule ten times within the time limits provided so that their fundamental rights are not affected in any way or not. However much the appellant overlooks this fact and even the government does not emphasise it in its observations, it follows from the content of the RIA report on the amendment in question that its stated intention is to make the existing cooperative advances (a) adapt to the new measure or (b) transform into a bank, or (c) to a payment institution or payment service provider, or (d) to a non-bank credit provider or to a cooperative, or finally to put an end to the cooperative advances. One of the possible consequences (solutions) of the new legislation as a whole is therefore (voluntary) the cessation of the existence of cooperative advances. From a constitutional point of view, it is essential - if the appellant points out that the cooperative advances are credit institutions and, in fact," small banks' - whether the legislator actually allowed the existing cooperative advances to be transformed into "small banks' and de jure. In fact, the fact that the legislature did not allow the cooperative reserve to carry out the activities of the credit institution under the current conditions does not result in a constitutional inconsistency of the contested legislation [cf. Mutatis mutandis point 58 of the decision of 15.5.2012 sp. zn. ÚS 17 / 11 (N 102 / 65 SbNU 367; 220 / 2012 Sb.)].
74. More or less beyond the applicable framework, it can therefore be noted that the data available on the Czech National Bank's website shows that, at the time of the adoption of the contested legislation, 11 players were in the sector of cooperative advances, although only 10 were in the 20. 6. 2018, and 34 003 members of cooperative advances were in total on 31. 12. It can also be concluded from this point of view that the appellant's so-called choking effect is not empirically substantiated.
Constitutional review of the contested rule
75. As can be seen from the above, the appellant of the right to engage in business could only be threatened in the present case provided that non-portional intervention in the assets of the members of the cooperative is indicated. It is therefore necessary to carry out a three-stage proportionality test, the partial steps of which were formulated in the appellant of the reference finding sp. zn. Pl. ÚS 3 / 02 of 13.8.2002 (N 105 / 27 CollNU 177; 405 / 2002 Coll.) and according to which, in addition to the purpose (s) of the intervention, it is necessary to assess the eligibility (or suitability) of such a measure to meet the objective pursued, further to assess its necessity, according to which criterion the use of only the most gentle of the possible means is permitted, and, finally, to assess the principle of proportionality (in the strict sense) that damage to the fundamental right must not be disproportionate in relation to the intended objective.
76. Before the Constitutional Court proceeds to carry out that proportionality test, it states that, in assessing the constitutional consistency of the contested rule, it came from the data contained in the RIA report which has no reason not to consider it relevant (and correct), especially when the appellant does not dispute its correctness in its submissions (directly).
Legitimacy by the legislator of the objectives pursued
77. While it is possible to attest to the appellant that the risk of moral hazard is not only the own sector of cooperative advances, it cannot be lost sight of the chronic instability of the sector - even after 1 April 2006, which goes to the forefront just as compared to the stability of the banking sector; At the same time, it is clear that this instability is not only due to moral hazard, but also in combination with higher credit exposure to cooperative advances compared with banks.
78. In reply to the Government's observations, the appellant disputes the claim that the Czech National Bank "consumes" 30% of its supervisory capacity to oversee the cooperative sector and argues that such an indication does not result from any publicly available sources. In this context, the Constitutional Court is based on the fact that the specific percentage amount of the contested legislation is not significant in terms of the assessment of the constitutionality of the contested legislation (whereas in terms of publicly available official resources, it is sufficient to refer to the annual report of the ČNB for 2015, which states on page 25 that the supervision of the cooperative sector - despite the "relatively small market share 'being" devoted to a significant part of the supervisory capacity'), is still manifestly a disproportionate burden on the Czech National Bank in a situation where the overall balance sheet of the cooperative sector did not reach at that time any percentage of the regulated financial market as a whole.
79. If the appellant points out that the legitimate objective can hardly be to "strengthen the financial interest of members of cooperative advances," it is sufficient to point out that the objective pursued is primarily to stabilise the entire sector of cooperative advances, the strengthening of the financial interest of members is (only) a means (method) to meet the objective of the aid. If the appellant contends subsequently that the possible objective of the legislation in the form of the removal and prevention of the emergence of certain earlier problems in the cooperative reserve segment cannot be fulfilled by the contested rule in any way, it no longer refers to the question of the legitimacy of the stated objective, but to the appropriateness of the legislative measures chosen.
80. The Constitutional Court considers that the cooperative reserve sector has shown signs of systemic instability in the long term prior to the adoption of the contested rule. This systemic instability resulted, on the one hand, in repeated (and in relation to its total and massive) performance from the deposit guarantee fund at the time, and, on the other hand, (sequentially) a flagrant disproportionate burden on the supervisory capacity of the market regulator. The stabilisation of the segment in question, which would prevent the recurrence of the two related negative events, thus constitutes a legitimate objective since such stabilisation is clearly in the public interest.
81. For the sake of completeness, it is appropriate in this context to respond to the appellant's remark in her reply to the Government's statement that the supervision of the Czech National Bank over credit institutions is its legal obligation and that, moreover, the cost of its operation covers the issue of money. The appellant thus (probably) seeks to indicate [in addition to the contextual impossibility of reference to the conclusions of the sp. zn. However, such an argument cannot be accepted, since the possible need for an increase in the staffing capacity of the Czech National Bank - although it cannot have a significant systemic impact to a limited extent - is not entirely secondary in terms of public finances as a whole and priori.
Conformity of the measure selected
82. Since the Constitutional Court, contrary to the appellant's expectations, has found the objective pursued by the legislature of the contested rule to be legitimate, the question of whether the contested legislation is capable of meeting the objective pursued must be addressed, namely the question of the appropriateness of the legislative measure chosen; if this criterion is to be fulfilled, the applicable rule (at least potentially) shall be able to achieve the intended objective of protecting the public good referred to above in the case under consideration.
83. In the appellant's view, the contested regulation does not meet the criterion of appropriateness, since for the reasons set out above, it will in fact result in a gradual reduction of liquidity, which will consistently cripple the overall functioning of the cooperative reserve. Although the Constitutional Court does not mean the implications of the appellant's presented economic context to be misinterpreted (see paragraphs 69 and 70 above), it cannot at the same time ignore the fact that the appellant did not in fact state any reason for the judgment (even in the form of a hypothesis) that the legislator pursued the strengthening of the Member State principle and from which the self-regulatory mechanisms are based are not capable of fulfilling the purpose pursued.
84. On the other hand, the Constitutional Court considers that strengthening the Member State principle has, on the one hand, (at least in an abstract level of the problem) the potential to fulfil the objective pursued, and, on the other hand, considers that strengthening the Member State principle is the main reason for continuing the existence of cooperative advances as a specific - and therefore a special - regulation of regulated - credit (non-bank) institutions. It is also reasonable to consider that the legislator has chosen an appropriate preventive measure which, in addition to stressing the different functioning of the cooperative reserve (by strengthening the membership principle) and of the bank, is also intended to prevent any damage which the State could potentially bear as a result of the inefficient exercise of supervision of the cooperative reserve activity. The criterion of suitability therefore also meets the contested rule in the view of the Constitutional Court.
Confidentiality of the measure chosen
85. In the second step, the Constitutional Court had to assess the fulfilment of the principle of necessity, that is, whether the legislator used only the most considerate - in relation to the fundamental rights and freedoms in question - of the more demanding measures.
86. The appellant considers the contested rule to be inconsiderate, since its application, in its view, will lead to the gradual liquidation of the entire cooperative reserve sector, because "small savers who form a significant part of the client's advance but no other clients will be willing to accept the need for significantly higher member deposits"; at the same time expressed the belief that the purpose pursued could have been achieved by other, "less drastic means'.
87. The Constitutional Court has repeatedly expressed its view that the appellant considers the conclusions presented to it to be simplistic (abstract from all criteria other than maximising the insured assessment of deposits). In addition, it must be recalled at this point that, while the appellant talks about the possibility that the objective of the legislation pursued should also be pursued by other - less invasive - means, but the proposal does not, with the exception of strengthening the consistent supervision of the market regulator (see above), make it clear what other - constitutionally consistent - means should be specifically.
88. The Constitutional Court will therefore limit itself to finding that the RIA report in question contains a number of parametric options for strengthening the cooperative principle, including the possible negative consequences of their choice. The contested rule does not, in the view of the Constitutional Court, "deviate from the line 'in the sense that the various variants differ both in positive and negative consequences of the application. At the same time, it is clear that the legislator had the option of introducing a" one member equals one vote "rule, which would be seen on the spot as a solution with a potentially more sensitive impact by primacy of the property rights of" larger members "of the cooperative. A more careful solution, which would at the same time be equally effective in achieving the objective pursued - by strengthening the membership principle - was not available, according to the Constitutional Court.
Proportionality of the measure selected
89. Finally, it is necessary to address the fulfilment of the principle of proportionality (in the narrow sense of the word), according to which the injury to the fundamental right must not be disproportionate in relation to the intended objective, which means that a measure limiting the right to property must not, if there is a collision with the public interest, exceed, by its negative consequences, the positive effects of the measure which constitutes a public interest.
90. Even in the third step of the proportionality test, the Constitutional Court considers, for the reasons set out above, that the contested rule will stand up in the constitutional test, even if the application of the contested legislation does indeed lead to the disappearance of certain cooperative advances. Such a conclusion is appropriate, taking into account the fact that (a) there is no special value (not only) in the sphere of constitutional law specifically protected, and (b) individual cooperative advances were allowed to adapt to the new legal regulation from other credit institutions, with an optimal gradual transformation into "proper 'banks (if it is clear that cooperative advances act as banks, are subject to similar regulation as banks and offer similar products as banks, it can be concluded that it is not, from this point of view, a reason for not to treat them and the remaining criteria as banks).
The question of the discriminatory nature of the measure chosen
91. As is clear from the above, the Constitutional Court does not consider the contested rule to be discriminatory either, since unlike the appellant, it is not considered that the banks and the cooperative advances are (fully) comparable legal entities. If that were the case, for example, the discriminatory legislation of a public trading company which provides for unlimited liability for its members would have to be such as to put it at a disadvantage compared to the limited liability of commanditists in a limited company. Although the Constitutional Court does not take into account the doctrine of the fact that the core capital in practice (the promotion company) is not capable of performing a guarantee function (which has been significantly reflected, or in the law of the company limited in the Commercial Corporation Act), it nevertheless considers that the legal requirement for the level of core capital, which is markedly different from the cooperative advances from banks, cannot be further downgraded (in this context it is appropriate to point to the p. 84 of the Financial Market Supervision Report in 2014, available on the ČNB website, which underlines the fact that in particular CRD IV requires higher and better capital). Thus, the contested measure cannot be regarded as discriminatory (and thus infringing the right to equal treatment), since there is no comparable body to which this rule would favour compared to the cooperative advances.
Intervention into the right to do business
92. It is also apparent from the above that, in a situation where the Constitutional Court did not find that it was a constitutional deficit in the right to own property, it does not in fact consider the conclusion of an undue interference in the right to engage in business, in particular by virtue of Article 26 (2) of the Charter, which, in the case of this fundamental right, provided that its cross-compliance was not found to be lawful by the Constitutional Court, the legislature has in this case a relatively broad degree of discretion - again under the conditions of legislation which allowed the addressees of the law to transform into a bank, i.e. in the conditions where the legislature allowed the parties involved to continue their business in the credit institutions sector (contrary to the appellant). While the appellant notes in its proposal that the legislature provided the legiskation periods were not long enough, this claim does not follow any supportive arguments, and it is clear from the overall context of the proposal that the way in which the cooperative bank advance could be transformed into a bank is not constitutionally inconsistent.
Objection to infringement of European Union law
93. Savings and credit cooperatives are one of the forms of "credit institutions" as defined in Article 4 (1) (1) of the CRR, which respects the wide discretion of the national legislator ratione personae in adjusting the specific types of service operators associated with the acceptance of deposits from the public and the provision of credit for their own account on financial markets. The obligation under the DGS II directive then obliges the State to ensure the protection of the clients of credit institutions as consumers of the services provided by them only to the extent of the so-called eligible deposits as defined in Article 2 (1) (4), i.e. it does not apply to deposits of a capital nature excluded from protection in Article 5 (1) (b). The Directive thus respects the constitutional principle of Union law "unity in diversity 'and leaves Member States ratione materiae free to decide whether the legal arrangements of credit institutions only involve the acceptance of ordinary (typically bank) deposits or, in addition, the deposits of member (e.g. cooperative) depositors to participate in the institution's governance. The fact that the" omission of the importance of membership of the cooperative', as referred to in paragraph 53 of the RIA report, relativises this participation, is a matter of effective establishment of guarantees of membership in corporate law and is unrelated to the assessment of the contested provision. Thus, the extent of the State's commitment under Union law is so obvious that the Constitutional Court has no doubt about its "Euroconformal 'projection into Act No 87 / 1995 Coll., including the contested provision. He therefore did not find the appellant's reasonable consideration of the reference to the Court of Justice of the European Union. Although the unilateral extension of legal protection in favour of insurance and of the member (capital) contribution beyond the obligation under the DGS II Directive does not explicitly exclude this, any exceptional reasons for it would be for them to assess the legislator, but in any case the Constitutional Court, which is guided by the principle of restraint. The contested provision does not create an obstacle to the free movement of capital in the internal market of the European Union nor does it restrict the free provision of services of domestic cooperative advances, not only because it is not a measure prohibited by European Union law (which, as the appellant mistakenly considers, would not be a prerequisite for its contravention of Union law), but also because it is addressed to a target group other than ordinary depositors, which has no potential to discourage potential investors in the financial market in the Czech Republic as part of the European financial market. For these reasons, the Constitutional Court concluded that the appellant's objection to the contested provision is not justified.
94. Moreover, the Constitutional Court points out that European Union law is not a reference criterion for its decision-making in the proceedings for the annulment of laws and other laws or their individual provisions under Article 87 (1) (a) and (b) of the Constitution. In these proceedings, the Constitutional Court merely takes due account of the principles based on Union law, as already set out in the decision of 8.3.2006 sp. zn. In addition to the above, the Constitutional Court is therefore unable to address the objection to the contested provision with European Union law, since otherwise it would have exceeded its powers conferred on it by the Constitution [cf. also mutatis mutandis recital 48 of the preamble to the judgment of 27.3.2008 sp. zn. ÚS 56 / 05 (N 60 / 48 CollNU 873; 257 / 2008 Coll.)].
Conclusion
95. For all the reasons described, the Constitutional Court concluded that the proposal was unfounded and therefore rejected it pursuant to Article 70 (2) of Act No 182 / 1993 Coll., on the Constitutional Court.
96. For the sake of completeness, it is added that on the appellant's proposal for a preliminary hearing of the case, as applied in its reply, the Constitutional Court did not find the reasons for the procedure under Article 39 of Act No. 182 / 1993 Coll., on the Constitutional Court, as amended by Act No. 48 / 2002 Coll., and therefore did not decide on it by a separate resolution.
President of the Constitutional Court:
JUDr. Rychetský v. r.
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Regulation Information
| Citation | The Constitutional Court found No. 186 / 2018 Coll., on the application for annulment § 3 paragraph 4 of the Second Act No. 87 / 1995 Coll., on savings and credit cooperatives and certain measures related thereto and on the addition of the Czech National Council Act No. 586 / 1992 Coll., on income taxes, as amended, as amended |
|---|---|
| Regulation Type | - |
| Author | - |
| Collection | Code of Laws |
| Date of Promulgation | 23.08.2018 |
|---|---|
| Effective from | - |
| Effective until | - |
| Status | Valid |
The regulation text is for informational purposes only.
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