Central Bank of Montenegro Under Fire Over Recent Legislation

The Central Bank of Montenegro (CBM) has been accused of compromising its operational independence after recent legislative changes could potentially compromise its ability to regulate banks as it sees fit.

Potential Impact on Regulatory Independence

A new law allowing for the retrospective alteration of loan agreements has sparked controversy, with concerns that it may result in potential losses for one bank. The CBM is required to supervise the implementation of this law, raising questions about the impact on its operational independence.

Urgent Call to Protect Autonomy and Prevent Similar Legislation

An international financial watchdog group has issued a scathing report urging the CBM to take steps to protect its autonomy and prevent similar legislation from being introduced in the future.

• “The decision to require the CBM to supervise the implementation of a law that seeks to retrospectively alter loan agreements freely entered into, with potential losses to one bank, could be seen as compromising its operational independence. It should not be used as a precedent for any further similar legislation.”
• The report also emphasized the need for the CBM to fill current vacancies and provide career paths for specialist staff.

Concerns Over New Bank Licenses

The group expressed concern about the recent influx of new bank licenses, with three new banks established in the past year and one more application currently being considered. While all applicants met the necessary licensing criteria, the report warned that a more rigorous assessment by the CBM was warranted due to the current business climate.

• “The CBM should interrogate much more robustly the banking opportunities identified in each application, particularly when new applicants identify, in varying degrees, more or less similar opportunities.”
• The group also called for greater scrutiny of senior management positions at prospective banks, urging the CBM to assume a role in approving these appointments.

Calls for Greater Transparency and Accountability

The controversy surrounding the CBM’s actions has sparked calls for greater transparency and accountability within the institution. As Montenegro’s economy continues to recover from years of turmoil, the need for effective regulation and oversight is more pressing than ever before.

Recommendations

• The decision to require the CBM to supervise the implementation of a law that seeks to retrospectively alter loan agreements freely entered into, with potential losses to one bank, could be seen as compromising its operational independence. It should not be used as a precedent for any further similar legislation.
• The CBM should seek to fill current vacancies as a matter of urgency and provide career paths for specialist staff.
• Staff protection legislation should be extended to cover omissions made by staff while discharging their duties in good faith and to the supervisor itself.

The Central Bank of Montenegro has been approached for comment, but at the time of writing, no response had been received.