1. 1 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 17 – Economic and Monetary Policy Bilateral screening: Chapter 17 PRESENTATION OF MONTENEGRO Brussels, 2 5 February 2013

2. Economic and Monetary Policy 2 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy PROHIBITION OF PRIVILEGED ACCESS TO CAPITAL Zorica Kalezić Central Bank of Montenegro zorica.kalezic@cbcg.me Ivana Šaranović Jovićević Insurance Supervision Agency of Montenegro i vana.saranovic@ano.co.me Aleksandar Djuričković Securities and Exchange Commission of Montenegro adjurickovic@scmn.me

3. Economic and Monetary Policy OUTLINE OF THE PRESENTATION LEGAL FRAMEWORK: – DECISION ON BANK RESERVE REQUIREMENT TO BE HELD WITH THE CENTRAL BANK OF MONTENEGRO; – INSURANCE LAW OF MONTENEGRO; – LAW ON VOLUNTARY PENSION FUNDS; THE LEVEL OF COMPLIENCE; RATIONALE FOR THE CURRENT FRAMEWORK; DYNIMICS OF CONVEREGENCE. 3 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy

4. 4 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy LEGAL FRAMEWORK IN FORCE IN THE CENTRAL BANK OF MONTENEGRO DECISION ON BANK RESERVE REQUIREMENT TO BE HELD WITH THE CENTRAL BANK OF MONTENEGRO (OGM 35/11, 22/12, 61/12)-(HENCEFORTH DECISION) Subject Matter Article 1 This Decision prescribes the obligation of banks to calculate, allocate and maintain their reserve requirements with the Central Bank of Montenegro, the reserve requirement base, the reserve requirement rate, the method and deadlines for the calculation, allocation and maintenance of bank reserve requirements, and the conditions for the use of bank reserve requirements.

5. Economic and Monetary Policy 5 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy RELEVANT SOURCES OF LAW OF THE EUROPEAN UNION REGARDING PROHIBITION OF THE ACCESS TO CAPITAL TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION (TFEU), Article 124 (ex Article 102 TEC) - “Any measure, not based on prudential considerations, establishing privileged access by Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States to financial institutions, shall be prohibited.”

6. Economic and Monetary Policy 6 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy PARTIAL COMPLIENCE OF THE DECISION ON BANK RESERVE REQUIREMENT TO BE HELD WITH THE CENTRAL BANK OF MONTENEGRO (OGM 35/11, 22/12, 61/12) WITH ARTICLE 124 (ex Article 102 TEC) Article 8 A bank may allocate and hold up to 25% of its reserve requirement in Treasury bills issued by Montenegro. Article 17a By way of derogation from the provisions of Articles 8 and 12 herein, by 31 December 2013: the bank may allocate up to 35% of reserve requirement and hold it in the form of T-Bills issued by Montenegro.

7. Economic and Monetary Policy The Number of Auctions and the Value of T-bills of Montenegro Source: CBM, 2013 Buyers of Government T-bills are mainly banks: in 2011. and in 2012. year, all banks were buying Treasury bills of Montenegro. In this way, part of the required reserves allocated to Government records, which enabled them since 2002. In addition to banks, in 2010, 2011. and 2012. year Treasury bills were bought by Deposit Protection Fund. 7 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy

8. Dynamics and Scope of LRR held in T-bills of Montenegro Source : CBM, 2013 8 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy

9. PROPOSED DYNAMICS FOR CONVERGENCE Full harmonization with the relevant EU acquis governing this area by the end of 2016. 9 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy

10. 10 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy INSURANCE LAW RULEBOOK ON RESTRICTIONS RELATED TO DEPOSITING AND INVESTING TECHNICAL RESERVE FUNDS AND GUARANTEE RESERVE FUNDS OF INSURANCE COMPANIES

11. Economic and Monetary Policy 11 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy LEGAL FRAMEWORK- INSURANCE INSURANCE LAW; RULEBOOK ON RESTRICTIONS RELATED TO DEPOSITING AND INVESTING TECHNICAL RESERVE FUNDS AND GUARANTEE RESERVE FUNDS OF INSURANCE COMPANIES. Directives: 2002/83/EC, 88/357/EEC and 92/49/EEC, Article 124 (ex Article 102 TEC) INSTITUTIONAL FRAMEWORK Supervision of Insurance market including policy for depositing and investing of funds is under the competence of Insurance Supervision Agency of Montenegro Implementation of Directive is under jurisdiction of the Ministry of Finance

12. Economic and Monetary Policy 12 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy Funds from technical reserves, mathematical reserves and capital are invested ​​in accordance with legal framework aimed to meeting future liabilities and covering any losses due to the risks arising from the insurance business carried on by the insurance undertaking, In selecting the type of investment of the assets covering future liabilities, insurance undertaking shall take account of safety, yield, marketability and diversification of the investment portfolio. DEPOSITING AND INVESTING FUNDS PRINCIPLES

13. Economic and Monetary Policy 13 M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy INSURANCE LAW Depositing and Investing of Technical Provisions Article 90 Technical provisions shall be deposited and invested in: securities issued by Montenegro, central banks and governments of foreign countries that have at least “A” rating or its equivalent awarded by widely-accepted, internationally recognized rating agencies; bonds or other debt securities traded on the organized security market in Montenegro; bonds, or other debt securities not traded on the organized securities market, if the issuer is a legal person with the registered office in Montenegro; shares traded on the organized security market in Montenegro; with banks having their head offices in Montenegro. Notwithstanding paragraph 1 of this Article, the Ministry of Finance may also prescribe other types of depositing and investing of technical provisions funds, which are, with respect to safety, yield and marketability, adequate for depositing and investing. Limitations of Individual Deposits and Investments Article 91 The Ministry of Finance shall establish limitations of technical provisions for deposits and investments in accordance with Article 90 of this Law by way of its regulation. Partial Complience with Directives: 2002/83/EC 88/357/EEC and 92/49/EEC and Article 124(ex Article 102 TEC)

14. 14 Privileged access of public sector to financial institutions M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy Legal limitations on investments Partial compliance with directives: 2002/83/EC, 88/357/EEC and 92/49/EEC, Full alignment with the acquis regarding the Directives, relating to the Article 90 of Insurance Law, will be achieved by new Insurance Law that will allow depositing and investing of technical provisions and mathematical reserves funds on the territory of EU without differentiation, Dynamics of alignment: Accession of Montenegro to the European Union.

15. 15 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy LAW ON VOLUNTARY PENSION FUNDS

16. 16 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy LAW ON VOLUNTARY PENSION FUNDS Third pillar of pension insurance has been introduced in 2006 th, through the adoption of the Law on Voluntary Pension Funds; There are two voluntary pension fund operating in Montenegro: Number of members - 2,159 Total assets - 340,742 € Assets are invested ​​in accordance with legal limitations and investment policies.

17. 17 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy LEGAL FRAMEWORK LAW ON VOLUNTARY PENSION FUNDS; LAW ON SECURITIES. Directive 2003/41/EC, Article 124 (ex Article 102 TEC) INSTITUTIONAL FRAMEWORK Supervision of Pension Funds is performed by the Securities and Exchange Commission Implementation of Directive is under jurisdiction of the Ministry of Finance

18. 18 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy Article 38 The assets of a pension fund may, in accordance with this Law be invested in the following types of assets: short-term notes and other short-term securities issued by the Republic of Montenegro and local governments, as well as short-term bank deposits, in the manner specified by the regulations of the Securities Commission, long-term bonds and other long-term securities issued by: 1) the Republic of Montenegro and local governments; 2) joint stock companies registered in the Securities Commission which are traded at the stock exchanges in the Republic of Montenegro; 3) other countries, which are traded in the organized capital markets of the OECD countries and EU member states; 4) foreign non state entities, which are traded in the organized capital markets of the OECD countries and EU member states; stocks issued by: 1) joint stock companies registered in the Securities Commission which are traded at the stock exchanges in the Republic of Montenegro; 2) foreign joint-stock companies and close – ended investment funds, which are traded in the organized capital markets of the OECD countries and EU member states; units of domestic and foreign open-end investment funds, taking account of the fact that such funds invest in the securities of the issuers registered in the Republic of Montenegro or some of the OECD countries or EU member states; any other form of investment specified by the regulations of the Securities Commission, other than the investments referred to in Article 39 of this Law. real estate property at the territory of the Republic of Montenegro The pension fund may acquire no more than10% of the particular securities issue. Not more than 10 % of a pension fund’s assets may be invested in the securities of a single issuer. In exception with limitations stipulated in paragraph 2 and 3 of this article, a pension fund’s assets may be invested in a assets stipulated in paragraph 1 item 1) and item 2) line 1) without any limitations. Partial compliance with Article 124(ex Article 102 TEC) Directive 2003/41/EC Chapter 17:

19. 19 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy Article 39 The assets of a pension fund shall not be invested in: stocks, bonds and other securities which are either not traded on stock exchanges or organized markets, except the units of open-end investment funds; the assets which can not be alienated under the law; physical assets which are not traded on organized markets and the value of which is uncertain (including, for example, antiques, works of art and motor vehicles), stocks, bonds and other securities issued by: any stockholder of a pension company; the custodian of a pension fund; any person who is a related person in relation with the entities listed in Items 1 and 2 of this Paragraph; management company; brokers or dealers houses, or licensed bank performing on behalf of the Managing Company mediation activities in trading with securities such other assets as specified by the Securities Commission. Partial compliance with Article 124 (ex Article 102 TEC) Directive 2003/41/EC Chapter 17:

20. 20 Economic and Monetary Policy M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 17: Economic and Monetary Policy Legal limitations on investments-Dynamics  Current status: Partial compliance with directive 2003/41/EC, and Article 124 (ex Article 102 TEC);  Full compliance shall be achieved with adoption of the new Law on Voluntary Pension Funds;  Dynamics of convergence: until the accession of Montenegro to the EU.

21. 21 Thank you for your attention! QUESTIONS