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Zagreb - Things will have to change and in the future no central bank employee should be allowed to hold or trade-in stocks or bonds of banks supervised by the central bank - this is one of the conclusions of a thematic session of the parliamentary Finance and Central Budget Committee held on Thursday.
The session, entitled "HNB employees' trading in securities of banks supervised by the central bank", was also attended by Croatian National Bank (HNB) Governor Boris Vujčić and his deputy Sandra Švaljek, Croatian Financial Services Supervisory Agency (HANFA) head Ante Žigman, and Dora Matošić, head of the Croatian depository agency SKDD.
Following media reports on insider trading by HNB employees in securities of banks supervised by the HNB, the session was requested by four members of the committee, Zvonimir Troskot of the Bridge party, Vesna Vučemilović of the Croatian Sovereignists, Boris Lalovac of the Social Democratic Party and Marijana Puljak of the Centre party.
On 10 January, the Index news portal said that in the past 20 years more than 40 HNB employees had traded in securities of banks supervised by the HNB, with more than 400 transactions worth more than HRK 10 million having been registered.
After that, on 12 January, the HANFA regulator launched an inspection to determine if HNB employees had violated the Market Abuse Regulation and the Capital Market Act, and if they had traded in bank securities based on insider information.
HANFA head Žigman said earlier today that the regulator was checking the accounts of 725 current and 463 former employees of the central bank as well as other available accounts, with 529 transfers involving 26,940 stocks of credit institutions having been determined for 58 of the 1,188 former and current employees.
Answering committee members' questions, Vujčić said that the HNB as well as any MP or party group in the parliament could have proposed legislative changes regarding the HNB since 1991.
He noted that the issue of business adjustment had de facto started to "grow" in 2015 and the guidelines by the European Central Bank (ECB).
On the other hand, the HNB leadership, which at the time included Vujčić, back in 2001, before the first ECB guidelines, itself proposed that members of its management be banned from trading in stocks.
Vujčić said that in 2001 restrictions were not introduced for the management regarding bonds because banks in the domestic market did not issue bonds at the time.
Vujčić said that he personally believed that no HNB employee should hold stocks of banks, concluding that something like that would be in force as of mid-2023.
"That will de facto not be a major change because at the moment we have only a few people who hold stocks, they are not members of the management and they can hold stocks," he said.
The governor said that currently possession of stocks was forbidden for 30 members of the management while others must not trade in stocks based on insider information, under the code of ethics.
"As of 1 March this year that will apply to all insiders, to anyone who in the HNB could have, even at lower levels, potentially sensitive information," Vujčić said.
The HNB said earlier that as of 1 March 2022, under a new decision on special restrictions for insiders and other HNB employees, some of the HNB employees will not be allowed to trade in corporate bonds of banks established in the EU or having an affiliate in the EU.
Vujčić also said that he did not request an inspection by HANFA because he did not have any indications for such a move, adding that the HNB could not check each individual for possible violation of capital market rules.
Grčić: Opportunity to change things
Social Democrat MP Branko Grčić said that under current rules, the whole affair concerned several people, the governor, his deputy and directors of some HNB sectors.
"So possession of bank shares or capital market transactions involving such shares are not restricted for all other employees," he asked, noting that this was an opportunity to change things and prevent a similar situation from happening again in the future.
He recommended that future decisions should refer to as many HNB employees as possible, or possibly all.
"My suggestion is that all employees be exempt from possession and trade in shares and bonds," he said.
MP Vesna Vučemilović asked if there was an awareness of moral responsibility, adding that she had the impression that the HNB was more concerned about information on the case having been leaked to the public than about possible insider trading.
"That was a very unpleasant surprise for me, people at the HNB do not seem to understand the gravity of the situation," she said.
Matošić: There was no unauthorised data leak
Zvonimir Troskot (Bridge) said he was glad unauthorised data "has leaked" and thanked journalists for conducting a review of the financial system, "because until now there evidently hasn't been any such control in HANFA and the HNB."
He asked the president of the management board of SKDD, Dora Matošić, if she knew how the data was leaked and if that was being investigated. She said an internal investigation of all employees was immediately launched but that no wrongdoing was established.
"I resolutely dismiss that there was some unauthorised data leak," she said, adding that if they had known that, they would have reported it. She said it was established that there had been no espionage or hacker attack.
Puljak: HNB is downplaying scandal
Marijana Puljak (Centre) said the topic should not be how the data became available, notably given the fact that parliament earlier this week debated a whistleblower protection bill.
She said it was scandalous that some HNB executives and employees had been in possession of or traded in securities of HNB-supervised banks, and that those involved were "downplaying it."
Puljak underlined the ethical aspect of the whole situation, saying that the HNB had failed to align itself with European institutions and that this would now be done at the last minute so Croatia could join the euro area.
Marko Pavić (HDZ) said the whole matter should be cleared up in the context of Croatia's euro area entry and the defence of the reputation and integrity of institutions, and that one should also work on enhancing regulations.
Independent MP Karolina Vidović Krišto said that what had been found so far was just "the tip of the iceberg."
She said this committee should establish the facts and that Vujčić "should prove whether he is contentious and should be arrested."
Švaljek: Market couldn't know about bond buying
External committee member Vuk Vuković raised the issue of investing in banks' corporate bonds, claiming that one could not say that it had been alright to do something that would not be allowed as of this March.
This referred to HNB deputy governor Sandra Švaljek, who invested in Erste Bank's corporate bonds in 2012 as an external member of the HNB Council.
Vuković said that although nothing illegal had been done, the HNB should admit to being responsible for a big oversight and stop "defending the indefensible" and blaming the media for undermining its credibility.
Speaking to the press after the session, Švaljek said the market was "dead" when she bought the corporate bonds and did not react to the purchase in any way. One cannot know whether a bond has been bought because it's not public knowledge and the market did not have it, she added.
Committee Grozdana Perić said in a conclusion that the committee would continue to follow the proceedings.