The acquis related to this chapter includes:

1. Article 43 (Right of Establishment) and Article 49 (Freedom to Provide Services) of the Treaty Establishing the European Community:
2. Financial services;
3. Directive on the protection of personal data and the free movement of such data;
4. Directives on the freedom of establishment and the freedom to provide services for craftsmen, traders and farmers;
5. Directive on self employed commercial agents;
6. Information society directives.

In the field of financial services, the acquis lays down the minimum requirements for the different types of institutions, in order to create a uniform minimum standard based on the following principles: basic harmonisation of the licensing conditions and of prudential rules, home country control and single license, mutual recognition of national supervisory standards.

Negotiations under Chapter 3 - Freedom to provide services were opened on 20 December 2002 at the Intergovernmental Conference on Romania's Accession to the EU. NBR contributed to the drafting of the Position Paper in 2001 which was subsequently updated by the Complementary Position Papers I (2003) and II (2004) as well as by the Supplementary Information Papers I (2002), II (2004) and III (2004). Negotiations have been closed provisionally on 23 September 2004.

I. One of the major stages in implementing the banking sector related acquis was the amendment of Law No. 58/1998 - the Banking Act, which proceeded as follows:

I.A. Issuing, Law No. 485/2003 amending and supplementing the Banking Act No. 58/1998 at end 2003. The proposed amendments ensure the harmonization of the national legislation with the provisions of Directive 2000/12/EC, Directive 2000/28/EC and Directive 2000/46/EC. Also, the provisions related to the winding up of credit institutions imposed by the central bank or liquidation at the shareholders' initiative laid down by Directive 2001/24/EC have been transposed.

By the entry into force of Law no. 485/2003, ten existing barriers related to the banking sector have been removed (these barriers were identified by the Working Group established for this purpose) in the following order: (i) six barriers on the date Law no. 485/2003 entered into force, (ii) four barriers from the date of accession, in the case of EEA Member States. Also, the first step has been made in removing the barrier related to banning banks to involve directly in activities stipulated by the legislation on securities and stack exchanges. This barrier has been removed upon the entry into force of Law no. 297/28.06.2004 on the capital market in July 2004. The remaining barriers are to be removed until the date of Romania's accession to the EU, namely 1 January 2007.

I.B. At the end of 2004, by issuing Law no. 443/2004 amending and supplementing the Banking Act No. 58/1998, the following have been achieved:

• clarification of the status of credit institutions in the EU in relation to those outside the EU;
• removal, upon Romania's accession to the EU, of the requirements on the command of the Romanian language and on education for foreign managers of credit institutions' branches and subsidiaries;
• introduction of clear provisions on the minimum level of initial capital;
• forgoing the assessment of the licensing application submitted by a credit institution in terms of the conditions ruling in the market;
• transposing as accurately as possible the structure of Directive 2000/12/EC into the Banking Act No. 58/1998.

II. Other major progress in transposing and implementing the acquis communautaire can be summarized as follows:

II.A. The legislative framework for licensing the credit co-operative organizations has been further developed by issuing Law no. 122/2004 amending Government Emergency Ordinance no. 97/2000 on credit co-operative organizations (Official Gazette no. 387/3.05.2004), which:

• Eliminates the barriers related to the citizenship of the credit co-operative organizations' managers and directors, and to the nationality of the financial auditors. It is worth mentioning that these barriers have been removed in advance as compared to the initial deadline (December 2006). The barrier referring to the access of individuals/legal entities to the services provided by these credit institutions, conditioned by the location of their domicile/headquarter within the co-operative's operation area, will be removed in December 2006, according to the initial deadline.
• Allows the credit co-operative organizations that had their license applications rejected by the NBR, to apply for a new license. These provisions shall be in the benefit of credit co-operative networks Aurora Romana, Creditul Romanesc and Concordia Romana. The law stipulates the consolidation of the three networks non-licensed by the National Bank of Romania according to the authorization procedure stipulated by the Government Emergency Ordinance no. 97/2000, in a single network able to fulfill all the prudential requirements imposed to credit institutions.
• Stipulates that the entities that shall not apply for a license within the legal deadline shall be subject to the winding up procedure starting with June 2005. The same procedure shall apply to those entities to which the National Bank of Romania did not grant the license, after the license procedure and all the legal challenges had been exhausted.
• Allows the credit co-operative organizations belonging to the network resulted from the merger to apply to the NBR for licensing in June 2005, in accordance with Law no. 122/2004.

The legal framework needed for the licensing of credit co-operation organizations provided for by Law no. 122/2004 was established by issuing NBR Rules no. 7/2004 on the licensing of credit co-operation organizations and credit co-operative organizations stipulated at the article II, paragraph 1 of Law no. 122/19.04.2004 (Official Gazette no. 797/30.08.2004), in order to continue the harmonization with the provisions of Directive 2000/12/EC. These rules: (i) regulate the conditions under which the National Bank of Romania grants the license to credit co-operative organizations that had submitted their license applications based on the provisions of art. 146 of the Government Emergency Ordinance no. 97/2000, as further amended and supplemented, and were rejected in 2003, (ii) ensure a unitary regime of the licensing conditions applied to the credit co-operative organizations, and (iii) set up a range of requirements to ensure the prerequisites necessary to the functioning of the credit co-operative network in compliance with the legal provisions and with the rules of a sound and prudent banking practice.

In addition, the NBR adopted Rules no. 8/2004 amending and supplementing Rules no. 13/2002 on the minimum capital of credit co-operative organizations and the minimum aggregate capital of credit co-operative networks (Official Gazette no. 747/17.08.2004), which aims at gradually increasing, by 30 June 2006, the minimum capital and the minimum own funds to the ROL equivalent of EUR 5 million for a central house of a credit co-operative network and to the ROL equivalent of EUR 10 million for a credit co-operative network.

In order to clarify the legal regime of credit unions, the Emergency Ordinance no. 74/2003, amending and supplementing Law no. 122/1996 concerning the legal regime of employees' credit unions (Official Gazette no. 629/3.09.2003), approved by Law no. 186/2004 (Official Gazette no. 466/25.05.2004), establishes that these entities are not included in the credit institutions category since they cannot accept either deposits or reimbursable funds besides the contributions from their members.

II.B.In order to further harmonize the legal framework of the banking activity with the EU provisions in the field, the following acts have been issued:

• Ordinance no. 9/2004 on certain financial collateral arrangements (Official Gazette no. 78/30.01.2004), approved by Law no. 222/2004 (Official Gazette no. 508/07.06.2004), which transposes the provisions of Directive 2002/47/EC concerning financial collateral arrangements. This ordinance regulates the legal regime of the financial collateral arrangements concluded between the holder and the issuer of the financial collateral in order to guarantee the financial obligations (these obligations refer to the payment of an amount of money and/or the transfer of ownership on some financial instruments and their execution is guaranteed by a financial collateral arrangement).
• Ordinance no. 10/2004 on the procedure of judicial reorganization and winding up of credit institutions (Official Gazette no. 84/30.01.2004), which transposes the provisions of Directive 2001/24/EC concerning the reorganization and winding up of credit institutions. The Law no. 278/2004 approving Ordinance no. 10/2004 was published in the Official Gazette no. 579/30.06.2004. By the entering into force of this ordinance, the Law no. 83/1998 on the bankruptcy proceedings applicable to credit institutions, as further amended and supplemented, was repealed. The new regulation fully transposes the provisions of Directive 2001/24/EC and acknowledges the procedures of judicial reorganization and winding up adopted by other Member States on the credit institutions licensed by them and having branches in Romania.

II.C.According to the commitments assumed through the Position Paper on Chapter 3 -Freedom to provide services, the NBR issued a range of regulations affecting the banking system stability and transposing the related acquis communautaire:

• Rules no. 11/2003 on the supervision of own funds on an individual and consolidated basis (Official Gazette no. 17/09.01.2004), which regulate the minimum level of the initial capital and own funds of banks, collective saving and lending banks for housing and electronic money institutions, at individual and consolidated level, as well as the calculation and, as the case may be, reporting methodology. The consolidated own funds must be established beginning 1 January 2005;
• Rules no. 12/2003 on the supervision of solvency and large exposures of credit institutions (Official Gazette no. 51/21.01.2004), which add new provisions to those of the old regulations that transposed only the calculation methodology of the solvency ratio and the large exposures at individual level (including the case of exposures to transactions in derivatives). The new rules include provisions concerning the supervision, on a consolidated basis, of solvency and large exposures of all credit institutions operating in Romania, along with provisions on the recognition of bilateral netting agreements of mutual claims and debts stemming from transactions in exchange rate- and interest rate-based instruments as well as similar transactions in gold;
• Rules no. 9/2004 amending and supplementing NBR Rules no. 12/2003 (Official Gazette no. 786/26.08.2004). The provisions concerning the supervision of solvency and large exposures on an individual basis shall enter into force on 1 October 2004 and those regarding the supervision of these indicators on a consolidated basis shall become effective on 1 January 2005. Rules no. 9/2004 include provisions on the exposures to the persons having special relationships with the credit institutions (full transposition of Principle 10 of Basel Core Principles), as well as to its employees and their families;
• Rules no. 14/2003 on the investments that may be performed by the electronic money institutions (Official Gazette no. 921/22.12.2003), which stipulate that the investments of these entities shall amount at least to the balance value of the financial liabilities related to the issued electronic money and shall consist in certain classes of assets, which are described in detail, bearing low credit risk and sufficiently liquid;
• Rules no. 17/2003 on the organization and internal control of credit institutions and management of significant risks, as well as organization and performance of internal audit of credit institutions (Official Gazette no. 47/20.01.2004), which include minimum requirements concerning the regulated activities and apply to all credit institutions, Romanian legal entities. These institutions shall duly implement the provisions of Rules no. 17/2003 both at the level of the entities included in their consolidation scope, so that the conditions for the performance of consolidated supervision be met, and at the level of the ancillary banking services undertakings, in accordance with their specificity;
• Rules no. 5/2004 on the capital adequacy of credit institutions (Official Gazette no. 768/23.08.2004), which fully transpose the banking field related provisions of Directive 93/6/EEC on the capital adequacy of investment firms and credit institutions, as amended by Directive 98/31/EC and Directive 98/33/EC. Thus, the Romanian legal framework progressed significantly towards the compliance with the related international standards, as setting the capital requirements in relation to the market risk becomes more and more important due to the increasing exposures of credit institutions on transaction portfolios. These rules shall enter into force on 1 January 2005 and repeal NBR Rules no. 10/2002 on derivatives, as subsequently amended and supplemented. Their implementation gives the credit institutions the possibility to perform the entire range of transactions in derivatives.

II.D. The central bank has further developed the regulatory framework applicable to credit institutions, other than banks, with a view to imposing on these entities the same standards, demands and financial requirements as those particular to the banks. Along with NBR Rules no. 12/2003 and NBR Rules no. 17/2003, NBR Rules no. 13/2003 amending and supplementing NBR Rules no. 3/2002 on the customer identification standards stipulate a similar treatment for all the credit institutions operating in Romania. At the same time, the provisions of NBR Rules no. 11/2003 concerning the supervision of own funds on an individual and consolidated basis introduce, at an individual basis, the same regime applied to banks, Romanian legal persons, collective saving and lending banks for housing and electronic money institutions. As for the supervision on a consolidated basis, the scope of these rules includes also the central houses of credit cooperatives.

II.E. In 2003, the National Bank of Romania initiated a project aimed at updating the activity of the Credit Information Bureau (CIB) that resulted in NBR Regulation no. 4/2004 on the organization and functioning of the Credit Information Bureau within the National Bank of Romania (Official Gazette no. 739/16.08.2004), which became effective on 1 September 2004. The drawing up of this regulation had in view the compliance with the amendments brought to the banking legislation, the need for a greater flexibility in transmitting and processing the banking risk information, as well as the development of the CIB database, by stipulating new banking risk information related to:

• groups of debtors indicated by credit institutions;
• card frauds produced by card owners;
• delays longer than 30 days in loan repayment by individuals, to which the credit institutions have an exposure lower than ROL 200 million;
• loans granted to non-resident non-bank legal entities, which, at present, are not recorded in the CIB database.

In addition, the new regulation integrates the information in the Payment Incident Bureau database with that provided by the Credit Information Bureau. Thus, the information on a debtor contained in the CIB database is supplemented with information on the payment incidents produced by that debtor, namely the number of incidents by payment instrument, out of which major incidents and the entire period of being under a ban are shown distinctly.

II.F. With a view to monitoring the loans granted to individuals, the credit institutions have set up the Credit Bureau, which started its activity on 16 August 2004.

The required conditions for participating to this system are: to conclude a contract with the Credit Bureau, to get connected and to forward successfully the initial data to the system. The Credit Bureau deals with three categories of information, namely information on: (i) debtors with past-due debts over 30 days; (ii) persons who committed a fraud or an infringement in relation to the bank, and (iii) false statements.

II.G. Another constant concern of the National Bank of Romania consists in aligning the regulatory framework in the field of credit institutions' accounting to the similar provisions in the EU legislation, as well as to the International Financial Reporting Standards.

Since the 2003 financial year, all credit institutions have had to draw up financial statements in compliance with the Harmonized Accounting Regulations (i.e. the accounting regulations harmonized with Directive 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and with the International Accounting Standards applicable to credit institutions, approved by Order no. 1982/5/2001 of the Minister of Finance and the Governor of the National Bank of Romania, as subsequently amended and supplemented), several pieces of legislation being adopted for their appropriate enforcement:

• Order no. 263/2/2004 of the Minister of Finance and the Governor of the National Bank of Romania amending and supplementing certain accounting regulations applicable to credit institutions (Official Gazette no. 163/25.02.2004). This order comprises provisions on: (i) the drawing up of the annual financial statements as well as (ii) the obligation to comply with the International Financial Reporting Standards in elaborating these statements starting with 2005. In case the general legislation will be amended in order to postpone the implementation of the IFRS, the NBR will accordingly comply with the new deadlines.
• Order no. 948/4/2004 of the Minister of Finance and the Governor of the National Bank of Romania amending and supplementing the Harmonized Accounting Regulations (Official Gazette no. 620/8.07.2004), with a view to transposing into the national legislation the amendments brought by Directive 2001/65/EC to Directive 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions.

II.H. In the field of financial services, the latest EU legal developments consist in publication on 30 June 2006 of Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions and Directive 2006/49/EC on the capital adequacy of investments firms and credit institutions.

These directives transpose at EU level, with certain differences pertaining to the specific of the Internal Market, the provisions relating to the new capital requirements agreed by the Basel Committee on Banking Supervision which are internationally known as the New Capital Accord - Basel II. Technically, this objective has been achieved in the EU by recasting Directive 2000/12/EC relating to the taking up and pursuit of the business of credit institutions (presently Directive 2006/48/EC) and Directive 93/6/EC on the capital adequacy of investments firms and credit institutions (presently Directive 2006/49/EC).

In order to implement the Basel II - capital requirements, NBR benefited from Phare and TAIEX funded technical assistance. The transposition of the EU text into the Romanian legislation, proved to be an extremely complex process, developed through an ample project (Basel II Project) both by sectoral supervision authorities in the financial sector - the National Bank of Romania, the National Securities Commission a the Ministry of Finance and the banking community.

The draft emergency ordinance on the credit institutions and the capital adequacy aims at ensuring, in principle, the transposition of the new EU directives both for the credit institutions and the companies providing financial investment services and also to bring together the provisions related to credit institutions (Law no. 58 - Banking Act, Emergency Government Ordinance no. 97/2000 on the credit co-operative organizations, Law no. 541/2002 on collective saving and lending for housing and Law no. 33/2006 on mortgage banks) in a single legal act.

The technical aspects included in the EU directives will be regulated through secondary legislation jointly issued by the NBR and the NSC.

The deadline for transposing the EU directives into the national legislation of each Member State is 1 January 2007. Romania's accession to the EU on the same date entails the obligation to bring the national legal and regulatory framework applicable to credit institutions and investment firms in line with to the new requirements on that date.

Both the primary legislation (the draft law) and the secondary legislation (regulations and norms which will be issued in application of the draft law) should be adopted and published in Official Gazette in due time, so that by the end of 2006 at the latest the pre-notification to the European Commission of the whole legal framework should be completed.

II.J. Transposition of the acquis related to the financial conglomerates.

One of the commitments assumed under the accession negotiation with the EU under Chapter 3 - Freedom to provide services is to transpose and implement into the national legislation Directive 2002/87/EC on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate and amending Council Directives 73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and 93/22/EEC, and Directives 98/78/EC and 2000/12/EC of the European Parliament and of the Council. In order to implement Directive 2002/87/EC, NBR benefited from Phare and TAIEX funded technical assistance.

The main objective for adopting Directive 2002/87/EC was to regulate the supplementary supervision of regulated entities belonging to groups carrying out inter-sectoral financial activities (financial conglomerates), with a view to ensure financial stability and protection for the deponents, insurants and investors. The supplementary supervision is performed by a co-ordinating authority designated from among the sectoral supervision competent authorities based on the criteria established by the directive.

So far, in Romania, the national legal and regulatory framework has been harmonized with the EU provisions and brought in line with the best practices at international level in the field of individual and consolidated supervision of credit institutions, investment firms and insurance undertakings.

The transposition and implementation of Directive 2002/87/EC will also create the legal basis for exercising supervision of credit institutions, investment firms and insurance undertakings when considering their being part of an inter-sectoral financial group - a financial conglomerate.

The transposition of the EU text into the Romanian legislation, proved to be an extremely complex process, developed under the coordination of the Ministry of Finance both by sectoral supervision authorities in the financial sector (the National Bank of Romania, the National Securities Commission and the Insurance Supervision Commission) and by the Ministry of Justice and the Ministry of European Integration, has been achieved by an Inter-institutional Working Group which elaborated the draft law and the draft norms that will be issued together by the three prudential supervision authorities.