Capital market supervision

A credible and stable capital market is one of the basic preconditions for a functioning economy. Such credibility and stability cannot be guaranteed by market mechanisms alone, so the activities of capital market participants are governed by a number of restrictive and injunctive regulations, which chiefly take the form of legal rules (capital market regulation). Overseeing adherence to these rules and ensuring accountability for any contravention of them is known as capital market supervision. By performing capital market supervision in accordance with the act on supervision in the capital market area, the CNB strengthens the confidence of investors and investment instrument issuers in the capital market above all by contributing to the protection of investors and the development of the capital market and promoting public awareness in this area. This broadly defined objective means in particular supporting the sound development and transparency of the capital market, market discipline and competitiveness of capital market service providers, preventing systemic crises, supporting issuing activity, protecting investors and clients and strengthening public confidence in the capital market.

It is not the aim of capital market supervision to prevent the failure of individual capital market service providers or issuers, to substitute for courts and arbitrators in deciding on private law relationships between service providers and their clients, or to substitute for law enforcement authorities. The bodies of a capital market service provider or issuer are responsible for ensuring that its internal control mechanisms and risk management system are functioning. In the collective investment sector, collective investment fund depositories are vested with significant control powers, although depositories’ activities are also subject to supervision by the CNB. The supervisory authority’s job is to carry out subsequent checks focusing on compliance with the regulations. The supervisor cannot itself prevent loss-making transactions or breaches of the transparency rules or rules of conduct towards clients. If the supervisory authority uncovers any shortcomings, however, it is obliged to apply its remedial instruments, which can include revoking the licence or imposing conservatorship. These public law measures are intended to protect the financial market as a whole and to reduce the possibility of similar unlawful conduct happening in the future.

Under the Act on the Czech National Bank, capital market supervision includes decisions on licence, permit and registration applications and prior approvals pursuant to special legal rules; inspection of adherence to the conditions stipulated in licences and authorisations; inspection of adherence to laws, insofar as the CNB has the power to conduct such inspections under the law or special legal rules; inspection of adherence to the decrees and provisions issued by the CNB; collection of information needed to perform supervision and its enforcement, and verification of whether it is true, complete and up-to-date; the imposition of remedial measures and penalties; and proceedings regarding administrative offences.

Capital market regulation involves laying down the framework for the business activities of capital market service providers. The activities of capital market participants are governed mainly by Act No. 256/2004 Coll., on Capital Market Undertakings, as amended, and Act No. 240/2013 Coll., on Management Companies and Investment Funds, as amended. Under these acts, the CNB is authorised to issue decrees specifying more detailed conditions for entry to the capital market, prudential rules, rules of conduct towards investors and clients, and market transparency rules (Legislation).