Newsletter_January_2018

The Bulgarian State Gazette as of December 2017 Issue No.5 published amendments to the Law on Credit Institutions (LCI). One of these amendments stipulates that the application for granting a banking license shall contain information about the actual owner of the persons having qualified holding in the applicant bank. This provides greater guarantees of transparency in banking activity, which is a basic principle envisaged in The LCI and the Regulation № 573/2013 of the European parliament and the Council on prudential requirements for credit institutions and investment firms.
The second significant change is related to the fact that prior to the amendments to the LCI, the bank could only form exposures with the unanimous decision of its collective managing body. Further to the change of LCI except the unanimous decision of the collective body of the bank, the formation of exposures should also take place upon prior approval of the supervisory board, respectively the non-executive members of the board of directors. Under these circumstances, the bank may form exposures to:
1. administrators of the bank;
2. persons having directly or indirectly a qualifying holding in the Bank’s capital or shares entitling them to more than 10 per cent of all votes in the shareholders’ general meeting;
3. a shareholder whose representative is a member of a managing or supervisory body of the bank;
4. spouses, brothers, sisters and relatives of direct lineage up to third degree including, of the persons under items 1, 2, and 3 as well as persons who are in factual cohabitation with them;
5. persons controlled by the bank or by a person under items 1–4, directly or indirectly, including jointly with other persons;
6. legal entities, in whose management or supervisory bodies persons under items 1–4 are involved;
7. commercial undertakings and other undertakings within the meaning of Article 2 of the Law on Accountancy, in which the bank or a person under items 1–4 has directly or indirectly a qualifying holding;
8. third persons acting on the account of the persons under items 1–7;
9. the persons exercising control, directly or indirectly, over the bank or shareholders with a qualifying holding in the bank.
Exposures themselves shall include: any asset or off-balance-sheet item, including derivative contracts, claims arising from services provided, asset acquisition and sale, and leases. The method of calculating the exposure values shall be laid down in the ordinance adopted by the Bulgarian National Bank (BNB).
On the other hand, a third major change of the LCI is related to the reports on the exposures. Banks are required to draw up a quarterly report on formed exposures submitted to the BNB. Furthermore, banks shall adopt and apply internal rules and procedures for identifying, monitoring and reporting the exposures to the above mentioned persons