Newsletter September 2018

In July, the Council of Ministers in Bulgaria adopted Ordinance No 37 on Internal
Exposures of Banks (hereinafter Ordinance No 37). This normative act regulates:

1. Requirements as regards internal rules for internal exposures of banks;
2. The calculation of internal exposures of banks;
3. The method for providing information for internal exposures of banks to the Bulgarian
National Bank (BNB).
Pursuant to Ordinance No. 37 in relation to Item 1, banks are required to adopt internal rules on
the formation, identification, monitoring and reporting of internal exposures. The purpose
is to ensure that the bank has access to information that would enable the following persons to be
identified:

1. administrators of the bank;
2. persons having directly or indirectly a qualifying holding in 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 for 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.

For the referred to groups of persons, the Bank shall prepare a register for the formation of
exposures to them, which shall be periodically updated. One of the main objectives of the internal
rules of the banks for internal exposures is to provide a mechanism by which the actual owner of
the aforementioned groups of persons can be identified. Banks are required within 10 days to send
the accepted internal rules to the BNB.

With regard to item 2 (The calculation of the internal exposures), the banks determine rnal
exposures on the basis of their gross carrying amount. Chapter Three of

Ordinance No 37 specifies the factors to be taken into account when calculating  internal
exposures. The exposures shall include any asset or off-balance-sheet item, including derivative
contracts, claims arising from services provided, asset acquisition and sale, and leases.
The manner in which information on internal exposures of banks to the BNB is provided (item 3) is
electronically, in compliance with the requirements of the Law on Electronic Document
and Electronic Certification Services. Banks prepare and submit to the BNB a quarterly
report on exposures. Banks provide the BNB with notifications for formation of an internal
exposure within 10 days of taking a decision to form an internal exposure or an
approved limit for such exposure.