Банкеръ Daily


Control over Commercial Banks Is Tightening

The Bulgarian banking legislation will undergo key changes due to the requirements of the European directives included in the so-called "Bank Package". It aims at a broader review of community financial legislation. The objective is to reduce risks in the financial sector, strengthen its sustainability, and improve the legal framework.

After the Law on Credit Institutions and Investment Intermediaries undergoes the necessary changes, the Bulgarian National Bank (BNB) will be able to impose additional capital requirements on commercial banks. Until now, the Central Bank had such a power, but in reality it was difficult to apply.


"The draft explicitly states that the additional capital requirement is imposed on the basis of the supervisory review and evaluation, within which the BNB assesses all risks associated with the bank, including the risks identified in stress tests. The Bank must meet the additional capital requirement with regulatory capital of the best quality – mainly Tier 1 capital, three-quarters of which should consist of Common Equity Tier 1 capital." This is written in the reasons for the bill. The idea is that the BNB can claim the additional capital charge, taking into account the specific circumstances adherent to the bank.


The draft also regulates the possibility for the Central Bank to issue recommendations to a commercial bank for raising additional own funds. It will have to maintain this excess above the minimum capital requirements and capital buffers which it should possess.

The recommendation for additional own funds will be issued as a result of an internal capital review carried out by the BNB, which each bank is obliged to maintain in order to cover all the risks it is exposed to and ensure that its own capital can absorb unexpected losses as a result of stressful scenarios. If the Bank fails to maintain an adequate level of capital in accordance with the recommendation issued by the regulator, the BNB will be able to impose an additional capital requirement on it. It is envisaged that a recommendation for additional own funds be issued when supervising on an individual or consolidated basis within a group.


The bill also imposes a number of new supervisory measures.

An additional possibility is provided for the BNB to impose supervisory measures in case of excessive increase in the interest rate risk of a bank and require banks to provide additional reporting. Such powers will also be exercised by the Financial Supervision Commission (FSC).


Another novelty is


the abolition of the possibility of placing a bank under special supervision


'since a collision with the requirement of this Directive is created against a bank that is problematic or likely to become problematic but does not meet the condition of public interest, necessary to undertake restructuring actions, insolvency or liquidation proceedings shall be opened in due course ", the reasoning for the bill says. The proposed repeal of the special supervision regime requires adjustments to the Banking Insolvency Act.


In this respect, it is proposed that

BNB could revoke a banking license


when it finds that the bank is problematic or likely to become so, or when there is no public interest in its restructuring.


One of the main innovations is the requirement to issue


approval for a financial holding


and for a mixed financial holding company as a parent company of a group within which there is a bank or an investment intermediary. They will have to obtain a "license" from the BNB or the FSC, respectively, thus they will be able to be directly supervised.


The two regulators will also receive new powers in connection with


counter money laundering


or terrorist financing. In case of suspicion of such activity, the BNB, respectively the FSC,  will be able to review "the suitability of the bank's management or the investment intermediary" and, if necessary, order its release.


An explicit possibility has been introduced for regulators to demand


immediate replacement of an auditor


to a bank or investment intermediary that does not comply with the legal requirements for immediate notification of violations of laws and regulations, as well as for circumstances that may harm the functioning of the bank and for incorrect data in the reports.


Mechanism for providing confidential information


to international bodies such as the International Monetary Fund and the Bank for International Settlements is also defined in order to ensure the performance of their functions by regulating the obligations of the BNB and the FSC and certain conditions to ensure the use of information only for specific tasks and by people directly involved, as well as the application of equivalent requirements by these authorities with a view to protect the information as a professional secret.


The provisions of the law related to the licensing regime of banks have also been improved.


The range of persons to whom internal bank loans can be granted has also been expanded - such loans are given to shareholders, members of management bodies, their relatives, and now - to people who manage and represent companies controlled by the bank. Another amendment to the Credit Institutions Act provides for the application of the principle of equal pay for men and women for work.

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