Ordinance No. 56 of 04.01.2018 on the Minimum Content of Investment Policies of Additional Pension Funds

ORDINANCE No. 56 of 04.01.2018 on the Minimum Content of Investment Policies of Additional Pension Funds Pub. - State Gazette, No. 6 of 16.01.2018, effective from 16.01.2018 for the investment policies of funds for additional voluntary pension insurance under professional schemes, and effective from 19.11.2018 for the investment policies of universal pension funds, professional pension funds, and funds for additional voluntary pension insurance; amended, No. 41 of 21.05.2019; amended, No. 70 of 20.08.2024. Adopted by Decision No. 22-N of 4.01.2018 of the Financial Supervision Commission (FSC)

Art. 1. This Ordinance regulates the minimum content of the investment policies of funds for additional mandatory pension insurance and funds for additional voluntary pension insurance.

Art. 2. (Amend. - SG, No. 70 of 2024.) The investment policy of the funds under Art. 1 must include sections on:

1. the general framework of the fund's investment activity and policy;
2. (amend. - SG, No. 70 of 2024.) the investment objectives of the fund and the sub-funds under Art. 214a of the Social Security Code;
3. the policy for achieving the set objectives;
4. investment risks and risk management;
5. the conditions, frequency, and deadlines for reviewing the investment policy.

Art. 3. (Amend. - SG, No. 41 of 2019; amend. No. 70 of 2024.) The section of the investment policy under Art. 2, item 1 includes:

1. levels of responsibility and the process for making investment decisions, regulating:
   a) the procedure and manner of making, approving, and documenting investment decisions, including the persons responsible for preparing proposals and analyses; b) control over implementation, the persons exercising it, and their functions and responsibilities;
2. (amend. - SG, No. 70 of 2024.) rules for determining and monitoring the need for current liquidity of the fund and the sub-funds under Art. 214a of the Social Security Code;
3. the measures provided by the insurance company to prevent conflicts of interest when investing the fund's assets, the persons applying them, and their obligations in this regard;
4. rules for executing investment transactions, including limiting excessive portfolio turnover;
5. the policy that the insurance company will follow when exercising the rights of the fund as the owner of financial instruments;
6. indicators for evaluating investment results (return and risk), including methods and frequency for their calculation;
7. (new - SG, No. 41 of 2019; amend. No. 70 of 2024.) whether and how, when investing the assets of a fund for additional voluntary pension insurance under professional schemes, the insurance company takes into account environmental, social, and governance factors, and respectively in what way it accounts for these factors when investing the assets of a voluntary pension fund for PEPP;
8. (previous item 7 - SG, No. 41 of 2019.) frequency of disclosure and manner of presenting the results of investment activity.

Art. 4. The section of the investment policy under Art. 2, item 2 includes:

1. objectives regarding return - depending on expectations and forecasts for the return of markets of individual asset classes in the medium-term (up to 3 years) and long-term (over 5 years) plans;
2. objectives regarding risk depending on:
   a) limitations related to the investment horizon; b) liquidity needs; c) other limitations that should be described;
3. criteria for achieving the objectives of the investment policy (predetermined absolute or relative criteria, market index, benchmark, or other quantitative criteria with which the results of investment activity are compared).

Art. 5. (Amend. - SG, No. 70 of 2024.) The section of the investment policy under Art. 2, item 3 includes:

1. justification of the investment policy, including the factors and circumstances that determine it;
2. (amend. - SG, No. 70 of 2024.) target strategic asset allocation of the fund, including in the sub-funds under Art. 214a of the Social Security Code, and limits of permissible deviations;
3. (amend. - SG, No. 70 of 2024.) types of investments of the fund and the sub-funds under Art. 214a of the Social Security Code:
   a) a list of permissible investment instruments within the framework defined by law, and quantitative limitations for individual classes and types of assets; b) quantitative distribution of investments by specific geographic regions and markets; c) sectoral diversification;
4. specific requirements for the characteristics of individual asset classes;
5. portfolio diversification across different asset classes;
6. investment limitations that are observed when investing the fund's assets;
7. specific investment strategies or styles;
8. policy regarding investments in collective investment schemes and alternative investment funds;
9. policy regarding investments in investment real estate;
10. policy regarding the conclusion of repo and reverse repo transactions;
11. (amend. - SG, No. 70 of 2024.) maximum amount of liquid cash assets of the fund and in the sub-funds under Art. 214a of the Social Security Code, determined as a percentage of its assets, respectively of the assets in each sub-fund.

Art. 6. (Amend. - SG, No. 41 of 2019; amend. No. 70 of 2024.) The section of the investment policy under Art. 2, item 4 includes:

1. identification of investment risks;
2. methods for measuring portfolio risk and the risks of individual assets within it;
3. risk profile of the portfolio and risk tolerance;
4. rules and procedures for monitoring, evaluating, and controlling investment risk, including a description of techniques and strategies for risk management;
5. (amend. - SG, No. 70 of 2024.) use of hedging transactions - objectives of use, types of transactions, risks to be hedged, size of risk exposure, as well as the degree of hedging of investment risks related to the investments of the fund and sub-funds under Art. 214a of the Social Security Code;
6. (amend. - SG, No. 41 of 2019.) actions provided for to avoid mechanical reliance on credit ratings and the persons who carry them out.

Art. 7. The section of the investment policy under Art. 2, item 5 includes:

1. frequency and methods for evaluating the effectiveness of the investment policy;
2. procedures and criteria for reviewing the investment policy;
3. procedures for introducing changes to the investment policy.

Final Provisions
§ 1. This Ordinance enters into force on the day of its publication in the "State Gazette" for the investment policies of funds for additional voluntary pension insurance under professional schemes, and for the investment policies of universal pension funds, professional pension funds, and funds for additional voluntary pension insurance, it enters into force from 19.11.2018.

§ 2. (Amend. - SG, No. 70 of 2024.) This Ordinance is issued on the basis of Art. 175a, para. 1, Art. 249, para. 1 and para. 4, item 1, and Art. 251v of the Social Security Code and is adopted by Decision No. 22-N of 4.01.2018 of the Financial Supervision Commission.

Chairman: Karina Karaiwanova

Transitional and Final Provisions to the Ordinance on Amendment and Completion of Ordinance No. 61 of 2018 on the Requirements for Advertising and Written Information Materials and Internet Pages of Insurance Companies (SG, No. 41 of 21.05.2019)

§ 16. In Ordinance No. 56 of 2018 on the Minimum Content of Investment Policies of Additional Pension Funds (SG, No. 6 of 2018), the following amendments and additions are made:

1. The following amendments and additions are made to Art. 3:
   a) a new item 7 is created:
   "7. whether and how, when investing the assets of a fund for additional voluntary pension insurance under professional schemes, the insurance company takes into account environmental, social, and governance factors;" b) the current item 7 becomes item 8.
2. In Art. 6, item 6, the word "awarded" is replaced with "carried out".

Transitional and Final Provisions to the Ordinance on Amendment and Completion of Ordinance No. 63 of 8.11.2018 on the Requirements for the Content, Frequency of Preparation, and Deadlines for Submission of Reports for Supervisory Purposes of Insurance Companies and Funds Managed by Them (SG, No. 70 of 20.08.2024)

§ 21. In Ordinance No. 56 of 4.01.2018 on the Minimum Content of Investment Policies of Additional Pension Funds (pub., SG, No. 6 of 2018; amend. No. 41 of 2019), the following amendments and additions are made:

1. At the end of Art. 2, item 2, "and the sub-funds under Art. 214a of the Social Security Code" is added.
2. In Art. 3:
   a) at the end of item 2, "and the sub-funds under Art. 214a of the Social Security Code" is added; b) at the end of item 7, a comma is placed and "respectively in what way it accounts for these factors when investing the assets of a voluntary pension fund for PEPP" is added.
3. In Art. 5:
   a) after the word "fund" in item 2, a comma is placed, "including in the sub-funds under Art. 214a of the Social Security Code" is added, and a comma is placed; b) in item 3, in the text before letter "a" after the word "investments", "of the fund and sub-funds under Art. 214a of the Social Security Code" is added; c) item 11 is amended as follows:
   "11. maximum amount of liquid cash assets of the fund and in the sub-funds under Art. 214a of the Social Security Code, determined as a percentage of its assets, respectively of the assets in each sub-fund."
4. At the end of Art. 6, item 5, "and sub-funds under Art. 214a of the Social Security Code;" is added.
5. In § 2 of the Final Provisions, after the words "Art. 249, para. 1", "and para. 4, item 1" is added.