Regulation No. 74 of 09.08.2022 on Requirements for the Activities of Market Operators

REGULATION No. 74 of 09.08.2022 on Requirements for the Activities of Market Operators Pub. - State Gazette, No. 67 of 19.08.2022; amended, No. 36 of 21.04.2023 Adopted by Decision No. 244-N of 9.08.2022 of the Commission for Financial Supervision

Chapter One
GENERAL PROVISIONS

Art. 1. This Regulation governs the requirements for the activities of market operators, including the assessments of the suitability of their management and supervisory bodies, individually and collectively.

Chapter Two
ADDITIONAL REQUIREMENTS AND ASSESSMENT OF SUITABILITY

Art. 2. (1) The market operator adopts and applies a policy regarding the functions and responsibilities of the management body, respectively the supervisory body, specifying for each position the complete job description and the time expected to be devoted by the future member of the management body, respectively the supervisory body. (2) The time expected to be devoted by each member for the performance of their functions and responsibilities in the management body, respectively the supervisory body, of a market operator, must be consistent with whether it refers to a position with executive functions or a position without executive functions.

Art. 3. (1) The market operator notifies in writing the person proposed as a member of its management or supervisory body of the time expected to be devoted to the performance of their functions.
(2) Before assuming office, the respective member of the management body, respectively the supervisory body, submits to the market operator a declaration that they have the ability to devote time to the performance of their functions and responsibilities as a member in accordance with para. 1, including to devote additional time when the market operator goes through a period of particularly high activity.

Art. 4. (1) When a person is elected as a member of the management body, respectively the supervisory body, of a market operator, that person submits to the market operator information and documents proving compliance with the requirement of Art. 14, para. 1 of the Financial Instruments Market Act (ZPFI), and when the market operator is significant - also with the provisions of Art. 14, paras. 2 - 5 of ZPFI, including data on:

1. directorships held in other financial and non-financial companies, including on behalf of a legal entity or as a substitute designated by a member of the management body to participate in meetings;
2. directorships held in organizations that do not primarily pursue commercial objectives;
3. other functions and professional activities within and outside the financial sector, relevant from the perspective of the time expected to be devoted to them;
4. the nature of their responsibilities under items 1 - 3.
   (2) Members of the management body, respectively the supervisory body, of a market operator notify the market operator of any significant change in the information provided under para. 1.
   (3) The documents under Art. 28 are updated when a member notifies the market operator of a change in the information under para. 1 or when such change becomes known to the market operator. Based on the information in the first sentence, the market operator re-evaluates the ability of the respective member to devote sufficient time to the performance of the corresponding functions.

Art. 5. The candidate selection committee, when established, respectively the supervisory body of the market operator, takes into account the total time that members of the management body or the supervisory body have stated they devote to the performance of their functions, using the time spent attending meetings as one of the possible criteria.

Art. 6. When a directorship includes both executive and non-executive functions simultaneously, it shall be considered a directorship with executive functions.

Art. 7. When several directorships are considered as one directorship within the meaning of Art. 14, para. 3, item 1 and item 2, letter 'b' of the Financial Instruments Market Act, this directorship is considered as one directorship with executive functions if it includes at least one directorship with executive functions. Otherwise, it is considered as one directorship with non-executive functions.

Art. 8. All directorships held in enterprises in which the market operator holds a qualified shareholding are considered as one directorship. This directorship should be added to the directorship held in the market operator.

Art. 9. All directorships held in subsidiary enterprises within the same group, and the directorship held in the market operator, are considered as one directorship.

Art. 10. When subsidiary enterprises within the same group hold a qualified shareholding in other enterprises, the directorships held in these enterprises should be considered as one separate directorship. In this case, the directorships held in the subsidiary enterprises and the directorship held in the market operator should be considered as one directorship, and the directorships held in the enterprises where there is a qualified participation in the first sentence - as another separate directorship.

Art. 11. (1) Directorships held in organizations that do not primarily pursue commercial objectives are not taken into account when calculating the number of directorships. They are taken into account when assessing the time that the respective member of the management body or the supervisory body needs to devote. (2) Organizations that do not primarily pursue commercial objectives include:

1. charitable organizations;
2. other non-profit organizations;
3. enterprises created solely for the purpose of managing the private economic interests of the respective member, provided that they do not require daily management.

Art. 12. (1) The market operator ensures that the management body, respectively its supervisory body, collectively possesses the competence necessary for the performance of its role and its duties, and sufficient understanding of the activities of the market operator and the risks arising from them, according to the scale of the management body, respectively the supervisory body. (2) When assessing the collective suitability of the management body, respectively the supervisory body, the market operator takes into account at least the following areas:

1. any significant activity of the market operator;
2. financial reporting;
3. strategic planning;
4. risk management;
5. the function of regulatory compliance and internal audit;
6. information technology and information security;
7. local, regional and global markets, when applicable;
8. the legal and regulatory environment;
9. the management of international and national groups and risks related to the structure of individual groups, when applicable.

Art. 13. (1) Any person elected as a member of the management body, respectively the supervisory body, of a market operator should understand the activities of the market operator and the associated risks, the rules for the management of the market operator, the potential position and responsibilities, and when applicable - the structure of the group, to a degree commensurate with their responsibilities. (2) Members of the management and supervisory bodies of the market operator must have sufficient knowledge in areas for which they are not directly responsible, but are collectively responsible with other members of the respective body.

Art. 14. (1) The market operator takes into account both the theoretical knowledge and skills acquired through education and training, as well as the practical experience accumulated by the potential member of the management body, respectively the supervisory body, of the market operator, in previous positions. Regarding education, the level of education and whether it relates to financial services or activities or any other related field of knowledge under Art. 12, para. 2 are taken into account. (2) Regarding practical experience, practical and professional experience acquired in a managerial position over a sufficiently long period are taken into account. In the assessment, short-term or temporary positions may be taken into account, but taking into account whether they are sufficient to accumulate adequate expert knowledge.

Art. 15. (1) When assessing the honesty and integrity of a potential member of the management or supervisory body of the market operator, the market operator requires and verifies the accuracy of the documents provided for in Art. 4 of Delegated Regulation (EU) 2017/571 of the Commission of 2 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards regulatory technical standards on the licensing of trade reporting service providers, their organizational requirements and the publication of information on transactions (OJ, L 87/126 of 31 March 2017) (Delegated Regulation (EU) 2017/571), and in particular should take into account whether there are circumstances under Art. 4, paragraph 1, letter 'd' of the same regulation. (2) Members of the management body, respectively the supervisory body, of the market operator immediately notify the market operator of any change in the circumstances under Art. 4, paragraph 1, letter 'd' of Delegated Regulation (EU) 2017/571 for the subsequent assessment of their suitability. (3) In the assessment under para. 1, information from the relevant criminal records registers and information on committed violations and applied coercive administrative measures are taken into account, taking into account the type of sentence or accusation, respectively the imposed penalty or applied measure, the level of appeal, the reached stage of the judicial process and the effect of rehabilitation. Accompanying circumstances are also taken into account, including mitigating circumstances, the severity of the respective violation or supervisory action, the period of time and the behavior of the member after the commission of the violation or the supervisory action taken, and the significance of the violation or supervisory action for the respective position.

Art. 16. (1) Members or potential members of the management body, respectively the supervisory body, of the market operator identify and report to the management body, respectively the supervisory body, of the market operator all circumstances that could lead to conflicts of interest, hindering their ability to perform their duties independently and objectively and exposing them to undue influence due to any of the following circumstances:

1. personal, professional or economic relationships with other persons, including shareholders of the market operator or a competing market operator;
2. previous or current positions;
3. personal, professional or economic relationships with other members of the management or supervisory body, or senior management or other enterprises within the group;
4. other economic interests;
5. other interests, including family interests, which could create a real conflict of interest.
   (2) The identification of the circumstances under para. 1, which could lead to conflicts of interest, includes at least whether the member or potential member:
6. is currently or has previously been a shareholder whose participation reaches or exceeds 5% of the voting rights in a market operator, or an employee of a shareholder whose participation reaches or exceeds 5% of the voting rights in a market operator, or a person who is otherwise directly connected with such a shareholder;
7. currently holds or has held in the last 18 months a position with executive functions in a market operator or another enterprise within the group of a market operator;
8. is currently or has been in the last 18 months in a managerial position in a key consultant of a market operator or another enterprise in the group of a market operator, or an employee substantially connected with the service provided;
9. is currently or has been in the last 18 months a shareholder whose participation reaches or exceeds 5% of the voting rights, or a member of the management or supervisory body of a company traded on this market;
10. is currently or has previously been a significant supplier or client of a market operator or another enterprise within the group of a market operator, an employee of a significant supplier or client or a person who is otherwise directly or indirectly connected with such a supplier or client;
11. currently has or has had other significant contractual relationships with a market operator or another enterprise within the group of a market operator, but has not been a member of its management or supervisory body.
    (3) For the purposes of para. 2, "market operator" is the market operator whose member or potential member of the management or supervisory body is the respective person, as well as competing market operators.

Art. 17. (1) The existence of a circumstance that could lead to the emergence of a conflict of interest does not mean that a given member or potential member cannot be part of the management or supervisory body of a market operator.
(2) Before appointment, the market operator assesses all circumstances that could lead to a conflict of interest, and actual conflicts of interest, by applying a policy on conflicts of interest and taking, when applicable, measures to limit conflicts of interest.
(3) Upon the emergence after appointment of actual conflicts of interest or new circumstances that would lead to a conflict of interest, the member of the management body, respectively the supervisory body, of the market operator must disclose them, and the management body of the market operator must approve measures related to them to limit conflicts of interest.

Art. 18. (1) The management body of the market operator adopts a policy on conflicts of interest and a procedure for the implementation of the policy.
(2) The policy includes at least:

1. the obligation of every member of the management or supervisory body of the market operator to avoid to the greatest extent possible activities that could create a conflict of interest;
2. examples of the emergence of conflicts of interest for persons who are members of the management or supervisory body of the market operator;
3. a review and approval procedure that is applied before engaging a member of the management or supervisory body in certain activities, including participation in another management or supervisory body, to ensure that such activity will not create a conflict of interest;
4. the obligation of every member to promptly disclose any circumstance that could lead to or has already led to a conflict of interest, paying special attention to the circumstances under Art. 16, para. 1;
5. the obligation of every member to abstain from voting on issues on which this member may have a conflict of interest or on which the objectivity of this member or their ability to properly perform their duties to the market operator is otherwise compromised;
6. procedures for transactions with related parties so that they are carried out under fair market conditions;
7. actions taken by the management or supervisory body of the market operator in cases of non-compliance with the policy.

Art. 19. (1) The market operator publicly discloses its policy on conflicts of interest.
(2) The market operator notifies the Commission for Financial Supervision of the identified significant conflicts of interest and the approved measures to limit them within 3 days from their identification, respectively from the decision to approve the measures.

Art. 20. (1) Every member of the management or supervisory body of the market operator should be suitable and maintain their suitability for the position held, including through training.
(2) The market operator adopts a policy for the induction and training of members of its management and supervisory bodies.
(3) The market operator supports members of its management and supervisory bodies in maintaining their awareness of the activities of the market operator, its structure, business model, risk profile, regulatory environment and governance rules and the role of members in them. (4) The market operator provides appropriate general and, when applicable - individual, training programs to ensure that all members of its management and supervisory bodies are well informed. (5) The policy under para. 2 should promote awareness regarding diversity in the management and supervisory bodies of the market operator. (6) The policy under para. 2 is adopted by the supervisory body of the market operator. In the process of its adoption, the candidate selection committee is also involved, if such has been established.

Art. 21. The policy for the induction and training of members of the management and supervisory bodies of the market operator describes:

1. the objectives of the induction and training of the management and supervisory bodies of the market operator separately for the managerial and supervisory functions and, where appropriate, specific positions according to their specific responsibilities and their involvement in committees;
2. the responsibilities for the development of a detailed training program;
3. the available financial and human resources to ensure that induction and training can be carried out in accordance with the policy;
4. a clear procedure by which any member of the management or supervisory body of the market operator can request induction or training.

Art. 22. The policy for the induction and training of the management and supervisory bodies of the market operator and the training programs are updated at least once a year and must take into account changes in management, strategy, covered products and other related processes, as well as changes in applicable legislation and market trends.

Art. 23. The market operator applies assessment procedures to review the effectiveness of the training conducted for members of its management and supervisory bodies.

Art. 24. (1) The market operator should, in accordance with the nature, scope and complexity of its activities, develop a policy for the selection and promotion of diversity to ensure that a wide range of qualities and skills are taken into account when selecting members of its management and supervisory bodies. (2) The policy for the selection and promotion of diversity should define specific objectives regarding diversity. (3) The market operator should prepare a strategy to enhance the representation of the underrepresented gender.

Art. 25. The policy for the selection and promotion of diversity should indicate at least education and professional experience, gender, age and geographical origin with the aim of achieving a diversity of opinions and experience. The policy for the promotion of diversity should indicate the geographical origin, in case the market operator operates within more than one jurisdiction.

Art. 26. The policy for the selection and promotion of diversity may provide for the representation of employees and workers in the management or supervisory body of the market operator in order to take into account a different perspective and real knowledge and experience in the activities carried out by the market operator.

Art. 27. (1) The policy for the selection and promotion of diversity of the market operator should ensure that candidates elected as members of its management or supervisory body cover at least one of the areas of diversity described in Art. 25, which is currently not represented in the respective body. (2) The market operator should not select members of its management or supervisory body with the sole purpose of increasing diversity to the detriment of the functioning and suitability of the respective body as a whole or at the expense of the suitability of individual members of the respective body.

Art. 28. The market operator documents and stores on a durable medium for a period of at least five years and provides upon request of the Vice-Chairman of the Commission for Financial Supervision, heading "Supervision of Investment Activities", at least the following:

1. the written policy describing the functions and responsibilities of the management and supervisory bodies;
2. the declarations under Art. 3, para. 2;
3. the information provided by the member or potential member of the management or supervisory body regarding other directorships, functions or professional activities that could affect their ability to devote sufficient time to the performance of their functions and responsibilities as a member of the respective body;
4. the information provided by the member or potential member of the management or supervisory body regarding their knowledge, skills and experience;
5. the collective assessment of the knowledge, skills and experience of the management body, respectively the supervisory body, as a whole;
6. the documents provided or received in connection with the assessment of the honesty and integrity of the member or potential member of the management or supervisory body;
7. the documents provided or received in connection with the assessment of the independence of the member or potential member of the management or supervisory body;
8. the written policy on conflicts of interest and the corresponding procedure for the implementation of the policy;
9. the publicly disclosed and/or provided to the Commission for Financial Supervision information regarding the policy on conflicts of interest and regarding significant conflicts of interest;
10. the policy for the induction and training of members of the management body;
11. the policy for personnel selection and promotion of diversity;
12. documentation from the selection procedures in connection with the requirements of this Regulation.

Chapter Three
(NEW - State Gazette, No. 36 of 2023)
CLOUD SERVICES OUTSOURCING TO EXTERNAL PROVIDERS

Art. 29. (New - State Gazette, No. 36 of 2023) When outsourcing cloud services to external providers, market operators comply with the Guidelines on outsourcing to external computer service providers "in the cloud" (ESMA50-164-4285 BG), issued by the European Securities and Markets Authority, for which the Commission has taken a decision on their application in accordance with Art. 13, para. 1, item 26 of the Law on the Commission for Financial Supervision.

ADDITIONAL PROVISION

§ 1. (Amended - State Gazette, No. 36 of 2023) (1) (Previous text of paragraph 1 - State Gazette, No. 36 of 2023) This Regulation introduces the requirements of the Guidelines on the management body of market operators and trade reporting service providers (ESMA70-154-271), issued by the European Securities and Markets Authority. (2) (New - State Gazette, No. 36 of 2023) This Regulation ensures the application of the Guidelines on outsourcing to external computer service providers "in the cloud" (ESMA50-164-4285 BG), issued by the European Securities and Markets Authority.

TRANSITIONAL AND FINAL PROVISIONS

§ 2. (1) Market operators carry out an assessment of the suitability of members of the management bodies and supervisory bodies, for whom no suitability assessment has been carried out and who were appointed before the entry into force of the Regulation, within a period of six months from its entry into force. (2) The results of the suitability assessments carried out under para. 1 are submitted to the Commission within 7 working days from their completion.

§ 3. Market operators prepare the internal rules, policies and procedures under the Regulation within a period of six months from its entry into force.

§ 4. The requirements of this Regulation do not apply to proceedings initiated before its entry into force.

§ 5. In Regulation No. 11 of 2003 of the CFS (pub., State Gazette, No. 109 of 2003; amended, No. 84 of 2005; amended, No. 104 of 2005; amended, No. 101 of 2006, No. 83 of 2007; corrected, No. 87 of 2007;