Decree of NBS No 16/2010 on Disclosures by Investment Firms

Section 33/2010 Gazette of Národná banka Slovenska – NBS Decree No. 16/2010 354

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16 DECREE of Národná banka Slovenska of 21 September 2010 on disclosures by investment firms and branches of foreign investment firms In accordance with Article 74b(4) of Act No. 566/2001 Coll. on Securities and Investment Services and on amendments to certain laws (the Securities Act) as amended, Národná banka Slovenska stipulates as follows: Article 1 (1) The following information shall be disclosed regarding investment firms and branches of foreign investment firms, their activities, and any remedial measures or penalties that have been imposed on them: a) the organisational chart, the total number of registered employees and, separately, the number of registered managerial employees; b) the date of entry in the Commercial Register, the issuance date of the investment services licence, and the date on which performance of the licensed investment services activities actually commenced; c) a list of activities performed under the investment services licence; d) a list of licensed activities which are not being performed; e) a list of activities whose performance has been restricted, suspended or cancelled by a competent authority; f) a citation of the statement of a valid decision under which a remedial measure has been imposed1 during the relevant calendar quarter; g) a citation of the statement of a valid decision under which a penalty has been imposed2 during the relevant calendar quarter. (2) The following information shall be disclosed regarding the financial indicators of investment firms and branches of foreign investment firms: a) in the case of investment firms that prepare financial statements in accordance with a separate regulation:3

1 For example, Article 22(1)(a) and (b) of Act no. 530/1990 Coll. on Bonds as amended by Act No. 430/2002 Coll.; Article 144(1)(a) to (d) and (f) to (o) of Act No. 566/2001 Coll. on Securities and Investment Services and on amendments to certain laws (the Securities Act) as amended; Article 60(1)(a) to (d), (f) and (g) of Act No. 429/2002 Coll. on the Stock Market; Article 106(1)(a) to (d), (f) to (p) of Act no. 594/2003 Coll. on Collective Investment and on amendments to certain laws. 2 For example, Article 22(1)(c) and (2) of Act no. 530/1990 Coll. as amended by Act no. 430/2002 Coll.; Article 144(1)(a) to (e) of Act No. 566/2001 Coll.; Article 60(1)(e) of Act no. 429/2002 Coll.; Article 106(1)(e) and (5) of Act no. 594/2003 Coll.; Article 38 of Act no. 747/2004 Coll. on Financial Market Supervision and on amendments to certain laws.

1. data from the balance sheet published in accordance with the requirements of International Financial Reporting Standard No. 7;3

2. data from the profit and loss account published in accordance with the requirements of International Financial Reporting Standard No. 7;

3. other data published in accordance with the requirements of International Financial Reporting Standard No. 7; b) in the case of investment firms that do not prepare financial statements in accordance with a separate regulation:3

4. data from the balance sheet of assets and liabilities;4

5. data from the profit and loss account;4 c) in the case of branches of foreign investment firms:

6. the annual accounts of the foreign investment firm;

7. the consolidated accounts of the foreign investment firm;

8. the annual report of the foreign investment firm;

9. the consolidated annual report of the foreign investment firm;

10. the auditor's statement on the annual accounts of the foreign investment firm;

11. the auditor's statement on the consolidated accounts of the foreign investment firm. (3) Information shall be disclosed regarding the investment firm's ten largest shareholders owning not less than 5% of the investment firm's registered capital, the size of their shares in the capital of the investment firm and shares of voting rights in the investment firm, and these disclosures shall include for: a) a natural person:

12. first and last name,

13. date of birth,

14. share in the capital of the investment firm,

15. share of voting rights in the investment firm, b) a natural person-entrepreneur:

16. business name,

17. identification number,

18. place of business,

19. registration number in an official register or other official record,

20. main scope of business,

21. share in the capital of the investment firm,

22. share of voting rights in the investment firm, c) a legal person not mentioned under (d) to (f):

23. business name,

24. legal form and registered office,

25. identification number,

26. main scope of business, 3 Commission Regulation (EC) No 1725/2003 of 29 September 2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (OJ Special Edition, Chapter 13 Volume 35) as amended. 4 Decree No. 6/2009 of Národná banka Slovenska concerning the submission of statements, reports and other disclosures by banks, branches of foreign banks, investment firms and branches of foreign investment firms for supervision purposes, and amending Decree No. 26/2008 of Národná banka Slovenska on the submission of statements by banks, branches of foreign banks, investment firms and branches of foreign investment firms for statistical purposes (Notification no. 520/2009).

27. share in the capital of the investment firm,

28. share of voting rights in the investment firm, d) a municipality or higher territorial unit

29. name,

30. share in the capital of the investment firm,

31. share of voting rights in the investment firm, e) the National Property Fund of the Slovak Republic

32. share in the capital of the investment firm,

33. share of voting rights in the investment firm, f) state administration body

34. name and registered office,

35. share in the capital of the investment firm,

36. share of voting rights in the investment firm. (4) The following information shall be disclosed regarding shareholders of investment firms who are not mentioned in paragraph (3): a) the number of shareholders; b) the share in the capital of the investment firm; c) the share of voting rights in the investment firm. (5) The following information shall be disclosed regarding the structure of the consolidated group of which the investment firm is a member, in regard to the interrelations and composition of the group: a) the business name of the entity that is the parent undertaking of the investment firm, the registered office of this entity, its main scope of business, and the name of the country in which it predominantly operates, and for each member of the consolidated group, its business name, registered office, main scope of business, and the name of the country in which it predominantly operates; b) the organisational chart of the consolidated group; c) the investment firm's share in the capital of, and share of voting rights in, each member of the consolidated group which it controls. (6) For investment firms that are members of a consolidated group, the following information regarding the financial indicators of the consolidated group shall be disclosed: data from the consolidated balance sheet, data from the consolidated profit and loss account, and other data published in accordance with the requirements of International Financial Reporting Standard No. 7. (7) Information regarding the investment firm's risks and risk management objectives and policies, including processes for monitoring the effectiveness of the hedging and mitigation of risk, shall be disclosed for each separate category of risk, and these disclosures shall include: a) the strategy and processes to manage each risk; b) the organisation of the relevant risk management; c) the scope and nature of systems for identifying, measuring, monitoring and mitigating risks; d) the processes for ensuring the risk management strategy and for risk mitigation, and the monitoring of their effectiveness.

(8) The following information shall be disclosed regarding the scope of application of prudential rules on a consolidated basis: a) an outline of the differences in the basis of consolidation for accounting and prudential purposes, with a brief description of the entities that are:

1. fully consolidated;

2. proportionally consolidated;

3. deducted from own funds;

4. not consolidated;

5. not deducted from own funds; b) any current or foreseen practical or legal impediment to the prompt transfer of own funds or the repayment of liabilities among the parent company and its subsidiaries; c) the aggregate amount by which the actual own funds are less than the required minimum in all subsidiaries not included in the consolidation, and the name or names of such subsidiaries, d) if applicable, the circumstance of making use of the option not to apply prudential rules on a consolidated basis. (9) The following information shall be disclosed regarding the investment firm's own funds: a) the main features of all own fund items and components thereof, including the related terms and conditions; b) the amount of the original own funds, with separate disclosure of all positive items and deductions; c) the aggregate amount of additional own funds; d) the aggregate amount of supplementary own funds; e) the aggregate amount of all deductible items, and, separately, the amount of the deductible item arising from the shortfall in the coverage of expected losses; f) the aggregate amount of own funds net of deductions and limits laid down for additional own funds. (10) The following information shall be disclosed regarding the investment firm's compliance with minimum own funds requirements and internal capital requirements: a) summary information about the investment firm's approach to assessing the adequacy of its internal capital in regard to its current and future activities; b) the own funds requirements –

6. for credit risk in the banking book in accordance with the Standardised Approach to credit risk, if used by the investment firm, and applied to each of the exposure classes;

7. for credit risk in the banking book in accordance with the Internal Ratings-Based Approach, if used by the investment firm, and applied to each of the exposure classes. For retail exposures, this requirement applies to each of the exposure classes to which different correlations correspond. For equity exposures, this requirement applies to each of the methods for determining the value of risk-weighted equity exposures, broken down further into equity exposures traded on a stock exchange or organised market, private equity exposures in sufficiently diversified portfolios, and other equity exposures;

8. for credit risk in the trading book, disclosed separately and including the specific risk of debt instruments, the specific risk of equity instruments, the counterparty risk in repurchase transactions, securities or commodities lending or borrowing, derivative transactions, long settlement transactions and in margin transactions, the settlement risk, and the risk of exceeding limits on large exposures in the trading book,

9. for operational risk;

10. for market risk, disclosed separately and including the general risk of debt instruments, the general risk of equity instruments, foreign exchange risk, and commodity risk. (11) The following information shall be disclosed regarding credit risk and dilution risk: a) the definitions for accounting purposes of 'past due' and 'impaired'; b) a description of the methods adopted for determining value adjustments and provisions; c) the total amount of exposures after accounting offsets and without taking into account the effects of credit risk mitigation, and the average amount of exposures for the period broken down by exposure classes; d) the geographic distribution of all the exposures, broken down by material exposure classes; e) the distribution of all the exposures by industry or by counterparty type, broken down by material exposure classes; f) the residual maturity breakdown of all the exposures, broken down by material exposure classes, g) by significant industry or counterparty type:

11. the total amount of impaired exposures and past due exposures;

12. the amount of value adjustments and provisions made and reversed;

13. changes in value adjustments and provisions during the period; h) by geographic breakdown:

14. the total amount of impaired exposures and past due exposures;

15. the amount of value adjustments and provisions made and reversed; i) the reconciliation of changes in the value adjustments and provisions for impaired exposures; the information shall comprise:

16. a description of the value adjustments and of the provisions made and reversed;

17. the opening balances;

18. the total amount of value adjustments and provisions made during the period;

19. the total amount of value adjustments and provisions reversed during the period, the total depreciation of exposures during the period, the total amount of other value adjustments arising from exchange rate differences, business combinations, acquisitions and disposals of subsidiaries, and from transfers between provisions during the period;

20. the closing balances; Value adjustments and provisions recorded directly to the profit and loss account shall be disclosed separately; j) a functionality analysis of the methodology used to assign internal capital and credit limits; k) a functionality analysis of policies for securing collateral and policies for making and reversing provisions; l) a functionality analysis of policies with respect to wrong-way risk exposures; m) a functionality analysis of the impact of the amount of collateral the investment firm would provide given a downgrade in its credit rating; n) the gross positive fair value of contracts, netting benefits, netted current credit exposure, collateral held, and net derivatives credit exposure; net derivatives credit exposure is the credit exposure on derivatives transactions after considering the benefits from legally enforceable netting agreements and collateral arrangements; o) measures for exposure value under the methods laid down for the treatment of counterparty credit risk of derivative instruments, repurchase transactions, contracts on

securities or commodities lending, long settlement transactions and margin transactions, whichever method is applicable;

p) the notional value of credit derivative hedges and the distribution of current credit exposure by types of credit exposure; q) information on credit derivatives segregated between use for the investment firm's own credit portfolio, as well as in its intermediation activities, including the distribution of the credit derivatives used, broken down further by protection bought and sold within each group of credit derivatives; r) the estimate of "α", if the investment firm has received the approval of the competent authorities to estimate "α". (12) Investment firms calculating the risk-weighted exposure amounts in accordance with the Standardised Approach to credit risk shall disclose the following information for each of the exposure classes: a) the names of the External Credit Assessment Institutions (ECAIs) or Export Credit Agencies (ECAs) whose customer ratings are used by the investment firm, and the reasons for any changes; b) the exposures classes for which ratings of each ECAI or ECA are used; c) a description of the process used to transfer the issuer and issue credit assessments onto items not included in the trading book; d) the association of the rating of each ECAI or ECA with a credit quality step; e) the total amount of exposures broken down by credit quality step and the total amount of exposures deducted from own funds, both excluding collateral and, separately, after taking collateral into account. (13) Investment firms calculating risk-weighted exposure amounts in accordance with the Internal Ratings-Based Approach shall disclose specialised lending exposures broken down into exposures with a remaining maturity of up to 2.5 years and exposures with a remaining maturity of more than 2.5 years, and they shall disclose equity exposures broken down by risk weight, as follows: a) 190% for private equity exposures in sufficiently diversified portfolios; b) 290% for exchange-traded equity exposures; c) 370% for all other equity exposures.

(14) For information of a separate character regarding the Internal Ratings-Based Approach, the following information shall be disclosed: a) the competent supervisory authority's acceptance of this approach; b) an explanation and review of:

1. the structure of the internal rating system and its relation to ratings assigned by ECAIs and ECAs;
2. the use of internal estimates other than for calculating risk-weighted exposure amounts;
3. the process for managing and recognising credit risk mitigation techniques;
4. the control mechanisms for internal rating systems including a description of independence, accountability, and rating systems review,

c) a description of the internal ratings process – including the types of exposure included in the exposure class, the definitions, methods and data for estimation and validation of probability of default and, if applicable, LGD and conversion factors, including assumptions employed in the derivation of these variables, and the descriptions of material deviations from the definition of default, including the factors affected by such deviations – provided separately for the following exposure classes:

1. countries and central banks;
2. institutions;
3. corporate, including small or medium-sized legal persons, specialised exposures, and purchased corporate receivables;
4. retail receivables, broken down by the classes to which the different correlations correspond;
5. equities; d) the total amount of exposures for each of the exposure classes, namely, exposures to countries and central banks, institutions and corporates. Where investment firms use own estimates of LGDs and conversion factors for the calculation of the exposure amounts, they shall disclose these amounts separately from those for which they do not use such estimates; e) for each of the exposure classes, namely, countries and central banks, institutions, corporates and equity, and across a sufficient number of obligor grades (including default) to allow for a meaningful differentiation of credit risk:
6. the total amount of exposures (for exposures to countries and central banks, institutions and corporates, the sum of outstanding loans and exposure values for undrawn commitments; for equities, the outstanding amount);
7. the average LGD in percentage, where own estimates of the LGD amounts are used for the calculation of risk-weighted exposure amounts;
8. the exposure-weighted average risk weight;
9. for the investment firm using own estimates of conversion factors for the calculation of risk-weighted exposure amounts, the amount of undrawn commitments and exposure-weighted average exposure values for each exposure class; f) for the retail exposure class and for each of the exposure classes mentioned under (c), either the disclosures outlined under (e) or an analysis of exposures (outstanding loans and exposure values for undrawn commitments) against a sufficient number of expected loss grades to allow for a meaningful differentiation of credit risk; g) the amount of value adjustments and the amount of provisions for the immediately preceding accounting period for each exposure class mentioned under (c) and how they differ from the preceding accounting period; h) a description of the factors that affected the loss in the preceding periods, including whether the LGDs, default rates or conversion factors were higher than average; i) the investment firm's estimates against actual outcomes over a longer period. At a minimum, this shall include information on estimates of losses against actual losses in each exposure class mentioned under (c) over a period sufficient to allow for a reliable assessment of the performance of the internal rating process for each exposure class mentioned under (c). An investment firm which uses own estimates of LGD or conversion factors shall disclose the LGD and conversion factor outcomes against estimates provided in accordance with the aforementioned disclosures.

(15) The following information shall be disclosed regarding securitisation: a) the investment firm's objectives in relation to securitisation; b) the role of the investment firm in regard to securitisation; c) the extent of the investment firm's involvement in securitisation; d) the methods used to calculate risk-weighted exposure amounts in relation to securitisation; e) a summary of the accounting policies for securitisation, including:

1. whether the transactions are treated as sales or financings;
2. recognition of gains on sales;
3. the key assumptions for valuing retained interests;
4. the treatment of synthetic securitisations; f) the names of the ECAIs or ECAs whose customer ratings are used for securitisations and the types of exposure broken down by each ECAI or ECA; g) the total outstanding amount of exposures securitised by the investment firm, broken down into exposures under traditional securitisation and exposures from synthetic securitisation and by exposure type; h) the total amount of impaired and past due exposures securitised, broken down by exposure type and the losses recognised by the investment firm during the period; i) the total amount of securitised exposures retained or purchased, broken down by exposure type; j) the total amount of securitised exposures retained or purchased, broken down by risk weights; exposures that have been risk-weighted at 1,250% or deducted from own funds shall be disclosed separately; k) the total outstanding amount of securitised revolving exposures segregated by the originator's interest and the investor's interest; l) a summary of securitisations during the period, including the amount of securitised exposures broken down by exposure type, and the gain or loss on sale broken down by exposure type; m) the provision of non-contractual support and its effect on own funds. (16) Where own models are used for the calculation of market risk, the following information shall be disclosed: a) for each sub-portfolio covered:
5. characteristic of the market-risk models used;
6. a description of the stress testing applied;
7. a description of the approaches used for back-testing and validating the accuracy and consistency of the internal models for market risk and of the risk calculation procedures used by these models; b) details about how this approach is accepted by the competent supervisory authority; c) a description of the extent and methodologies for compliance with valuation requirements laid down to ensure the correct calculation of market risk using own models; d) the highest, the lowest and the mean of the daily value-at-risk measures over the reporting period and the value-at-risk measure as per the end of the period; e) a comparison of the daily end-of-day value-at-market risk measures to the one-day changes of the portfolio’s value by the end of the subsequent business day together with an analysis of any important overshootings during the reporting period;

(17) The following information shall be disclosed regarding operational risk: a) details about the approaches to the assessment of own funds requirements for operational risk; b) for investment firms using an Advanced Measurement Approach (AMA) to calculate the capital requirement for operational risk, a description of the AMA methodology, including an evaluation of the relevant internal and external factors. Where investment firms combine an Advanced Measurement Approach with one or more other approaches, they shall disclose the scope and coverage of the different methodologies. (18) The following information shall be disclosed regarding exposures in equities not included in the trading book: a) the objectives of the exposures held (for example, capital gains purposes or strategic reasons), and an overview of the accounting techniques and valuation methodologies used and significant changes thereto; b) the balance sheet value, the fair value and, for those exchange-traded, a comparison to the market price where it is materially different from the fair value; c) the types, nature and amounts of exchange-traded exposures, private equity exposures in sufficiently diversified portfolios, and other exposures; d) the total amount of realised gains or losses arising from sales or liquidations during the period; e) the total unrealised gains or losses, the total latent revaluation gains or losses, and any of these amounts included in the original or additional own funds. (19) The following information shall be disclosed regarding exposures to interest rate risk on positions not included in the trading book: a) the nature of the interest rate risk and the key assumptions for the measurement of this risk (including assumptions concerning loan prepayments and the behaviour of non-maturity deposits), and the frequency of measurement of this risk; b) the effect of any increase or reduction in interest rates on the investment firm's financial results, broken down by currency. (20) The following information shall be disclosed regarding credit risk mitigation techniques: a) the processes for on- and off-balance sheet netting, and the extent to which netting is used; b) the processes for collateral valuation and management; c) a description of the main types of collateral taken; d) the main types of guarantor and credit derivative counterparty and their creditworthiness, e) market or credit risk concentrations within the credit risk mitigation; f) where own estimates of LGDs or conversion factors are not provided – separately for each exposure class, the total exposure value broken down by eligible financial collateral and by other eligible collateral (after the application of volatility adjustments and after, where applicable, balance-sheet netting); g) separately for each exposure class, the total exposure value that is covered by guarantees or credit derivatives (after, where applicable, balance-sheet netting). For the equity exposure class, this requirement applies to the simple risk weight approach, to the PD/LGD approach, and to the internal models approach. (21) Investment firms using the Advanced Measurement Approach for the calculation of their capital requirements for operational risk shall disclose a description of the use of insurances and other risk transfer mechanisms for the purpose of mitigation of this risk.

(22) For parent investment firms in the European Union that have a registered office in the Slovak Republic, or investment firms controlled by a parent financial holding company in the European Union, or investment firms in which a parent financial holding company in the European Union has a participation, the information specified in paragraphs (1) to (21) shall be disclosed on a consolidated basis. (23) For investment firms referred to in paragraph (22) that have a significant subsidiary, the information specified in paragraphs (9) and (10), in regard to this subsidiary, shall be disclosed on an individual or consolidated basis; where there is change in the disclosure method, the reasons for such change shall also be disclosed. (24) The subsidiary of a parent investment firm in the European Union shall be deemed to be significant where: a) its profits amount to at least 10% of the profits of the consolidated group of which it is a member, or b) in comparison with other financial market participants in the Slovak Republic, the interest in a certain field of its business is greater than 10%. Article 2 (1) The information specified in Article 1 shall be disclosed by investment firms or the branches of foreign investment firms on their website, in the state language,5 in a format that allows the information to be copied. For investment firms or branches of foreign investment firm that do not have their own website, the information specified in Article 1 shall be published on the website of the Slovak Association of Securities Dealers, in the state language, in a format that allows the information to be copied. Disclosures under Article 1 shall be published on the website at least up to the time that the corresponding disclosures for the next calendar quarter or the next calendar half-year are published. (2) The information specified in Article 1 shall be disclosed as at the last day of the relevant calendar quarter, with the exception of the information specified in Article 1(2)(c), (7)(a), (11)(j) to (m), (15)(a) and (20)(a) and (b), which shall be disclosed at the last day of the relevant calendar half-year. (3) The information specified in Article 1 shall be disclosed not later than 30 days after the last day of the relevant first half of the calendar year and not later than 150 days after the last day of the relevant second half of the calendar year, with the exception of the information specified in Article 1(2)(c), (5), (6), (7)(a), (8), (11)(j) to (m), (15)(a) and 20(a) and (b).

5 Act of the National Council of the Slovak Republic No. 270/1995 Coll. on the State Language as amended.

(4) The information specified in Article 1(7)(a), (11)(j) to (m), (15)(a) and 20(a) and (b) shall be disclosed not later than 150 days after the last day of the relevant calendar year. (5) The information specified in Article 1(5), (6), (8) shall be disclosed for the consolidated group as at the last day of the relevant calendar half-year, not later than 70 days after the last day of the relevant first half of the calendar year and not later than 150 days after the last day of the relevant second half of the calendar year. The information specified in Article 1(2)(c) numbers 1, 3 and 5 shall be disclosed as at the last day of the relevant calendar year, not later than 120 days after the last day of that calendar year. The information specified in Article 1(2)(c) numbers 2, 4 and 6 shall be disclosed for the consolidated group as at the last day of the relevant calendar year, not later than 150 days after the last day of that calendar year.

Article 3 Where the investment firm is also a bank, or where the branch of a foreign investment firm is also the branch of a foreign bank, disclosures shall be made in accordance with a separate regulation.6

Article 4 This Decree transposes the legally binding acts of the European Union which are specified in the Annex hereto. Article 5

6 Decree No. 15/2010 of Národná banka Slovenska on disclosures by banks and branches of foreign banks (Notification No. 387/2010 Coll.).

This Decree repeals Decree No. 9/2007 of Národná banka Slovenska of 21 August 2007 on disclosures by investment firms and branches of foreign investment firms and on the amendment of Decree No. 1/2007 of Národná banka Slovenska on disclosures by banks and branches of foreign banks (Notification No. 421/2007 Coll.). Article 6 This Decree shall enter into force on 31 December 2010. Jozef Makúch m.p. Governor Issuing unit: Regulatory and Risk Management Methodology Tel.: +421 2 5787 3301 Department Fax: +421 2 5787 1118

Banking and Payment Services Regulation Section Drafted by: Ing. Martin Mačuga Tel.: +421 2 5787 2887 E-mail: martin.macuga@nbs.sk Ing. Stanislav Guniš Tel.: +421 2 5787 2885 E-mail: stanislav.gunis@nbs.sk

Annex to Decree No. 15/2010 Schedule of transposed legal acts of the European Union:

1. Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) (OJ L 177, 30.06.2006); Commission Directive 2009/83/EC of 27 July 2009 amending certain Annexes to Directive 2006/48/EC of the European Parliament and of the Council as regards technical provisions concerning risk management; Directive 2009/111/EC of the European Parliament and of the Council of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management.
2. Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast) (OJ L 177, 30.06.2006); Directive 2009/111/EC of the European Parliament and of the Council of 16 September 2009 amending Directives 2006/48/EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management.