Regulations on the Organization and Activities of the Investor Compensation Fund

REGULATIONS on the organization and activities of the Investor Compensation Fund (Title amended - State Gazette, No. 3 of 2008) Published - State Gazette, No. 69 of 23.08.2005; amended and supplemented, No. 97 of 02.12.2005; amended and supplemented, No. 2 of 09.01.2007; amended and supplemented, No. 3 of 11.01.2008; amended and supplemented, No. 40 of 13.05.2014; amended and supplemented, No. 35 of 02.05.2017; amended and supplemented, No. 17 of 23.02.2018; amended and supplemented, No. 84 of 21.10.2022, in force from 21.10.2022. Adopted by Decision No. 40-P of 10.08.2005 of the FSC Issued by the Chairman of the FSC

Section I General Provisions

Art. 1. (Amended - State Gazette, No. 3 of 2008.) These regulations govern the organization and activities of the Investor Compensation Fund, hereinafter referred to as the "Fund".

Art. 2. (Amended and supplemented - State Gazette, No. 3 of 2008; amended, No. 40 of 2014; amended and supplemented, No. 35 of 2017; amended, No. 84 of 2022, in force from 21.10.2022.) (1) The Fund is a legal entity with independent funding and its seat is in Sofia. (2) (Amended - State Gazette, No. 3 of 2008; amended, No. 40 of 2014; amended, No. 84 of 2022, in force from 21.10.2022.) The Fund collects contributions from investment intermediaries under Art. 10, para. 1 and 2 of the Law on Markets in Financial Instruments (LMFI), from banks - investment intermediaries under Art. 8, para. 1 LMFI, from management companies under Art. 89 of the Law on Collective Investment Schemes and Other Undertakings for Collective Investment (LCISDUCI), and from persons managing alternative investment funds under Art. 228, para. 1 LCISDUCI, for the purpose of paying compensation to the clients of an investment intermediary under Art. 10, para. 1 and 2 LMFI, hereinafter referred to as "investment intermediary", to a bank - investment intermediary, to a management company under Art. 89 LCISDUCI, hereinafter referred to as "management company", and to a person managing an alternative investment fund under Art. 228, para. 1 LCISDUCI, hereinafter referred to as "person managing alternative investment funds", if it is unable to fulfill its obligations to them due to reasons directly related to its financial situation. (3) (Amended - State Gazette, No. 3 of 2008; amended, No. 40 of 2014; amended, No. 84 of 2022, in force from 21.10.2022.) The Fund pays compensation to the clients of an investment intermediary, a bank - investment intermediary, a management company, and a person managing alternative investment funds, up to the amounts provided for in Art. 77g of the Law on Public Offering of Securities (LPOPS), in the following cases:

1. by a decision of the respective district court for the investment intermediary, the management company, or the person managing alternative investment funds, insolvency proceedings have been opened, including when the insolvency proceedings have been terminated on the basis of Art. 632 of the Commercial Act;
2. the license, respectively the permit, to carry out activities as an investment intermediary has been revoked by a decision of the competent authority in the cases under Art. 27, para. 1, item 6 LMFI, and regarding a bank - investment intermediary - in the cases under Art. 36, para. 2 of the Credit Institutions Act;
3. the license to carry out activities as a management company has been revoked by a decision of the competent authority in the cases under Art. 100, para. 1, item 7 LCISDUCI;
4. the license to carry out activities as a person managing an alternative investment fund has been revoked by a decision of the competent authority in the cases under Art. 212, para. 1, item 5 LCISDUCI;
5. by a decision of the Financial Supervision Commission, it has been established that the following conditions exist simultaneously: a) the financial instruments and/or cash funds held by the investment intermediary, the management company, or the person managing alternative investment funds on behalf of its clients are not available in the accounts where client assets are kept, for reasons other than the performance of contractual relations with the clients; b) in the opinion of the Financial Supervision Commission, at this moment the investment intermediary, the management company, or the person managing alternative investment funds is unable, for reasons directly related to its financial situation, to pay the cash funds to the clients, respectively to restore the financial instruments, and will not be able to do so in the short term. (4) (New - State Gazette, No. 3 of 2008; amended, No. 40 of 2014; amended, No. 84 of 2022, in force from 21.10.2022.) Under the conditions of Art. 77a, para. 4 LPOPS, the Fund pays compensation to the clients of branches of third-country investment intermediaries in the Republic of Bulgaria, of third-country management companies in the Republic of Bulgaria, or of persons managing alternative investment funds from third countries in the Republic of Bulgaria, upon the occurrence of events analogous to those under para. 3 according to the respective legislation. (5) (Previous para. 4 - State Gazette, No. 3 of 2008; amended, No. 40 of 2014; amended, No. 84 of 2022, in force from 21.10.2022.) The Fund pays additional compensation to the clients of a branch of an investment intermediary under Art. 77a, para. 5 LPOPS, respectively to the clients of a branch of a management company or a person managing alternative investment funds, from a member state in the Republic of Bulgaria, with the respective application of Art. 77a, para. 5 LPOPS, upon receipt of a notification from the competent authority of the member state of the seat of the investment intermediary, the management company, or the person managing alternative investment funds, that the investment intermediary, the management company, or the person managing alternative investment funds is unable to fulfill its obligations to its clients due to reasons directly related to its financial situation. The first sentence also applies to banks - investment intermediaries. (6) (New - State Gazette, No. 35 of 2017; amended, No. 84 of 2022, in force from 21.10.2022.) The Fund also performs the functions provided for in the Law on Recovery and Resolution of Credit Institutions and Investment Intermediaries (LRCIIII) with regard to the Investment Intermediary Restructuring Fund, established by LRCIIII, for the purpose of financing the application of restructuring instruments under LRCIIII with regard to investment intermediaries that have received a license to carry out activities from the Financial Supervision Commission (the Commission) under Art. 6, para. 2, items 3 and 6 and Art. 6, para. 3, item 1 of the Law on Markets in Financial Instruments.

Section II Structure and Management of the Fund

Art. 3. (Amended and supplemented - State Gazette, No. 35 of 2017; amended and supplemented, No. 17 of 2018; amended and supplemented, No. 84 of 2022, in force from 21.10.2022.) (1) (Added - State Gazette, No. 35 of 2017.) The Fund is managed by a Board of Directors, which consists of five members - natural persons: a chairman, a deputy chairman, and three other members. The Board of Directors of the Fund also manages the Investment Intermediary Restructuring Fund, hereinafter referred to as "IIRF". (2) (Amended and supplemented - State Gazette, No. 35 of 2017.) The members of the Board of Directors are elected by the Commission as follows:

1. the chairman and the deputy chairman - upon proposal of the Deputy Chairman of the Commission, heading the "Supervision of Investment Activities" Directorate;
2. one member - upon proposal of an association or associations representing persons who have received a license to carry out activities as an investment intermediary, excluding banks, and who are obliged to make monetary contributions to the Fund under the conditions and procedure of LPOPS;
3. one member - upon proposal of an association or associations representing banks that have received permission to carry out activities as an investment intermediary and who are obliged to make monetary contributions to the Fund under the conditions and procedure of LPOPS;
4. (amended - State Gazette, No. 84 of 2022, in force from 21.10.2022.) one member - upon proposal of an association or associations representing management companies that have received a license to carry out activities and provide services under Art. 86, para. 1 and 2 LCISDUCI and who are obliged to make monetary contributions to the Fund under the conditions and procedure of LPOPS. (3) (Amended - State Gazette, No. 84 of 2022, in force from 21.10.2022.) The association or associations under para. 2, items 2 - 4 submit to the Commission within the period under Art. 77zh, para. 2 LPOPS the decision of the respective competent management body for the election of a person to be proposed as a member of the Board of Directors of the Fund, as well as documents certifying compliance with the requirements of Art. 77e, para. 5 and 6 LPOPS. The first sentence applies correspondingly also to the proposal of the Deputy Chairman of the Commission, heading the "Supervision of Investment Activities" Directorate. (4) (Amended - State Gazette, No. 17 of 2018.) The Chairman of the Board of Directors receives a basic monthly remuneration in the amount of 75 percent of the remuneration of the Chairman of the National Assembly. (5) (New - State Gazette, No. 17 of 2018.) The Deputy Chairman of the Board of Directors receives a basic monthly remuneration in the amount of 90 percent of the basic remuneration of the Chairman of the Board of Directors, and the other members of the Board of Directors receive a basic remuneration in the amount of 40 percent of the basic remuneration of the Chairman of the Board of Directors. (6) (New - State Gazette, No. 17 of 2018; amended, No. 84 of 2022, in force from 21.10.2022.) A reference to the remuneration of the Chairman of the National Assembly for the respective quarter, which serves as the basis for determining the remuneration of the members of the Board of Directors of the ICF, is obtained from the National Assembly of the Republic of Bulgaria.

Art. 4. (Added - State Gazette, No. 40 of 2014; added, No. 84 of 2022, in force from 21.10.2022.) (1) (Added - State Gazette, No. 40 of 2014.) The members of the Board of Directors are elected for a term of 5 years and may be re-elected without limitation. The relations between the Fund and the members of the Board of Directors are governed by a contract for the delegation of management. The contract is concluded in written form on behalf of the Fund by the Chairman of the Commission or by a person authorized by him. (2) (Added - State Gazette, No. 84 of 2022, in force from 21.10.2022.) In the event of early termination of the mandate, the Commission shall rule within 14 days from learning of the circumstance under Art. 77zh, para. 3 LPOPS when applicable and notify the respective person or persons under Art. 3, para. 2, whose representative has been dismissed early, of its decision, giving a 30-day period for submitting a proposal for a person to be elected as a member of the Board of Directors. (3) If, within the period under para. 2, the Deputy Chairman of the Commission, heading the "Supervision of Investment Activities" Directorate, the association or associations do not propose a person to be elected as a member of the Board of Directors, the Commission elects a new member upon proposal of the Chairman of the Commission. (4) In the event of early termination of the mandate of the Chairman, the Deputy Chairman of the Board of Directors of the Fund shall perform his functions until the election of a new Chairman.

Art. 5. (Amended - State Gazette, No. 3 of 2008; added, No. 40 of 2014; amended and supplemented, No. 35 of 2017; amended, No. 17 of 2018; amended and supplemented, No. 84 of 2022, in force from 21.10.2022.) (1) The Board of Directors of the Fund:

1. (amended - State Gazette, No. 3 of 2008; added, No. 40 of 2014; amended, No. 84 of 2022, in force from 21.10.2022.) determines the percentages under Art. 77n, para. 2 LPOPS for calculating the annual contribution due from investment intermediaries, banks - investment intermediaries, management companies, and persons managing alternative investment funds, including from investment intermediaries, banks - investment intermediaries, management companies, and persons managing alternative investment funds, which provide additional compensation to their clients in the country according to Art. 77a, para. 4, item 2 and para. 5 LPOPS; the Board of Directors publishes its decision in two electronic media and on the Fund's website by 31 December of the preceding year;
2. (added - State Gazette, No. 40 of 2014; amended and supplemented, No. 84 of 2022, in force from 21.10.2022.) establishes, after collecting the relevant evidence, against which branches of foreign investment intermediaries, banks - investment intermediaries, management companies, and persons managing alternative investment funds in the country the conditions under Art. 77a, para. 4 LPOPS exist and they must participate in the Fund, as well as against which of them the conditions under Art. 77a, para. 5 LPOPS exist and they may participate in the Fund for the purpose of providing additional compensation to their clients in the country;
3. organizes and is responsible for the collection of the Fund's funds;
4. (added - State Gazette, No. 40 of 2014; amended and supplemented, No. 84 of 2022, in force from 21.10.2022.) monitors the regular payment of contributions due to the Fund by investment intermediaries, banks - investment intermediaries, management companies, and persons managing alternative investment funds;
5. (amended - State Gazette, No. 35 of 2017.) organizes the collection and storage of information under Art. 77n, para. 12 LPOPS;
6. invests the Fund's funds in accordance with the requirements of Art. 77r, para. 2 LPOPS;
7. upon establishing a shortage of Fund funds for the performance of its functions, determines the method for covering the shortage according to Art. 77s, para. 1 LPOPS and submits its decision to the Commission for approval;
8. takes a decision on obtaining a loan and its conditions in the cases under Art. 77s, para. 1, item 4 LPOPS and submits it to the Commission for approval;
9. takes a decision on suspending and resuming the payment of annual contributions in the cases under Art. 77t LPOPS and submits the decision to the Commission for approval;
10. (added - State Gazette, No. 40 of 2014; amended and supplemented, No. 84 of 2022, in force from 21.10.2022.) considers and rules on requests for payment of compensation to the clients of investment intermediaries, banks - investment intermediaries, management companies, or persons managing alternative investment funds;
11. (added - State Gazette, No. 40 of 2014; amended and supplemented, No. 84 of 2022, in force from 21.10.2022.) ensures the payment of compensation to the clients of an investment intermediary, a bank - investment intermediary, a management company, or a person managing alternative investment funds, up to the amounts provided for in Art. 77g LPOPS;
12. adopts the draft annual budget for the administrative expenses of the Fund and the report on its implementation and submits them to the Commission for approval;
13. (amended - State Gazette, No. 84 of 2022, in force from 21.10.2022.) organizes, controls, and is responsible for the lawful and purposeful expenditure of the Fund's funds;
14. adopts an annual activity report of the Fund and an audited annual financial report and submits them to the Commission and to the Court of Auditors by 30 May of the following year;
15. approves the registered auditor of the Fund and determines his remuneration;
16. determines the organizational structure of the Fund and adopts internal rules for the organization and activities of the Fund and submits them for information to the Commission;
17. adopts the staffing schedule of the Fund, the internal rules for wages, and determines the size of the remuneration of the Fund's employees and submits them for approval by the Commission;
18. (amended - State Gazette, No. 3 of 2008.) takes decisions on the participation of the Fund in international organizations of investor compensation institutions and in events organized by such organizations;
19. approves cooperation agreements of the Fund with state institutions and public organizations in the country and abroad in connection with its activities;
20. develops draft regulations for the implementation of Section IV, Chapter Five of LPOPS and submits them to the Commission for discussion and adoption;
21. considers and decides on other issues related to the activities of the Fund arising from LPOPS or other normative acts. (2) The documents under para. 1, items 9, 16, and 17, as well as amendments thereto, are submitted to the Commission within 7 days from their adoption. (3) (Amended - State Gazette, No. 84 of 2022, in force from 21.10.2022.) The Board of Directors publishes its annual activity report on the Fund's website or in another suitable manner within 10 days from its submission to the Commission. (4) (Amended - State Gazette, No. 17 of 2018.) The internal rules for wages under para. 1, item 17 also include the conditions and procedure for receiving additional remuneration to the basic monthly remuneration of the employees of the Fund's administration, as well as the criteria for determining its specific size. (5) (New - State Gazette, No. 35 of 2017.) In its capacity as the body managing the IIRF, the Board of Directors of the Fund takes decisions on:
22. (repealed - State Gazette, No. 84 of 2022, in force from 21.10.2022);
23. (repealed - State Gazette, No. 84 of 2022, in force from 21.10.2022);
24. concluding contracts for borrowing funds and other forms of support and providing loans under the conditions and procedure of Art. 141 and 142 LRCIIII;
25. investing the funds of the IIRF;
26. appointing a registered auditor to perform an independent financial audit of the annual financial report of the IIRF;
27. (amended - State Gazette, No. 84 of 2022, in force from 21.10.2022.) adopting the annual financial report of the IIRF and publishing it by 30 April;
28. implementing the decisions of the Commission in its capacity as the resolution authority under Art. 3 LRCIIII for the use of funds from the IIRF;
29. performing other obligations assigned by LRCIIII, including under Chapter Eleven and Chapter Twelve of LRCIIII. (6) (New - State Gazette, No. 35 of 2017.) The rules and restrictions on investing the funds of the IIRF are determined by the Board of Directors of the Fund with an adopted investment policy, which is submitted to the Commission. (7) (New - State Gazette, No. 84 of 2022, in force from 21.10.2022.) The Board of Directors of the Fund informs the Commission about the payment by investment intermediaries, which have received a license to provide investment services and activities under Art. 6, para. 2, items 3 and 6 and para. 3, item 1 LMFI, of the annual contributions to the IIRF.

Art. 6. (Amended - State Gazette, No. 3 of 2008; amended and supplemented, No. 40 of 2014; amended in its entirety, No. 84 of 2022, in force from 21.10.2022.) (1) The Board of Directors of the Fund rules on the circumstances under Art. 5, para. 1, item 2 upon request of the Commission or upon petition of a foreign investment intermediary, a bank - investment intermediary, a management company, or a person managing alternative investment funds, which intends to carry out activities in the country. (2) To the petition under para. 1, the investment intermediary, the bank - investment intermediary, the management company, or the person managing alternative investment funds attaches documents issued by the investor compensation institution or by the respective competent authority in the country of its seat, containing a description of the investor compensation system in which the investment intermediary, the bank - investment intermediary, the management company, or the person managing alternative investment funds participates. (3) In the case of additional compensation under Art. 77a, para. 5 LPOPS, the type and amount of the additional compensation that the investment intermediary, the bank - investment intermediary, the management company, or the person managing alternative investment funds intends to provide to the clients of its branch in the country are explicitly specified.

Art. 7. (Amended and supplemented - State Gazette, No. 40 of 2014; added, No. 84 of 2022, in force from 21.10.2022.) (1) (Previous text of Art. 7 - State Gazette, No. 40 of 2014; added, No. 84 of 2022, in force from 21.10.2022.) The Board of Directors of the Fund notifies the Commission, respectively the Bulgarian National Bank, in cases where an investment intermediary or a bank - investment intermediary does not fulfill its obligations under LPOPS and these regulations in connection with its participation in the Fund, for the taking of appropriate measures. For investment intermediaries with their seat in a member state, Art. 77o, para. 2 LPOPS applies. (2) (New - State Gazette, No. 40 of 2014; added, No. 84 of 2022, in force from 21.10.2022.) The previous paragraph applies correspondingly to management companies and persons managing alternative investment funds.

Art. 8. (1) The Board of Directors of the Fund considers and decides on issues within its competence at meetings. (2) By decision of the Board of Directors, employees of the Fund's administration may attend the meetings. (3) At the discretion of the Chairman of the Board of Directors of the Fund, other persons may also attend when considering specific issues on the agenda of the meeting.

Art. 9. (1) Meetings of the Board of Directors are regular and extraordinary. (2) Meetings are convened by the Chairman on his own initiative or upon request of no less than three members of the Board of Directors. (3) The Board of Directors meets regularly at least once every three months according to a pre-announced agenda determined by the Chairman. The draft agenda and materials for the meeting are provided to the members of the Board of Directors no later than two working days before the meeting, and in the case of extraordinary meetings - no later than the day before. (4) The materials also include a draft decision for each item on the agenda. (5) By decision of all attending members of the Board of Directors, the agenda may be supplemented or amended as necessary.

Art. 10. (1) Meetings are held if more than half of the members of the Board of Directors are present. (2) Meetings of the Board of Directors are chaired by the Chairman, and in his absence - by the Deputy Chairman or by another member determined by the Chairman.

Art. 11. (1) The Board of Directors adopts its decisions by open voting and by a simple majority of the votes of its members. (2) Each member of the Board of Directors of the Fund has the right to one vote. Abstention from voting, as well as representation in participation in meetings and voting, is not permitted. (3) Each member of the Board of Directors who voted against the adopted decision submits in writing his reasons for this within 3 days from the holding of the meeting. (4) By exception, based on a proposal of the Chairman, the Board of Directors may also take decisions in absentia, if its members declare their written consent to the proposed decision. In this case, the decision is taken unanimously.

Art. 12. (1) A protocol is kept for each meeting of the Board of Directors of the Fund, which is signed by all attending members. (2) The names of those attending the meeting, the issues discussed on the agenda, the statements of those attending, and the adopted decisions are recorded in the protocol. The protocol explicitly states by what majority each decision was voted and the names of the members of the Board of Directors who voted against. (3) The protocol is prepared within two working days after the conclusion of the meeting. (4) If necessary, a copy-excerpt from the protocol is prepared, which is signed by the Chairman and by a member of the Fund's administration determined by the Board of Directors.

Art. 13. (1) Members of the Board of Directors are obliged to disclose in writing to the Board of Directors when they are required to participate in the consideration of an issue regarding which they have a direct or indirect interest, giving rise to reasonable doubts about their impartiality, and this could lead to improper performance of their functions. (2) In the protocol under Art. 12, para. 1, the existence of a conflict of interest in the cases under para. 1, the person regarding whom it exists, and the specific issue subject to consideration are explicitly stated. (3) Members of the Board of Directors do not participate in the discussion and voting on issues regarding which a conflict of interest exists for them.

Art. 14. (1) The Chairman of the Board of Directors