JUSTIFICATIONS

for the Decree Implementing Certain Provisions of the Act on the Pan-European Personal Pension Product and Amending Related Decrees on Professional Competence

A. GENERAL PART

1. Explanation of the necessity of the proposed legal regulation and justification of its main principles

On 25 November 2021, the Government of the Czech Republic resubmitted to the Chamber of Deputies of the Parliament of the Czech Republic a draft Act on the Pan-European Personal Pension Product (Parliamentary Print No. 61), which was published in the Collection of Laws on 26 April 2022 as Act No. 91/2022 Coll. This Act adapts Regulation (EU) 2019/1238 of the European Parliament and of the Council (hereinafter referred to as the "Regulation") into Czech law.

This Act includes a new mandate for the Czech National Bank (ČNB) to specify by decree the detailed requirements for applications related to the Pan-European Personal Pension Product (hereinafter referred to as "PEPP"), information obligations for PEPP providers and distributors, and the scope of professional knowledge and skills required for PEPP distribution. Concurrently, amendments to other laws associated with the PEPP Act require that capital market distributors and insurance distributors also possess professional knowledge and skills in the PEPP area.

2. Assessment of compliance of the proposed legal regulation with the Act it implements, including compliance with the statutory mandate

The Decree complies with the mandate set out in Section 22 of the PEPP Act in conjunction with Section 3(3), Section 4(2), Section 5(3), Section 6(2), Section 8(6), and Section 13(2) of that Act, as well as Section 199(2) of Act No. 256/2004 Coll., on Capital Market Undertakings, as amended (hereinafter referred to as the "Capital Market Act"), in conjunction with Section 14h(a) of the Capital Market Act, and finally Section 124 of Act No. 170/2018 Coll., on the Distribution of Insurance and Reinsurance (hereinafter referred to as the "Insurance Distribution Act"), in conjunction with Section 57(2) of the Insurance Distribution Act.

3. Assessment of compliance with European Union regulations, EU court jurisprudence, and general principles of EU law

The Decree is not a transposing act; it merely, in accordance with the relevant mandates in the PEPP Act, the Capital Market Act, and the Insurance Distribution Act, provides a list of annexes or details of requirements to prove compliance with requirements, regulates information obligations, and defines the scope of professional knowledge and skills established by these laws.

The Decree also relates to a non-binding EU document, specifically the EIOPA Guidelines, particularly in the area of information obligations. These guidelines are fully incorporated into the Decree.

The submitted Decree is compatible with European Union law.

4. Assessment of the current legal status and justification for its amendment

The PEPP Act explicitly mandates the Czech National Bank to issue implementing regulations. The matter regulated by this Act is not yet part of any implementing regulation. Therefore, the Czech National Bank must issue a new, separate decree.

The Capital Market Act and the Insurance Distribution Act also need to be aligned with the Regulation, as they are already implemented in the area of professional competence by Decrees No. 319/2017 Coll. and No. 195/2018 Coll., respectively. The amendment of both decrees is carried out by this Decree, as the three legal acts substantively overlap in the area of professional competence, and it would be uneconomical to perform partial amendments to Decrees No. 319/2017 Coll. and No. 195/2018 Coll. through separate implementing norms.

5. Anticipated economic and financial impact on the state budget, other public budgets, the business environment in the Czech Republic, social impacts (including impacts on families and specific population groups, especially socially disadvantaged persons, persons with disabilities, and national minorities), and environmental impacts

This legal regulation will have no impact on the state budget or other public budgets.

The Decree has no impact on the business environment; any administrative costs arise directly from the PEPP Act.

The Decree has no negative social impacts, including impacts on families, nor does it impact specific population groups, socially disadvantaged persons, persons with disabilities, or national minorities.

The Decree has no negative impacts on the environment.

6. Assessment regarding the prohibition of discrimination

The proposed legal regulation does not contain any discriminatory provisions.

7. Assessment of impacts on privacy and personal data protection

This legal regulation impacts privacy and personal data protection.

The regulation complies with Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation). The draft Decree is also in compliance with Act No. 110/2019 Coll., on the Processing of Personal Data.

Requirements arising from the PEPP Act regarding the details of applications and information obligations do not increase the scope of personal data processing compared to the current legal regulation; this includes data concerning legal capacity (a special category of personal data) and criminal records and offences.

The administrative activities and procedures of the Czech National Bank have long been established, transparent, and trustworthy, including the proper handling of personal data. Personal data contained in the application form and its annexes and information provided to the Czech National Bank are processed exclusively for purposes related to fulfilling its obligations in administrative proceedings concerning a specific application and for financial market supervision purposes, including any potential administrative proceedings.

The legal basis for processing personal data is the necessity of processing when fulfilling a legal obligation under the PEPP Act and when fulfilling tasks in the public interest and in the exercise of public power, for which the controller is authorized.

These tasks performed in the public interest, or tasks performed in the exercise of public power, are in general the tasks listed in Section 1(1) and Section 2(2) of Act No. 6/1993 Coll., On the Czech National Bank, as amended (hereinafter referred to as the "Czech National Bank Act"). Following this general definition, the specification and concretization of these tasks are contained primarily in Sections 44 and 44b of the Czech National Bank Act. In this context, data concerning the mental health of a natural person are considered data on the health status of such a person, falling under the so-called special category of personal data. The processing of these data is necessary due to a significant public interest, namely the stability of the financial market in the Czech Republic ensured through supervision; in the case of data concerning legal capacity, their processing in connection with supervision is established in Section 44b(7) of the Czech National Bank Act.

For the proper exercise of supervisory activities in the area covered by the PEPP Act, or the draft of this Decree, the processing of personal data is necessary. The performance of these activities cannot be ensured without processing personal data or in a more efficient manner or by other means that would be less intrusive to privacy. The processing of personal data is also proportionate to the defined purposes, as it enables achieving these purposes without exceeding what is truly necessary to fulfill them.

Employees of the Czech National Bank are legally obligated to maintain confidentiality in official matters during the performance of their duties. Data and information obtained within administrative proceedings are sufficiently secured, and access is restricted to employees handling, commenting on, or deciding on the specific application. All employees of the Czech National Bank coming into contact with personal data must follow instructions governing organizational arrangements, principles and rules for processing and protecting personal data collected by the Czech National Bank according to the aforementioned regulation, as well as other internal procedures related to personal data protection.

All documents received by the Czech National Bank in connection with an application are retained for the period prescribed by legal regulations and the Czech National Bank's instructions for file service and archives organization, and the Czech National Bank does not make these documents accessible to anyone unless otherwise prescribed by law.

The Czech National Bank only publishes information about an authorized entity to the extent of mandatory publication requirements set by the relevant law governing financial market activities, specifically in connection with the obligation to maintain a list/registry of regulated entities, which is publicly accessible on the Czech National Bank's website (Section 21 of the Act).

Defining the scope of professional knowledge and skills for PEPP distribution has no relation to privacy and personal data protection.

8. Assessment of corruption risks

The Decree complies with the scope of the mandate under Section 22 of the PEPP Act in conjunction with Sections 3(3), 4(2), 5(3), 6(2), 8(6), and 13(2) of that Act, as well as Section 199(2) of the Capital Market Act in conjunction with Section 14h(a) of the Capital Market Act, and finally Section 124 of the Insurance Distribution Act in conjunction with Section 57(2) of the Insurance Distribution Act, and in no way exceeds the competences of the Czech National Bank.

The Czech National Bank exercises supervision over financial market entities in accordance with the Czech National Bank Act and has sufficient tools to control compliance with laws, other implementing regulations, and the conditions under which authorization was granted. The Czech National Bank is an administrative authority authorized to decide on matters within its jurisdiction. The jurisdiction and responsibility of individual departments during supervision are established by an internal regulation of the Czech National Bank. The organizational structure of the Czech National Bank is publicly available on its website. Corresponding control mechanisms are established for the Czech National Bank's activities, which are regularly verified and updated.

Legal regulations governing authorization proceedings or professional competence are published on the Czech National Bank's website. The website will also provide interpretations and answers to frequently asked questions regarding entities conducting activities under the relevant law.

Potential corruption risk may arise in decisions on granting activity authorization, but it is minimal given the control mechanisms within the Czech National Bank and the possibility of legal review of the Czech National Bank's decisions. Conditions for granting activity authorization are directly defined by the PEPP Act. The Decree, in addition to requirements already set by the law, specifies the documents and data used to prove compliance with statutory conditions. Upon meeting statutory conditions, the applicant has a right to be granted authorization. Proceedings regarding an application for authorization follow administrative procedure law. An unsuccessful applicant has the right to file an appeal, which is reviewed by the Banking Board of the Czech National Bank. Against a final decision of the Czech National Bank, defense in administrative courts is possible.

No corruption risks were identified after the Decree was evaluated according to the CIA (Corruption Impact Assessment) methodology.

9. Assessment of impacts on state security or defence

The regulation has no impact on state security or defence.

10. Assessment of impacts on the digital environment

The Decree is not contrary to the general principles of digital agenda development and was prepared in accordance with its main principles, including principles for creating digital-friendly legislation. It respects the principle of technological neutrality and the option to choose the optimal combination of suitable technological solutions. Furthermore, for example, Section 7 leaves it to the discretion of the concerned entity which format to choose for the application; only general characteristics of such format are specified ("Applications and notifications under this Decree and under Section 6(2) of the Act shall be submitted in a data format commonly used in electronic communication.").

11. Consultations

The Decree was consulted with the Ministry of Finance during its preparation.

Inter-ministerial comment period for the draft Decree ran from 15 February to 8 March 2022. The draft Decree was also sent to concerned associations (Association of Czech Insurance Brokers, Association of Cooperative Savings and Loan Societies, Association for the Capital Market, Association of Credit Institutions, Czech Association of Insurance Companies, Czech Association of Financial Advisory and Intermediation Companies, Czech Banking Association). The handling of comments was discussed with the commenting entities.

The draft Decree was not subject to consultation with the European Central Bank under Council Decision 98/415/EC of 29 June 1998 on the consultation of national authorities with the European Central Bank on proposed legislation.

The Decree does not contain solutions that would represent an increased risk in terms of feasibility and enforceability.

The Decree was proposed for the Decree Plan for 2021 and 2022, with the understanding that a regulatory impact assessment (RIA) would not be conducted according to the General Principles for Regulatory Impact Assessment.

Based on Article 3.8(g) of the RIA, a separate regulatory impact assessment was not conducted for the Decree, as the impact assessment is already included in the RIA for the draft PEPP Act. Furthermore, no new impacts are identified in the draft, and the implementing legal regulation draft is not prepared beyond the scope of the RIA conducted for the draft of the aforementioned Act.

B. SPECIFIC PART

On Section 1

The provision contains an overview of applications and notifications under the PEPP Act that are the subject of this Decree's regulation. The Decree specifies the detailed requirements for applications, their formats, and other technical requirements for PEPP registration and consent for the transfer of PEPP contracts to another provider. Regarding notifications by distributors on the commencement or termination of distribution and applications for registration cancellation, the Decree regulates the format and other technical requirements of these applications in accordance with the mandate.

The Decree also specifies the scope, form, deadlines, and method of providing information to the Czech National Bank, including reporting changes to data listed in the PEPP registration application.

The final category covers the regulation of the scope of professional knowledge and skills for PEPP distribution and related amendments to certain decrees.

On Section 2

Identification data means the name or company name, registered office, actual seat (if different from the registered office), and optionally the personal identification number, for legal or entrepreneurial natural persons.

For other natural persons, identification data are name and date of birth, or if not assigned, date of birth and place of residence. These terms align with current terminology used in the Civil Code and specifically in Section 2(1)(h) of the Capital Market Act and definitions in similar decrees that specify application requirements for conducting respective activities in accordance with the relevant sectoral law.

On Section 3

The Decree regulates the detailed requirements for the PEPP registration application. According to Section 3(2) of the Act, these include data on compliance with registration conditions set out in Article 6 of the Regulation. This mainly includes a draft contract for providing the product, information on the applicant's internal measures related to providing the product, and a draft key information document.

The draft PEPP provision contract must contain requirements according to Article 4 of the Regulation. The applicant always submits the entire contract, including terms and conditions or price lists, if they are part of it.

Regarding internal measures, the applicant should sufficiently demonstrate that activities related to PEPP provision will be staffed and organizationally secured, linked to individual activities the applicant will perform concerning PEPP. This relates to Article 6(4) of the Regulation, which subjects the review in registration proceedings to whether the "applicant is capable of providing PEPP … and whether the information and documents submitted in the registration application … comply with this Regulation."

An applicant intending to secure part of the requirements in cooperation with another registered PEPP provider (in the Regulation's words "establish a partnership") will also submit an agreement with that provider regarding assigned functions or a draft thereof along with a written commitment to conclude it. This agreement or draft establishes the rights and obligations of both parties, including information on the applicant's procedures to ensure the partner is qualified and capable of fulfilling assigned functions within the meaning of Article 19(2) of the Regulation.

Within the risk management system description, the applicant submits an impact analysis of starting PEPP provision and management within its existing activities, including internal governance and management questions. All changes should be reflected in the applicant's internal regulations. The applicant also submits a business plan highlighting changes made in connection with PEPP provision along with anticipated impacts on financial stability and solvency, and expected revenues and costs.

If the applicant intends to offer PEPP covering biometric risks, they will also submit an insurance contract or a draft with a commitment from the insurance company. This insurance company commitment should not be conditional, except for the condition of the applicant obtaining registration from the Czech National Bank.

The draft key information document for PEPP should be prepared in accordance with Section II of the Regulation, particularly containing information according to Article 28(3) of the Regulation.

If the applicant intends to provide this product abroad, they will also submit, according to Article 6(2) of the Regulation, a list of member states where they intend to market the product. The applicant will further state in which member states they can ensure immediate opening of a sub-account. The applicant should also ensure that the new sub-account complies with legal requirements and conditions for PEPP under Articles 47 and 57 of the Regulation.

If the applicant is an investment company or a self-managed investment fund, they will state depositary identification data according to Article 6(2) of the Regulation. The appointment and performance of the depositary's activities will apply Article 48 of the Regulation, including obligations arising from Directive 2009/65/EC (or Act No. 240/2013 Coll., on Investment Companies and Investment Funds, as amended) and other directly applicable EU regulations, if they apply to depositaries.

On Section 4

The provision regulates the requirements for notifications of changes to data listed in the registration application according to Section 3 of the Decree and related annexes. The applicant should notify the Czech National Bank of every material change so that the Czech National Bank can effectively supervise compliance with the provider's obligations under the Act, Regulation, and related implementing regulations in accordance with Section 12 of the PEPP Act.

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2 Commission Delegated Regulation (EU) 2021/473 of 18 December 2020 supplementing Regulation (EU) 2019/1238 as regards regulatory technical standards specifying requirements for information disclosure, costs and fees included in the maximum cost limit, and risk reduction techniques in connection with the Pan-European Personal Pension Product.
Commission Delegated Regulation (EU) 2021/895 of 24 February 2021 supplementing Regulation (EU) 2019/1238 as regards product intervention.
Commission Delegated Regulation (EU) 2021/896 of 24 February 2021 supplementing Regulation (EU) 2019/1238 with regard to additional information for harmonization purposes regarding reporting to supervisory authorities.
Commission Implementing Regulation (EU) 2021/897 of 4 March 2021 laying down implementing technical standards for the application of Regulation (EU) 2019/1238 regarding the format for reporting to supervisory authorities and cooperation and information exchange between competent authorities and EIOPA.

On Section 5

A distributor intending to commence or terminate PEPP distribution in the Czech Republic will notify the Czech National Bank of this fact along with identifying the product and stating the commencement or termination date of its distribution.

If the distributor ensures distribution through a tied agent, the represented party submits this notification, not the tied agent itself (see also Section 32a et seq. of the Capital Market Act and Section 15 et seq. of the Insurance Distribution Act). If the represented party has multiple tied agents, they may submit one notification regarding all their tied agents. This provision applies only to tied agents that can be classified as distributors in accordance with the Regulation.

On Section 6

If PEPP contracts are to be transferred to another provider, the application must include a description of the procedure to ensure the protection of participants' and beneficiaries' interests from the product, as well as annexes to the product registration application that will be affected by the transfer.

Within the description of the procedure to protect participants' and beneficiaries' interests, the applicant will primarily describe the conditions for transferring PEPP contracts, define the PEPP contracts to be transferred in terms of asset volume and number of participants, and asset volume allocated to cover liabilities arising from the transferred contracts, submit the PEPP transfer contract to the new provider, and describe how information related to the transfer and continuation of PEPP contracts will be communicated to contract participants.

On Section 7

The Decree specifies the format and other technical requirements for applications and notifications under this Decree, as well as applications for PEPP registration cancellation according to Section 6(2) of the Act. Standardly, requested documents are submitted in Portable Document Format (pdf), but the application and annexes may also be submitted in another similar format commonly used in electronic communication.

Applications and notifications can be submitted via the public data network to a data box or to the electronic address of the Czech National Bank's registry office.

An exception is notifications by insurance intermediaries under the Insurance Distribution Act (bulk notifications of tied insurance intermediaries via the represented party), for which the Czech National Bank's electronic application for entity registration (REGIS) is introduced.

On Section 8

Within the common provisions, the procedure is regulated for cases where the nature of the matter excludes the submission of an annex or the provision of data according to this Decree.

Paragraph 2 further states that the applicant does not need to submit information and documents publicly available from public registers (information from public registers kept under Act No. 304/2013 Coll.) or other public administration information systems, if the information recorded therein is current. This mainly concerns information related to the person's business activity, or the authorization under which the person conducts business or trade activities. Furthermore, it is not necessary to submit to the Czech National Bank data or documents that the Czech National Bank already has in current form. In such cases, the applicant merely refers to these previously provided documents and confirms their current.