Circular No. 2013-01 - Periodic Information Obligations of Financial Companies in Matters of Prudential Supervision

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Pag. 1 of 34 Circular No. 2013-01 PERIODIC INFORMATION OBLIGATIONS OF FINANCIAL COMPANIES IN MATTERS OF PRUDENTIAL SUPERVISION (consolidated text as of 13/02/2024 – Update VII) 1 DEFINITIONS AND REFERENCES a. For the purposes of this Circular, the following terms are understood as:

• "operatively granted": credit facility resulting from a perfect and effective contract, under which the client can use the credit line;
• "credit activity": activity defined in Letter B) of Annex 1 to Law 17 November 2005 n.165;
• "Central Bank": the Central Bank of the Republic of San Marino, also defined as BCSM;
• "Circular": this Circular;
• "solvency ratio": coefficient regulated by the provisions provided in Title III of Part VII of the REGULATION, relevant for the compilation of PROSPECTUSES 4 and 5 of the REPORT;
• "reference date": the last day of the quarter to which the REPORT refers;
• "indirect exposure": see art. I.I.2 of the REGULATION(1);
• "major risks": risk positions defined by the provisions provided in Title IV of Part VII of the REGULATION, relevant for the compilation of PROSPECTUS 6 of the REPORT;
• "group of connected clients or connected counterparties": see art. I.I.2 of the REGULATION;
• "financial enterprises": see art. I.I.2 of the REGULATION
• "LISF": Law 17 November 2005 n.165 and subsequent amendments and integrations;
• "manual": operational manual as defined by art. VIII.II.4 of the REGULATION;
• "model": reporting schema as defined by art. VIII.II.4 of the REGULATION;
• "related party": see art. I.I.2 of the REGULATION;

1 The definition referred to must be kept distinct from the notion of indirect risk, referable to the guarantors of exposures assumed by the REPORTING SUBJECT, considered within the P.U.M.A. procedure also for the purposes of reports to the Italian Risk Central.

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• "capital participant": see art. I.I.2 of the REGULATION;

• "related parties and subjects connected to them": subjects whose relationships with the REPORTING SUBJECT are the object of the provisions provided in Title V of Part VII of the REGULATION, relevant for the compilation of PROSPECTUS 7 of the REPORT;

• "supervisory capital": basic capital, supplementary capital and related deductions as defined by the provisions provided in Title II and Title XIII of Part VII of the REGULATION, relevant for the compilation of PROSPECTUS 3 of the REPORT;

• "prospectus": part of the REPORT;

• "regulation": Regulation on the activity of granting financing n. 2011-03;

• "RE.SO.AUT.": Register of authorized subjects as regulated by Regulation n. 2006-01 and subsequent amendments and integrations;

• "SFOL": limited operational financial company; see art. I.I.2 of the REGULATION;

• "report": periodic collection of information, drawn up in accordance with corporate accounting data and/or management information supports, functional to the fulfillment of the information obligations referred to in this CIRCULAR and sent to BCSM according to the methods and terms defined by it;

• "pre-existing companies": see art.I.I.2 of the REGULATION

• "reporting subjects": authorized subjects required to comply with the provisions contained in Part VII of Regulation n. 2011-03;

• "prudential supervision": norms contained in Part VII of the REGULATION, from Title I to Title VIII, and related transitional provisions;

• "item": elementary data of the REPORT, to be inserted in the PROSPECTUSES by compiling the relevant MODEL. b. In the following text, the use of terms described above is highlighted in UPPERCASE. For everything not expressly defined in this CIRCULAR, the definitions contained in the REGULATION and in the LISF apply. c. With reference to the notion of "risk position" and its possible declinations in the different PROSPECTUSES of the REPORT, reference is made to what is provided in paragraph 5.3 of the CIRCULAR.

Pag. 3 of 34 2 PURPOSES AND STRUCTURE OF THE CIRCULAR a. This CIRCULAR regulates the information obligations in matters of PRUDENTIAL SUPERVISION and therefore has an applicative nature of Part VII of the REGULATION. b. The CIRCULAR provides applicative provisions or interpretations of the aforementioned norms present in the REGULATION, necessary for the fulfillment of information obligations through the compilation and sending to BCSM of the REPORT. c. The reporting schemas are defined keeping in mind both the different operational models that REPORTING SUBJECTS may adopt and the transitional norms of Part XI of the REGULATION, which allow for a gradual application of the prudential institutes regulated in Part VII of the same REGULATION. d. The CIRCULAR has a structure in chapters according to the articulation of the PROSPECTUSES that compose the REPORT; each chapter is composed of paragraphs that aggregate homogeneous provisions by subject. e. The compilation rules illustrated in the CIRCULAR are aimed at defining the data flow directed to BCSM in a manner consistent with its analysis needs. No reflection on the maintenance of internal accounting and the formation of the annual financial statements of REPORTING SUBJECTS can be derived from the instructions present in the CIRCULAR, unless this is expressly provided for.

Pag. 4 of 34 3 TARGET SUBJECTS a. Those required to comply with the provisions of the CIRCULAR, and therefore qualified as REPORTING SUBJECTS, are subjects authorized other than banks authorized to carry out CREDIT ACTIVITY. b. The exemption from the compilation of REPORTS, for financial enterprises cancelled from the register pursuant to Article 8, paragraph 1 of BCSM Regulation 2006-01, begins from the date of cancellation and concerns all REPORTS with a REFERENCE DATE subsequent to the BCSM measure. c. Given the need for the Supervisory Authority to maintain adequate informational oversight on the progress of the procedure, in accordance with what is provided by paragraph 4 of art. 99 of the LISF, REPORTING SUBJECTS in voluntary liquidation must still transmit to BCSM: • within the month following that of the deposit at the Registry of the Unified Court, copies of the reports referred to in Article 111, paragraphs 1, 3 and 4 of Law 23 February 2006 n. 47 and subsequent amendments; • by January 31 of each year, a statement of accounts referred to December 31 of each year, compiled based on the schema provided by current supervisory provisions on quarterly reports. 3.1 Types of REPORTING SUBJECTS a. The types of reporting subjects that, by virtue of the options provided by the regulation(2), are required to comply with the information obligations in matters of prudential supervision are the following:

1. PRE-EXISTING COMPANIES for which the prudential supervision rules provided for SFOLs apply. The application of the reduced supervision regime may derive either from the voluntary adoption of the specialized SFOL model, pursuant to art. XI.II.4, paragraph 1, letter b) of the REGULATION, or from the entry into force, from December 31, 2012, of the transitional regime that extends ex lege - until 30.12.2013 - to PRE-EXISTING COMPANIES the entire prudential regime of SFOLs. From the date of actual receipt of the relevant prudential provisions (to be communicated to the CENTRAL BANK, also for the purposes of publication on the RE.SO.AUT.), the benefits deriving from the application of a multiplicative factor of 40 percent on exposures held by other intermediaries towards them may apply;

2. PRE-EXISTING COMPANIES that decide, pursuant to art. XI.II.4, paragraph 1, letter a) of the REGULATION, to adapt to the specialized financial company model, without limitations on their own operations. In such cases – from the date of actual receipt of the relevant prudential provisions (to be communicated to the CENTRAL BANK, also for the purposes of publication on the RE.SO.AUT.) – the benefits deriving from the application of a multiplicative factor of 20 percent on exposures held by other intermediaries towards them may apply;

3. PRE-EXISTING COMPANIES that decide, pursuant to art. XI.II.4, paragraph 1, letter c) of the REGULATION, to maintain other authorizations and to which a strengthened prudential regime applies, at the latest from 31.12.2013. From the date of actual receipt of the prudential supervision provisions in force for the chosen operational model (to be communicated to the CENTRAL BANK, also for the purposes of publication on the RE.SO.AUT.), the benefits deriving from the application of a multiplicative factor of 20 percent on exposures held by other intermediaries towards them may apply;

4. newly constituted companies that decide to adopt the SFOL model;

5. newly constituted companies that decide to adopt the full operational financial company model. b. The MODEL provided by the CIRCULAR is structured in such a way as to allow, starting from the REPORT referred to 31.12.2012, to indicate the type of REPORTING SUBJECT. 3.2 Date of actual receipt of prudential rules and publication on RE.SO.AUT. a. The transitional and final norms of Part XI of the regulation provide for the mandatory communication to the Central Bank of the date of actual receipt of the prudential provisions provided for limited operational financial companies, within the transitional period, or related to the operational model chosen within the strategic phase of art. XI.II.4. b. The communication to the Central Bank serves a dual function: • allow the Supervisory Authority to reclassify the REPORTING SUBJECT based on the prudential regime to be applied. In this context, additional data and information may be requested to ascertain the completed organizational and capital adaptation process to the pertinent provisions of the REGULATION; • make known to third parties – through publication in the Register of Authorized Subjects – the prudential regime of the REPORTING SUBJECT, also for the purposes of the weightings to be applied to exposures held towards the subject itself. c. The CENTRAL BANK proceeds with the publication on the Register of Authorized Subjects once the verification regarding the occurrence of the conditions provided by the regulation for the application of the relevant prudential regime is completed. This publication therefore has a constitutive value towards third parties, as the reporting subject cannot avail itself of a more favorable prudential regime than that resulting from the Register itself.

Pag. 5 of 34 4 PERIODICITY AND STRUCTURE OF THE REPORT a. The REPORT has quarterly periodicity and must be compiled using the relevant MODEL, published on the reserved area of the Central Bank's website (www.bcsm.sm) along with the MANUAL containing the operational instructions for inserting data into the MODEL and the technical methods for transmitting the REPORT to BCSM. b. The MODEL is articulated in 11 PROSPECTUSES:

1. general data and notes;

2. automatic attention indicators;

3. supervisory capital and minimum capital coverages;

4. solvency ratio: cash activities weighted for default risk of debtor counterparties;

5. solvency ratio: guarantee weighting - commitments and ratio calculation;

6. major risks;

7. contractual relationships with related parties and subjects connected to them;

8. maturity transformation;

9. holdable participations;

10. census of the top 30 debtor counterparties;

11. top 30 debtor counterparties. c. Updates to the MODEL and the MANUAL are made available according to the methods provided by the second paragraph of art. VIII.II.4 of the REGULATION. d. With regard to individual PROSPECTUSES, indications are provided regarding the relevance, or lack thereof, of the reporting ITEMS provided for SFOLs and PRE-EXISTING COMPANIES (assimilated to them during the transitional regime), using the phrase "not relevant for SFOLs".

Pag. 6 of 34 5 GENERAL INSTRUCTIONS FOR THE COMPILATION AND SUBMISSION OF THE REPORT 5.1 Periodicity of transmission of the report to BCSM a. REPORTING SUBJECTS are required to comply with the provisions contained in the CIRCULAR starting from the REPORT referred to December 31, 2012. b. REPORTS must be transmitted to BCSM within the second month following the REFERENCE DATE, except for the REPORT referred to December 31, which must be transmitted by April 15 of the following year, and subject to what is provided in the subsequent paragraph 17.3. 5.2 Methods of compiling the report a. The compilation of PROSPECTUSES must be performed using the values of individual ITEMS at the accounting date to which the REPORT refers, updated with quarterly periodicity, unless otherwise provided by the CIRCULAR or the REGULATION. b. The amount to be reported in the ITEMS of the reporting schemas, if not otherwise provided by this CIRCULAR, must be determined according to the same valuation criteria of the corresponding items and sub-items of the business balance sheet schemas. c. Values must be inserted in the PROSPECTUSES in units of euros, neglecting – with reference to individual items – fractions less than 50 cents and rounding up to the next unit fractions equal to or greater than 50 cents. d. Accounting items expressed in currencies other than the euro must be valued in euros at current spot exchange rates at the REFERENCE DATE. 5.3 The risk position in the prospectuses composing the report a. For the purposes of fulfilling the information obligations of this CIRCULAR, risk position means risk-weighted activity applying the multiplicative factors provided by the REGULATION for the calculation of the SOLVENCY RATIO. In accordance with what is provided by the REGULATION, in the different PROSPECTUSES of the REPORT, the activities included in the calculation of risk positions are determined as indicated below (3). b. In PROSPECTUSES 4 and 5, relating to the SOLVENCY RATIO, the risk position is determined considering:

• cash or signature exposures;
• participations and interests assimilable to these;
• financial instruments of the immobilized portfolio;
• financial instruments of the non-immobilized portfolio (see art. VII.III.2, paragraph 1 of the REGULATION). c. In the calculation of risk positions:

3 The illustration of risk activities considers first of all what is provided for PROSPECTUSES 4 and 5 for the calculation of the solvency ratio, which presents the greatest articulation of regulatory provisions; for the remaining PROSPECTUSES, additional indications are provided regarding the activities to be excluded or included.

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• the weighting of "off-balance sheet" risk activities must be performed without considering credit facilities not yet operationally granted (see definition of OPERATIVELY GRANTED);
• exposures to be included include active leasing operations (remaining credit and any installments accrued at the REFERENCE DATE and not yet collected);
• the portion already deducted from SUPERVISORY CAPITAL referred to CAPITAL PARTICIPANTS must be excluded;
• activities already deducted from supervisory capital are likewise excluded from the calculation of risk positions. d. In PROSPECTUS 3, relating to the calculation of SUPERVISORY CAPITAL, the risk position includes the activities considered for PROSPECTUSES 4 and 5:
• to the extent of utilization for cash and signature exposures, without considering any unused granted positions (available margin);
• including INDIRECT EXPOSURES in the risk position. For the purposes of Article VII.II.4, paragraph 4 of the REGULATION, the REPORTING SUBJECT does not deduct from its SUPERVISORY CAPITAL DIRECT and INDIRECT EXPOSURES that are already deducted, for the same purposes, from the SUPERVISORY CAPITAL of the controlling FINANCIAL ENTERPRISE. e. In PROSPECTUS 6, relating to MAJOR RISKS, and PROSPECTUS 7, concerning RELATED PARTIES AND SUBJECTS CONNECTED TO THEM, the risk position includes the activities considered for PROSPECTUSES 4 and 5:
• including any INDIRECT EXPOSURES. Pursuant to what is provided by Articles VII.IV.6 and VII.V.5 of the REGULATION, in the case of groups, compliance with provisions on major risks and related parties is verified by relating the sum of risk positions (including those assumed through controlling FINANCIAL ENTERPRISES) to the adjusted SUPERVISORY CAPITAL referred to in art. VII.II.13 of the REGULATION (4). 5.4 Classification and valuation of credits a. For the purposes of a complete control of credit risks, REPORTING SUBJECTS proceed to constantly update the valuation of outstanding credits, based on the information temporarily available on the creditworthiness of debtors, with consequent reallocation of exposures into the relevant category (deteriorated credit exposures or performing credit exposures) in accordance with what is provided by the REGULATION. b. REPORTING SUBJECTS organize themselves to ensure the effective implementation of what is provided above, also through appropriate internal delegations capable of guaranteeing timely reclassification and valuation of credits relative to the moment when updates on the creditworthiness of clients are available. c. The timely update of the estimated realizable value of credits must also find correspondence in corporate accounting and in periodic supervisory reports sent to BCSM. d. The performance of credits and the valuations performed are brought to the attention of the administrative body in the manner provided by paragraph 7 of art. VII.IX.11 of the REGULATION.

4 Including banks. For the computation of indirect exposure, the presence or absence of credit facilities of the REPORTING SUBJECT to the controlled financial enterprise is irrelevant.

Pag. 8 of 34 5.5 Other general indications a. In order to guarantee the unique identification of subjects (natural persons and legal entities) to whom the data refers (for example in the PROSPECTUS relating to MAJOR RISKS), in the compilation of the REPORT, the coding rules provided for the assignment of the "customer code" by the Instructions temporarily in force issued by the Financial Information Agency(5) must be used. The coding of subject aggregations (e.g., GROUP OF CONNECTED CLIENTS OR COUNTERPARTIES) must be performed with the operational methods provided in the MANUAL. b. In the evaluation of "economic" connection links between two or more subjects, pursuant to what is provided by art. I.I.2, paragraph 1 of the REGULATION, one must consider the existence of links under which, with all probability, the financial difficulties of one subject could affect the repayment capacity of its debts by other subjects. It is therefore up to the prudent appreciation of the competent corporate bodies to evaluate the existence or non-existence of the aforementioned requirement based on the set of available information regarding the relevance of the relationships occurring between the granted clients. 5.6 Link with the prudential supervision discipline of banks a. In coherence with what is provided by art. VII.II.4 paragraph 4 of the REGULATION, credit facilities granted by financial companies to their controlling banks, as such subject to the discipline of deductions from the supervisory capital of the same financial companies, must be computed net of any credit facilities received from the controlling bank (6). 5.7 Questions a. Questions regarding the provisions present in the CIRCULAR can be presented to BCSM according to the methods provided by art. VIII.II.5 of the REGULATION.

5 At the date of the III Update of this Circular, reference is made to Instruction n. 2016-01. For example, in the case of a Sammarinese natural person, the ISS code must be used, excluding the use of the registration code in the general register of the recipient subject (ndg) which would prevent the aggregation of risk positions at the system level. 6 Example: the financial company BETA enters into an active leasing operation with its controlling bank ALFA for an amount of 1,000; the same company BETA is also the recipient of financing from ALFA for an amount of 800. For the prudential supervision discipline of ALFA (controlling bank), the two operations are irrelevant, while for the financial company BETA, a deduction from supervisory capital must be determined equal to the amount of the leasing granted net of the credit facility received, therefore for an amount of 200 (risk activity to be weighted as leasing to determine the risk position to be compared with the contribution of ALFA in BETA in order to obtain the value of the deduction from supervisory capital).

Pag. 9 of 34 6 PROSPECTUS 1. - GENERAL DATA AND NOTES a. In the Prospectus General Data and Notes, the reference data of the REPORTING SUBJECT and the REFERENCE DATE of the REPORT must be inserted, to be selected from among those pre-filled, as well as data relating to:

• the operational model adopted, among those referred to in the previous paragraph 3.1;
• the belonging or not to groups, with indication of the role (controlling or controlled) held by the REPORTING SUBJECT and, if applicable, of the controlling FINANCIAL ENTERPRISE;
• the "Head of Statistical Reports", as defined in BCSM Regulation n. 2015-01 (Part II Title I). b. In the "Notes to the report" part, REPORTING SUBJECTS can insert comments or o

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