Law on Additional Supervision of Financial Conglomerates

LAW on Additional Supervision of Financial Conglomerates

Published, State Gazette, No. 59 of 21.07.2006, effective from the day of entry into force of the Treaty of Accession of the Republic of Bulgaria to the European Union; amended and supplemented, No. 52 of 2007, effective from 01.11.2007; amended, No. 77 of 04.10.2011; amended, No. 105 of 29.12.2011; amended and supplemented, No. 70 of 09.08.2013; amended and supplemented, No. 27 of 25.03.2014; amended, No. 102 of 29.12.2015, effective from 01.01.2016; amended, No. 95 of 29.11.2016; supplemented, No. 95 of 28.11.2017, effective 01.01.2018; amended and supplemented, No. 103 of 28.12.2017, effective 01.01.2018; amended, No. 15 of 16.02.2018, effective from 16.02.2018; amended, No. 25 of 29.03.2022, effective from 29.03.2022; amended, No. 79 of 17.09.2024; amended and supplemented, No. 25 of 10.03.2026.

Chapter One GENERAL PROVISIONS

Subject Matter Art. 1. (1) This Law establishes the rules for the exercise of additional supervision over supervised entities that are part of a financial conglomerate. (2) Additional supervision over supervised entities that are part of a financial conglomerate is exercised simultaneously with supervision over the banking sector, the insurance sector, and the investment services sector.

Financial Conglomerate Art. 2. (1) A financial conglomerate is a group, headed by a supervised entity or with at least one of the subsidiary companies in the group being a supervised entity, and:

1. at least one of the entities in the group is from the insurance sector and at least one of them is from the banking sector or the investment services sector;
2. both the consolidated and/or aggregated activities of the entities in the group from the insurance sector, and the consolidated and/or aggregated activities of the entities from the banking sector and the investment services sector, are significant. (2) When a supervised entity heads the group, it must meet at least one of the following conditions:
3. it is a parent undertaking of an entity in the financial sector;
4. it has a participation in an entity in the financial sector;
5. it is linked to an entity in the financial sector in one of the following ways: a) through joint management by virtue of a contract or their founding deeds or statutes; b) more than half of the members of their management or supervisory bodies are the same persons during the respective financial year and up to the date of preparation of the consolidated financial statement. (3) When a supervised entity does not head the group, the group's activities must be carried out predominantly in the financial sector. (4) A financial conglomerate is also any sub-group of the financial conglomerate if it meets the criteria under this Law.

Thresholds for Identifying a Financial Conglomerate Art. 3. (Amended and supplemented - SG, No. 70 of 2013) (1) For the purposes of Art. 2, para. 1, item 2, the activities in the different financial sectors are considered significant if, for each financial sector in the group, the average value of the following two ratios exceeds 10 percent:

1. the ratio of the balance sheet total of this financial sector to the balance sheet total of the entities in the financial sector in the group, and
2. the ratio of the solvency requirements of this financial sector to the total solvency requirements for the entities in the financial sector in the group. (2) For the purposes of Art. 2, para. 1, item 2, the activities in the different financial sectors are also considered significant when the balance sheet total of the smallest financial sector in the group exceeds the BGN equivalent of 6 billion euros. (3) For the purposes of Art. 2, para. 3, the activities of the group are considered to be carried out predominantly in the financial sector if the ratio of the total balance sheet total of the entities in the financial sector in the group to the balance sheet total of the group as a whole exceeds 40 percent. (4) The smallest financial sector in the financial conglomerate is the sector with the smallest average value within the meaning of para. 1, and the most significant financial sector is the sector with the highest average value. For the calculation of the average value and for determining the smallest and the most significant financial sector, the banking sector and the investment services sector are considered together. (5) (New - SG, No. 70 of 2013) Management companies, respectively entities managing alternative investment funds, are included in the sector to which they belong within the group. If they do not belong exclusively to one sector within the group, they are added to the smallest financial sector. (6) (Previous para. 5, amended - SG, No. 70 of 2013) If the group under para. 2 does not reach the threshold under para. 1, the Bulgarian National Bank (BNB) and the Financial Supervision Commission (FSC) may, by common agreement with other relevant competent authorities, decide not to consider the group as a financial conglomerate or not to apply the provisions of Art. 10, 11, or 13, if they consider that considering the group as a financial conglomerate or applying these provisions is not necessary or will be inappropriate or misleading with regard to the objectives of additional supervision. (7) (New - SG, No. 70 of 2013) If the group under para. 2 reaches the threshold under para. 1, but the smallest sector in the group does not exceed the BGN equivalent of 6 billion euros, the BNB and FSC may, by common agreement with other relevant competent authorities, decide not to consider the group as a financial conglomerate or not to apply the provisions of Art. 10, 11, or 13, if they consider that considering the group as a financial conglomerate or applying these provisions is not necessary or will be inappropriate or misleading with regard to the objectives of additional supervision. (8) (Previous para. 6, amended - SG, No. 70 of 2013) The Bulgarian National Bank and FSC inform the interested competent authorities and publicly announce the decisions under paras. 6 and 7. (9) (Previous para. 7, amended - SG, No. 70 of 2013) For the application of paras. 1 - 4, 6, and 7, the BNB and FSC may, by common agreement with the relevant competent authorities:
3. (supplemented - SG, No. 70 of 2013) exclude an entity when calculating ratios in the cases under Art. 6, paras. 9 - 12, unless the entity moves its seat from a Member State to a third country and there is evidence that the change was made with the aim of avoiding the application of a specific legal regime;
4. cease considering the group as a financial conglomerate, despite meeting the conditions under paras. 1, 3, and 4, if there are substantial changes in the structure of the group;
5. not cease considering the group as a financial conglomerate, if in one of three consecutive years the group has met the conditions under paras. 1, 3, and 4, in order to avoid sudden changes in the regime.
6. (new - SG, No. 70 of 2013) exclude one or more participations in the smallest financial sector, if these participations would be decisive for the identification of a financial conglomerate, but taken together represent insignificant interest from the perspective of the objectives of additional supervision. (10) (Previous para. 8, amended - SG, No. 70 of 2013) When a group is identified as a financial conglomerate, the decisions under para. 9 are taken upon proposal by the coordinator of this financial conglomerate. (11) (Previous para. 9, amended and supplemented - SG, No. 70 of 2013) For the application of paras. 1, 3, and 4, the BNB and FSC may, in exceptional cases and by common agreement with the relevant competent authorities, replace the criterion of balance sheet total or add to it the criteria of income structure, off-balance sheet activities, and/or total size of managed assets, if they consider that these criteria are of essential importance for the purposes of additional supervision. (12) (Previous para. 10 - SG, No. 70 of 2013) The object of additional supervision under this Law continues to be a financial conglomerate that ceases to meet the criteria under paras. 1 - 3, if during the following three years it meets the conditions for:
7. ratio of 8 percent - under para. 1, respectively 35 percent - under para. 3;
8. BGN equivalent of 5 billion euros - under para. 2. (13) (Previous para. 11, amended - SG, No. 70 of 2013) During the period under para. 12, the BNB or FSC, when one of them is the coordinator, may, with the consent of the relevant competent authorities, not apply the lower thresholds, respectively the lower amount. (14) (Previous para. 12, amended - SG, No. 70 of 2013) The calculations under paras. 1 - 6, 9, and 11 regarding the accounting balance are made based on the aggregated (total) balance sheet total of the entities in the group according to their annual financial statements. For the purposes of this calculation, companies in which the parent undertaking, its subsidiaries, and entities linked to them within the meaning of Art. 2, para. 2, item 3, have a participation are included with such part of the size of their balance sheet total that corresponds to the aggregated (total) proportional share held by the entities in the group. When consolidated financial statements are available, they are used instead of aggregated financial statements. (15) (New - SG, No. 70 of 2013) The Bulgarian National Bank and FSC carry out an annual review of the exclusions in the exercise of additional supervision and revise the quantitative indicators specified in this Article and the risk-based assessments applied to financial groups.

Identification of Financial Conglomerate Art. 4. (Amended - SG, No. 105 of 2011; amended and supplemented, No. 70 of 2013) (1) The Bulgarian National Bank and FSC independently, and when necessary - in cooperation with each other and with other competent authorities, identify every group falling within the scope of this Law, in which licensed supervised entities participate. (2) (Supplemented - SG, No. 70 of 2013) If the BNB or FSC considers that a supervised entity licensed by it is a member of a group that meets the conditions under Art. 2 and 3, but has not yet been identified as a financial conglomerate, it notifies the interested competent authorities and the Joint Committee of the European Supervisory Authorities (JCE). (3) (Amended - SG, No. 105 of 2011; amended, No. 70 of 2013) The coordinator under Art. 14 notifies the parent undertaking that heads the group, or if there is no parent undertaking - the supervised entity with the largest balance sheet total in the most significant financial sector in the group, that the group has been identified as a financial conglomerate and a coordinator has been appointed. The coordinator also notifies the competent authorities that licensed the supervised entities in the group, the competent authorities of the Member State where the seat of the financial holding company with mixed activities is located, and the JCE.

Chapter Two REQUIREMENTS FOR ADDITIONAL SUPERVISION

Scope of Additional Supervision Art. 5. (Amended and supplemented - SG, No. 70 of 2013) (1) The object of additional supervision at the financial conglomerate level is any supervised entity:

1. which heads a financial conglomerate;
2. whose parent undertaking is a financial holding company with mixed activities with a seat in a Member State;
3. linked to an entity from another financial sector in one of the following ways: a) through joint management by virtue of a contract or their founding deeds or statutes, or b) more than half of the members of their management or supervisory bodies are the same persons during the respective financial year and up to the date of preparation of the consolidated financial statement. (2) Any supervised entity that is not an object of additional supervision under para. 1, whose parent undertaking has its seat in a third country and is a supervised entity or a financial holding company with mixed activities, is subject to additional supervision at the financial conglomerate level in accordance with Art. 22. (3) When two or more entities have participations or capital links with one or several supervised entities or exercise significant influence over these supervised entities outside the cases under paras. 1 and 2, the BNB and FSC independently or in cooperation with each other and by common agreement with other competent authorities determine whether additional supervision should be exercised over the supervised entities as part of a financial conglomerate. In this case, at least one of the entities must be a supervised entity within the meaning of Art. 1 and the conditions under Art. 2, para. 1 must be met. (4) (New - SG, No. 70 of 2013) The scope of additional supervision under this Law includes management companies and entities managing alternative investment funds, in the manner and to the extent in which financial institutions are included. For this purpose, the procedure established in Art. 3, paras. 1 - 4 applies. (5) (Previous para. 4 - SG, No. 70 of 2013) The Bulgarian National Bank and FSC do not exercise supervisory powers on a standalone basis with regard to a financial holding company with mixed activities, supervised entities from third countries that are part of a financial conglomerate, or entities from a financial conglomerate that are not supervised, except for supervision of compliance with the requirements of Art. 17.

Capital Adequacy Art. 6. (Amended and supplemented - SG, No. 70 of 2013) (1) Supervised entities in the financial conglomerate must at all times have own funds at the financial conglomerate level that meet the requirement for additional capital adequacy under Art. 7, para. 2. (2) Supervised entities in the financial conglomerate must have suitable rules for capital adequacy at the financial conglomerate level. (3) Supervised entities or the financial holding company with mixed activities carry out the calculation under Art. 7, para. 1 at least once a year. (4) The coordinator exercises supervision over compliance with the requirements under paras. 1 - 3. (5) The supervised entity that heads the financial conglomerate, or the financial holding company with mixed activities, when a supervised entity does not head the financial conglomerate, or the supervised entity in the financial conglomerate determined by the coordinator after consultations with the relevant competent authorities and with the financial conglomerate, provides the coordinator with the results of the calculation and the data necessary for the calculation. (6) (Supplemented - SG, No. 70 of 2013) When calculating additional capital adequacy under Art. 7, para. 1, entities from the financial sector and financial holding companies with mixed activities are included in the scope of additional supervision in the manner and to the extent determined in Art. 7 - 9 and in the Appendix. (7) When the method of accounting consolidation - Method No. 1, specified in the Appendix, is applied in calculating the additional capital adequacy of the financial conglomerate, the own funds and solvency requirements of the entities in the group are calculated by applying the regulatory requirements for the form and extent of consolidation for supervised entities from the banking and insurance sectors. (8) (Amended - SG, No. 70 of 2013) When the deduction and aggregation method - Method 2, specified in the Appendix, is applied, the calculation is carried out in accordance with the proportional share of subscribed capital held directly or indirectly by the parent undertaking or by the company that has a participation in another entity in the group. The proportional share is the part of the subscribed capital that the parent undertaking or the company that has a participation in another entity in the group holds directly or indirectly. (9) The coordinator may not include a specific entity in the calculation of additional capital adequacy when:

1. the entity carries out activities in the territory of a third country where there are legal obstacles to providing the necessary information;
2. the entity is of insignificant interest for the purposes of additional supervision of supervised entities in the financial conglomerate;
3. including the entity is inappropriate or misleading for the purposes of additional supervision. (10) Entities under para. 9, item 2 are not excluded if they are jointly of significant interest. (11) In the cases under para. 9, item 3, the coordinator, before making a decision, consults with the relevant competent authorities, unless an immediate decision is necessary. (12) When the coordinator does not include a supervised entity in the cases under para. 9, items 2 or 3, the entity that heads the financial conglomerate is obliged to provide, upon request of the competent authorities of the Member State where this supervised entity is licensed, the information that facilitates supervision over the supervised entity.

Methods for Determining Capital Adequacy Art. 7. (1) The calculation of additional capital adequacy under Art. 6 of supervised entities in the financial conglomerate is carried out in accordance with the technical principles under Art. 9 and by one or a combination of the methods according to the Appendix. (2) The result of the calculations under para. 1 must not be a negative value. (3) The Bulgarian National Bank or FSC, when one of them is the coordinator of a financial conglomerate, after coordination with the relevant competent authorities and with the financial conglomerate, determines the method under para. 1 that will be applied by this financial conglomerate. (4) The Bulgarian National Bank or FSC, when one of them is the coordinator of a financial conglomerate and a supervised entity licensed by it heads the financial conglomerate, determines the specific method that will be applied by this financial conglomerate. (5) The Bulgarian National Bank or FSC, when one of them is the coordinator of a financial conglomerate, headed by no supervised entity, and they are the only relevant competent authorities with regard to the supervised entities in the conglomerate, determines the specific method that will be applied by this financial conglomerate.

Scope and Form of Calculations of Additional Capital Adequacy Art. 8. (1) Regardless of the method used, when a subsidiary in the group has a capital shortfall or the subsidiary from the financial sector is not a supervised entity - conditional capital shortfall, the entire capital shortfall of the subsidiary is taken into account in the calculation under Art. 7, para. 1. (2) A capital shortfall or conditional capital shortfall exists when the solvency requirements are higher than the size of own funds, and for an entity that is not supervised - the conditional solvency requirements are higher than the size of own funds. (3) The conditional solvency requirement for an entity from the financial sector that is not supervised is the minimum size of own funds that this entity must have when complying with the rules for the respective sector, if it were a supervised entity from this financial sector. The conditional solvency requirement for a financial holding company with mixed activities is calculated in accordance with the sectoral rules of the most significant financial sector in the financial conglomerate. (4) In the cases under para. 1, when in the opinion of the coordinator the liability of the parent undertaking is strictly and clearly limited to its share in the capital of the subsidiary, with the permission of the coordinator, the capital shortfall may be accounted for in accordance with the proportional share. (5) In cases where there are no capital links between the entities in the financial conglomerate, after coordination with the relevant competent authorities and taking into account the obligation arising from the existing relationships between the entities, the coordinator determines the proportional share in accordance with which the calculation of the requirements for additional capital adequacy will be carried out.

Technical Principles in Determining Additional Capital Adequacy Art. 9. (1) When determining additional capital adequacy, the multiple use of elements included in the own funds at the financial conglomerate level, as well as all other ways of forming own funds between the enterprises in the group, are eliminated. (2) When the solvency requirements for a separate financial sector are not covered by own funds according to the respective sectoral rules, when checking compliance with the requirement for additional capital adequacy at the financial conglomerate level, the covering of the deficit in one financial sector with the surplus in another is allowed, but only with elements that are admissible and included in the own funds of the entities with deficit and the entities with surplus (inter-sectoral capital) according to the respective sectoral rules. (3) In the cases under para. 2, when sectoral rules provide restrictions regarding certain elements of own funds that meet the requirements for inter-sectoral capital, these restrictions are applied accordingly when calculating own funds at the financial conglomerate level. (4) In the cases under para. 2, when calculating own funds at the financial conglomerate level, the presence of surplus of own funds and the lack of restrictions on their actual transfer between the separate entities in the group are taken into account. When restrictions exist, only the elements or part of the own funds of the entities in the group, with respect to which there are no restrictions, are included in the own funds at the financial conglomerate level.

Concentration of Risk Art. 10. (1) Supervised entities or financial holding companies with mixed activities regularly notify the coordinator, but not less than once a year, of any significant concentration of risk at the financial conglomerate level in compliance with the rules under Art. 12. (2) The notification under para. 1 with the necessary information is submitted to the coordinator by the supervised entity that heads the financial conglomerate. When a supervised entity does not head the financial conglomerate, this obligation applies to the financial holding company with mixed activities or to the supervised entity in the financial conglomerate determined by the coordinator after coordination with the relevant competent authorities and with the financial conglomerate. (3) Significant concentration of risk is subject to supervision by the coordinator. (4) The Bulgarian National Bank and FSC independently, and when necessary - jointly, may determine for each concentration of risk at the financial conglomerate level a quantitative limit or take other supervisory measures that would achieve the objectives of additional supervision. (5) When a financial holding company with mixed activities heads the financial conglomerate, the sectoral rules for risk concentration in the most significant financial sector in the financial conglomerate apply to this financial sector as a whole, including the financial holding company with mixed activities.

Intra-Group Transactions Art. 11. (1) Supervised entities or financial holding companies with mixed activities regularly notify the coordinator, but at least once a year, of all significant intra-group transactions in compliance with the rules under Art. 12. A significant intra-group transaction is a transaction whose value exceeds 5 percent of the total sum of solvency requirements at the financial conglomerate level. (2) The notification under para. 1 with the necessary information is submitted to the coordinator by the supervised entity that heads the financial conglomerate. When a supervised entity does not head the financial conglomerate, this obligation applies to the financial holding company with mixed activities or to the supervised entity in the financial conglomerate determined by the coordinator after coordination with the relevant competent authorities and with the financial conglomerate. (3) Intra-group transactions are subject to supervision by the coordinator. (4) The Bulgarian National Bank and FSC independently, and when necessary - jointly, may determine quantitative restrictions and quality requirements with regard to intra-group transactions or take other supervisory measures that would achieve the objectives of additional supervision. (5) When a financial holding company with mixed activities heads the financial conglomerate, the sectoral rules for intra-group transactions in the most significant financial sector in the financial conglomerate apply to this financial sector as a whole, including the financial holding company with mixed activities.

Technical Implementation of Provisions on Intra-Group Transactions and Risk Concentration Art. 12. (1) The Bulgarian National Bank or FSC, when one of them is the coordinator, after coordination with the relevant competent authorities, determines the type of transactions and risks for which supervised entities in the financial conglomerate notify it by reg