Decision on Own Funds of Electronic Money Institutions

Pursuant to Article 44 paragraph 2 item 3 of the Central Bank of Montenegro Law (OGM 40/10, 6/13, 70/17), Article 117 paragraph 4 of the Payment System Law (OGM 62/13, 111/22), the Council of the Central Bank of Montenegro, at its meeting held on 22 September 2023, passed the following DECISION ON OWN FUNDS OF ELECTRONIC MONEY INSTITUTIONS
I. BASIC PROVISION
Subject Matter
Article 1
This Decision shall prescribe the more detailed conditions and the method for calculating own funds that an electronic money institution shall maintain for the purpose of ensuring safe and sound operations or for meeting the obligations to its creditors.
II. CALCULATION OF OWN FUNDS OF ELECTRONIC MONEY INSTITUTION
Own funds of an electronic money institution
Article 2
Own funds of an electronic money institution shall be the sum of Tier 1 and Tier 2 capital.

1. Tier 1 capital of an electronic money institution
   Tier 1 capital
   Article 3
   Tier 1 capital of an electronic money institution shall be the sum of Common Equity Tier 1 capital and Additional Tier 1 capital of an electronic money institution. Common Equity Tier 1 capital
   Article 4
   Common Equity Tier 1 capital of an electronic money institution shall be the items referred to in paragraph 2 of this Article reduced by the deductions referred to in Article 5 of this Decision. Items of an electronic money institution's Common Equity Tier 1 capital shall be:

1. paid-in share capital at nominal value excluding cumulative preferred shares or
   paid-in contributions;

2. paid-up issue premiums, excluding issue premiums based on cumulative preferred
   shares or the amount paid above the par value during the payment of the contributions;

3. reserves established against profit after tax (legal, statutory and other reserves);

4. unrealised gains on value adjustment of available-for-sale financial assets, at fair
   value;

5. retained profit from prior years for which the competent authority of an electronic
   money institution has passed a decision to be included in Tier 1 capital, reduced by profit tax and other expected costs;

6. current year profit, if the following conditions are met:
    competent authority of an electronic money institution passed a decision to allocate the profit realized in the current year in the whole or in part into reserves, capital increase, to cover prior year losses and/or in retained profit, expressed as percentage,  profit is reduced by corresponding profit tax and other expected costs,  external auditor has verified the profit,  the Central Bank of Montenegro (hereinafter: the Central Bank) has granted the authorisation to an electronic money institution to include the profit into Common Equity Tier 1 capital. An electronic money institution shall submit an application to the Central Bank for granting the authorisation to include the profit into Common Equity Tier 1 capital, supported by the decision of the competent authority and external auditor’s report confirming the profit referred to in paragraph 2 item 6 indents 1 and 3 of this Article, and financial statements verifying the data on current year profit in the amount planned for the inclusion in the calculation of Common Equity Tier 1 capital. An electronic money institution may include items referred to in paragraph 2 of this Article into Common Equity Tier 1 capital, only if the following conditions are met:

7. those items are unconditionally, irrevocably and fully at the disposal to cover risks
   or losses during the entire period of an electronic money institution’s operations;

8. in the case of opening of the bankruptcy proceedings or winding-up of an electronic
   money institution, those items are fully and without limitations at the disposal for settlement of losses of the electronic money institution, after all obligations to all other creditors of an electronic money institution have been met;

9. those items are reduced by the expected amount of tax liability.
   An electronic money institution may not include in the calculation of Common Equity Tier 1 capital the following:

10. profit and loss on liabilities carried at fair value arising from changes in the credit rating
    of an electronic money institution;

11. cash flow hedging reserves initially measured at amortised cost and cash flow hedging
    that refers to unplanned transactions;
    Deductions when calculating Common Equity Tier 1 capital
    Article 5
    When calculating Common Equity Tier 1 capital of an electronic money institution, deductions shall be:

12. prior year loss;

13. current year loss;

14. intangible assets in the form of goodwill, licenses, patents, trademarks and
    concessions;

15. nominal amount of acquired own shares, excluding cumulative preferred shares or
    acquired own contributions;

16. unrealised losses on value adjustment of available-for-sale financial assets, at fair
    value;
    Additional Tier 1 capital
    Article 6
    Additional Tier 1 capital shall be capital instruments increased by the issue premiums that cannot be classified as Common Equity Tier 1 instruments and that meet the following conditions:

17. instruments are issued by an electronic money institution and are fully paid-up;

18. instruments are ranked below Tier 2 instruments in the event of insolvency of the
    payment institution;

19. instruments can be converted into the Common Equity Tier 1 instrument;

20. instruments contain precisely defined trigger event upon which the conversion into
    Common Equity Tier 1 capital depends;

21. instruments are perpetual and the provisions governing those instruments include no
    incentive for the electronic money institution to redeem them;

22. where the instruments include one or more early redemption options, including call
    options, the options are exercisable at the sole discretion of the issuer; Where an electronic money institution acquires own Additional Tier 1 instruments, it shall exclude them from the calculation of the Additional Tier 1 capital.

2. Tier 2 capital of electronic money institution
   Tier 2 capital
   Article 7
   Tier 2 capital of an electronic money institution shall be the capital instruments meeting the conditions referred to in paragraph 2 of this Article and Article 8 of this Decision and the share premium accounts related to those instruments. Tier 2 instruments must meet the following conditions:

1. instruments are issued by an electronic money institution and are fully paid-up;
2. instruments have a maturity of at least five years;
3. electronic money institution does not guarantee the payment of such debt by its own
   pledge, mortgage or in any other way;
4. in the event of bankruptcy proceedings or winding up of the electronic money
   institution, the instrument is subordinated to other obligations and is paid only after the settlement of obligations to other creditors;
5. the instrument may be used only for the payment of claims of creditors in bankruptcy
   proceedings and/or winding-up of the electronic money institution;
6. the payment of the instrument to creditors or redemption by the electronic money
   institution before maturity may be executed only:

• in the case of the conversion of the instrument into shares, excluding cumulative
  preferred shares or into contributions,
• in other cases, with the authorisation of the Central Bank, if, in the following three
  business years, the payment of the instrument will not deteriorate operations of the electronic money institution in accordance with the law.

The electronic money institution shall submit to the Central Bank an application for granting the authorisation referred to in paragraph 2 item 6 indent 2 of this Article, supported by an evidence identifying the conditions for issuing the Tier 2 instrument and the projection of financial statements for the following three business years. Where an electronic money institution acquires own Tier 2 instruments, it shall exclude them from the calculation of the Tier 2 capital. Amortisation of Tier 2 instruments
Article 8
Tier 2 instrument with the residual maturity of more than five years may be included in the calculation of Tier 2 capital in full amount. Tier 2 instrument with a residual maturity of less than five years shall be recognised in the amount to be calculated in the manner that the carrying amount of the instruments on the first day of the final five-year period of their contractual maturity, divided by the number of days in that period is multiplied by the number of the remaining days of the contractual maturity of the instrument.
3. Additional deductions from own funds of an electronic money institution
Deductions of holdings of non-financial sector entities
Article 9
Holding of Common Equity Tier 1 instruments (contributions or shares) of the non-financial sector entities, within the meaning of the law governing the establishment and operations of credit institutions, where the electronic money institution has a significant investment exceeding the threshold referred to in paragraph 2 of this Article, shall be a deduction from Common Equity Tier 1 capital. The amount higher than that calculated in accordance with items 1 and 2 of this paragraph shall be taken as a deduction as follows:

1. the amount of individual investment in an entity referred to in paragraph 1 of this
   Article exceeding 15% of own funds of an electronic money institution;
2. the aggregate amount of all investments in entities referred to in paragraph 1 of this
   Article exceeding 60% of own funds of an electronic money institution;
   For the purposes of calculating deductions referred to in this Article and Articles 10 and 11 of this Decision, a significant investment means an investment in a non-financial sector entity, or a financial sector entity higher than 10% of Common Equity Tier 1 capital of that entity (shares or contributions). Deductions of holdings of financial sector entities where an electronic money institution does not have a significant investment
   Article 10
   The amount of holdings of Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments of financial sector entities, within the meaning of the law governing the establishment and operations of credit institutions, where the electronic money institution does not have a significant investment, shall be a deduction from Common Equity Tier 1 capital, Additional Tier 1 capital and Tier 2 capital, if aggregate

amount of those investments exceeds 10% of Common Equity Tier 1 capital of electronic money institution as identified in accordance with Article 4 paragraph 1 of this Decision. The aggregate amount of the deduction referred to in paragraph 1 of this Article, which is subtracted from Common Equity Tier 1 capital, shall be determined by multiplying the aggregate amount of all investments referred to in paragraph 1 of this Article exceeding 10% of Common Equity Tier 1 capital of the electronic money institution by the proportional participation of holdings of Common Equity Tier 1 instruments of financial sector entities where the electronic money institution does not have a significant investment in the total investments in all financial sector entities. The aggregate amount of the deduction referred to in paragraph 1 of this Article, which is subtracted from Additional Tier 1 capital, shall be determined by multiplying the aggregate amount of all investments referred to in paragraph 1 of this Article exceeding 10% of Common Equity Tier 1 capital of the electronic money institution by the proportional participation of holdings of Additional Tier 1 instruments of financial sector entities where the electronic money institution does not have a significant investment in the total investments in all financial sector entities. The aggregate amount of the deduction referred to in paragraph 1 of this Article, which is subtracted from Tier 2 capital, shall be determined by multiplying the aggregate amount of all investments referred to in paragraph 1 of this Article exceeding 10% of Common Equity Tier 1 capital of the electronic money institution by the proportional participation of holdings of Tier 2 instruments of this Article financial sector entities where the electronic money institution does not have a significant investment in the total investments in all financial sector entities. Deductions of holdings of financial sector entities where an electronic money institution does not have a significant investment
Article 11
The amount of holdings of Common Equity Tier 1 instruments of financial sector entities, where the electronic money institution has a significant investment, shall be a deduction from Common Equity Tier 1 capital, if aggregate amount of those investments exceeds 10% of Common Equity Tier 1 capital of electronic money institution as identified in accordance with Article 4 paragraph 1 of this Decision. The amount of holdings of Additional Tier 1 instruments or Tier 2 instruments of financial sector entities, where the electronic money institution has a significant investment, shall be a deduction from Additional Tier 1 capital or Tier 2 capital of the electronic money institution in the full amount of investment, unless the requirements referred to in paragraph 3 of this Article have been met. By way of derogation from paragraph 2 of this Article the amount of holdings of Additional Tier 1 instruments or Tier 2 instruments of financial sector entities, where the electronic money institution has a significant investment, shall be a deduction from Additional Tier 1 capital or Tier 2 capital of the electronic money institution in the amount exceeding the amount of Additional Tier 1 capital or Tier 2 capital of the electronic money institution, provided that one of the following two conditions has been met:

1. the maturity of Additional Tier 1 instrument or Tier 2 instrument of the electronic
   money institution is equal to or shorter than the maturity of the holding of Additional

Tier 1 instrument or Tier 2 instrument of financial sector entity, where the electronic money institution has a significant investment;
2) the residual maturity of Additional Tier 1 instrument or Tier 2 instrument of an
electronic money institution is shorter than one year.
Temporary exemptions from applying deductions of holdings of financial sector entities
Article 12
An electronic money institution may request an authorisation from the Central Bank to exclude holdings referred to in Articles 10 and 11 of this Decision from the calculation of deductions when calculating Common equity Tier 1 capital, where such holdings are of temporary nature and the electronic money institution holds them to provide financial assistance in order to reorganise or improve the financial situation of persons with the respective investments. An electronic money institution shall submit documents evidencing the fulfilment of the requirements for the exclusion of such a holding from the calculation of Common Equity Tier 1 capital, supported by the application for granting authorisation referred to in paragraph 1 of this Article.
III. MINIMUM OWN FUNDS REQUIREMENTS FOR ELECTRONIC MONEY
INSTITUTIONS
Minimum amount of own funds
Article 13
Own funds of an electronic money institution for the activity of electronic money issuance calculated in accordance with Articles2 to 10 of this Decision shall not at any time fall below 2% of average electronic money in circulation. Average electronic money in circulation, within the meaning of this Article, means the average total amount of financial liabilities related to electronic money in issue at the end of each calendar day over the preceding six calendar months, calculated on the first calendar day of each calendar month and applied for that calendar month. In addition to own funds referred to in paragraph 1 of this Article, an electronic money institution providing payment services not connected with the electronic money issuance shall, in addition to the minimum amount of own funds referred to in paragraph 1 of this
Article, hold additional amount of own funds calculated in accordance with Article 78 of the
Payment System Law (OGM 62/13, 111/22) (hereinafter: the Payment System Law) and the regulation governing the calculation of own funds of payment institutions. The own funds of an electronic money institution shall not at any fall below the amount of minimum initial capital of an electronic money institution as set out in Article 116 paragraph 1 of the Payment System Law or the sum of the amounts of own funds referred to in paragraphs 1 and 3 of this Article, whichever the higher.

IV. REPORTING ON OWNN FUNDS AND MINIMUM OWN FUNDS REQUIREMENTS OF
ELECTRONIC MONEY INSTITUTIONS
Quarterly reports
Article 15
For the purpose of ensuring the monitoring of the level of own funds and minimum own funds requirements, the electronic money institution shall submit to the Central Bank the following quarterly reports:

1. Report on own funds of electronic money institution (Template IEN-RK),
2. Report on the minimum own funds requirements of electronic money institution
   (Template IEN-MRK).
   The electronic money institution shall submit the reports referred to in paragraph 1 of this
   Article to the Central Bank in electronic form, using the templates attached to this Decision
   and which make an integral part thereof.
   The Central Bank may provide guidelines for filling in the positions of the reporting templates referred to in paragraph 2 of this Article. Deadlines for submitting quarterly reports
   Article 16
   An electronic money institution shall submit quarterly reports referred to in Article 15 paragraph 1 of this Decision to the Central Bank no later than 20 days following the end of the quarter to which those reports refer. Notwithstanding paragraph 1 of this Article, an electronic money institution shall submit to the Central Bank the reports referred to in Article 15 paragraph 1 of this Decision for the last quarter of the business year on the basis of final data no later than 1 April of the following year. Method of submitting quarterly reports
   Article 17
   An electronic money institution shall submit the reports referred to in Article15 paragraph 1 of this Decision in electronic form, and at the request of the Central Bank also in hard copy.
   V. TRANSITIONAL AND FINAL PROVISION
   Repealed regulation
   Article 18
   As from the entry into force of this decision, the Decision on Own Funds of Electronic Money Institutions (OGM 48/14, 80/20) shall be repealed. Entry into force
   Article 19
   This Decision shall be published in the “Official Gazette of Montenegro”, and it shall enter into force on the day of entry into force of the Law amending the Payment System Law (OGM 111/22).

THE COUNCIL OF THE CENTRAL BANK OF MONTENEGRO
Decision number: 0101-6883-3/2023 CHAIRPERSON
Podgorica, 22 September 2023 GOVERNOR,
Radoje Žugić, m.p.

Annex
TEMPLATE IEN-RK
/name of the electronic money institution
REPORT ON OWN FUNDS OF ELECTRONIC MONEY
INSTITUTION
No. POSITION AMOUNT
1=1.1+1.2 OWN FUNDS
1.1 =
1.1.1+1.1.2 TIER 1 CAPITAL
1.1.1 COMMON EQUITY TIER 1 CAPITAL (CET1)
1.1.1.1 Capital instruments recognised as CET1 (paid in share capital or
contributions)
1.1.1.1.1 paid in capital instruments
1.1.1.1.2 issue premium (premium on shares or contributions)
1.1.1.1.3 (-) acquired own CET1 instruments (direct, indirect and synthetic
holdings of shares or contributions)
1.1.1.2 Retained profit or accumulated loss from prior period
1.1.1.3
Current year profit if the requirements referred to in Article 4 of the Decision on Own Funds of Electronic Money Institutions have been met.
1.1.1.4 (-) Current year loss
1.1.1.5 Accumulated other comprehensive income (FVOCI)
1.1.1.6 Reserves established against profit after tax (legal, statutory and
other reserves)
1.1.1.7 (-) Intangible assets
1.1.1.8 (-) Deductions from Additional Tier 1 capital items exceeding
Additional Tier 1 capital
1.1.1.9
(-) CET1 instruments of the non-financial sector entities where an electronic money institution has a significant investment in those entities 1.1.1.10 (-) CET1 instruments of the financial sector entities where an electronic money institution does not have a significant investment in those entities 1.1.1.11 (-) CET1 instruments of the financial sector entities where an electronic money institution has a significant investment in those entities
1.1.1.12 Other items or deductions from CET1
1.1.2 ADDITIONAL TIER 1 CAPITAL (AT1)
1.1.2.1 Capital instruments recognised as AT1
1.1.2.1.1 paid in capital instruments
1.1.2.1.2 issue premium (premium on shares)
1.1.2.1.3 (-) acquired own AT 1 instruments (direct, indirect and synthetic
holdings)

1.1.2.2
(-) AT1 instruments of the financial sector entities where an electronic money institution does not have a significant investment in those entities 1.1.2.3 (-) AT1 instruments of the financial sector entities where an electronic money institution has a significant investment in those entities
1.1.2.4 (-) Deduction form Tier 2 items exceeding Tier 2 capital
1.1.2.5 (-) Deductions from AT1 items exceeding AT1 (deducted in CET1)
1.1.2.6 Other items or deductions from AT1
1.2 TIER 2 CAPITAL
1.2.1 Capital instruments recognised as Tier 2 capital
1.2.1.1 paid in capital instruments
1.2.1.2 issue premium (premium on shares)
1.2.1.3 (-) acquired own Tier 2 instruments (direct, indirect and synthetic
holdings)
1.2.2
(-) Tier 2 instruments of the financial sector entities where an electronic money institution does not have a significant investment in those entities
1.2.3 (-) Tier 2 instruments of the financial sector entities where an
electronic money institution has a significant investment
1.2.4 (-) Deduction form Tier 2 items exceeding Tier 2 capital (deducted
in AT1)
1.2.5 Other items or deductions from Tier 2 capital
In _____________________, ________________ 20 Report composed by:
Telephone and e-mail:

TTEMPLATE IEN-MRK

/name of electronic money institution
REPORT ON MINIMUM OWN FUNDS
OF ELECTRONIC MONEY INSTITUTION in EUR 000
No. POSITION AMOUNT MINIMUM REQUIRED
OWN FUNDS
SURPLUS/DEFICIT
OF OWN FUNDS

1. Common Equity Tier 1
   capital
2. Additional Tier 1 capital
3. Tier 1 capital
4. Tier 2 capital
5. Own funds
6. Minimum initial capital prescribed by the
   Payment System Law
7. Minimum own funds requirements of an electronic
   money institution for the activity of electronic money issuance No. Name Amount
   7.1 Average electronic money in circulation
   7.2 2% of average electronic money in circulation

In _____________________, ________________ 20 Report composed by:
Telephone and e-mail:
8. Additional amount of own funds for the provision of services not connected with
the electronic money issuance, calculated in accordance with the Decision on Own Funds of Electronic Money Institutions Amounts in EUR
8.1 Cumulative value of payment transactions
8.2. payment transactions volume
8.3. factor “k”
8.4. Minimum own funds requirements using
payment transaction range method
9. Own funds adjustment in the cases envisaged
by the Payment System Law (+/- up to 20%)