Regulation on the Performance of Duties, Conditions and Procedures for the Selection and Revocation of Approved Depositories of Mandatory Pension Funds - Unofficial Consolidated Text (NN, Nos. 63/14, 72/14 and 39/17)

UNOFFICIAL CONSOLIDATED TEXT NN 63/2014 of 23.05.2014. NN 72/14 (Correction) NN 39/17 of 21.04.2017. (effective from 01.05.2017.) CROATIAN FINANCIAL SERVICES SUPERVISORY AGENCY Based on Article 125(3), Article 171(2), Article 172(2), Article 173(4), Article 174(4), Article 178(6) and Article 190(3) of the Mandatory Pension Funds Act (Official Gazette No. 19/2014), the Croatian Financial Services Supervisory Agency, at its Management Board meeting held on 16 May 2014, adopted REGULATION ON THE PERFORMANCE OF DUTIES, CONDITIONS AND PROCEDURES FOR THE SELECTION AND REVOCATION OF APPROVED DEPOSITORIES OF MANDATORY PENSION FUNDS I. GENERAL PROVISIONS Article 1. Certain terms in this Regulation have the following meanings:

1. Agency means the Croatian Financial Services Supervisory Agency.
2. Act means the Mandatory Pension Funds Act (Official Gazette No. 19/2014).
3. Fund management company means a fund management company for managing mandatory pension funds.
4. Pension fund means the mandatory pension fund.
5. Depository means a credit institution or a branch of a credit institution to which the duties prescribed by Article 172 of the Act have been entrusted. Article 2. This Regulation prescribes:
6. the conditions and procedures for selecting a pension fund depository, as well as the documentation to be submitted with the application for approval,
7. special rules for performing depository duties, and the mandatory content and form of the agreement on performing depository duties for a pension fund, concluded between the depository and the fund management company,
8. the method of storing pension fund assets with the depository,
9. the method and time limits within which the depository notifies the Agency of identified irregularities in the pension fund's operations,
10. the procedure to be followed by the fund management company and the depository in cases where the depository's operating approval is revoked, or the fund management company's approval for selecting a depository is revoked.
11. the scope and content of the audit report on the performance of the depository's obligations. II. CONDITIONS AND PROCEDURES FOR SELECTING A DEPOSITORY Application for Approval of Selected Depository Article 3. (1) The fund management company must submit a written application to the Agency for approval of the selected depository, containing:
12. for a depository under Article 170(2)(1) of the Act – the company name and registered office in the Republic of Croatia,
13. for a depository under Article 170(2)(2) of the Act – the company name and registered office of the parent in the member state, as well as the company name and registered office of the branch in the Republic of Croatia (head office and all other branches, if any),
14. the name and surname, OIB (Personal Identification Number), and educational level of the depository manager,
15. contact details of the depository,
16. date of application submission,
17. signatures of persons authorized to represent the fund management company and the seal of the fund management company. (2) The application under paragraph 1 must be accompanied by:
18. the agreement on performing depository duties and a price list for those duties, if not part of the agreement,
19. for a depository under Article 170(2)(1) – a copy of the court register extract and a copy of the operating approval issued by the Croatian National Bank,
20. for a depository under Article 170(2)(2) – a copy of the court register extract for the branch, a copy of the extract from the relevant registry of the member state for the parent, and an original or certified copy of the operating approval issued by the competent authority of the member state,
21. a declaration by the depository that there are no legal impediments under Article 176(4) and (5) of the Act,
22. a certificate from the depository demonstrating that the depository manager meets the conditions under Article 170(5) of the Act regarding relevant experience,
23. evidence of compliance with organizational and technical requirements for performing depository duties in accordance with the Act and Articles 5 and 6 of this Regulation,
24. a copy of the audit opinion on the depository's financial statements for the last three business years, in accordance with regulations governing financial statements, or shorter if the depository has operated for less than three years,
25. proof of paid fee and administrative charge,
26. additional documentation upon the Agency's request. (3) Relevant experience under Article 170(5) of the Act means that the depository manager must hold a completed master's degree in accordance with regulations governing scientific activities and higher education, along with relevant professional qualifications, competence, and at least three years of experience in depository or similar duties. (4) The agreement on performing depository duties, besides being in paper form, must be submitted electronically by the management company on an appropriate medium in a clear and readable format. (4) If the fund management company submits the agreement in paper form, it must also submit it electronically on an appropriate medium in a clear and readable format. (5) All documents under paragraphs 1 and 2 must be translated by an authorized court interpreter into Croatian, and the original operating approval under paragraph 2(3) must be certified in accordance with laws and international regulations (Apostille – Hague Convention of 5 October 1961). (6) The application and documentation under paragraphs 1 and 2 may be submitted to the Agency in accordance with the Technical Instruction for using the WEB form input service and electronic document submission, and the Instructions for filling out WEB forms for fund management companies. (7) The fund management company is deemed to have submitted the documentation prescribed by this article at the moment it is recorded on the server for sending such documentation. Conditions for Performing Depository Duties Article 4. Persons under Article 170(2) of the Act may perform depository duties if they meet the organizational and technical conditions necessary for fulfilling their obligations under the Act and this Regulation. Organizational Conditions Article 5. (1) The depository must prescribe, apply, and regularly update internal acts governing:
27. the internal organizational structure of the unit performing depository duties, and the mutual relationship and methods of communication, information flow, and data exchange between that organizational unit and other parts of the depository,
28. job classification for positions in the organizational unit performing depository duties, with specific tasks, responsibilities, and authorities,
29. physical separation of the organizational unit performing depository duties from other organizational units of the depository,
30. the method of performing depository duties under Article 172 of the Act,
31. an internal control system ensuring compliance with internal decisions and procedures,
32. the method of ensuring data security, integrity, and confidentiality, taking into account their type. (2) The depository must notify the Agency of any change in the depository manager, no later than 7 days from the date of such change, in the manner prescribed by Article 31a of this Regulation. Technical Conditions Article 6. A depository is considered to meet technical conditions for performing depository duties if it possesses at least:
33. an adequate information system,
34. software support for performing depository duties,
35. established communication links for receiving instructions and general client communication via SWIFT, fax, telephone, and the Internet,
36. established written procedures and processes for receiving client instructions for disposing of financial instruments and monetary funds. III. SPECIFICS OF THE AGREEMENT BETWEEN DEPOSITORY AND FUND MANAGEMENT COMPANY Article 7. (1) This section regulates the mandatory content and form of the agreement on performing depository duties, concluded between the depository and the fund management company. (2) The agreement under paragraph 1, as well as subsequent amendments and supplements, must be concluded in written form. (3) The agreement under paragraph 1, as well as subsequent amendments to elements defined in Articles 8 to 11 of this Regulation, take effect on the date of obtaining the Agency's approval under Article 171(1) of the Act. (4) The agreement between the depository and the fund management company applies to all categories of pension funds managed by the fund management company, which must be explicitly stated in the agreement. Procedures of Contracting Parties Article 8. The agreement between the depository and the fund management company must contain at least the following details regarding services provided and procedures to be followed by the contracting parties:
37. description of processes, including those related to storage, to be applied for each type of pension fund asset entrusted to the depository, and the depository's obligation to notify the fund management company of an updated list of countries where assets can be held in custody,
38. description of the method and processes by which the depository transfers all relevant information to the fund management company necessary for managing the pension fund, including exercising rights related to financial instruments in the pension fund's assets, and the method and processes by which the fund management company is enabled to timely and correctly access data related to pension fund accounts,
39. description of the method and processes by which the depository has access to all information necessary for performing its duties,
40. description of processes enabling the depository to review the fund management company's operations, assess the quality of transferred information, either by reviewing records or visiting the fund management company,
41. description of processes enabling the fund management company to evaluate the depository's efficiency in fulfilling its contractual obligations,
42. list of the depository's procedures for handling irregularities/illegality identified in performing its duties, including identification of the person within the fund management company to be contacted in such cases,
43. obligation of the depository to notify the fund management company when it becomes aware that asset segregation is insufficient to ensure protection against sub-depository insolvency in third countries. Information Exchange, Data Confidentiality and Anti-Money Laundering Article 9. (1) The agreement between the fund management company and the depository must contain at least the following elements regarding information exchange, data confidentiality, and anti-money laundering:
44. list of all information to be exchanged between the fund management company and the depository,
45. obligation to protect data confidentiality of contracting parties
46. information on obligations and responsibilities of contracting parties regarding anti-money laundering and counter-terrorist financing, where applicable. (2) The obligations under paragraph 1(2) must not restrict the Agency's access to relevant documents and data. Delegation of Duties to Third Parties Article 10. When the depository intends to delegate certain duties and responsibilities to a third party in accordance with Article 182 of the Act, the agreement between the depository and the fund management company must contain the following elements:
47. obligation of the depository to regularly provide details on the appointed third party performing certain depository duties on behalf of the depository,
48. obligation of the depository to provide, upon request, information on criteria for selecting the third party to whom certain depository duties are delegated, as well as actions taken to monitor the operations of the selected third party,
49. declaration that delegating asset storage duties to a third party does not affect the depository's responsibilities prescribed by the Act and this Regulation. Amendments and Termination of Agreement Article 11. The agreement between the depository and the fund management company must also contain:
50. a provision on the duration of the agreement,
51. assumptions and conditions under which the agreement may be amended or terminated,
52. assumptions and conditions under which duties may be transferred to a new depository, and procedures by which the depository provides all relevant data and documentation to the new depository. Electronic Information Exchange Article 12. Contracting parties may agree that information or part of it is transmitted electronically, if the agreement defines an appropriate method for storing such information. IV. DEPOSITORY DUTIES Article 13. (1) Transaction accounts for business purposes and other accounts of the pension fund under Article 125(1)(10) of the Act must meet the following conditions:
53. opened in the name of the fund management company or depository, for the account of the pension fund,
54. opened at a credit institution or bank with its registered office in a third country, holding operating approval issued by the competent authority, on markets where such transaction accounts are necessary for pension fund operations and subject to regulations having the same effect as Croatian law, with effective supervision,
55. maintained in accordance with client asset protection principles prescribed by the capital market law and regulations adopted thereunder regarding client asset protection. (2) The fund management company will open a transaction account for business purposes of the pension fund with the depository. The depository may open such accounts for the account of the pension fund at persons under paragraph 1(2) on markets where such accounts are necessary for pension fund operations and subject to regulations having the same effect as Croatian law, with effective supervision. (3) To access all information related to transaction accounts for business purposes of the pension fund and clearly track cash flows, the depository must receive or have access to information related to balances and changes in transaction accounts for business purposes of the pension fund opened at persons under paragraph 1(2) directly from those persons, at least daily. (4) To access all information related to other accounts of the pension fund under Article 125(1)(10) of the Act and clearly track cash flows, the fund management company must ensure that the depository receives or has access to information related to balances and changes in those accounts, at least daily. Article 14. The depository must ensure effective and appropriate tracking of cash flows of the pension fund, particularly:
56. ensuring that all monetary funds of the pension fund are recorded in accounts under Article 13(1),
57. when a transaction account for business purposes is opened at persons under Article 13(1)(2) in the name of the depository but for the account of the pension fund, taking necessary measures to ensure that monetary funds of the pension fund are held in accounts different from those of the persons where transaction accounts are opened and from the depository's own account opened at those persons,
58. adopting effective and appropriate procedures for reconciling all cash flows of the pension fund, performing reconciliation daily, and auditing procedures at least once a year,
59. verifying consistency between balances of monetary funds in the pension fund's own records and those of persons under Article 13(1)(2), with balances in the fund management company's records,
60. in case of record inconsistencies under paragraph 1(4), tracking measures taken to resolve them, and notifying the Agency in the manner prescribed by Article 31a if they are not or cannot be resolved. Financial Instruments Held in Custody Article 15. (1) Dematerialized financial instruments from the pension fund portfolio will be held in custody by the depository when all of the following conditions are met:
61. they are transferable securities, including transferable securities with embedded derivatives, money market instruments, and undertakings for collective investment,
62. they can be registered or held on an account directly or indirectly in the name of the depository. (2) Financial instruments that can only be registered directly for the account of the pension fund will not be held in custody. (3) Materialized financial instruments from the pension fund portfolio will be held in custody by the depository. Storage Operations Related to Financial Instruments Held in Custody Article 16. (1) Regarding financial instruments held in custody under Article 174(1)(1) of the Act, the depository must at minimum:
63. ensure that financial instruments are recorded in accordance with Article 174(2) of the Act,
64. regularly and accurately maintain records and accounts in a manner that allows distinguishing at any time without delay assets held for the pension fund from other clients' assets and the depository's own assets,
65. adopt effective and appropriate procedures for reconciling balances of financial instruments in the pension fund portfolio in its own records with balances in third-party records where financial instruments are held for the pension fund, and with balances in the fund management company's records,
66. regularly reconcile records of financial instrument balances on internal accounts and in the depository's data with balances on sub-depositories' accounts and in their data,
67. continuously monitor reconciliation results and measures taken as a result of identified deviations, notify the fund management company if irregularities are not resolved on time, and notify the Agency in the manner prescribed by Article 31a if irregularities are not or cannot be clarified and corrected,
68. take necessary measures to ensure that financial instruments of the pension fund held with sub-depositories are segregated from the depository's, sub-depositories', and other clients' financial instruments, in a manner that they are kept on separate accounts in sub-depositories' records and can be identified at any time as financial instruments of a specific client's depository, or otherwise ensure the same level of protection,
69. monitor and assess risks related to custody and notify the fund management company of each significant identified risk,
70. organize itself in a manner that minimizes the risk of misuse of funds, fraud, inadequate administration, improper record-keeping, or negligence, which may result in loss or reduction of the value of pension fund assets or loss/reduction of rights related to pension fund assets. (2) The third party under paragraph 1(3) may, depending on circumstances, be:
71. a stock exchange, regulated market, clearing house, investment firm, another counterparty in an OTC transaction, or a UCITS management company maintaining a share register;
72. a sub-depository. Storage Operations Related to Other Assets Article 17. (1) The fund management company must continuously provide the depository with, and ensure that third parties to whom duties are delegated provide sufficiently reliable information, so that the depository can fulfill its obligation under Article 174(1)(3) of the Act. (2) The depository must maintain comprehensive and up-to-date records of all pension fund assets, regardless of whether they are held in custody. (3) To fulfill the obligation under paragraph 2, the fund management company must prescribe and apply appropriate procedures ensuring that pension fund assets cannot be alienated, transferred, exchanged, or delivered without notifying the depository or sub-depository. Control Duties Article 18. (1) The depository must assess risks related to performing control duties, which are linked to the scope and complexity of the pension fund's investment strategy, and prescribe and apply control procedures appropriate to assessed risks, pension fund size, and asset type. The depository must regularly update procedures. (2) The fund management company must provide the depository with access to the pension fund's business books it manages and premises, as well as access to reports of authorized independent auditors or other experts to ensure appropriateness and suitability of applied procedures. Article 19. (1) To perform duties under Article 172(1)(5) of the Act, the depository must continuously verify the appropriateness and effectiveness of procedures applied for calculating net asset value and accounting unit value of the pension fund in accordance with adopted accounting policies, valuation methodologies, the Act, the information prospectus, and the pension fund's statute, as well as regulations governing net asset value and accounting unit value determination for mandatory pension funds. . (2) When the depository considers that net asset value and accounting unit value calculations are not performed in accordance with adopted accounting policies, valuation methodologies, the Act, information prospectus, pension fund statute, or regulation governing asset valuation of pension funds, it will notify the fund management company and the Agency in the manner prescribed by Article 31a, to protect pension fund members' rights. Article 20. To perform duties under Article 172(1)(6) of the Act, the depository must establish and apply appropriate procedures for verifying compliance of the fund management company's operations with the Act, regulations adopted thereunder, information prospectus, and pension fund statute, particularly regarding investment restrictions of the pension fund. Article 21. (1) To perform duties under Article 172(1)(9) of the Act, the depository must prescribe procedures for circumstances where consideration related to a pension fund asset transaction is not transferred to the pension fund within the usual time limit, notify the fund management company of such, and if settlement is not executed, request return of financial instruments from the other contracting party when possible. (2) When a transaction is executed on the OTC market, usual time limits will be assessed depending on the type of transaction. V. DELEGATION OF DEPOSITORY DUTIES Duty of Care of a Skilful Professional Article 22. (1) To comply with Article 182 of the Act, the depository must prescribe and apply a procedure for exercising due care when selecting sub-depositories and continuously monitor and supervise delegated operations. The depository must regularly update the procedure, at least once a year, and submit it to the Agency upon request. (2) When selecting and appointing sub-depositories to whom storage duties are delegated under Article 182 of the Act, the depository will exercise due care to ensure that financial instruments held with sub-depositories are adequately protected. For this purpose, the depository must at minimum:
73. assess the regulatory and legal framework of the country where the sub-depository is registered, particularly potential risks related to storing pension fund assets in custody. That