[unofficially consolidated translation]

LAW ON CREDIT INSTITUTIONS*

(OGM 072/19 of 26 December 2019, 082/20 of 6 August 2020, 008/21 of 26 January 2021, 024/25of 12 March 2025, 014/26 of 09 February 2026, 152/26 of 15 October 2026)

I BASIC PROVISIONS

Subject matter Article 1

This Law governs the establishment, management, operation and supervision of credit institutions, and other matters of importance for operation of credit institutions.

Credit institution Article 2

(1) A credit institution shall be a business undertaking the business activity of which is to:
1) take deposits or other repayable funds from the public and grant loans for its own account;
2) carry out any of the activities related to the dealing for their own account or underwriting of financial instruments or placing of financial instruments on a firm commitment basis in accordance with the law governing the capital market, where the business undertaking is not a commodity and emission allowance dealer, a collective investment undertaking, an insurance undertaking, or an investment firm for which the authorisation to operate as a credit institution has been withdrawn pursuant to Article 66a of this Law, where the total assets of that undertaking with head office in Montenegro, including all branches and subsidiary undertakings with head office in a third country: -is equal to or exceeds EUR 30 billion of total value of consolidated assets; -is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in that group that have their head offices in Montenegro, including any of their branches and subsidiary undertakings established in a third country, that individually have total assets of less than EUR 30 billion and that carry out activities of dealing on own account, underwriting of financial instruments or placing of financial instruments on a firm commitment basis is equal to or exceeds EUR 30 billion; or -is less than EUR 30 billion, and the undertaking is part of a group in which the total value of the consolidated assets of all undertakings in the group that carry out any activities related to the dealing for their own account or underwriting of financial instruments or placing of financial instruments on a firm commitment basis is equal to or exceeds EUR 30 billion, where the consolidating supervisor, in consultation with the supervisory college, so decides in order to address potential risks of circumvention and potential risks for the financial stability of Montenegro.
(2) Pursuant to requirements set forth by this Law, a bank with head office in Montenegro or a branch of an entity with head office in the European Union Member State or a third country pursuing business within the territory of Montenegro may be established as a credit institution.
(3) The term “credit institution” when used in this Law without the extension “Member State”, “third-country” or “group of”, shall refer to a bank with a head office in Montenegro.
(4) For the purposes of paragraph (1) item 2) indents 2 and 3 of this Article, where the undertaking is part of a third‐country group, the total assets of each branch of that third‐country group licensed in Montenegro shall be included in the combined total value of the assets of all undertakings in the group. (5) In the case referred to in paragraph (1) item 2) indent 3 of this Article, the Central Bank of Montenegro (hereinafter: the Central Bank) may, as a consolidating supervisor, request all relevant information from that undertaking necessary for taking decisions related to that undertaking.

Using words “credit institution” and “bank” Article 3

(1) The words “credit institution”, “bank” or derivatives of such words may be used in a title or in a legal transaction only by:
1) a legal person which has been issued a license to work as a bank by the Central Bank;
2) a credit institution from the Member State directly providing services in Montenegro and a branch of a credit institution from the Member State and a third country providing services in Montenegro;
3) a member of a group of credit institutions;
4) a representative office of the credit institution from another state performing activities in the territory of Montenegro; and
5) another legal person in accordance with the law.
(2) A credit institution shall be prohibited from using in its title the words or derivatives of words that may mislead the clients of credit institutions and other persons on the status and/or competitive position of such credit institution, or that violate the rights of other parties, in particular the words or derivatives of the words that may be misleading in terms of:
1) scope of operations of the credit institution;
2) identity of the credit institutions or its founders;
3) connectedness of the credit institution with other legal persons;
4) competitive advantage of such credit institution in its relationship with clients.
(3) A credit institution from another state operating in Montenegro may use the name that it uses in such state, whereas, if a credit institution with the same or similar name already operates in Montenegro, the Central Bank may order such credit institution to change its name in such a manner so as to remove the possibility of misconception.

Banking services Article 4

(1) Banking services, within the meaning of this Law, shall be taking deposits or other repayable funds from the public and granting loans from such funds for its own account.
(2) Taking deposits or other repayable funds from the public referred to in paragraph (1) of this Article shall not be deemed to be funds taken by:
1) electronic money institutions in the form of payments immediately exchanged for electronic money;
2) the State of Montenegro, local self-government units;
3) micro-credit financial institutions in the form of borrowings;
4) associations in the form of membership fees, voluntary contributions and similar non-repayable funds;
5) legal persons other than credit institutions from issuing debt securities, used to finance pursuit of their principal activity, provided that the principal activity of such persons is not granting of non-banking loans;
6) payment system institutions from payment service user for the provision of payment services in accordance with a separate law.

Core and additional financial services Article 5

(1) Core financial services, within the meaning of this Law, shall be:
1) taking deposits or other repayable funds;
2) lending, including: consumer loans, mortgage loans and non-banking loans for financing of commercial transactions, purchase of receivables, factoring with or without recourse, including export financing based on purchase at a discount and without recourse of long-term receivables secured by financial instruments (forfeiting);
3) financial leasing;
4) providing payment services, in accordance with a separate law;

5) issuing guarantees or other sureties;
6) trading for own account or for the account of clients in: -money market instruments (cheques, bills of exchange, certificates of deposit), -transferable securities, -foreign means of payment, including foreign exchange operations, -financial futures and options, -exchange and interest-rate instruments;
7) lending-related services, such as: data collection, developing analysis and providing information on creditworthiness of legal and natural persons, including entrepreneurs;
8) issuing other payment instruments and administering such instruments, insofar as the provision of such services is not deemed to be the provision of services referred to in item 6) of this paragraph, in accordance with a separate law;
9) safe deposit box services, including safekeeping and administration of securities;
10) money market broking;
11) participation in financial instruments issues and the provision of services relating to financial instruments issues, in accordance with regulations governing the capital markets;
12) client’s asset management and advice related to such asset management;
13) custody services, in accordance with regulations governing the capital markets;
14) advice to legal persons on capital structure, business strategy and related issues and the provision of services relating to status changes, acquisition of shares and participation in other undertakings;
15) issuing electronic money, including electronic money tokens as established by the regulations governing issues related to crypto-assets; 15a) issuance of asset-referenced tokens (ART), in accordance with regulations governing issues related to crypto-assets; 15b) crypto-asset services, in accordance with regulations governing crypto-asset-related issues; and
16) investment and ancillary services and activities in accordance with the law governing the capital markets not being services referred to in items 1) to 15) of this paragraph.
(2) Additional financial services, within the meaning of this Law, shall be:
1) operations relating to insurance brokerage and agency, in accordance with the law governing the insurance business;
2) provision of payment systems management services, in accordance with the law governing the payment system operations;
3) other services a credit institution may provide in accordance with the provisions of the law;
4) trade in gold;
5) data provision services, in accordance with regulations governing the capital market;
6) other services or operations set by articles of association of the credit institution which, given the way of being provided and exposure to risk for a credit institution, have similar features as the core financial services referred to in paragraph (1) of this Article.
(3) Legal persons providing financial services in accordance with other law, shall be deemed to be financial institutions for the purposes of Article 76 and Articles 311 to 338 of this Law.

Mutually recognised services Article 6

(1) Mutually recognised services, within the meaning of this Law, shall be:
1) mutually recognised banking services, which means services referred to in Article 4 of this Law; and
2) mutually recognised financial services, which means services referred to in Article 5 paragraph (1) of this Law.

Advertising Article 7

A credit institution from another Member State may advertise its services through all means of information in Montenegro, under the same rules that apply to advertising of services carried out by credit institutions in Montenegro.

Direct provision of services Article 8

(1) A credit institution from a Member State shall be deemed to directly provide mutually recognised services in the territory of another Member State if it has not established a branch in the territory of another Member State, and if it:
1) concludes legal transactions covering one or more mutually recognised services; or
2) offers such service to a natural or legal person having habitual residence or temporary residence, or head office in the territory of another Member State, through its agents, intermediaries or otherwise.
(2) The direct provision of services referred to in paragraph (1) of this Article shall be deemed to be a temporary provision of mutually recognised services by credit institutions or provision of services not performed regularly, frequently or continuously.

Parent and subsidiary undertaking and control Article 9

(1) A parent undertaking, within the meaning of this Law, shall be a business undertaking which in respect of another business undertaking (subsidiary undertaking) fulfils one of the following conditions:
1) has a majority of the voting rights in the subsidiary undertaking;
2) is a shareholder in or holder of participation and has the right to appoint or remove majority of the members of management board, supervisory board or other management body or supervisory body of the subsidiary undertaking;
3) has the right to exercise dominant influence over a subsidiary undertaking pursuant to a contract or agreement;
4) has a significant share in the subsidiary undertaking and exercises dominant influence over that undertaking;
5) is a shareholder or holder of participation in the subsidiary undertaking pursuant to a contract or an agreement with other shareholders or holders of participation, in such manner as to control majority of voting rights in that undertaking; or
6) has a significant interest in the subsidiary undertaking and has concluded a contract on managing business of the undertaking with the subsidiary undertaking based on which it pursues business of the subsidiary undertaking.
(2) Legal person that is a parent undertaking of another undertaking shall be deemed to be a parent undertaking of the undertakings having position of the subsidiary undertaking with respect to such other undertaking.
(3) Voting rights and rights of appointment or removal of parent undertaking shall also include voting rights and rights of appointment or removal of the subsidiary undertaking, or those acting on behalf of that parent undertaking or on behalf of subsidiary undertakings of such parent undertaking, except when such undertaking:
1) holds shares in its own name and on behalf of a person that is neither the parent nor a subsidiary undertaking; or
2) holds shares by way of a security interest and exercise its rights in accordance with the instructions received from other persons, or acquired them in connection with the granting of a loan as part of normal business activities, while the voting rights are exercised in the interest of the person who pledged shares as security interest.
(4) Parent undertaking shall also be the undertaking exercising dominant influence over another undertaking.

(5) Subsidiary undertaking, within the meaning of this Law, shall be a business undertaking controlled by a parent undertaking in one of the ways referred to in paragraphs (1) and (2) of this Article.
(6) Subsidiary undertakings of subsidiary undertakings shall also be deemed to be subsidiary undertakings of the undertaking being its original parent undertaking.
(7) Control, within the meaning of this Article, shall be the relationship referred to in paragraph (1) of this Article between a parent and a subsidiary undertaking or a similar relationship between any natural or legal person and a business undertaking.

Group of connected persons Article 10

(1) The group of connected persons, within the meaning of this Law, shall be considered to be:
1) two or more natural or legal persons who, unless it is proven otherwise, constitute a single risk because one of them, directly or indirectly, has control over the other person or other persons;
2) two or more natural or legal persons between whom there is no relationship of control referred to in item 1) of this paragraph, but who are to be regarded as constituting a single risk because they are so interconnected that, if one of such persons were to experience financial problems, in particular funding or repayment difficulties, the other person or all of the other persons would also be likely to encounter funding or repayment difficulties.
(2) Notwithstanding paragraph (1) of this Article, where a central government has a direct or indirect control, or is directly interconnected with more than one person in the manner referred to in paragraph (1) item 2) of this Article, the credit institution shall not consider a group constituted of a central government and such persons as the group of connected persons. (3) The central government referred to in paragraph (2) of this Article, within the meaning of this Law, shall be state administration bodies, state agencies and other entities having powers relating to the entire territory of the country, and which are classified as the central government in accordance with the European System of Accounts (ESA 2010). (4) In the event referred to in paragraph (2) of this Article, the credit institution may assess the existence of the group of connected persons constituted of a central government and other persons separately in respect of each member where a central government has a direct control, or is connected with such person in the manner referred to in paragraph (1) item 2) of this Article and in relation to all legal and natural persons controlled by persons referred to in paragraph (2) of this Article in the manner referred to in paragraph (1) item 1) of this Article or persons connected with them in the manner referred to in paragraph (2) item 2) of this Article, including the central government. (5) The provision of paragraph (2) of this Article shall also apply to local self-government units, where they are treated as a central government when weighting risk exposures referred to in Article 134 paragraph (9) of this Law. (6) By way of derogation from paragraph (1) of this Article, two or more natural or legal persons who, because of their direct exposure to the same central counterparty for clearing activities purposes, are connected in the manner referred to in paragraph (1) items 1) or 2) of this Article, shall not be considered as constituting a group of connected persons.

Undertakings linked by management on a unified basis Article 11

Undertakings linked by management on a unified basis shall be two or more persons not linked by a control relationship, where at least one of the following forms of connection exists:

1) undertakings are on an equal footing and are linked pursuant to a contract or provisions of the Articles of Association;
2) they are controlled by the same third person; or
3) the majority of members of the board of directors or other relevant bodies performing a management or supervisory function in such undertakings are the same persons.

Acting in concert Article 12

(1) Persons acting in concert shall mean natural and/or legal persons mutually cooperating based on an agreement, explicit or tacit, oral or written, aimed at acquiring shares with voting rights or concert exercising of voting rights or other rights derived from shares of the credit institution.
(2) The following shall be acting in concert:
1) legal persons and natural and/or legal persons when one of such persons, directly or indirectly, controls another or other legal persons;
2) natural persons in lineal blood kinship, and up to a third-degree of a collateral descendant;
3) persons living in statutory marriage or a domestic partnership equal to statutory marriage under the law;
4) shareholders who reach an agreement on corporate governance matters governing the corporate governance of the credit institution in such a manner as to diverge from the regulated one or an agreement on the manner of exercising other share-derived rights;
5) persons who are members of senior management, a management board or a supervisory board in the credit institution for which the qualifying holding is being determined, or persons authorised to appoint them;
6) business undertakings that are members of the same group;
7) persons connected only by circumstances related to the share acquisition, including use of the same sources of funding, indicating that acting in concert is taking place in acquisition of shares or joint intention of such persons to exercise the voting right or other rights in the credit institution;
8) persons who have exercised the voting right in the credit institution for which the qualifying holding is being determined by acting in concert;
9) members of management bodies of the undertakings acting in concert;
10) members of management bodies and the undertaking where such members are the members of management bodies;
11) management company and all investment funds managed by such company; 11a) persons that are required, within the meaning of the law governing takeover of joint stock companies, to publish an offer for a credit institution’s takeover;
12) persons where other circumstances similar to the circumstances referred to in items 1) to 11a) of this paragraph exist, if such circumstances indicate that there is acting in concert which may lead to permanent and significant change in business strategy of the credit institution.
(3) The Central Bank shall establish, by way of its decision, the existence of acting in concert if it establishes that circumstances referred to in paragraph (2) item 12) of this Article exist.

Application of the law on administrative procedure Article 13

(1) The provisions of the law governing the administrative procedure shall apply in the process of rendering a decision of the Central Bank, unless otherwise stipulated by this Law.
(2) In the process of rendering a decision, the Central Bank shall decide in an abridged procedure.
(3) An administrative dispute may be initiated by way of a lawsuit against the Central Bank’s decision.
(4) The lawsuit referred to in paragraph (3) of this Article shall not postpone the enforcement of the decision.
(5) In an administrative dispute, a competent court may not give judgement upon merits against a Central Bank’s decision in an administrative dispute case for which this Law establishes a competence of the Central Bank for rending a decision.
(6) A decision on withdrawing licences and authorisations referred to in this Law shall not abrogate legal consequences the decision on issuing licences or grating authorisations has caused, but prevents further legal consequences of such decision.

Application of the law on business undertakings Article 14

The provisions of the law governing the legal status of business undertakings shall apply to the credit institutions, unless otherwise stipulated by this Law.

Use of gender-neutral language Article 15

Expressions in this Law used for natural persons in the masculine gender shall include the same expressions in the feminine gender.

Definitions Article 16

Terms used in this Law shall have the following meaning:

1) institution means a credit institution or an investment firm;
2) Member State credit institution means a credit institution with head office in the European Union Member State;
3) third-country credit institution means a credit institution with head office in a non-EU Member State, as well as an EU Member State credit institution until Montenegro’s accession to the European Union;
4) investment firm means a legal person whose regular occupation or business is the provision of one or more investment services to third parties and/or performance of investment activities on professional basis;
5) insurance undertaking means a direct life or non-life insurance undertaking which received authorisation of a regulatory authority for pursuit of insurance activity in accordance with the regulations governing insurance;
6) reinsurance undertaking means an undertaking which received authorisation of a regulatory authority for pursuit of reinsurance activity, in accordance with the regulations governing insurance;
7) management body means a body or bodies of the credit institution, which are empowered to set the strategy, objectives and overall direction of the credit institution, and which oversee and monitor management decision-making, and include the persons who effectively direct the business of the credit institution, and in case of credit institutions in Montenegro those are the supervisory board and the management board;
8) senior management means persons who exercise executive functions within a credit institution and who are responsible for the day-to-day management of the credit institution, and are accountable for that directly to the supervisory and management boards and are not members of those boards; 8a) internal control functions mean risk management, compliance and internal audit functions; 8b) heads of internal control functions mean the persons at the highest hierarchical level responsible for effectively managing the day-to-day operation of the internal control functions of a credit institution; 8c) chief financial officer means the person responsible for the financial resources management, financial planning and financial reporting of a credit institution;
9) systemic risk means a risk of disruption in the financial system, which could have serious negative consequences for the financial system and the real economy;
10) model risk means the risk of loss a credit institution may incur as a consequence of decisions that are principally based on the output of internal models, due to errors in the design, development, parameter estimation, implementation, use or monitoring of such models, including the following: -the improper design of a selected internal model and its characteristics; -the inadequate verification of a selected internal model’s suitability for the financial instrument to be evaluated or for the product to be priced, or of the selected internal model’s suitability for the applicable market conditions; -errors in the implementation of a selected internal model;

-incorrect mark-to-market valuations and risk measurement as a result of an error when booking a trade into the trading system; -the use of a selected internal model or of its outputs for a purpose for which that model was not intended or designed, including manipulation of the modelling parameters; -the untimely or ineffective monitoring or validation of model performance or of the predictive ability to assess whether the selected internal model remains fit for purpose;

11) credit risk mitigation means a technique used by a credit institution to reduce the credit risk associated with an exposure or exposures which that credit institution continues to hold;
12) branch means an organisational part of the credit institution, without a legal person status, which carries out all or some of transactions inherent in the business of the credit institution; 12a) third-country branch means a branch established in Montenegro by a third-country undertaking providing services referred to in Article 5 paragraph (1) items 1), 2) and 5) of this Law or by a third-country credit institution; 12b) head undertaking means an undertaking with head office in a third country which has established a third-country branch in Montenegro, the intermediate parent undertaking or the ultimate parent undertaking of that undertaking;
13) representative office of the credit institution means subsidiary part of the credit institution pursuing only activities of market research, representation, advertising and providing information about the credit institution that has established it;
14) ancillary services undertaking means a business undertaking the principal activity of which, whether provided to entities inside the group or to clients outside the group, consists of any of the following: -a direct performance of business representing a direct extension of banking services; -operational leasing, the ownership or management of property, the provision of data processing services or other similar activities insofar as those activities are ancillary to banking services; -any other activity considered similar by the Central Bank to those referred to in indents 1 and 2 of this item; -any other activity considered similar by the European Banking Authority to those referred to in indents 1 and 2 of this item; 14a) ancillary services mean services of support in operations in relation to banking services or core and additional financial services for the provision of which a credit institution has authorisation and they include data processing, asset management, as well as other ancillary services related to payment services in accordance with the law governing the payment system operations;
15) asset management company means an undertaking acquiring capital from various investors in order to invest it in accordance with a defined investment policy on behalf of such investors, including also its parts pursuing investments, or an alternative investment fund manager from the European Union Member States, including unless otherwise provided, entities from non-EU Member States which carry out same or similar activities, and which are subject to supervisory and regulatory requirements equivalent to those applied in the European Union;
16) financial holding means a business undertaking that:
a) is a financial institution, b) is not a mixed financial holding company, c) has at least one subsidiary undertaking that is an institution, and d) more than 50% of any of the following indicators are associated, on a steady basis, with subsidiary undertakings that are institutions or financial institutions, and with activities carried out by the undertaking itself that are not related to the acquisition or owning of holdings in subsidiary undertakings where those activities are of the same nature as the ones carried out by institutions or financial institutions: -the undertaking’s equity based on its consolidated situation, -the undertaking’s assets based on its consolidated situation, -the undertaking’s revenues based on its consolidated situation, -the number of employees in the undertaking based on its consolidated situation,

-other indicators considered relevant by the Central Bank, whereby the Central Bank may, after consulting the European Banking Authority and providing detailed reasons, decide that a business undertaking shall not be considered a financial holding company, even where one of the indicators referred to in indents 1 to 4 of this sub-point is met, if it considers that the relevant indicator does not provide a fair and true representation of the principal activities and risks of the group, and where the Central Bank deviates from the opinion of the European Banking Authority, it shall, within three months of the date of receipt of that opinion, provide the Authority with the reasons for such deviation; 16a) investment holding company means a financial institution, the subsidiary undertakings of which are exclusively or mainly investment firms or financial institutions, at least one of such subsidiary undertakings being an investment firm, and which is not a financial holding company within the meaning of item 16) of this Article; 16b) pure industrial holding company means a business undertaking the principal activity of which is to acquire or own holdings, and is not any of the entities referred to in Article 175 paragraph (4) item 1) and items 3) to 9) of this Law, and is not an investment firm or an asset management company, or a payment service provider, and it does not hold any participating interest in financial sector entities; 16c) financial sector entity means: -an institution, -a financial institution, -an insurance undertaking, -a third-country insurance undertaking, -a reinsurance undertaking, -a third-country reinsurance undertaking, -an insurance holding company, -a small insurance undertaking, or -a third-country undertaking with a main business comparable to any of the entities referred to in indents 1 to 8 of this item;

17) mixed financial holding company means a parent undertaking in a financial conglomerate, other than a credit institution, insurance undertaking or investment firm, which together with its subsidiary undertakings, at least one of which is a credit institution, insurance undertaking or investment firm, and other entities, constitutes a financial conglomerate;
18) mixed-activity holding company means a parent undertaking, other than a financial holding company, an institution or a mixed financial holding company, the subsidiary undertakings of which include at least one is an institution;
19) financial institution means a business undertaking that:
a) is not an institution, a pure industrial holding company, a securitisation special purpose entity, an insurance holding company as defined in Article 175 paragraph (4) item 7) of this Law or a mixed-activity insurance holding company as defined in the law governing insurance, except where a mixed-activity insurance holding company has a subsidiary that is an institution; and b) it meets one of the following conditions: -the principal activity of the undertaking is to acquire or own holdings or to pursue one or more of the activities referred to in Article 5 paragraph (1) items 2) to 6), item 8) and items 10) to 15b) of this Law, or to pursue one or more of the services or economic activities in relation to financial instruments as defined in the law governing the capital market; or -the undertaking is an investment firm, a mixed financial holding company, an investment holding company, a payment services provider, an asset management company or ancillary services undertaking;
20) parent credit institution means a credit institution with head office in a certain State which has a credit institution or a financial institution as a subsidiary undertaking, or which holds a significant holding in such a credit or financial institution, and which is not itself a subsidiary undertaking of another credit institution licensed in the same State, or of a financial holding company or mixed financial holding company set up in the that State;

21) EU parent credit institution means a parent credit institution in a Member State which is not a subsidiary undertaking of another credit institution licensed in any Member State, or of a financial holding company or mixed financial holding company set up in any Member State;
22) EU parent credit institution with head office in Montenegro means a parent credit institution with head office in Montenegro, which is not a subsidiary undertaking of another credit institution licensed in any Member State, or of a financial holding company or mixed financial holding company set up in any Member State;
23) parent financial holding company means a financial holding company with head office in Montenegro which is not itself a subsidiary undertaking of an institution licensed in Montenegro, or of a financial holding company or mixed financial holding company established in Montenegro;
24) EU parent financial holding company means a parent financial holding company in a Member State which is not a subsidiary undertaking of an institution licensed in any Member State or of another financial holding company or mixed financial holding company set up in any Member State, other than parent financial holding company in Montenegro;
25) EU parent financial holding company with head office in Montenegro means a parent financial holding company with head office in Montenegro, which is not a subsidiary undertaking of an institution licensed in any Member State, or of another financial holding company or mixed financial holding company set up in any Member State;
26) parent mixed financial holding company means a mixed financial holding company with head office in Montenegro which is not a subsidiary undertaking of an institution licensed in Montenegro, or of a financial holding company or mixed financial holding company established in Montenegro;
27) EU parent mixed financial holding company means a parent mixed financial holding company in a Member State which is not a subsidiary undertaking of an institution licensed in any Member State or of another financial holding company or mixed financial holding company set up in any Member State, other than parent mixed financial holding company in Montenegro;
28) EU parent mixed financial holding company with head office in Montenegro means a parent mixed financial holding company with head office in Montenegro, which is not a subsidiary undertaking of an institution licensed in any Member State, or of another financial holding company or mixed financial holding company set up in any Member State; 28a) stand-alone credit institution in the EU means a credit institution that is not subject to prudential consolidation in the European Union pursuant to Part One, Title II, Chapter 2 of Regulation (EU) No 575/2013, and that has no EU parent undertaking subject to such prudential consolidation;
29) systemically important credit institution means an EU parent credit institution, an EU parent financial holding company, an EU parent mixed financial holding company or a credit institution the disruption in operation or termination of operation of which could lead to systemic risk;
30) central counterparty means a legal person that interposes itself between the counterparties to the contracts traded on one or more financial markets, and becoming the buyer to every seller and the seller to every buyer;
31) qualifying holding means a direct or indirect investment in a business undertaking which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of that undertaking;
32) participating interest means: -rights in the capital of another undertaking, whether or not represented by a certificate, which, by creating a durable link with that undertaking, is intended to contribute to the activities of the undertaking which holds those rights, or -direct or indirect ownership of 20% or more of the voting rights or capital of another undertaking; 32a) material holding means a holding in any entity of at least 15% of the eligible capital of the acquirer of that participation;
33) close links means a relationship in which two or more natural or legal persons are linked
in the following ways:

− participation in the form of ownership, direct or by way of control, of 20% or more of the voting rights or capital of an undertaking, − control relationship, − a fact that both or all of the persons have permanent link to the same third person by a control relationship;

34) competent authority means a state or other authority officially recognised by national law and empowered by national law to supervise credit institutions as part of the supervisory system in operation in that state, and the Central Bank is the competent authority in Montenegro;
35) designated authority means an authority to be responsible for setting countercyclical capital buffer rate, structural systemic risk buffer rate, and for identifying the exposures and subsets of institutions to which it applies, or buffer for global systemically important credit institutions and other systemically important credit institutions, and the Central Bank is the designated authority in Montenegro;
36) consolidating supervisor means a competent authority responsible for the exercise of supervision on a consolidated basis of parent credit institutions and of credit institutions controlled by parent financial holding companies or parent mixed financial holding companies;
37) authorisation means a license or any other legal document issued by competent authorities, by which the right to carry out the business activity is granted;
38) Member State means the European Union Member State and a State signatory to the Agreement on the European Economic Area;
39) third country means a foreign state other than the Member State and the Member State until Montenegro joins the European Union;
40) home State means the State in which a credit institution has been issued a license;
41) host Member State means the Member State other than the state in which a credit institution has been issued a license, in which the credit institution has a branch or in which it provides services;
42) ESCB central banks means the central banks that are members of the European System of Central Banks (ESCB), and the European Central Bank (ECB);
43) central banks mean the ESCB central banks and the central banks of third countries;
44) own funds mean a sum of Tier 1 capital and Tier 2 capital of a credit institution;
45) own funds instruments mean capital instruments issued by the credit institutions and which meet requirements for Common Equity Tier 1 instruments, Additional Tier 1 instruments, or Tier 2 instruments;
46) eligible capital means the sum of Tier 1 capital and Tier 2 capital that is maximum one third of Tier 1 capital of the credit institution;
47) trading book means all positions in financial instruments and commodities held by a credit institution either with trading intent, or in order to hedge positions held for trading intent;
48) regulated market means a multilateral system managed by a market operator, which provides conditions for bringing together of multiple third‑party interests in concluding contracts on buying and selling financial instruments admitted to trading under rules of such system, and which is authorised and functions continuously in accordance with the regulations governing the capital market;
49) discretionary pension benefits mean enhanced pension benefits granted on a discretionary basis by a credit institution to an employee as part of that employee's variable remuneration package, which do not include accrued benefits granted by the credit institution to an employee under the terms of the pension scheme;
50) indirect acquisition means investment in capital or acquiring voting rights of a legal person via a third person (direct acquirer), in such manner that the indirect acquirer is a person: -for whose account another person (direct acquirer) has acquired shares, participating interest or other rights in the legal person, -which is linked with the direct acquirer in the manner referred to in Article 22 of this Law, as well as immediate family members of such person, or -who is an immediate family member of the direct acquirer;

51) group of credit institutions means a group which consists of credit institutions, investment firms and financial institutions, of which at least one member holds a position of: -a parent credit institution, -a credit institution which is linked with another credit or financial institution (another legal person from the group) through management on a unified basis in accordance with Article 11 paragraph (1) item 1) or 3) of this Law, -a parent financial holding company where at least one subsidiary undertaking is a credit institution, or -a parent mixed financial holding company where at least one subsidiary undertaking is a credit institution;
52) capital conservation buffer means the own funds that a credit institution is required to maintain in accordance with Article 138 of this Law;
53) credit institution-specific countercyclical capital buffer means the own fund that a credit institution is required to maintain in accordance with Article 139 of this Law;
54) structural systemic risk buffer means the own funds that a credit institution is or may be required to maintain in accordance with Article 152 of this Law;
55) G-SI credit institution buffer means the own funds that a G-SI credit institution is required to maintain in accordance with Article 160 paragraph (1) of this Law;
56) O-SI credit institution buffer means the own funds that O-SI credit institution is required to maintain in accordance with Article 163 of this Law;
57) combined buffer requirement means the Common Equity Tier 1 capital required to meet the requirements referred to in Article 165 of this Law;
58) distribution means dividend or interest payment in any form;
59) group means a group of undertakings of which at least one is an institution and which consists of a parent undertaking and its subsidiary undertakings, or of undertakings that are linked to each other by control;
60) third-country group means a group whose parent undertaking has a head office in a third country;
61) connected persons mean: -a spouse from statutory marriage, a spouse from domestic partnership, a child or a parent or adoptee or adoptive partner of the member of the management body; -a business undertaking in which a member of the management body or a member of their immediate family referred to in indent 1 of this item has a qualifying holding of 10% or more in capital or in voting rights of that undertaking, or in which those persons may have a significant influence or in which those persons hold a position of senior management or are members of the management body.
62) small and non-complex credit institution means a credit institution that: -is not a large institution within the meaning of item 63) of this paragraph; -the total value of its assets on an individual basis or, where applicable, on a consolidated basis is on average equal to or less than the threshold of EUR 200,000,000 over the four-year period immediately preceding the current annual reporting period; -applies the simplified recovery plans in accordance with this Law, or for which the Central Bank adopts a simplified resolution plan in accordance with the law governing the resolution of credit institutions; -its trading book business is classified as small in accordance with the regulation of the Central Bank governing capital adequacy of credit institutions; -the total value of its derivative positions held with trading intent does not exceed 2% of its total on- and off-balance-sheet assets and the total value of its overall derivative positions does not exceed 5%, as calculated in accordance with the regulation of the Central Bank governing capital adequacy of credit institutions; -the consolidated total assets or liabilities relating to activities with counterparties located in Montenegro or the European Economic Area, excluding intragroup exposures in Montenegro or the European Economic Area, exceed 75% of both the credit institution’s consolidated total assets and liabilities, excluding in both cases the intragroup exposures;

-does not use internal models to meet the prudential requirements in accordance with this Law except for subsidiary undertakings using internal models developed at the group level, provided that the group is subject to the disclosure requirements on a consolidated basis; -has not communicated to the Central Bank an objection to being classified as a small and non-complex credit institution by a Central Bank; -the Central Bank has not decided that the credit institution is not to be considered a small and non-complex credit institution on the basis of an analysis of its size, interconnectedness, complexity or risk profile;

63) large credit institution means a credit institution that: -is classified as global systemically important credit institution (G-SICI), in accordance with this Law; -has been identified as other systemically important credit institution (O-SICI) in accordance with this Law; -is one of the three largest credit institutions in Montenegro in terms of total value of its assets; and/or -the total value of its assets on an individual basis or, where applicable, on the basis of its consolidated situation is equal to or greater than EUR 500,000,000;
64) global systemically important credit institution (G-SICI) means a credit institution as determined in Article 158 of this Law;
65) other systemically important credit institution (O-SICI) means a credit institution as determined in Article 161 of this Law;
66) non-EU global systemically important credit institution (non-EU G-SICI) means a global systemically important group of credit institutions or a credit institution (G-SI bank-GSIB) that is not an EU G-SICI and that is included in the list of G-SIBs published and regularly updated by the Financial Stability Board of the European Union; 66a) G-SICI entity means an entity with legal personality that is a G-SICI or is part of a G-SICI or of a non-EU G-SICI;
67) gender-neutral remuneration policy means a remuneration policy based on equal pay for male and female workers for equal work or work of equal value;
68) credit institution resolution authority means an authority empowered to apply the resolution tools and exercise the resolution powers set out in the law governing resolution of credit institutions, and the credit institution resolution authority in Montenegro shall be the Central Bank;
69) guidance on capital above the minimum requirement means own funds considered appropriate by the Central Bank pursuant to Article 281b paragraph (2) of this Law, and which exceeds the relevant amount of own funds required in accordance with Article 115a, Article 134 paragraph (2) item 1), Article 137a, Article 172 and Article 281 paragraph (1) of this Law;
70) periodic penalty payment means a periodic pecuniary enforcement measure aimed at ending ongoing breaches of this law or regulations passed on the basis of this Law and compelling the natural or legal person to return to compliance with the law and regulations passed on the basis of this Law;
71) crypto-asset means a crypto-asset as established by regulations governing crypto-asset-related issues, and which is not central bank digital currency;
72) crypto-asset exposure means an asset or an off-balance-sheet item related to a crypto-asset that gives rise to credit risk, counterparty credit risk, market risk, operational risk or liquidity risk;
73) asset-referenced token (ART) means a type of crypto-asset as established by regulations governing crypto-asset-related issues;
74) crypto-asset service means any of the following services and activities relating to any crypto-asset: -provision of custody services and administration of crypto-assets on behalf of clients; -operation of a trading platform for crypto-assets; -exchange of crypto-assets for funds; -exchange of crypto-assets for other crypto-assets; -execution of orders for crypto-assets on behalf of clients;

-placing of crypto-assets; -reception and transmission of orders for crypto-assets on behalf of clients; -provision of advice on crypto-assets; -management of crypto-assets portfolio; -providing transfer services for crypto-assets on behalf of clients;

75) output floor means risk weighted asset amount which, in accordance with the regulation of the Central Bank governing capital adequacy of credit institutions, a credit institution calculates by applying the IRB Approach for calculating risk exposure;
76) environmental, social and governance risks (hereinafter: ESG risks) mean the risks of any negative financial impact on an institution stemming from the current or prospective impact of ESG factors on that institution’s counterparties or invested assets, which materialise through the traditional categories of financial risks;
77) climate neutrality means the objective of reducing greenhouse gas emissions to a minimum, in line with the National Strategy for Sustainable Development, the ambitions of the Western Balkans Green Agreement, and the obligations arising from the Paris Agreement, through the development of a low-carbon economy and the implementation of measures in the energy, industry, and waste management sectors in Montenegro;
78) total year-end net profit means the sum of the items set in accordance with the regulation referred to in Article 233 paragraph (2) of this Law, as follows:
a) interest income; b)interest expenses; c) expenses on share capital repayable on demand; d)dividend income; e) fee and commission income; f) fee and commission expenses; g)gains or losses on financial assets and financial liabilities held for trading, net; h)gains or losses on financial assets and financial liabilities designated at fair value through profit or loss, net; i) gains or losses from hedge accounting, net; j) exchange differences (gain or loss), net; k)other operating income; and l) other operating expenses.

II ESTABLISHING A CREDIT INSTITUTION

1. Initial capital and shares of a credit institution

Founders of a credit institution Article 17

(1) A credit institution may be established as a joint stock company.
(2) Domestic and foreign legal and/or natural persons may establish a credit institution.

Initial capital Article 18

(1) Initial capital of a credit institution may not be less than EUR 7,500,000.
(2) The initial capital of a credit institution referred to in paragraph (1) of this Article shall be comprised of:
1) capital instruments, meeting requirements from the regulation referred to in Article 134 paragraph (9) of this Law governing the capital adequacy of credit institutions;
2) share premium accounts pertaining to instruments referred to in item 1) of this paragraph;
3) retained earnings;
4) accumulated other comprehensive income;
5) other reserves.

Shares of a credit institution Article 19

(1) For the credit institution being established, share capital in the amount of the initial capital referred to in Article 18 paragraph (1) of this Law must be paid fully in money before registration in the Central Registry of Business and Other Entities.
(2) The provision of paragraph (1) of this Article, shall not apply to the credit institution being established due to implementation of restructuring by merger resulting in the establishment of a new credit institution or division of a credit institution, as well as to a credit institution whose Tier 1 capital has been increased by converting capital instruments or other cash liabilities of the credit institution into Tier 1 capital in accordance with this Law and regulations adopted on the basis of this Law or the law governing the resolution of credit institutions. (3) Shareholders of the credit institution shall act in interest of the credit institution when exercising shareholders rights. (4) If the shares of the credit institution are kept in a custody account, such account must be in the name.

Loans and sureties for acquiring shares or interests and other instruments of own funds

Article 20

(1) A credit institution shall not, directly or indirectly, lend for acquisition or issue guarantees or other sureties for acquisition of shares, or shares or participating interest in an undertaking where it holds 20% or more interest in capital, unless such acquisition of shares or participating interests would remove link in capital of the credit institution with such undertakings. (2) Lending referred to in paragraph (1) of this Article shall also include any other legal transaction equal to a credit in terms of its economic substance. (3) The credit institution shall not, directly or indirectly, lend for acquisition or issue guarantees or other sureties for acquisition of other financial instruments issued by it or issued by an undertaking where it holds 20% or more interest in capital, and which is included in calculation of the own funds of such credit institution.

Preferred shares of a credit institution Article 21

Total amount of the share capital pertaining to the preferred shares shall not exceed one quarter of the amount of the share capital of the credit institution.

Limitation for mutual participation Article 22

(1) If a credit institution has a qualifying holding in another legal person, such legal person shall not acquire qualifying holding in such credit institution.
(2) If a legal person has a qualifying holding in a credit institution, such credit institution shall not acquire qualifying holding in such legal person.
(3) Limitation referred to in paragraph (2) of this Article shall not refer to when a credit institution acquires qualifying holding in a legal person with intent to settle receivables under a debt restructure, or enforcement procedure.
(4) In the event referred to in paragraph (3) of this Article, the credit institution shall, within six months of acquiring the qualifying holding, reduce such holding to the level that does not constitute a qualifying holding.

2. Shareholders of a credit institution

Acquiring qualifying holding Article 23

(1) A legal or natural person or persons acting in concert, intending to acquire directly or indirectly, shares of the credit institution, based on which individually or jointly, directly or indirectly acquire the qualifying holding in the credit institution (hereinafter: the proposed acquirer) shall submit a application to the Central Bank for an authorisation to be granted. (2) A legal or natural person and persons acting in concert that obtained the authorisation of the Central Bank referred to in paragraph (1) of this Article to acquire a qualifying holding in a credit institution may acquire qualifying holding up to the level set up in the authorisation. (3) A person having a qualifying holding in a credit institution shall not increase, directly or indirectly, level of qualifying holding which would be equal to or exceed 20%, 33%, or 50% of holding in capital or voting rights held in such credit institution without prior authorisation of the Central Bank. (4) Notwithstanding paragraphs (1) and (3) of this Article, final acquirer of the qualifying holding may submit an application for granting authorisation to acquire qualifying holding in the credit institution on behalf of a person who is not a direct proposed acquirer of the qualifying holding or proposed final acquirer of the qualifying holding. (5) A person granted with the authorisation shall acquire qualifying holding in the credit institution within 12 months as of the day a decision on authorisation to acquire qualifying holding is granted and notify the Central Bank thereof. (6) If the person granted with the authorisation fails to acquire the qualifying holding within the deadline referred to in paragraph (5) of this Article, it may submit a reasoned request to the Central Bank for extension of such deadline, no later than 15 days before the lapse of such deadline. (7) The deadline referred to in paragraph (5) of this Article may be extended for no longer than six months. (8) Provisions of the law governing the capital markets shall apply on determining the percentage of the qualifying holding in a credit institution. (9) Voting rights or shares which a credit institution acquired as a result of providing investment services for offering or selling financial instruments on a firm commitment basis shall not be taken into account when determining the percentage of qualifying holding, provided that those rights are not used to exercise influence in the management of the issuers and that such shares are not held for a period exceeding one year for the day of the acquisition.

Special cases of acquiring of or increase in qualifying holding Article 24

(1) Shareholders of the credit institution where after the acquisition of shares of the credit institution a joint concert is created resulting in such persons becoming acquirers of capital held or voting rights in the credit institution that is equal to or exceeds 10%, 20%, 33%, or 50%, shall submit an application for granting authorisation to acquire qualifying holding within 30 days as of the acquisition. (2) If a person individually or any of the persons acting in concert acquire or increase a qualifying holding by inheritance, gift or in case without knowing, could have not known or could have not influenced the fact that will acquire or exceed the qualifying holding, they shall submit an application for such acquisition within 30 days as of the day they have discovered or had to have known of acquisition. (3) If holding of a person or persons acting in concert is increased, due to the reduction of Tier 1 capital of the credit institution or other reasons that they could not influence, in such a manner as it is equal to or exceeds 10%, 20%, 33%, or 50% of capital held or voting rights in the credit institution, they shall submit an application for acquiring shares in capital or voting rights within 30 days as of the day they have discovered or had to have known of their holding being increased as a result of action of the credit institution. (4) Provisions of this Law governing the acquisition of qualifying holding shall apply to acquirers of the qualifying holding referred to in paragraphs (1), (2) and (3) of this Article.

(5) Notwithstanding Article 23 paragraph (2) of this Law and paragraph (1) of this Article, persons for which requirements referred to in Article 12 paragraph (2) of this Law have been met and which deem that no acting in concert is in place, shall submit an application to the Central Bank for determining that there is no acting in concert. (6) If the Central Bank determines, based on the application referred to in paragraph (5) of this Article that persons referred to in Article 12 paragraph (2) of this Law are not acting in concert, such persons shall not be obliged to submit an application for acquiring the qualifying holding. (7) If the Central Bank determines by way of its decision, based on the application referred to in paragraph (5) of this Article, that there is acting in concert:
1) persons referred to in Article 23 paragraph (2) of this Law acting in concert shall submit an application for granting authorisation for acquisition of qualifying holding before acquiring the qualifying holding;
2) persons referred to in paragraph (1) of this Article acting in concert shall submit an application for granting authorisation for acquisition of qualifying holding within 30 days as of the day of receiving the decision that the acting in concert exists.
(8) Persons that fail to submit the application referred to in paragraphs (1), (2), (3), and (7) of this Article within the stipulated deadline, shall be subject to provisions of Articles 33 and 34 of this Law.

Documents accompanying the application for acquiring a qualifying holding Article 25

The documentation on meeting the requirements for acquiring or increasing a qualifying holding, referred to in Article 31 paragraph (5) of this Law, shall accompany the application for granting authorisation to acquire a qualifying holding in a credit institution.

Data verification Article 26

(1) In order to obtain information needed for rendering a decision upon application for granting authorisation to acquire a qualifying holding, the Central Bank may verify data provided by the applicant for acquiring a qualifying holding.
(2) The Central Bank shall have the powers to obtain data on misdemeanour and penal convictions of the proposed acquirer, as well as on criminal and misdemeanour proceedings that may be pending against such person from the relevant records, accompanied with a reasoned request.
(3) The Central Bank may also obtain data referred to in paragraph (2) of this Article from the European Criminal Records Information System.
(4) In the process of rendering a decision upon application for granting authorisation referred to in paragraph (1) of this Article, the Central Bank shall, where possible, verify data on imposed penalties to the proposed acquirer from the European Banking Authority records.

Procedure for rendering a decision upon application for granting authorisation to acquire qualifying holding

Article 27

(1) The Central Bank shall, within 10 working days following the receipt of the application for granting authorisation for acquiring or increasing a qualifying holding, issue to the applicant an acknowledgment on receipt of the application in writing.
(2) The acknowledgment referred to in paragraph (1) of this Article shall state that the application for granting authorisation is duly submitted.
(3) When issuing the acknowledgment on receipt of duly submitted application, the Central Bank shall notify the applicant of the date of the expiry of the period for rendering a decision upon application for granting authorisation.
(4) If the application referred to in paragraph (1) of this Article is not complete, the Central Bank shall invite the applicant to complete the application within an appropriate deadline.
(5) The Central Bank shall, within 10 working days following the day of the receipt of the supplemented application, issue an acknowledgment on receipt of the dully submitted application

in writing and notify the applicant of the date of the expiry of the period for rendering a decision upon application for granting authorisation.

(6) The duly submitted application referred to in paragraph (1) of this Article, shall be deemed to be an application accompanied with documentation referred to in Article 31 paragraph (5) of this Law.
(7) Exceptionally, if the Central Bank established, following a detailed analysis, shortcomings in the documentation making the application not be dully submitted after issuing the acknowledgment on receipt of duly submitted application, it may refuse the application referred to in paragraph (1) of this Article within the deadline referred to in paragraph (8) of this Article. (8) The Central Bank shall carry out the procedure of rendering a decision upon application for granting authorisation to acquire qualifying holding (hereinafter: the assessment procedure) within 60 working days of the day of the duly submitted application. (9) The Central Bank shall send the decision to the applicant within two working days, as of the day of rendering a decision upon the application for granting authorisation to acquire or increasing the qualifying holding, and all within the deadline referred to in paragraph (5) of this Article. (10) Upon a request of the applicant for granting authorisation for acquiring or increasing the qualifying holding, which application for acquiring or increasing the qualifying holding was refused, the Central Bank shall publish an appropriate statement and state reasons for refusal. (11) If the Central Bank fails to render a decision on the application referred to in paragraph (1) of this Article within the deadline referred to in paragraph (5) of this Article, it shall be deemed that it has granted the authorisation for acquiring or increasing the qualifying holding. (12) If the Central Bank has received two or more applications for acquiring the qualifying holdings in the same credit institution, all proposed acquirers shall be treated in a non-discriminatory manner.

Additional requirements during assessment procedure upon application for granting authorisation to acquire qualifying holding

Article 28

(1) During the assessment procedure, within 50 working days as of the day the application for acquiring qualifying holding was submitted, the Central Bank may request in writing for the applicant to submit additional documentation that the Central Bank deem are necessary to render a decision upon application for granting authorisation, including also information related to the area of prevention of money laundering and terrorist financing. (2) The applicant for acquiring qualifying holding shall submit the requested documentation within the deadline set by the Central Bank and which shall not exceed 20 working days as of the day of receiving the application referred to in paragraph (1) of this Article, during which the period referred to in Article 27 paragraph (8) of this Law shall be suspended. (3) The Central Bank may request further completion or clarification of submitted documentation and information referred to in paragraph (1) of this Article, whereby such request shall not result in extension of the deadline referred to in Article 27 paragraph (8) of this Law. (4) The Central Bank shall issue an acknowledgment in writing on the receipt of the documentation referred to in paragraph (1) of this Article. (5) Notwithstanding paragraph (2) of this Article, the Central Bank may set the deadline of 30 working days as of the day of receiving the application referred to in paragraph (1) of this Article, if the proposed acquirer for the qualifying holding:
1) has a head office or habitual residence in a third country;
2) is not a subject of supervision in accordance with provisions of this Law, the law governing the capital markets, the law governing the insurance business and the law governing open-ended investment funds through a public offering; or
3) is not a subject of supervision in accordance with regulations of a Member State governing the operation of credit institutions, capital markets, insurance, and open-ended investment funds through a public offering.

Cooperation with other competent supervisory authorities in Montenegro

Article 29

(1) When the proposed acquirer of a qualifying holding in a credit institution is an insurance or reinsurance undertaking, an investment firm, a pension fund or a management company for undertaking for collective investment in transferable securities (hereinafter: the UCITS management company) with a head office in Montenegro, the Central Bank shall submit a request for issuing an opinion to the authority competent for the supervision of the proposed acquirer, before rendering a decision upon application for granting authorisation to acquire the qualifying holding. (2) In the event referred to in paragraph (1) of this Article, the Central Bank shall state the opinion of the competent supervisory authority in the reasoned statement for the decision on granting the authorisation.

Cooperation with competent supervisory authorities outside Montenegro

Article 30

(1) The Central Bank shall obtain opinion from a competent authority of another Member State, before rendering a decision upon application for granting authorisation to acquire the qualifying holding in a credit institution, if the proposed acquirer is:
1) a credit institution, an insurance and reinsurance undertaking, investment firm, or a UCITS management company licensed in another Member State or another competent supervisory authority is in charge for the applicant;
2) the parent undertaking of a credit institution, insurance and reinsurance undertaking, investment firm, or UCITS management company licensed in another Member State or another competent authority is in charge for the applicant;
3) a natural or legal person controlling the credit institution, insurance and reinsurance undertaking, investment firm, or UCITS management company, licensed in another Member State or another competent authority is in charge for the applicant.
(2) In the event referred to in paragraph (1) of this Article, the Central Bank shall state the opinion of other competent authorities in the reasoned statement for the decision on granting authorisation.

Rendering a decision upon application for granting authorisation to acquire qualifying holding

Article 31

(1) In rendering a decision upon application for granting authorisation to acquire the qualifying holding, the Central Banks shall assess whether requirements of suitability of the proposed acquirer and financial soundness of the proposed acquisition of the qualifying holding were met in accordance with:
1) the reputation of the proposed acquirer, whereby the reputation of all its shareholders is assessed, as well as of indirect acquirers of the qualifying holding and their influence on the applicant;
2) the reputation, expert knowledge, skills and experience of persons to be proposed for members of the management bodies of the credit institution who will direct the business of the credit institution;
3) the financial soundness of the proposed acquirer, whereby financial soundness of its shareholders is assessed, as well as of indirect acquirers of the qualifying holding and their financial impact on the proposed acquirer, in particular in relation to the type of business pursued in the credit institution in which the qualifying holding is being acquired;
4) whether the credit institution after the acquisition will continue to comply with this Law and other regulations governing operations of credit institutions, regulations governing operations of financial conglomerates and regulations governing operations of electronic money institutions, as well as the possibility to exercise effective supervision, effective exchange information among

the competent authorities and division of responsibilities among the competent authorities in case the credit institution becomes a member of the group; and

5) whether there are reasonable grounds to suspect that, in connection with the proposed acquisition, in accordance with regulations governing the prevention of money laundering and terrorist financing, money laundering or terrorist financing is being committed or attempted, or that the subject acquisition could increase the risk thereof of money laundering or terrorist financing taking place.
(2) The Central Bank shall neither impose any prior conditions in respect of the level of holding that must be acquired by the proposed acquirer nor examine the grounds for application for granting authorisation to acquire the qualifying holding in terms of the economic needs of the market.
(3) If the indirect acquirer of a qualifying holding submits an application for direct acquisition of the qualifying holding, the Central Bank may assess only changes relative to the previous assessment, which took place at acquisition of the indirect holding, when assessing suitability and financial soundness of such person. (4) If the suitability and financial soundness was assessed earlier for some of the persons acting in concert, the Central Bank may assess for such person only changes relative to the previous assessment of suitability and financial soundness which took place at acquisition of the qualifying holding. (5) The Central Bank shall prescribe the detailed criteria for assessing suitability and financial soundness of the proposed acquirer, the circumstances used to determine acting in concert, the circumstances used to assess the existence of the significant influence, the manner of determining the level of indirect holding of a proposed acquirer, the manner of submitting application for granting authorisation to acquire qualifying holding and documentation to accompany the application for granting authorisation to acquire qualifying holding. (6) For the purposes of assessing whether the condition set out in paragraph (1) item 5) of this Article is met, the Central Bank shall take into account the data obtained from the authority of the administration responsible for the prevention of money laundering and terrorist financing or other supervisory authority of credit institutions in accordance with regulations governing the prevention of money laundering and terrorist financing.

Refusing an application for granting authorisation to acquire qualifying holding

Article 32

(1) The Central Bank shall refuse granting the authorisation to acquire qualifying holding if it deems that the requirements of suitability of the proposed acquirer or financial soundness of the proposed acquisition of the qualifying holding fail to meet the criteria referred to in Article 31 of this Law. (2) When assessing whether the condition referred to in Article 31 paragraph (1) item 5) of this Law is met, the Central Bank shall take into consideration the data obtained from the authorities referred to in Article 31 paragraph (6) of this Law, which it received within 30 working days of the initial application for granting authorisation to acquire qualifying holding. (3) The Central Bank may deny the proposed acquisition of the qualifying holding where the proposed acquirer has a head office in a third country listed as a high-risk third country that has strategic deficiencies in its anti-money laundering and counter-terrorist financing regime in accordance with the regulations governing the prevention of money laundering and terrorist financing or in a third country that is subject to the European Union restrictive measures, where it assessed that those circumstances affect the capacity of the proposed acquirer of the qualifying holding to have in place the required practices and processes to comply with the requirements of the prevention of money laundering and terrorist financing regime.

Legal consequences of acquiring qualifying holding without the Central Bank authorisation

Article 33

(1) If a person acquires directly a qualifying holding in a credit institution without an authorisation of the Central Bank, the Central Bank shall order sale of shares acquired without the authorisation by

way of its decision, including the obligation to provide evidence on the sale with data on buyer, if available.

(2) If persons acting in concert acquire directly a qualifying holding in a credit institution without an authorisation of the Central Bank, regardless of the percentage each of them holds in the credit institution separately and whether such individual holding represents a qualifying holding, the Central Bank shall order, by way of its decision, the sale of shares acquired without the authorisation up to the level that jointly does not exceed qualifying holding for which a relevant authorisation of the Central Bank exists, including the obligation to provide evidence on the sale with data on buyer, if available. (3) In the process of rendering a decision referred to in paragraphs (1) and (2) of this Article, the Central Bank shall require statement from each person that acquired the qualifying holding, as well as submission of evidence on executed sale with data on a buyer, if known. (4) Persons referred to in paragraph (2) of this Article acting in concert may propose individual levels of shares to be sold, which do not have to correspond to a proportionate total number of their shares. (5) The Central Bank shall order a sale of shares by way of its decision referred to in paragraph (2) of this Article to any person who acquired the qualifying holding individually, in the level that corresponds to a proportionate total number of their shares they hold jointly. (6) Notwithstanding paragraph (5) of this Article, if persons who acquired the qualifying holding submit a proposal referred to in paragraph (4) of this Article, the Central Bank may order a sale of shares to each person who has acquired the qualifying holding individually, in the level which does not have to correspond to a proportionate total number of their shares. (7) The Central Bank shall set deadline for the sale in the decision referred to in paragraphs (1) and (2) of this Article, which cannot be less than three months or exceed nine months as of the day the decision was adopted. (8) The Central Bank shall prepare a public statement and publish it on its website about decisions referred to in paragraphs (1) and (2) of this Article. (9) The decision referred to in paragraphs (1) and (2) of this Article shall be submitted forthwith to persons referred to in paragraphs (1) and (2) of this Article, the credit institution and the Central Securities Depository and Clearing Company of Montenegro.

Legal consequences of adopting a decision on sale of shares Article 34

(1) As of the day the decision referred to in Article 33 paragraphs (1) and (2) of this Law is delivered, the person that acquired the qualifying holding shall be prohibited to exercise any rights attached to the shares for which the sale was ordered, while quorum for valid decisions and required majority for making decisions at the general shareholders assembly shall be calculated with respect to share capital less number of shares based on which a person that acquired the qualifying holding cannot exercise the voting rights. (2) The credit institution shall:
1) ensure that a person who acquired the qualifying holding referred to in Article 33 paragraphs
(1) and (2) of this Law does not exercise rights attached to shares for which the sale was ordered;
2) report monthly to the Central Bank on all changes of shareholders from receipt of the decisions referred to in Article 33 paragraphs (1) and (2) of this Law until deadlines imposed for sale of share have lapsed; and
3) the enacting terms of the decisions referred to in Article 33 paragraphs (1) and (2) of this Law shall also include a statement that the person who acquired the qualifying holding may not exercise rights attached to shares for which a sale was ordered and that the enacting terms of such decision shall be publicly disclosed.
(3) If a natural and a legal person or persons acting in concert acquire indirectly the qualifying holding in the credit institution without the Central Bank authorisation, the Central Bank shall order, by way of its decision, for such acquired indirect qualifying holding in the credit institution to be reduced within the deadline referred to in Article 33 paragraph (7) of this Law.

(4) Exercising of property-based rights attached to shares referred to paragraph (1) of this Article shall be suspended until their legal acquisition by another person.

Person authorised to vote Article 35

(1) Notwithstanding Article 34 paragraph (1) of this Law, if the person who acquired the qualifying holding without the Central Bank authorisation after reduced quorum for valid deciding has had a majority needed for taking a decision on the general shareholders assembly, the Central Bank may nominate by way of a decision a person who will exercise all management rights attached to such shares (hereinafter: the person authorised to vote) until the day the shares for which sale was ordered are sold. (2) The person authorised to vote at the general shareholders assembly shall vote in accordance with the Central Bank instructions.

Withdrawal of an authorisation to acquire qualifying holding Article 36

(1) The Central Bank shall withdraw granted authorisation to acquire qualifying holding if:
1) the authorisation was granted based on false and incorrect data of a person who has acquired the qualifying holding;
2) criteria referred to in Article 31 paragraph (1) of this Law pertaining to suitability of the acquirer of qualifying holding and financial soundness of the proposed acquisition of the qualifying holding are no longer fulfilled;
3) a person who has acquired the qualifying holding uses its influence in a manner contrary to sound and prudential management of the credit institution or fails to act conscientiously and with diligence of a prudent businessperson; or
4) a person who has acquired the qualifying holding fails to meet its obligation from this Law pertaining to consolidated supervision or fails to act in accordance with the decision of the Central Bank or authority of the other Member State in charge for consolidated supervision ordering to such person to correct identified irregularities.
(2) The provisions of Article 34 of this Law shall apply to a person to whom the authorisation to acquire qualifying holding was withdrawn in accordance with paragraph (1) of this Article.

Temporary ban to exercise the voting rights of persons with qualifying holding Article 37

(1) The Central Bank may, by way of a decision, temporarily ban the exercise of voting rights in the general shareholders assembly to a person with qualifying holding if there is a possibility for such person to use its influence in a manner contrary to sound and prudential management of the credit institution or that will not act conscientiously and with diligence of a prudent businessperson. (2) The temporary ban referred to in paragraph (1) of this Article may not last for more than 12 months. (3) The Central Bank shall submit without delay the decision referred to in paragraph (1) of this Article to the person referred to in paragraph (1) of this Article and to the credit institution. (4) The Central Bank shall publish the notification on temporary ban referred to in paragraph (1) of this Article on its website. (5) From the day the decision referred to in paragraph (1) of this Article was delivered, the person with qualifying holding may not exercise the voting rights attached to shares exceeding the level for which no authorisation of the Central Bank is required, while the quorum for valid decisions and required majority for making decisions at the general shareholders assembly shall be calculated with respect to share capital less number of shares based on which a person with qualifying holding may not exercise the voting rights. (6) The credit institution shall ensure that the person with qualifying holding referred to in paragraph (1) of this Article does not exercise voting rights attached to shares for which a temporary ban for exercising voting rights was introduced.

(7) If even after the reduction of quorum for valid decisions, the person with qualifying holding with a temporary ban for exercising voting rights would have majority required for making decisions at the general shareholders assembly, Article 35 of this Law shall apply.

Changes in the qualifying holding level Article 38

(1) If a person who received an authorisation to acquire qualifying holding has taken a decision to sell or otherwise dispose of its shares, whereby its holding would fall below the level for which the authorisation was granted, it shall notify in advance the Central Bank thereof.
(2) A person who received the authorisation referred to in paragraph (1) of this Article, and who has sold or otherwise disposed of its shares, whereby its holding fell below the level for which authorisation was granted, shall submit an application to the Central Bank for granting authorisation to acquire qualifying holding in the event that it intends to reacquire qualifying holding in the level for which the authorisation was granted after the lapse of 12 months following the day the decision on granting the authorisation was rendered. (3) A legal person with qualifying holding in the credit institution shall notify the Central Bank on participation in the acquisition, merger, or division of the undertaking and on any other status change, within eight days following the day the status change has occurred.

Expiry of authorisation to acquire acquiring qualifying holding Article 39

(1) If the person granted with an authorisation to acquire qualifying holding fails to acquire shares of the credit institution within the deadline referred to in Article 23 paragraphs (5) and (7) of this Law, based on which it shall reach at least 10% of holding in capital or voting rights of the credit institution or if fails to exercise significant influence, the authorisation shall entirely expire. (2) If the person who acquired a qualifying holding within the deadline referred to in Article 23 paragraphs (5) and (7) of this Law acquires at least 10% of holding in capital or voting rights of the credit institution, but fails to acquire the full holding covered by the granted authorisation, the authorisation shall be valid only up to the percentage referred to in Article 23 paragraph (3) of this Law which the person with qualifying holding has acquired, while the remaining part of the authorisation shall expire. (3) If the person who acquired a qualifying holding within the deadline referred to in Article 38 paragraph (2) of this Law reduced holding below the level for which the authorisation was granted, the part of the authorisation not exceeding the percentage referred to in Article 23 paragraph (3) of this Law which the person with qualifying holding has on the day of lapse of such deadline shall be valid. (4) If the person who acquired a qualifying holding after the deadline referred to in Article 23 paragraphs (5) and (7) of this Law reduced holding below the level for which the authorisation was granted, the part of the authorisation not exceeding the percentage referred to in Article 23 paragraph (3) of this Law which the person with qualifying holding has acquired shall be valid.

2a. Acquisition or divestiture of a material holding

Notification of the acquisition of a material holding

Article 39a

(1) A credit institution, including a financial holding company or a mixed financial holding company referred to in Article 73a paragraphs (1) and (2) of this Law, which intends to acquire, directly or indirectly, a material holding (hereinafter: proposed acquirer of material holding), shall notify the Central Bank in writing of the size of the intended acquisition and submit information referred to in Article 39c paragraph (5) of the Law. (2) Where a proposed acquirer of material holding is a credit institution, the threshold referred to in Article 16 paragraph (1) item 32a) of this Law shall apply on an individual basis and on the basis of the consolidated situation, in a way that, where the threshold is exceeded:

1) only on an individual basis, the proposed acquirer of material holding with head office in Montenegro shall notify the Central Bank thereof, which shall assess the intended acquisition;
2) only on an individual basis, the proposed acquirer of material holding with head office in another Member State shall notify competent authority in that Member State, which shall assess the intended acquisition;
3) on an individual basis and on the basis of the consolidated situation, the proposed acquirer of material holding shall notify the competent authority responsible for the supervision of sub-consolidated and consolidated basis for the purpose of the assessment of intended acquisition.
(3) Where the proposed acquirer of material holding is a financial holding company or a mixed financial holding company referred to in Article 73a paragraphs (1) and (2) of this Law, the threshold referred to in Article 16 paragraph (1) item 32a) of this Law shall apply on the basis of the consolidated situation, and the consolidating supervisor shall assess the acquisition of material holding. (4) The Central Bank shall acknowledge, in writing, the receipt of the notification referred to in paragraph (1) of this Article, information referred to in Article 39c paragraph (5) of this Law, or of any additional information in accordance with Article 39b paragraph (5) of this Law, without delay, and no later than ten working days following the receipt of the notification or of information. (5) The acknowledgment of the receipt referred to in paragraph (4) of this Article shall also include the date of the expiry of the assessment period referred to in Article 39b paragraph (1) of this Law.

Assessment period for acquiring material holding

Article 39b

(1) The Central Bank shall carry out, within 60 working days following that of the written acknowledgement of receipt of the notification referred to in Article 39a paragraph (4) of this Law, the assessment of the acquisition of material holding referred to in Article 39c paragraph (1) of this Law (hereinafter: assessment period). (2) Where the acquisition of material holding concerns qualifying holding in a credit institution, the proposed acquirer of material holding shall also be subject to the provision of Article 23 of this Law. (3) In the case referred to in paragraph (2) of this Article, the time limit for the Central Bank to carry out both the assessment referred to in paragraph (1) of this Article and Article 23 of this Law shall expire after the expiry of the last time limit. (4) The Central Bank shall not be required to carry out the assessment referred to in Article 39c paragraph (1) of this Law where the acquisition of material holding is conducted between entities of the same group which are subject to the exemption from the requirements to calculate risk weighted exposure amounts in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law. (5) The Central Bank may, during the assessment period, and at the latest on the 50th working day of the assessment period, request in writing additional information from the proposed acquirer of material holding that it deems necessary to complete the assessment. (6) The proposed acquirer of material holding shall submit additional information referred to in paragraph (5) of this Article within time limits specified by the Central Bank, which may not exceed 20 working days following that of the submission of the request referred to in paragraph (5) of this Article, and the time limit referred to in paragraph (1) of this Article during that period shall be suspended. (7) The Central Bank may extend the time limit referred to in paragraph (6) of this Article to a maximum of 30 working days where:
1) the entity in which material holding is acquired is located in a third country, or is subject to the regulatory framework of a third country;
2) an exchange of information with authorities responsible for supervising the proposed acquirer of material holding in accordance with regulations governing the prevention of money laundering and terrorist financing is necessary to carry out the assessment referred to in Article 39c paragraph (1) of this Law.

(8) Where the process of taking decisions on the application for granting authorisation to a financial holding company or mixed financial holding company referred to in Article 73a paragraphs (1) and (2) of this Law takes place concurrently with the assessment referred to in Article 39c paragraph (1) of this Law, the Central Bank shall cooperate with other competent authorities of these companies, as appropriate, wherein the time limit referred to in paragraph (1) of this Article shall be suspended until the procedure set out in Article 73a of this Law is complete. (9) The Central Bank shall, based on the assessment referred to in Article 39c paragraph (1) of this Law, notify the proposed acquirer of material holding of the results of the assessment within two working days of completion of the assessment, and before the end of the assessment period, providing the explanation for the assessment results. (10) Where the Central Bank does not submit notification referred to in paragraph (9) of this Article, the proposed acquisition of material holding shall be deemed approved with the expiry of the time limit referred to in paragraph (1) of this Article. (11) For the purposes of determining the level of indirect material holding referred to in this Article, the rules on determining the level of holding of indirect acquirer in accordance with regulation referred to in Article 31 paragraph (5) of this Law shall apply.

Criteria for assessing the acquisition of material holding

Article 39c

(1) Upon the receipt of notification referred to in Article 39a paragraph (1) of this Law and additional information referred to in Article 39b paragraph (5) of this Law, the Central Bank shall assess the prospect for sound and prudent management by the proposed acquirer of material holding and, in particular, the risks to which the proposed acquirer of material holding is or might be exposed after the proposed acquisition of material holding, in accordance with the following criteria:
1) the ability of the proposed acquirer of material holding to comply and continue to comply with the prudential requirements set out in this Law and regulation governing capital adequacy of credit institutions, and other relevant regulations;
2) there are reasonable grounds to suspect that, in connection with the proposed acquisition of material holding, money laundering or terrorist financing, in accordance with regulations governing the prevention of money laundering and terrorist financing, is being or has been committed or attempted, or that the proposed acquisition could increase the risk thereof.
(2) In assessing the criterion set out in paragraph (1) item 2) of this Article, the Central Bank shall obtain opinion of the competent authority responsible for supervising the proposed acquirer of material holding in accordance with regulations governing the prevention of money laundering and terrorist financing. (3) The Central Bank may pass a decision not to approve the acquisition of material holding if it assesses that, on the basis of the criteria set out in paragraph (1) of this Article, the sound and prudent management will not be provided by the proposed acquirer of material holding or if the information provided by the proposed acquirer of material holding is incomplete despite a request for additional information is made in accordance with Article 39b paragraph (5) of this Law. (4) When reaching a decision referred to in paragraph (3) of this Article, the Central Bank shall also take into consideration a negative opinion by the competent authority referred to in paragraph (2) of this Article, which has been received within 30 days of the initial request. (5) The Central Bank may neither impose any prior conditions in respect of the level of material holding the proposed acquirer of material holding intends to acquire nor assess reasonable grounds for acquiring material holding in terms of the economic needs of the market. (6) The Central Bank shall determine and publish on its website a list of the information it deems necessary to carry out the assessment referred to in paragraph (1) of this Article, which the proposed acquirer of material holding is required to provide at the time of the notification referred to in Article 39a paragraph (1) of this Law. (7) The information referred to in paragraph (5) of this Article shall be proportionate and appropriate to the nature of the proposed acquisition, and relevant for the assessment referred to in paragraph (1) of this Article.

(8) Where two or more notifications of the assessment of the acquisition of material holding in the same entity have been obtained, the Central Bank shall treat all proposed acquirers of material holding in a non-discriminatory manner.
(9) The Central Bank shall prescribe the manner of providing notification referred to in Article 39a paragraph (1) of this Law, the information and documentation accompanying the notification, and the methodology for the assessment of the criteria referred to in paragraph (1) of this Article.

Cooperation with competent authorities for assessing cross-border material acquisition

Article 39d

(1) When carrying out the assessment referred to in Article 39c paragraph (1) of this Law, the Central Bank shall consult bodies and authorities competent for the supervision of other financial sector entities where the proposed acquisition of material holding concerns one of the following:
1) a credit institution, an insurance undertaking, a reinsurance undertaking, an investment firm or an asset management company, licensed or authorised in another state or in a sector other than that of the proposed acquirer of material holding;
2) a parent undertaking of entities referred to in item 1) of this paragraph;
3) a legal person controlling entities referred to in item 1) of this paragraph.
(2) Where the proposed acquirer of material holding is a credit institution that is a part of a group and the Central Bank is not the consolidating supervisor, and the threshold referred to in Article 16 paragraph (1) item 32a) of this Law is only exceeded on an individual basis, the Central Bank shall, assessing the acquisition referred to in Article 39c paragraph (1) of this Law, notify the consolidating supervisor of the proposed acquisition of material holding within 10 working days following the receipt of the notification by the proposed acquirer of material holding. (3) Where the proposed acquirer of material holding is a financial holding company or mixed financial holding company referred to in Article 73a paragraphs (1) and (2) of the Law, the Central Bank shall, as consolidating supervisor when assessing the proposed acquisition of material holding, notify the competent authority in the Member State where the proposed acquirer of material holding has its head office of the proposed acquisition of material holding within 10 working days following the receipt of the notification by the proposed acquirer of material holding. (4) The Central Bank shall also forward the assessment referred to in Article 39c paragraph (1) of this Law to the competent authority referred to in paragraphs (2) and (3) of this Article. (5) Where the proposed acquirer of material holding is a credit institution and the threshold referred to in Article 16 paragraph (1) item 32a) of this Law is exceeded on both an individual basis and on the basis of the consolidated situation, the Central Bank shall also cooperate with other competent authority when carrying out the assessment referred to in paragraph (1) of this Article and shall coordinate with that authority the consultation with the authorities referred to in paragraph (1) of this Article. (6) Where the Central Bank is a consolidating supervisor but it is not the authority competent for assessing the acquisition of material holding in accordance with Article 39a paragraph (2) of this Law, it shall cooperate and work together in consultation with competent authority from a Member State where the proposed acquirer has its head office, and prepare an assessment on the acquisition of material holding and forward it to that authority. (7) The Central Bank and the competent authority referred to in paragraph (6) of this Article shall reach a joint decision on the acquisition of material holding which shall be documented and reasoned, within two months of the receipt of the assessment of the Central Bank. (8) Where the Central Bank is the consolidating supervisor, it shall communicate the joint decision referred to in paragraph (7) of this Article to the proposed acquirer of material holding. (9) In the event that a joint decision is not taken within the time limit referred to in paragraph (7) of this Article, the Central Bank shall refrain from taking a decision. (10) In the event referred to in paragraph (9) of this
Article, the Central Bank and the competent authority referred to in paragraph (6) of this Article shall refer the matter to European Banking Authority, and take the joint decision in accordance with the decision of the European Banking Authority.

(11) The Central Bank shall provide, without delay upon request or on its own initiative, other competent authorities participating in reaching a joint decision referred to in paragraph (7) of this Article with all information essential for the assessment, and other information which it deems relevant for the assessment. (12) The Central Bank shall, when reaching joint decision referred to in paragraph (7) of this Article, coordinate its assessments and ensure the consistency of its decisions, and the joint decision shall indicate views made by all relevant competent authorities.

Notification of divestiture of material holding

Article 39e

A credit institution, and a financial holding company or mixed financial holding company referred to in Article 73a paragraphs (1) and (2) of this Law, that intend to dispose, directly or indirectly, of a material holding as determined in accordance with Article 16 paragraph (1) item 32a) of this Law, shall notify in writing the Central Bank of the size of the material holding to be divested.

Legal consequences of the acquisition of material holding without authorisation of the

Central Bank and information obligation

Article 39f

(1) Where the acquirer of material holding fails to notify the Central Bank of the intended acquisition of material holding in accordance with Article 39a paragraph (1) of this Law or has acquired a material holding despite the negative opinion of the Central Bank referred to in Article 39b paragraph (10) of this Law, the Central Bank shall take appropriate measures. (2) Where a material holding is acquired despite the negative opinion of the Central Bank, the Central Bank may, without prejudice to potential penalties, suspend the voting rights of the acquirer of that material holding. (3) A credit institution shall notify the Central Bank of any change in the economic activity of an entity in which it holds majority shareholding or majority decision-making rights before registering that economic activity in the Central Registry of Business and Other Entities.

2b. Material transfers of assets and liabilities

Notification of material transfers of assets and liabilities

Article 39g

(1) A credit institution, and a financial holding company or mixed financial holding company referred to in Article 73a paragraphs (1) and (2) of this Law shall notify the Central Bank in writing of any material transfer of assets or liabilities which it intends to execute either through a sale or any other type of transaction (hereinafter: the proposed operation), regardless of whether the proposed operation is executed between the entities from the same group. (2) The obligation referred to in paragraph (1) of this Article shall involve all entities individually that participate in the proposed operation. (3) For the purposes of this Law, material transfer of assets or liabilities referred to in paragraph (1) of this Article shall be deemed to be transfer of at least 10% of total assets or liabilities of an entity participating in the proposed operation or at least 15% where the proposed operation is executed between the entities from the same group. (4) Where a parent financial holding company or parent mixed financial holding company referred to in paragraph (1) of this Article participates in the proposed operation, the percentages referred to in paragraph (3) of this Article shall be calculated on the basis of their consolidated situation. (5) The following shall not be taken into account for calculating the percentages referred to in paragraph (3) of this Article:
1) transfers of non-performing assets;
2) transfers of assets for the purpose of being included in a cover pool in accordance with the
regulation governing issuance and supervision of covered bonds;

3) transfers of assets to be securitised;

4) transfers of assets or liabilities in the context of the use of resolution tools, powers and
mechanisms in accordance with the law governing resolution of credit institutions.

(6) The Central Bank shall acknowledge, in writing, the receipt of the notification referred to in paragraph (1) of this Article within 10 working days at the latest following that of the receipt of that notification.
(7) The Central Bank shall take appropriate measures where the entities referred to in paragraph (1) of this Article fail to notify the Central Bank of the proposed operation.
(8) The Central Bank shall prescribe the procedure for submitting notifications of the proposed operation, information and documentation accompanying the notification of the proposed operation.

3. Managing the credit institution

Bodies of the credit institution Article 40

The bodies of the credit institution shall be:

1) general shareholders assembly;
2) supervisory board; and
3) management board.

General shareholders assembly Article 41

The general shareholders assembly of the credit institution shall:

1) pass and amend and supplement articles of association of the credit institution;
2) adopt annual financial statements and reports on operations of the undertaking and report of the independent external auditor;
3) select and remove members of the supervisory board of the credit institution; 3a) select and remove external auditor;
4) adopt and implement an adequate nomination policy and policy for assessing the fulfilment of the suitability requirements, which the members of the supervisory board must fulfil individually and collectively;
5) decide on remuneration for members of the supervisory board and give consent to the remuneration policy of the credit institution, if so is set by the articles of association of the credit institution;
6) decide on disposal of property of the undertaking, in accordance with the articles of association;
7) decide on distribution of profit;
8) decide on increase and decrease of capital of the credit institution, including deciding on issuing of transferable securities;
9) decide on restructuring and ceasing of operation of the credit institution;
10) decide on other matters set by the articles of association of the credit institution, in accordance with law.

Management bodies Article 42

(1) Management bodies of the credit institution shall be the supervisory board, which performs a supervisory function and monitors the credit institution’s management decision-making, and the management board, which performs an executive function and is accountable for managing the credit institution on day-to-day basis and for its representation. (2) Members of the supervisory board must have collective knowledge, skills and experience required for independent and autonomous oversight of operations of the credit institution, in particular for understanding tasks and significant risks of the credit institution, including impacts that may be

created in the short, medium and long term, taking into account environmental, social and governance factors (hereinafter: ESG factors).

(3) Members of the management board must have collective knowledge, skills and experience required for independent and autonomous management of operations of the credit institution, in particular for understanding tasks and significant risks of the credit institution, including impacts that may be created in the short, medium and long term, taking into account ESG factors. (4) The credit institution shall, without any delay and not later than within three working days, notify the Central Bank on termination of term of office a member of supervisory board or management board, as well as to state the reasons for termination of the term of office. (5) The Central Bank shall collect the information disclosed by credit institutions in accordance with the regulation referred to in Article 237 paragraph (2) of this Law pertaining to the policies on diversity with regard to selection of members of the supervisory and management boards, objectives set by such policies, as well level of reaching the objectives, and shall use such data to benchmark trends and practices of credit institutions concerning diversity of the supervisory and management boards. (6) The Central Bank shall provide the European Banking Authority with information referred to in paragraph (5) of this Article. (7) A credit institution shall, when selecting the members of the management bodies, ensure that the overall composition of those bodies be sufficiently diversified and reflect an adequately broad range of experience, as well as to encourage diversity and gender balance in those bodies, and for that purpose adopt appropriate strategy.

Members of the supervisory board Article 43

(1) A member of the supervisory board of a credit institution may only be a person who, during the selection and the period in which they perform the function of the member of the supervisory board:
1) is of a good repute;
2) may act in the credit institution conscientiously and is able to act based on independence of mind, or ability to independently create and make clear objective and independent positions in performing duties from within his powers to effectively assess and, where necessary, challenge the decisions of the supervisory board, and oversee and monitor decision-making process in an appropriate manner;
3) possesses relevant expert knowledge, skills and experience required to meet their obligations from within the remit of the supervisory board, and together with other members of the supervisory board fulfils the requirements referred to in Article 42 paragraph (2) of this Law;
4) may commit sufficient time to perform duties from within its powers; and
5) meets requirements for a member of the supervisory board referred to in the law governing the operations of business undertakings.
(2) The supervisory board of the credit institution that is significant in terms of its size, internal organisation and the nature, scale and complexity of activities it performs, as well as the supervisory board of the credit institution having securities admitted for trading at regulated market in accordance with the law governing the capital markets, must have sufficient number of independent members. (3) The supervisory board of the credit institution that is not significant within the meaning of paragraph (2) of this Article, must have at least one independent member, except in cases when the credit institution is a subsidiary undertaking of:
1) another credit institution in Montenegro; or
2) the Member State credit institution.
(4) Employees of the credit institution may not be members of the supervisory board of such credit institution.
(5) Member of the supervisory board shall be appointed to a period set by articles of association, which may not exceed four years, whereby a member whose term of office has lapsed may be reappointed.
(6) The Central Bank regulation shall govern in more details:

1) requirements referred to in paragraph (1) of this Article for the membership in the supervisory board of the credit institution;
2) criteria for determining independence of members of the supervisory board;
3) content of the policy referred to in Article 41 item 5) of this Law;
4) timing for assessing if requirements for members of a supervisory board of a credit institution are met;
5) criteria for determining the significance of credit institutions within the meaning of paragraph
(3) of this Article; and
6) procedure for granting authorisation and documentation accompanying application for granting an authorisation for appointing a member of the supervisory board.
(7) The Central Bank shall assess on an ongoing basis whether the members of the supervisory board of the credit institution meet the conditions referred to in paragraph (1) of this Article, in particular whether there are reasonable grounds to suspect, in accordance with the regulations governing money laundering and terrorist financing, that money laundering or terrorist financing is being or has been committed or attempted, or that there is an increased risk thereof, in connection with the credit institution. (8) For the purposes of carrying out the assessment referred to in paragraph (7) of this Article, the Central Bank may request:
1) the credit institution to submit additional information or documentation, including carrying
out interviews or hearings;

2) the authority competent for the prevention of money laundering and terrorist financing, in
accordance with the law governing the prevention of money laundering and terrorist financing, to review, within its checks and on a risk assessment basis, relevant information concerning the members of the credit institution’s supervisory board, and to have access to the central database of that authority.

Prior authorisation for performing functions of the supervisory board member Article 44

(1) Only a person who has obtained a prior authorisation of the Central Bank to perform function of the supervisory board member may be selected as a member of the supervisory board of the credit institution.
(2) The credit institution or the founders shall submit the application for granting the authorisation referred to in paragraph (1) of this Article for the term of office that may not exceed four years.
(3) The application referred to in paragraph (2) of this Article shall be accompanied with the evidence on fulfilling requirements referred to in Article 43 paragraph (1) of this Law and with the proposal of the decision, or the decision with suspensory effect, on nominating candidate for a member of the supervisory board. (4) In the procedure of rendering a decision on granting the authorisation, the Central Bank shall grant the authorisation referred to in paragraph (1) of this Article for a period of the proposed term of office, which exceptionally could be shorter. (5) The Central Bank shall render a decision on granting the authorisation referred to in paragraph (1) of this Article based on documentation referred to in paragraph (3) of this Article, as well as other data and information having available or obtaining them during the course of rendering a decision. (6) The Central Bank shall have the powers to obtain data on misdemeanour and penal convictions of the candidate for a member of the supervisory board, as well as on criminal and misdemeanour proceedings potentially pending against such person from the relevant records. (7) In the process of rendering a decision upon an application for granting the authorisation referred to in paragraph (1) of this Article, the Central Bank:
1) may obtain data from the European Criminal Records Information System;
2) shall verify data on imposed sanctions to a candidate for the member of the supervisory board in the records of the European Banking Authority, where applicable.
(8) The Central Bank shall refuse an application for granting the authorisation for performing function of the supervisory board member of the credit institution, if:

1) a candidate for a member of the supervisory board fails to fulfil one or more requirements referred to in Article 43 paragraph (1) of this Law;
2) appointment of the proposed candidate for a member of the supervisory board would lead to noncompliance with requirements referred to in Article 43 paragraphs (2) and (3) of this Law;
3) there is an impediment for the appointment referred to in Article 43 paragraph (4) of this Law.
(9) The authorisation referred to in paragraph (1) of this Article shall be valid only for performing a function in the credit institution for which it refers. (10) The credit institution shall submit the application for granting the authorisation referred to in paragraph (2) of this Article no later than three months before the expiry of the term of office of a specific member of the supervisory board, and in the event of termination of the function of the specific member of the supervisory board before the expiry of the term of office within 30 days as of lapse of the term of office.

Withdrawal of authorisation for performing functions of the supervisory board member Article 45

(1) The Central Bank shall withdraw authorisation granted for performing a function of the supervisory board member in the credit institution if:
1) member of the supervisory board no longer meets the stipulated requirements for the membership in the supervisory board of the credit institution;
2) authorisation was granted based on false or inaccurate documentation or false presented data of relevance for performing the function of the supervisory board member;
3) member of the supervisory board is in breach of provisions on activities and responsibilities of the supervisory board referred to in Article 46 of this Law;
4) person for whom the authorisation was granted fails to commence with term of office for which the authorisation refers to within six months as of the authorisation was granted;
5) term of office of a member of the supervisory board for which the authorisation was granted is terminated and so as of the day of termination of the office.
(2) The Central Bank may withdraw an authorisation for performing the function of the supervisory board member in the credit institution if requirements for an early intervention occur in accordance with Article 288 of this Law.
(3) The Central Bank shall revise the fulfilment of the requirements referred to in paragraphs (1) and (2) of this Article if they have reasonable grounds to suspect that money laundering or terrorist financing is being or has been committed or attempted, or there is increased risk thereof in connection with that credit institution. (4) In the event of the procedure referred to in paragraphs (1), (2), and (3) of this Article, the member of the supervisory board shall provide to the Central Bank all available data and information for verification of facts and circumstances referred to in paragraphs (1), (2), and (3) of this Article. (5) If the Central Bank withdraws authorisation for a member of the supervisory board to discharge his powers, the general shareholder assembly of the credit institution shall adopt a decision on removing such person from office and to submit to the Central Bank, without delay, a new application for obtaining the authorisation referred to in Article 44 of this Law.

Powers and responsibilities of the supervisory board Article 46

(1) The supervisory board shall:
1) issue consent to the management board for: -objectives and general strategy of the credit institution, -business policy of the credit institution, -financial plan of the credit institution, -strategies and procedures assessing the internal capital and liquidity adequacy of the credit institution, -policies and procedures for nomination and the assessment of the fulfilment of the suitability requirements for members of the management board and other persons responsible for managing affairs within specific areas of operation of the credit institution,

-remuneration policy in the credit institution, unless the articles of association govern that such consent is issued by the general shareholders assembly, -legal act on internal audit and annual work plan of the internal audit, -recovery plan, -decision on doing business with persons connected with a credit institution, -strategic objectives, risk management strategies and policies;

2) oversee: -procedure for implementing and efficiency and effectiveness of the credit institution governance arrangements, -implementation of business policy of the credit institution, strategic objectives and risk-taking strategy and policy, -implementation of the remuneration policy in the credit institution, -disclosure and communication process, -adequacy of procedures and efficiency of internal audit, -implementation of specific plans referred to in Article 55 paragraph (7) of this Law.
3) propose an external auditor;
4) adopt semi-annual internal audit report;
5) adopt and periodically check general principles of the remuneration policy in the credit institution;
6) convene meetings of the general shareholders assembly, adopt proposal of the agenda and proposal of decisions for the general shareholders assembly and control their execution;
7) select and remove chairperson of the supervisory board;
8) appoint and remove members of the management board including the chairperson of the management board;
9) appoint and remove members of the audit committee;
10) consider annual report on work of the audit committee;
11) appoint and remove members of the remuneration committee, risk committee, nomination committee and other committees established in order to provide professional assistance in the performance of the oversight over the credit institution operations;
12) consider and take position on findings from the Central Bank reports and reports of other supervisory authorities on the examination performed, within 30 days as of the day of report on examination being submitted;
13) perform other tasks set by law, regulations adopted pursuant to this Law and articles of association of the credit institution.
(2) By way of derogation from paragraph (1) item 1) indent 9 of this Article, the supervisory board may, by way of its business policy, define the amount of transaction with persons connected with the credit institution for which the authorisation is not needed, whereat the total exposure amount of credit institution to a single connected person on the basis of those transactions shall not exceed 1% of Tier 1 capital of credit institution. (3) The management board shall report the transactions referred to in paragraph (2) of this Article to the supervisory board at least on quarterly basis. (4) Meetings of the board shall be held as needed and at least once in three months. (5) A member of the supervisory board shall notify forthwith the Central Bank of:
1) his appointment or termination of the function in management bodies in another legal person; and
2) legal transactions that enabled to that member of the supervisory board or some of his immediate family members to directly or indirectly acquire shares in a legal person, based on which he has independently or jointly with his immediate family members acquired a qualifying holding in such other legal person or based on which their holding fell below the qualifying holding limit.

Working bodies of the supervisory board Article 47

(1) The supervisory board of the credit institution that is significant in terms of its size, internal organisation and the nature, scale and complexity of activities it performs, shall establish the following standing working bodies:
1) Nomination committee;
2) Risk committee; and
3) Remuneration committee.
(2) Members of the committees referred to in paragraph (1) of this Article shall be appointed from within the ranks of members of the supervisory board of the credit institution.
(3) The committees referred to in paragraph (1) of this Article shall have each three members, of which one is appointed as the chairperson of the committee.
(4) For the credit institution which is not significant within the meaning of paragraph (1) of this Article, and which does not have a nomination committee and remuneration committee, the supervisory board shall carry out tasks referred to in Articles 48 and 50 of this Law.
(5) The Central Bank shall govern in more detail tasks and the manner of organisation of the supervisory board.

Nomination Committee Article 48

(1) The nomination committee shall:
1) identify and propose candidates for selection of members of the supervisory and management boards of the credit institution, evaluate the balance of knowledge, skills, diversity in composition and experience of the management body, prepare a description of powers and qualifications required for a particular appointment and assess the time commitment expected to discharge such appointment;
2) decide on a target for the representation of the underrepresented gender in the supervisory board or management board and prepare a policy on how to increase the number of the underrepresented gender in such bodies in order to meet that target representation;
3) regularly, and at least annually, assess and as needed propose changes to the structure, size, composition and performance of the supervisory and management boards of the credit institution;
4) regularly, and at least annually, assess the knowledge, skills and experience of individual members of the supervisory and management boards, as well as of those bodies collectively, and report of such assessment to the management bodies and persons to which such assessment refers;
5) regularly review the policy for selection and appointment of senior management and make recommendations and proposal to the management board for the improvement of such policies if needed;
6) on an ongoing basis, to the extent possible, take account of the need to ensure that the management and supervisory boards’ decision making is not dominated by individuals or small group of individuals, in order to protect the interests of the credit institution as a whole; and
7) perform other tasks set by regulations adopted pursuant to this Law.
(2) The credit institution shall disclose, in the manner referred to in Article 237 paragraph (2) of this Law, the target for representation referred to in paragraph (1) item 2) of this Article, as well as the policy referred to in paragraph (1) item 2) of this Article and its implementation.
(3) In exercising its duty, the nomination committee may use all resources it deems adequate, including also use of expert assistance from persons outside of the credit institution charged to the credit institution.

Risk Committee Article 49

(1) The risk committee shall:
1) advise and provide support to the supervisory board with regard to monitoring the credit institution's overall current and future risk management strategy and risk appetite, taking into

account all types of risk for ensuring compliance with business policy, strategy, objectives, corporate culture and values of the credit institution;

2) review whether prices of receivables and liabilities offered to clients take fully into account the credit institution's business model and risk strategy, and where such price does not reflect risks taken in accordance with the business model and risk strategy, present a remedy plan to the management board;
3) irrespective of the tasks of the remuneration committee, in order to establish and implement appropriate remuneration policy, examine whether incentives provided by the remuneration system take into consideration risks, including those that result from the impact of ESG factors, capital, liquidity and the likelihood and timing of earnings; and
4) perform other tasks in accordance with regulations adopted pursuant to this Law.
(2) Members of the risk committee must have appropriate knowledge, skills and expertise to be able to fully understand and monitor implementation of the risk strategy and the risk appetite of the credit institution.
(3) The credit institution that is not significant in terms of its size, internal organisation and the nature, scope and complexity of its activities may establish a combined risk and audit committee.
(4) Members of the risk and audit committee referred to in paragraph (3) of this Article must have appropriate knowledge, skills and expertise required for the members of both committees.
(5) The credit institution shall ensure that members of the risk committee or the risk and audit committee have adequate access to information on the risk profile of the credit institution and if necessary and appropriate, access to the risk management function and to external expert advice.
(6) The risk committee or the risk and audit committee shall determine the nature, the amount, the format and the frequency of information on the risk situation to be receiving from organisational units or functions within the credit institution.

Remuneration Committee Article 50

(1) The credit institution shall establish the remuneration committee in such manner as to enable the adoption of the professional and independent assessment of the remuneration policies and practices connected to the remuneration in the credit institution and incentives for risk, capital and liquidity management. (2) The remuneration committee shall:
1) prepare decisions of the supervisory board connected with the remuneration of employees, including decisions that have impact on the credit institution risk exposure and to the risk management; and
2) carry out other tasks set by the regulations.
(3) In carrying out tasks from its competence, the remuneration committee shall take into account long-term interests of the shareholders, investors and other stakeholders in the credit institution, as well as the public interest.

Management board of the credit institution Article 51

(1) The management board of the credit institution must have at least three members selected for a period set by the articles of association, which may not exceed four years, whereby a member whose term of office has expired may be re-appointed.
(2) One of the members of the management board must be appointed as the chairperson of the management board.
(3) Members of the management board must be employed in the credit institution with full working hours and must manage operations of the credit institution from the territory of Montenegro.
(4) Members of the management board shall collectively manage the activities of and represent the credit institution, unless otherwise stipulated by the articles of association of the credit institution.
(5) At least one member of the management board must know the official language in Montenegro.
(6) The management board of the credit institution may authorise one or more procurators to represent the credit institution or to conclude contracts and take legal actions on behalf and for the account

of the credit institution arising from services authorised by the Central Bank to the credit institution, but only accompanied with at least one member of the management board of the credit institution.

(7) The articles of association of the credit institution shall govern the conditions to be met by a person granted with the procuracy, the type and the manner of granting general power to represent (procuracy), the scope of the authorisations from the procuracy, including also limitations in undertaking certain actions by the procurators. (8) The management board of the credit institution shall also register limitation of the procuracy when recording the procurators in the Central Registry of Business and Other Entities. (9) The articles of association of the credit institution shall govern the condition to be met by a person granted with the procuracy, the type and the manner of granting general power to represent (procuracy), the scope of the authorisations from the procuracy, including also limitations in undertaking certain actions by the procurators.

Requirements for membership in the management board of the credit institution

Article 52

(1) A member of the management board of a credit institution may only be a person who, during the selection and the period in which they perform the function of the member of the management board:
1) is of good repute,
2) may act in the credit institution conscientiously and with integrity and who may act based on independence of mind, or ability to independently create objective and independent positions in making decisions and in performing other duties from within his powers to effectively assess and challenge the decisions of the management board where necessary and to effectively oversee and monitor decision-making process;
3) possesses adequate knowledge, skills and experience to manage activities of the credit institution and who collectively with other members of the management board meets requirements referred to in Article 42 paragraph (3) of this Law;
4) may commit sufficient time to perform duties from within its powers;
5) meets requirements for a member of the management board pursuant to the law governing the operations of business undertakings.
(2) The management board of the credit institution, with previous consent of the supervisory board, shall adopt appropriate nomination policy and policy for assessing the fulfilment of suitability requirements for each individual member of the management board of the credit institution, as well as collective conditions for members of the management board, the credit institution is obliged to implement. (3) The Central Bank shall govern in more details conditions for nomination of members of the management board of the credit institution; documentation accompanying the application for granting the authorisation for nomination of the chairperson or members of the management board of the credit institution; procedure for granting authorisation; and the content of the policy referred to in paragraph (2) of this Article. (4) The Central Bank shall assess on an ongoing basis whether the members of the management board of the credit institution meet the conditions referred to in paragraph (1) of this Article, in particular whether there are reasonable grounds to suspect, in accordance with the regulations governing money laundering and terrorist financing, that money laundering or terrorist financing is being or has been committed or attempted, or that there is an increased risk thereof, in connection with the credit institution. (5) For the purposes of carrying out the assessment referred to in paragraph (4) of this Article, the Central bank may request:
1) the credit institution to submit additional information or documentation, including carrying out interviews or hearings;
2) the authority competent for the prevention of money laundering and terrorist financing, in accordance with the law governing the prevention of money laundering and terrorist financing,

to review, within its checks and on a risk assessment basis, relevant information concerning the members of the credit institution’s management board, and to have access to the central database of that authority.

Authorisation for performing function of a member of management board of the credit institution

Article 53

(1) Only person granted with an authorisation of the Central Bank to perform a function of a member of the management board may be appointed as the member of the management board of the credit institution.
(2) The application for granting authorisation referred to in paragraph (1) of this Article shall be submitted by the credit institution for a term of office that may not exceed four years and to do so at least three months before the lapse of the term of office for a member of the management board whose term of office is lapsing. (3) The evidence on meeting conditions referred to in Article 52 of this Law and the work programme of the management board, including projections of financial statements for the period of the term of office to which the member of the management board is nominated, shall be submitted along with the application for granting authorisation. (4) The Central Bank may require from a candidate for member of the management board to deliver a presentation on managing activities of the credit institution pertaining to duties from within his competence, in the process of rendering a decision upon application for granting authorisation. (5) The Central Banks shall render a decision on granting authorisation referred to in paragraph (1) of this Article based on the documentation referred to in paragraph (3) of this Article, presentation referred to in paragraph (4) of this Article and other data and information having at its disposal or acquired during the decision-making process. (6) The Central Bank shall grant the authorisation referred to in paragraph (1) of this Article for the period of proposed duration of the term of office of the management board member, and exceptionally for a shorter period. (7) The Central Bank shall refuse to grant the authorisation for performing a function of member of the management board of the credit institution if the candidate for member of the management board fails to meet some of the conditions referred to in Article 52 paragraph (1) of this Law. (8) The authorisation referred to in paragraph (1) of this Article shall be valid only for performing the function of member of the management board in the credit institution to which the authorisation relates and may not be used in case of a re-appointment for a term of office in such credit institution. (9) When the management board is unable to perform its functions due to termination of function of a member of the management board before lapse of the term of office or due to other reasons, the supervisory board of the credit institution may appoint a deputy member of the management board from within its ranks for a maximum period of three months without a prior authorisation of the Central Bank. (10) The Central Bank shall have the powers to obtain data on misdemeanour and penal convictions of the candidates for members of the management board, as well as on criminal and misdemeanour proceedings potentially pending against such person from the relevant records, accompanied with a reasoned request. (11) In the process of rendering a decision upon a request for granting the authorisation referred to in paragraph (1) of this Article, the Central
Bank:
1) may also obtain data referred to in paragraph (3) of this Article from the European Criminal Records Information System.
2) shall, if needed, verify data on imposed sanctions to a candidate for member of the management board in the records of the European Banking Authority.

Authorisation for the performance of function of the chairperson of management board of credit institution

Article 54

(1) Chairperson of the management board of the credit institution may be only a person who has been granted an authorisation of the Central Bank for the performance of such function.
(2) The provision of Article 53 of this Law shall apply to the granting of authorisation for the performance of function of the chairperson of the management board.
(3) In the procedure for deciding on granting of the authorisation referred to in paragraph (1) of this Article, the Central Bank may request from the candidate for the chairperson of the management board to give a presentation regarding managing of the affairs of the credit institution as a whole.
(4) In the event when, pursuant to the law governing the organisation of business undertakings, upon a request of a shareholder or another interested person, a court appoints an interim representative of the credit institution in an out-of-court procedure, with all rights and obligations of a chairperson of the management board, such person must meet requirements for membership in the management board of the credit institution referred to in Article 52 of this Law.

Duties and responsibilities of management board Article 55

(1) Management board shall manage affairs of the credit institution.
(2) Management board of the credit institution shall ensure that the credit institution operates in accordance with regulations governing operations of the credit institution.
(3) Management board of the credit institution shall set up and implement a reliable system for credit institution management in accordance with this Law.
(4) In order to set up and implement an efficient and reliable management system, management board of the credit institution shall:
1) set objective and general strategy of the credit institution;
2) adopt business policy and recovery plan of the credit institution;
3) adopt and regularly, and at least every two years, review strategic objectives, risk management strategies and policies, including managing risks arising from macroeconomic environment in which the credit institution operates, taking into account the status of business cycle of the credit institution, and risks resulting from the current short-term, medium-term and long-term impacts of ESG factors, as well as specific plans and quantifiable targets to monitor and address the concentration risk arising from exposures towards central counterparties offering services of substantial systemic importance for Montenegro;
4) establish foundations for functioning of the internal controls system, adequate to the size of the credit institution, complexity of affairs and level of the risk taken;
5) adopt the remuneration policy of the credit institution and policies and procedures for nomination and the assessment of the fulfilment of the suitability requirements for the members of the management board and key function holders;
6) ensure integrity of the accounting system and financial reporting system and of the financial and operating control;
7) ensure oversight of senior management and set out precisely defined, clear and consistent internal relations in respect of accountability, which enable clear segregation of powers and responsibilities and prevent occurrence of the conflict of interest;
8) set out internal organisation of the credit institution, subject to the consent of the supervisory board;
9) adopt general acts of the credit institution, except for acts adopted by other bodies of the credit institution;
10) select and remove senior management of the credit institution and other persons in accordance with this Law and the Articles of Association of the credit institution and set their wages:
11) adopt ethical standards for the conduct of employees in the credit institution;
12) approve the introduction of new products and services in operations of the credit institution;

13) perform other activities set out by this Law and other law, regulations adopted on the basis of this Law and Articles of Association of the credit institution.
(5) Management board of the credit institution shall ensure execution of supervisory measures of the Central Bank.
(6) Management board of the credit institution shall periodically, and at least once a year, review efficiency of the system for credit institution management, including suitability of procedures and efficiency of internal control functions and shall notify the supervisory board of the conclusions and take proper measures to eliminate the identified deficiencies. (7) Management board of a credit institution shall, in accordance with the size, internal organisation, nature, scale and complexity of the activities of the credit institution, develop and monitor the implementation of specific plans that include quantifiable targets and processes to monitor and address the financial risks arising in the short, medium and long term from ESG factors, including those arising from the process of adjustment of the regulatory objectives or regulations in relation to ESG factors, in particular the objective to achieve climate neutrality, as well as, where relevant for internationally active credit institutions, third-country regulatory objectives or regulations. (8) The Management Board of the credit institution shall consider, through the quantifiable targets and processes for managing risks referred to in paragraph (7) of this Article, the latest reports and measures by the European Scientific Advisory Board on Climate Change, in particular in relation to the achievement of the climate targets of the European Union.

Notifying the supervisory board Article 56

(1) Management board of the credit institution shall notify without any delay, in writing, the supervisory board of the credit institution if:
1) liquidity or solvency of the credit institution is compromised;
2) conditions are met for withdrawal of the license or for withdrawal of the authorisation for the provision of certain services;
3) financial soundness of the credit institution changes, with one of the indicators of capital adequacy declining below the level referred to in Article 134 paragraph (2) of this Law;
4) the credit institution exceeds the allowed exposure to one person or a group of connected persons referred to in Article 172 of this Law, including excess resulting from reduction of own funds or due to other circumstances on which it could have not influenced;
5) measures were adopted by the Central Bank or other authorities in the process of supervision of the credit institution or oversight.
(2) Member of the management board of the credit institution shall notify the supervisory board of the credit institution without any delay, in writing, about the following:
1) his appointment or dismissal in management bodies of another legal person; and
2) legal transactions based on which that member of the management board or some of the members of his immediate family acquired shares, either directly or indirectly, in the legal person, based on which he gained qualifying holding in such legal person either on his own or together with members of his immediate family, or based on which their holding was reduced below the threshold of qualifying holding.

Warning to the management board member Article 57

(1) The Central Bank shall issue a written warning to the responsible person in the management board of the credit institution, if the credit institution:
1) fails to act in the manner and within the deadlines specified in the written warning or in the agreement on removal of irregularities concluded in accordance with this Law; or
2) fails to implement the imposed supervisory measures in the manner and within the deadlines specified in a decision of the Central Bank on imposing measures.
(2) A written warning referred to in paragraph (1) of this Article shall be issued to the responsible person regardless of whether at the moment of issuing the warning such person was still member or chairperson of the management board of the credit institution.

Withdrawal of authorisation for the performance of function of chairperson or member of the management board

Article 58

(1) The Central Bank shall withdraw an authorisation for the performance of function of the chairperson or member of the management board of the credit institution, if:
1) chairperson, or member of the management board, no longer meets requirements for membership of the management board prescribed by this Law;
2) chairperson, or member of the management board, violates provisions related to duties of the management board prescribed in the law governing business undertakings, the consequence of which is dismissal of member of the management board;
3) the person who has been granted authorisation to perform function of chairperson or member of the management board of the credit institution is not appointed or does not assume office which the authorisation refers to within six months from when the authorisation has been granted;
4) term of office of the person whom the authorisation has been granted to is terminated, on the day of termination of office;
5) employment contract of the chairperson or member of the management board with the credit institution expires, on the day of expiration of the contract; or
6) chairperson or member of the management board has been granted authorisation on the basis of submitting untrue or inaccurate documents, or on the basis of untruthfully presented data that are relevant for the performance of function of the chairperson or member of the management board.
(2) The Central Bank may withdraw authorisation for performance of the function of the chairperson or member of the management board if:
1) he did not ensure execution or did not execute supervisory measures ordered by the Central Bank;
2) he committed serious breach of duty of member of the management board referred to in Article 55 of this Law;
3) he committed breach of duty of member of the management board referred to in Article 56 of this Law;
4) the warning referred to in Article 57 of this Law has been issued three times to him within a four-year period; or
5) credit institution which was granted authorisation to use internal approach for the calculation of capital requirements fails to comply with such authorisation,
6) conditions for early intervention referred to in Article 288 of this Law occur.
(3) Chairperson or member of the management board shall be deemed to have committed serious breach of duty referred to in Article 55 of this Law if such breach compromised the liquidity or solvency of the credit institution.
(4) The Central Bank shall revise the fulfilment of the requirements set out in paragraphs (1), (2) and (3) of this Article if they have reasonable grounds to suspect that money laundering or terrorist financing is being or has been committed or attempted, or there is an increased risk thereof in connection with that credit institution. (5) In the event of conducting procedures referred to in paragraphs (1) to (4) of this Article, the chairperson or member of the management board shall submit to the Central Bank all the available data and information for the purpose of verification of facts and circumstances of relevance for rendering a decision. (6) If the Central Bank withdraws authorisation for the performance of function of the chairperson or member of the management board, the supervisory board of the credit institution shall, without any delay, render the decision on dismissal of the chairperson or member of the management board.

Holders of key functions in credit institution Article 59

(1) Credit institution shall identify all key functions in that credit institution.

(2) Holders of key functions in the credit institution shall be persons who perform functions in the credit institution which enable them to exert significant influence on the management of the credit institution, but they are not members of management board or supervisory board, including persons responsible for the functioning of individual internal control functions and chief financial officer, if they are not members of the management bodies of the credit institution. (3) Management board of the credit institution shall adopt and implement proper policies on election and assessment of suitability of the holders of key functions in the credit institution and ensure that the information on suitability of those persons is up-to-date. (4) A credit institution shall ensure that the key function holders, upon the selection and during the performance of the function, fulfil the suitability requirements referred to in paragraph (3) of this Article, and it shall regularly assess the suitability in the manner established in the regulation referred to in paragraph (7) of this Article. (5) A credit institution shall take all measures necessary to ensure the appropriate functioning of the position of key function holders, including replacing the key function holders if those persons cease to meet the suitability requirements. (6) Where a credit institution, based on the assessments referred to in paragraph (4) of this Article, concludes that holder of the key function in the credit institution does not fulfil suitability requirements, it shall:
1) ensure that such a person is not appointed as a key function holder, where that assessment
is completed before the person takes up that position,

2) remove that person as a key function holder, in a timely manner; or
3) take the additional measures, in a timely manner, to ensure the fulfilment of the suitability
requirements of key function holders.

(7) The Central Bank shall prescribe in more details the content of the policy referred to in paragraph (3) of this Article, requirements considered by the credit institution when assessing suitability of the key function holders in the credit institution and the timeframe of the assessment of the fulfilment of requirements for the key function holders in the credit institution.

Membership requirements for management bodies of the financial holding company and mixed financial holding company in Montenegro

Article 60

(1) Provisions of Articles 42, 43, 45, 52, 58 and 59 of this Law shall apply mutatis mutandis to the members of the management and supervisory boards or members of another management body of a financial holding company or mixed financial holding company with head office in Montenegro referred to in Article 73a paragraphs (1) and (2) of this Law. (2) In the procedure of rendering a decision upon application for granting authorisation to persons referred to in paragraph (1) of this Article, the Central Bank may also obtain data from the European Criminal Records Information System. (3) In the process of rendering a decision upon application for granting authorisation of persons referred to in paragraph (1) of this Article, the Central Bank shall, where appropriate, verify data on imposed penalties to such persons from the European Banking Authority records. (4) Financial holding company and mixed financial holding company referred to in paragraph (1) of this Article shall be primarily responsible for ensuring the suitability of members of the management body and shall notify the Central Bank of any change of members of the management body and do so within eight days as of the day of the occurrence of the change. (5) Provisions of paragraphs (1) to (4) of this Article shall also apply to financial holding company and mixed financial holding company with head office in Montenegro that are not entities referred to in Article 73a paragraphs (1) and (2) of this Law. Suitability assessment of persons responsible for the functioning of internal control functions and chief financial officer in an entity

Article 60a

(1) The Central Bank shall assess whether the persons responsible for the functioning of the internal control functions and chief financial officer, upon the selection and during the performance of the

function, fulfil the suitability requirements set out in this Law, where those persons are appointed for a specific function in any of the following entities, and on the basis of the assessment those entities are required to submit:

1) EU parent credit institution with head office in Montenegro that qualifies as a large credit institution;
2) parent credit institution in a Member State that qualifies as large institution;
3) stand-alone credit institution in the EU with head office in Montenegro that qualifies as a large credit institution;
4) large subsidiary undertaking;
5) parent financial holding company in Montenegro, parent mixed financial holding company in Montenegro, EU parent financial holding company with head office in Montenegro, EU parent mixed financial holding company with head office in Montenegro, having large credit institution within their group, except financial holding company and mixed financial holding company that have been granted an exception referred to in Article 73a paragraph (6) of this Law.
(2) Where the Central Bank, pursuant to the assessment referred to in paragraph (1) of this Article, establishes that the persons responsible for the functioning of internal control functions and the chief financial officer of a credit institution do not fulfil the suitability requirements set out in this Law, the Central Bank may require the entity referred to in paragraph (1) of this Article to:
1) remove that person from the position;
2) take additional measures to ensure the fulfilment of the suitability requirements for these
persons.

(3) An entity referred to in paragraph (1) of this Article shall, without delay, reassess the suitability requirements for persons responsible for the functioning of internal control functions and chief financial officer as soon as circumstances that could affect the suitability of these persons change, and notify the Central Bank thereof. (4) Where the Central Bank establishes that the circumstances concerning the suitability of persons responsible for the functioning of internal control functions and chief financial officer of the entity referred to in paragraph (1) of this Article have changed and such changes could affect the suitability of these persons, the Central Bank shall reassess their suitability. (5) For the purposes of carrying out the assessments referred to in paragraphs (1) and (4) of this Article, the Central Bank may, in accordance with the law governing the prevention of money laundering and terrorist financing, request the authority competent for the prevention of money laundering and terrorist financing to review, within its checks and on a risk assessment basis, relevant information concerning the persons responsible for the functioning of internal control functions and chief financial officer of the credit institution, and to have access to the central database of that authority.

Audit Committee Article 61

(1) Audit committee shall be set up and shall perform activities in accordance with the law governing audit.
(2) If the credit institution set up the combined risks and audit committee, in accordance with Article 49 paragraph (3) of this Law, such committee shall also perform activities falling within competence of the audit committee.
(3) One member of the combined risks and audit committee must have knowledge in the field of accounting and auditing and shall not be an employee, shareholder or member of management bodies of the credit institution.

III PROVISION OF BANKING AND FINANCIAL SERVICES

1. Provision of banking services

Providers of banking services Article 62

Within the territory of Montenegro, banking services may be provided by:

1) credit institutions with head office in Montenegro on the basis of license issued in accordance with this Law;
2) credit institutions from the Member States which, in accordance with this Law, establish a branch in Montenegro or directly provide services in Montenegro referred to in Article 8 of this Law;
3) branches of credit institutions from third countries which were granted, in accordance with this Law, the authorisation to provide banking services in Montenegro.

Prohibition to perform banking activities Article 63

(1) Legal and natural persons other than persons referred to in Article 62 of this Law shall be prohibited to perform in Montenegro the activities of taking deposits or other repayable funds from public in the form of business operations or an occupation.
(2) Provision of paragraph (1) of this Article shall not apply to:
1) taking deposits or other repayable funds by the Central Bank, the State of Montenegro and its local self-governments;
2) taking deposits or other repayable funds by public international bodies whose members are one or several Member States;
3) receiving borrowings by microcredit financial institutions in accordance with the law governing operations of microcredit financial institutions;
4) other cases set out in the regulations of Montenegro, if such services are subject to regulation and control which aim to protect depositors and investors; and
5) other cases set out in the regulations of the European Union, if such services are subject to regulation and control which aim to protect depositors and investors.
(3) A legal or natural person shall not perform activities, in the form of business operations or occupation, that involve credit granting, unless they perform such activities in accordance with law.
(4) If exist indications that a person is illicitly engaged in activities referred to in paragraphs (1) and (3) of this Article, the Central Bank may, for the purpose of collecting additional information, carry out review of business books and other documents of that person.
(5) The persons referred to in paragraph (4) of this Article shall ensure unimpeded insight into all business books and documents to the authorised examiners of the Central Bank.

Prohibition to perform other activities and services Article 64

A credit institution must not perform other activities, except provision of banking and financial services and services for which it has been granted authorisation by the Central Bank.

Registry of credit institutions Article 65

(1) The Central Bank shall keep a registry of credit institutions, branches of credit institutions from other countries and representative offices of credit institutions from other countries to which it issued license or granted authorisation.
(2) Data referred to in paragraph (1) of this Article shall be posted on the Central Bank’s website.
(3) The Central Bank shall prescribe content and manner of keeping the registry referred to in paragraph (1) of this Article.

2. Issuing license and granting authorisation to the credit institution

Application for issuing the license to the credit institution Article 66

(1) The Central Bank shall issue a license to the credit institution.
(2) Founders of the credit institution shall file an application with the Central Bank for issuing of the license, which shall be accompanied by the following:
1) authorisation for the person who the Central Bank will cooperate with in the procedure for considering applications for issuing of the license;
2) documents set out in paragraph (7) of this Article;
3) application for granting authorisation to acquire qualifying holding for persons who acquire qualifying holding in the credit institution, accompanied by the documentation required in accordance with Article 25 of this Law, and if shareholders do not acquire qualifying holding in the credit institution, it shall be accompanied by the documentation on 20 largest shareholders;
4) application for granting the authorisation for the nominated members of the supervisory board, along with the documentation referred to in Article 43 paragraph (6) of this Law;
5) application for granting the authorisation to the nominated chairperson and members of the management board, along with the documentation referred to in Article 43 paragraph (6) of this Law.
(3) If the credit institution also intends to provide financial services, in addition to banking services, it shall indicate in the application for issuing the license the types of financial services which the credit institution intends to provide.
(4) If the credit institution intends to provide additional financial services referred to in Article 5 paragraph (2) items 2), 3), or 5) of this Law, it shall submit to the Central Bank the documentation evidencing meeting of the conditions for the provision of such services set by the law.
(5) Prior to issuing the license, the Central Bank shall consult and exchange information with competent authority of a Member State, in accordance with Article 30 of this Law, particularly with regard to suitability of the acquirers of qualifying holding and reputation, appropriate skills and experience of members of management bodies within the same group. (6) On the basis of reasoned application, the Central Bank shall be authorised to obtain from competent authorities the data from the records of such authorities regarding any potential conviction or procedures initiated to establish criminal or misdemeanour liability of legal and natural persons, which it takes into account when deciding on applications for issuing a license to the credit institution. (7) The Central Bank shall prescribe in more details the documentation that shall accompany application for issuing the license to the credit institution.

Specific requirements for issuing a license to a credit institution Article 66a

(1) A business undertaking referred to in Article 2 paragraph (1) item 2) of this Law, which has already

obtained a license in accordance with the law governing the capital markets, shall submit an

application for issuing license to the Central Bank in accordance with Article 66 of this Law, at the

latest on the day when:

1) the average of monthly total assets of that undertaking, calculated over a period of 12

consecutive months amounts to at least EUR 30 billion; or

2) the average of monthly total assets calculated over a period of 12 consecutive months of that

undertaking is less than EUR 30 billion, and the undertaking is part of a group in which the total

value of the consolidated assets of all undertakings in the group with head office in Montenegro,

including any of their branches and subsidiary undertakings with head office in a third country,

that individually have total assets of less than EUR 30 billion and that carry out activities referred

to in Article 2 paragraph (1) item 2) of this Law is at least EUR 30 billion, both calculated as an

average over a period of 12 consecutive months.

(2) The business undertaking referred to in paragraph (1) of this Article may continue carrying out the

activities referred to in Article 2 paragraph (1) item 2) of this Law in accordance with the license

obtained on the basis of the law governing the capital markets, until it obtains the license in

accordance with this Law.

(3) The Central Bank may, at the request of the business undertaking referred to in paragraph (1) of this Article and the notification of the authority competent for capital market, as applicable, waive that undertaking from the requirement to obtain license as a credit institution, taking into account at least the following:
1) where the undertaking is part of a group, the organisational structure of the group, the
booking practices prevailing within the group and the allocation of assets across the group entities;

2) the nature, size and complexity of the activities carried out by the undertaking in
Montenegro;

3) the importance of, and systemic risk posed by, the activities carried out by the undertaking
in Montenegro;

4) the nature, size and complexity of the activities, as well as the importance of the activities,
and systemic risk posed by the activities of that undertaking in respect of the European Union.

(4) When considering the application of the undertaking referred to in paragraph (3) of this Article, the Central Bank shall notify the European Banking Authority thereof, and the European Banking Authority shall issue its opinion within one month following the receipt of that notification.
(5) The Central Bank shall, when reaching a decision referred to in paragraph (3) of this Article, take into consideration the opinion referred to in paragraph (4) of this Article, and state the reasons for each deviation from that opinion and notify the European Banking Authority of the final decision. (6) The Central Bank shall notify the applicant referred to in paragraph (3) of this Article of its waiver from the requirements to obtain licence as a credit institution. (7) The Central Bank shall reassess its decision granting the waiver referred to in paragraph (3) of this Article, every three years. (8) The Central Bank may prescribe in more detail the manner of submitting waiver request referred to in paragraph (3) of this Article, and the documentation to be submitted with the request upon the waiver request referred to in paragraph (3) of this Article.

Meeting prior to filing an application Article 67

(1) Prior to filing the application referred to in Article 66 of this Law, upon request of the persons intending to establish a credit institution, a meeting shall be arranged between representatives of the Central Bank and representatives of potential founders of the credit institution.
(2) In the meeting referred to in paragraph (1) of this Article, potential founders of the credit institution shall inform representatives of the Central Bank about the following:
1) planned deadlines for establishing the credit institution and for applying for the license;
2) business strategy of the credit institution;
3) its financial soundness and operations, including data on associated interests;
4) dynamics of development of the credit institution in terms of increase in capital, deposit and credit potentials;
5) manner of managing risks in operations of the credit institution.
(3) In the meeting referred to in paragraph (1) of this Article, minutes shall be kept and signed by one representative each of the Central Bank and potential founders respectively.

Deciding on application Article 68

The Central Bank shall decide on the application referred to in Article 66 of this Law within 180 days following the day of filing the application, and if the filed application is faulty, at the latest within 180 days following the day following of duly compiled application.

Approval of the application Article 69

(1) The Central Bank shall approve the application and issue the license to the credit institution if:

1) for persons acquiring qualifying holding in the credit institution, or for 20 largest acquirers if none of the persons acquires qualifying holding, there are no reasons to refuse granting of the authorisation for the acquisition of qualifying holding referred to in Article 31 of this Law;
2) persons nominated for members of supervisory board of the credit institution meet conditions for granting of the authorisations referred to in Article 43 of this Law;
3) persons nominated for chairperson and members of the management board of the credit institution meet conditions for granting of the authorisation referred to in Article 52 of this Law;
4) credit institution has initial capital in the amount of at least EUR 7,500,000;
5) credit institution shall manage operations from the territory of Montenegro and shall have head office in Montenegro;
6) it is concluded from documents and other facts that credit institution has human resource, organisational and technical capacities to provide a banking and/or financial service in the manner and in the scope set out in the business plan;
7) due to close link between the credit institution and other legal and natural persons, the supervision of the credit institution in accordance with this Law will not be made difficult or impossible; 7a) it results from the application and filed documentation that the credit institution has the governance arrangements established in the manner specified in Article 104 of this Law;
8) due to close links between the credit institution and legal and natural persons from third countries, the supervision of credit institution in accordance with this Law shall not be made difficult because regulations of those countries do not represent an obstacle to exercise the supervisory function of the Central Bank;
9) it is concluded from the application and filed documentation that the credit institution meets prescribed conditions for the provision of banking and/or financial services which the application for issuing of the license refers.
(2) In the procedure for deciding on the application for issuing the license to the credit institution, the Central Bank shall not consider that application in terms of the economic needs of the market.
(3) The Central Bank may also obtain data referred to in paragraph (1) of this Article from the European Criminal Records Information System.
(4) In the process of rendering a decision upon application for issuing the license referred to in Article 66 of this Law, the Central Bank shall, if needed, verify data on imposed penalties to founders of the credit institution submitting the application from the European Banking Authority records. (5) If the Central Bank has issued a license to a credit institution, it shall be deemed that has granted an authorisation to persons who are acquiring qualifying holding in the credit institution for acquiring the qualifying holding referred to in Article 23 paragraph (1) of this Law, and that has granted authorisation referred to in Article 44 paragraph (1) or Article 53 paragraph (1) of this Law for persons proposed as members for the supervisory and management boards respectively.

Activities that the credit institution may perform Article 70

(1) Decision on issuing the license to the credit institution shall specify activities that the credit institution may perform.
(2) In addition to the activities specified in the decision on issuing the license, the credit institution may also perform activities referred to in Article 5 of this Law which are not specified in the decision on issuing the license, only subject to prior authorisation of the Central Bank.
(3) The Central Bank shall refuse to grant authorisation for the performance of activities referred to in paragraph (2) of this Article if:
1) it is concluded based on documentation and other known facts that the credit institution fails to meet technical, human resource, organisational or other requirements for the provision of a financial service;
2) the Central Bank imposed supervisory measures on the credit institution, while introduction of the new service could have negative impact on the implementation of supervisory measures;
3) provision of the financial service is not economically justified, or

4) credit institution fails to meet special requirements which are, in terms of financial services, set out in its business plan or other stipulated conditions.
(4) The granted authorisations referred to in paragraph (2) of this Article shall be deemed as integral part of the license of the credit institution.

Registration Article 71

(1) Application for registration of a credit institution in the Central Registry of Business Undertakings shall be filed no later than 60 days as of the day of delivering the decision on issuing the license.
(2) Credit institution shall commence performance of activity no later than 12 months as of the day of the license being issued.

Authorisations Article 72

(1) The Central Bank shall render a decision on applications for granting the authorisation referred to in this Law no later than 60 days as of the day on which duly compiled application for granting the authorisation has been filed, unless another deadline is prescribed under this Law.
(2) The Central Bank shall prescribe the documentation attached to the application for granting the authorisation referred to in paragraph (1) of this Article.

3. Withdrawal of license from the credit institution

Reasons for license withdrawal Article 73

(1) The Central Bank shall withdraw a license from the credit institution, if:
1) the application for registration of the credit institution in the Central Registry of Business and Other Entities is not filed within the set deadline;
2) the credit institution failed to commence the performance of activities within 12 months as of the day of receiving the license;
3) the credit institution notifies the Central Bank in writing that it renounces the issued license or that it does not intend to commence the performance of activities for which the license has been issued;
4) by the time of expiry of the period during which temporary administration has been introduced in the credit institution, the reasons for introducing the temporary administration in the credit institution have not been eliminated, and the Central Bank has established that requirements for initiating resolution proceedings in accordance with the law governing resolution of credit institutions have not been met;
5) upon initiating the resolution proceedings of the credit institution in accordance with the law governing resolution of credit institutions, the Central Bank has established that resolution objectives cannot be achieved;
6) the Central Bank, in accordance with provisions of the law governing deposit protection, rendered a decision on inaccessibility of deposits of the credit institution; 6a) the credit institution uses its license exclusively to engage in the activities referred to in Article 2 paragraph (1) item 2) of this Law and has, for a period of five consecutive years, average total assets below the thresholds set out in that Article; 6b) the liabilities of the credit institution are higher than its assets or there are objective elements to support a determination of the Central Bank that the liabilities of credit institution will, in the near future, be higher than its assets;
7) for longer than six months, the credit institution does not carry out deposit taking activities nor does it grant loans, unless so ordered by the Central Bank;
8) management body of the credit institution rendered a decision on termination of operations of the credit institution; or
9) in exercising its function as a resolution authority of credit institutions, it determines that all of the following conditions are met:

− a credit institution is failing or is likely to fail; − measures of support of financial institutions and other business entities, supervisory actions, including early intervention measures or the write-down or conversion of relevant capital instruments and eligible liabilities would not remove the reasons behind the credit institution’s failure within a reasonable timeframe; − a resolution of a credit institution is not in the public interest.

(2) The Central Bank may withdraw licence from the credit institution, if:
1) the licence of the credit institution was issued pursuant to false or inaccurate data of relevance for operations of the credit institution;
2) credit institution no longer meets requirements based on which the license has been issued, or elements have occurred indicating that the reasons for withdrawing the license from the credit institution will occur including the circumstances indicating that the credit institution has incurred or is likely to incur losses that will exceed all or significant amount of credit institution’s own funds;
3) credit institution: − no longer meets the prudential requirements referred to in this Law pertaining to capital requirements, exposure to transferred credit risk or large exposures, − fails to meet the requirements concerning the own funds level imposed by way of a decision by the Central Bank in accordance with Articles 279 and 281 of this Law, or − fails to fulfil special requirements concerning the liquidity in accordance with Articles 279 and 280 of this Law;
4) based on the estimate of the Central Bank, it may be expected that the credit institution will not be able to meet its obligations towards creditors, in particular if there is no security for the funds entrusted by the depositors;
5) the credit institution failed to act in accordance with Article 235 paragraph (1) item 5) of this Law;
6) the credit institution has not established governance arrangements in the manner governed under Article 104 of this Law;
7) the credit institution fails to submit or submits incomplete or incorrect reports set by the regulation referred to in Article 233 of this Law, pertaining to: − capital requirements referred to in Article 134 of this Law, − large exposures referred to in Article 172 of this Law, − leverage referred to in Article 115 of this Law;
8) the credit institution fails to submit or submits incomplete or incorrect reports referred to in Article 114 of this Law;
9) on several occasions or continuously, the credit institution fails to fulfil requirements concerning liquid assets referred to in Article 114 of this Law;
10) the credit institution acts contrary to exposure limits referred to in Article 172 of this Law;
11) the credit institution is exposed to a credit risk resulting from securitisation positions and fails to fulfil requirements under which it may be exposed to such risk as set in the regulation referred to in Article 134 paragraph (9) of this Law;
12) the credit institution fails to disclose or discloses incomplete or inaccurate data that the credit institution is obliged to disclose in accordance with Article 237 of this Law, including data on leverage ratio and management of risk of excessive leverage;
13) the credit institution fails to fulfil obligations in respect of deposit protection;
14) activities of the credit institution are associated with money laundering and/or terrorist financing, or with the commission of other punishable offences;
15) the credit institution pays funds to holders of instruments included in calculation of own funds contrary to Articles 166 and 167 of this Law or if such payment is prohibited in accordance with the regulation referred to in Article 134 paragraph (9) of this Law;
16) the credit institution fails to implement measures ordered by the Central Bank;
17) the Central Bank ordered the credit institution to remove member of the supervisory board or management board and prohibited such persons to perform their function pending finalisation

of the procedure initiated based on the removal order, and the credit institution failed to implement the imposed measure within the set deadline; 17a) the credit institution needs extraordinary public financial support in the manner specified by the law governing the resolution of credit institutions;

18) several times, the credit institution failed to submit in a timely manner or it submitted inaccurate reports to the Central Bank; or
19) the credit institution prevented the Central Bank from exercising examination.
(3) When assessing the fulfilment of requirements for withdrawal of the license from the credit institution referred to in paragraph (2) of this Article, the Central Bank shall consider:
1) assessment of impact of established irregularities to: − current and future financial position of the credit institution, − exposure of the credit institution to certain types of risks;
2) number and severity of established irregularities, as well as number, frequency and duration of irregularities in prior operation of the credit institution;
3) assessment of readiness and capacity of managing bodies and senior management of the credit institution to correct established irregularities, based on the evaluation of: − capacity of management bodies and senior management of the credit institution to manage risks arising from the operations of the credit institution, − efficiency of the internal controls system in the credit institution, − efficiency of management bodies and senior management of the credit institution in removing previously identified irregularities in operations;
4) assessment of the level of impact of established irregularities on the financial discipline, security and stability of the banking system functioning.
(4) As of the day the decision on withdrawal of the license to the credit institution is delivered, authorisations granted for the performance of other affairs shall also cease to be valid.
(5) If the Central Bank withdraws license from the credit institution, at the same time it shall render a decision on initiating bankruptcy proceedings against the credit institution or a decision on winding up of the credit institution.
(6) Decision on initiating bankruptcy proceedings against the credit institution shall be rendered by the Central Bank if liabilities of the credit institution exceed its assets, whereas a decision on winding up of the credit institution shall be rendered if the conditions are not met for conducting bankruptcy proceedings. (7) The Central Bank shall publish the enacting terms of the decision referred to in paragraph (5) of this Article in the Official Gazette of Montenegro and in minimum two daily print media outlets distributed across the territory of Montenegro and shall submit it to the Central Registry of Business and Other Entities and the Deposit Protection Fund. (8) The Central Bank may not withdraw a license from the credit institution from the moment when the decision on opening the resolution proceedings has been adopted until the moment of the adoption of the decision on the completion of the resolution proceedings.

3a. Financial holding company or mixed financial holding company

Application for granting authorisation to a financial holding company or mixed financial holding company

Article 73a

(1) The Central Bank shall grant authorisation to a parent financial holding company, an EU parent financial holding company with head office in Montenegro, a parent mixed financial holding company, an EU parent mixed financial holding company with head office in Montenegro that are members of a group of credit institutions from Montenegro referred to in Article 312 paragraph (1) of this Law (hereinafter: the financial holding company or mixed financial holding company) where the Central Bank is the consolidating supervisor of a group of credit institutions. (2) The Central Bank shall grant authorisation also to the financial holding company or mixed financial holding company where they are required to apply the provisions of this Law on a sub-consolidated basis or financial holding company or mixed financial holding company that is designated as

responsible for ensuring the group’s compliance with the prudential requirements on a consolidated basis in accordance with paragraph (6) item 3) of this Article.

(3) A financial holding company or mixed financial holding company referred to in paragraphs (1) and (2) of this Article shall provide the Central Bank the application for granting authorisation supported by:
1) information regarding organisational structure of the group of which they are part, with a clear indication of parent undertaking and subsidiary undertakings within a group, and the location and type of the services provided by each of the members within the group;
2) information regarding the nomination of at least two persons effectively directing the financial holding company or mixed financial holding company and compliance with the suitability criteria and requirements of members of the management bodies set out in Article 60 of this Law;
3) information regarding compliance with the criteria set out in Article 31 of this Law, where the financial holding company or mixed financial holding company has a credit institution as its subsidiary undertaking;
4) information regarding the internal organisation and distribution of tasks within the group of credit institutions in Montenegro they belong to;
5) other documentation as prescribed by enabling regulation referred to in paragraph (10) of this Article.
(4) Where the applications referred to in paragraphs (3) and (6) of this Article take place concurrently with the application for granting authorisation to acquire qualifying holding referred to in Article 23 paragraph (1) of this Law, application referred to in Article 39a of this Law or application for issuing a licence referred to in Article 66 of this Law, the Central Bank shall, prior to rendering a decision upon the application, as a consolidating supervisor of the group of credit institutions, seek advice from the competent authority of a third-country where the financial holding company or mixed financial holding company have their head offices. (5) In the case referred to in paragraph (4) of this Article, the Central Bank may extend the time limit referred to in Article 27 paragraph (8) or Article 39b paragraph (1) of this Law until the completion of the procedure for granting authorisations referred to in paragraphs (1) and (2) of this Article. (6) By way of derogation from paragraphs (1) and (2) of this Article, the financial holding company or mixed financial holding company shall not be required to submit the application for granting authorisation where they, by way of reasonable application, prove to the Central Bank that all of the following conditions are fulfilled:
1) the financial holding company's principal activity is to acquire holdings in subsidiary undertakings or, in the case of a mixed financial holding company, its principal activity with respect to institutions or financial institutions is to acquire holdings in subsidiary undertakings;
2) the financial holding company or mixed financial holding company has not been designated as an institution that is a resolution entity in any of the groups in the group's resolution plans in accordance with the resolution strategy determined by the resolution authority pursuant to the law governing the resolution of credit institutions and investment firms;
3) a subsidiary credit institution or a subsidiary financial holding company or mixed financial holding company that has been granted authorisation in accordance with this Article is designated as responsible for ensuring the group’s compliance with prudential requirements on a consolidated basis and is given all the necessary means and legal authority to discharge those obligations in an effective manner;
4) the financial holding company or mixed financial holding company does not engage in taking management, operational or financial decisions affecting the group or its subsidiary undertakings that are institutions or financial institutions;
5) there are no impediments to the effective supervision of the group on a consolidated basis by the Central Bank.
(7) A financial holding company or mixed financial holding company for which the Central Bank has rendered a decision that they meet the requirements referred to in paragraph (6) of this Article, shall not be excluded from the perimeter of the supervision on a consolidated basis in accordance with this Law.

(8) By way of derogation from paragraph (7) of this Article, the Central Bank may allow, on a case- by-case basis, financial holding company or mixed financial holding company to be excluded from the perimeter of consolidation, provided that the following conditions are met:
1) the exclusion does not affect the effectiveness of the supervision of the subsidiary credit institution or of the group;
2) the financial holding company or mixed financial holding company has no equity exposures other than the equity exposure in the subsidiary credit institution or in the intermediate parent financial holding company or mixed financial holding company controlling the subsidiary credit institution; and
3) the financial holding company or mixed financial holding company does not make substantial recourse to leverage and does not have exposures which are not related to its ownership in the subsidiary credit institution or in the intermediate parent financial holding company or mixed financial holding company controlling the subsidiary credit institution.
(9) Where the Central Bank determines that the requirements referred to in paragraph (6) of this Article are no longer fulfilled, the financial holding company or mixed financial holding company shall submit the application for granting authorisations referred to in paragraphs (1) or (2) of this Article. (10) The Central Bank shall render a decision on the application referred to in paragraph (3) of this Article within four months following the receipt of the orderly submitted application and no later than within six months following the receipt of the application. (11) The Central Bank may prescribe in more detail the documentation to be submitted with the application referred to in paragraphs (3) and (6) of this Article.

Granting authorisation to a financial holding company or mixed financial holding company

Article 73b

(1) The Central Bank shall grant authorisation to a financial holding company or mixed financial holding company referred to in Article 73a paragraph (1) where:
1) the internal procedures and distribution of tasks within the group comply with the requirements referred to in this Law and regulations adopted on the basis of this Law on a consolidated or sub-consolidated basis and, in particular, are effective to: -coordinate all subsidiary undertakings of the financial holding company or mixed financial holding company including, where necessary, through an adequate distribution of tasks among subsidiary institutions; -prevent or manage intra-group conflicts; and -enforce the group-wide policies set by the parent financial holding company or parent mixed financial holding company throughout the group;
2) the organisational structure of the group of which the financial holding company or mixed financial holding company is part does not obstruct or otherwise prevent the effective supervision of the subsidiary institutions or parent institutions as concerns the individual, consolidated and sub-consolidated obligations to which they are subject, whereby the following shall be taken into account, in particular: -the position of the financial holding company or mixed financial holding company in a multi-layered group; -the ownership structure; and -the role of the financial holding company or mixed financial holding company within the group;
3) the criteria and conditions set out in Articles 31 and 60 of this Law are complied with.
(2) Where the Central Bank decides to deny the application referred to in Article 73a paragraph (3) of this Law, it may impose a measure referred to in Article 73c paragraph (6) of this Law on a financial holding company or mixed financial holding company.
(3) The Central Bank shall, on a regular basis, and at least annually, review the parent undertaking of a credit institution in order to verify if that credit institution, the entity requesting an authorisation pursuant to Article 66 of this Law, or the entity designated as responsible for ensuring the group’s compliance with prudential requirements on a consolidated basis referred to in Article 73a

paragraph (6) item 3) of this Law has correctly identified any undertaking that complies with the criteria to be considered as a parent financial holding company in a Member State, a parent mixed financial holding company in a Member State, an EU parent financial holding company or an EU parent mixed financial holding company.

(4) Where the parent undertaking referred to in paragraph (3) of this Article is located in a Member State other than the Member State in which the credit institution, the entity requesting an authorisation pursuant to Article 66 of this Law or the entity designated as responsible for ensuring the group’s compliance with prudential requirements on a consolidated basis referred to in Article 73a paragraph (6) item 3) of this Law has its head office, the Central Bank shall cooperate with the competent authority of that Member State to conduct the review referred to in paragraph (3) of this Article. (5) The Central Bank shall publish on its website, and update on an annual basis, a list of financial holding companies and mixed financial holding companies that have been granted authorisation referred to in Article 73a paragraphs (1) and (2) of this Law, or exempted from authorisation referred to in Article 73a paragraph (6) of this Law, wherein the list shall also indicate the entity designated as responsible for ensuring the group’s compliance with prudential requirements on a consolidated basis.

Fulfilment of the conditions Article 73c

(1) A financial holding company or a mixed financial holding company for which the Central Bank has determined the fulfilment of the conditions referred to in Article 73a paragraph (6) of this Law, or which have been granted authorisation in accordance with Article 73b of this Law, shall fulfil the conditions prescribed in these Articles on an ongoing basis. (2) The Central Bank shall, as a consolidating supervisor, monitor whether the financial holding company or mixed financial holding company fulfils the conditions referred to in Article 73a paragraph (6) and Article 73b paragraph (1) of this Law on an ongoing basis. (3) A financial holding company or mixed financial holding company shall, upon the request of the Central Bank, provide the Central Bank with the information required to monitor on an ongoing basis the organisational structure of the group and compliance with the conditions referred to in Article 73a paragraph (6) and Article 73b paragraph (1) of this Law. (4) Where the Central Bank, as a consolidating supervisor, has established that the conditions set out in Article 73a paragraph (6) and Article 73b paragraph (1) of this Law are not met or has established, by way of monitoring on an ongoing basis referred to in paragraph (2) of this Article that they have ceased to be met, the Central Bank may impose on the financial holding company or mixed financial holding company the supervisory measures referred to in paragraph (6) of this Article to ensure or restore the continuity and integrity of consolidated supervision over the requirements laid down in this Law and the regulations adopted on the basis of this Law, and to ensure the compliance with those requirements. (5) In the case of a mixed financial holding company, the Central Bank shall, when imposing supervisory measures referred to in paragraph (6) of this Article, in particular, take into account the effects of those supervisory measures on the financial conglomerate. (6) The Central Bank may do the following to a financial holding company or mixed financial holding company:
1) order the prohibition of exercising the voting rights attached to the shares of the subsidiary institutions held by the financial holding company or mixed financial holding company;
2) issue penalty against a member of the management body or other responsible person, subject to the provisions of this Law;
3) order to transfer to its shareholders the participations in its subsidiary institutions;
4) order on a temporary basis another financial holding company, mixed financial holding company or institution within the group to comply, on a consolidated basis, with the requirements laid down in this Law or the regulation adopted in accordance with this Law;
5) restrict or prohibit distributions or dividend payments to shareholders;
6) order the divesting from or reducing participations in institutions or other financial sector entities;

7) require the submission of a plan on return, without delay, to compliance with the requirements referred to in this Law or regulations adopted on the basis of this Law.
(7) Where the Central Bank orders the financial holding company or mixed financial holding company the measure referred to in paragraph (6) item 1) of this Article, the voting rights attached to the shares may not be exercised by other persons in their name.
(8) Where the voting right of a financial holding company or mixed financial holding company is excluded, but the voting has taken place at the general shareholders assembly, such voting shall be null and void.
(9) The Central Bank may prescribe in more detail the content of reporting and informing, time limits and the method of reporting on the information necessary for monitoring on an ongoing basis of the compliance of the financial holding company or mixed financial holding company with the requirements laid down in Article 73a paragraph (6) and Article 73b paragraph (1) of this Law.

Joint decision on the fulfilment of conditions of the financial holding company or mixed

financial holding company when the Central Bank is a consolidating supervisor Article 73d

(1) Where the Central Bank is a consolidating supervisor, it shall cooperate and consult with the competent authority from another Member State where the financial holding company or mixed financial holding company has its head office, for the purpose of reaching a decision upon the application for granting authorisation referred to in Article 73a paragraph (3) of this Law, or an authorisation on the exemption referred to in Article 73a paragraph (6) of this Law, as well as the exclusion of financial holding company or mixed financial holding company from the scope of supervision on a consolidated basis in accordance with Article 73a paragraph (8) of this Law, and imposing of supervisory measures referred to in Article 73c paragraph (6) of this Law. (2) The Central Bank shall, as a consolidating supervisor, prepare an assessment on the fulfilment of the conditions for reaching decisions referred to in paragraph (1) of this Article, and submit it to the competent authority from another Member State where financial holding company or mixed financial holding company has a head office. (3) The Central Bank shall take measures from within its competence to reach a joint decision referred to in paragraph (1) of this Article within two months of the receipt of the Central Bank’s assessment referred to in paragraph (2) of this Article by the competent authority of a Member State where a financial holding company or mixed financial holding company has its head office, and the joint decision shall be implemented or, where permitted under the laws of that Member State, shall be directly applied in that Member State. (4) Where the Central Bank and the competent authority from another Member State have different opinions in respect of reaching joint decision referred to in paragraph (1) of this Article, the Central Bank shall refrain from taking a decision and seek mediation from the European Banking Authority in accordance with Article 19 of Regulation (EU) No 1093/2010. (5) Where the European Banking Authority reaches its decision within one month of the receipt of the referral for the mediation, a joint decision shall be reached in accordance with this decision, and where the European Banking Authority does not reach the decision within one month, the Central Bank may autonomously reach a decision. (6) The mediation of the European Banking Authority referred to in paragraph (5) of this Article may not be sought after the expiry of two months following the day when the competent authority of the Member State where the financial holding company or mixed financial holding company have their head offices has received the assessment of the Central Bank referred to in paragraph (2) of this Article or after reaching a joint decision. (7) In the case of mixed financial holding company, where the Central Bank has not been designated as a coordinator in accordance with the regulations governing financial conglomerates, it shall seek the agreement from the
coordinator before reaching joint decision referred to in paragraph (1) of this Article. (8) In the case referred to in paragraph (7) of this Article, where the coordinator refuses to give agreement on the proposal of the joint decision, the Central Bank may seek the mediation of the

European Banking Authority or the European Insurance and Occupational Pensions Authority (EIOPA).

(9) A joint decision taken in accordance with paragraphs (1) to (8) this Article shall be without prejudice to the obligations arising from regulations governing financial conglomerates and regulations governing the operations of insurance undertakings. (10) Where the application for granting authorisation referred to in Article 73a paragraph (3) of this Law, or authorisation on the exemption referred to in Article 73a paragraph (6) of this Law is denied, the Central Bank shall, as a consolidating supervisor, notify the applicant of the decision and the reasons thereof within four months of the receipt of orderly submitted application.

Joint decision on the fulfilment of conditions of the financial holding company or mixed

financial holding company when the Central Bank is not a consolidating supervisor Article 73e

(1) Where a financial holding company or a mixed financial holding company has its head office in Montenegro and the Central Bank is not a consolidating supervisor, the Central Bank shall cooperate and consult with the consolidating supervisor for the purpose of reaching a joint decision upon the application for granting authorisation referred to in Article 73a paragraph (3) of this Law, or authorisation on the exemption referred to in Article 73a paragraph (6) of this Law, as well as the exclusion of financial holding company or mixed financial holding company from the scope of supervision on a consolidated basis in accordance with Article 73a paragraph (8) of this Law and imposing of supervisory measures referred to in Article 73c paragraph (6) of this Law. (2) The Central Bank shall take measures from within its competence to reach a joint decision referred to in paragraph (1) of this Article within two months of the receipt of the consolidating supervisor’s assessment referred to in paragraph (1) of this Article to the Central Bank, and the joint decision shall also be implemented in Montenegro. (3) In respect of the joint decision referred to in paragraph (2) of this Article, the Central Bank shall adopt a decision and submit it to the financial holding company or mixed financial holding company that has their head office in Montenegro. (4) Where there are differences in opinions in respect of reaching a joint decision referred to in paragraph (2) of this Article, the Central Bank shall refrain from taking a decision and seek mediation from the European Banking Authority. (5) Where the European Banking Authority reaches its decision within one month of receipt of the referral for the mediation, a joint decision shall be reached in accordance with this decision, and where the European Banking Authority does not reach the decision within that time limit, the Central Bank shall autonomously reach a decision. (6) The Central Bank may not seek the mediation of the European Banking Authority referred to in paragraph (5) of this Article after the expiry of two months following the day of the receipt of the assessment of the consolidating supervisor or after reaching a joint decision.

Measures imposed on the financial holding company or mixed financial holding company

Article 73f

(1) The Central Bank shall impose supervisory measures on the parent financial holding company or parent mixed financial holding company referred to in Article 73a paragraph (1) of this Law where all necessary measures have not been taken to comply with the requirements laid down in this Law and general acts adopted on the basis of this Law, which refer to the following:
1) capital, large exposures, liquidity and leverage;
2) the level of additional own funds which the Central Bank has imposed by way of a decision in accordance with Articles 279 and 281 of this Law; or
3) special requirements regarding liquidity in accordance with Articles 279 and 280 of this Law.

Intermediate EU parent undertaking Article 73g

(1) Credit institutions from Montenegro which together with one or more institutions with their head offices in the EU are part of the same third-country group shall determine a single intermediate parent undertaking with their head office in the EU (hereinafter: intermediate EU parent undertaking). (2) By way of derogation from paragraph (1) of this Article, the Central Bank may, in cooperation with other competent supervisory authorities of the member of the third-country group, reach a decision that a third-country group may establish two intermediate EU parent undertakings where they jointly determine that the establishment of a single intermediate EU parent undertaking would:
1) not be incompatible with a mandatory requirement for separation of activities imposed by the rules or decision of the supervisory authority of the third country where the ultimate parent undertaking of the third-country group has its head office; or
2) render resolvability less efficient than in the case of two intermediate EU parent undertakings according to an assessment carried out by the competent resolution authority of the intermediate EU parent undertaking.
(3) An intermediate EU parent undertaking shall be a credit institution licensed in accordance with Article 66 of this Law or a financial holding company or mixed financial holding company that has been granted authorisation in accordance with Article 73a of this Law.
(4) By way of derogation from paragraph (3) of this Article, where none of the institutions referred to in paragraph (1) of this Article is a credit institution or where a second intermediate EU parent undertaking must be set up in connection with investment activities to comply with requirements referred to in paragraph (2) of this Article, the intermediate EU parent undertaking or the second intermediate EU parent undertaking, may be an investment firm licensed in accordance with the provisions of regulations governing the operations of investment firms, and which is subject to the provisions of the law governing the resolution of credit institutions and investment firms. (5) A credit institution, which has been issued a license in accordance with Article 66 of this Law and which is a member of the third-country group, shall not be required to have an intermediate EU parent undertaking or, in accordance with paragraph (3) of this Article, shall not be determined as an intermediate EU parent undertaking where:
1) the total value of assets in the EU of all members of the third-country group is less than EUR 40 billion; or
2) credit institution that has been issued a license referred to in Article 66 of this Law is the only institution from that group that operates in the EU.
(6) The total value of assets in the EU of the third-country group, within the meaning of this Article, shall be the sum of the following:
1) the total value of assets of each institution in the EU which is a member of the third-country group, as resulting from its consolidated balance sheet or as resulting from their individual balance sheets, where an institution’s balance sheet is not consolidated; and
2) the total value of assets of each branch of the third-country group authorised in the EU in accordance with this Law, the law governing the capital markets or Regulation (EU) No 600/2014 of the European Parliament and of the Council.
(7) The term “institution”, within the meaning of this Article, shall also be an investment firm.
(8) The Central Bank shall provide the European Banking Authority with the following information in respect of each third-country group operating at the territory of Montenegro:
1) the names and the total value of assets of each supervised institution belonging to a third-country group;
2) the names and the total value of assets corresponding to each branch of the third-country group that has been authorised in accordance with the Law, and the types of activities that they are authorised to carry out;
3) the name and the type of any intermediate EU parent undertaking that have their head offices in Montenegro and the name of the third-country group of which that undertaking is part.

4. Provision of mutually recognised services in other states

Provision of services in another Member State Article 74

(1) Credit institution and financial institution which meets conditions referred to in paragraph (2) of this Article may provide, under the conditions set out by this Law, within the territory of another Member State the mutually recognised services which they are authorised to provide within the territory of Montenegro, either directly or through the branch. (2) Financial institution from Montenegro may provide mutually recognised financial services referred to in Article 6 paragraph (1) item 2) of this Law in another Member State, provided that the following conditions are met:
1) parent undertaking of that financial institution is one or more credit institutions with head office in Montenegro;
2) financial institution has been set up to provide recognised financial services in Montenegro in accordance with the law, articles of association or other acts;
3) financial institution actually provides financial services in Montenegro;
4) parent credit institution or parent credit institutions hold 90% or more voting rights in that financial institution;
5) parent credit institutions of that financial institution, according to the assessment of the Central Bank, adequately manage that institution and with the authorisation granted by the Central Bank they are jointly and severally liable for all the liabilities of that financial institution; and
6) financial institution is actually involved in supervision of the parent credit institution, or of each of the parent credit institutions, on a consolidated basis, in accordance with the provisions of this Law governing supervision on a consolidated basis and provisions of the Regulation (EU) No 575/2013 governing prudential requirements for credit institutions on a consolidated basis, particularly for the purposes of calculating capital and large exposures rates, as well as for the purposes of limiting investments in qualifying holdings outside the financial sector.
(3) Credit institution may, under the conditions set out by this Law, provide additional financial services within the territory of another Member State, either directly or through the branch, if that is in accordance with regulations of the host Member State and if it received authorisation from the Central Bank to perform such services.

Provision of services in another Member State through the branch Article 75

(1) Credit institution intending to establish a branch in another Member State shall file an application with the Central Bank for granting of the authorisation to establish a branch.
(2) The application referred to in paragraph (1) of this Article shall be accompanied by:
1) data on the Member State where the credit institution intends to establish a branch;
2) business plan for a three-year period, which shall contain type and scope of services which the credit institution intends to provide through the branch and organisational structure of the branch;
3) address in the host Member State in which the Central Bank will be able to obtain documentation regarding the branch; and
4) data on the persons who will be responsible for managing affairs of the branch.
(3) Data and documentation referred to in paragraph (2) of this Article shall be submitted with the content established by the Commission Delegated Regulation (EU) No 1151/2014 and in the manner stipulated by the Commission Implementing Regulation (EU) No 926/2014.
(4) The Central Bank may, within 30 days from the day of receiving the application referred to in paragraph (1) of this Article, request from the applicant to submit additional documents and data.
(5) The Central Bank shall, no later than 60 days from the day of receiving complete information referred to in paragraphs (1) and (2) of this Article, render a decision by which it decides on the application of the credit institution to establish a branch (hereinafter: the authorisation to establish a branch in a Member State) and shall notify the applicant thereof.

(6) Upon granting of the authorisation referred to in paragraph (5) of this Article and provided that there are no reasons referred to in paragraph (7) of this Article, the Central Bank shall, within three months from the day of receiving complete information referred to in paragraphs (1) and (2) of this Article, submit to the competent authority of the host Member State a notification of granting the authorisation, along with the information referred to in paragraph (2) of this Article and data on the amount and composition of the own funds and amount of capital requirements of the credit institution, calculated in accordance with Article 92 of the Regulation (EU) No 575/2013. (7) The Central Bank shall refuse the application filed by credit institution referred to in paragraph (1) of this Article if it concludes, based on the submitted documentation and other data at its disposal, that:
1) credit institution does not have adequate organisational, technical and human resource structure nor appropriate financial position to provide intended scope of services in the Member State through the branch;
2) in doing so, credit institution avoids more strict regulations and rules applicable in Montenegro;
3) operations through the branch might compromise security and stability of operations of the credit institution.
(8) The Central Bank shall prescribe the procedure for granting of the authorisation referred to in paragraph (5) of this Article.

Provision of services by the financial institution from Montenegro in another Member State

Article 76

(1) If financial institution with head office in Montenegro, which is a subsidiary undertaking of the credit institution and meets requirements referred to in Article 74 paragraph (2) of this Law, intends to provide mutually recognised financial services within the territory of another Member State through the branch, the parent credit institution in Montenegro shall notify the Central Bank thereof. (2) In addition to the notification referred to in paragraph (1) of this Article, the parent credit institution shall submit:
1) data and documentation referred to in Article 75 paragraph (2) in the manner referred to in Article 75 paragraph (3) of this Law;
2) documents on fulfilment of the requirements referred to in Article 74 paragraph (2) of this Law;
3) data on the amount and structure of own funds or on the amount of other form of capital of that financial institution and total amount of risk exposure for parent credit institution, calculated in accordance with Article 92 paragraphs (3) and (4) of the Regulation (EU) No 575/2013; and
4) authorisation by the competent authority to establish a branch of the financial institution in another Member State, if authorisation is necessary.
(3) The Central Bank may, within 30 days as of the day of receiving notification referred to in paragraph (1) of this Article, also request the submission of additional documents.
(4) The Central Bank shall, no later than 60 days as of the day of receiving complete and accurate information referred to in paragraph (1) of this Article, check whether the financial institution meets conditions referred to in Article 74 paragraph (2) of this Law and if it concludes such conditions have been met it shall, through parent credit institution in Montenegro, submit acknowledgment of the fulfilment of such conditions to the financial institution. (5) The Central Bank shall without delay submit to the competent authority of the host Member State, and no later than within three months as of the day of receiving complete and accurate information, the notification referred to in paragraph (1) of this Article in accordance with the relevant European Union regulation and acknowledgment on the fulfilment of the conditions and data on the amount and composition of own funds or some other prescribed form of capital of such financial institution, amount of consolidated own funds and amount of capital requirements for the group of credit institutions in Montenegro which that financial institution belongs to, as well as the data on total amount of risk exposure of the group, calculated in accordance with Article 92 paragraphs (3) and (4) of the Regulation (EU) No 575/2013.

(6) The Central Bank shall not submit the acknowledgment referred to in paragraph (4) and the notification referred to in paragraph (5) of this Article, but it shall instead render and serve a decision to the parent credit institution by which it refuses to submit notification, if based on the data in its possession it concludes that:
1) financial institution does not have proper organisational, technical and human resource structure, nor does it have proper financial position needed to provide the intended scope of services in the Member State mentioned through the branch; or
2) by providing mutually recognised services it could compromise security and stability of operations of credit or financial institution.
(7) Financial institutions which received license from the competent authority in Montenegro shall, during provision of services in Member State, act in line with the law.
(8) If the Central Bank establishes that the financial institution no longer meets one or more requirements referred to in Article 74 paragraph (2) of this Law, it shall without delay notify competent authority of the host Member State thereof.
(9) Provisions of this Law governing the provision of services by financial institutions shall apply mutatis mutandis to the subsidiary undertakings of financial institutions which meet requirements referred to in paragraph (1) of this Article. (10) Provisions of Article 7, Articles 257 to 266 and Article 352 paragraph (1) item 1) of this Law shall apply mutatis mutandis to the financial institutions referred to in paragraph (1) of this Article.

Commencement of the provision of services through the branch Article 77

(1) Credit institution which has been granted authorisation by the Central Bank to establish a branch in another Member State may commence provision of service within the territory of another Member State through the branch once it receives from the competent authority of the host Member State the notification on the requirements which it must comply with in that Member State, for the purpose of protecting general good or, if it has not received notification, upon expiry of the deadline of 60 days as of the day on which competent authority of the host Member State received notification accompanied by the documents referred to in Article 75 paragraphs (1) and (2) of this Law. (2) If the credit institution, which has received authorisation from the Central Bank to establish a branch in another Member State, intends to establish another branch in the same Member State, it shall notify the Central Bank on the intent to establish such branch, without providing application and documentation referred to in Article 75 of this Law. (3) Provision of paragraph (1) of this Article shall also apply to the financial institution referred to in Article 76 of this Law.

Notifications of changes to the data on operations of the branch Article 78

Credit institution which has been granted authorisation to establish a branch in another Member State or parent credit institution of the financial institution referred to in Article 76 of this Law which intends to change some of the element based on which the license was issued shall, at least 30 days prior to making the change, notify in writing the Central Bank of that intent and the competent authority of the host Member State.

Withdrawal of authorisation to establish a branch in another Member State Article 79

(1) The Central Bank shall withdraw from a credit institution the authorisation to establish a branch in another Member State if:
1) credit institution has been granted authorisation to establish a branch on the basis of untrue or inaccurate data, which were relevant for granting the authorisation to establish the branch;
2) branch does not commence operations within six months as of the day of being granted authorisation;

3) competent authority of the host Member State prohibited credit institution to provide services in its territory; or
4) branch does not perform activities covered by the authorisation for more than six months.
(2) The Central Bank may withdraw from the credit institution the authorisation to establish a branch in another Member State if:
1) it establishes that the credit institution no longer has organisational, technical or human resource capacities for the services it provides;
2) the credit institution fails to honour obligations related to the protection of deposits of depositors of the branch;
3) in operations of the branch, the credit institution does not operate in accordance with regulations of the host Member State; or
4) based on the territorial distribution of the provision of services, it is concluded that the credit institution by establishing a branch in other Member State avoids application of regulations applicable in Montenegro, because they are stricter than regulations of another Member State.
(3) Credit institution, which provides services in another Member State through the branch, may file an application for removal of the branch from the register kept in the host Member State only after the settlement of all liabilities that resulted from the operations of that branch.

Direct provision of mutually recognised services in another Member State Article 80

(1) Credit institution which intends to provide mutually recognised services directly within the territory of another Member State shall send prior notification to the Central Bank and in that notification it shall indicate name of the Member State in which it intends to provide services directly.
(2) If financial institution with head office in Montenegro which is subsidiary undertaking of the credit institution and meets requirements referred to in Article 74 paragraph (2) of this Law intends to provide mutually recognised services directly within the territory of another Member State, its parent credit institution shall send a prior notification to the Central Bank and it shall in that notification indicate name of the state in which that financial institution intends to provide services directly. (3) In addition to the notifications referred to in paragraphs (1) and (2) of this Article, the credit institution shall also submit information on the services it intends to provide in the Member State and business plan for the first three business years, the content of which is prescribed in the Commission Delegated Regulation (EU) No 1151/2014 and in the manner stipulated by the Commission Implementing Regulation (EU) No 926/2014. (4) The Central Bank shall, no later than one month following the day of the receipt of the notification referred to in paragraphs (1) and (2) of this Article, submit such notification to the competent authority of the host Member State in accordance with the regulations referred to in paragraph (3) of this Article and shall notify the credit institution thereof. (5) Credit institution or financial institution may commence direct provision of mutually recognised services from the notification referred to in paragraph (3) of this Article from the day of receiving the notification from the Central Bank which indicates that it submitted notification referred to in paragraph (4) of this Article to the competent authority of the Member State.

Provision of banking and financial services in third-country Article 81

(1) Credit institution may provide banking and/or financial services in the third country only through the branch.
(2) The credit institution may establish a branch in the third country after obtaining authorisation from the Central Bank.
(3) The application referred to in paragraph (2) of this Article shall contain:
1) name of the third country in which the credit institution intends to establish a branch;
2) address in the third country at which the Central Bank will be able to obtain documents
regarding the branch; and

3) personal data and addresses of persons who will be responsible for managing affairs of the
branch.

(4) Business plan for a three-year period, which specifies the type and scope of services which the credit institution intends to provide through the branch and organisational structure of the branch shall be submitted along with the application referred to in paragraph (3) of this Article.
(5) The Central Bank may, within 30 days as of the day of receiving the application referred to in paragraph (3) of this Article, request from the applicant to submit additional documents and data.
(6) In the case referred to in paragraph (5) of this Article, the day of receiving additional documents or data shall be deemed as the day of receipt of duly compiled application.
(7) The Central Bank shall, no later than 60 days from the day of receiving duly compiled application, render a decision on the application of the credit institution to establish a branch and shall notify the applicant thereof.
(8) The Central Bank shall refuse the application referred to in paragraph (3) of this Article if it concludes, based on documents and other data in its possession, that:
1) the credit institution which intends to establish a branch does not have proper organisational,
technical and human resource structure or appropriate financial position for the provision of the intended scope of services in the third country;

2) it is likely, in accordance with the regulations of or practices in third country, that the
performance of the supervision in accordance with the provisions of this Law will be difficult or impossible, or

3) the operations through the branch lead to avoidance of application of regulations applicable
on the operations of the credit institutions in Montenegro because they are stricter than the regulations of the third country.

(9) Provisions of paragraphs (1) through (7) of this Article shall apply to establishment of a new branch in the third country in which credit institution already has a branch. (10) Credit institution that has been granted authorisation to establish a branch in the third country, and which intends to change some of the elements based on which it has received the authorisation referred to in paragraph (2) of this Article, shall notify the Central Bank on the intent to make a change within 30 days before making such a change.

Withdrawal of authorisation to establish a branch in the third country Article 82

(1) The Central Bank shall withdraw authorisation from the credit institution to establish a branch in the third country if:
1) the credit institution has been granted authorisation to establish a branch on the basis of untrue or inaccurate data which were relevant for granting of the authorisation to establish the branch;
2) branch does not commence operations within six months from the day of being granted authorisation;
3) competent authority of the host third country prohibited credit institution to provide services in its territory;
4) branch does not perform activities included in the authorisation for more than six months; or
5) branch no longer meets requirement based on which the authorisation has been granted.
(2) The Central Bank may withdraw the authorisation from the credit institution to establish a branch in the third country if:
1) it establishes that the credit institution no longer has organisational, technical and human resource capacity to provide services;
2) the credit institution fails to honour obligations related to the protection of deposits of depositors of the branch;
3) in operations of the branch, the credit institution does not comply with regulations of the host third country, or
4) based on the territorial distribution of the provision of services, it is concluded that the credit institution in that manner avoids more strict regulations and rules applicable in Montenegro.

(3) Credit institution which provides services in the third country through the branch may file application for removing branch from the register kept in the third country only the settlement of all liabilities that resulted from the operations of that branch.

Establishing representative office outside of Montenegro Article 83

Credit institution intending to establish a representative office abroad shall notify the Central Bank thereof in writing, specifying name of the State in which it intends to establish the representative office.

5. Provision of mutually recognised services by foreign credit institutions within the territory of Montenegro

Provision of services by a foreign credit institution from another Member State Article 84

(1) Credit institution from another Member State may, under the conditions set out by this Law, establish a branch in Montenegro and through such branch it may provide mutually recognised services which it is authorised to provide in the home Member State.
(2) Credit institution from a Member State may also directly provide within the territory of Montenegro the mutually recognised services it is authorised to provide in home Member State.

Provision of mutually recognised financial services by financial institution from another Member State

Article 85

(1) Financial institution from another Member State may provide mutually recognised services referred to in Article 6 paragraph (1) item 2) of this Law, which it is authorised to provide in a home Member State, either through the branch or directly within the territory of Montenegro if:
1) parent undertaking of that financial institution is a credit institution or several credit institutions with head office in the Member State which have been issued license by the competent authority;
2) financial institution is set up to provide recognised financial services in the home Member State in accordance with articles of association or another enactment;
3) financial institution actually provides financial services in that Member State;
4) parent credit institution or parent credit institutions hold 90% or more voting rights in that financial institution;
5) parent credit institutions of that financial institution, according to the assessment of the competent authority of the home Member State, manage that institution properly and with authorisation granted by the competent supervisory authorities they are jointly and severally liable for all obligations of the financial institution; and
6) financial institution is involved in supervision of the parent credit institution, or of each of the parent credit institutions, on a consolidated basis, in accordance with Title VII Chapter 3 of the Directive 2013/36/EU and Part I, Title II, Chapter 2 of the Regulation (EU) No 575/2013, particularly for the purposes of meeting capital requirements referred to in Article 92, controlling large exposures set out in Part IV and limiting holdings referred to in Articles 89 and 90 of that Regulation.
(2) Provisions of this Law governing the parent financial institutions shall apply mutatis mutandis to subsidiary undertakings of the financial institutions which meet requirements referred to in paragraph (1) of this Article.
(3) Provisions of Article 7, Articles 257 to 266 and Article 352 paragraph (1) item 1) of this Law shall apply mutatis mutandis to the financial institutions referred to in paragraph (1) of this Article.

Provision of services through the branch in Montenegro Article 86

(1) Credit institution from another Member State or financial institution referred to in Article 85 of this Law which intends to establish a branch within the territory of Montenegro may file an

application to register the branch in the Central Registry of Business and Other Entities and may commence with provision of services upon expiry of two months as of the day when the Central Bank received from the competent authority the notification, the content of which is prescribed by the Commission Delegated Regulation (EU) No 1151/2014 and in the manner stipulated by the Commission Implementing Regulation (EU) No 926/2014.

(2) Notwithstanding paragraph (1) of this Article, the credit institution from another Member State or financial institution referred to in Article 85 of this Law may file an application to register a branch even before expiry of the deadline referred to in paragraph (1) of this Article if it received from the Central Bank the notification on the requirements it shall comply with during provision of services within the territory of Montenegro for the purpose of protecting general good. (3) If the credit institution referred to in paragraph (1) of this Article establishes several business units on the territory of Montenegro, such business units shall be deemed as a single branch. (4) If the credit institution or financial institution referred to in paragraph (1) of this Article intends to subsequently change some of the data referred to in Article 75 paragraph (2) of this Law which are submitted to the competent authority of the home Member State, it shall, within one month before making such change, submit to the Central Bank a notification in writing with the content and in the manner stipulated by the regulations referred to in paragraph (1) of this Article. (5) If the competent authority of the home Member State notifies the Central Bank that a financial institution does not meet some of the requirements referred to in Article 85 paragraph (1) of this Law, the regulations governing operations of financial institutions in Montenegro shall apply to the operations of that financial institution.

Direct provision of services in Montenegro Article 87

Credit institution from another Member State or financial institution referred to in Article 85 of this Law may commence to provide mutually recognised services directly within the territory of Montenegro as of the day when the Central Bank receives from the competent authority of the Member State a notification on commencement of performance of activities, which shall also include a list which specifies the services credit institution or financial institution intends to provide in Montenegro.

Application of laws mutatis mutandis Article 88

(1) The provisions of this Law shall apply mutatis mutandis to the credit institution from another Member State which directly provides mutually recognised services within the territory of Montenegro in respect of:
1) obligation to keep banking secret:
2) supervision of credit institution;
3) consumer protection;
4) measures and instruments referred to in Article 171a of this Law.
(2) The provisions of this Law shall apply mutatis mutandis to a branch of the credit institution from another Member State which provides mutually recognised services within the territory of Montenegro in respect of:
1) reporting at the request of the Central Bank;
2) keeping banking secret;
3) supervision of credit institution;
4) consumer protection;
5) measures and instruments referred to in Article 171a of this Law.
(3) The credit institution referred to in paragraph (1) of this Article and the branch of the credit institution referred to in paragraph (2) of this Article shall also comply with other regulations applied for protection of general good within the territory of Montenegro.

Authorisation to the branch of the third-country credit institution Article 89

(1) Third-country credit institution may operate in Montenegro through the branch, and only with prior authorisation granted to the branch by the Central Bank.
(2) The authorisation referred to in paragraph (1) of this Article shall specify activities that the branch of the third-country credit institution may perform in Montenegro, whereby such authorisation may be granted for performing all or part of the activities the credit institution is authorised to perform by the competent authority of the third country. (3) If the credit institution, after being granted authorisation referred to in paragraph (1) of this Article, intends to, through the branch in Montenegro, commence the provision of services which are not specified in the authorisation to establish a branch of the credit institution, it shall obtain authorisation from the Central Bank to perform such activities. (4) For the authorisation referred to in paragraph (1) of this Article, the credit institution – founder of the branch shall submit documents referred to in Article 90 paragraph (2) of this Law. (5) Provisions of Article 91 of this Law shall apply when rendering a decision on the application for granting the authorisation referred to in paragraph (1) of this Article. (6) Where a credit institution referred to in paragraph (1) of this Article has established several business units in the territory of Montenegro, those business units shall be considered one branch. (7) The provision of paragraph (1) of this Article shall not apply to a third-country credit institution that provides services or performs activities in Montenegro to a client or counterparty established or situated in the European Union, provided that such a client or a counterparty is:
1) a retail investor, an eligible counterparty, or a professional investor within the meaning of the law governing capital market that has its head office or is located in the EU, where such client or counterparty approaches a third-country credit institution at its own exclusive initiative for the provision of any service or activity referred to in Article 5 paragraph (1) item 1) of this Law;
2) a credit institution; or
3) an undertaking of the same group as that of the third-country credit institution.
(8) The provision of services at the own exclusive initiative of the client or counterparty, or of the potential client or counterparty, within the meaning of paragraph (7) item 1) of this Article, shall not be deemed to exist where a third-country credit institution referred to in paragraph (1) of this Article solicits a client or counterparty, or a potential client or counterparty through an entity acting on its own behalf or having close links with such third-country credit institution or through any other person acting on behalf of such credit institution referred to in paragraph (1) of this Article. (9) A credit institution with head office in Montenegro and a third-country branch of a credit institution established in Montenegro shall submit to the Central Bank the information on the services provided by undertakings with head offices in a third country that are members of the same group, exclusively at the initiative of a client or a counterparty with a head office or residence in Montenegro. (10) A third-country credit institution to which an initiative has been forwarded by a client or counterparty referred to in paragraph (7) of this Article may not offer to that client or counterparty other categories of products, activities or services than those that the client or counterparty had solicited, other than through a branch with a head office in Montenegro. (11) A third-country credit institution shall not be required to submit an application for granting authorisation for a branch referred to in paragraph (1) of this Article to provide services, activities or products necessary for, or closely related to the provision of the service, product or activity originally solicited by the client or counterparty, including where such closely related services, activities or products are provided subsequently to those originally solicited.

Application for granting the authorisation to the third-country branch Article 90

(1) Application for granting the authorisation to a branch of the third-country credit institution shall be filed with the Central Bank.
(2) The application referred to in paragraph (1) of this Article shall be accompanied by:

1) excerpt from the registry of the state in which the head office of the third-country credit institution-founder of the branch (hereinafter: credit institution-branch founder) is located, which cannot be older than 60 days, and which contains data on the legal form and time of registration of the credit institution-branch founder in the registry and data on the persons authorised for representation as well as on the scope of their powers or authentic incorporation documents which are notarised in accordance with regulations of the state in which credit institution has registered head office, which contain such data;
2) notarised memorandum of association of the credit institution – branch founder;
3) data on the members of the management body of the credit institution – branch founder;
4) data on persons who will be responsible for managing affairs of branch of the third-country credit institution;
5) audit report on third-country credit institution-branch founder for the past three business years;
6) document which authentically shows holders and their participating interests in managing third-country credit institution;
7) proof from the registry of the state in which the head office of legal persons who are holders of qualifying holding in the credit institution – branch founder is located, including data on natural persons who are ultimate owners of such legal persons; 7a) decision of the credit institution-branch founder regarding establishment of the branch;
8) authorisation or other relevant act to provide banking and financial services issued to the credit institution by the competent authority in a third country;
9) description of banking and financial services which the branch of the credit institution-branch founder intends to provide in Montenegro and business plan of the branch for the first three years of operations;
10) list of persons associated with the credit institution – branch founder in the manner referred to in Article 173 paragraph (2) of the Law;
11) authorisation to establish a branch granted by the competent authority of the credit institution

• branch founder, or statement by such authority declaring that such authorisation is not necessary according to the regulations of the state in which head office of that credit institution is located, which is not older than six months;
  12) statement by the credit institution – branch founder declaring that the branch shall maintain and keep the documents regarding its operations in the head office of the branch in the Montenegrin language, and that it shall compile financial statements in accordance with this Law;
  13) proof that the credit institution – branch founder is included in deposit guarantee scheme, data on the level of eligible deposit, as well as the proof that the branch will be included in the deposit guarantee scheme in the country in which head office of the credit institution – branch founder is located, at least in the amount and in the scope of coverage prescribed for credit institutions operating in Montenegro.
  (3) The Central Bank may request additional information and data within 30 days as of the day of receiving the application referred to in paragraph (1) of this Law from the credit institution – branch founder.
  (4) If the Central Bank has requested additional information or data in accordance with paragraph (3) of this Article, the day of their delivery shall be deemed as the day of receipt of duly compiled application.

Decision on the application for granting authorisation to establish a branch of third-country credit institution

Article 91

(1) The Central Bank shall refuse application for granting the authorisation to establish a branch of the third-country credit institution, if:
1) it establishes, on the basis of the data in its possession and documents attached to the application for granting the authorisation, that the credit institution – branch founder does not have satisfactory financial soundness or appropriate organisational, technical and human resource

structure which would allow for branch it intends to set up its operations in accordance with the law;

2) taking into account regulations of the state in which head office of the credit institution – branch founder is located, or practices in the implementation of these regulations, the performance of the supervision in accordance with provisions of this Law will most likely be difficult or impossible;
3) it concludes that the persons responsible for managing affairs of the credit institution – branch founder do not meet requirements for members of supervisory and management boards of the credit institution stipulated by this Law;
4) in the third-country, in which head office of the credit institution is located, there are no regulations on the prevention of money laundering and/or if such regulations do not enable efficient supervision of the prevention of money laundering or if the third-country credit institution-branch founder or persons referred to in Article 90 paragraph (2) item 7) of this Law are in any way associated with money laundering or terrorist financing or there are indications thereof;
5) the Central Bank has not concluded an agreement on cooperation in the field of supervision with the competent supervisory authority from the third-country in which head office of the credit institution – branch founder is located; or
6) credit institutions with head office in Montenegro are not given the possibility in the state in which head office of the credit institution – branch founder is located to set up a branch under at least equal conditions which are enabled to the credit institution – branch founder in Montenegro.
(2) The Central Bank shall grant authorisation to the credit institution to establish a branch if conditions are met for granting such authorisation and if the credit institution – branch founder deposited into the account of a credit institution with head office in Montenegro the monetary amount not lower than EUR 7,500,000, which it shall keep in that account until registration of the branch in the Central Registry of Business and Other Entities, after which it shall be transferred into the account of the branch kept with the Central Bank. (3) The funds referred to in paragraph (2) of this Article shall be deemed as the own funds of the branch, within the meaning of this Law. (4) Credit institution – branch founder may increase the amount of the own funds referred to in paragraph (3) of this Article only by paying monetary funds into account of the branch opened with the Central Bank.

Registration of the branch of third-country credit institution Article 92

(1) Authorisation to the branch of the third-country credit institution shall be a requirement for registration of the branch in the Central Registry of Business and Other Entities.
(2) The branch shall be registered within 60 days as of the day of receiving the decision on granting the authorisation.
(3) The branch shall commence its operations within six months as of the day of receiving the authorisation referred to in paragraph (1) of this Article.

Termination of operations of a third-country branch Article 93

(1) Authorisation to establish a branch of the third-country credit institution shall cease to be valid if:
1) the competent supervisory authority from third country has withdrawn the authorisation of the credit institution-branch founder, and so as of the day of withdrawal of the authorisation;
2) the credit institution– branch founder ceases to exists in the state in which its head office is located or if it has lost legal capacity according to the regulations of that country, or if the competent registration court or another competent body has removed that credit institution from the relevant registry, or has lost the right to dispose of property, and so as of the day of occurrence of one of those reasons;
3) the credit institution-branch founder rendered decision on termination of operation of the branch;

4) a competent court or another authority rendered decision to initiate bankruptcy proceedings against branch of the third-country credit institution.
(2) The Central Bank shall withdraw authorisation from the third-country credit institution to establish a branch in Montenegro if:
1) that credit institution has been granted authorisation on the basis of untrue and inaccurate data, which were relevant for granting of the authorisation to establish the branch;
2) the conditions for refusing the application for granting the authorisation referred to in Article 91 paragraph (1) of this Law occur;
3) branch does not fulfil obligation to protect deposits in accordance with the regulations governing deposit protection;
4) branch does not commence operations within six months as of the day of granting the authorisation;
5) branch does not operate longer than six months;
6) branch does not operate in accordance with applicable regulations in Montenegro; or
7) branch does not fulfil its financial obligations in Montenegro.
(3) If competent supervisory authority withdraws authorisation for the provision of a specific financial service to the credit institution-branch founder, that credit institution shall, without undue delay, notify the Central Bank thereof.
(4) The Central Bank shall, on the basis of the notification referred to in paragraph (3) of this Article, withdraw authorisation for the provision of that service from the branch of the third-country credit institution in Montenegro.
(5) The Central Bank may order to a branch of the third-country credit institution whose assets and contingent liabilities as stated in its audited annual financial statements exceed 5 percent of total assets and contingent liabilities of all credit institutions in Montenegro to continue its operations in Montenegro as a credit institution. (6) The credit institution – branch founder may file an application for removal of the branch from the Central Registry of Business and Other Entities only after settlement of all the liabilities that resulted from the operation of that branch.

Application of other provisions of this Law to the branch of the third-country credit institution

Article 94

Provisions of this Law shall apply mutatis mutandis to the branch of the third-country credit institution in respect of:

1) management board of credit institution;
2) governance arrangements of credit institution;
3) capital requirements;
4) capital conservation buffers and measures; 4a) risk management and liquidity requirements;
5) limitations and prohibitions;
6) banking secret;
7) consumer protection;
8) accounting and auditing;
9) reporting to the Central Bank;
10) disclosure of information;
11) supervision of credit institutions;
12) supervisory measures;
13) reorganisation measures; and
14) other prudential requirements for credit institutions.

Reporting of a third-country branch of a credit institution Article 94a

(1) In addition to the reporting requirement to the Central Bank in accordance with Article 94 paragraph (1) item 9) of this Law, a third-country branch of a credit institution shall provide the Central Bank,

within the time limits prescribed by the regulation referred to in Article 233 of this Law, with the data on:

1) the assets and liabilities held on its books and the assets and liabilities originated by the third-country branches, with a breakdown that singles out: − the largest recorded assets and liabilities classified by sector and counterparty type, including, in particular, exposures to financial sector entities; − significant exposure and funding source concentrations to specified types of counterparties; and − significant transactions with the head undertaking and with members of the head undertaking’s group;
2) the compliance with the requirements of this Law and regulations passed under this Law;
3) total assets corresponding to the activities for which the third-country branch of the credit institution has been authorised to operate in Montenegro;
4) liquid assets held by the third-country branch of the credit institution, in particular the availability of liquid assets in third-country currencies;
5) own funds of the third-country branch of the credit institution;
6) risk management system;
7) governance arrangements, including information on the holders of key functions responsible for the activities of the third-country branch of the credit institution.
(2) A third-country branch of a credit institution shall, at the request of the Central Bank, provide:
1) information on deposit guarantee schemes available to depositors of the third-country branch of the credit institution;
2) information on compliance with additional regulatory requirements applicable to the third-country branch of the credit institution under the regulations of Montenegro; and
3) other information necessary for the Central Bank to carry out a comprehensive assessment of the operations, activities, risk profile and financial stability of the third-country branch of the credit institution.
(3) A third-country branch of a credit institution shall, on a periodic basis, provide the Central Bank with the following information on its head undertaking:
1) aggregated information on the assets and liabilities held or booked, respectively, by the subsidiary undertakings and other third-country branches of that head undertaking’s group and operated in the Member States;
2) information on the compliance of the head undertaking with applicable prudential requirements on an individual and consolidated basis;
3) the recovery plan of the head undertaking and the specific measures that could be taken on the third-country branches of a credit institution in accordance with that plan, and any subsequent updates and amendments to that plan;
4) the head undertaking’s business strategy in relation to the third-country branch of a credit institution and any subsequent changes to that strategy; and
5) the information on services provided by the head undertaking to clients established or counterparties with head office or residence in the EU, exclusively at their initiative, in accordance with Article 89 paragraphs (7), (8), (10) and (11) of this Law.
(4) A third-country branch of a credit institution shall, at the request of the Central Bank, provide information on significant findings of the supervisory reviews and assessments carried out in relation to the head undertaking, and the supervisory decisions passed on the basis of those reviews and assessments. (5) For the purposes of providing the data referred to in paragraph (1) item 1) of this Article, a third-country branch of a credit institution shall apply international accounting standards referred to in Article 220 of this Law. (6) In addition to the information referred to in paragraphs (1) to (4) of this Article, the Central Bank may require a third-country branch of a credit institution to provide additional information where such data are necessary in order to:
1) gain a comprehensive view of the third-country branch’s or their head undertaking’s business, activities or financial soundness;

2) verify the third-country branch’s or their head undertaking’s compliance with applicable regulations; or
3) ensure the third-country branch’s compliance with this law and regulations adopted pursuant to this Law.

Protection of deposits of the branch of the third-country credit institution Article 95

(1) Third-country credit institution that established a branch in Montenegro shall protect in that third country the deposits that it has received in branches operating within the territory of Montenegro.
(2) The level and scope of deposit protection received by the branch of the third-country credit institution must be at least at the level of the protection set out by the law governing deposit protection in Montenegro.
(3) If deposit guarantee scheme does not exist in the country in which head office of the credit institution-branch founder is located or the level and/or scope of protection of deposits is lower than in Montenegro, the branch of the third-country credit institution shall become part of the deposit guarantee scheme in Montenegro.

Application of the provisions of this Law to a branch of third-country undertaking Article 95a

(1) The provisions of Articles 89 to 95 of this Law shall apply mutatis mutandis to a branch of a third-country undertaking providing financial services referred to in Article 5 paragraph (1) item 1) of this Law, provided that it has obtained authorisation of the competent authority of the third country for the provision of such services. (2) By way of derogation from paragraph (1) of this Article, the provisions of Articles 89 to 95 of this Law shall not apply to a third-country undertaking providing investment services and related ancillary services as established by the law governing capital market.

Representative office of the third-country credit institution Article 96

(1) In order to set up a representative office in Montenegro, third-country credit institution (hereinafter: the credit institution – founder of the representative office) shall obtain prior authorisation from the Central Bank.
(2) The following shall be attached to the application for granting the authorisation referred to in paragraph (1) of this Article:
1) excerpt from appropriate registry of the state in which head office of the credit institution-founder of the representative office is located, not older than 60 days, which contains data on the legal form and time of registration of credit institution – founder of the representative office in the registry and data on persons authorised for representation and on the scope of their powers or authentic incorporation documents notarised in accordance with the regulations of the state in which credit institution has a registered head office, which contains such data;
2) notarised memorandum of association of the credit institution – founder of the representative office;
3) audit report, including audited financial statements of the credit institution – founder of the representative office for the past three business years;
4) decision of credit institution – founder of the representative office on setting up representative office;
5) data on head office and address and on business premises of the representative office;
6) authorisation granted by the competent authority of the credit institution-founder of the representative office to set up representative office in Montenegro or statement that such authorisation is not required;
7) notarised statement by the credit institution – founder of the representative office declaring that it will settle all liabilities incurred in Montenegro in relation to the operation of the representative office;

8) data on persons responsible for operation of the representative office;
9) proof on the payment of the fee in accordance with the general act of the Central Bank governing the amount of fee to be charged for exercising the supervisory function of the Central Bank.
(3) The Central Bank shall decide on the application for granting the authorisation referred to in paragraph (1) of this Article no later than 60 days as of the day of receiving duly compiled application.
(4) The Central Bank shall refuse application for granting the authorisation to set up representative office referred to in paragraph (1) of this Article if it establishes that:
1) there is no possibility of cooperation between competent authority of the third-country credit
institution and the Central Bank, or

2) there is reasonable doubt that such third-country credit institution is in any way associated
with money laundering or terrorist financing.

(5) The authorisation referred to in paragraph (1) of this Article shall be a prerequisite for registration of representative office of the third-country credit institution in the Central Registry of Business and Other Entities.
(6) The Central Bank may withdraw authorisation to set up representative office of the third-country credit institution, if representative office of the third-country credit institution acts contrary to the regulations of Montenegro.

6. Dependant legal persons and status changes

Establishing organisational parts and dependant legal persons Article 97

(1) A credit institution may establish dependant legal persons in Montenegro and abroad, in accordance with this Law.
(2) Dependant legal persons abroad shall be established with prior authorisation of the Central Bank.

Corporate transformations

Article 98

(1) Corporate transformations, within the meaning of this Law, shall be merger by formation of a new business undertaking, merger by acquisition, and division of business undertakings, at least one of which is a credit institution.
(2) Merger by formation of a new undertaking, within the meaning of paragraph (1) of this Article, shall be the establishment of a new undertaking, whereby two or more business undertakings, are dissolved without being wound up, transfer all or parts of their assets and liabilities to the business undertaking they establish (hereinafter: new undertaking), in exchange for the issue to their members of shares or interests representing the capital of the new undertaking and, where applicable, a cash payment to these members not exceeding 10% of the nominal value of those shares or interests or, where nominal value is not determined, their accounting value. (3) Merger by acquisition, within the meaning of paragraph (1) of this Article, may be carried out as follows:
1) a merger by acquisition whereby one or more business undertakings (hereinafter: the transferring undertakings), which are dissolved without being wound up, transfer all or part of their assets and liabilities to another existing business undertaking (hereinafter: the acquiring undertaking), in exchange for the issue to the members of the transferring undertakings of shares or interests representing the capital of the acquiring undertaking and, where applicable, a cash payment not exceeding 10% of the nominal value of those shares or interests or, where nominal value is not determined, their accounting value;
2) a merger by acquisition without the issue of new shares or interests in the acquiring undertaking, where one person directly or indirectly holds all the shares or interests representing the capital of the undertakings participating in the merger by acquisition, or where the members of those

undertakings hold shares or interests in the same proportion in all the undertakings participating in the merger by acquisition;

3) a merger by acquisition of a subsidiary undertaking by its parent undertaking, whereby an undertaking which is dissolved without being wound up transfers all or part of its assets and liabilities to an acquiring undertaking which holds all the shares or interests representing the capital of that undertaking.
(4) Division, within the meaning of paragraph (1) of this Article, may be carried out as follows:
1) division by acquisition, whereby a business undertaking which is dissolved without being wound up transfers all its assets and liabilities to two or more existing business undertakings (hereinafter: the “acquiring undertakings”), in exchange for the allocation to its members of shares or interests in the acquiring undertakings and, where applicable, a cash payment not exceeding 10% of the nominal value of those shares or interests or, where nominal value is not determined, their accounting value;
2) division by formation of new undertakings, whereby a business undertaking which is dissolved without being wound up transfers all its assets and liabilities to two or more newly formed business undertakings, in exchange for the allocation to its members of shares or interests in those undertakings and, where applicable, a cash payment not exceeding 10% of the nominal value of those shares or interests or, where nominal value is not determined, their accounting value;
3) mixed division, consisting of a combination of the division by acquisition and the division by formation of new undertakings referred to in items 1) and 2) of this paragraph;
4) partial division, whereby a business undertaking being divided transfers part of its assets and liabilities to one or more recipient business undertakings, in exchange for the issue to the members of the business undertaking being divided of shares or interests in the recipient business undertakings, in the business undertaking being divided or in both the recipient business undertakings and the business undertaking being divided and, where applicable, a cash payment not exceeding 10% of the nominal value of those shares or interests or, where no nominal value is determined, their accounting value;
5) division by separation, whereby a business undertaking being divided transfers part of its assets and liabilities to one or more recipient business undertakings, in exchange for the issue to that undertaking of shares or interests in the recipient business undertakings.

Notification and assessment of the corporate transformation

Article 99

(1) A credit institution intending to carry out a corporate transformation referred to in Article 98 of this Law shall, following the adoption of the draft terms of the proposed corporate transformation and prior to its implementation, notify the Central Bank thereof where the Central Bank is responsible for supervising the entity resulting from the proposed corporate transformation, and shall, together with the notification, submit the information referred to in Article 100 paragraph (9) of this Law, while the Central Bank shall, on the basis of such notification and information, carry out an assessment of the proposed acquisition. (2) In the case of a proposed division referred to in Article 98 paragraph (4) of this Law, the notification referred to in paragraph (1) of this Article shall be submitted to the Central Bank where the Central Bank is responsible for supervising the credit institution carrying out the division, and the Central Bank shall carry out the assessment in accordance with Article 100 of this Law. (3) By way of exception to paragraph (1) of this Article, the Central Bank shall not be required to carry out an assessment of a merger involving only credit institutions belonging to the same group. (4) The Central Bank shall not carry out the assessment referred to in paragraph (1) of this Article in the case of a proposed corporate transformation for which a licence referred to in Article 66 of this Law is required. (5) The Central Bank shall, without delay and no later than 10 working days from the date of receipt of the notification referred to in paragraph (1) of this Article or of the additional information referred to in paragraph (8) of this Article, confirm in writing to the credit institution the receipt thereof.

(6) Where the proposed corporate transformation involves only credit institutions belonging to the same group, the Central Bank shall carry out the assessment within 60 working days from the date on which it confirms in writing the receipt of the notification and all information submitted with the notification in accordance with Article 100 paragraph (9) of this Law (hereinafter: the “assessment period”). (7) In the acknowledgement of receipt referred to in paragraph (5) of this Article, the Central Bank shall inform the credit institutions of the date on which the assessment period expires. (8) The Central Bank may request in writing additional information necessary to complete the assessment, specifying the information to be provided, and, where the proposed corporate transformation involves only credit institutions belonging to the same group, such request may be made no later than the expiry of the 50 working days of the assessment period. (9) The assessment period shall be suspended on the date on which the request referred to in paragraph (8) of this Article is made and shall resume on the date on which the credit institution submits a response providing all the requested information, provided that such suspension may last for no longer than 20 working days, while any subsequent requests for additional information or clarification of the information provided shall neither suspend the assessment period nor affect its expiry. (10) By way of exception to paragraph (9) of this Article, the suspension of the assessment period may last for no longer than 30 working days where at least one credit institution has its head office in a third country or is subject to the regulatory framework of a third country, or where the assessment requires the exchange of information with authorities responsible for the supervision of credit institutions in the field of the prevention of money laundering and terrorist financing. (11) A credit institution shall not carry out the proposed corporate transformation before the Central Bank has issued a positive opinion. (12) The Central Bank shall, within two working days of the completion of the assessment, provide the credit institution with a reasoned positive or negative opinion on the proposed corporate transformation, whereby the positive opinion shall specify the period within which the credit institution is required to carry out the proposed corporate transformation. (13) The credit institution shall submit the opinion referred to in paragraph (12) of this Article to the authority responsible for registering the corporate transformation, in accordance with the law governing the operation of business undertakings. (14) Where a proposed corporate transformation other than a merger involves only credit institutions and other institutions belonging to the same group, the Central Bank shall be deemed to have issued a positive opinion if it does not provide a negative opinion in writing during the assessment period.

Criteria for the assessment of mergers or divisions

Article 100

(1) On the basis of the notification and additional information referred to in Article 99 paragraphs (1) and (8) of this Law, the Central Bank shall assess the proposed corporate transformation with a view to safeguarding the prudential soundness of the credit institutions following its implementation, taking into account, in particular, the risks to which the credit institutions are or may be exposed during the implementation of the proposed corporate transformation and the risks to which the entity resulting from the proposed corporate transformation may be exposed. (2) The Central Bank shall assess the proposed corporate transformation on the basis of:
1) the repute of the credit institutions involved in the proposed corporate transformation;
2) the financial soundness of the credit institutions, in particular with regard to the type of business they carry out and the business planned for the entity resulting from the proposed corporate transformation;
3) the ability of the entity resulting from the proposed corporate transformation to meet and continue to meet the prudential requirements laid down by this Law, regulations adopted pursuant to this Law and other regulations, including regulations governing the supplementary supervision of financial conglomerates and the operation of electronic money institutions;
4) the feasibility and reliability, from a prudential perspective, of the plan for implementing the proposed corporate transformation; and

5) the existence of reasonable grounds for suspecting that, in connection with the proposed corporate transformation, money laundering or terrorist financing has been committed or attempted, is being committed, or that the proposed corporate transformation could increase the risk of such activities being committed.
(3) The Central Bank shall monitor the implementation of the plan referred to in paragraph (2) item 4) of this Article until the completion of the proposed corporate transformation.
(4) When assessing the criteria referred to in paragraph (2) item 5) of this Article, the Central Bank shall consult the authorities responsible for supervising the credit institutions in the field of the prevention of money laundering and terrorist financing.
(5) The Central Bank may issue a negative opinion on the implementation of the proposed corporate transformation only where the criteria referred to in paragraph (2) of this Article have not been met or where the information submitted by the credit institution remains incomplete following the request referred to in Article 99 paragraph (8) of this Law. (6) Where, within 30 working days from the date on which the first request for consultation was made, the Central Bank receives a negative opinion from the authority referred to in paragraph (4) of this Article, the Central Bank shall take such opinion into account when assessing the proposed corporate transformation, and such opinion may constitute a reasonable ground for the Central Bank to issue a negative opinion. (7) In the course of the assessment referred to in paragraph (1) of this Article, the Central Bank may request only information relevant to that assessment and shall not assess the proposed corporate transformation on the basis of the economic needs of the market. (8) The Central Bank shall publish on its website a list of the information required for the assessment of the proposed corporate transformation. (9) The credit institution shall submit the information referred to in paragraph (8) of this Article together with the notification referred to in Article 99 paragraph (1) of this Law, and such information shall be proportionate and appropriate to the nature of the proposed corporate transformation and relevant to the prudential assessment.

Cooperation with other competent authorities

Article 101

(1) The Central Bank shall, when carrying out the assessment referred to in Article 100 of this Law, consult the authorities responsible for the supervision of other financial sector entities where, in addition to credit institutions, the proposed corporate transformation involves:
1) a credit institution, insurance undertaking, reinsurance undertaking, investment firm or asset management company authorised in a third country or operating in a sector different from the sector in which the proposed corporate transformation is being carried out;
2) the parent undertaking of an entity referred to in item 1) of this paragraph; or
3) a legal person controlling an entity referred to in item 1) of this paragraph.
(2) The Central Bank and the other competent authorities shall, without delay, exchange, upon request or on their own initiative, all information that is material or relevant to the assessment of the proposed corporate transformation.
(3) In the opinion referred to in Article 99 paragraph (12) of this Law, the Central Bank shall state the views and reservations of the authority responsible for the supervision of one or more entities referred to in paragraph (1) of this Article.

Article 102

Deleted. (Law amending the Law on Credit Institutions, OGM 152/26).

Application of the provisions on financial holding companies and mixed financial holding companies

Article 102a

The provisions of Articles 97 to 101 of this Law shall apply to the financial holding company and mixed financial holding company that has been granted authorisation referred to in Article 73a of this Law.

Application of provisions on corporate transformations

Article 102b

(1) Matters relating to corporate transformations of credit institutions that are not regulated by Articles 97 to 102a of this Law shall be governed by the regulations governing competition protection and the operation of business undertakings.

(2) The provisions of Articles 97 to 102a of this Law shall not apply to corporate transformations carried out in the course of resolution of a credit institution in accordance with the law governing the resolution of credit institutions.

IV OPERATIONS OF CREDIT INSTITUTION

1. General provisions

Principle of liquidity and principle of solvency Article 103

A credit institution shall operate in such a manner that it is capable in any moment to pay due monetary claims in a timely manner (principle of liquidity), as well as that it is permanently capable of fulfilling all of its obligations (principle of solvency).

Governance arrangements Article 104

(1) A credit institution shall establish and implement efficient and reliable governance arrangements which shall include the following:
1) a clear organisational structure with well-defined, transparent and consistent powers and responsibilities;
2) efficient processes to identify, assess, control, monitor and report the risks it is or might be exposed to in its operations, including environmental, social and governance risks (hereinafter: the ESG risks) in the short, medium and long term, as well as concentration risk arising from exposures to central counterparties, taking into account the requirements related to the derivative contracts and opening of an active account as laid down in the regulations governing over-the counter (OTC) derivative contracts, and the requirements to carry out activities of central counterparties and trade repositories;
3) efficient internal control mechanisms, including sound administration and accounting procedures;
4) network and information systems that are set up and managed in accordance with the regulation governing digital operational resilience for credit institutions;
5) gender-neutral remuneration policies and practices that are consistent with and promote sound and efficient risk management, including the credit institution’s risk appetite in terms of ESG risks;
6) recovery plan of the credit institution.
(2) The governance arrangements referred to in paragraph (1) of this Article must be comprehensive and proportionate to the type, scope, and complexity of the operations performed by the credit institution, as well as to the risks inherent to the model of operations and activities of the credit institution, taking into account provision of this Law governing risk management, internal approaches for calculating capital requirements, supervisory measurement of internal approaches

for calculating regulatory requirements, all types of specific risks, disclosure of return on assets, requirements pertaining to management bodies, reporting requirements, internal governance arrangements in the credit institution and remuneration policy.

(3) A credit institution shall establish adequate and transparent organisational and operating structure in accordance with paragraph (1) item 1) of this Article, so that such structure:
1) enables efficient communication and cooperation at all organisational levels, including appropriate information flow in the credit institution;
2) restricts and prevents conflict of interest; and
3) establishes clear and documented decision-making process.
(4) A credit institution shall identify in a timely manner the areas of operations in which there is a potential conflict of interest and to ensure that any conflict of interest in any form is prevented in an appropriate manner.
(5) The Central Bank shall prescribe in more detail the governance arrangements of the credit institution referred to in paragraph (1) of this Article.

2. Risk management

Obligation to manage risks Article 105

(1) Risk management, within the meaning of this Law, shall be a set of procedures and methods for identifying, measuring, as well as for assessing, monitoring and controlling risk, including also reporting on the risks which the credit institution is exposed to or could be exposed to in its operations. (2) A credit institution shall include in its risk management referred to in paragraph (1) of this Article all the risks it is exposed to or could be exposed to in its operations, including also risks associated with macroeconomic environment in which the credit institution operates given the state of the business cycle, and particularly:
1) credit risk;
2) counterparty risk;
3) residual risk;
4) concentration risk;
5) securitisation risk;
6) market risk; 6a) ESG risk;
7) interest rate risk arising from non-trading book activities;
8) operational risk;
9) liquidity risk;
10) risk of excessive leverage.
(3) A credit institution shall provide adequate resources for managing all significant risks, including a suitable number of staff with necessary expert knowledge and experience in risk management, as well as in activities concerning asset valuation, use of external credit ratings and internal model for such risks. (4) For the purpose of ensuring consistent implementation of the risk management strategies and policies, the credit institution shall establish and consistently apply appropriate administrative, accounting, and other procedures for the efficient internal controls system, and particularly for:
1) calculating and reviewing the amounts of capital requirements for such risks, and
2) identifying and monitoring large exposures, changes in large exposures, and reviewing the
compliance of large exposures with policies of the credit institution regarding such type of exposure.

(5) The credit institution shall establish an appropriate risk reporting system to the management and supervisory boards, which includes all the significant risks and risk management policies, as well as their amendments.

Credit risk and counterparty risk Article 106

(1) Credit risk, within the meaning of this Law, shall be a risk of incurring losses in operations of the credit institution arising from debtor’s default towards the credit institution.
(2) Counterparty risk, within the meaning of this Law, shall be a risk of counterparty’s entry into default status prior to final settlement of cash flows of the transaction.
(3) A credit institution shall establish sound and well-defined criteria for granting of loans and clearly establish processes for granting, amending, renewing and refinancing of loans.
(4) A credit institution shall develop internal methodologies for credit risk assessment, exposure to individual debtors, securities or securitisation positions, as well as to assess credit risk at the portfolio level.
(5) The securitisation position referred to in paragraph (4) of this Article shall be deemed to be the securitisation exposure.
(6) The internal methodologies referred to in paragraph (4) of this Article shall not rely solely or mechanically on credit ratings by external credit assessment institutions, and where the capital requirements of the credit institution are based on the rating by an external credit assessment institution or based on the fact that an exposure is unrated, the credit institution must take into account other relevant information when allocating internal capital. (7) An external credit assessment institution referred to in paragraph (6) of this Article shall be a credit rating agency that is registered or certified in accordance with the European Union regulations governing credit rating agencies, or a central bank meeting the requirements from such regulations. (8) A credit institution shall establish efficient systems for the ongoing administration and monitoring of the various credit risk-bearing portfolios and exposures of the credit institution, including for identifying and managing problem loans and for making adequate value adjustments and provisions. (9) A credit institution must take into account compliance of diversification of credit portfolios with the target market and overall strategy of the credit institution. (10) A credit institution shall conduct an ex-ante assessment of any crypto-asset exposure it intends to take on, as well as an assessment of adequacy of the existing counterparty risk management processes and procedures, and report on those assessments to the Central Bank.

Residual risk Article 107

(1) Residual risk, within the meaning of this Law, shall be a risk of loss for the credit institution occurring if the results of application of the recognised credit risk mitigation techniques used by the credit institution are less effective than expected.
(2) The credit institution shall adopt and implement adequate policies and procedures for residual risk management.

Concentration risk Article 108

(1) Concentration risk, within the meaning of this Law, shall be a risk of occurrence of negative effects for the credit institution arising from the existence of individual, direct and indirect, exposure to a single person, group of connected persons or central counterparty, or arising from existence of a set of exposures related to the common risk factors. (2) The credit institution shall adopt and implement adequate policies and procedures for the concentration risk management arising from exposures to each counterparty, including central counterparties, groups of connected counterparties, and counterparties in the same economic sector, same geographic region, from the same activity or connected by the same commodity, as well as the application of credit risk mitigation techniques, and including in particular risks associated with large indirect credit exposures such as a single collateral issuer indirect exposure. (3) For crypto-assets without an identifiable issuer, the concentration risk shall be considered in terms of exposure to the crypto-assets with similar features.

(4) The Central Bank shall assess and monitor developments in the practices of credit institution concerning the management of its concentration risk arising from exposures towards central counterparties, including the plans developed in accordance with Article 55 paragraph (4) item 3) of this Law, as well as the progress made in adapting its business models to the requirements related to derivative contracts and opening of an active account as laid down in regulations governing over-the-counter (OTC) derivative contracts, and the requirements to carry out activities of central counterparties and trade repositories.

Interest rate risk arising from non-trading book activities Article 109

(1) Interest rate risk arising from non-trading book activities, within the meaning of this Law, shall be a risk resulting from potential changes in interest rates which affect the operations of the credit institution.
(2) A credit institution shall implement internal systems, use the standardised methodology or the simplified standardised methodology to identify, evaluate, manage and mitigate the risks arising from potential changes in interest rates that affect both the economic value of equity and the net interest income of a credit institution's non-trading book activities. (3) The credit institution shall establish systems to assess and monitor the risks arising from potential changes in credit spreads that affect both the economic value of equity and the net interest income of a credit institution's non-trading book activities. (4) Where a credit institution applies internal systems for evaluating risks referred to in paragraph (2) of this Article and the Central Bank assesses that they are not satisfactory, the Central Bank may require the credit institution to use the standardised methodology. (5) The Central Bank may require a small and non-complex credit institution to use the standardised methodology where it considers that the simplified standardised methodology that a credit institution applies is not adequate to capture interest rate risk arising from non-trading book activities of that credit institution. (6) The Central Bank shall prescribe the criteria for identification, evaluation, management, mitigation, assessment and monitoring of risks referred to in this Article.

Securitisation risk Article 110

(1) Securitisation risk, within the meaning of this Law, shall be the risk of occurrence of negative effects for the credit institution arising from economic transfers of one exposure or a set of exposures, or of credit risk of such exposures.
(2) The credit institution shall establish adequate policies and procedures for assessment and monitoring risks arising from securitisation transactions where the credit institutions is investor, originator or sponsor, including also reputational risks, such as those arising in relation to complex structures or products, in order to ensure that the economic substance of the transaction is fully reflected in risk assessment and decisions of the supervisory and management boards of the credit institution. (3) Securitisation referred to in paragraph (1) of this Article shall mean a transaction or scheme, whereby the credit risk associated with an exposure or pool of exposures is tranched, having both of the following characteristics:
1) payments in the transaction or scheme are dependent upon the performance of the underlying exposure or underlying pool of exposures; and
2) the subordination of tranches determines the distribution of losses during the life of the transaction or scheme;
3) transaction or scheme does not create exposures towards business undertakings in the form of specialised financing, which included exposures which possess the following characteristics: − the exposure is to an entity which was specifically established to finance or operate tangible assets or is an economically comparable exposure, − the contractual arrangement gives the lender a substantial degree of control over the assets and the income that they generate,

− the primary source of repayment of the obligation is the income generated by the assets being financed rather than the independent cash flows that such entity generates in its operations.

(4) Originator referred to in paragraph (2) of this Article means the credit institution which:
1) itself or through connected persons, directly or indirectly, was involved in the original agreement which created direct or contingent liabilities of the debtor or potential debtor giving rise to the exposure being securitised; or
2) purchases a third party's exposures for its own account and then securitises them.
(5) Sponsor referred to in paragraph (1) of this Article shall mean a credit institution other than an originator that establishes and manages an asset-backed commercial paper programme or other securitisation scheme that purchases exposures from third parties and which transfers active management of the portfolio included in such securitisation to an entity authorised to perform such activities. (6) A credit institution, which is an originator of revolving securitisation transaction involving early amortization provisions, must draw up liquidity plans to address the implications of both, scheduled and early amortisation. (7) A credit institution shall not be exposed to a credit risk of a securitisation positions if it does not fulfil the conditions under which it may be exposed to such risk, specified by the regulation referred to in Article 134 paragraph (9) of this Law.

Market risks Article 111

(1) Market risk, within the meaning of this Law, shall be the risk of incurring losses by financial instruments recorded in the balance sheet and off-balance sheet of the credit institution, caused by negative trends of market prices.
(2) Market risks shall include:
1)position risk, which implies the risk of loss resulting from change in price of a financial instrument or in case of derivative financial instrument a change in price of underlying variable; 2)foreign exchange risk, which implies the risk of loss resulting from change in foreign exchange rate and/or change in price of gold; and 3)commodity risk, which implies the risk of loss resulting from change in commodity prices. (3) The financial instruments, within the meaning of this Law, shall mean:
1) a contract that gives rise to both a financial asset of one counterparty and a financial liability or equity instrument of another counterparty;
2) any financial instrument specified in the law governing capital market;
3) derivative financial instrument;
4) primary financial instrument;
5) cash instrument.
(4) The instruments referred to in paragraph (3) items 1), 2) and 3) of this Article shall be deemed to be financial instruments only if their value is derived from the price of an underlying financial instrument or another underlying item, a rate, or an index.
(5) Credit institution shall manage all market risks it is exposed to in its operations and ensure implementation of policies and processes for establishing and measuring all important sources and effects of market risks and management of such risks.
(6) Credit institution shall:
1) take measures against the risk of shortage of liquidity when the short position falls due before the long position;
2) provide adequate internal capital for material market risks that are not subject to capital requirements;
3) have adequate internal capital, where it holds opposite positions in stock index futures which are not identical in respect of either their maturity and/or their composition.
(7) Credit institution which, in the calculating capital requirements for position risk, netted off their positions in one or more of the equity instruments constituting a stock-index against one or more positions in the stock-index future or other stock index product, must have adequate internal capital

to cover the basis risk of loss, caused by the future's or other product's value not moving fully in line with value of its underlying equity instruments.

(8) Where a credit institution conducts the underwriting procedure, it shall ensure that it holds sufficient internal capital against the risk of loss which exists between the time of initial commitment and the following working day.
(9) A credit institution shall conduct an ex-ante assessment of any crypto-asset exposure they intend to take on and of the adequacy of existing processes and procedures to manage market risks connected with those exposures, and report on those assessments without delay to the Central Bank.

ESG risks Article 111a

(1) A credit institution shall establish and implement adequate strategies, policies, processes and systems for the identification, measurement, assessment and monitoring of ESG risks over the short, medium and long term, which shall be proportionate to the scale, nature and complexity of the ESG risks of the business model and scope of the credit institution’s activities, and consider the short and medium term, and a long-term time horizon of at least 10 years. (2) A credit institution shall test its resilience to long-term negative impacts of ESG factors, both under baseline and adverse scenarios within a given timeframe, starting with climate-related factors in time intervals set by the Central Bank. (3) A credit institution shall include in the stress testing referred to in paragraph (2) of this Article a number of ESG scenarios, which are credible and based on the scenarios elaborated by international organisations, reflecting potential impacts of environmental and social changes and associated public policies on the long-term business environment. (4) The Central Bank shall assess and monitor the development of credit institutions’ practices concerning their ESG strategies and risk management, including the plans that include quantifiable targets and processes to monitor and address the ESG risks arising in the short, medium and long term. (5) The Central Bank’s assessment referred to in paragraph (4) of this Article shall in particular take into account the credit institution’s sustainability-related product offerings, its transition finance policies, related loan origination policies, and ESG-related targets and limits. (6) The Central Bank shall assess the consistency of those plans as part of the supervisory review and evaluation process of credit institutions, and it may, where it deems relevant, cooperate with the competent authorities or public bodies in charge of climate change and environmental supervision, for the purpose of obtaining data and opinions relevant for the assessment referred to in paragraph (4) of this Article. (7) A credit institution that is required to disclose information on matters relating to ESG factors in accordance with regulations governing non-financial reporting, or sustainability reporting, shall align the plans referred to in paragraph (4) of this Article with the plans under those regulations, in particular with regard to measures relating to the business model and strategy of the credit institution.

Operational risk management Article 112

(1) Operational risk, within the meaning of this Law, shall be the risk of incurring losses for the credit institution resulting from inadequate or failed internal processes or omissions, people and system errors or errors from external events, including, but not limited to, legal risk or information and communication technology (hereinafter: ICT) risk, but excluding strategic and reputational risk. (2) Credit institution shall implement policies and procedures to evaluate exposure to operational risk and manage such exposure, including outsourcing-related risks, as well as direct and indirect exposures to crypto-assets or crypto-asset service providers, as well as to cover low-frequency high-severity loss events. (3) On the basis of policies and procedures referred to in paragraph (2) of this Article, the credit institution shall identify sources of operational risk for that credit institution.

(4) A credit institution shall have in place adequate contingency and business continuity policies and plans, including ICT business continuity policies and plans and ICT response and recovery plans.
(5) The ICT plans referred to in paragraph (4) of this Article must be established, tested and managed in accordance with the regulation governing digital operational resilience for credit institutions, in order to allow the credit institution to keep operating in the event of severe business disruption and in order to limit losses incurred as a consequence of such disruption. (6) Legal risk, within the meaning of paragraph (1) of this Article, shall be the risk of loss, including, expenses, pecuniary fines, penalties or punitive damages, which a credit institution might incur as a consequence of events that result in legal proceedings, including the following:
1) supervisory actions and private settlements;
2) failure to comply with prescribed obligations;
3) action taken to avoid compliance with a prescribed obligation;
4) misconduct events that arise from intention or negligence, including inappropriate provision of financial services or the provision of inadequate or misleading information on the financial risks of products offered by the credit institution;
5) non-compliance with any requirement derived from laws or contracts, including international contracts;
6) non-compliance with any requirement set out in internal rules and codes of conduct established in accordance with the law or international rules and practices;
7) non-compliance with rules on ethics.
(7) Within the meaning of paragraph (6) item 1) of this Article, legal risk shall not comprise refunds to third parties or employees and goodwill payments due to business opportunities, provided that no breach of any rules or ethical conduct has occurred and where the credit institution has fulfilled its obligations on a timely basis, nor shall it comprise external legal costs to third parties where the event giving rise to those external costs is not an operational risk event.

Liquidity risk management Article 113

(1) Liquidity risk, within the meaning of this Law, shall be the risk that the credit institution will not be able to provide sufficient amount of funds to meet its financial liabilities as they become due, or the risk that the credit institution will have to obtain funds at considerable costs in order to meet its matured financial liabilities. (2) A credit institution shall, in proportion to their size, complexity, risk profile, scope of operation, and risk tolerance set by the management body of the credit institution, establish and implement robust strategies, policies, processes and systems for the identification, measurement and monitoring of liquidity risk, and manage this risk over appropriate time horizons, including on daily basis, so as to ensure maintaining adequate levels of liquidity buffers. (3) The credit institution shall ensure that all relevant business lines are notified of the set risk tolerance. (4) The strategies, policies, processes, and systems referred to in paragraph (2) of this Article must be tailored to business lines, currencies, branches, and legal persons and shall include adequate allocation mechanisms of liquidity costs, benefits, and risks and must reflect the credit institution's significance in each country in which it carries out business. (5) When implementing the strategies, policies, processes, and systems referred to in paragraph (1) of this Article, a credit institution shall:
1) develop methodologies for the identification, measurement, and monitoring of sources of funding positions and management of such positions, so these methodologies include the current and projected material cash-flows arising from assets, liabilities, off-balance-sheet items, including contingent liabilities and the possible impact of reputational risk;
2) distinguish between pledged and unencumbered assets that are available at all times, in particular during emergency situations, and take into account the legal person in which assets reside, the country where assets reside, the country where assets are recorded either in an appropriate registry or in an account and their eligibility and monitor how assets can be mobilised in timely manner for liquidity purposes;

3) take into account existing legal, regulatory, and operational limitations to potential transfers of liquidity and unencumbered assets amongst entities within and outside Montenegro;
4) consider different liquidity risk mitigation tools, including a system of limitations and liquidity buffers in order to be able to withstand a range of different stress events and in order to have an adequately diversified structure of sources of funding and access to funding sources, whereby such systems must be reviewed regularly;
5) consider alternative scenarios on liquidity positions and on risk mitigants and review the assumptions underlying decisions concerning the funding position at least annually, in particular scenarios related to off-balance sheet items and other contingent liabilities, including liabilities of securitisation special purpose entities and other special purpose entities in relation to which the credit institution acts as sponsor or provides material liquidity support;
6) consider the potential impact of credit institution-specific, market-wide and combined scenarios, including different time periods and varying degrees of stress conditions;
7) adjust its strategies, internal policies and limits on liquidity risk and develop effective contingency action plans, taking into account the outcome of the alternative scenarios referred to in item 5) of this paragraph;
8) have in place a liquidity recovery plan setting out adequate strategies and the measures to address possible liquidity shortfalls, including also liquidity shortfalls in relation to branches established in another state.
(6) Securitisation special purpose entity referred to in paragraph (5) item 5) of this Article (hereinafter: the SSPE) shall mean a business undertaking, trust or other entity, other than an originator or sponsor, established for carrying out a securitisation or securitisations, the activities of which are limited to activities appropriate to accomplishing that objective, the structure of which is intended to isolate the obligations of the SSPE from those of the originator. (7) A credit institution shall test the plan referred to in paragraph (5) item 8) of this Article at least annually, update it on the basis of the outcome of the alternative scenarios referred to in paragraph (5) item 5) of this Article and ensure that such plans are reported to and approved by senior management, so that internal policies and procedures can be adjusted accordingly. (8) A credit institution shall take the necessary operational measures on timely basis to ensure that liquidity recovery plans can be implemented immediately, and such operational measures shall include as a minimum holding of collateral immediately available for providing the lending support by the Central Bank; and where necessary holding of collateral in the currency of another State to which the credit institution is exposed or holding of collateral in the currency of another State to which currency it is exposed. (9) A credit institution, taking into account the nature, scale and complexity of its activities, must have liquidity risk profile that is consistent with, or adequate to the risk profile, required for a robust and well-functioning system for managing such risk. (10) The Central Bank shall monitor developments in relation to liquidity risk profile of the credit institution, and in particular in relation to product design and volumes, risk management, funding sources policies and funding sources concentrations and undertake adequate measures after having assessed that such developments may lead to the credit institution or systemic instability. (11) The Central Bank shall regulate minimum standards for liquidity risk management.

Liquidity coverage and stable funding requirements Article 114

(1) A credit institution shall hold liquid assets, the sum of the values of which covers the liquidity outflows less the liquidity inflows under stressed conditions, so as to ensure that the credit institution maintains level of liquidity buffers which are adequate to cover any possible imbalance between liquidity inflows and outflows under gravely stressed conditions over a period of thirty days. (2) During times of stressed conditions, the credit institution may use its liquid assets referred to in paragraph (1) of this Article to cover its net liquidity outflows in accordance with the procedure referred to in paragraph (5) of this Article. (3) The credit institution shall maintain the liquidity coverage ratio (LCR) at a rate of minimum 100%.

(4) The liquidity coverage ratio referred to in paragraph (3) of this Article shall be equal to the ratio of liquidity buffer of the credit institution and its net liquidity outflows under stressed conditions over a period of thirty calendar days, and shall be stated in percentage in accordance with the following formulae:
liquidity buffer 𝐿𝐿𝐿𝐿𝐿𝐿 (%) = (net liquidity outflows under stressed conditions over a period of 30 days)

(5) Where a credit institution does not meet, or expects not to meet the requirements referred to in paragraphs (1) or (9) of this Article, including during stressed conditions, it shall immediately notify the Central Bank and submit a plan for the timely restoration of compliance with paragraphs (1) or (9) of this Article. (6) In the case referred to in paragraph (5) of this Article, the credit institution shall report to the Central Bank on that non-compliance on daily basis by the end of each working day until the compliance has been restored. (7) Notwithstanding paragraph (6) of this Article, the Central Bank may, taking into account the position of the credit institution in the system and the scale and complexity of its activities, approve lower reporting frequency and extend the time frame for the submission of reports. (8) The Central Bank shall carry out supervision of the implementation of the plan referred to in paragraph (5) of this Article and, if needed, it may require its accelerated implementation. (9) The credit institution shall ensure that long-term obligations are adequately met with a diversity of instruments of stable funding sources under both normal and stressed conditions and to maintain a net stable funding ratio of at least 100%, calculated in the reporting currency for all their transactions, irrespective of their actual currency denomination. (10) The net stable funding requirement referred to in paragraph (9) of this Article shall be equal to the ratio of the credit institution's available stable funding to the credit institution's required stable funding, and shall be expressed as a percentage in accordance with the following formula:
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 = 𝑁𝑁𝑁𝑁𝑁𝑁 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟 (%) 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓

(11) Where a credit institution fails to comply with the requirement referred to in paragraph (9) of this Article, the Central Bank shall, in accordance with Article 280 of this Law, assess the need to impose specific liquidity requirements. (12) A Central Bank regulation referred to in Article 113 paragraph (11) of this Law shall also govern the following:

1) credit institution’s assets deemed to be liquid assets;
2) operational requirements related to liquid assets holding;
3) valuation of liquid assets,
4) liquidity outflows and inflows;
5) items of available stable funding and items of required stable funding;
6) calculation of liquidity coverage ratio referred to in paragraph (3) of this Article;
7) other obligations of credit institutions related to liquidity coverage and stable funding requirements.

Management of the risk of excessive leverage Article 115

(1) Risk of excessive leverage, within the meaning of this Law, shall be the risk resulting from the credit institution’s vulnerability due to existing or contingent leverage that may require unintended changes to the business plan of the credit institution, including distressed selling of assets which might result in losses or valuation adjustments to the remaining assets of the credit institution. (2) The leverage referred to in paragraph (1) of this Article shall be with respect to the own funds of the credit institution, the relative size of assets, off-balance sheet obligations and contingent obligations of the credit institution to pay or to deliver or to provide collateral, including

obligations from received sources of funding, commitments, derivatives or repurchase agreements, but excluding obligations which can only be enforced during the bankruptcy or winding up of the credit institution.

(3) A credit institution shall have policies and processes in place for the identification and monitoring of the risk of excessive leverage and for the management of such risk.
(4) The indicators for the risk of excessive leverage shall be the leverage ratio calculated in accordance with the regulation governing capital adequacy of credit institutions and mismatches between assets and liabilities of the credit institution.
(5) A credit institution shall address the risk of excessive leverage in a precautionary manner by taking due account of potential increases in the risk caused by reductions of the credit institution's own funds through expected or realised losses, in accordance with the applicable accounting rules. (6) In order to meet the requirements referred to in paragraph (3) of this Article, a credit institution must be able to withstand a numerous different stress events with respect of the risk of excessive leverage.

Leverage ratio Article 115a

(1) A credit institution shall maintain leverage ratio at 3% calculated in accordance with the methodology as specified in the regulation referred to in paragraph (3) of this Article.
(2) Leverage ratio shall be calculated as the ratio between the Tier 1 capital of the credit institution and total exposure amount of the credit institution, expressed in percentages.
(3) The Central Bank shall prescribe the manner and the methodology for calculating leverage ratio referred to in paragraphs (1) and (2) of this Article.

Managing outsourcing and outsourcing-related risks Article 116

(1) A credit institution shall have in place an adequate system to manage the outsourcing and outsourcing-related risks.
(2) The outsourcing referred to in paragraph (1) of this Article shall be deemed to include arrangement for any type of provision of services whereby the service provider carries out a process, service or activity on behalf of the credit institution that, if they have not been outsourced, the credit institution would carry out on its own. (3) The credit institution shall be prohibited to carry out outsourcing, if such outsourcing would have negative effects on:
1) continuous meeting of requirements under which the credit institution has been issued a license and other requirements referred to in this Law and regulations adopted pursuant to this Law;
2) the performance of regular activities of the credit institution;
3) the efficient risk management in the credit institution;
4) the internal controls system in the credit institution; or
5) the performance of the Central Bank’s supervisory function.
(4) The credit institutions shall notify forthwith:
1) the Central Bank before intending to outsource critical or important functions or switch service provider entrusted to carry out such functions;
2) the Central Bank of outsourced processes, services or activities that became critical or important;
3) the Central Bank of material changes and events related to the outsourcing that could have material effect on regular activities.
(5) The credit institution shall keep and update the registry of information on all outsourcing arrangements.
(6) The Central Bank shall prescribe the management of outsourcing and outsourcing-related risks, as well as the content of information, the structure and maintenance of the registry of outsourcing arrangements.

Risk management regulation Article 117

The Central Bank shall regulate the minimum standards for managing risks referred to in Articles 105 to 112 of this Law.

Classification of assets and calculation of provisions Article 118

(1) A credit institution shall classify balance sheet items and off-balance sheet items based on which it is exposed to credit risk and calculate potential loan loss provisions arising from those items.
(2) The Central Bank shall regulate the criteria for and manner of classification of assets and calculation of provisions for potential loan losses.

3. Internal controls system

Establishing internal controls system Article 119

(1) Internal controls system shall be a range of processes and procedures established for the purpose of adequate risk control, monitoring of efficiency and effectiveness of credit institution operations, reliability of its financial and other information, as well as the compliance with the regulations, internal acts, standards and codes with a view of ensuring stability of the credit institution operations. (2) A credit institution shall establish, maintain, and improve an efficient internal controls system which corresponds to the size of the credit institution and the degree of complexity of its operations, which includes as a minimum the following:
1) appropriate organisational structure;
2) organisation culture;
3) establishment of internal control functions;
4) adequate control activities and segregation of duties;
5) adequate internal controls integrated in business processes and activities of the credit institution; and
6) adequate administrative and accounting procedures.

Internal control functions Article 120

(1) A credit institution shall establish the following internal control functions:
1) risk management function;
2) compliance function; and
3) internal audit function.
(2) A credit institution management board shall, with the previous consent by the supervisory board, pass an internal act for each internal control function referred to in paragraph (1) of this Article.
(3) The Central Bank regulation shall govern the content of internal acts for each internal control function, the conditions to be met by the persons engaged in internal control functions, the content and time frames for internal control function reporting, the persons to be reported to, as well as the scale and method of the operations performed under each function referred to in paragraph (1) of this Article, including the review of adequacy and efficiency of internal control functions.

Organisational structure of internal control functions Article 121

(1) A credit institution shall establish permanent and efficient internal control functions with appropriate powers that are independent from operational functions, or the business processes and activities that incur risk, i.e., that are monitored and supervised by control functions, proportionally to the size, nature, scale, and complexity of operations in accordance with its risk profile and in the way to avoid conflict of interest.

(2) An individual internal control function may not be organised within another internal control function.
(3) Notwithstanding paragraph (2) of this Article, a credit institution may organise the performance of compliance function within the risk management or other support function, if it is appropriate to its size and nature, scale and complexity of operations, whereas the operations of such function may not be organised within the internal audit function and provided that there is no conflict of interest and that the person responsible for the risk management function and compliance function:
1) meets the suitability criteria and the requirements regarding knowledge, skills and experience required for the relevant areas; and
2) has sufficient time to perform both control functions accordance with the regulations.
(4) A credit institution shall organise the internal control functions in a way to cover all material risks it is or might be exposed to in the course of its operations, or in a way to provide that such risks are properly identified, measured and reported.
(5) A credit institution shall ensure that the risk management function has control over the efficient implementation of the risk strategy, that the internal audit function performs an independent review of the efficiency of such implementation, or that the compliance function assesses and mitigates compliance risk and ensures that the credit institution’s risk strategy takes into account compliance risk that should be adequately taken into account in all material risk management decisions. (6) A credit institution shall ensure that the internal control functions are independent of the members of the management board and of senior management, and have direct communication and report to the supervisory board of the credit institution, or that they are able to raise concerns regarding specific risk developments that might affect the credit institution, without prejudice to the responsibilities of the management board. (7) A credit institution shall organise the internal audit function as a separate section, functionally and organisationally independent from the activities that are subject to internal audit and from the other organisational parts of the credit institution. (8) A credit institution shall not fully outsource the internal control functions, but a portion of internal control functions may be entrusted to a service provider in accordance with this Law and regulations adopted pursuant to this Law.

Persons engaged in internal control functions Article 122

(1) A credit institution shall, proportionally to the size, nature, scale and complexity of its operations, ensure an adequate number of persons with corresponding professional knowledge and experience to perform each control function.
(2) A credit institution shall ensure regular professional development of the persons engaged in the control functions.
(3) If the performance of a specific internal control function is entrusted to several persons, the credit institution must nominate the head of a specific internal control function as a whole, which shall meet the suitability requirements and the requirements concerning the knowledge, skills and experience necessary to perform the duties of the relevant internal controls function. (4) The management board, with the consent of the supervisory board, shall nominate and remove the head of a specific internal control function, as well as their deputy. (5) A credit institution shall, without any delay and no later than within three working days, notify the Central Bank about the nomination of heads of specific internal control functions, and in the case of the removal of such persons on the detailed reasons for their removal. (6) The Central Bank may also require information on the reasons for the removal referred to in paragraph (5) of this Article directly from the removed person. (7) The head of a specific internal control function shall report directly to the supervisory and management board, audit committee and/or other relevant committee established by the supervisory board and such a person must be ensured to take part in the sessions of these authorities and bodies as a minimum once a year when the report of this person is discussed.

Notifying the credit institution management body and the Central Bank on breach of regulations

Article 123

(1) The head of a specific internal control function who, in the course of his operations, establishes illegality in the operations or breach of rules on risk management, or development of risk that threatens liquidity, solvency or security of credit institution business activities, shall notify, without any delay, the management board, supervisory board and the Central Bank thereof. (2) A credit institution shall have the obligation to establish appropriate internal procedures for their employees to report internally possible or actual breaches of provisions of this Law through a specific, independent and autonomous channel. (3) A credit institution shall:
1) ensure appropriate protection for employees of the credit institution who report breaches
against possible retaliation, discrimination or other types of unfair treatment;

2) ensure protection of personal data concerning both the persons who report the breaches and
the persons who are allegedly responsible for a breach, in accordance with the law governing the data protection;

3) set clear rules that ensure that confidentiality is guaranteed in all cases in relation to the
person who report the breaches committed within the credit institution, unless disclosure is required in the context of further investigation or subsequent judicial proceedings in accordance with the law.

(4) The Central Bank shall, in order to support the reporting to the Central Bank by the employees of the credit institutions on possible or actual breaches of the provisions of this Law and the regulations adopted pursuant to this Law, establish appropriate mechanisms which include:
1) the adoption of a specific procedure for the receipt of the report on breaches;
2) the protection of employees that is equivalent to the protection referred to in paragraph (3) of this Article.

4. Remuneration policy

Content of the remuneration policy Article 124

(1) A credit institution shall, in accordance with their size, internal organisation and type, scope and complexity of operations establish and apply gender-neutral total remuneration policy.
(2) The remuneration policies referred to in paragraph (1) of this Article shall cover all remunerations, fixed and variable remunerations, including salaries and discretionary pension benefits, and they shall be applied to categories of employees whose performance of assignments and activities within their powers may significantly impact the risk profile of a credit institution, and in particular:
1) supervisory and management boards of the credit institution, as well as senior management;
2) employees responsible for the functioning of internal control functions and significant business units in the credit institution;
3) employees who, within their powers, may enter into deals that have an impact on the risk profile of the credit institution; and
4) employees entitled to significant remuneration in the preceding financial year, provided that the following conditions have been met: -remuneration is equal to or greater than EUR 500,000 and equal to or greater than the average remuneration awarded to the members of the credit institution's supervisory board and management board or senior management referred to item 1) of this paragraph; -employee performs the tasks and activities within a significant business unit and those activities have a significant impact on the relevant business unit's risk profile.
(3) The supervisory board of the credit institution shall adopt and regularly review the general principles of the remuneration policies and practices and as a minimum once a year ensure a comprehensive and independent review of the compliance of actual remunerations with such policy and practice.
(4) A credit institution shall provide remuneration information and data to the Central Bank.

(5) The Central Bank shall prescribe the basic principles for defining the remuneration policies, the rules, procedures and criteria related to remuneration policies in credit institutions, including the criteria for determining significant business unit and the criteria and categories of employees who have a material impact on the risk profile of the credit institution and the manner of reporting to the Central Bank. (6) The Central Bank shall collect quantitative information on remunerations in credit institutions, broken down by business area, quantitative information on remunerations broken down by senior management and employees who have a material impact on the risk profile of the credit institution, as well as information on gender pay gap, and number of individuals with the highest remuneration in the credit institution, disclosed by credit institutions in accordance with the regulation referred to in Article 237 paragraph (2) of this Law and it shall use such data to set benchmark remuneration trends and practices of credit institutions. (7) The Central Bank shall forward to the European Banking Authority the data collected in accordance with paragraph (1) of this Article referring to number of natural persons that remunerated EUR 1,000,000 or more per financial year, including data on their job responsibilities, the relevant business area and the main elements of salary, bonuses and long-term awards, and pension insurance contributions.

Ratio between fixed and variable components of total remuneration Article 124a

(1) The credit institution shall determine the appropriate ratio between fixed and variable component of total remuneration, so that the amount of variable component of remuneration does not exceed the amount of total fixed component of remuneration of individual employee.
(2) By way of derogation from paragraph (1) of this Article, a credit institution may approve higher ratio between fixed and variable components of total remuneration, so that the amount of variable component of total remuneration does not exceed double amount of fixed component of total remuneration of an employee, provided that:
1) general shareholders assembly of the credit institution, based on the proposal of the management board reasoned in detail, adopts a decision establishing the amount of variable remuneration, the number of employees relevant for that decision and their functions, as well as expected impact that decision will have on maintaining of adequate level of capital;
2) general shareholders assembly adopts a decision referred to in item 1) of this paragraph in such a manner that shareholders or owners or members of the institution shall decide by a majority of at least 66% provided that at least 50% of the shares or equivalent ownership rights are represented or, failing that, shall decide by a majority of 75% of the ownership rights represented;
3) the credit institution has previously notified the shareholders that the proposal referred to in item 1) of this paragraph shall be presented for discussion at the general shareholders assembly;
4) the credit institution shall notify, within 30 days prior to the meeting of the general shareholders assembly where the proposal referred to in item 1) of this paragraph is to be discussed, the Central Bank thereof and the reasons for the proposed increase of the ratio between fixed and variable components of total remuneration, which is accompanied by the proof that the proposed higher amount will not have an adverse impact on meeting the requirements prescribed by this Law and the regulations adopted on the basis of this Law and in particular the requirements for maintaining adequacy of own funds;
5) employees for which higher ratio between fixed and variable components of total remuneration is proposed, where they are shareholders of credit institution at the same time, may not, directly or indirectly, vote on the decision referred to in item 1) of this paragraph.
(3) A credit institution shall notify the Central Bank, within five days, on the adoption of the decision referred to in paragraph (2) of this Article, as well as on the approved lower ratio between fixed and variable components of total remuneration, including the information on different higher ratio in the case of adoption of several different ratios between fixed and variable components of total remuneration for different categories of employees in the credit institution.

(4) The Central Bank shall use information submitted by the credit institution in accordance with paragraph (3) of this Article to determine benchmark trends and practices of credit institutions referred to in Article 124 paragraph (6) of this Law.

5. Credit institution recovery plan

Obligation to draw up a recovery plan Article 125

(1) A recovery plan establishing the measures for the improvement of the financial soundness in case that significant deterioration of the financial soundness arises, shall be adopted and submitted to the Central Bank by the following:
1) a credit institution that is not part of a group of credit institutions and a credit institution that is a subsidiary undertaking in a group of credit institutions in a third country – on an individual basis;
2) a parent credit institution in Montenegro, a credit institution referred to in Article 310 paragraph (2) of this Law and a parent credit institution in Montenegro that is a subsidiary undertaking in a group of credit institutions in a third country, for its group – on a consolidated basis;
3) a European Union parent credit institution with head office in Montenegro, on a consolidated basis;
4) a credit institution that is a member of a European Union group of credit institutions, on an individual or sub-consolidated basis, if so decided in accordance with Article 132 of this Law and instructed by a decision of the Central Bank; and
5) a credit institution excluded from a group of credit institutions in Montenegro in accordance with Article 313 of this Law – on an individual basis.
(2) The recovery plan shall contain, including but not limited to:
1) a summary of key elements of the plan and a summary of overall capacity of the credit institution for recovery, which includes a possibility of the credit institution to recover its financial position after significant deterioration;
2) a summary of any material changes to the credit institution from the time the latest recovery plan was submitted;
3) a communication and disclosure plan, along with description of the manner in which the credit institution intends to resolve possible negative market reactions;
4) a coverage of measures concerning capital and liquidity required to maintain or recover sustainability and financial position of the credit institution;
5) an assessment of timeframe for implementation of every important aspect of the plan;
6) a detailed description of important impediments to an efficient and timely implementation of the plan, while taking into account impact on the rest of the group, clients and other counterparties;
7) identification of critical functions;
8) a detailed description of processes for determining the value and marketability of the core business lines, operations and assets of the credit institution;
9) a detailed description of how the recovery planning is integrated in the corporate governance structure of the credit institution and policies and procedures governing the approval of the recovery plan and identifying persons responsible for drawing up and implementing the recovery plan in the credit institution;
10) arrangements and measures to conserve or restore the own funds of the credit institution;
11) arrangements and measures to ensure that the credit institution has adequate access to contingency funding sources, including potential liquidity sources, an assessment of available collateral and an assessment of the possibility to transfer liquidity across group entities and business lines, in order to create conditions to be able to continue with its operations and meet its obligations as they fall due;
12) arrangements and measures to reduce risks and leverage;
13) arrangements and measures to restructure obligations;

14) arrangements and measures to restructure business lines;
15) arrangements and measures required for maintaining permanent access to financial market infrastructure;
16) arrangements and measures necessary to maintain continuous functioning of the operational processes of the credit institution, including network and information systems to be established and managed in accordance with the regulation governing digital operational resilience of credit institutions;
17) preparatory arrangements to facilitate sale of assets or business lines within the timeframe appropriate for the recovery of the financial situation;
18) other measures and strategies of the credit institution management bodies to restore the financial situation and expected financial impact of such measures or strategies;
19) preparatory measures the credit institution has implemented or the plans to be implemented in order to facilitate the implementation of the recovery plan, including measures necessary to enable timely recapitalisation of the credit institution;
20) a framework of indicators representing a base for undertaking appropriate actions referred to in the recovery plan, which may be of a qualitative or quantitative nature depending on the financial position of the credit institution and shall be capable of being monitored easily.
(3) The recovery plan may not include any access to or receipt of extraordinary public financial support.
(4) The recovery plan shall include, where applicable, an analysis of how and when a credit institution may apply for the use of the Central Bank facilities and identify those assets which might qualify as collateral, as well as the measures the credit institution might take where the conditions for early intervention referred to in Article 288 of this Law are met. (5) The recovery plan shall also include appropriate conditions and procedures to ensure the timely implementation of recovery actions as well as a wide range of recovery options. (6) The recovery plan shall also contain a range of scenarios of possible severe macroeconomic and financial stress relevant to the financial condition of the credit institution, including system-wide events and stress specific to individual legal persons and to groups it belongs. (7) The recovery plan referred to in paragraph (1) of this Article shall be adopted by the management board of the credit institution with the prior consent of the supervisory board. (8) A credit institution shall apply the adopted recovery plan, whereby it may take action under its recovery plan even where the relevant indicator referred to in paragraph (2) item 20) of this Article has not been met yet, but where the management body of the credit institution considers it to be appropriate in the given circumstances, or it shall refrain from taking such actions where the management body of the credit institution does not consider it to be appropriate in the given circumstances, and in the event of such an action, it shall, without any delay, notify the Central Bank thereof. (9) The Central Bank shall prescribe the method and the scope of the application of the requirements related to the drawing up of a credit institution’s recovery plans, as well as the contents, the method and timeframes for the submission of these plans.

Recovery plan updating Article 126

(1) A credit institution shall update its recovery plan at least annually, or more frequently during a year, if so requested by the Central Bank, as well as after a change to the legal or organisational structure of the credit institution or a member of the group of credit institutions for which the recovery plan has been drawn up or after a change to their business or financial situation that might have material effect on, or necessitates a change to, the recovery plan. (2) Notwithstanding paragraph (1) of this Article, the Central Bank general act referred to in Article 125 paragraph (9) of this Law may establish a lower scale of the recovery plan and lower frequency for updates for credit institutions whose failure, due to the size, business model and connectivity with other institutions or with overall financial system, shall not have a negative effect on the financial market, other credit institutions or funding conditions.

(3) The Central Bank shall consult the Financial Stability Council before the adoption of the enabling regulation referred to in paragraph (2) of this Article, on the circumstances referred to in that paragraph.
(4) The application of the lower scale recovery plan and lower frequency for updates in accordance with paragraph (2) of this Article shall not affect the Central Bank’s powers to take crisis prevention measures or crisis management measures, in accordance with the law governing the resolution of credit institutions towards credit institutions referred to in paragraph (2) of this Article. (5) The crisis prevention measures, within the meaning of paragraph (4) of this Article shall include:
1) the exercise of powers for direct removal of deficiencies or impediments to recovery in accordance with Article 128 paragraphs (4) to (7) of this Law;
2) the application of an early intervention supervisory measures referred to in Article 289 paragraph (1) of this Law, including also a measure to introduce temporary administration;
3) the exercise of powers to address or remove impediments to resolvability of the credit institution and the exercise of powers to write down or convert relevant capital instruments in accordance with the law governing the resolution of credit institutions.
(6) A credit institution shall prescribe, document and regularly oversee the procedure for the recovery plan drawing up and updating.
(7) A credit institution shall provide the Central Bank with an insight in the full and detailed information on the procedure of the recovery plan drawing up and updating.
(8) The Central Bank shall notify the European Banking Authority of the adoption of the regulation referred to in paragraph (2) of this Article and the manner in which the lower scale and updating frequency of the recovery plan are governed.

Recovery plan assessment Article 127

(1) A credit institution shall ensure that the following conditions are met with regard to the recovery plan:
1) the implementation of the arrangements proposed in the plan ensures the restoration of the sustainability of regular business and stability of the financial position of a credit institution or a group of credit institutions for which the plan has been drawn up, in the situations of serious financial disruptions, taking into account the preparatory measures that the credit institution has taken or has planned to take, and
2) a recovery plan and options envisaged by such plan may be implemented immediately and effectively in the situations of serious financial disruptions, and shall not lead to any significant adverse effects on the financial system, even in the case of the implementation of the recovery plan in other credit institution within the same period.
(2) The Central Bank shall, within six months following the submission of the recovery plan, review if the requirements referred to in Articles 125 and 126 of this Law and the conditions referred to in paragraph 1 of this Article have been met, and notify the credit institution thereof.
(3) Where a credit institution has a significant branch in another Member State, the Central Bank shall, within the deadline referred to in paragraph 2 of this Article, also consult the relevant authority of the Member State where the head office of the branch is located to the extent it is important for such branch. (4) The recovery plan shall also be considered by the Central Bank in pursuing its function of the resolution authority for credit institutions, as specified by the law governing the resolution of credit institutions, and it shall give recommendations within the appropriate timeframe if it is of an opinion that the measures proposed by the recovery plan may adversely impact the resolvability of the credit institution, and such recommendations shall be taken into account when measures are imposed on the credit institution. (5) In the assessment referred to in paragraph 2 of this Article, the Central Bank shall take into consideration the appropriateness of capital structure and sources of funding of the credit institution depending on the level of complexity of the organisational structure and the risk profile of the credit institution.

Remedy of deficiencies in the recovery plan Article 128

(1) Where the Central Bank, within the deadline referred to in Article 127 paragraph 2 of this Law, assesses that there are material deficiencies in the recovery plan or material impediments to its implementation, it shall order the credit institution to submit, within two months as a maximum, a revised recovery plan demonstrating how those deficiencies or impediments are addressed, and before ordering the credit institution to submit the revised recovery plan, the Central Bank shall give the credit institution the opportunity to state its opinion on that order. (2) The Central Bank may extend the deadline for the submission of the revised recovery plan referred to in paragraph (1) of this Article upon a reasoned request of the credit institution, by a maximum one month. (3) Where the Central Bank assesses that the revised recovery plan does not remedy the identified deficiencies or impediments, it may order the credit institution to make precisely specified changes to the recovery plan. (4) If the credit institution fails to submit the revised recovery plan or if the Central Bank determines that the revised recovery plan does not remedy the identified deficiencies or impediments, and if it is not possible to remedy the identified deficiencies or impediments by requiring the precisely specified changes to the recovery plan, the Central Bank shall order the credit institution, within reasonable time limit, to identify changes that can be made in its business operations in order to address the deficiencies in or impediments to the implementation of the recovery plan. (5) If the Central Bank assesses that the changes in business operations identified by the credit institution in accordance with paragraph (4) of this Article adequately address the deficiencies in or impediments to the implementation of the recovery plan, it shall order the credit institution to make such changes. (6) Where the credit institution fails to identify the changes in the business operations in order to address the deficiencies in or impediments to the implementation of the recovery plan in accordance with paragraph (4) of this Article, or where the Central Bank assesses that the proposed changes will not address the deficiencies in or impediments to the implementation of the recovery plan in an adequate manner, the Central Bank may order the credit institution, in addition to other measures specified in this Law, to take any measure it considers to be necessary for the remedy of the deficiencies or impediments, which is proportionate to the seriousness of the deficiencies and impediments and the effects of the measures on the operations of the credit institution, and in particular to:
1) reduce its risk profile, including liquidity risk;
2) create the conditions for timely recapitalisation;
3) review the general strategy and organisational structure;
4) make changes to the liquidity risk management strategy, particularly with regard to the sources of funding, so as to improve the resilience of the core business lines and the critical functions of the credit institution; and
5) make changes to the credit institution governance structure.
(7) The measures referred to in paragraph (6) of this Article may be the measures that are taken on a consolidated basis, the measures taken on an individual basis by a parent credit institution in Montenegro or a credit institution referred to in Article 310 paragraph (2) of this Law or the measures taken on an individual basis by a specific member of a group of credit institutions.

Assessment of recovery plans for group of credit institutions with members of the group from Montenegro and third countries

Article 129

(1) The recovery plan that a parent credit institution referred to in Article 125 paragraph (1) item 2) of this Law adopts for its group shall include the measures that are taken on an individual basis by the parent credit institution and the measures individually taken by each subsidiary undertaking. (2) The recovery plan referred to in paragraph (1) of this Article shall aim to achieve of the stabilisation of a group of credit institutions in Montenegro as a whole or any member of that group in a situation

of a serious financial distress so as to address or remove the causes of the distress or improve the financial position of that group or members of the group, at the same time taking into account the financial position of other undertakings in that group.

(3) The Central Bank shall review if the recovery plan for the group of credit institutions meets requirements and conditions from the regulation referred to in Article 125 paragraph (9) of this Law.
(4) Where the Central Bank assesses that there are material deficiencies in the recovery plan or material impediments to the possibility for its implementation, the procedure referred to in Article 128 of this Law shall be applied.

Assessment of recovery plans for a group with members from the Member States

where the Central Bank is a consolidating supervisor Article 130

(1) A recovery plan that an EU parent credit institution with head office in Montenegro adopts for its group shall include measures that the parent credit institution implements on an individual basis and measures that each subsidiary undertaking implements on an individual basis.
(2) The recovery plan referred to in paragraph (1) of this Article shall aim to achieve the stabilisation of the group of credit institutions in Montenegro as a whole or any member of that group in a situation of serious financial distress, so as to address or remove the causes of the distress, or improve the financial position of that group or members of the group, at the same time taking into account the financial position of other undertakings in that group. (3) The Central Bank as a consolidating supervisor shall, in line with the requirements for exchange of confidential information specified by the law governing the resolution of credit institutions, forward the received recovery plans for a group of credit institutions to:
1) the competent authorities of Member States included in the college of supervisors;
2) the competent authorities of Member States where significant branches are located, if it is important for that branch;
3) the resolution authority competent for the group resolution; and
4) the resolution authority competent for subsidiary undertaking resolution.
(4) After the consultations with the competent authorities referred to in paragraph (3) of this Article, the Central Bank as a consolidating supervisor shall, together with the competent authorities of other Member States where other undertakings included in a group of credit institutions in Montenegro are established, review whether the recovery plan for the group of credit institutions meets the requirements and conditions under the regulation referred to in Article 125 paragraph (8) of this Law and in this Article. (5) The review referred to in paragraph (4) of this Article shall include the consideration of the potential impact of the recovery measures proposed by the recovery plan on the financial stability in all Member States where the group of credit institutions in Montenegro operates. (6) The Central Bank shall cooperate with the competent authorities of Member States where other subsidiary undertakings included in that group of credit institutions in Montenegro are established, for the purpose of making a joint decision concerning:
1) the review and assessment of the recovery plan for a group of credit institutions in Montenegro;
2) the request for drawing up a recovery plan on an individual basis for a specific credit institution that is part of a group of credit institutions in Montenegro;
3) the application of the measures referred to in Article 128 of this Law to an EU parent credit institution with head office in Montenegro, or a credit institution referred to in Article 310 paragraph (2) of this Law; and
4) the application of the measures referred to in Article 128 of this Law to a subsidiary undertaking in a group of credit institutions in Montenegro.
(7) The Central Bank and the competent authorities referred to in paragraph (6) of this Article shall reach a joint decision within four months following the date of the submission of the recovery plan for a group of credit institutions in Montenegro by the Central Bank the to the competent authorities of other Member States.

(8) The decision referred to in paragraph (7) of this Article must be in writing and reasoned, and the Central Bank shall forward this decision to the parent credit institution under its competence.
(9) In the procedure of reaching a joint decision referred to in paragraph (7) of this Article, the Central Bank may seek assistance from the European Banking Authority pursuant to Article 31 of the Regulation (EU) No 1093/2010. (10)Based on the decision referred to in paragraph (7) of this Article, the Central Bank shall pass a decision and forward it to the member of the group of credit institutions in Montenegro that is under its authority.

Procedure in case of deficiencies in the recovery plan Article 131

(1) If the joint decision referred to in Article 130 paragraph (7) of this Article assesses that there are material deficiencies in the recovery plan or material impediments to the possibility of its implementation, the procedure referred to in Article 128 of this Law shall be applied.
(2) If the joint decision referred to in Article 130 paragraph (7) of this Law has not been reached within the period of four months following the date of the submission of the recovery plan for a group of credit institutions in Montenegro by to the competent authorities of the Member States, where other undertakings included in the group of credit institutions in Montenegro are established, the Central Bank shall autonomously reach the decision referred to in Article 130 paragraph (6) items 1) and
3) of this Law for credit institutions under its authority, taking into account the views and reservations of those competent authorities and notify about that decision the parent credit institution under its authority, as well as those competent authorities.
(3) Notwithstanding paragraph (2) of this Article, if, within the period of four months following the date of the submission of the recovery plan for a group of credit institutions in Montenegro by to the competent authorities of Member States where other undertakings included in the group of credit institutions in Montenegro are established but before the adoption of the joint decision, the Central Bank or any competent authority of other Member State where other undertakings included in that group are established, seeks mediation of the European Banking Authority in making the joint decision concerning the assessment of the recovery plan or imposing the measures referred to in Article 130 paragraph (6) items 1), 2) or 4) of this Law and if the European Banking Authority made the decision within one month, the Central Bank shall make a decision in line with that decision, and the period of four months shall be deemed a conciliation period in terms of the Regulation (EU) No 1093/2010. (4) In the case referred to in paragraph (3) of this Article, if the European Banking Authority does not make a decision within one month, the Central Bank shall reach its own decision referred to in Article 130 paragraph (6) items 1) and 3) of this Law for credit institutions under its authority, taking into account the views and reservations of other competent authorities and notify about that decision the parent credit institution under its jurisdiction, as well as competent authorities of Member States where other undertakings included in that group of credit institutions are established. (5) The Central Bank and other competent authorities which do not disagree to the adoption of the joint decision referred to in Article 130 paragraph (6) items 2) and 4) of this Law may reach a joint decision on the recovery plan for the group of credit institutions in Montenegro, which covers the members of the group that are subject to the jurisdiction of those authorities. (6) The decisions referred to in Article 130 paragraph (6) of this Law and paragraph (5) of this Article shall be binding for all competent authorities of Member States where the undertakings included in that group of credit institutions in Montenegro are established.

Assessment of recovery plans for a group where the Central Bank is not a consolidating supervisor

Article 132

(1) If a competent authority of other Member State is at the same time a competent consolidating supervisor, the Central Bank shall, upon the request of such authority, take part in the procedure of reaching a joint decision on:

1) the review and assessment of the recovery plan for an EU group of credit institutions in accordance with Article 127 of this Law;
2) the request for drawing up a recovery plan on an individual basis for a specific credit institution that is part of an EU group of credit institutions;
3) the application of the measures referred to in Article 128 of this Law to the EU parent credit institution, and
4) the application of the measures referred to in Article 128 of this Law to a subsidiary undertaking in the EU group of credit institutions.
(2) The Central Bank may submit a request to the consolidating authority for a credit institution with head office in Montenegro that is a member of an EU group of credit institutions to draw up a recovery plan on an individual or sub-consolidated basis.
(3) The Central Bank shall take part together with competent authorities of other Member States where other undertakings included in an EU group of credit institutions are established, in the review of the fulfilment of the requirements and conditions under the regulation referred to in Article 125 paragraph (9) of this Law in the manner referred to in Article 127 of this Law. (4) The review referred to in paragraph (1) item 1) of this Article shall include the consideration of the potential impact of the recovery measures proposed by the recovery plan on the financial stability in all Member States where the EU group of credit institutions operates. (5) A joint decision referred to in paragraph (1) of this Article shall be reached within four months following the date when the consolidating supervisor provided the recovery plan for the EU group of credit institutions to other competent authorities and the Central Bank, which shall, in accordance with that decision, make a decision and forward it to the member of the EU group of credit institutions under the jurisdiction of the Central Bank. (6) In the procedure of reaching a joint decision referred to in paragraph (1) of this Article, the Central Bank may seek assistance from the European Banking Authority in accordance with Article 31 of the Regulation (EU) No 1093/2010.

Procedure in case of deficiencies in the recovery plan Article 133

(1) If the joint decision referred to in Article 132 paragraph (1) of this Law assesses that there are material deficiencies in the recovery plan or material impediments to its implementation, the Central Bank shall take part in reaching the joint decision for the purposes of the procedure referred to in Article 128 of this Law. (2) If the joint decision referred to in paragraph (1) of this Article has not been reached within the period of four months following the date when the consolidating supervisor provided to the Central Bank and other competent authorities of Member States the recovery plan for an EU group of credit institutions, the Central Bank shall reach a decision on the requirement for drawing up a recovery plan and applying the measures referred to in Article 128 of this Law for each member of the group which is under its authority, on an individual or sub-consolidated basis. (3) Notwithstanding paragraph (2) of this Article, if within the period of four months following the date of submission of the recovery plan for an EU group of credit institutions and prior to the adoption of the joint decision, the Central Bank or any competent authority of other Member State of establishment of the undertaking included in the EU group of credit institutions seeks mediation of the European Banking Authority in reaching the joint decision concerning the assessment of the recovery plan or imposing the measures referred to in Article 130 paragraph (6) items 1), 2) or 4) of this Law and if the European Banking Authority reached a decision within one month, the Central Bank shall reach a decision in line with that decision, and the period of four months shall be deemed a conciliation period in terms of the Regulation (EU) No 1093/2010. (4) In the case referred to in paragraph (3) of this Article, if the European Banking Authority fails to reach a decision within one month, the Central Bank shall reach the decision referred to in Article 132 paragraph (1) items 2) or 4) of this Law, in the manner referred to in paragraph (2) of this Article. (5) The Central Bank and other competent authorities which do not disagree to the adoption of the joint decision referred to in paragraph (1) of this Article may reach a joint decision on the recovery

plan for an EU group of credit institutions including members of the group that are under the jurisdiction of those authorities.

V CAPITAL REQUIREMENTS

1. Own funds and internal capital

Own funds Article 134

(1) A credit institution must at all times have the amount of own funds adequate to the nature, scale and complexity of operations it carries out and risks it is or might be exposed to in the course of its operations.
(2) A credit institution shall at all times meet the following own funds requirements:
1) Common Equity Tier 1 capital adequacy ratio of 4.5%;
2) Tier 1 capital adequacy ratio of 6%;
3) total capital adequacy ratio of 8%;
4) leverage ratio of 3% as established in Article 115a of this Law.
(3) A credit institution shall calculate the own funds ratios as follows:
1) Common Equity Tier 1 capital adequacy ratio as the ratio of Common Equity Tier 1 capital of the credit institution and the total risk exposure amount, expressed as a percentage;
2) Tier 1 capital adequacy ratio as the ratio of the Tier 1 capital of the credit institution and the total risk exposure amount, expressed as a percentage;
3) total capital adequacy ratio as the own funds ratio of the credit institution and the total risk exposure amount, expressed as a percentage;
(4) Own funds of a credit institution shall represent the sum of the Tier 1 capital and Tier 2 capital of the credit institution.
(5) The Tier 1 capital of a credit institution shall represent the sum of the Common Equity Tier 1 capital items and the additional Tier 1 capital items, after regulatory adjustments and reduced by deductible items, in the manner stipulated by the regulation referred to in paragraph (9) of this Article. (6) The Tier 2 capital of a credit institution shall represent the sum of capital instruments and other Tier 2 capital items reduced by deductible items, in the manner stipulated by the regulation referred to in paragraph (9) of this Article. (7) Own funds of a credit institution shall not at any time be less than the amount of the minimum initial capital required at the time a license was issued to the credit institution. (8) The credit institution shall be prohibited from making payments to holders of Common Equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital instruments, not allowed by the regulation referred to in paragraph (9) of this Article. (9) The Central Bank shall regulate the types and characteristics of financial instruments and other elements included in own funds, the calculation method of own funds, the calculation of the total risk exposure, the capital requirements for specific risks (credit, market, operational and other risks), the methods and approaches for calculating capital requirements and the calculation method of capital adequacy ratios for credit institutions.

Requirement to maintain leverage ratio buffer Article 134a

(1) A global systemically important credit institution shall, together with the requirement referred to

in Article 134 paragraph (2) item 4) of this Law, maintain a leverage ratio buffer calculated as the

G-SICI total exposure measure multiplied by 50% of the global systemically important credit

institution’s buffer rate applicable to that global systemically important credit institution in accordance with Article 160 of this Law.

(2) A global systemically important credit institution shall meet the buffer requirement referred to in paragraph (1) of this Article with Tier 1 capital only and it shall not be used towards meeting any

of the leverage-based requirements set out in this Law or regulation adopted on the basis of this Law, unless explicitly otherwise provided therein.

(3) Where a global systemically important credit institution does not meet the requirement referred to in paragraph (1) of this Article, it shall be subject to the capital conservation requirement in accordance with Article 169a of this Law.
(4) Where a global systemically important credit institution does not meet at the same time the leverage ratio buffer requirement referred to in paragraph (1) of this Article and the combined buffer requirement as defined in Article 165 of this Law, it shall be subject to the higher of the capital conservation requirements in accordance with Articles 166 and 167a of this Law.

Authorisations to meet own funds requirements Article 135

(1) A credit institution may not, without a prior authorisation of the Central Bank:
1) include, before taking a final decision confirming the final annual profit or loss of the credit institution, the profits of the current year generated in the business year or profits of the current year generated at the end of the business year in the Common Equity Tier 1 capital;
2) distribute capital instruments to the Common Equity Tier 1 capital, additional Tier 1 capital and Tier 2 capital of the credit institution;
3) distribute to the Common Equity Tier 1 capital, additional Tier 1 capital or Tier 2 capital the capital instruments with regard to which the credit institution has a discretionary right to decide about the distribution in a non-cash form or in the form of own funds instruments;
4) use conservative assessment of the underlying exposure of the credit institution to capital instruments included in indices when calculating own funds;
5) reduce instruments of Common Equity Tier 1 capital, additional Tier 1 capital, or Tier 2 capital; and
6) use internal approaches for the calculation of own funds requirements;
7) implement other activities with regard to own funds instruments for which prior authorisation of the Central Bank is required pursuant to the regulation referred to in Article 134 paragraph (9) of this Law.
(2) Internal approaches referred to in paragraph (1) item 6) of this Article shall be approaches for calculating own funds requirements as specified in the regulation referred to in Article 134 paragraph (9) of this Law, and so as follows:
1) internal ratings-based approach for calculating risk-weighted exposure amounts when calculating own funds requirements for credit risk;
2) internal models approach for standardised netting agreements, for calculating credit risk mitigation effects;
3) the alternative internal model approach for calculating own funds requirements for market risks;
4) internal model method for calculating counterparty risk exposure amount;
5) internal assessment approach for calculating risk-weighted exposure amounts in accordance with internal ratings-based approach.
(3) The Central Bank shall decide on the application for granting authorisation referred to in paragraph (1) item 6) of this Article within 90 days as of the day of duly submitted application for granting authorisation.
(4) The Central Bank shall regulate the content of the application and a procedure for obtaining authorisations referred to in paragraph (1) of this Article.

Internal capital and internal liquidity adequacy assessments Article 136

(1) A credit institution shall establish and implement an adequate, efficient and comprehensive strategy and procedures to assess and maintain on an ongoing basis the amount, type and distribution of internal capital and internal liquidity.
(2) Internal capital, within the meaning of this Law, shall be the capital considered by the credit institution as adequate for the nature and level of risks to which it is or might be exposed to in its

operations, explicitly taking into account the short, medium and long term for the coverage of ESG risks.

(3) Internal liquidity, within the meaning of this Law, shall mean the amount of financial resources of a credit institution, which is, according to internal assessment, used to cover risks and expected outflows arising from those risks to which the credit institution is exposed in its operations, and to maintain business continuity of a credit institution. (4) A credit institution shall review regularly the strategy and procedures referred to in paragraph (1) of this Article so as to ensure that they are comprehensive and proportionate to the nature, scale and complexity of the operations it carries out. (5) The Central Bank shall regulate the assessment procedure, method and deadlines for reporting to the Central Bank on the adequacy of internal capital and internal liquidity of credit institutions and calculation of internal capital and internal liquidity.

Internal approaches for calculating capital requirements Article 137

(1) A credit institution that is significant in terms of its size, internal organisation and the nature, scale and complexity of its activities shall, without prejudice to the fulfilment of the criteria laid down in the regulation of the Central Bank referred to in Article 134 paragraph (9) of this Law relating to the granting of authorisations to apply internal ratings-based approach for calculating risk-weighted exposure amounts, when calculating own funds requirements for credit risk, take adequate measures to develop internal credit risk assessment and use the internal ratings-based approach for calculating own funds requirements for credit risk where its exposures are material in absolute terms and where it has at the same time a large number of other material counterparties. (2) The credit institution referred to in paragraph (1) of this Article shall, without prejudice to the fulfilment of the criteria laid down in the regulation of the Central Bank referred to in Article 134 paragraph (9) of this Law relating to the application of internal models for calculating capital requirements for market risk, take adequate measures to develop internal market risk assessment capacity and to develop and use the internal models for calculating own funds requirements for portfolios of trading book positions, together with internal models to calculate own funds requirements for default risk where the exposures to default risk are material in absolute terms and where they have a large number of material positions in traded debt or equity instruments of different issuers. (3) Significant credit institutions shall not rely solely on external credit ratings for assessing the creditworthiness of a client or financial instrument.

Limits of using Common Equity Tier 1 capital Article 137a

(1) A credit institution shall not use Common Equity Tier 1 capital that is maintained to meet the combined buffer requirement to meet any of the requirements set out in Article 134 paragraph (2) items 1) to 3) of this Law, own funds requirement in excess of minimum requirement imposed by the Central Bank pursuant to Article 281 of this Law, or the guidance on capital above minimum requirement in accordance with Article 281b of this Law to address risks other than the risk of excessive leverage. (2) A credit institution shall not use Common Equity Tier 1 capital that it maintained to meet one of the elements of its combined buffer requirement to meet other applicable elements of its combined buffer requirement. (3) A credit institution shall not use Common Equity Tier 1 capital that is maintained to meet the combined buffer requirement, the requirements for own funds and eligible liabilities of the global systemically important credit institution set out in the regulation governing capital adequacy of credit institutions, the minimum requirements for own funds and eligible liabilities set out in accordance with the law governing the resolution of credit institutions, or the minimum requirements for own funds and eligible liabilities for the resolution entities that are part of the EU global systemically important credit institution and significant subsidiary undertaking of the non-EU global systemically important credit institution.

2. Capital buffers

Requirement to maintain a capital conservation buffer Article 138

(1) A credit institution shall, in addition to Common Equity Tier 1 capital that is maintained to meet

the capital requirement referred to in Article 134 paragraph (2) items 1) to 3) of this Law, maintain

a capital conservation buffer in a form of Common Equity Tier 1 capital equal to 2.5% of its total

risk exposure amount, calculated in accordance with the general act of the Central Bank referred

to in Article 134 paragraph (9) of this Law, both on an individual and consolidated basis in

accordance with the provisions of Articles 309 and 310 of this Law.

(2) A credit institution that fails to meet the requirement referred to in paragraph (1) of this Article shall

apply the provisions of Articles 167 and 170 of this Law and, where applicable, Article 171 of this Law.

Requirement to maintain a credit institution-specific countercyclical capital buffer Article 139

(1) A credit institution shall maintain a credit institution-specific countercyclical capital buffer in a

form of Common Equity Tier 1 capital, on an individual and a consolidated basis, in accordance

with the provisions of Articles 309 and 310 of this Law, equivalent to its total risk exposure

amount, calculated in accordance with the general act of the Central Bank referred to in Article

134 paragraph (9) of this Law, multiplied by the weighted average of countercyclical buffer rates

calculated in accordance with Article 147 of this Law.

(2) A credit institution that fails to meet the requirement referred to paragraph (1) of this Article shall

apply the provisions of Articles 167 and 170 of this Law, and, where applicable, Article 171 of this Law.

Countercyclical buffer rate Article 140

A countercyclical buffer rate, within the meaning of this Law, shall be the rate that a credit institution has to apply in order to calculate credit institution-specific countercyclical buffer, and shall be set in accordance with Article 141 or Article 145 of this Law, or by a designated third-country authority, as the case may be.

Setting the countercyclical buffer rate for Montenegro Article 141

(1) The Central Bank shall be a designated authority responsible for setting the countercyclical buffer rate for the territory of Montenegro and shall calculate a buffer guide on a quarterly basis, to guide judgment in setting the countercyclical buffer rate in accordance with paragraphs (2) and (3) of this Article. (2) The buffer guide referred to in paragraph (1) of this Article shall be the benchmark capital buffer rate calculated by the Central Bank using the guidance of the European Systemic Risk Board on setting the countercyclical buffer rate. (3) The buffer guide referred to in paragraph (1) of this Article shall:
1) in a meaningful way reflect the credit cycle and the risks due to excess credit growth in Montenegro;
2) take into account specificities of the economy of Montenegro, and
3) be based on the deviation of the credit-to-GDP ratio from its long-term trend, taking into account, inter alia: -an indicator of growth of levels of credit within Montenegro and, in particular, an indicator reflective of the changes in the ratio of credit granted in Montenegro to GDP, -relevant guidance by the European Systemic Risk Board concerning the measurement and calculation of deviation of the credit-to-GDP ratio from its long-term trend and the calculation of benchmark guides for countercyclical buffer.

(4) The Central Bank shall assess on a quarterly basis the intensity of cyclic systemic risk and adequacy of countercyclical buffer rate for the territory of Montenegro and as needed, set or adjust the countercyclical buffer rate, and in so doing it shall take into account:
1) the buffer guide calculated in accordance with paragraphs (1) and (3) of this Article;
2) the relevant guidance by the European Systemic Risk Board;
3) recommendations of the European Systemic Risk Board on the setting of a countercyclical buffer rate, and
4) other variables that the Central Bank considers relevant for addressing cyclical systemic risk.
(5) The decision governing the setting of or adjusting the countercyclical buffer rate shall include the countercyclical buffer rate and the commencement date for the application of that rate.

Amount of countercyclical buffer rate Article 142

(1) The Central Bank shall set the countercyclical buffer rate between 0% and 2.5% of the total risk exposure amount, calibrated in steps of 0.25 percentage points or multiples of 0.25 percentage points.
(2) Notwithstanding paragraph (1) of this Article, the Central Bank may set a countercyclical buffer rate in excess of 2.5% of the total risk exposure amount, if justified based on the assessment referred to in Article 141 paragraph (4) of this Law.
(3) The rate referred to in paragraph (2) of this Article shall be applied to the calculation of a credit institution-specific countercyclical buffer rate in accordance with Articles 147 and 148 of this Law.

Application of the countercyclical buffer rate Article 143

(1) Where the Central Bank sets the countercyclical buffer rate above zero (0%) for the first time, or where it increases the prevailing countercyclical buffer rate, it shall set the date from which the credit institutions are to commence applying that rate for the purposes of calculating credit institution-specific countercyclical buffer rate. (2) The date referred to in paragraph (1) of this Article shall be no later than 12 months after the date when the countercyclical buffer rate is announced in accordance with Article 144 of this Law. (3) Notwithstanding paragraph (2) of this Article, the Central Bank may set the date for the commencement of the application of the countercyclical buffer rate less than 12 months from the date it is announced, if it is justified on the basis of exceptional circumstances. (4) When the Central Bank reduces the existing countercyclical buffer rate, including reducing the rate to 0%, it shall also set in the announcement referred to in Article 144 of this Law an indicative period during which no increase of the rate is expected, however that indicative period shall not be binding the Central Bank.

Publishing the countercyclical buffer rate for Montenegro Article 144

(1) The Central Bank shall publish the decision referred to in Article 141 paragraph (5) of this Law in the “Official Gazette of Montenegro” and post on its website on a quarterly basis in particular the following information:
1)the applicable countercyclical buffer rate;
2)the relevant credit-to-GDP-ratio and its deviation from the long-term trend; 3)the buffer guide referred to in Article 141 paragraph (2) of this Law; 4)a justification for setting the applicable countercyclical buffer rate; 5)where the countercyclical buffer rate is increased, the date from which the credit institutions shall commence the application of that increased rate for the purposes of calculating the credit institution-specific countercyclical capital buffer; 6)where the date referred to in item 5) of this paragraph is less than 12 months after the date of publication of the announcement, a reference to the exceptional circumstances that justify that shorter deadline for application; and

7) where the countercyclical buffer rate is decreased, the indicative period during which no increase in the rate is expected, together with a justification for that period.
(2) The Central Bank shall ensure, if possible, to adjust the timing of the notification referred to in paragraph (1) of this Article to the timing of the notifications by designated authorities from other Member States.
(3) The Central Bank shall notify the European Systemic Risk Board on each setting or changing of the countercyclical buffer rate and the information referred to in paragraph (1) of this Article.

Recognition of the countercyclical buffer rates in excess of 2.5% Article 145

(1) Where a designated authority of other Member State has set a countercyclical buffer rate in excess of 2.5% of the total risk exposure amount, the Central Bank may decide to recognise that rate for the purposes of the calculation of the credit institution-specific countercyclical buffer.
(2) Where the Central Bank recognises the countercyclical buffer rate in accordance with paragraph (1) of this Article, it shall publish that decision in the Official Gazette of Montenegro and on its website, whereby the notification posted on the website shall include at least the following information:
1) the applicable countercyclical buffer rate;
2) the Member State or third countries to which the rate referred to in paragraph (1) of this Article applies;
3) where the rate is increased, the date from which the credit institutions shall commence the application of that increased rate for the purposes of calculating the credit institution-specific countercyclical buffer; and
4) where the date referred to in item 3) of this paragraph is less than 12 months after the date of the notification in accordance with this paragraph, the justification of the exceptional circumstances that justify that shorter deadline for the commencement of application of the increased countercyclical buffer rate.
(3) The decision referred to in paragraph (1) of this Article shall include the countercyclical buffer rate, the name of the State subject to the application of that rate and the commencement date for the application.

Deciding on countercyclical buffer rate for third countries Article 146

(1) For the purposes of calculating the countercyclical buffer for credit institutions exposed to third

countries, the Central Bank may determine: 1) the countercyclical buffer rate for the third country territory, if the designated third-country

authority has not set and published the countercyclical buffer rate for that country, or

2) the countercyclical buffer rate for the third country territory that is different from the rate that

has been set and published by the designated third-country authority, where it reasonably considers

that the rate set by the designated third-country authority is not sufficient to protect the credit

institutions from Montenegro appropriately from the risks of excessive credit growth in that

country, or the designated authority has notified the Central Bank that the countercyclical buffer

rate is not sufficient for that purpose.

(2) In the case referred to in paragraph (1) item 2) of this Article, the Central Bank shall not set a

countercyclical buffer rate below the level set by the designated third-country authority unless that

rate exceeds 2.5% of the total risk exposure amount of credit institutions that have credit exposures in that third country.

(3) Where the Central Bank sets a countercyclical buffer rate for a third-country territory in accordance

with paragraphs (1) and (2) of this Article higher than the existing applicable countercyclical buffer

rate, it shall set the date from which the credit institutions from Montenegro shall commence the

application of that rate for the purposes of calculating their credit institution-specific countercyclical buffer.

(4) The date referred to in paragraph (3) of this Article shall be no later than 12 months from the date

of publishing of the increased countercyclical buffer rate in accordance with paragraph (5) of this

Article, and if it is justified on the basis of exceptional circumstances, the Central Bank may set a

deadline less than 12 months after the date of publication referred to in paragraph (5) of this Article.

(5) The Central Bank shall publish the countercyclical buffer rate for a third-country territory set in

accordance with paragraph (1) or (2) of this Article in the “Official Gazette of Montenegro” and

on its website, whereby the notification posted on the website shall contain in particular the following:

1) the countercyclical buffer rate and the name of the third country to which it applies;

2) a justification for the rate level;

3) where the countercyclical buffer rate is set above 0% for the first time or if the existing rate

is increased, the date from which the credit institutions shall commence the application of the

rate for the purposes of calculating their credit institution-specific countercyclical buffer, and

4) where the date referred to in item 3) of this paragraph is less than 12 months after the date

of the publication, the justification of the exceptional circumstances that justify the shorter

deadline for the commencement of the application of the set rate.

(6) The decision referred to in paragraph (1) of this Article shall include the countercyclical buffer rate

and the commencement application date of that rate.

(7) When recognising the countercyclical buffer rate referred to in Article 145 of this Law, as well as

when deciding on the amount of the of the countercyclical buffer, the Central Bank shall take into

account the recommendations of the European Systemic Risk Board.

Calculation of credit institution-specific countercyclical buffer rates Article 147

(1) A credit institution shall calculate the credit institution-specific countercyclical buffer rate as the weighted average of the countercyclical buffer rates that apply in Montenegro, other countries where the relevant credit exposures of the credit institution are located or are applied in accordance with Article 146 of this Law. (2) A credit institution shall, in order to calculate the weighted average referred to in paragraph (1) of this Article, apply to each applicable countercyclical buffer rate its total capital requirements for credit risk that relates to the relevant credit exposures within the territory in question, divided by its total capital requirements for credit risk that relates to all relevant credit exposures of the credit institution. (3) A credit institution shall ensure appropriate records of applicable countercyclical buffer rates for the countries where relevant credit exposures are located and establish procedures related to timely updating of these records. (4) The Central Bank shall stipulate the method of calculating the specific countercyclical buffer rates referred to in paragraph (1) of this Article, relevant credit exposures, and methods for the identification of the geographic location of relevant credit exposures.

Application of the countercyclical buffer rate in excess of 2.5% Article 148

(1) If the Central Bank sets, in accordance with Article 142 paragraph (2) of this Law, a countercyclical buffer rate in excess of 2.5% of total risk exposure amount, a credit institution shall, for the purposes of the calculation of the credit institution-specific countercyclical buffer rate referred to in Article 147 of this Law, apply the countercyclical buffer rate set by the Central Bank for relevant credit exposures located in Montenegro. (2) If the designated authority of another state sets a countercyclical buffer rate in excess of 2.5% of total risk exposure amount, a credit institution from Montenegro with relevant credit exposures located in that state shall, for the purposes of the calculation of the credit institution-specific countercyclical buffer rate referred to in Article 147 of this Law for these exposures, apply the rate set by the designated authority of such state if that rate has been recognised by the Central Bank in accordance with Article 145 of this Law, or the rate of 2.5% of the total risk exposure amount if the Central Bank has not recognised the rate that is in excess of 2.5% set by the designated authority of that state, in the manner set pursuant to Article 145 of this Law.

(3) A credit institution shall apply the countercyclical buffer rate referred to in paragraphs (1) and (2) of this Article when calculating the credit institution-specific countercyclical buffer rate referred to in Article 147 of this Law for the purposes of the calculation of part of the consolidated capital that relates to that credit institution.

Commencement of application of the countercyclical buffer rate for the purpose of the

calculation of the credit institution-specific countercyclical buffer rate Article 149

(1) In case of increased countercyclical buffer rate for the territory of Montenegro, the application of that rate for the purpose of the calculation of the credit institution-specific countercyclical buffer rate referred to in Article 147 of this Law shall commence on the date specified in the notification referred to in Article 144 paragraph (1) item 5) of this Law. (2) In case of increased countercyclical buffer rate for the territory of the Member State, the application of that rate for the purpose of the calculation of the credit institution-specific countercyclical buffer rate referred to in Article 147 of this Law shall commence on the date specified in the notification referred to in Article 145 paragraph (2) item 3) of this Law. (3) In case of increased countercyclical buffer rate for a third country territory, the application of that rate for the purpose of the calculation of the credit institution-specific countercyclical buffer rate referred to in Article 147 of this Law shall commence upon the expiry of 12 months after the designated third-country authority announced a change in the rate, irrespective of whether that authority requires credit institutions with head offices in that third country to apply the changed rate within a shorter period. (4) The publication date of the change in the countercyclical buffer rate for a third country territory, within the meaning of paragraph (2) of this Article, shall be the date when the designated third-country authority announced the change in the rate in accordance with the regulations of that country. (5) Notwithstanding paragraph (3) of this Article, in case of increased countercyclical buffer rate, if the Central Bank sets a countercyclical buffer rate for a third country in accordance with Article 146 paragraphs (1) and (2) of this Law or recognises a countercyclical buffer rate for a third country in accordance with Article 145 of this Law, that rate shall be applied for the purpose of the calculation of the credit institution-specific countercyclical buffer rate referred to in Article 147 of this Law starting from the date specified in the notification referred to in Article 145 paragraph (2) item 3) or Article 146 paragraph (5) of this Law. (6) In case of decreased countercyclical buffer rate, for the purpose of the calculation of the credit institution-specific countercyclical buffer rate referred to in Article 147 of this Law that rate shall be applied from the publication date of the decision on the rate decrease.

Structural systemic risk buffer Article 150

(1) The Central Bank shall set the rate or rates and the method of maintaining the structural systemic risk buffer for all credit institutions or one or more subgroups of credit institutions, and for all or for one or more subgroups of exposures in accordance with paragraph (4) of this Article, in order to prevent and mitigate structural systemic risks not covered by the regulation referred to in Article 134 paragraph (9) of this Law and Article 139 and Articles 158 to 165 of this Law and. (2) Structural systemic risk, within the meaning of this Law, shall be a long-term non-cyclical systemic or macro-prudential risk, including macroprudential or systemic risks arising from climate change, or risk of disruption in the financial system with the potential to have serious negative consequences to the financial system and the economy in Montenegro. (3) The Central Bank may not set the structural systemic risk buffer rate referred to in paragraph (1) of this Article for risks covered in Article 139 and Articles 158 to 165 of this Law and risks that are fully covered by the calculation of total risk exposure amount (TREA) set out in the regulation referred to in Article 134 paragraph (9) of this Law. (4) A structural systemic risk buffer may apply to:
1) all exposures located in Montenegro;

2) the following sectoral exposures in Montenegro: -all retail exposures to natural persons (retail) which are secured by residential property; -all exposures to legal persons which are secured by mortgages on commercial immovable property; -all exposures to legal persons excluding those specified in indent 2 of this item; -all exposures to natural persons excluding those specified in indent 1 of this item;
3) all exposures located in other Member States, in accordance with Article 151 paragraph (6) and Article 153 paragraphs (9) and (10) of this Law;
4) sectoral exposures, as identified in item 2) of this paragraph, in other Member States for the purpose of recognising a buffer rate set by another Member State in accordance with the national laws;
5) exposures located in third countries;
6) subgroups of any of the exposure categories identified in item 2) of this paragraph.
(5) The Central Bank regulation shall govern in more detail the method of calculating the structural systemic risk buffer referred to in paragraph (1) of this Article and the manner of application of the structural systemic risk buffer referred to in Article 151 of this Law.
(6) Where a systemic risk buffer applies to the total risk exposure amount of a credit institution, and where that credit institution is required to apply the output floor set out in accordance with regulation referred to in Article 134 paragraph (9) of this Law, the Central Bank shall review, by a date no later than the date of the review referred to in Article 151 paragraph (5) of this Law, the credit institution’s systemic risk buffer requirement in order to ensure that it is justified.

Method of setting the structural systemic risk buffer rate Article 151

(1) The Central Bank shall set the structural systemic risk buffer rate for all exposures or one or more

subgroups of exposures in accordance with Article 150 paragraph (4) of this Law, for all credit

institutions, or one or more subgroups of those institutions for which the Central Bank is in charge

in accordance with this Law, and it shall set that rate by steps of adjustment of 0.5 percentage point,

whereas that rate may be different for different subgroups of credit institutions and different exposures.

(2) If the Central Bank decides to apply the structural systemic risk buffer rate to the exposures of

credit institutions in Member States, that buffer rate must be the same for all Member States in the European Union.

(3) When setting the required structural systemic risk buffer, the Central Bank shall take into account

that the maintaining of the buffer must not entail disproportionate adverse effects on the whole or

parts of the financial system of Member States or of the European Union as a whole forming or

creating an obstacle by creating obstacles to the functioning of the internal market.

(4) By way of derogation from paragraph (2) of this Article, the structural systemic risk buffer rate for

the exposures of credit institutions in a particular Member State may be different only where the

Central Bank, in accordance with Article 157 of this Law, has recognised the structural systemic

risk buffer rate set by that Member State.

(5) The Central Bank shall review the obligation of maintaining the structural systemic risk buffer at least every second year.

(6) Where the Central Bank decides to apply the structural systemic risk buffer rate on the exposures

of credit institutions in other Member States, that rate must be the same for all exposures in the

European Union, unless the Central Bank has recognised the structural systemic risk buffer rate set

by another Member State in accordance with applicable provisions of the national laws of that Member State.

Requirement to maintain a structural systemic risk buffer Article 152

(2) A credit institution shall maintain a structural systemic risk buffer in the form of Common Equity Tier 1 capital in accordance with Article 150 of this Law, on an individual, consolidated, or sub-consolidated basis, when applicable.

(3) The credit institution that fails to meet the requirement referred to in paragraph (1) of this Article shall be subject to the provisions of Articles 167 and 170 of this Law, and, if applicable, Article 171 of this Law, and if the application of these provisions fails to result in satisfactory improvement of the Common Equity Tier 1 capital of the credit institution for the purposes of relevant structural systemic risk, the Central Bank may impose additionally other measures in accordance with this Law.

Notifying on a structural systemic risk buffer Article 153

(1) Where the Central Bank sets or resets the structural systemic risk buffer rate, it shall notify the

European Systemic Risk Board no later than one month before the publication of the decision

pursuant to Article 156 of this Law. (2) The notification referred to in paragraph (1) of this Article shall include:

1) the information on the systemic or macro-prudential risk in Montenegro;

2) the reasons why the dimension of the systemic or macro-prudential risks threatens the stability

of the financial system in Montenegro, justifying the structural systemic risk buffer rate;

3) the justification of why the Central Bank considers that the structural systemic risk buffer is

likely to be effective and proportionate to mitigate the risk;

4) an assessment of the likely positive or negative impact of the structural systemic risk buffer

on the internal market, based on available information;

5) the structural systemic risk buffer rate or rates that the Central Bank intends to prescribe, the

exposures to which such rates shall apply and the credit institutions which shall be subject to such rates;

6) where the structural systemic risk buffer rate applies to all exposures, a justification of why

the Central Bank considers that the structural systemic risk buffer is not duplicating the

functioning of the other systemically important credit institution’s buffer provided for in Article 163 of this Law.

(3) Where a credit institution to which one or more structural systemic risk buffer rates apply is a

subsidiary undertaking the parent undertaking of which has its head office in Member State, the

Central Bank shall notify the designated authority of that member State thereof, in accordance with

paragraphs (1) and (2) of this Article.

(4) The Central Bank shall, in accordance with paragraphs (1) and (2) of this Article, notify the

European Systemic Risk Board also in the case when the structural systemic risk buffer rate applies

to exposures in third countries.

(5) Where a structural systemic risk buffer rate or rates that the Central Bank has set for one or more

subgroups of exposures referred to in Article 151 of this Law subject to one or more structural

systemic risk buffers rate or rates does not result in a combined structural systemic risk buffer rate

higher than 3% for any of those exposures, the Central Bank shall notify the European Systemic

Risk Board in accordance with paragraphs (1) and (2) of this Article one month before the

publication of the decision referred to in Article 156 of this Law.

(6) The recognition of a structural systemic risk buffer rate set by another Member State in accordance

with Article 157 of this Law shall not count towards the 3% threshold referred to in paragraph (5)

of this Article.

(7) Where it sets or resets the structural systemic risk buffer rate or rates for one or more subgroups of

exposures referred to in Article 151 of this Law to which one or more structural systemic risk

buffers apply, which results in a combined structural systemic risk buffer rate higher than 3% and

not exceeding 5% for any of those exposures, the Central Bank shall request in the notification

referred to in paragraphs (1) and (2) of this Article the opinions of the European Commission and

the European Systemic Risk Board. (8) Where the opinions of the European Commission and the European Systemic Risk Board referred

to in paragraph (7) of this Article is negative, the Central Bank shall make decision in accordance

with that opinion or give reasons for not accepting and not acting in accordance with that opinion.

(9) Where the Central Bank intends to set or reset a structural systemic risk buffer rate or rates for one

or more subgroups of exposures referred to in Article 150 paragraph (4) of this Law subject to one

or more structural systemic risk buffers which results in a combined structural systemic risk buffer

rate higher than 5% for any of those exposures, the Central Bank shall seek the authorisation of the

European Commission before adopting that decision.

(10) The Central Bank may apply the rate referred to in paragraph (9) of this Article after the European

Commission has authorised the implementation of that rate.

(11) Where the decision of the Central Bank to set the structural systemic risk buffer rate results in a

decrease or no change from the previously set buffer rate, the Central Bank shall comply with

paragraphs (1) to (10) of this Article.

(12) The recognition of a systemic risk buffer rate set by another Member State in accordance with

Article 157 of this Law shall not count towards the thresholds referred to in paragraphs (7) and (9)

of this Article.

Procedure in case of disagreement of Member States with the proposed structural systemic risk buffer

Article 154

(1) Where the application of one or more systemic risk buffer rates relates to one or more credit institutions from Montenegro that is a subsidiary of a parent undertaking established in a Member State, the appropriateness of that buffer or buffers shall be considered by the European Commission and the European Systemic Risk Board and stated in the opinions provided by those authorities. (2) In the case referred to in paragraph (1) of this Article, where the designated authorities of the Member State that are in charge for subsidiary undertaking and parent undertaking disagree with the proposed buffer rate or proposed structural systemic risk buffer rates applicable to that credit institution and if the European Commission and the European Systemic Risk Board have issued negative opinions on the proposed measure, the Central Bank shall not apply the proposed buffer or buffers, but it may request mediation of the European Banking Authority in accordance with Article 19 of the Regulation (EU) No 1093/2010. (3) The Central Bank shall postpone the adoption of the decision on the structural systemic risk buffer until the European Banking Authority has taken decision in the mediation procedure referred to in paragraph (2) of this Article and take a decision on the structural system risk buffer or buffers in line with that decision. (4) The Central Bank may disagree when the relevant designated authority of the Member State notifies it on the application of the structural systemic risk buffer referred to in Article 153 paragraph (3) of this Law related to the credit institution that is a subsidiary undertaking from that Member State whose parent undertaking has the head office in Montenegro.

Article 155

Deleted. (Law amending the Law on Credit Institutions, OGM 24/25)

Publishing the structural systemic risk buffer Article 156

(1) Upon the fulfilment of the conditions for the application of the structural systemic risk buffer, the Central Bank shall publish the decision on setting or resetting of the structural systemic risk buffer in the “Official Gazette of Montenegro” and on its website, whereby the notification to be posted on the website shall include in particular:

1) the structural systemic risk buffer rate or rates;

2) credit institutions to which the structural systemic risk buffer applies, and exposures to which

that structural systemic risk buffer rate or rates apply;

3) a justification for setting the structural systemic risk buffer, save in the case where the

publication of information from such justification might threaten the stability of the financial system of Montenegro;

4) the date from which the credit institutions must apply the structural systemic risk buffer, and

5) the names of the countries where exposures located in those countries are subject to the

application of the structural systemic risk buffer.

(2) The decision referred to in paragraph (1) of this Article shall include the structural systemic risk

buffer rate or rates, the designation of credit institutions to which the structural systemic risk buffer

applies, the application commencement date and the names of the states to which the structural systemic risk buffer applies.

Recognition of a structural systemic risk buffer rate Article 157

(1) The Central Bank may decide to recognise the structural systemic risk buffer rate set by the designated authority of another Member State, and in this case, it shall prescribe the application of that buffer rate to the credit institutions from Montenegro for exposures located in that Member State and shall publish such decision in the “Official Gazette of Montenegro” and on its website. (2) The Central Bank shall notify the European Systemic Risk Board on recognising the rate referred to in paragraph (1) of this Article. (3) When deciding whether to recognise structural systemic risk buffer rate referred to in paragraph (1) of this Article, the Central Bank shall take into consideration the information presented by that Member State regarding the setting of the structural systemic risk buffer. (4) Where the Central Bank, in accordance with paragraph (1) of this Article, recognises a structural systemic risk buffer rate set by the designated authority of another Member State in accordance with the national laws transposing the requirements referred to in the provisions of Article 133 paragraphs 9 and 13 of the Directive 2013/36/EU, that buffer may be added to the structural systemic risk buffer applied in accordance with Articles 150 to 154 of this Law, provided that those buffers address different risks, and where the buffers address the same risks, the credit institutions shall apply only the higher buffer. (5) If the Central Bank sets the structural systemic risk buffer rate, it may ask the European Systemic Risk Board to issue a recommendation as referred to in Article 16 of the Regulation (EU) No 1092/2010 to one or more Member States to recognise that buffer rate for exposures located in Montenegro.

Global systemically important credit institutions Article 158

(1) The Central Bank shall be a designated authority authorised to identify on consolidated basis the global systemically important credit institutions (G-SICIs) which have been licensed by it.
(2) A global systemically important credit institution referred to in paragraph (1) of this Article may be:
1) a group in which parent undertaking is an EU parent credit institution with head office in Montenegro, an EU parent financial holding company with head office in Montenegro or an EU parent mixed financial holding company with head office in Montenegro, or
2) a credit institution that is not a subsidiary undertaking of an EU parent credit institution, an EU parent financial holding company or an EU parent mixed financial holding company.

Methodology for identifying systemically important credit institution Article 159

(1) The methodology for identifying global systemically important credit institution shall be based on

the following categories that consist of quantifiable indicators and which shall receive an equal weighting:

1) size of the group; 2) interconnectedness of the group with the financial system;

3) replaceability of the services or of the financial infrastructure provided by the group; 4) complexity of the group;

5) cross-border activity of the group, including cross-border activity between Montenegro and

Member States, as well as between Montenegro and third countries.

(2) The application of the methodology referred to in paragraph (1) of this Article shall produce an

overall score for each entity referred to in Article 158 paragraph (2) of this Law being assessed,

which allows global systemically important credit institutions to be identified and allocated into

five sub-categories in accordance with paragraphs (6) and to (8) of this Article and Article 160

paragraph (2) of this Law. (3) The additional identification methodology for global systemically important credit institutions shall

be based on the following categories which shall receive an equal weighting and shall consist of quantifiable indicators:

1) categories referred to in paragraph (1) items 1) to 4) of this Article;

2) cross-border activity of the group, excluding the group's activities across participating

Member States as referred to in Article 4 of Regulation (EU) No 806/2014.

(4) For the categories referred to in paragraph (3) item 1) of this Article, the indicators shall be the same

as the corresponding indicators determined pursuant to paragraph (1) of this Article.

(5) The additional identification methodology for global systemically important credit institutions

referred to in paragraph (3) of this Article shall produce an additional overall score for each entity

as referred to in Article 158 paragraph (2) of this Law assessed, on the basis of which the Central

Bank may take one of the measures referred to in Article 160 paragraph (3) item 3) of this Law.

(6) The Central Bank shall determine the lowest boundary and the boundaries between each subcategory

of global systemically important credit institutions based on the overall scores obtained applying

the methodology referred to in paragraph (1) of this Article.

(7) The cut-off scores between adjacent sub-categories shall be defined clearly and must adhere to the

principle that there is a constant linear increase of systemic significance, between each sub-

category resulting in a linear increase in the requirement of additional Common Equity Tier 1

capital, with the exception of the fifth and each additional higher sub-category.

(8) A systemic importance, within the meaning of paragraph (7) of this Article, shall be the expected

impact exerted by the global systemically important credit institution distress on the global financial market.

(9) The Central Bank shall review annually the identification of global systemically important credit

institutions and their allocation into the respective sub-categories and report the result to the global

systemically important credit institutions and the European Systemic Risk Board, and post on its

website the updated list of identified global systemically important credit institutions as well as the

sub-categories into which they are allocated.

Maintaining of G-SICI buffer Article 160

(1) A global systemically important credit institution shall, on a consolidated basis, maintain a global systemically important credit institution buffer which shall consist of Common Equity Tier 1 capital that corresponds to the sub-category referred to in paragraph (2) of this Article to which that global systemically important credit institution is allocated. (2) Global systemically important credit institutions shall maintain the buffer referred to in paragraph (1) of this Article in the amount of:
1) 1% of the total risk exposure amount, as calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law, for the first sub-category, which is the lowest;
2) 1.5% of the total risk exposure amount, as calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law, for the second sub-category;
3) 2% of the total risk exposure amount, as calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law, for the third sub-category;
4) 2.5% of the total risk exposure amount, as calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law, for the fourth sub-category; and
5) 3.0% of the total risk exposure amount, as calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law, for the fifth sub-category, which is the highest.
(3) Using sub-categories and cut-off scores referred to in paragraph (2) of this Article and in accordance with the methodology referred to in Article 159 of this Law, the Central Bank may, in the exercise of supervisory judgement:

1) re-allocate a global systemically important credit institution from a lower sub-category to a higher sub-category;
2) allocate an entity referred to in Article 158 paragraph (2) of this Law that has an overall score that is lower than the cut-off score of the lowest sub-category to that lowest or to a higher subcategory, thereby designating it as a global systemically important credit institution;
3) taking into consideration the Single Resolution Mechanism, based on additional overall score as determined in accordance with Article 159 paragraphs (3) to (5) of this Law, reallocate global systemically important credit institution from higher sub-category into the lower sub-category.
(4) The Central Bank shall notify the European Systemic Risk Board on the names of the global systemically important credit institutions and the respective sub-categories to which they are allocated, and disclose such information to the public on its website.
(5) The notification referred to in paragraph (4) of this Article shall contain full reasons why supervisory judgement has been exercised or not in accordance with paragraph (3) items 1), 2) and 3) of this Article.

Other systemically important credit institutions Article 161

(1) The Central Bank shall be a designated authority empowered, on an individual, sub-consolidated or consolidated basis, to identify other systemically important credit institution (O-SICI) licensed by it.
(2) Other systemically important credit institution referred to in paragraph (1) of this Article may be:
1) credit institution;
2) a group whose parent undertaking is an EU parent credit institution with head office in Montenegro, an EU parent financial holding company with head office in Montenegro, an EU parent mixed financial holding company with head office in Montenegro, or
3) a group whose parent undertaking is a parent credit institution in Montenegro, parent financial holding company in Montenegro, parent mixed financial holding company in Montenegro.
(3) A systemic importance, within the meaning of identifying O-SICI, shall be assessed on the basis of at least any of the following criteria:
1) the size of the credit institution;
2) the importance of the credit institution for the economy of the European Union or Montenegro;
3) the significance of cross-border activities of the credit institution; and
4) the interconnectedness of the credit institution or the group with the financial system.
(4) The Central Bank shall specify detailed conditions and methodology for identification of O-SICIs.

Notifying on other systemically important credit institutions Article 162

(1) The Central Bank shall notify the European Systemic Risk Board of the names of the other systemically important credit institutions.
(2) The Central Bank shall review annually the identification of O-SICIs.
(3) The Central Bank shall notify the following on the results of the review referred to in paragraph (2) of this Article:
1) O-SICIs; and
2) the European Systemic Risk Board.
(4) The Central Bank shall post on its website:
1) the list of O-SICIs and all changes to such list resulting from the review referred to in paragraph (2) of this Article; and
2) material elements of the methodology for identification of O-SICIs.

Requirement to maintain other systemically important credit institution buffer Article 163

(1) The Central Bank may prescribe a requirement to maintain a buffer rate for other systemically important credit institutions on a consolidated, sub-consolidated or individual basis, of up to 3%

of the total risk exposure amount of the credit institution calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law, which consists of Common Equity Tier 1 capital, taking into account the criteria for identifying the other systemically important credit institutions.

(2) By way of derogation from paragraph (1) of this Article, the Central Bank may require each other systemically important credit institution, on a consolidated, sub-consolidated or individual basis, to maintain other systemically important credit institution’s buffer higher than 3% of the total risk exposure amount, as calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law, if it has previously obtained authorisation from the European Commission. (3) When setting the requirement for maintaining the other systemically important credit institution buffer, the Central Bank shall take into account that the maintaining of the other systemically important credit institution buffer must not create obstacles to the functioning of the internal market and thus entail disproportionate adverse effects on the whole or parts of the financial system of Member States or of the financial system of the European Union as a whole. (4) Notwithstanding paragraph (1) of this Article and Article 150 of this Law, when other systemically important credit institution is a subsidiary undertaking of a global systemically important credit institution or other systemically important credit institution that is either a credit institution or a group with an EU parent credit institution and that is subject to application of other systemically important credit institution buffer on consolidated basis, the buffer that applies on an individual or sub-consolidated level for the other systemically important credit institution shall not exceed the lower of:
1) the sum of the higher of the global systemically important credit institution or other systemically important credit institution buffer rate applicable to the group on a consolidated basis and 1% of total risk exposure amount, as calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law; and
2) the amounts:
3) 3% of the total risk exposure amount, as calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law; or
4) the buffer rate the European Commission has authorised to be applied to the group on a consolidated basis in accordance with paragraph (2) of this Article.
(5) Other systemically important credit institution shall maintain other systemically important credit institution buffer in the amount set by the Central Bank taking into account paragraph (4) of this Article and Article 165 of this Law.
(6) The Central Bank shall review at least annually the requirement for maintaining other systemically important credit institution buffer and notify other systemically important credit institutions of results of the review.
(7) Where an O-SICI is required to apply the output floor in accordance with the regulation referred to in Article 134 paragraph (9) of this Law, the Central Bank may review, by a date no later than the date of the review referred to in paragraph (6) of this Article, the credit institution’s O-SICI buffer requirement in order to ensure that it is justified.

Notifying of the O-SICI buffer Article 164

(1) The Central Bank shall notify the European Systemic Risk Board of any setting or resetting of the buffer referred to in Article 163 paragraph (1) of this Law and no later than one month before the publication of that decision and three months before the publication of the decision referred to in Article 163 paragraph (2) of this Law. (2) The notification referred to in paragraph (1) of this Article shall include the details of:
1) the justification for why the Central Bank considers that the proposed O-SICI buffer is likely
to be proportionate and efficient to mitigate the risk;

2) an assessment of the likely positive or negative impact of the O-SICI buffer on the internal
market, based on available information;

3) the rate of other systemically important credit institution buffer that the Central Bank intends
to set.

(3) The Central Bank shall post on its website the other systemically important credit institutions’ buffer rates.

Inter-relation between the buffers of the structural systemic risk, global systemically important credit institution and other systemically important credit

institution and a combined buffer requirement Article 165

(1) Where a group, on a consolidated basis, is subject to maintaining the global systemically important credit institution’s buffer and other systemically important credit institution’s buffer, that group shall, on a consolidated basis, maintain the higher buffer.
(2) Where a credit institution is subject to maintaining the structural systemic risk buffer referred to in Article 150 of this Law, that structural systemic risk buffer shall be cumulative with other systemically important credit institution’s or global systemically important credit institution’s buffer that is applied in accordance with Articles 158 to 164 of this Law. (3) Where the sum of the structural systemic risk buffer rate as calculated for the purposes of notification referred to in Article 153 paragraphs (5) to (12) of this Law and other systemically important credit institution’s buffer rate or the global systemically important credit institution’s buffer rate to which the credit institution is subject would be higher than 5%, the Central Bank may prescribe the requirement to maintain buffer rates referred to in Article 163 paragraph (2) of this Law after obtaining the authorisation of the European Commission, except in the case where the Central Bank, when setting the structural systemic risk buffer, O-SICI buffer or global systemically important credit institution buffer, decreases or does not change the previously set buffer rates. (4) A combined buffer requirement shall be Common Equity Tier 1 capital that is needed to meet the capital conservation buffer requirement increased by the following buffers, whichever is applicable:
1) the countercyclical capital buffer,
2) global systemically important credit institution’s buffer,
3) other systemically important credit institution’s buffer,
4) the structural systemic risk buffer.

Distribution in connection with Common Equity Tier 1 Capital Article 166

(1) A credit institution that meets the combined buffer requirement shall not make a distribution in connection with Common Equity Tier 1 capital if such distribution would decrease its Common Equity Tier 1 capital to a level below the one for meeting the combined buffer requirement.
(2) Distribution in connection with Common Equity Tier 1 capital, within the meaning of paragraph (1) of this Article, shall include the following:
1) a payment of cash dividends;
2) a distribution of fully or partly paid bonus shares or other capital instruments included in Common Equity Tier 1 capital of a credit institution;
3) a buyback or purchase by a credit institution of its own shares or other capital instruments included in Common Equity Tier 1 capital of the credit institution;
4) a repayment of amounts paid up in connection with capital instruments included in Common Equity Tier 1 capital of the credit institution;
5) a distribution against the share premium account, retained earnings from previous years, other retained earnings and other reserves.

Restrictions on distributions Article 167

(1) A credit institution that fails to meet the combined buffer requirement shall calculate the maximum distributable amount in accordance with the regulation referred to in paragraph (4) of this Article and immediately notify the Central Bank thereof.

(2) The credit institution referred to in paragraph (1) of this Article shall be prohibited from undertaking any of the following actions before it has calculated the maximum distributable amount:
1) make a distribution in connection with Common Equity Tier 1 capital referred to in Article 166 paragraph (2) of this Law;
2) create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration if the obligation to pay was created at a time when the credit institution failed to meet the combined buffer requirement; and
3) make payments on Additional Tier 1 instruments.
(3) A credit institution that fails to meet the established combined buffer requirement, or if it does not exceed that buffer, shall not through any action referred to in paragraph (2) of this Article distribute amounts that exceed the maximum distributable amount calculated in accordance with the regulation referred to in paragraph (4) of this Article. (4) The Central Bank shall govern the maximum distributable amount calculation method and requirements related to the notification referred to in paragraph (1) of this Article. (5) Within the meaning of this Law, a credit institution shall be considered as failing to meet the combined buffer requirement where it does not have own funds in an amount and of the quality needed to meet at the same time the combined buffer requirement and each of the following requirements:
1) the requirement referred to in Article 134 paragraph (2) item 1) of this Law and the additional own funds requirement in accordance with Article 279 paragraph (1) item 1) of this Law addressing risks other than the risk of excessive leverage;
2) the requirement referred to in Article 134 paragraph (2) item 2) of this Law and the additional own funds requirement in accordance with Article 279 paragraph (1) item 1) of this Law addressing risks other than the risk of excessive leverage;
3) the requirement referred to in Article 134 paragraph (2) item 3) of this Law and the additional own funds requirement in accordance with Article 279 paragraph (1) item 1) of this Law addressing risks other than the risk of excessive leverage.

Restriction on distributions in case of failure to meet the leverage ratio buffer requirement

Article 167a

(1) A credit institution that meets the leverage ratio buffer requirement pursuant to Article 134a of this Law shall not make a distribution in connection with Tier 1 capital to an extent that would decrease its Tier 1 capital to a level where the leverage ratio buffer requirement is no longer met.
(2) The distribution in connection with Tier 1 capital, within the meaning of paragraph (1) of this Article, shall be distribution as specified in Article 166 paragraph (2) of this Law.
(3) A credit institution that fails to meet the leverage ratio buffer requirement in accordance with the general act of the Central Bank referred to in paragraph (6) of this Article, shall calculate the leverage ratio related maximum distributable amount and shall notify the Central Bank immediately thereof. (4) A credit institution referred to in paragraph (1) of this Article shall not undertake any of the following actions before it has calculated the leverage ratio related maximum distributable amount:
1) make a distribution in connection with Common Equity Tier 1 capital referred to in Article 166 paragraph (2) of this Law;
2) create an obligation to pay variable remuneration or discretionary pension benefits or pay variable remuneration if the obligation to pay was created at a time when the credit institution failed to meet the combined buffer requirement; or
3) make payments on Additional Tier 1 instruments.
(5) A credit institution that fails to meet or exceed its leverage ratio buffer requirement, shall not distribute, by taking any of the actions referred to in paragraph (4) of this Article, the amounts that exceed the leverage ratio related maximum distributable amount calculated in accordance with regulation referred to in paragraph (6) of this Article.

(6) The Central Bank shall prescribe the method of calculating the leverage ratio related maximum distributable amount and the notification requirements referred to in paragraph (3) of this Article.

Payments subject to restrictions of distributions Article 168

(1) The restrictions stipulated by Articles 166 and 167 of this Law shall only apply to payments that result in a reduction of Common Equity Tier 1 capital or in a reduction of profits, and where a suspension of payment or failure to pay does not constitute an event of default or a condition for the commencement of proceedings in accordance with the regulations governing bankruptcy proceedings of credit institutions. (2) The restrictions stipulated by Article 167a of this Law shall only apply to payments that result in a reduction of Tier 1 capital or in a reduction of profits, and where a temporary suspension of payment or failure to pay does not constitute an event of default or a condition for the commencement of proceedings in accordance with the regulations governing bankruptcy proceedings of credit institutions.

Distributions in case the combined buffer requirement is not met Article 169

(1) Where a credit institution fails to meet the combined buffer requirement and intends to distribute any of its distributable profits or undertake an action referred to in Article 167 paragraph (2) of this Law, it shall notify the Central Bank thereof and provide the following information:
1) the amount of capital maintained by the credit institution, subdivided as follows: − Common Equity Tier 1 capital, − additional Tier 1 capital, and − Tier 2 capital;
2) the amount of its interim and year-end profits for a current year;
3) the maximum distributable amount calculated in accordance with Article 167 paragraphs (1) and (4) of this Law;
4) the amount of distributable profits it intends to allocate between the following items: −dividend payments, −share buybacks, −payments on Additional Tier 1 instruments, −the payment of variable remuneration or discretionary pension benefits, whether by creation of a new obligation to pay, or payment pursuant to an obligation to pay created at a time when the credit institution failed to meet its combined buffer requirement.
(2) A credit institution shall establish and maintain systems to ensure that the amount of distributable profits and the maximum distributable amount are calculated accurately, and shall be able to demonstrate accuracy of such calculation at the Central Bank’s request.

Distributions in case of failure to meet the leverage ratio buffer requirement Article 169a

(1) A credit institution that fails to meet the leverage ratio buffer requirement and intends to distribute any of its distributable profits or undertake an action referred to in Article 167a paragraph (2) of this Law shall notify the Central Bank and provide the following information:
1) amount of capital maintained by the credit institution, divided into: -Common Equity Tier 1 capital, and -Additional Tier 1 capital;
2) amount of profit for the current year realised during and at the end of the business year;
3) maximum distributable amounts calculated in accordance with Article 167 paragraphs (1) and
(4) and Article 167a paragraphs (3) and (6) of this Law;
4) amount of distributable profit it indents to distribute as follows: -dividend pay-out, -purchase of shares, -payments on instruments of additional Tier 1 capital,

-payment of variable remuneration or discretionary pension benefits by creating new obligation to pay or payment in accordance with the obligation that was created at the time when the credit institution failed to meet combined buffer requirement.

(2) A credit institution shall establish and maintain the system to ensure that the amount of distributable profits and the leverage ratio related maximum distributable amount are calculated accurately, and shall be able to demonstrate that accuracy to the Central Bank on request.
(3) Within the meaning of this Law, a credit institution shall be considered as failing to meet the leverage ratio buffer requirement where it does not have Tier 1 capital in the amount needed to meet at the same time the leverage ratio buffer requirement laid down in Article 134a of this Law, the requirement laid down in Article 134 paragraph (2) item 4) of this Law and additional own funds requirement in accordance with Article 279 paragraph (1) item 1) of this Law when addressing the risk of excessive leverage not sufficiently covered in accordance with Article 134 paragraph (2) item 4) of this Law.

Capital conservation plan Article 170

(1) Where a credit institution fails to meet its combined buffer requirement or leverage ratio buffer requirement, if applicable, it shall prepare a capital conservation plan and submit it to the Central Bank no later than within five working days after it has identified that it will fail to meet that requirement. (2) Notwithstanding paragraph (1) of this Article, on the basis of the individual situation of a credit institution, the Central Bank may grant authorisation for the extension of the deadline referred to in paragraph (1) of this Article up to maximum ten days. (3) The capital conservation plan must include the following:
1) estimates of income and expenditures, as well as a forecast statement of financial position;
2) measures to increase the capital ratios of the credit institution;
3) a plan and timeframe for the increase of own funds with the objective of meeting fully the combined buffer requirement or, where applicable, the leverage ratio buffer requirement; and
4) any other information that the Central Bank considers to be necessary to carry out the assessment referred to in paragraph (4) of this Article.
(4) The Central Bank shall consider the capital conservation plan of the credit institution and approve the plan only if it assesses that the plan, if implemented, will certainly conserve or raise sufficient capital to enable the credit institution to meet its combined buffer requirement or, where applicable, the leverage ratio buffer requirement, within a period which the Central Bank considers appropriate. (5) If the Central Bank does not approve the capital conservation plan in accordance with paragraph (4) of this Article, it may take the following measures:
1) require the credit institution to increase own funds to specified levels within specified periods; and/or
2) based on its powers referred to in Article 276 of this Law, impose more stringent restrictions on distributions than those required by Articles 166 to 169a of this Law.
(6) A credit institution that intends to undertake other measures to increase capital ratio or change the timeframe for increasing own funds from the approved capital conservation plan shall notify the Central Bank thereof and submit the amended capital conservation plan that the Central Bank shall assess and approve in accordance with paragraph (4) of this Article.

Measures for capital conservation if the combined buffer requirement and leverage

ratio buffer requirement is not met on a consolidated basis Article 171

(1) A parent credit institution in Montenegro and an EU parent credit institution with head office in Montenegro that on an individual basis meet the combined buffer requirement, and on a consolidated basis fail to meet the combined buffer requirement related to a group of credit institutions in Montenegro, shall, on a consolidated basis, apply the following in an appropriate manner:

1) on an individual basis – Articles 166 to 169a of this Law; and
2) on a consolidated basis for a group of credit institutions in Montenegro-Article 170 of this Law.
(2) A parent credit institution in Montenegro and an EU parent credit institution with head office in Montenegro that fail to meet the combined buffer requirement that may be applicable to them on an individual basis, as well as that requirement on a consolidated basis that relates to a group of credit institutions in Montenegro, shall apply:
1) Articles 166 to 169a of this Law where the lower of the following amounts will be taken for maximum distributable amount: −amount calculated in accordance with Articles 167 and 167a of this Law, or −amount calculated in accordance with paragraph (1) item 1) of this Article;
2) Article 170 of this Law, in an appropriate manner, on a consolidated basis for a group of credit institutions in Montenegro.
(3) Notwithstanding Article 170 of this Law, a member of a group of credit institutions in Montenegro that on an individual basis fails to meet the combined buffer requirement shall not prepare a capital conservation plan in the cases referred to in paragraphs (1) and (2) of this Article, but the parent credit institution in Montenegro and an EU parent credit institution with head office in Montenegro shall prepare the capital conservation plan referred to in paragraph (1) item 2) and paragraph (2) item 2) of this Article, that also includes at least capital conservation plans of the undertakings members of the group of credit institutions in Montenegro that on an individual basis fail to meet the combined buffer requirement. (4) The Central Bank shall regulate the obligations a parent credit institution in Montenegro and an EU parent credit institution with head office in Montenegro must meet in accordance with this Article, as well as the requirements referred to in Articles 166 to 170 of this Law.

Va MACROPRUDENTIAL MEASURES

Measures and instruments to strengthen the resilience and preserve the stability of the financial system as a whole

Article 171a

When it deems necessary for the purpose of preserving the stability of the financial system as a whole, strengthening the resilience of the financial system, and preventing and mitigating systemic risks, the Central Bank shall prescribe appropriate measures and instruments that include:

1) the maximum allowed loan to value ratio;
2) the maximum allowed loan to income ratio;
3) the maximum allowed debt service to income ratio;
4) the maximum allowed loan maturity;
5) requirements related to methods for calculating loan repayment; or
6) other measures and requirements aimed at preserving the stability of the financial system as a whole, as well as preventing and mitigating systemic risks.

VI LIMITATIONS AND PROHIBITIONS

Exposure limits Article 172

(1) An exposure, within the meaning of this Law, shall be any asset or off-balance sheet item of the credit institution, which is, in accordance with the Central Bank general act governing the capital adequacy of credit institutions, risk-weighted with an adequate risk weight when applying Standardised Approach for the calculation of capital requirements for credit risk, without applying the risk weights or degrees of risk. (2) An exposure of the credit institution to a single person or a group of connected persons shall be considered a large exposure where its value is equal to or exceeds 10% of the Tier 1 capital of the credit institution.

(3) An exposure of the credit institution to a single person or a group of connected persons, after applying effects of the credit risk mitigation techniques calculated in accordance with the general act of the Central Bank referred to in paragraph (12) of this Article, shall not exceed 25 % of the Tier 1 capital of the credit institution. (4) By way of derogation from paragraph (3) of this Article, where a person to which a credit institution has exposure is another credit institution, or where a group of group of connected persons includes one or more credit institutions, that exposure shall not exceed 25 % of the credit institution’s Tier 1 capital or EUR 2,500,000 million, whichever is higher, provided that the sum of total exposure values, after taking into account the effect of the credit risk mitigation techniques in accordance with the general act referred to in paragraph (12) of this Article, to all connected persons that are not credit institutions, does not exceed 25 % of the credit institution’s Tier 1 capital. (5) Where, in exceptional case, a credit institution exceeds the exposure limit referred to in paragraph (3) or (4) of this Article, whichever is applicable, it shall immediately notify the Central Bank of the amount of the excess and of the name of the person concerned and, where applicable, of the name of the group of connected persons concerned. (6) Where the Central Bank, upon the assessment of the circumstances of the occurrence of the excess of the limit, determines that the reasons for the excess are justified, and where it concludes that the excess has been recurring or when the amount of excess may have high effect on the financial situation of the credit institution, the Central Bank may allow the credit institution a limited period for complying with the prescribed exposure limit, up to three months or longer in the case referred to in paragraph (7) of this Article. (7) In exceptional cases, the Central Bank may, if it assesses that the credit institution is unable, due to justified reasons, to remove the excess incurred within three months, allow the credit institution longer time limit for complying with the prescribed exposure limit, which should not be longer than one year. (8) In the case of the approval of the time limit referred to in paragraph (7) of this Article, a credit institution shall present to the Central Bank a plan for the return to compliance with the prescribed limits referred to in paragraph (3) or (4) of this Article, whichever is applicable. (9) By way of derogation from paragraph (2) of this Article, a credit institution may exclude trading book exposures from the calculation of exposures to a single person or a group of connected persons, where the following conditions are met:
1) the exposure in the non-trading book to the person or group of connected persons in question does not exceed the limit laid down in paragraphs (3) and (4) of this Article;
2) the trading-book exposure to the person or group of connected persons in question does not exceed 500% of the credit institution's Tier 1 capital, where 10 days or less have elapsed since that exposure occurred;
3) the sum of all trading book exposures that have persisted for more than 10 days does not exceed 600% of the credit institution's Tier 1 capital; and
4) for exposures referred to in items 2) and 3) of this paragraph, the credit institution shall meet the additional own funds requirement for exceeding large exposures which shall be calculated in accordance with the general act of the Central Bank referred to in Article 134 paragraph (9) of this Law.
(10) The credit institution shall, without delay, notify the Central Bank of all trading book exposures which are excluded from the calculation of large exposures in accordance with paragraph (9) of this Article. (11) A credit institution shall establish adequate administrative and accounting procedures and appropriate internal control mechanisms for the purpose of identifying, managing, monitoring, reporting and recording large exposures and subsequent changes to them, in accordance with the regulation referred to in paragraph (12) of this Article. (12) The Central Bank shall prescribe the method for calculating large exposures of credit institutions, the criteria for identifying connectedness, credit risk mitigation techniques, the criteria for assessing the appropriate period for addressing the excess, the elements of establishing the compliance referred to in paragraph (8) of this Article, and the reporting on large exposures.

Business with persons connected with a credit institution Article 173

(1) When a credit institution provides to or uses services of persons connected with the credit institution, it shall not provide services to such persons under the conditions that are more favourable than the conditions under which it provides such services to other persons, nor it may use services of persons connected with the credit institution under the conditions that are less favourable then the conditions under which other persons would have provided such services to the credit institution. (2) Persons connected to the credit institution, within the meaning of this Law, shall be the following:
1) shareholders of the credit institution holding 5% or more of the holding in capital or voting shares of the credit institution;
2) members of the supervisory board or management board and procurators of the credit institution;
3) persons responsible for the work of control functions, an authorised person for the prevention of money laundering, a person responsible for corporate clients, a person responsible for retail clients;
4) other persons with an employment contract with the credit institution the provisions of which indicate to a significant influence of such persons on operation of the credit institution or contain provisions setting a remuneration for the work of such persons under special criteria different from conditions for persons with standard employment contract, and who are not persons referred to items 1, 2, and 3 of this paragraph;
5) a legal person in which the credit institution, a member of the supervisory board or management board, or a procurator of the credit institution has a significant holding; 5a) a legal person in which members of the supervisory board or management board of a credit institution hold a qualifying holding, may have significant influence or in which those persons, if applicable, are in the position of senior management or are members of the management body;
6) a legal person whose member of the management body or a procurator is at the same time a member of the supervisory board or management board or a procurator of the credit institution;
7) a legal person whose member of the management body holds 10% or more shares of the credit institution with voting rights;
8) member of the management body or a procurator of the undertaking that is directly or indirectly, a parent or a subsidiary undertaking of the credit institution;
9) a person who acts for the account of the persons referred to items 1) to 8) of this paragraph with respect to operations which would have resulted or which would have increased the credit institution’s exposure;
10) a person who together with the person referred to in items 1) to 8) of this paragraph is connected in the manner referred to in Article 10 of this Law;
11) an immediate family member of natural persons referred to in items 1) to 8) of this paragraph as well as a legal person in which that member of immediate family holds a qualifying holding, may have significant influence or in which is in the position of senior management or is a member of the management body.
(3) The immediate family member of a person shall be deemed to be:
1) the spouse or a person living in a partnership considered by the law as equivalent to the marriage;
2) a parent, an adoptive parent, the children or adoptee of such person and persons referred to in item 1) of this paragraph;
3) a person without full legal capacity and under guardianship of such person.
(4) The Central Bank shall govern business with persons connected with the credit institution.

Authorisation of the Central Bank for specific investments Article 174

(1) Without an authorisation of the Central Bank, the credit institution shall be prohibited from establishing a legal person or entering into a legal transaction resulting in an immediate or gradual, direct or indirect, acquisition of:

1) majority participation in capital or majority decision making rights in another legal person; or
2) 20% or more participation in capital in another legal person, if such participation is higher than 10% of the eligible capital of the credit institution.
(2) The indirect participation referred to in paragraph (1) of this Article shall be the participation by way of the subsidiary undertaking (direct acquirer).
(3) Notwithstanding paragraph (1) of this Article, the credit institution shall not obtain the Central Bank authorisation for entering into a legal transaction for acquiring shares or participation in other legal persons if intended to hold them in the trading book.
(4) The following shall be submitted along with the application for granting the authorisation referred to in paragraph (1) of this Article:
1) a detailed description of the legal transaction submitted for authorisation;
2) a description of actions the applicant has already undertaken with regards to the legal transaction submitted for the authorisation;
3) a description of the impact of the acquisition of participation in capital or voting rights on operations of the applicant; and
4) a business plan including projections of financial statements for the following three years – for the undertaking being established, or latest financial statements – for the undertaking in which the participation is acquired based on another legal transaction.
(5) The credit institution shall notify the Central Bank on any change of economic activity of the legal person wherein has majority participation in capital or voting rights before registration of such economic activity in the appropriate register.

Limiting investments in persons carrying-out non-financial business activities Article 175

(1) The credit institution shall be prohibited from owning a qualifying holding in a legal person carrying out non-financial business activity which exceeds 15% of the eligible capital of the credit institution.
(2) The credit institution shall be prohibited from owning a total qualifying holding in all legal persons referred to in paragraph (1) of this Article which exceeds 60%.
(3) The persons referred to in paragraph (1) of this Article shall be deemed the business undertakings outside the financial sector, except for business undertakings outside the financial sector but carrying out activities for which the Central Bank considers to be:
1) direct extension of banking services;
2) ancillary services;
3) leasing, factoring, the management of investment funds, the management of data processing services and any other similar activity.
(4) Financial sector entities referred to in paragraph (3) of this Article shall be:
1) an institution,
2) a financial institution,
3) an insurance undertaking,
4) a third-country insurance undertaking,
5) a reinsurance undertaking,
6) a third country reinsurance undertaking,
7) an insurance holding company, which includes a parent undertaking, other than a mixed financial holding company and having as principal activity acquisition of and participating in subsidiary undertakings, which are principally or predominantly insurance undertakings or reinsurance undertakings, or third-country insurance undertakings or reinsurance undertakings, whereby at least one is insurance undertaking or reinsurance undertaking among its subsidiary undertakings,
8) an insurance undertaking excluded from the application of regulations governing a pursuit of insurance business due to its size,
9) a third-country undertaking with a principal business comparable to any of the entities referred to in items 1) to 8) of this paragraph.

(5) The calculation of participation referred to in paragraphs (1) and (2) of this Article shall not include shares and participation:
1) held temporarily by the credit institution for financial assistance operation designed to reorganise and save that entity;
2) resulting from underwriting services held for five working days or fewer;
3) held in the own name of the credit institution and for account of other persons;
4) thar are not financial fixed assets.
(6) Eligible capital, within the meaning of this Article, shall be the sum of Tier 1 capital of a credit institution, without applying the deduction arising from exposure to qualifying holdings outside the financial sector, and Tier 2 capital that is equal to or less than one third of Tier 1 capital of the credit institution.

Investments in immovable property and fixed assets Article 176

(1) Total investments of the credit institution in immovable property and fixed assets cannot exceed the level for which a required technical capability of the credit institution to carry out activities is provided.
(2) The Central Bank shall stipulate minimum standards for investments of the credit institution in immovable property and fixed assets.

Purchasing elements of own funds of credit institution Article 177

Purchasing shares and other elements of the own funds of the credit institution with funds directly or indirectly purchased from loans or other legal transaction concluded with such credit institution shall be null and void legal transaction.

Acquisition of elements of own funds of credit institution Article 178

(1) Total amount of own shares and other elements of the own funds of the credit institution acquired by such credit institution shall not exceed 5 % of the own funds of the credit institution.
(2) The credit institution shall divest acquired own shares within six months as of the day of acquisition.
(3) If the credit institution fails to divest acquired own shares within the deadline referred to in paragraph (2) of this Article, it shall cancel such shares.

Prohibition of taking own shares under pledge Article 179

The credit institution shall be prohibited from taking under pledge own shares or other elements of the own funds of such credit institution.

Prohibition of paying profit Article 180

(1) The credit institution shall be prohibited from paying advance instalments for profit or dividends, profit or dividend, or from making payments for participation of the management board, supervisory board and employees in profit of the undertaking, if:
1) the own funds of the credit institution are lower than the initial capital referred to in Article 18 of this Law;
2) the credit institution fails to settle on time its due liabilities or if the credit institution would fail to pay due liabilities due to payment of profit;
3) the Central Bank has ordered the credit institution to correct weaknesses and shortcomings related to the presentation of asset and liability and capital balance and off-balance sheet items, whereby the accurate presentation would affect the stated operating result in the statement of comprehensive income of the credit institution;

4) the Central Bank orders, by way of an administrative decision, such measure due to shortcomings in risk management the credit institution is exposed to or would be exposed to in its operation.
(2) Prohibitions referred to in paragraph (1) of this Article shall last until:
1) the stipulated level of capital is reached, in the case referred to in paragraph (1) item 1) of this Article;
2) the correction of disruptions in liquidity of the credit institution, in the case referred to in paragraph (1) item 2) of this Article;
3) the correction of shortcomings in the statement of balance sheet and off-balance sheet items, unless reasons for prohibition referred to in paragraph (1) items 1 and 2 of this Article do not occur after the correct statement, in the case referred to in paragraph (1) item 3) of this Article; and
4) the lapse of deadlines for the realisation of measures imposed by the Central Bank administrative decision, in the case referred to in paragraph (1) item 4) of this Article.

Payment of variable remunerations Article 181

The credit institution that has contracted payment of variable remunerations contrary to the provisions of this Law or the provisions of the regulation referred to in Article 124 paragraph (5) of this Law, shall be prohibited from paying such contracted variable remuneration and such contracted provisions shall be null and void.

VII AGREEMENTS FOR INTRA-GROUP FINANCIAL SUPPORT

1.Agreements of members of a group from the European Union

Participants in an agreement for intra-group financial support Article 182

(1) Parent credit institution in Montenegro, EU parent credit institution with head office in Montenegro, parent financial holding company in Montenegro, EU parent financial holding company with head office in Montenegro, parent mixed financial holding company in Montenegro, EU parent mixed financial holding company with head office in Montenegro, parent mixed-activity holding company in Montenegro, EU parent mixed-activity holding company with head office in Montenegro, as well as their subsidiary undertaking that is a credit institution, investment firm or a financial institution in other Member States included in consolidated supervision performed by the Central Bank in accordance with this Law, may conclude an agreement for intra-group financial support in Montenegro, based on which the signatories shall provide financial support to any other signatory of such agreement that meets conditions for the use of early intervention measures referred to in Article 288 of this Law. (2) For the purpose of securing mutual financial support when one or more signatories fulfil conditions for early intervention referred to in Article 288 of this Law, the credit institution may conclude an agreement on financial support of the group of EU credit institutions with the following undertakings:
1) EU parent credit institution with head office outside Montenegro;
2) EU parent financial holding company with head office outside Montenegro;
3) EU parent mixed financial holding company with head office outside Montenegro;
4) EU parent mixed-activity holding company with head office outside Montenegro;
5) subsidiary undertaking of undertakings referred to in items 1 to 4 of this paragraph with head office outside Montenegro, which is a credit institution, an investment firm or a financial institution.
(3) Undertakings referred to in paragraphs (1) and (2) of this Article may conclude agreements on financial support to the group only if at the time of its proposal or conclusion no early intervention measures are imposed against signatories to the agreement.

(4) Provisions of this Law governing financial support within a group shall not apply to other contracts on financing within a group of credit institutions in Montenegro or group of EU credit institutions where none of the signatories was in the early intervention phase at the time of their conclusion, and which were not concluded in order to secure mutual financial support when one or more signatories fulfil conditions for early intervention referred to in Article 288 of this Law. (5) Conclusion of the agreement referred to in paragraphs (1) or (2) of this Article shall not represent a condition for credit institution to provide financial support to another member of the group experiencing financial difficulties, if:
1) the credit institution made the decision alone about such individual case;
2) providing such financial support is in accordance with the group policy; and
3) so does not represent a risk for the whole group.
(6) Concluding agreements referred to in paragraphs (1) or (2) of this Article shall not be a condition for operation in the territory of Montenegro for a credit institution that is a member of the group of credit institutions from Montenegro or group of credit institutions from the EU.

Subject matter to be governed by agreement on intra-group financial support Article 183

(1) The agreement referred to in Article 182 paragraphs (1) or (2) of this Law may provide financial support:
1) from parent undertaking to subsidiary undertaking;
2) from subsidiary undertaking to parent undertaking;
3) from subsidiary undertaking to another subsidiary undertaking that is the part of the same group; or
4) within members of the group, in any other manner not covered by items 1), 2), and 3) of this paragraph.
(2) Provider of the financial support may provide support though one or several transactions in the form of a loan or non-banking loan, the provision of guarantees or provision of sureties, the provision of pledge right or transfer of ownership of assets for use as collateral, or any combination of these instruments. (3) The financial support forms referred to in paragraph (2) of this Article shall refer to legal transactions between the signatories of the group financial support agreements, as well as to legal transactions with third parties. (4) The provider of financial support, in the group financial support agreement, may require from the beneficiary of the support to undertake to provide financial support to such provider of support. (5) Signatories to the agreement shall contract in the group financial support agreement the method for the calculation of interest and other considerations, for any transaction made under the agreement, whereby the level of interest rate and other considerations must be set at the time of the provision of financial support. (6) When signing the group financial support agreement and defining the calculation of interests and the other considerations, the signatories to the agreement shall comply with the following:
1) the concluded agreement is the expression of their free will;
2) each signatory to the agreement shall be acting in its own best interests, which may take account of any direct or any indirect benefit that may accrue to a signatory to the agreement as a result of the provision of the financial support;
3) each beneficiary of the financial support must provide to each provider of the financial support all relevant information prior to the determination of the interest and other considerations for the provision of financial support and prior to any decision to provide financial support;
4) when determining the interest and other considerations for the provision of financial support the provider of the support may take account information in its possession based on the fact that it belongs to the same group as the beneficiary of the financial support and which is not publicly available; and
5) the method for the calculation of the interest and other considerations for the provision of financial support does not have to take account of any anticipated temporary impact on market prices arising from events external to the operation of the group.

(7) The obligation from the financial support agreement may only be fulfilled by a signatory to the agreement, and only towards the other signatory of such agreement.

Review of proposed agreement when the Central Bank is the consolidating supervisor Article 184

(1) The EU parent credit institution with head office in Montenegro and the credit institution referred to in Article 310 paragraph (2) of this Law shall submit to the Central Bank, as the consolidating supervisor, an application for issuing authorisation for concluding a financial support agreement of a group of credit institutions in Montenegro (hereinafter: the support agreement in Montenegro) and submit along with the application the proposal of the text of the agreement with names of the group members proposed to be signatories to the agreement. (2) The Central Bank shall forward without any delay the application referred to in paragraph (1) of this Article to the competent authority of another Member State of head office of the subsidiary undertaking that proposes to be a signatory to the support agreement. (3) The Central Bank and the competent authorities of other Member States of head offices of subsidiary undertakings that propose to be signatories to the support agreement in Montenegro shall cooperate with a view to reaching a joint decision on meeting conditions for concluding a support agreement referred to in Article 189 paragraph (1) of this Law, taking into account the potential impact, including any fiscal consequences, of the execution of such agreement in all the Member States where head office of any member of the group in Montenegro is located. (4) The joint decision referred to in paragraph (3) of this Article must be reached within four months as of the day the Central Bank has received the application referred to in paragraph (1) of this Article, and it must be prepared in writing and be reasoned and submitted to the applicant. (5) The Central Bank shall, based on the joint decision referred to in paragraph (4) of this Article confirming the compliance with conditions referred to in Article 189 paragraph (1) of this Law, grant the authorisation to conclude the support agreement in Montenegro and shall submit it to the applicant. (6) The Central Bank shall, based on the joint decision referred to in paragraph (4) of this Article, stating that the conditions referred to in Article 189 paragraph (1) of this Law are not complied with, refuse the application to grant the authorisation to conclude the support agreement in Montenegro and shall submit to the applicant the decision on the denial of the application. (7) The Central Bank may request the assistance of the European Banking Authority, in accordance with Article 31 of the Regulation (EU) No 1093/2010, in the process of reaching a joint decision referred to in paragraph (4) of this Article.

Autonomous decision taking by the Central Bank on fulfilling conditions for concluding an agreement

Article 185

(1) The Central Bank shall autonomously take decision on the application referred to in Article 184 paragraph (1) of this Law if the joint decision referred to in Article 184 paragraph (4) of this Law has not been adopted within the deadline, whereby it shall take account of views and separate opinions expressed by the other competent authorities and shall submit the decision to the applicant and to the relevant authorities of the Member States where head offices of subsidiary undertakings intending to conclude the agreement are located. (2) The Central Bank may, within the four-month period from the day of receipt of the application referred to in paragraph (1) of this Article, request mediation of the European Banking Authority, in accordance with Article 19 paragraph (3) of the Regulation (EU) No 1093/2010. (3) Where, within the four-month period from the day of receipt of the application referred to in paragraph (1) of this Article, the Central Bank or any other relevant authority form other Member States request mediation of the European Banking Authority and if such Authority made a decision within one month, the Central Bank shall take the decision in accordance with the such decision, and the four-month period shall be deemed to be the conciliation period within the meaning of the Regulation (EU) No 1093/2010.

(4) The credit institution referred to in Article 184 paragraph (1) of this Law shall be prohibited from concluding the support agreement in Montenegro without the authorisation of the Central Bank.

Review of proposed agreement when the Central Bank is not the consolidating supervisor

Article 186

(1) If the competent authority of another Member State is as the same time the consolidating supervisor for the EU group of credit institutions, the Central Bank shall, upon request of such authority, participate in the process of taking a joint decision on meeting the conditions referred to in Article 189 paragraph (1) of this Law for concluding agreement on financial support to EU group of credit institutions (hereinafter: the EU support agreement), taking into account the potential impact, including any fiscal consequences, of the execution of such agreement in all the Member States where head office of any member of the EU group of credit institutions is located. (2) The credit institution shall notify the Central Bank on the intent to conclude the EU support agreement and shall be prohibited from concluding such agreement if the consolidating supervisor has not issued to its parent credit institution the authorisation to conclude the EU support agreement. (3) The Central Bank may request the assistance of the European Banking Authority, in accordance with Article 31 of the Regulation (EU) No 1093/2010, in the process of reaching a joint decision referred to in paragraph (1) of this Article. (4) In the process of taking the joint decision on meeting conditions for concluding the support agreement, the Central Bank may, within the four-month period from the day the consolidating supervisor has received the application for granting authorisation for concluding the support agreement, request mediation of the European Banking Authority, in accordance with Article 19 paragraph (3) of the Regulation (EU) No 1093/2010.

Approval for concluding the support agreement by the general shareholders assembly

Article 187

(1) When the Central Bank or other consolidating supervisor issues the authorisation to the parent credit institution to conclude the support agreement, the management board of the credit institution intending to conclude such agreement shall receive the approval or authorisation to conclude such agreement from the general shareholders assembly of the credit institution. (2) The agreement referred to in paragraph (1) of this Article shall have legal effect only in respect of a member of the credit institution group if its general shareholders assembly has authorised the management board to make autonomously a decision that the undertaking shall be beneficiary or provider of the financial support in accordance with terms of the agreement. (3) If the general shareholders assembly empowers the management board in accordance with paragraph (2) of this Article, the provisions of the article of association of the undertaking or the decision of supervisory board governing that certain part of tasks may be performed only with the prior consent of such board shall not apply, if such provisions or decisions would be limiting the management board in taking decision that the credit institution is going to be beneficiary or provider of the financial support. (4) The general shareholders assembly may revoke the authorisation referred to in paragraph (2) of this Article and in such case, the support agreement shall not create legal effect for such undertaking. (5) The credit institution shall submit to the Central Bank and all signatories to such agreement, without any delay, the decision of the general shareholders assembly on granting authorisation to the management board and the decision on revoking it. (6) The management board of a member of the group of credit institution that is signatory to the agreement shall report at least once a year to the general shareholders assembly on the execution of the agreement and on implementation of any decision taken pursuant to such agreement. (7) The parent credit institution from Montenegro, the EU parent credit institution with head office in Montenegro and the credit institution referred to in Article 310 paragraph (4) of this Law shall

ensure that all members of the group from Montenegro intending to conclude the agreement, and which are not credit institutions or investment firms, act in accordance with provisions of this Law governing the conclusion of the intra-group financial support agreement.

Transmission of the financial support agreements Article 188

(1) The credit institutions shall notify, without any delay, the Central Bank on the conclusions of the financial support agreement and supply a copy of such agreement for exercising the supervision function and resolution function of the credit institutions.
(2) When the Central Bank is a consolidating supervisor, the agreement referred to in paragraph (1) of this Article shall be submitted to the relevant resolution authorities in the Member States where head offices of members of the group of credit institution from Montenegro that are signatories to the agreement are located.

Conditions for providing support Article 189

(1) The credit institution may provide support only if the following conditions are met:
1) the financial difficulties of the beneficiary of the support will be significantly redressed with the provided support;
2) the support has the objective of preserving or restoring the financial stability of the group as a whole or any of the signatories to the agreement and if that is in the interest of the provider of support;
3) the support, including interest and other considerations, is provided in accordance with terms referred to in Article 183 paragraphs 5 and 6 of this Law;
4) there is a reasonable prospect, on the basis of the information available to the management board of the provider of support at the time when the decision to grant support is taken, that the beneficiary of the support will pay the interest and consideration for the support and, if the support is given in the form of a non-banking loan or loan, that the non-banking loan or loan will be reimbursed, and if the support is given in the form of a surety or guarantee or any other form, the same condition must apply to the liability arising for the beneficiary of the support if the payment resulting from the surety, guarantee or any other form of support is enforced;
5) the provision of the support would not jeopardise the liquidity or solvency of the provider of the support;
6) the provision of the support would not create a threat to financial stability of Montenegro or financial stability of another Member State where the other signatory to the agreement has a head office;
7) the provider of the support complies at the time the support is provided with all stipulated requirements of the Regulation (EU) No 575/2013 relating to capital and liquidity, as well as all measures of the Central Bank imposed in line with the powers from this Law and the provision of support does not cause infringement to those requirements;
8) the provider of the support complies, at the time when the support is provided, with the stipulated requirements relating to large exposures, and the provision of the support does not cause infringement to those requirements; and
9) the provision of the support would not undermine the resolvability of the provider of the support.
(2) Notwithstanding paragraph (1) of this Article, the credit institution may provide support in the event that the condition referred to in paragraph (1) items 7 or 8 of this Article is not met, if it received the authorisation by the Central Bank referred to in Article 191 paragraph (8) of this Law. (3) The Central Bank shall regulate conditions referred to in paragraph (1) of this Article and conditions under which the Central Bank may adopt entire or partial application referred to in Article 191 paragraph (4) of this Law.

Decision to provide and receive support Article 190

(1) The management board of the provider of the support shall take the decision to provide support, whereby the decision must be reasoned in detail and indicate the objectives of the support, and the manner in which the conditions referred to in Article 189 paragraph (1) of this Law are met.
(2) The decision to accept support shall be taken by the management board of the beneficiary of the support.

Authorisation of the Central Bank for providing support Article 191

(1) The credit institution may provide support in accordance with the signed support agreement if it has received the Central Bank authorisation for the provision of the support.
(2) The parent credit institution in Montenegro, the EU parent credit institution with head office in Montenegro or the credit institution referred to in Article 310 paragraph (4) of this Law shall notify the Central Bank if its subsidiary undertaking intends to provide support.
(3) The credit institution intending to provide support shall prior to doing so notify the consolidating supervisor, the competent authority of the beneficiary of the support, and the European Banking Authority.
(4) The application for granting the authorisation referred to in paragraph (1) of this Article shall be deemed as duly submitted if the following conditions are met:
1) application contains all details of the proposed support with a reasoned statement;
2) a copy of the management board decision on the provision of support referred to in Article 190 paragraph (1) of this Law has been submitted along with the application; and
3) the credit institution has submitted to the Central Bank a copy of the support agreement in accordance with Article 188 paragraph (1) of this Law.
(5) Within five working days from the day of the submission of a complete application referred to in paragraph (4) of this Article, the Central Bank shall adopt a decision taking a decision on the application, and if it fails to take a decision on the application within such deadline it shall be deemed that the authorisation for the provision of the financial support was granted. (6) The Central Bank shall issue authorisation to the credit institution for the provision of the financial support if conditions referred to in Article 189 paragraph (1) of this Law are met. (7) The Central Bank shall reject the application referred to in paragraph (4) of this Article if it deems that the conditions referred to in Article 189 paragraph (1) of this Law were not fully met, and if it deems that the conditions were partially met, the Central Bank may partially adopt the application referred to in paragraph (4) of this Article. (8) Notwithstanding paragraph (7) of this Article, if the conditions referred to in Article 189 paragraph (1) items 7 or 8 of this Law were not met the Central Bank may adopt or partially adopt the application referred to in paragraph (4) of this Article. (9) In the event referred to in paragraph (8) of this Article, the Central Bank shall set a deadline by way of an administrative decision, within which the credit institution shall re-comply operations with the requirements referred to in Article 189 paragraph (1) items 7 or 8 of this Law, and if the credit institution re-complies its operations with these requirements within the set deadline, it shall be deemed that the credit institution did not have non-compliance with those requirements. (10) The Central Bank shall notify immediately the consolidating supervisor, the competent authority of the beneficiary of the support, and the European Banking Authority of the decision referred to in paragraphs 6, 7, or 8 of this Article. (11) The Central Bank shall also use the decision referred to in paragraphs 6, 7, or 8 of this Article to exercise a function of the credit institution resolution authority.

Procedure in the case of refusal or partial adoption of the application for provision of services

Article 192

(1) If the Central Bank receives a decision of the consolidating supervisor or another competent authority on refusing or partially adopting the application for the provision of the support, it may

refer the matter to the European Banking Authority within two days and request its assistance in accordance with Article 31 of the Regulation (EU) No 1093/2010.

(2) If any competent authority of signatory to the agreement refuses or partially adopts the application for the provision of the support, pursuant to the support agreement which is included in the recovery plan, the Central Bank shall:
1) as the consolidating supervisor, autonomously or upon request of another competent authority of the signatory to the agreement of which the support was refused or partially approved, initiate reassessment of the group recovery plan in accordance with Article 130 of this Law;
2) for individual group member which is obliged to draw up a recovery plan on an individual basis, for which the Central Bank is the competent authority, to instruct submission of the revised recovery plan.
(3) If the Central Bank is not a consolidating supervisor and the application for support to the credit institution in Montenegro is refused or partially adopted, and the group recovery plan includes the support agreement, the Central Bank may request new assessment of the group recovery plan from the consolidating supervisor in accordance with Article 132 of this Law. (4) If the Central Bank takes the decision referred to in Article 191 paragraphs 6, 7 or 8 of this Law, or if as the consolidating supervisor receives from another competent authority notification on authorisation, restriction or prohibition of provisions of financial support, it shall immediately inform thereof the other members of the college of supervisors and the other members of the resolution college.

Notification of taking the decision on provision of financial support and disclosure of information

Article 193

(1) After receiving the authorisation of the Central Bank referred to in Article 191 of this Law, the credit institution or undertaking being a member of the group intending to provide financial support pursuant to the intra-group financial support agreement, shall transmit the notification of such decision to the consolidating supervisor, competent authority of the beneficiary of the support, and the European Banking Authority. (2) The Central Bank, as the consolidating supervisor, after receipt of the decision referred to in paragraph (1) of this Article, shall immediately notify thereof the other members of the college of supervisors and the other members of the resolution college (3) The credit institution shall disclose, and update at least annually the information on:
1) entering into a support agreement;
2) general terms of the concluded support agreement; and
3) the names of other signatories to the agreement.
(4) The parent credit institution in Montenegro, the EU parent credit institution with head office in Montenegro and the credit institution referred to in Article 310 paragraph (4) of this Law shall disclose and update at least annually the information referred to in paragraph (3) of this Article for each member of the group from Montenegro that is not a credit institution with head office in Montenegro. (5) The disclosure of the notification referred to in paragraph (1) of this Article shall be done in accordance with Articles 431 to 434 of the Regulation (EU) No 575/2013.

Application of provisions of this law to the financial support agreement and amendments to the agreement

Article 194

(1) Provisions of this Law and other regulations governing the operation with parties connected to the credit institution shall not apply to the group financial support agreement.
(2) Provisions of this Law governing the group financial support shall also apply to any amendment to the financial support agreement.

2. Group financial support agreements from third countries

Participants in a financial support agreement Article 195

(1) A credit institution that is a parent undertaking with a subsidiary undertaking that is a credit institution, an investment firm or a financial institution with head office in Montenegro or a third country included in consolidated supervision performed by the Central Bank in accordance with this Law, may conclude an agreement for intra-group financial support based on which the signatories shall provide financial support to any other signatory of such agreement that meets conditions for the use of early intervention measures referred to in Article 288 of this Law. (2) A credit institution that is a subsidiary undertaking of another credit institution with head office in Montenegro or a third country may conclude an agreement for intra-group financial support with the parent credit institution and other members of the group based on which the signatories shall provide financial support to any other signatory of such agreement. (3) The credit institutions referred to in paragraphs (1) and (2) of this Article may conclude a group financial support agreement if:
1) the Central Bank has entered into an agreement on cooperation referred to in Article 336 of this Law with a competent authority of the country where a member of the group intending to conclude agreement has a head office; and
2) at the time of proposal or conclusion of the agreement no early intervention measures are imposed against signatories to the agreement.
(4) Provisions of this Law governing intra-group financial support shall not apply to other contracts on financing where none of the signatories was in the early intervention phase at the time of their conclusion, and which were not concluded in order to secure mutual financial support when one or more signatories fulfil conditions for early intervention referred to in Article 288 of this Law. (5) Conclusion of the agreement referred to in paragraphs 1 or 2 of this Article shall not represent a condition for credit institution to provide financial support to another member of the group experiencing financial difficulties, if:
1) the credit institution made the decision alone about such individual case;
2) providing financial support is in accordance with the group policy; and
3) so does not represent a risk for the whole group.
(6) Provisions of this Law and other regulations governing the operations with parties connected to the credit institution shall not apply to the financial support agreement referred to in paragraphs 1 or 2 of this Article.
(7) Provisions of this Law governing the financial support of members of the group shall also apply to any amendment to the financial support agreement.

Subject matter to be governed by intra-group financial support agreement Article 196

(1) The financial support agreement referred to Article 195 paragraphs (1) or (2) of this Law shall provide financial support:
1) from parent undertaking to subsidiary undertaking;
2) from subsidiary undertaking to parent undertaking;
3) from subsidiary undertaking to another subsidiary undertaking that is the part of the same group; or
4) within members of the group, in any other manner not covered by items 1), 2), and 3) of this paragraph.
(2) Provider of the financial support may provide support through one or several transactions in particular in the form of a loan or non-banking loan, the provision of guarantees or provision of sureties, the provision of pledge right or transfer of ownership of assets for the use as collateral, or any combination of these instruments.

(3) The financial support forms referred to in paragraph (2) of this Article shall refer to legal transactions between the signatories of the group financial support agreement, as well as to legal transactions with third parties.
(4) The provider of financial support, in the group financial support agreement, may require the beneficiary of the support to undertake to provide financial support to such provider of support.
(5) Signatories to the agreement shall contract in the group financial support agreement the method for the calculation of interest and other considerations, for any transaction made under the agreement, whereby the level of interest rate and other considerations shall be set at the time of the provision of financial support. (6) When signing the group financial support agreement and defining the calculation of interests and other considerations, the signatories to the agreement shall comply with the following principles:
1) the concluded agreement is expression of free will of parties to the agreement;
2) each signatory to the agreement shall be acting in its own best interests, which shall take account of any direct or any indirect benefit that may accrue to a signatory to the agreement as a result of provision of the financial support;
3) each beneficiary of the financial support must provide to each provider of the financial support all relevant information prior to determination of the interest and other considerations for the provision of financial support and prior to any decision to provide financial support;
4) determination of the interest and other considerations for the provision of financial support may take into account of information in the possession based on the fact that it belongs to the same group as the beneficiary of the financial support and which is not publicly available; and
5) the method for calculation of the interest and other considerations for the provision of financial support are not obliged to take account of any anticipated temporary impact on market prices arising from events external to the operation of such group.
(7) Obligation from the group financial support agreement may only be fulfilled by a signatory to the agreement, and only towards the other signatory of such agreement.

Review of proposed agreement Article 197

(1) The credit institution referred to in Article 195 paragraphs (1) and (2) of this Law shall submit to the Central Bank an application for granting authorisation to conclude a group financial support agreement and submit along with the application the proposal of the text of the agreement with names of the group members intended to be signatories to the agreement. (2) When the condition referred to in Article 195 paragraph (3) item 1) of this Law is met, the Central Bank shall forward, without any delay, the application referred to in paragraph (1) of this Article to the competent authority of a third country of head office of the subsidiary undertaking that intends to be a signatory to the support agreement. (3) The Central Bank shall cooperate with the competent authorities of third countries of head offices of subsidiary undertakings that propose to be signatories to the support agreement in accordance with the agreement referred to in Article 336 of this Law.

Approval for concluding the support agreement by the general shareholders assembly Article 198

(1) When the Central Bank issues the authorisation to the parent credit institution in Montenegro to conclude the support agreement, the management board of the credit institution intending to conclude the agreement shall receive the approval or authorisation to conclude such agreement from the general shareholders assembly of the credit institution. (2) If the general shareholders assembly empowers the management board of the undertaking in accordance with paragraph (1) of this Article, the provisions of the article of association of the credit institution or the decision of supervisory board governing that certain part of tasks shall be performed only with the prior consent of such board shall not apply, if such provisions or decisions would be limiting the management board in taking decision that the credit institution is going to be beneficiary or provider of the financial support.

(3) The general shareholders assembly may revoke the approval or the authorisation referred to in paragraph (1) of this Article and in such case, the support agreement shall not create legal effect for such credit institution.
(4) The credit institution shall submit to the Central Bank and all signatories to such agreement, without any delay, the decision of the general shareholders assembly on granting authorisation to the management board and the decision on revoking it.
(5) The management board of a member of the group of credit institution that is signatory to the agreement shall report at least once a year to the general assembly on execution of the agreement and on implementation of any decision taken pursuant to such agreement.
(6) The parent credit institution from Montenegro shall ensure that all members of the group intending to conclude the agreement, and which are not credit institutions or investment firms, comply with the provisions of this Law governing the conclusion of the intra-group financial support agreement.

Transmission of the support agreements Article 199

The credit institutions shall notify, without any delay, the Central Bank on conclusion of the support agreement and supply a copy of such agreement for exercising the supervision function and the resolution function of the credit institutions.

Conditions for providing support Article 200

(1) The credit institution may provide support only if the following conditions are met:
1) the financial difficulties of the beneficiary of the support shall be significantly redressed with the provided support;
2) the support has the objective of preserving or restoring the financial stability of the group as a whole or any of the signatories to the agreement and if it is in the interest of the provider of support;
3) the support, including interest and other considerations, is provided in accordance with conditions referred to in Article 196 paragraphs 5 and 6 of this Law;
4) there is a reasonable prospect, on the basis of the information available to the management board of the provider of support at the time when the decision to grant support is taken, that the beneficiary of the support will pay the interest and consideration for the support and, if the support is given in the form of a non-banking loan or loan, that the beneficiary of the support will repay the loan or credit, and if the support is given in the form of a surety or guarantee or any other form, the same condition must apply to the liability arising for the beneficiary of the support if the payment of the surety, guarantee or any other form of the support is enforced;
5) the provision of the support would not jeopardise the liquidity or solvency of the provider of the support;
6) the provision of the support would not create a threat to financial stability of Montenegro or third country where the other signatory to the agreement has a head office;
7) the provider of the support complies at the time the support is provided with all stipulated requirements relating to capital and liquidity, as well as all measures of the Central Bank imposed in line with the powers from this Law and the provision of support does not cause infringement to those requirements;
8) the provider of the support complies, at the time when the support is provided, with the stipulated requirements relating to large exposures, and the provision of the support does not cause infringement to those requirements; and
9) the provision of the support does not undermine the resolvability of the provider of the support.
(2) Notwithstanding paragraph (1) of this Article, the credit institution may provide support, with the authorisation of the Central Bank, in the event that the condition referred to in paragraph (1) items
7) or 8) of this Article is not met, if it received the authorisation from the Central Bank referred to in Article 202 paragraph (7) of this Law.

(3) The Central Bank shall prescribe a more detailed conditions referred to in paragraph (1) of this Article.

Decision to provide and receive support Article 201

(1) The decision to provide support shall be taken by the management board of the credit institution provider of the support, which must have a reasoned statement and that decision must indicate the objectives of the support, and indicate how the conditions referred to in Article 200 paragraph (1) of this Law are complied with. (2) The decision to receive the support shall be taken by the management board of the beneficiary of the support.

Authorisation of the Central Bank for provision of support Article 202

(1) A credit institution may provide support in accordance with the signed support agreement if it has received the Central Bank authorisation for the provision of the support.
(2) A credit institution referred to in paragraph (1) of this Article shall notify the Central Bank if its subsidiary undertaking intends to provide support.
(3) The application for granting authorisation referred to in paragraph (1) of this Article shall be deemed as duly submitted if the following conditions are met:
1) application contains all details of the proposed support with a reasoned statement;
2) a copy of the management board decision on the provision of the support referred to in Article 201 paragraph (1) of this Law was submitted along with the application; and
3) the credit institution has submitted to the Central Bank a copy of the support agreement, which will also be used by the Central Bank for exercising the resolution function of credit institutions.
(4) Within five working days following the day of the receipt of a complete application referred to in paragraph (3) of this Article, the Central Bank shall take a decision on the application, and if it fails to take a decision on the application within such deadline it shall be deemed that the authorisation for the provision of financial support was granted. (5) The Central Bank shall issue authorisation to the credit institution for the provision of financial support if conditions referred to in Article 200 paragraph (1) of this Law are met. (6) The Central Bank shall reject the application referred to in paragraph (3) of this Article if it deems that the conditions referred to in Article 200 paragraph (1) of this Law were not fully met, and if it deems that such conditions were partially met, the Central Bank may partially adopt the application referred to in paragraph (3) of this Article. (7) Notwithstanding paragraph (6) of this Article, if the conditions referred to in Article 200 paragraph (1) items 7) or 8) of this Law were not met, the Central Bank may adopt or partially adopt the application referred to in paragraph (3) of this Article. (8) In the event referred to in paragraph (7) of this Article, the Central Bank shall set a deadline by way of an administrative decision, within which the credit institution shall re-comply operations with the requirements referred to in Article 200 paragraph (1) items 7 or 8 of this Law, and if the credit institution re-complies the operations with these requirements within the set deadline, it shall be deemed that the credit institution was not non-complainant with those requirements. (9) The Central Bank shall prescribe a more detailed criteria for providing support referred to in paragraph (1) of this Article.

VIII BANKING SECRET

Definition of banking secret Article 203

(1) The banking secret shall mean:
1) data on individual stock of deposits of clients of a credit institution;
2) data on stock and turnover on individual accounts of clients opened in a credit institution;
3) data on users of loans and balance of their loans; and

4) other data and information about the client the credit institution obtained as a result of providing services to the client and executing transactions with the client, unless otherwise provided for by another law.
(2) The client of the credit institution, within the meaning of this Law, shall mean any person requesting or receiving banking and/or financial service from the credit institution.
(3) The banking secret shall represent a business secret.

Obligation to safeguard the banking secret Article 204

(1) Members of bodies of the credit institution, shareholders of the credit institution, employees of the credit institution, external auditors and other persons who due the nature of business performing with the credit institution or for the credit institution have access to confidential data shall safeguard data and information considered as the banking secret and shall not make them available to third persons, used them against the interest of the credit institution and its clients, or enable third persons to use them. (2) The obligation of safeguarding the banking secret shall continue to exist for persons referred to in paragraph (1) of this Article even after termination of their work in the credit institution or after termination of them being a shareholder or member in bodies of the credit institution, as well as after termination of contractual arrangement for performing duties for the credit institution. (3) Notwithstanding paragraph (1) of this Article:
1) all data and information considered as the banking secret may be made available to: − the Central Bank, − a competent court, − other persons based on explicit written consent of the client;
2) data may be made available to competent state prosecutor and the administration authority competent for police affairs for the purpose of pursuing perpetrators of criminal offences;
3) data may be made available to the authority competent for the prevention of money laundering and terrorist financing in accordance with the law governing the prevention of money laundering and terrorist financing;
4) data may be made available to notaries for the purpose of probate proceedings;
5) data may be made available to public enforcement officers, bankruptcy administrator and liquidator needed for executing their powers in accordance with the law;
6) data may be made available to the Deposit Protection Fund in accordance with the law governing the deposit protection;
7) data may be made available to the tax authority for the purpose of assessing, collecting and controlling taxes, as well as for the exchange of information with other States in accordance with international treaties and the European Union regulations;
8) data on the account number of legal person and natural person pursuing registered economic activity may be made available to the creditor of the credit institution’s client that presents to the credit institution an enforceable court ruling or other enforceable document set by the law;
9) data on creditworthiness and credit indebtedness of the client with such credit institution may be made available to other credit institution or a member of the group of credit institutions for the risk management purposes;
10) data may be made available to social welfare centres for undertaking measures from within their competence to protect minors and persons under guardianship;
11) data on credit indebtedness of the client with such credit institution and regularity in repayment of granted loan may be made available to persons who based on such credit indebtedness have possible obligation towards the credit institution, as co-debtors, endorsers, guarantors and similar;
12) data about the client may be made available to the credit institution used to perform international payment transactions (correspondent bank) needed to perform mandatory identification and verification of clients in accordance with the law governing the prevention of money laundering and terrorist financing;

13) data may be made available on receivables of the credit institution which are subject to sale to persons pursuing activities of factoring or purchase of receivables;
14) data may be made available to insurance undertakings needed in the process of insurance of receivables of the credit institution;
15) data may be made available to a person intending to acquire a qualifying holding in such credit institution, person acquiring or being merged with the credit institution, legal person intending to take-over the credit institution, as well as to auditors and other professional, legal or natural persons authorised by the proposed acquirer of the qualifying holding, with consent of the management board of the credit institution, needed for carrying out assessment of the credit institution;
16) data may be made available to outsourcing providers needed for rendering such outsourcing services;
17) data may be made available to the person who erroneously paid monetary funds to an account of the client of the credit institution, needed for opening court proceedings for return of erroneous payment of monetary funds;
18) data may be made available to other persons in accordance with the law.
(4) The disclosure of data in aggregate form such that individual or business data on the client cannot be identified, as well as the disclosure of data from public registries shall not be deemed to be the disclosure of banking secret.
(5) The credit institution shall ensure that the written consent of the client referred to in paragraph (3) item 1) indent 3 of this Article is provided as a separate document.
(6) When the exchange of data representing a banking secret is performed based on written consent of the client referred to in paragraph (3) item 1) indent 3 of this Article, the credit institution shall:
1) ensure that all data provided are accurate, complete, and up-to-date;
2) enable the client an insight into their data submitted by the credit institution; and
3) ensure that the exchange of data taking place in such a manner which is not of scope broader than required for the purpose for which the data is being exchanged.

Using and protecting confidential data Article 205

(1) Persons referred to in Article 204 paragraph (3) of this Law who obtained data representing the banking secret shall use such data only for the purpose for which were obtained and shall be prohibited from disclosing them to third persons, except to a competent judiciary authority and other persons in accordance with the law. (2) The provision of paragraph (1) of this Article shall also apply to all natural persons who either as employees or in another capacity work or have worked with the persons referred to in Article 204 paragraph (3) of this Law.

IX PROTECTION OF CONSUMERS AND OTHER CLIENTS

Disclosing general operating terms Article 206

(1) The credit institution shall display on a visible location at its business premises general operating terms, as well as amendments and supplements thereof, at least eight days before they become effective.
(2) General operating terms, within the meaning of this Law, shall be any document that contains standard operating terms that may be applied to all clients of the credit institution, general terms that refer to establishing a relationship between the clients and the credit institution, communication procedure between the clients and the credit institution, as well as the general terms of performing transactions between the clients and the credit institution. (3) In addition to mandatory notification of the clients referred to in paragraph (1) of this Article, the credit institution may also make available information of operating terms in other ways to possible clients.

(4) The client may require from the credit institution additional clarifications and instructions that refer to the application of the general operating terms.

Obligation of informing consumers Article 207

(1) The credit institution shall inform the consumer, in an agreed manner, at least annually without consideration, on the balance of the credit or deposits, and with respect to the granted loans in particular of due outstanding debts toward the credit institution and of deadlines for issuing a notice on debt and warning on cancelation of the credit agreement, as well as to provide him with the access to other data that the consumer may access in accordance with this Law. (2) The consumer, within the meaning of this Law, shall mean any natural person who is a client of the credit institution and who acts outside of his economic activity or free profession. (3) The credit institution shall provide information on the credit balance referred to in paragraph (1) of this Article until such time the court procedure for credit collection is initiated. (4) A credit institution shall, at least 15 day before intending to initiate the enforced collection proceedings of the credit that will be charged against a co-debtor, lienee, and endorser/surety guarantor, including also unilateral cancelation of the credit agreement, notify such persons on the intent to initiate the enforced collection proceedings or unilateral cancelation of the agreement and conditions under which the proceedings will not be initiated. (5) The credit institution shall, immediately upon cancellation of the credit agreement and without consideration, notify the user of the credit, co-debtor, and endorser/surety guarantor of:
1) total amount and composition of debt resulting from principal, interest, fees and other costs; and
2) grounds for individual items for which the collection is requested, with indication of items which are subject to increase and relevant interest rate for such items.
(6) Provision of paragraph (4) of this Article shall not preclude the right of the credit institution to initiate the enforced collection proceedings against the debtor, in accordance with the agreement.

Variable interest rate Article 208

(1) When a variable interest rate is contracted, the credit institution shall, at least 15 days before the new interest rate is applied, notify the client on change of the interest rate, including explained parameters why the interest rate was changed, and in case of the credit agreement it shall also submit to the client an amended repayment schedule. (2) If the credit institution fails to notify the consumer on the change of the interest rate for the granted loan at least 15 days before its application, it shall defer the application of the new interest rate until the next accounting period, except in the case when the interest rate was reduced. (3) If the credit institution fails to notify the consumer on the change of the interest rate for deposit at least 15 days before its application, it shall defer the application of the new interest rate until the next accounting period, except in the case when the interest rate was increased. (4) If the consumer, user of a credit, after receiving notification on the increase of the interest rate does not agree with the stated changes, he shall be entitled to make early repayment of the credit within three months following the receipt of the notification without obligation of paying any fee to the credit institution, including also the contracted fee for early repayment of the credit, and the credit institution shall not be entitled to compensation for damage as a result of early repayment.

Key information on services Article 209

The credit institution shall draw up a template for each service offered to clients – natural persons which contains key information on the service and make it accessible at a suitable location at its business premises where services to clients are provided.

Informing other parties to the credit arrangement Article 210

(1) In case of the credit agreement, the credit institutions shall:
1) notify other parties to the credit arrangement (co-debtors, lienees and endorsers/surety guarantors), before concluding the agreement, on all important terms from the agreement pertaining to their rights and obligations;
2) warn other parties to the credit arrangement (co-debtors, lienees and endorsers/surety guarantors) of the legal nature of being co-debtor or endorser/surety guarantor, as well as of the right of the credit institution that the collection of its receivables may be done from all participants in the credit arrangement;
3) provide relevant evidence on fulfilling obligations referred to in items 1 and 2 of this Article.
(2) When concluding the credit agreement, the credit institution shall provide a copy of the agreement to other participants in the credit arrangement, in addition to the debtor pursuant to the credit.

Calculation of and presenting the effective interest rate Article 211

The credit institution shall calculate and present the lending effective interest rate for granted loans and effective deposit interest rate for received deposits and inform the clients and the public on the level of effective interest rates in accordance with the Central Bank regulation.

Contracting variable interest rates Article 212

(1) If the credit institution offers contracting of a variable interest rate or a credit where the amount to be repaid depends on the exchange rate trend of the currency other than euro, it shall warn the consumer of all risks arising from variability of the interest rate or currency exchange rate trends in a clear and unambiguous manner. (2) Promotional interest rates offered for sale of services for a specified period after which the level of such interest rate is corrected to the level of the market interest rate may be contracted only for short-term services.

Conditioning clients Article 213

The credit institution shall be prohibited from conditioning the granting of a loan by use other services or services of persons connected with the credit institution, which are not connected with the principal business.

Protection of clients in case of sale of clients’ debts Article 214

(1) The credit institution shall ensure that the client against which it has had receivables pursuant to a loan or on other grounds, and which were sold or otherwise assigned to another person is not placed in a less favourable position relative to the position the debtors have had with respect to such credit institution. (2) The credit institution, the person to which the receivable referred to in paragraph (1) of this Article is assigned and a third person to which the receivable has been further assigned shall be jointly and severally liable for the damage caused by putting the debtor in legal or actual less favourable position relative to the position the debtor has had with respect to the credit institution. (3) The provision of paragraph (1) of this Article shall not apply to contracts concluded as part of the measures imposed by the Central Bank against the credit institution with financial difficulties or undertaken by a temporary or resolution administration of the credit institution. (4) When a transfer of debt is made to another person, in addition to the obligation of notifying the clients about the transfer in accordance with the law, the credit institution shall also submit to the client a report on total balance of receivables with the stock on the date of the receivables transfer

and the composition of the receivables broken down by item with clearly stated principle, interests, fees, and other costs.

Protection of clients in case of reduction of capital Article 215

(1) If the credit institution, in accordance with the law governing the operation of business undertakings, takes a decision on the reduction of capital thus reducing its nets assets, it shall, upon the request of a depositor which is submitted in accordance with that law, pay the deposit out even before its maturity and interests accrued until the day of the pay-out, without charging fees and costs, and to do so within 60 days as of the day the depositor has submitted the request. (2) The term “deposit” referred to in paragraph (1) of this Article shall have the meaning set by the law governing the obligation relations.

Postponement of executing pay-out of deposits Article 216

(1) The credit institution shall not meet the requests referred to in Article 215 of this Law if it decides to carry out the reduction of the capital items after the lapse of the two-year period as of the day of adopting the decision on reduction of the common equity Tier 1 capital items.
(2) In the case referred to in paragraph (1) of this Article, the credit institution shall publish on its website, without any delay, the decision on the reduction of the capital and the decision on the deadline for pay-out.

Treatment of reduction of the Common Equity Tier 1 capital items Article 217

The credit institution shall treat the amount, for which it reduced the common equity Tier 1 capital items by adopting a decision on the reduction of capital which reduces its net assets, as items no longer available to the credit institution for unrestricted and immediate use to cover risks or losses, thus such amount shall not be stated as the part of the common equity Tier 1 capital of the credit institution.

Procedure of the credit institution related to a complaint from a client Article 218

(1) The client who believes that the credit institution is failing to comply with obligations from the concluded agreement or who is not satisfied by an act, action or failure to act by the credit institution, may file a complaint to the competent organisational unit or the credit institution body in charge of taking decision upon complaints from clients. (2) The credit institution shall respond to the person filing the complaint referred to in paragraph (1) of this Article within reasonable timeframe, but no later than 15 days as of the day the complaint is received, unless the law sets a different deadline for specific services. (3) The credit institution shall assign tasks of taking decision upon complaints from clients to at least one person employed by the credit institution. (4) Protection of consumers’ rights, within the meaning of the law governing the consumer loans, shall be carried out in accordance with provisions of that law.

Procedure of the Central Bank related to a complaint from a client Article 219

(1) A client of a credit institution who is not satisfied by a document, action or failure to act by the credit institution may lodge a complaint to the Central Bank.
(2) A client of the credit institution may appeal to the Central Bank only if it has previously used all legal possibilities to protect its rights in the proceedings with the credit institution.
(3) With the objective of protection of clients referred to in paragraph (1) of this Article, the Central Bank shall review complaints from clients and may:
1) give recommendations to the credit institutions for the improvement of clients’ relationships;

2) give advice to clients pertaining to different dispute resolution methods;
3) perform other tasks contributing to exercising the protection of the rights of clients.
(4) The Central Bank shall not resolve individual complaints from clients of a credit institution.
(5) The Central Bank shall monitor number and type of complaints from clients by individual credit institutions and trends thereof.
(6) The credit institutions shall submit to the Central Bank data on complaints from clients in the manner and within the deadline designated by the Central Bank.
(7) The client of the credit institution referred to in paragraph (1) of this Article may initiate an out-of-court settlement of dispute even by submitting a proposal for opening a mediation procedure or arbitration procedure in accordance with a law.
(8) The provisions of paragraphs (1) to (7) of this Article shall apply to disputes between users of financial services and providers of financial services, stipulated by the law governing financial leasing, factoring, purchase of receivables, micro-lending and credit guarantee operations.
(9) The Central Bank may stipulate by way of its regulation the procedure for the protection of rights of clients of credit institutions referred to in this Article.

X ACCOUNTING, AUDITING AND REPORTING

1.Accounting

Keeping business books Article 220

(1) The credit institution shall keep business books, compile bookkeeping documents, evaluate assets and liabilities, and compile and publish financial statements in accordance with this Law, regulations adopted pursuant to this Law and the International Accounting Standards or the International Financial Reporting Standards (hereinafter: the IAS/IFRS). (2) The credit institution shall apply the International Accounting Standards and the International Financial Reporting Standards from the date the International Accounting Standards Board (IASB) has designated as the commencement date for their application, unless the Central Bank designates a different date for a specific IAS/IFRS as the day for the commencement of its application. (3) The credit institution shall keep business books and other business documentation and records in such a manner as to enable, at any time, the examination whether the credit institution operates in accordance with applicable regulations and professional standards. Chart of accounts Article 221

(1) The credit institution shall keep business books in accordance with the chart of accounts for credit institutions.
(2) The Central Bank shall prescribe the chart of accounts referred to in paragraph (1) of this Article.

2. External audit

Requirement to carry out external audit Article 222

(1) The requirement to carry out external audit shall apply to annual financial statements of the credit institution, consolidated financial statements of the group of credit institutions from Montenegro, and consolidated financial statements of the group if the group members include also non-financial institutions. (2) The audit of annual financial statements referred to in paragraph (1) of this Article shall be carried out in accordance with the law governing auditing, unless otherwise specified by this Law and regulations adopted pursuant to this Law. (3) The Central bank may require the external auditor or audit firm to carry out additional audit of specific areas of a credit institution's operations in accordance with Article 231 of this Law.

(4) The audit referred to in paragraphs (1) and (3) of this Article shall be carried out by the same external auditor or audit firm, except in the case referred to in Article 231 paragraph (4) item 2) of this Law.

Selecting an audit firm Article 223

(1) General shareholders assembly of the credit institution shall, with the authorisation of the Central Bank, select the audit firm (hereinafter: the external auditor) to audit the financial statements for a specific business year by no later than 30 September of that business year.
(2) The supervisory board of the credit institution shall submit the decision on the appointment of the external auditor to the Central Bank within eight days as of the day the decision was taken.
(3) Contract on auditing the financial statements must be concluded in writing.
(4) The external auditor shall submit to the Central Bank an audit plan for that business year, for each credit institution that has entrusted it with the audit, no later than by 31 October of the current year, which shall contain area of operation to be audited, description of the content of the planned audit by specific area, and planned duration of the audit. (5) The Central Bank may, by way of an administrative decision, impose adequate measures referred to in Article 279 of this Law on a credit institution that has failed to select an audit firm in accordance with paragraphs (1) to (4) of this Article.

Reasons for refusing to grant authorisation Article 224

(1) The Central Bank shall refuse the application for granting authorisation referred to in Article 223 paragraph (1) of this Law, if:
1) at least three persons who are certified auditors are not hired to carry out the audit of the credit institution with at least three years of experience as auditors of credit institutions from Montenegro or other countries;
2) the external auditor, or a person hired by the external auditor, is connected to the credit institution or a member of the group to which the credit institution is a part;
3) the external auditor or an undertaking connected to the external auditor, or a person hired by the external auditor has provided non-auditing services to the credit institution referred to in Article 225 of this Law, the performance of which represents an impediment for auditing the financial statements of the credit institution;
4) the audit firm, or a person hired by the external auditor audited the financial statements of such credit institution for previous four consecutive years;
5) the data available to the Central Bank showed that the external auditor has not audited the financial statements of the credit institution in a satisfactory manner.
(2) The Central Bank shall prescribe the documentation to be submitted along with the application for granting authorisation referred to in paragraph (1) of this Article.

Impediments for carrying out audit Article 225

(1) An audit of financial statements of the credit institution may not be performed by an external auditor that has provided, directly or indirectly, non-auditing services referred to in paragraph (2) of this Article to the credit institution subject to the audit, its parent undertaking or its subsidiary undertakings, and so as follows:
1) one or more non-auditing services referred to in paragraph (2) of this Article in the period from the beginning of the year which is subject to an audit and issuing an audit report; and
2) non-auditing services referred to in paragraph (2) item 5) of this Article in the financial year preceding the period referred to in item 1) of this paragraph.
(2) Non-auditing services referred to in paragraph (1) of this Article shall mean:
1) tax services connected with preparation of tax returns, personal income taxes and custom duties;

2) services including any role for the auditor in management or taking decisions in the credit institution which is subject to an audit;
3) bookkeeping services and compiling accounting records and financial reports;
4) salary calculation services;
5) services of designing and implementing the internal control or risk management procedure related to preparation and/or oversight of financial information or designing and implementing technological systems for financial information;
6) legal services connected with the general counselling, negotiation on behalf of the credit institution which is subject to the audit, and legal representation in settling court disputes;
7) services connected to the internal audit function of the credit institution;
8) services connected to the financing, composition and distribution of capital and investment strategy of the credit institution, except for provision of services connected to financial reports, such as issuing letter of support related to the prospectus issued by the credit institution;
9) trade with shares or underwriting issues of shares of the credit institution and related advertising activities;
10) services pertaining to: − seeking candidates for a member of the management board who can have significant influence on compiling accounting records or financial reports subject to the statutory audit, or reviewing his references, − restructuring of the organisation model of the credit institution, and − costs control.
(3) An external auditor may not carry out the audit of financial statements of more than four credit institutions for the financial year subject to the audit.

Notification in event of termination of an audit contract Article 226

In case of the termination of an audit contract by mutual agreement, the credit institution or the parent undertaking within a group and the external auditor shall submit in writing to the Central Bank, within an appropriate timeframe, a reasoned statement for the termination of the contract by mutual agreement; and in case of a unilateral termination of the contract, the party that terminated the contract shall provide reasoned statement for the termination, while the other party shall take view of the reasons for the termination stated in the reasoned statement.

Audit in case of the credit institution restructuring Article 227

(1) In case of restructuring, the credit institution established by merger, the credit institution that acquired another credit institution, or the credit institution created by division or demerger, shall hire an external auditor to audit their financial statements as of the day of merger, division or demerger. (2) The credit institutions referred to in paragraph (1) of this Article shall submit to the Central Bank a report of the external auditor on the accuracy and impartiality of its opening statement of financial position on the day of the merger, acquisition, division or demerger, within 60 days as of the day of registration in the Central Registry of Business and Other Entities.

Cooperation of the auditor with the Central Bank Article 228

(1) The external auditor shall notify the Central Bank in writing, immediately upon having knowledge, about:
1) established illicit or other facts and circumstance that may jeopardise in any way further operation of the credit institution;
2) facts representing reasons for withdrawing the license of the credit institution;
3) materially significant difference in risk assessment present in operation of the credit institution and valuation of balance sheet and off-balance sheet items and profit and loss account items;
4) severe breach of internal acts of the credit institution;

5) significant weaknesses in the internal controls system structure or failures in the application of the internal controls systems; and
6) facts that could lead to a qualified opinion, adverse opinion, or disclaimer opinion on the financial statements of the credit institution.
(2) The external auditor shall notify the Central Bank in writing of any fact or circumstance referred to in paragraph (1) of this Article that it learns during the audit of the financial statements of an undertaking connected by a control relationship with the credit institution being audited.
(3) The submission of data referred to in paragraphs (1) and (2) of this Article to the Central Bank shall not represent a breach of information confidentiality requirements arising from the law governing the audit or from a contract entered into with the credit institution.
(4) If the external auditor notifies the Central Bank of facts and circumstances referred to in paragraphs (1) and (2) of this Article, it shall notify at the same time the management and supervisory boards of the credit institution, unless it deems that there are justified reasons for which those bodies should not be notified. (5) If the external auditor fails to notify the Central Bank of the facts and circumstances referred to in paragraphs (1) and (2) of this Article, the Central Bank may require the credit institution to engage another external auditor at the expense of the credit institution, and, without any delay, notify thereof the authority competent for the supervision of persons authorised to perform audit services in accordance with the law governing audit.

Audit report Article 229

(1) The external auditor shall, after the completed audit referred to in Article 222 paragraph (1) of this Law, draw up a report and issue opinion on compliance of annual financial statements of the credit institution with this Law, the International Accounting Standards or International Financial Reporting Standards, the law governing the audit and other regulations, and whether the annual financial statements give a true and fair presentation of the financial position of the credit institution, its operating results and cash flows for such business year in all materially significant matters. (2) The Central Bank may request from the external auditor additional information related to the performed audit.

Article 230

Deleted. (Law amending the Law on Credit Institutions, OGM 24/25).

Audit upon the Central Bank’s request Article 231

(1) Based on the performed audit upon the request of the Central Bank referred to in Article 222 paragraph (3) of this Law, the external auditor shall provide an assessment on:
1) compliance with regulations on risk management in the credit institution;
2) adequacy of performing tasks related to risk management function, compliance function, and internal audit function;
3) adequacy of the network and information systems set up and management, and
3) fairness, accuracy and completeness of reports which are being submitted to the Central Bank.
(2) The Central Bank may request additional information from the auditor on the performed audit.
(3) The assessment referred to in paragraph (1) of this Article shall be descriptive and shall range from fully satisfactory to fully unsatisfactory (fully satisfactory, satisfactory, unsatisfactory, and fully unsatisfactory).
(4) If the Central Bank determines that the assessment referred to in paragraph (1) of this Article is not provided in accordance with this Law, the law governing the audit and rules of audit profession, or if it determines based on the examination of the credit institution performed or otherwise that the assessment is not based on true and fair facts, it may:
1) request from the external auditor to correct or supplement its assessment; or

2) request from the credit institution to hire another external auditor to perform audit referred to in paragraph (1) of this Article at the cost of the credit institution.
(5) Non-acceptance of the assessment referred to in paragraph (1) of this Article shall not have as a consequence the rejection of the audit report on the audited financial statements of the credit institution for that year if the audit report on performed audit was acceptable to the Central Bank.

Submitting audit report Article 232

(1) The credit institution shall submit to the Central Bank annual financial statements, with the external auditor’s report and opinion, adopted at the meeting of the general shareholders’ assembly within 120 days following the day of the lapse of the business year covered by the report.
(2) The parent undertaking in the group shall submit to the Central Bank, after their adoption at the meeting of the general shareholders’ assembly, the annual consolidated financial statements of the group of credit institutions with the external auditor’s report and opinion within 150 days following the day of the lapse of the business year covered by the report. (3) The Central Bank shall publish the reports referred to in paragraphs (1) and (2) of this Article on its website. (4) A credit institution shall publish annual financial statements, including the external auditor’s report and opinion, no later than within five working days following that of the submission of the reports to the Central Bank.

3. Reporting and disclosure of data

Reporting to the Central Bank Article 233

(1) Credit institutions and branches of credit institution from other countries providing banking and/or financial services on the territory of Montenegro shall prepare and within time limits and in the manner prescribed by the regulation referred to in paragraph (2) of this Article submit to the Central Bank accurate and complete reports and other data:
1) which pertain to meeting capital requirements referred to in Article 134 of this Law, including data on leverage ratio referred to in Article 115 of this Law;
2) on liquidity coverage and stable sources of funding referred to in Article 114 of this Law;
3) on large exposures referred to in Article 172 of this Law;
4) on exposures to the real estate market and other data relating to the situation and trends in the real estate market in Montenegro;
5) on the level of asset encumbrance, including data on the types of asset encumbrance;
6) on exposures to ESG risks;
7) on exposures to crypto-assets;
8) on other requirements and guidelines under this Law and regulations adopted pursuant to this Law;
9) other reports and data required for exercising the supervision function of the Central Bank.
(2) The Central Bank shall stipulate types of reports, the form and the content of reports and data referred to in paragraph (1) of this Article and timeframes for their submission to the Central Bank.

Reporting at the request of the Central Bank Article 234

A credit institution shall submit, at the request and within the time limit set by the Central Bank, reports, information and data on all matters of importance for performing supervision or for carrying out other tasks from within the competence of the Central Bank.

Notifying the Central Bank Article 235

(1) A credit institution shall notify the Central Bank, within three working days, on:

1) every registration of change in data made in the Central Registry of Business and Other Entities;
2) convening and date of holding the general shareholders assembly and of all decisions adopted at such general assembly;
3) every planned change of 10% or more in the Tier 1 capital of the credit institution;
4) termination of providing specific services that the credit institution was providing pursuant to a license or special authorisation;
5) knowledge that a natural or legal person has acquired or increased the qualifying holding in the credit institution above the level for which it has the authorisation of the Central Bank, or knowledge that the person with qualifying holding has sold or otherwise divested shares which resulted in reducing participation in capital of the credit institution below the level for which has the authorisation of the Central Bank;
6) created close links of the credit institution and other natural and legal persons; and
7) changes in composition of the group of connected persons to which the credit institution is exposed.
(2) The credit institution having its shares admitted to trading on the regulated market shall, at least annually, notify the Central Bank on shareholders with qualifying holding in the credit institution and on the level of holding, in accordance with Article 233 paragraph (2) of this Law.
(3) The management board of the credit institution shall notify immediately the Central Bank on:
1) jeopardised liquidity or solvency of the credit institution;
2) occurrence of reasons for withdrawal of the license of the credit institution and for withdrawal of authorisation referred to in this Law;
3) change in the financial situation of the credit institution resulting from the reduction of the own funds and/or performance indicators of the credit institution below the statutory level;
4) dismissal or resignation of member of supervisory board or management board, member of the audit committee who is not an employee, shareholder or member of the management body of the credit institution, or internal auditor and reasons for dismissal or resignation of such persons.

Submitting data on cross-border activities Article 236

(1) A credit institution providing service in other countries shall submit to the Central Bank annually data pertaining to the previous financial year, by country where it provides services, and so as follows, on:
1) banking and financial services it provides, nature of activities and geographic location
2) total income (turnover);
3) number of employees on a full-time equivalent basis;
4) profit or loss before tax;
5) tax on profit (or loss); and
6) public subsidies received.
(2) Data referred to in paragraph (1) of this Article shall be reviewed and published as an annex to the annual financial statements, and where applicable, to the consolidated annual financial statements.

Disclosure of data on credit institution Article 237

(1) The credit institution shall disclose accurate and complete quantitative and qualitative data of relevance for informing the public on its financial situation, operations and risk profile, within the time limits and in the manner set out in the regulation referred to in paragraph (3) of this Article. (2) The Central bank shall prescribe the minimum data referred to in paragraph (1) of this Article to be disclosed, the manner of disclosure, and time limits for disclosure of data referred to in paragraph (1) of this Article.

Disclosure of information on management Article 238

(1) The credit institution shall disclose the manner in which it has complied with provisions of this Law governing:
1) organisational structure of the credit institution;
2) composition, duties and responsibilities of the supervisory and management boards of the credit institution, and responsibility of the nomination committee;
3) obligation of the supervisory board to establish remuneration committee, nomination committee, and risk committee;
4) remuneration policies, including variable parts of remunerations and responsibility of the remuneration committee;
5) information referred to in Article 236 paragraph (1) of this Law.
(2) A credit institution shall publish and regularly update information referred to in this Article on its website.
(3) Parent credit institution shall publicly disclose information referred to in paragraph (1) of this Article at the group level, once a year, in full or by referencing equivalent information.

Disclosure of information on organisation and performance indicators Article 239

(1) A credit institution which is a parent undertaking to the group of credit institutions and the credit institution referred to in Article 310 paragraph (2) of this Law shall disclose the description of their legal structure within the group and description of governance system and organisational structure of the group, either directly or by way of reference to links to the websites containing published equivalent information. (2) A credit institution shall disclose in its annual reports among the key indicators its return on assets indicator (net profit divided by total assets, in percentage). (3) A credit institution shall disclose on its website information referred to in this Article at least annually, and update it regularly.

XI SUPERVISION OF CREDIT INSTITUTIONS

1. Basic provisions

Supervision of credit institutions Article 240

With the objective of maintaining sound banking system in Montenegro and supporting and preserving its safety and stability, the Central Bank shall have the powers to exercise ongoing supervision of credit institutions, with a view of determining whether the credit institutions, by applying the principle of proportionality, have adequate strategies, processes and mechanisms in place and whether the level of their own funds is sufficient to cover all risks they are or might be exposed to in their operations, which, as needed, may also imply the introduction of additional capital requirements, additional liquidity requirements and other measures referred to in Article 279 of this Law, and which shall include:

1) off-site examination exercised by collecting and analysing reports, information and other data the credit institutions are submitting in accordance with the law and regulations of the Central Bank, information and data the credit institutions are submitting at the request of the Central Bank, and other data on operations of credit institutions the Central Bank has available and by continuous monitoring of operations of credit institutions;
2) on-site examination exercised by reviewing business books, accounting and other documentation in credit institution and with another participant in the transaction subject of the examination;
3) imposing supervisory measures on the credit institution, including supervisory measures in the early intervention phase;

4) granting licenses, authorisations, consents, and opinions, as well as evaluating operations of the credit institution in accordance with this Law and other regulations governing the operations of credit institutions;
5) communication with credit institutions in accordance with Article 243 of this Law.

Legal protection Article 241

(1) The members of the Council of the Central Bank, persons authorised for examination and other employees in the Central Bank, as well as agents, temporary members of management board of the credit institution, authorised persons and assistants to authorised persons, administrators and assistants to administrators, members of the temporary administration and assistants to the temporary administration, external auditors and other persons retained by the Central Bank in connection with the exercise of functions in accordance with this Law, shall not be held liable for damages that could be incurred during the exercise of duties in accordance with the law and regulations adopted pursuant to the law, unless it is proven that the particular action has been done deliberately or by gross negligence. (2) The Central Bank shall bear costs of protection of persons referred to in paragraph (1) of this Article in court proceedings pertaining to exercise of duties referred to in paragraph (1) of this Article.

Supervised entities Article 242

(1) The Central Bank shall exercise the supervision of:
1) credit institutions and their branches outside of Montenegro;
2) credit institutions from other Members States in the segment of operations performed by providing directly services on the territory of Montenegro.
3) branches of credit institutions with head office in another Member State operating in Montenegro;
4) branches of credit institutions with head office in a third country operating in Montenegro.
(2) Authorised persons of the Central Bank referred to in Article 250 of this Law may also examine part of operations of persons connected with the credit institution or persons to which the credit institution has delegated part of its activities, in order to achieve objectives of supervision of credit institutions. (3) When other competent authorities or institutions exercise supervision of operations of persons referred to in paragraph (2) of this Article, in accordance with powers set by the law, the Central Bank may participate in supervision of operations of persons with such competent authorities or request from the competent authority to provide it with required data and information for the purpose of supervising the credit institution. (4) Provisions of paragraph (1) of this Article shall not preclude exercise of supervision on a consolidated basis in accordance with this Law.

Communication with credit institutions Article 243

As a part of the continuous supervision process, the Central Bank shall maintain communication with credit institutions, in particular addressing:

1) holding, as needed, consultative meetings with members of the management board of the credit institution before commencing on-site examination of the credit institution;
2) holding meeting with the management board of the credit institution after preparing a report on examination;
3) issuing preventive warnings aimed at ensuring that the operations of the credit institution are in accordance with the regulations;
4) attendance at meetings of the supervisory or management boards of the credit institution by authorised representatives of the Central Bank;
5) correspondence related to monitoring of measures imposed to the credit institution;

6) holding meetings and having correspondence related to matters of regulatory nature, good risk management practice in operation of the credit institutions, and other matters related to the banking sector functioning.

Obtaining information from other persons Article 244

(1) Persons with qualifying holding and persons connected with the credit institution, as well as persons to which the credit institution has delegated part of its activities, shall submit to the Central Bank, upon the request of the Central Bank, relevant documentation and information for the purpose of achieving objectives of supervision of credit institutions. (2) For the purpose of exercising its powers, the Central Bank may request periodically and in the defined format the submission of required information, including the submission of information for the supervisory purposes and related statistical purposes, and so from the following entities:
1) credit institution;
2) financial holding company with head office in Montenegro;
3) mixed financial holding company with head office in Montenegro;
4) mixed activity holding company with head office in Montenegro; 4a) third persons belonging to entities referred to in items 1) to 4) of this paragraph;
5) service provider to whom the person referred to in items 1) to 4) of this paragraph has outsourced functions or activities, including ICT third-party service providers providing such services in accordance with the regulation governing digital operational resilience for credit institutions.
(3) In order to determine facts and circumstances on persons referred to in paragraph (2) of this Article, required for exercising its powers, including determining whether the conditions for initiating misdemeanour proceedings are present, the Central Bank may:
1) request from any legal or natural person for which is estimated to have relevant documentation to submit such documentation;
2) carry out review of business books and documentation of persons referred to in paragraph (1) of this Article, including obtaining copies of such documentation;
3) require explanations in writing and verbal explanations from persons referred to in paragraph
(1) of this Article, as well as from their employees;
4) have discussions in order to collect information with any person for which it estimates that has relevant knowledge, conditioned by explicit consent of such person.
(4) The Central Bank may carry out on-site examination of operation of persons referred to in paragraph (2) of this Article, with prior notification of the relevant competent authority, and if the required conditions are met and of all other undertakings taking part in the supervision on a consolidated basis and so in the head office and other places of operation of such undertakings.

2. Supervisory review and evaluation process of credit institutions

Scope of supervision Article 245

(1) When exercising supervision, the Central Bank shall review and assess, on the basis of the technical criteria referred to in Article 246 of this Law, the operations of credit institution and evaluate the legality, including the organisation, strategies, policies, processes and mechanisms implemented by the credit institution to comply with this Law and the regulation governing capital adequacy of credit institutions in its operations, and shall assess:
1) risks to which the credit institution is or might be exposed in its operations;
2) risks identified by stress testing, taking into account the nature, scale and complexity of activities of the credit institution;
3) risks identified by way of digital operational resilience testing in accordance with the regulation governing digital operational resilience for credit institutions.
(2) Based on the supervision referred to in paragraph (1) of this Article, the Central Bank shall determine whether the organisation, strategies, processes and mechanisms implemented by the

credit institution, as well as the own funds and liquidity held by the credit institution, ensure a sound governance arrangements and coverage of all risks.

(3) The Central Bank shall establish the frequency and intensity of exercising the supervision referred to in paragraph (1) of this Article having regard to the size and importance of the credit institution for the banking system of Montenegro, nature, scale and complexity of the activities pursued by the credit institution, as well as the principle of proportionality, and in accordance with the criteria referred to in Article 246 paragraph (1) of this Law, which shall be published pursuant to Article 353 paragraph (1) item 3) of this Law, thereby checking whether all of the following conditions are met:
1) the credit institution is not a G-SICI, a non-EU G-SICI, or a G-SICI entity;
2) the credit institution is not an O-SICI);
3) the credit institution is part of a group where the parent credit institution and the majority of the subsidiary credit institutions are linked by a control relationship;
4) the subsidiary credit institutions referred to in item 3) of this paragraph qualify, or the vast majority of them qualify, as mutuals, cooperative societies or savings institutions in accordance with Member State regulations, and those regulations include a cap or restriction on the maximum level of distributions, and on an individual or sub-consolidated basis, their total assets do not exceed EUR 30 billion.
(4) The Central Bank shall execute the supervision referred to in paragraph (1) of this Article at least on an annual basis for each credit institution covered by the supervision plan referred to in Article 249 of this Law.
(5) The Central Bank shall carry out, on an as-needed basis and at least on an annual basis, adequate stress testing of credit institutions, wherein the credit institutions and third persons acting in a consulting capacity to credit institutions during the stress testing exercises shall refrain from activities that can impair such stress testing, including benchmarking, exchange of information among themselves, concluding agreements on common behaviour, or optimisation of their testing results, and the Central Bank shall have all information gathering and supervisory powers that are necessary to detect those activities. (6) The Central Bank may tailor the methodology for exercising the supervision of the credit institution referred to in paragraph (1) of this Article to take into account credit institutions with a similar risk profile (such as similar business models or geographical location of exposures), in a way to include risk-oriented benchmarks and quantitative indicators, to allow due consideration of specific risks each institution may be exposed to and shall not affect the type of institution-specific measures imposed in accordance with Article 279 of this Law. (7) Notwithstanding paragraph (4) of this Article, the Central Bank shall not exercise supervision if the resolution proceedings have been initiated against the credit institution, nor during the resolution proceedings until the completion of such proceedings.

Technical criteria for supervision Article 246

(1) In addition to credit, market and operational risks assessment and management of those risks, the supervision of credit institutions, shall include at least:
1) the results of the stress test carried out by the credit institution applying an internal ratings-based approach;
2) the exposure to and management of concentration risk by the credit institution, including compliance of the credit institution with the prescribed requirements;
3) the robustness, suitability and manner of application of the policies and procedures implemented by the credit institution for the management of the residual risk associated with the use of recognised credit risk mitigation techniques;
4) the extent to which the own funds held by a credit institution in respect of assets which the credit institution has securitised are adequate having regard to the economic substance of the transaction, including the degree of risk transfer achieved;
5) the exposure to, measurement and management of liquidity risk by the credit institution, including the development of alternative scenario analyses, the management of risk mitigants (in

particular the level, composition and quality of liquidity buffers), as well as effective contingency plans;

6) the impact of diversification effects and how such effects are factored into the risk measurement system;
7) the results of stress tests carried out by the credit institution, using an internal model to calculate capital requirements for market risk;
8) the geographical location of the credit institution’s exposures;
9) the business model of the credit institution,.
10) the extent to which the credit institution has put in place appropriate policies and operational actions related to quantifiable targets and time limits set out in the plans to be prepared in order to manage risks arising from ESG factors in accordance with Article 55 paragraph (7) of this Law.
(2) When assessing the liquidity risk referred to in paragraph (1) item 5) of this Article to which the credit institution is exposed, the Central Bank shall regularly and comprehensively carry out assessment of the overall liquidity risk management by the credit institution and promote the development of sound internal methodologies, while having regard to the importance and the role played by such credit institution in the financial markets and duly consider the potential impact of their decisions on the stability of the financial system in all other Member States concerned. (3) If the Central Bank, in exercising the supervision, determines that the credit institution has provided implicit support to a securitisation, and if the credit institution is likely to continue to provide support to a securitisation, thus failing to achieve transfer of a significant part of related risk, the Central Bank shall impose appropriate supervisory measures on the credit institution. (4) For the purposes of the determination to be made under Article 245 paragraph (2) of this Law, the Central Bank shall consider whether the valuation adjustments taken for positions or portfolios in the trading book, enable the credit institution to sell its positions or hedge them against the risk within a short period without incurring material losses under normal market conditions. (5) When exercising the supervision, the Central Bank shall also include:
1) credit institution exposure to interest rate risk arising from non-trading activities, whereby it shall impose adequate supervisory measures on credit institution, intensify the communication referred to in Article 243 of this Law, or order the use of specific modelling and parametric assumptions in addition to the assumptions factored in by the credit institution when calculating the economic value of equity within the methodologies referred to in Article 109 of this Law, where:

• it establishes that the credit institution’s economic value of equity declines by more than 15% of the Tier 1 capital as a result of a sudden and unexpected change in interest rates as set out in any of the supervisory shock scenarios applied to interest rates;
• net interest income of the credit institution as referred to in Article 109 paragraph (2) of this Law experiences a large decline as a result of a sudden and unexpected change in interest rates as set out in any of the two supervisory shock scenarios applied to interest rates;
  2) credit institution exposure to the risk of excessive leverage as reflected by indicators of excessive leverage, including the leverage ratio determined in accordance with Article 115a of this Law, whereby the Central Bank shall take into account the business model of the credit institution, as well as evaluation of the adequacy of the organisation, strategy, policy, processes and procedures implemented by the credit institution to manage the risk of excessive leverage;
  3) governance arrangements of the credit institution, its corporate culture and values, as well as the qualification of members of the supervisory and management boards to perform their duties, whereby in exercising the supervision, the Central Bank shall, at least, have access to documents containing agendas and materials from the meetings of the supervisory and management boards, as well as meetings of committees and other working bodies of those management bodies;.
  4) the assessment of credit institutions’ governance and risk management system and processes arising from ESG risks, including the credit institutions’ exposures to those risks, wherein it shall take into account the business models of the credit institution and the degree of compliance of its policies and operational actions with the targets and time limits set out in the plans to be prepared in order to manage ESG risks in accordance with Article 55 paragraph (7) of this Law;

5) the assessment of credit institutions’ governance system and risk management process for risk arising from credit institution’s exposures to crypto-assets and the provision of crypto-asset services, wherein the Central Bank shall analyse credit institutions’ policies and procedures for identifying and managing these risks, as well as the adequacy of the results of the assessments that the credit institution is required to carry out in accordance with Article 106 paragraph (10) and Article 111 paragraph (9) of this Law.
(6) Notwithstanding paragraph (5) item 1) of this Article, the Central Bank shall not be obliged to impose measures where it determines, based on the supervision referred to in this Article, that the credit institution’s management of interest rate risk arising from non-trading book activities is adequate and that the credit institution is not excessively exposed to that risk. (7) The Central Bank shall prescribe the supervisory shock scenarios referred to in paragraph (5) item
1) indents 1 and 2 of this Article, large decline referred to in paragraph (5) item 1) indent 1 of this Article, as well as common modelling and parametric assumptions, excluding behavioural assumptions, that credit institutions shall apply in their calculations of the economic value of equity and net interest income.

Regular review of the authorisation to use internal approaches Article 247

(1) The Central Bank shall review on a regular basis, and at least every three years, the credit institution’s compliance with the requirements regarding internal approaches for the calculation of capital requirements in accordance with the Central Bank regulation governing the capital adequacy of credit institutions, and for which application has obtained authorisation from the Central Bank, in particular having regard to changes in business of the credit institution, as well as to the application of those approaches to new products. (2) The Central Bank shall in particular review and assess whether the credit institution uses well-developed and up-to-date techniques and practices for internal approaches. (3) Where material deficiencies are identified in risk exposure captured by a credit institution’s internal approach, the Central Bank shall impose on the credit institution appropriate supervisory measures to rectify them or to mitigate their consequences, which may include imposing higher multiplication factors, or imposing additional capital requirements, or taking other appropriate and efficient measures. (4) If for a trading desk using an internal market risk model, the results of back-testing or the profit and loss attribution test indicate that the model is no longer sufficiently accurate, the Central Bank shall review the conditions for the authorisation for using the internal model or impose appropriate supervisory measures to ensure that the model is improved promptly. (5) If it is established that the credit institution does not comply with the prescribed requirements for applying the internal approach for the calculation of capital requirements anymore, the Central Bank shall require the credit institution to:
1) demonstrate that the effect of such non-compliance is immaterial; or
2) present a plan to the Central Bank for the timely restoration of compliance with the requirements and set a time limit for its implementation, whereby the Central Bank may require improvements to that plan if it estimates that the presented plan is unlikely to result in full compliance or if the time limit for its implementation is inappropriate.
(6) Based on the review procedure referred to in paragraph (1) of this Article, the Central Bank shall withdraw from the credit institution the authorisation to use the internal approach or shall limit it to those areas where the compliance can be achieved within an appropriate time limit, if:
1) it is unlikely that the credit institution will be able to restore compliance within an appropriate deadline; or
2) the credit institution has not demonstrated in a satisfactory manner that the effect of noncompliance is immaterial, where applicable.

Supervisory benchmarking of approaches for calculating own funds requirements

Article 248

(1) A credit institution authorised to use an internal approach for the calculation of risk-weighted exposure amounts or own funds requirements shall, upon request, report to the Central Bank the results of the calculation for its exposures or positions that are included in the benchmark portfolios. (2) A credit institution authorised to use the alternative standardised approach for market risk, whose on- and off-balance-sheet business that is exposed to market risk is equal to or greater than EUR 500 million in accordance with the conditions set out in the regulation governing capital adequacy of credit institutions, shall, upon request, report to the Central Bank the results of its calculation for its exposures or positions that are included in the benchmark portfolios. (3) A credit institution authorised to use internal approach for credit risk, as well as a credit institution that applies the standardised approach, shall, upon request, report to the Central Bank the results of the calculation of the approach used for the purpose of determining the amount of expected credit losses for its exposures or positions that are included in the benchmark portfolios, if any of the following conditions is met:
1) the credit institution shall prepare its financial statements in accordance with international accounting standards in the manner laid down by Regulation (EC) No 1606/2002;
2) the credit institution shall value assets and off-balance-sheet items and determine own funds in accordance with international accounting standards in accordance with Article 24 (2) of Regulation (EU) No 575/2013;
3) the credit institution shall value assets and off-balance-sheet items in accordance with accounting standards in accordance with Council Directive 86/635/EEC and use an expected credit loss model that is equivalent to the model used in international accounting standards in the manner laid down by Regulation (EC) No 1606/2002.
(4) The credit institution shall submit the reports referred to in paragraphs (1) to (3) of this Article at least annually, together with an explanation of the methodologies used for calculations, and any quantitative information, as requested by the Central Bank and the European Banking Authority, that can explain the impact of those calculations on own funds requirements. (5) The Central Bank shall, on the basis of the information submitted by credit institutions in accordance with this Article, monitor and analyse the range of risk-weighted exposure amounts or own funds requirements, as applicable, for the exposures or transactions in the benchmark portfolio resulting from the approaches applied by those credit institutions. (6) The Central Bank shall make an assessment of the quality of the approaches referred to in paragraphs (1) to (3) of this Article at least annually, paying particular attention to approaches:
1) that exhibit significant differences in own fund requirements for the same exposure;
2) where there is particularly high or low variability, and also where there is a significant and systematic underestimation of own funds requirements.
(7) Where the results of calculations of particular credit institutions diverge significantly from the results of the majority of comparable credit institutions, or where the approaches lead to wide variance of results, the Central Bank shall investigate the reasons for such differences.
(8) Where it determines that the internal approaches applied by the credit institution lead to an underestimation of own funds requirements which is not attributable to differences in the underlying risks of the exposures or positions, the Central Bank shall take corrective action.
(9) The corrective actions referred to in paragraph (8) of this Article must comply with the objectives of the approaches referred to in this Article, and shall not:
1) lead to standardisation of internal approaches or use of preferred methods;
2) create wrong incentives, or
3) cause herd behaviour of credit institutions.
(10) The Central Bank may, by way of a regulation, govern in more detail the content, method and time limits for the submission of results referred to in paragraph (1) of this Article, and define specific portfolios for which the own funds requirements should be calculated.

Supervision plan Article 249

(1) The Central Bank shall, taking into consideration the scope of supervision referred to in Article 245 of this Law, at least once a year adopt supervision plan for credit institutions, which shall include the following:
1) credit institutions for which the results of stress testing results referred to in Article 246
paragraph (1) items 1) and 7) of this Law, or results of the supervision referred to in Article 245 of this Law, including stress testing referred to in paragraph (5) of that Article, suggest the existence of significant risks in respect of their current financial soundness or point to a violation of the provisions of this Law or regulations adopted pursuant to this Law; and

2) other credit institutions for which the Central Bank assesses that tightened supervisory
activity is needed because of some other circumstances.

(2) In the supervision plan referred to in paragraph (1) of this Article, the Central Bank shall set out the following:
1) activities it intends to undertake in respect of a specific credit institution and requirements for the performance of such activities;
2) credit institutions which will be subject to the tightened supervisory activities and measures to be taken in accordance with paragraph (3) of this Article; and
3) on-site examination plan, including branches and subsidiary undertakings of the credit institution established in third countries in accordance with this Law;
4) supervisory review plans and thematic examinations of credit institutions.
(3) Once the Central Bank establishes that the tightened supervisory activities are required for a specific credit institution, the supervision plan referred to in paragraph (1) of this Article shall include the following activities and/or measures:
1) increased number and frequency of on-site examinations of that credit institution;
2) appointment of the authorised person to monitor situation in the credit institution, in accordance with Article 282 of this Law;
3) additional or more frequent reporting of the credit institution;
4) additional or more frequent checks of operational, strategic or business plans of the credit institution; or
5) thematic examination of operations of a specific part of credit institution and monitoring risks which are likely to materialise.
(4) The Central Bank may, pursuant to the provisions of this Law, carry out on-site examination of operations of the branch of credit institution from another Member State which provides services in Montenegro through the branch, regardless of the supervision plan of the competent authority of the home Member State.

Persons authorised for examination Article 250

(1) On-site examination shall be performed by the Central Bank employees authorised by the Central Bank to perform such activities (hereinafter: the authorised examiners).
(2) Notwithstanding paragraph (1) of this Article, the Central Bank may also authorise persons who are not the Central Bank employees to perform certain tasks related to on-site examination of operations of a credit institution.
(3) In the performance of tasks related to on-site examination of operations of the credit institution for which they are authorised, the persons referred to in paragraph (2) of this Article shall have the same powers and responsibilities as the authorised examiners referred to in paragraph (1) of this Article. (4) Off-site examination shall be carried out by the employees who have been entrusted with the performance of such tasks, in accordance with the act on internal organisation of the Central Bank. (5) The employees referred to in paragraphs (1) and (4) of this Article who performed on-site or off-site examination activities during the previous 12 months, as well as the Central Bank employees that during the previous 12 months took part in proposing the decisions regarding on-site and off-site examinations of a credit institution, may not, within 12 months as of the date of termination of

the employment at the Central Bank, take up employment nor in any other way achieve professional engagement in the credit institution, nor in a person connected with the credit institution, its parent or subsidiary undertaking, nor in a person providing consultancy and other services to these entities, including lobbying and advocacy activities.

(6) After the termination of their employment with the Central Bank, the person referred to in paragraph (5) of this Article shall be entitled to a compensation in the amount of the salary they received in the last month before the termination of the employment, for a period of 12 months, except in the case of termination of employment due to the fault of the employee. (7) The compensation referred to in paragraph (6) of this Article shall be granted upon a personal request of the person referred to in paragraph (5) of this Article, which shall be submitted no later than 30 days after the termination of employment at the Central Bank. (8) The right referred to in paragraph (6) of this Article shall cease before the set time limit, where the user of that right:
1) takes up employment;
2) exercises the right to a pension;
3) requires so.
(9) The credit institution shall notify the Central Bank on the establishment of an employment relationship with a person referred to in paragraph (5) of this Article, where 12 months have not passed since the termination of the employment relationship at the Central Bank. (10) An employee referred to in paragraph (5) of this Article may not engage in direct trading, nor may they own financial instruments issued by a credit institution, or by any person affiliated with a credit institution, its parent undertaking or subsidiary undertaking, or any persons providing consultancy or other services to these entities, including lobbying and advocacy activities, except for instruments managed by third parties, provided that the owners of such instruments may not manage the portfolio, with the exception of investments in collective investment undertakings. (11) An employee who, on any grounds, acquires shares or equity interests in the entities referred to in paragraph (10) of this Article shall notify the Central Bank thereof in writing and sell or otherwise dispose of such shares or equity interests within 30 days from the date of becoming aware of their acquisition.

Notification of credit institution about on-site examination Article 251

(1) The Central Bank shall notify, as a rule, ten working days prior to the commencement of the examination, credit institution about the intended on-site examination.
(2) The notification referred to in paragraph (1) of this Article shall specify subject-matter of the examination, data on the planned commencement and the duration of the examination, as well as the information on the documents which the credit institution needs to prepare for the purpose of on-site examination. (3) Notwithstanding paragraph (1) of this Article, if it is concluded based on reports and information in possession by the Central Bank that there are irregularities which may be relevant for the safety and stability of operations of the credit institution, on-site examination may commence even without prior announcement.

Creation of working conditions for authorised examiners Article 252

(1) The credit institution shall ensure that authorised examiners of the Central Bank have unimpeded insight into the business books, other business documents and records, as well as insight into the functioning of information technology and computer database and at the request of the authorised examiners, shall also provide the copies of business books, other business documents and records, in hard copy and/or in electronic form. (2) The credit institution shall ensure that authorised examiners, at their request, are enabled to carry out on-site examination in the head office of the credit institution and in other places in which the credit institution, or another person on the basis of authorisation granted by the credit institution, perform activities and tasks in relation to which the Central Bank carries out the examination.

(3) The credit institution shall provide appropriate premises to the authorised examiners during working hours, and if the scope or nature of the supervision so require even after the working hours, where they can carry out the examination without any obstacles and without the presence of other persons. (4) The credit institution shall ensure the presence of persons authorised by credit institution during the on-site examination in the premises referred to in paragraph (3) of this Article and they, at the request by the authorised examiner, may give appropriate explanations related to business records, business documents, business events and administrative or business registers that are subject to examination.

Report on supervision Article 253

(1) Following the completion of the supervision of operations of a credit institution referred to in Article 240 paragraph (1) of this Law, a report on supervision shall be compiled.
(2) Notwithstanding paragraph (1) of this Article, the report shall not be compiled:
1) in the event of off-site examination referred to in Article 240 paragraph (1) item 1) of this
Law, if no irregularities in operations of the credit institution are identified during the examination procedure;

2) in procedures that the Central Bank carries out to review and assess internal approaches
referred to in Articles 247 and 248 of this Law.

(3) The report on supervision shall be confidential and shall not be published either partly or in its entirety without the consent by the Central Bank.

Acting upon objections to the report on supervision Article 254

(1) The credit institution may submit to the Central Bank the objections to the report on the performed supervision referred to in Article 240 paragraph (1) items 1) and 2) of this Law within eight working days following that of the receipt of the report.
(2) The Central Bank may directly verify claims of the credit institution contained in the objections given in accordance with paragraph (1) of this Article, and in that case, it shall draw up an appendix to the report to which the credit institution may submit objections within three working days following the day of the receipt of the appendix. (3) The Central Bank shall, within eight working days following that of the receipt of the objections referred to in paragraphs (1) and (2) of this Article, consider the received objections and notify the credit institution in writing on whether it accepts such objections or not.

3. Supervision of credit institutions which provide services in other Member States

Cooperation in supervision Article 255

(1) The Central Bank shall cooperate with competent authority of the host Member State during the supervision of the credit institution which provides services within the territory of that Member State through a branch.
(2) The Central Bank shall submit to the competent authority of the host Member State the information that is relevant for the supervision, and particularly the information:
1) in relation to the management and ownership structure of credit institutions, which may facilitate the exercise of supervision and verification of the fulfilment of the requirements for granting of the authorisation from within their powers;
2) which may facilitate monitoring of credit institutions from within their powers which refer to liquidity, solvency, deposit protection, limitation of large exposures;
3) other facts that may influence systemic risk posed by such credit institutions, as well as on administrative and accounting procedures and internal control mechanisms.
(3) The Central Bank shall inform without any delay the competent authorities of all host Member States about liquidity problems of the credit institution if they have occurred or can realistically be

expected to occur, while such notification should contain data on planning and implementing the recovery plan and data on all prudential supervisory measures taken by the Central Bank on that basis.

(4) The Central Bank shall notify, without any delay, the competent authority of the host Member State of all the information and findings related to the supervision of liquidity of operations of the credit institution which operates through the branch in accordance with Part VI of the Regulation 575/2013 (EU) and provisions of this Law governing supervision on a consolidated basis, if such information and findings are relevant for the protection of depositors or investors from the host Member State. (5) The Central Bank shall notify, without any delay, the competent authorities of all host Member States about liquidity problems of the credit institution if they have occurred or can realistically be expected to occur, while such notification should contain data on planning and implementing the recovery plan and data on all prudential supervisory measures taken by the Central Bank on that basis. (6) The Central Bank shall, at the request of competent authority of the host Member State, elaborate in which manner it considered the information and findings submitted to it by the competent authority in its actions towards the credit institution, and if the competent authority of the host Member State believes that the Central Bank did not take appropriate measures, it may, after notifying the Central Bank and European Banking Authority, take appropriate measures to prevent further violations, with the aim of protecting general interests of depositors, investors and other persons to whom banking and financial services are provided or with the aim of protecting stability of the financial system of the host Member State. (7) The Central Bank, as the competent authority of the home Member State may, in the event of disagreeing with the measures referred to in paragraph (5) of this Article taken by the competent authority of the host Member State, or measures which the competent authority of the host Member State intends to take, request mediation by the European Banking Authority, in accordance with Article 19 of the Regulation (EU) No 1093/2010. (8) The Central Bank may request mediation from the European Banking Authority in accordance with Article 19 of the Regulation (EU) No 1093/2010 also if the competent authority from another Member State rejects its request for cooperation, and particularly request for information exchange, or if it failed to act upon such request within a suitable time limit.

On-site examination of operations of branch in host Member State Article 256

(1) The Central Bank, or persons authorised by the Central Bank to perform certain examination tasks, may carry out on-site examination of operations, including verification of information referred to in Article 255 of this Law, in branch of the credit institution which operates within the territory of another Member State through the branch, subject to prior notification of the competent authority of the host Member State. (2) The Central Bank may request from competent authority of the host Member State, in which the credit institution provides services that such authority or other professionally trained person authorised by such authority carry out the on-site examination of the branch. (3) The Central Bank may participate in on-site examination of the branch of credit institution in the Member State, regardless of whether who carries out the on-site examination. (4) If the competent authority of the host Member State, for the purpose of preserving stability of the financial system of that Member State, carried out the on-site examination of the operations of the branch of credit institution with head office in Montenegro and submitted to the Central Bank the information and findings obtained which were relevant for risk assessment of the credit institution or for the stability of the financial system of the host Member State, the Central Bank shall take into consideration such information as well as the stability of the financial system of the host Member State when establishing the supervision plan referred to in Article 249 of this Law.

Measures towards a branch in host Member State regarding the provision of services within the territory of that Member State

Article 257

(1) If competent authority of the host Member State in which credit institution provides services through the branch or directly notifies the Central Bank, based on the information submitted by the Central Bank in accordance with Article 255 of this Law, that such credit institution, in respect of the provision of services within the territory of that Member State, violates legislation of that state into which Directive 2013/36/EU or provisions of the Regulation (EU) No 575/2013 were transposed, or if there is a significant risk that the credit institution will not comply with such legislation, the Central Bank shall, if the decision on reorganisation measures has not been adopted in Montenegro, without any delay impose all appropriate supervisory measures on the credit institution for the purpose of eliminating lack of compliance or preventing the occurrence of the lack of compliance and shall without any delay notify competent authority of the host Member State thereof. (2) The Central Bank shall cooperate with the competent authority of the host Member State and the European Banking Authority in procedures for the amicable resolution of issues relating to the provision of services by a credit institution referred to in paragraph (1) of this Article. (3) If competent authority of the host Member State in which credit institution provides services through the branch or directly took preventive measures related to the violations referred to in paragraph (1) of this Article, the Central Bank may, should it disagree with the measures taken, request mediation from the European Banking Authority in accordance with Article 19 of the Regulation (EU) No 1093/2010.

Notification of competent authorities of host Member State Article 258

If the Central Bank withdraws authorisation for the provision of banking and/or financial services from the credit institution, or if it imposes supervisory measure that involves prohibition to provide certain financial services, it shall notify thereof without any delay a competent authority of the host Member State.

Supervision of credit institution which directly provides services in another Member

State and of financial institution which provides services in another Member State Article 259

(1) Provisions of Articles 255 through 258 of this Law shall apply to the supervision of a credit institution which directly provides services in another Member State.
(2) Provisions of this Law governing the supervision of credit institutions which provide services in other Member States shall apply to the supervision of financial institutions which in accordance with Article 74 of this Law provide mutually recognised services within the territory of another Member State.

4. Supervision of credit institutions from another Member States which provide services in Montenegro

Power to exercise supervision Article 260

(1) In addition to the supervision of operations of branch of the credit institution with head office in another Member State which provides mutually recognised financial services within the territory of Montenegro, which is exercised by competent authority of the home Member State, the Central Bank shall also exercise supervision of that branch, in accordance with Articles 261 through 267 of this Law.

Powers to collect information and exercising on-site examination of the branch Article 261

(1) Branch of the credit institution with head office in another Member State which provides mutually recognised services within the territory of Montenegro shall submit to the Central Bank the information on all the services provided by that branch within the territory of Montenegro in the manner and within the time limits specified by the regulation referred to in Article 233 paragraph (2) of this Law, as well as other information in accordance with Article 234 of this Law. (2) The Central Bank may use the information obtained in accordance with paragraph (1) of this Article for:
1) informative or statistical purposes;
2) establishing significance of the branch in accordance with the provisions of this Law; and
3) exercising supervision of the branch in accordance with this Law.
(3) The Central Bank shall keep data obtained in accordance with paragraph (1) of this Article as confidential in accordance with this Law.
(4) If the branch of the credit institution with head office in another Member State operates within the territory of Montenegro, a competent authority of the home Member State may:
1) subject to prior notification of the Central Bank, either independently or through the person
it authorised, carry out the on-site examination of that branch including verification of the information referred to in Article 248 of this Law; or

2) request from the Central Bank that the authorised examiners or other persons authorised by
the Central Bank carry out the on-site examination of operations of that branch.

(5) In the case referred to in paragraph (4) item 2) of this Article, competent authority of the home Member State may participate in the on-site examination of the branch carried out by authorised examiners or other persons authorised by the Central Bank.
(6) The Central Bank may exercise on-site examination of operations of branch of the credit institution from another Member State and request that the information on branch operations as well as the information needed for the supervision of operations of that branch are submitted to it, if that is necessary to preserve stability of the financial system of Montenegro, whereas prior to the commencement of examination the Central Bank shall consult competent authorities of the home Member State. (7) After completion of the examination referred to in paragraph (6) of this Article, the Central Bank shall deliver to the competent authority of the home Member State the collected information and findings that are relevant for the assessment of risk of the credit institution or of the stability of the financial system of Montenegro. (8) On-site examination of a branch of the credit institution from another Member State shall be carried out in accordance with the regulations of Montenegro. (9) When imposing measures on a branch of the credit institution from another Member State, the Central Bank shall not take measures of discriminatory or restricting nature due to the fact that the credit institution has been granted authorisation in another Member State.

Cooperation in supervision of credit institutions with head offices in another Member