Regulation No. 2023-04 on Consolidated Financial Statements Integrating Regulation No. 2016-02 and Circular No. 2017-03

THE DEPUTY DIRECTOR
OF THE CENTRAL BANK OF THE REPUBLIC OF SAN MARINO HAVING REGARD to Law 17 November 2005 No. 165 (Law on Banking, Financial and Insurance Enterprises and Services) and in particular Article 39, which grants the Central Bank of the Republic of San Marino the power to issue measures containing binding and general provisions, and Title VI, Part I, Chapter I, which refers certain matters concerning the individual and consolidated financial statements of authorized entities to the aforementioned regulatory powers; HAVING REGARD to the Statute of the Central Bank of the Republic of San Marino approved by Law 29 June 2005 No. 96 and subsequent amendments, and in particular Article 30, paragraph 3, according to which acts of the Central Bank in matters of supervision, deliberated by the Supervisory Coordination, are issued by the General Director, and Article 14, paragraph 5, which governs the case of absence or impediment of the General Director; HAVING REGARD to the outcomes of the public consultation procedure held on the draft regulation; HAVING REGARD to the deliberations of the Supervisory Coordination and the Board of Directors by which the text of Regulation No. 2023-04, named “Regulation on Consolidated Financial Statements integrating Regulation No. 2016-02 and Circular No. 2017-03”, was approved; ISSUES the attached Regulation No. 2023-04 which will enter into force on 1 January 2024. San Marino, 21 December 2023 Signed: THE DEPUTY DIRECTOR Dr. Daniele Bernardi

REGULATION
ON CONSOLIDATED FINANCIAL STATEMENTS
INTEGRATING REGULATION NO. 2016-02
AND CIRCULAR NO. 2017-03 year 2023/number 04

Summary
PART I - GENERAL PROVISIONS..................................................................................................................3
Article 1 – Purpose ............................................................................................................................................................. 3
Article 2 – Entry into force............................................................................................................................................... 3
PART II - INTEGRATIONS TO REGULATION NO. 2016 - 02 .........................................................................3
Article 3 – Definitions ....................................................................................................................................................... 3
Article 4 – Structure ........................................................................................................................................................... 3
Article 5 – Documentation of the individual and consolidated financial statements.................................................................... 3
Article 6 - General provisions regarding the preparation of the consolidated financial statement.................................................................. 3
Article 7 - Activities not constituting fixed assets .......................................................................................................... 4
Article 8 – Integrations to Part VII................................................................................................................................. 4
Article 9 – Integrations to Part IX.................................................................................................................................. 6
Article 10 – First-time application....................................................................................................................... 6
Article 11 – New Annex B........................................................................................................................................... 6
PART III - INTEGRATIONS TO CIRCULAR NO. 2017 - 03 ...........................................................................7
Article 12 – Modification of the name of Circular No. 2017-03 ................................................................................ 7
Article 13 – Integrations to paragraph 2 .............................................................................................................................. 7
Article 14 – Integrations to paragraph 3 .............................................................................................................................. 7
Article 15 – Integrations to paragraph 4 .............................................................................................................................. 7
Article 16 – Introduction of new paragraph 6................................................................................................................ 8
Article 17 – Introduction of new paragraph 7.............................................................................................................. 12
Article 18 – Integrations to Table 3.3 .......................................................................................................................... 13
Article 19 – Integrations to Table 4.4 .......................................................................................................................... 13
Article 20 – Integrations to Table 6.4 .......................................................................................................................... 14
Article 21 – Elimination of Table 13.2 and Table 14.2 ...................................................................................... 15
Article 22 – Modification of Table 19.9 name........................................................................................................... 15
Article 23 – Insertion of new Table 19.10 “Statement of changes in equity” ............................................................. 15
Article 24 – Integrations to Table 33.1......................................................................................................................... 16
Article 25 – New Annexes C and D.................................................................................................................................... 16

PART I
GENERAL PROVISIONS
Article 1 – Purpose

1. This Regulation falls within the category of implementing measures provided for by Article 39 of Law 17 November 2005 No. 165 (LISF), and has the purpose of integrating Regulation No. 2016-02 and Circular No. 2017-03 to give concrete effect to the provisions governing the preparation of the consolidated financial statement and related information obligations, in accordance with Articles 29, 30 and 53 of the LISF.
   Article 2 – Entry into force
2. This Regulation enters into force on 1 January 2024.
   PART II
   INTEGRATIONS TO REGULATION NO. 2016 - 02
   Article 3 – Definitions
3. At Article I.I.2 the following definition is added:
   “18.bis) “instrumental enterprise”: an enterprise whose main activity consists in the ownership and management of real estate, data processing, or any other similar activity of an auxiliary nature with respect to the main activity of one or more entities; in this Regulation it is also indicated as the exercise of “instrumental activity”;”.
   Article 4 – Structure
4. The first paragraph of Article I.II.3 is replaced as follows:
   “1. The Regulation is divided into 10 Parts, each of which is subdivided into Titles. Each Title is composed of Articles. The Regulation also includes Annexes A and B.”.
   Article 5 – Documentation of the individual and consolidated financial statements
5. The fourth paragraph of Article II.I.2 is replaced as follows:
   “4. The documentation of the individual and consolidated financial statements submitted to the CENTRAL BANK, in addition to the documents referred to in the previous paragraphs, also contains a copy of the shareholders' meeting minutes for the individual financial statement and the Board of Directors' resolution for the consolidated financial statement.”
   Article 6 - General provisions regarding the preparation of the consolidated financial statement
6. The second and third paragraphs of Article II.II.2 are replaced as follows:

“2. The templates of the consolidated balance sheet and the consolidated income statement are reported in Annex B.
3. The administrators of the enterprise prepare the consolidated financial statement for each fiscal year. The fiscal year opens on 1 January and closes on 31 December of each year. The consolidated financial statement must be approved by the Board of Directors by 30 June of the following year.”
Article 7 - Activities not constituting fixed assets

1. Letter b) of the first paragraph of Article III.II.5 is replaced as follows:
   “b) flat-rate write-downs for performing credits that take into account the qualitative deterioration of homogeneous sets of debtors (e.g. by economic sector of the debtor's belonging) or the historically latent risk in the credit portfolio. The amount of the flat-rate write-downs is indicated in the notes.”
   Article 8 – Integrations to Part VII
2. In letter c) of the first paragraph of Article VII.I.3 the word “paragraph” is replaced by the word “paragraph” (Note: Italian 'comma' translated as paragraph/indent).
3. In the second paragraph of Article VII.II.1 the date “1 January 2017” is replaced by “1 January 2023”.
4. At Article VII.II.2 the following paragraph is added:
   “1. The enterprises included in consolidation (parent enterprise, enterprises operating under a unified direction, CONTROLLED ENTERPRISES that carry out credit or financial activity or, exclusively or primarily, INSTRUMENTAL ACTIVITIES) are treated using the method of full consolidation.”.
5. Paragraphs 4 and 5 of Article VII.II.3 are replaced as follows:
   “4. The difference remaining after the application referred to in paragraphs 2 and 3 is accounted for in the consolidated balance sheet in a specific item named “Positive consolidation differences” or “Negative consolidation differences”, depending on whether such difference arises on the asset or liability side, respectively, unless it can be attributed entirely or in part to the income statement. The negative difference may appear in the consolidated income statement only if such treatment is in accordance with the principles established in the articles of the previous Parts II and III. The amount recorded in the asset is subject to amortization.
6. The methods applied to calculate the value of significant positive and negative differences compared to the consolidated financial statement of the previous fiscal year are adequately illustrated in the consolidated notes.”.
7. In the first paragraph of Article VII.II.4 the phrase “minority interests” is deleted, and the expression “equity attributable to third parties” is replaced by “Equity pertaining to third parties”.
8. In the second paragraph of Article VII.II.4 the phrase “profit (loss) attributable to minority interests” is replaced with “Profit (loss) of the fiscal year pertaining to third parties”.
9. The second paragraph of Article VII.II.5 is replaced as follows:

“2. The eliminations indicated in the previous paragraph may be omitted if immaterial, as provided for by the general principles of financial statement preparation referred to in the articles of Part II of this Regulation. Furthermore, the eliminations indicated in letter c) may be omitted, mentioning this in the consolidated notes, when the transaction has been concluded under normal market conditions and the elimination could involve disproportionate costs.”.
8. At Article VII.II.6 the following paragraph is added:
“2. If the reference date of the financial statement of an enterprise included in consolidation is different from that of the consolidated financial statement, this enterprise is consolidated based on an annual financial statement referring to the same date as the consolidated one and prepared in accordance with the provisions regarding the individual financial statement.”.
9. In the first paragraph of Article VII.II.9 after the expression “Non-consolidated participations” the expression “or “Non-consolidated participations in group enterprises”” is added.
10. The introduction to the list referred to in the second paragraph of Article VII.II.10 is replaced as follows: “2. The consolidated notes, in addition to the area and methods of consolidation and what is established by the provisions of paragraph 1 of this Article, indicate:”.
11. At Article VII.II.10 the following paragraphs 7 and 8 are added:
“7. The asset items that in the individual financial statements of the enterprises included in consolidation were subject to VALUE ADJUSTMENTS exclusively in application of tax regulations, may be recorded in the consolidated financial statement at the same amount. In such case, the value of these items before the adjustments is indicated in Part A – General Information.
8. The derogations provided for in Art. III.I.1, paragraphs 3 and 4 are illustrated in the relevant section of the consolidated notes.”.
12. The second paragraph of Article VII.II.11 is replaced as follows:
“2. Without prejudice to the non-application of the provisions contained in letters f. and i. of paragraph 3 of Article VI.I.1, the information referred to in Articles VI.I.1 and VI.I.2 must be adapted as follows:
a) when reporting details regarding own shares acquired, as provided for in points i., ii, iii and iv, of letter g., paragraph 3, of Article VI.I.1, the consolidated management report indicates the number and par value or, in the absence of par value, the book parity of the set of shares or quotas of the PARENT ENTERPRISE held by the PARENT ENTERPRISE itself, its SUBSIDIARIES or by a person acting in their own name but on behalf of one of such enterprises. Such information is not required if already present in the consolidated notes; b) in the information on internal control and risk management systems, the corporate governance report refers to the main characteristics of such systems for the set of enterprises included in the consolidation.
13. At Article VII.II.11 paragraph 2bis is added:
“2.bis. The consolidated management report includes a reconciliation statement between the equity and profit/loss of the parent enterprise and the consolidated equity and profit/loss; the equity also includes revaluation reserves.”.

Article 9 – Integrations to Part IX

1. The second paragraph of Article IX.I.1 is replaced as follows:
   “2. The consolidated financial statement including the documents prescribed by this Regulation (management report, corporate governance report where applicable, etc.) must be published in accordance with the provisions in force at the time.”.
2. At Article IX.I.2 the following paragraph is added:
   “4. If the foreign entity is present in the Republic of San Marino with two or more BRANCHES, the financial statements, reports and supplementary information are published by at least one of such BRANCHES; the other San Marinese BRANCHES communicate the filing of the aforementioned documents.”.
   Article 10 – First-time application
3. The second paragraph of Article X.I.1 is replaced as follows:
   “2. The provisions of this Regulation regarding the consolidated financial statement apply starting from 1 January 2024.”
   Article 11 – New Annex B
4. To Regulation No. 2016-02, after Annex A, Annex 1 of this Regulation is added, which will assume the name of Annex B “Templates of Consolidated Balance Sheet and Consolidated Income Statement”.

PART III
INTEGRATIONS TO CIRCULAR NO. 2017 - 03
Article 12 – Modification of the name of Circular No. 2017-03

1. The name of Circular BCSM No. 2017-03 is modified to “Circular on information obligations regarding individual and consolidated financial statements”.
   Article 13 – Integrations to paragraph 2
2. In the first paragraph of paragraph 2 after the expression “individual financial statement” the expression “and consolidated financial statement” is added.
3. The third paragraph of paragraph 2 is replaced as follows: “The regulation is implementing Art. VI.II.5 of Regulation BCSM No. 2007-07, Regulation BCSM No. 2011-03 and Regulation BCSM No. 2020-04 as well as Art. 45 paragraph 1 of Regulation BCSM No. 2006-03.”.
   Article 14 – Integrations to paragraph 3
4. At paragraph 3 the following paragraph 2 is added:
   “2. The subjects referred to in Art. VII.I.1 of the REGULATION are required to prepare the consolidated financial statement, except for the exemption cases provided for in Art. VII.I.2 of the REGULATION.”.
   Article 15 – Integrations to paragraph 4
5. At point 4.1, first paragraph, it is specified “..within thirty days from the approval of the individual financial statement,..”, “….approval of the individual financial statement….”.
6. At point 4.1, after the first paragraph, the following paragraph 1-bis is added:
   “1-bis. Within thirty days from the approval of the consolidated financial statement, which must take place within six months from the closing of the fiscal year, a certified copy of the resolution approving the consolidated financial statement by the Board of Directors of the parent enterprise, to which all documents referred to in paragraph 2-bis of this paragraph must be attached, must be filed with the Economic Activities Office by the administrators of the parent enterprise.”
7. At point 4.1, the second paragraph is modified as follows:
   “2. Within thirty days from the approval of the individual financial statement, the individual financial statement documentation provided for in Art. II.I.2 of the REGULATION must also be transmitted to the CENTRAL BANK, which is listed below:
   a) Balance sheet, income statement, notes to the individual financial statement; b) Management report (including a corporate governance report in the cases provided for in Art. VI.I.2 of the REGULATION) of the authorized subject; c) Report of the Board of Statutory Auditors on the individual financial statement;

d) Report of the Audit Firm (see Part VIII of the REGULATION) on the individual financial statement; e) Copy of the shareholders' meeting minutes.”.
4. At point 4.1, after the second paragraph, the following paragraph 2-bis is added:
“2-bis. Within thirty days from the approval of the consolidated financial statement, the consolidated financial statement documentation provided for in Art. II.I.2 of the REGULATION must be transmitted to the CENTRAL BANK, which is listed below:
a) Balance sheet, income statement, notes to the consolidated financial statement; b) Consolidated management report of the set of enterprises included in the consolidation; c) Consolidated audit report; d) Copy of the Board of Directors' resolution approving the consolidated financial statement.”.
5. The name of paragraph 4.2 is modified to “Publication of the individual and consolidated financial statements”.
6. At point 4.2, paragraph 1, after the word “from the approval” the expression “of the individual financial statement” is added.
7. At paragraph 4.2, after the first paragraph, the following paragraph 1-bis is added: “1-bis. Authorized subjects who, pursuant to Art. VII.I.1 of the REGULATION, must prepare the consolidated financial statement and must publish on their website, within thirty days from the approval of the consolidated financial statement by the Board of Directors and in any case not prior to the publication of the individual financial statement, the consolidated financial statement documentation composed at least of:
a) Consolidated management report; b) Financial statement templates prepared according to consolidation criteria; c) Notes prepared according to consolidation criteria; d) Consolidated audit report.”.
8. At paragraph 4.2, paragraph 2, after the word “financial statements” the words “individual and consolidated” are added.
9. At paragraph 4.3, paragraphs 1 and 2, after the word “financial statement” the word “individual” is inserted.
10. At paragraph 4.3, after the first paragraph, the following paragraph 1-bis is added: “1-bis. The consolidated financial statement report as of 31 December must be transmitted to BCSM by 15 July following the reference date.”.
11. Point 4.4 is named “4.4 Transmission to BCSM of the semi-annual financial statement report and documentation as of 30 June”.
Article 16 – Introduction of new paragraph 6

1. After paragraph 5, the following paragraph with numbering 6 is added:
   “6. THE CONSOLIDATED FINANCIAL STATEMENT
   6.1 General provisions

2. For the general criteria for the preparation of the consolidated financial statement, reference is made to Art. VII.II.1 of the REGULATION.

3. For the REFERENCE DATE of the consolidated financial statement, reference is made to Art. VII.II.6 of the REGULATION.

4. For the content of the consolidated notes, reference is made to Art. VII.II.10 of the REGULATION.

5. For the content of the consolidated management report, reference is made to Art. VII.II.11 of the REGULATION.
   6.2 Consolidation methods

6. In this paragraph, the consolidation methods to be applied in the preparation of the consolidated financial statement are illustrated.
   6.2.1 Full consolidation

7. For general provisions on the method of full consolidation, reference is made to Art. VII.II.2 of the REGULATION.
   6.2.1.1 Consolidation of participations

8. Once the accounting criteria have been homogenized, the participations in controlled enterprises included in the consolidation are offset against the corresponding fraction of the equity of such enterprises. The equity is calculated by summing the share capital, share premium reserves, reserves, general financial risk reserve, retained earnings and profit for the year allocated to reserves and dividends (items 110, 120, 130, 90, 150, if relating to profits, and 160, for the part allocated to reserves and dividends, of the liabilities of the controlled enterprise) and subtracting retained losses and loss for the year (items 150 and 160, if relating to losses, of the liabilities of the controlled enterprise).

9. In the event that an increase in the share capital of the controlled enterprise for consideration has been subscribed but not yet settled in whole or in part, it is necessary to homogenize the two values (participation and equity) to be compared. To this end, the value of the participation must be increased by an amount equal to the “tenths” and “premiums” that the participating enterprise must still pay, crediting correspondingly:
   a) the asset account of the controlled enterprise “Subscribed but unpaid share capital”; b) the liability account of the controlled enterprise “Share premiums”.

10. If the participation is not total, the equity of the controlled enterprise must also be increased by the “share premiums” not yet paid by third parties, debiting the “consolidation adjustments” account (for its functioning, see the instructions contained in the subsequent paragraph 6.2.1.2 “Elimination of reciprocal relationships”).