Regulation on Criteria for Assessing Conditions for Membership in the Management Board and Supervisory Board of UCITS Management Companies

Croatian Financial Services Supervisory Agency, 10000 Zagreb, Franje Račkoga 6, P.O. Box 164, Croatia t: 01 6173 200, f: 01 4811 507, e: info@hanfa.hr, OIB: 49376181407, MB: 02016419, w: www.hanfa.hr

REGULATION ON THE CRITERIA FOR ASSESSING CONDITIONS FOR MEMBERSHIP IN THE MANAGEMENT BOARD AND SUPERVISORY BOARD OF UCITS MANAGEMENT COMPANIES ("Narodne novine", No. 136/20 and 79/22 – unofficial consolidated text)

Introductory Provisions Article 1. (NN 79/22) This Regulation further regulates:

1. the criteria for assessing the conditions for performing the function of a member of the management board of a UCITS management company (hereinafter: management company) and the documentation attached to the application for issuing approval for performing the function of a member of the management board,
2. the content of the business management program of the management company, the procedure and criteria for evaluating the program and candidates presenting the program, as well as the justified reasons for which HANFA may issue approval for a term shorter than requested,
3. the criteria for assessing the conditions that members of the supervisory board of a UCITS management company must meet.

Criteria for Assessing Conditions for Membership in the Management Board of the Management Company Article 2. (NN 79/22) (1) A member of the management board of a management company may be a person who permanently meets the conditions prescribed by Article 36 and Article 37 of the Act and this Regulation. (2) A candidate for a member of the management board of a management company must have appropriate professional knowledge, competence, good reputation, and experience for managing the business of the management company. (3) In deciding on the application for issuing approval for performing the function of a member of the management board of a management company, HANFA will take into account all elements that may influence the assessment of whether the candidate meets the set conditions, with the aim of ensuring the continuous operation of the management company.

Professional Knowledge of Members of the Management Board of the Management Company Article 3. (NN 79/22) (1) The professional knowledge prescribed by Article 36, paragraph 1, point 1 of the Act, necessary for performing the function of a member of the management board of a management company, is possessed by a person who has completed one of the following studies: a) undergraduate and master university studies or integrated undergraduate and master university studies or professional study and specialist master professional study, by completing which they acquired at least 300 ECTS credits, or b) university undergraduate study, by completing which they acquired high professional qualification, or professional undergraduate study, lasting at least four years, by completing which they acquired high professional qualification. (2) The provisions of paragraph 1, point b) of this Article apply to persons who completed their studies according to regulations that were in force before the entry into force of the Act on Scientific Activity and Higher Education ("Narodne novine" No. 123/03, 198/03, 105/04, 174/04, 2/07 Decision of the Constitutional Court of the Republic of Croatia, 46/07, 45/09 and 63/11, 94/13, 139/13, 101/14, 60/15 and 131/17) and have the right to use the appropriate academic or professional title or academic degree established by the Act on Academic and Professional Titles and Academic Degree ("Narodne novine" No. 107/07 and 118/12), in accordance with Article 120, paragraph 2 of the Act on Scientific Activity and Higher Education. (3) In assessing the professional knowledge of candidates, HANFA may, in addition to the achieved level of education in accordance with paragraphs 1 and 2 of this Article, also verify the candidate's continuous professional development in the following areas: a) the operation of investment funds or other funds managed or planned to be managed by the management company during the term for which the candidate's approval is requested, b) financial markets, c) accounting framework, d) regulatory framework and regulatory requirements, e) strategic planning and knowledge of business strategy, business plan, and its implementation, f) risk management (identification, measurement, monitoring, control, and mastering of the main types of risks of the management company), g) corporate governance, including the internal control system, and h) analysis of financial data. (4) In assessing the candidate's competence for membership in the management board, in the sense of Article 36, paragraph 1, point 1 of the Act, HANFA may assess the ability for strategic thinking and creating short-term and long-term business plans, risk assessment and management, ability to organize business and lead the company, independence of opinion, and the candidate's ability and willingness for continuous learning and professional development. In the assessment, the area of responsibility for which the candidate is accountable, as well as the duties and abilities required by their position in the management board, are taken into account.

Experience of Members of the Management Board of the Management Company Article 4. (1) Experience in the sense of the provisions of Article 36, paragraph 1, point 1 of the Act, in addition to the experience from Article 36, paragraph 2 of the Act, is considered other appropriate experience, namely:

1. at least three years of experience as a deputy member of the management board, management advisor, authorized signatory, and holder of a key function in a management company, alternative investment fund management company, credit institution, or investment company with its seat in the Republic of Croatia or in another Member State, or a pension fund company,
2. at least five years of experience in management or working in key positions with a high degree of independence in activities that can be compared to the activities of a management company, which HANFA assesses to be of such a nature that by performing such activities the candidate could acquire the knowledge necessary for performing the function of a member of the management board of a management company in relation to financial markets, regulatory framework and requirements, strategic planning and linking business strategy, business plan, and its implementation, risk management, assessment of the effectiveness of supervision and control, and interpretation of financial data, identification of main problems based on these data, and appropriate controls and measures, which constitutes work experience in managing activities at the management level or directly below management, or in managerial or working positions with a high degree of independence, and experience of an authorized signatory. (2) In assessing the duration of experience, HANFA may take into account several short-term or temporary performances of duties, if it establishes that together with other previous duties performed by the candidate, they acquired at least three, respectively five years of continuous experience in the activities from paragraphs 1 of this Article.

Good Reputation of Members of the Management Board of the Management Company Article 5. (NN 79/22) (1) In assessing the good reputation, prescribed by Article 36, paragraph 1, point 4 of the Act, necessary for performing the function of a member of the management board, particular attention will be paid to: a) whether the candidate had the corresponding consent or approval for performing certain activities withdrawn or revoked due to non-compliance with regulations on the competence of HANFA or another competent authority, or whether an foreign supervisory authority has withdrawn consent or imposed any measure prohibiting the performance of corresponding activities in the fund industry, banking, or capital market, b) whether an investigation has been initiated against the candidate, or whether criminal or misdemeanor proceedings are being conducted, or if they have been finally convicted for acts prescribed by the Securities Market Act ("Narodne novine" No. 84/02 and 138/06), the Act on Criminal Offenses against the Capital Market ("Narodne novine" No. 152/08), the Capital Market Act ("Narodne novine" No. 88/08, 146/08, 74/09, 54/13, 159/13, 18/15, 110/15, 123/16 and 131/17), the Capital Market Act ("Narodne novine" No. 65/18, 17/20 and 83/21), the Mandatory Pension Fund Act ("Narodne novine" No. 19/14, 93/15, 64/18, 115/18 and 58/20), the Voluntary Pension Fund Act ("Narodne novine" No. 19/14, 29/18 and 115/18), the Act on Open Investment Funds with Public Offer ("Narodne novine" No. 44/16, 126/19 and 110/21, respectively "Narodne novine" No. 16/13 and 143/14), the Alternative Investment Fund Management Act ("Narodne novine" No. 21/18, 126/19 and 110/21, respectively "Narodne novine" No. 16/13 and 143/14), the Insurance Act ("Narodne novine" No. 30/15, 112/18, 63/20 and 133/20), the Act on Prevention of Money Laundering and Financing of Terrorism ("Narodne novine" No. 108/17 and 39/19, respectively "Narodne novine" No. 87/08 and 25/12), and the Companies Act ("Narodne novine" No. 111/93, 34/99, 121/99, 52/00, 118/03, 107/07, 146/08, 137/09, 152/11, 111/12, 68/13, 110/15 and 40/19), or for a foreign person, whether an investigation has been initiated against them, proceedings are being conducted, or if they have been finally convicted for acts that correspond in description and consequences to the aforementioned acts, c) whether an investigation has been initiated against the candidate, criminal proceedings are being conducted, or if they have been finally convicted for criminal offenses prescribed by Article 36, paragraph 6 of the Act, d) whether an investigation has been initiated against the candidate, criminal proceedings are being conducted, or if they have been finally convicted for criminal offenses from the Criminal Code ("Narodne novine", No. 110/97, 27/98, 50/00, 129/00, 51/01, 111/03, 190/03 – Decision of the Constitutional Court, 105/04, 84/05, 71/06, 110/07, 152/08 and 57/11) that are in legal continuity with the aforementioned criminal offenses from point c) of this Article, or for a foreign person, whether an investigation has been initiated against them, proceedings are being conducted, or if they have been finally convicted for acts that correspond in description and consequences to the aforementioned criminal offenses, e) the candidate's previous professional work and personal integrity, f) whether business results and/or financial stability endanger the candidate's reputation, g) whether there are other reasons for doubt regarding the candidate's good reputation. (2) In assessing the conditions from paragraph 1, points a) to d) of this Article, HANFA will take into account all available information related to the type of judgment or decision, the stage at which the proceedings are, legal remedies declared, the imposed sanction, existing circumstances, the significance of the criminal offense or misdemeanor, the period that has elapsed since the commission of the act, and the person's behavior during that time. HANFA will also take into account a larger number of minor offenses that individually do not impair, but together may impair the good reputation of the person. (3) Additionally, in assessing the conditions from paragraph 1, point e) of this Article, HANFA will analyze information indicating improper behavior of the candidate in previous professional work, such as unprofessional or negligent conduct or failure to exercise due diligence, non-transparent conduct, non-cooperation with competent authorities, or non-compliance with measures imposed by HANFA or another competent authority, denial or revocation or withdrawal of approval or license for performing managerial functions or professional occupations or activities, and, if available, will also analyze the reasons for termination of employment contracts, as well as the reasons for dismissal from a key or similar function and prohibition of managing business or representing a legal entity imposed by the competent authority, and all other data and evidence indicating that the candidate's actions are not in line with high standards of professional behavior. (4) In assessing the conditions from paragraph 1, point f) of this Article, HANFA will take into account the financial and business results of the commercial company in which the candidate has a significant share and/or managerial position, before a pre-bankruptcy settlement was conducted over the company, bankruptcy proceedings were opened, a decision on compulsory liquidation was made, or approval for work was withdrawn or revoked, which could affect the candidate's good reputation and integrity. HANFA will assess whether the candidate's actions influenced the occurrence of these events. (5) The establishment of the existence of circumstances from paragraph 1 of this Article does not call into question the application of the principle of presumption of innocence from regulations governing criminal proceedings.

Procedure for Issuing Approval and Documentation Attached to the Application Article 6. (1) Before making a decision on the appointment of a member of the management board, the applicant must obtain HANFA's approval for performing the function of a member of the management board of the management company in accordance with the provisions of the Act. The decision on the appointment of a member of the management board may be made conditional upon the entry into force upon the issuance of HANFA's approval. (2) The application for issuing approval for performing the function of a member of the management board must contain an explanation covering the essential reasons that influenced the submission of the application and the goals to be achieved by appointing the candidate to the management board of the management company. (3) The application from paragraph 2 of this Article must contain the proposed duration of the term, the function and competencies for which the candidate intends to be appointed, an explanation of the decision on the selection of the candidate which contains the criteria and procedures by which the management company guided itself in assessing the suitability of the candidate, and at least the following:

1. personal data of the candidate, including name, surname, maiden name, place and date of birth, country of birth, residence or stay, nationality, OIB (Personal Identification Number), sex, father's and mother's name and surname,
2. information on education, including a chronological list of all levels of education with the year of completion, duration, and acquired academic title,
3. information on professional development, including a chronological list of all forms of professional development, where topics, organizers, and duration must be stated, years of passing professional exams, certificates, licenses, etc.,
4. for foreign citizens, information on the level of knowledge of the Croatian language,
5. information on work experience, including a chronological listing of all previous employers and job positions, or functions held outside of employment, with a note of the periods in which individual functions were performed,
6. for job positions or functions where the candidate worked or held office in the last ten years, the following are stated: – description of the duties performed by the candidate at that job position or function, – organizational structure of the employer at which the duties were performed, or function held, at the time the candidate worked at that job position, – scope of competencies, decision-making powers, and responsibility, – number of subordinate employees.
7. information on whether proceedings are being conducted against the candidate, or if the candidate has been finally convicted for one or more criminal offenses listed in Article 36, paragraph 6 of the Act and Article 5, paragraph 1 of this Regulation, or for any other criminal offense,
8. information on whether the candidate has been finally convicted, if a measure has been imposed against them, and whether competent courts or bodies are conducting proceedings against the candidate for irregularities or non-compliance with the Act and subordinate regulations, or any regulations governing banking, financial, or insurance activities, or regulating payment instruments, or providing financial services, or any other relevant regulations, which could cast doubt on the candidate's good reputation,
9. information on whether proceedings are being conducted against the candidate, or if the candidate has been finally convicted for a misdemeanor that constitutes a gross and/or repeated violation of regulations under the competence of HANFA, the Croatian National Bank, or another competent regulatory body, or any misdemeanor that could negatively affect the candidate's financial stability and reputation,
10. information on whether bankruptcy proceedings have been opened over the candidate's property or over a company where they were a member of the supervisory board, member of the management board, or held another senior managerial position, or if a decision on compulsory liquidation was made, or approval for work was annulled or revoked,
11. information on the candidate's financial status, including information on whether the candidate's assets call into question the fulfillment of their financial obligations in the future, whether the candidate is on the list of delinquent debtors (e.g., HROK, tax debtor list of the Ministry of Finance, "black list", credit registry, etc.), and whether enforcement, bankruptcy, or personal bankruptcy proceedings have been initiated over the candidate's property,
12. information on the financial and business results of commercial companies in which the candidate is or was a significant shareholder or in which the candidate has or had significant business shares, or in which they performed the function of a member of the management board or another managerial function, including information on whether a pre-bankruptcy settlement was conducted over the company, bankruptcy proceedings were opened, a decision on compulsory liquidation was made, or approval for work was withdrawn,
13. information on whether another competent body has already conducted a suitability assessment of the person (including data on that body and evidence of the assessment results),
14. information on the result of the suitability assessment conducted by the management company and the explanation of the assessment,
15. information on whether a collaborator of the person convicted of a criminal offense prosecuted ex officio is involved.

Article 7. (NN 79/22) (1) The following documentation is attached to the application for issuing approval for performing the function of a member of the management board of a management company: a) decision on the appointment of the selected candidate as a member of the management board conditional on obtaining HANFA's approval, or decision on the selection of the candidate as a member of the management board b) copy of personal ID or passport, or for a foreign citizen, a copy of personal ID or travel document issued on the basis of the provisions of the Act on Foreigners ("Narodne novine" No. 133/20, hereinafter: Act on Foreigners), c) certified copy of proof of completed corresponding level of education, d) document on recognition of foreign higher education qualification issued by the competent body in the Republic of Croatia, e) curriculum vitae with detailed data on education, professional development, and work experience, f) corresponding document proving the candidate's work seniority, g) confirmation from employers about previous work experience (company name, period of work, description of duties and responsibilities), in relation to the provision of Article 36, paragraph 2 of the Act, or exceptionally, when confirmation from the employer cannot be obtained because the employer no longer exists, other document or documents confirming such relevant experience, the authenticity of which HANFA can assess, h) for a foreign citizen, the corresponding document necessary for establishing an employment relationship in accordance with the provisions of the Act on Foreigners (e.g., residence and work permit, residence approval, EU Blue Card, etc.), i) in the case where all candidates for members of the management board are foreign citizens, at least one of them must have confirmation from the competent body regarding knowledge of the Croatian language, j) certificate of no criminal and misdemeanor proceedings issued by the competent body of the Republic of Croatia, or for a foreign citizen, an extract/certificate from the competent body of the state of which they are a citizen (not older than 3 months), k) business management program of the management company for the term period, l) electronically filled Candidate Questionnaire for performing the function of a member of the management board of a management company (Appendix 1 published on HANFA's website), which is an integral part of this Regulation, with a signature certified by a notary public, not older than one month from the date of submission of the application for issuing approval for performing the function of a member of the management board, m) statement by the candidate regarding whether criminal or misdemeanor proceedings are being conducted against the candidate and whether the candidate has been finally convicted of a criminal offense or misdemeanor (Appendix 2), with the signature of the candidate for the member of the management board of the management company certified by a notary public, not older than one month from the date of submission of the application for issuing approval for performing the function of a member of the management board of the management company, n) list of the candidate's collaborators in the sense of Article 4, point 48 of the Act, which list, in relation to Croatian citizen collaborators, besides the data on the name and surname of the collaborator, also contains data on OIB, maiden name, sex, nationality, father's and mother's name and surname, date of birth, place and country of birth, residence, and for foreign citizen collaborators, proof that they have not been finally convicted of criminal offenses prosecuted ex officio and criminal offenses from Article 36, paragraph 6 of the Act is submitted (in the case where the corresponding competent body of the state of which the collaborator is a citizen does not issue such proof, a statement by the candidate (Appendix 3) with the signature of the candidate for the member of the management board of the management company certified by a notary public, not older than one month from the date of submission of the application for issuing approval for performing the function of a member of the management board of the management company, is accepted subsidiarily) o) results of the suitability assessment conducted by the management company with an explanation, p) proof of payment of the fee payable with the application for issuing approval for performing the function of a member of the management board of the management company prescribed by the HANFA act on the type and amount of fees, r) additional documentation upon request by HANFA. (2) Documentation prescribed by this Regulation is submitted in the original or certified copy. Foreign documents from paragraph 1 of this Article are submitted translated into Croatian by an authorized court interpreter, and foreign documents from paragraph 1, points b), c), and f) of this Article are also certified in accordance with the law and international regulations (Apostille – Hague Convention Abolishing the Requirement of Legalisation for Foreign Public Documents, of October 5, 1961) or in accordance with European Union regulations governing the exemption from legalization of public documents issued by Member States or regulating the simplification of the procedure for accepting documents issued by Member States. (3) When the same person is reappointed to the management board, the application does not need to include documents listed under points c), d), and g) from paragraph 1 of this Article. (4) In addition to the documents from paragraph 1 of this Article, other documents may be attached to the application to confirm the candidate's good reputation, professional knowledge, competence, and experience. (5) HANFA may request the applicant to provide other documents, data, and information proving that the candidate meets the prescribed conditions.

Content of the Business Management Program of the Management Company Article 8. (1) The business management program of the management company for the term period (Article 39, paragraph 5 of the Act) is submitted to HANFA in written and electronic form on appropriate permanent media and must contain: – a brief description of the situation in the management company and the organizational chart of the company with the number of employees by organizational units (to the extent that relevant data are available to the candidate), – a description of the environment in which the management company operates and its position in relation to the entire sector in which it operates, as well as in relation to competition (it is desirable to note observed advantages, but also observed weaknesses in relation to comparable groups), – a detailed description of planned activities during the term period with planned implementation dynamics, including planned significant changes in relation to the existing situation, – projections of financial reports of the management company for the term period, which must be prepared on prescribed forms and submitted with the program in written form, and in electronic form on appropriate permanent media (forms are available on HANFA's official website), – a description of assumptions and facts taken into account in preparing the program, – a detailed description of activities that will support planned basic activities, all with the aim of quality identification, measurement, monitoring, and management of all risks that may arise from undertaken activities, description of the risk management system (strategies, policies, procedures, risk management measures, risk measurement techniques, and division of responsibilities in relation to risk management), and description of activities to improve the existing situation in the management company, – a description of the predicted procedure in making decisions, and the delimitation of powers among members of the management board of the management company with highlighted changes in relation to the existing situation, – a description of the predicted