Regulation on Permitted Investments and Additional Investment Restrictions for Voluntary Pension Funds

REGULATION ON PERMITTED INVESTMENTS AND ADDITIONAL INVESTMENT RESTRICTIONS FOR VOLUNTARY PENSION FUNDS (NN 103/2014, 2/2020 – unofficial consolidated text) 1 REGULATION ON PERMITTED INVESTMENTS AND ADDITIONAL INVESTMENT RESTRICTIONS FOR VOLUNTARY PENSION FUNDS Article 1 (NN 2/2020) This Regulation specifies in more detail: – permitted investments of voluntary pension fund assets, – markets considered regulated, – institutions considered counterparties, – money market instruments in which a voluntary pension fund is permitted to invest, – additional restrictions for voluntary pension fund investments, – conditions and restrictions related to techniques and instruments for efficient management of fund assets, – handling of voluntary pension fund assets, – exposure calculation, – content, manner, and place of publication of the investment policy statement. Article 2. A Fund is an open or closed voluntary pension fund that may be established by a voluntary pension fund management company, a mandatory pension fund management company, or a UCITS fund management company (hereinafter collectively: pension management company) based on Hanfa's approval, and which the pension management company manages in its own name, but for the joint account of the fund members in accordance with the provisions of the law regulating the establishment and operation of voluntary pension funds. Article 3. When managing fund assets, the pension management company must adhere to all provisions of the relevant fund's prospectus related to the management of fund assets.

REGULATION ON PERMITTED INVESTMENTS AND ADDITIONAL INVESTMENT RESTRICTIONS FOR VOLUNTARY PENSION FUNDS (NN 103/2014, 2/2020 – unofficial consolidated text) 2 REGULATED MARKETS Article 4. (1) A regulated market within the meaning of the Act is a market from the Republic of Croatia, another Member State, or a third country that is a member of the Organisation for Economic Co-operation and Development (hereinafter: OECD) that meets the conditions for a regulated market within the meaning of the provisions of the law regulating the capital market in the Republic of Croatia and/or another Member State. (2) An official listing within the meaning of the Act is a listing from the Republic of Croatia, another Member State, or a third country that is a member of the OECD for which the provisions of the law regulating capital markets, relevant sub-legal acts, and/or relevant rules of the regulated market operator prescribe stricter conditions for listing and investor protection compared to the least strict segment of the regulated market referred to in paragraph 1 of this Article. (3) Another regulated market within the meaning of the Act is one that meets the following conditions:

1. in relation to them, the pension management company has prescribed all necessary procedures and processes that ensure acting with the care of a good expert in accordance with the rules of conduct prescribed by the Act and the regulation governing the organizational requirements of the pension management company,
2. in relation to them, the fund's depositary has prescribed all necessary procedures and processes for the settlement of securities,
3. they are approved, regulated, and subject to supervision by competent authorities in accordance with the national legislation of the countries where they are headquartered,
4. their members and the operator of the central register of dematerialized financial instruments are subject to supervision by competent authorities in accordance with the national legislation of the countries where they are headquartered,
5. transaction settlement is carried out within an acceptable timeframe,
6. open-ended investment funds with a public offering, voluntary and/or mandatory pension funds, and/or other pension savings entities from the country where that market is headquartered are permitted to invest in them,
7. they operate regularly, i.e., trading takes place continuously within the prescribed time,
8. they satisfy market liquidity conditions, taking into account the number of participants and the possibility of continuous determination of fair prices for financial instruments traded on them,
9. they are open to the public. (4) The pension management company must establish an effective system through internal procedures to verify whether markets from third OECD member states referred to in paragraphs 1 to 3 of this Article meet the conditions to be considered a regulated market, an official listing, and another regulated market, as prescribed by paragraphs 1 to 2 of this Article.

REGULATION ON PERMITTED INVESTMENTS AND ADDITIONAL INVESTMENT RESTRICTIONS FOR VOLUNTARY PENSION FUNDS (NN 103/2014, 2/2020 – unofficial consolidated text) 3 (5) The pension management company must document and retain every verification referred to in paragraph 4 of this Article within the deadlines prescribed by the Act and relevant sub-legal acts. TRANSFERABLE SECURITIES Article 5. Transferable securities as financial instruments from Article 155, paragraph 1, points 1 and 2 of the Act in which the fund is permitted to invest are those that meet the following criteria:

1. the potential loss that the fund may incur in relation to holding these instruments is limited to the amount paid for them,
2. appropriate information is available for them in the form of regular, accurate, and complete information about the security,
3. they are freely transferable,
4. their acquisition is in accordance with the fund's investment principles, strategy, and objectives,
5. the risks of transferable securities are adequately covered by the fund's risk management system. MONEY MARKET INSTRUMENTS Article 6. (1) Money market instruments from Article 3, point 33 of the Act are considered instruments that meet the following conditions:
6. have a maturity or remaining maturity of 397 days or less and
7. their yields are subject to the influence of changes in money market conditions. (2) The instruments referred to in paragraph 1 of this Article are:
8. money market instruments traded on a regulated market from Article 155, paragraph 1, point 1 of the Act and
9. money market instruments from Article 155, paragraph 1, point 7 of the Act.

REGULATION ON PERMITTED INVESTMENTS AND ADDITIONAL INVESTMENT RESTRICTIONS FOR VOLUNTARY PENSION FUNDS (NN 103/2014, 2/2020 – unofficial consolidated text) 4 Article 7. The Fund is permitted to invest in money market instruments from Article 155, paragraph 1, point 1 of the Act whose value can be precisely determined at any time, i.e., for which precise and reliable valuation systems and methodologies are available that meet the following criteria:

1. enable the calculation of the fund's net asset value in accordance with the value at which a financial instrument held in the assets could be transacted under market conditions between informed and unrelated parties willing to transact,
2. are based on market data or valuation models, including methods based on amortized costs. Article 8. (1) Money market instruments from Article 155, paragraph 1, point 7 of the Act are those money market instruments that meet the following criteria:
3. meet the criteria specified in Article 6, paragraph 1 and Article 7 of this Regulation,
4. appropriate information is available for them that allows for an adequate assessment of the credit risk associated with investing in such an instrument, taking into account paragraphs 2, 3, and 4 of this Article,
5. they are freely transferable. (2) For money market instruments from Article 155, paragraph 1, point 7, sub-points b) and d) or for instruments issued by local or regional self-government of the Republic of Croatia or another Member State or a public international organization not guaranteed by a Member State, or issued by a federal unit in the case of a federal state that is a Member State, the appropriate information from paragraph 1, point 2 of this Article must contain:
6. information on the issue or issuance program, and on the legal and financial position of the issuer of the money market instrument,
7. updated information from point 1 of this paragraph on a regular basis and in the event of a significant occurrence,
8. information from point 1 of this paragraph confirmed by a qualified third party, independently and without influence from the issuer,
9. available and reliable statistical data on the issue or issuance program. (3) For money market instruments from Article 155, paragraph 1, point 7, sub-point c) of the Act, the appropriate information from paragraph 1, point 2 of this Article must contain:
10. information on the issue or issuance program, and on the legal and financial position of the issuer of the money market instrument,

REGULATION ON PERMITTED INVESTMENTS AND ADDITIONAL INVESTMENT RESTRICTIONS FOR VOLUNTARY PENSION FUNDS (NN 103/2014, 2/2020 – unofficial consolidated text) 5 2. updated information from point 1 of this paragraph on a regular basis and in the event of a significant occurrence, 3. available and reliable statistical data on the issue or issuance program, or other data that allows for the assessment of credit risk associated with investing in such an instrument. (4) For money market instruments from Article 155, paragraph 1, point 7, sub-point a) of the Act, the appropriate information from point 2, paragraph 1 of this Article must contain information on the issue or issuance program or information on the legal and financial position of the issuer of the money market instrument. LIQUIDITY MANAGEMENT Article 9. (NN 2/2020) (1) When investing fund assets in transferable securities, money market instruments, and units of an investment fund traded on a regulated market, the pension management company must take into account the liquidity of these financial instruments and their impact on the overall liquidity of the fund's portfolio. (2) The pension management company must continuously monitor the liquidity of the fund's portfolio by periodically assessing whether there are sufficient liquid assets in the fund's portfolio to meet liquidity requirements arising from the termination of fund membership at all times, as provided for in Article 68, paragraph 1, point 2 and Article 118 of the Act. (3) When assessing the liquidity of the pension fund's portfolio referred to in paragraph 2 of this Article, the pension management company must simultaneously take into account the fund's assets and liabilities in such a way that the liquidity of assets is aligned with the fund's liabilities, considering the implementation of the fund's asset investment strategy, requests for termination of membership, and regular pension payments from the fund. At the same time, the pension management company must conduct stress tests that enable the assessment of the fund's liquidity resilience to exceptional circumstances and other relevant risks affecting the fund's liquidity, including regulatory risk. (4) When assessing liquidity from paragraph 1 of this Article in relation to the estimated quantity of a particular transferable security, money market instrument, and units of an investment fund traded on a regulated market that could be marketable within a reasonable timeframe without incurring significant losses for the pension fund's assets, the pension management company must, in addition to the pension fund's liabilities, take into account, where applicable in terms of data availability, at least:

1. traded quantity and value of trading,
2. share of the transferable security issue or the number of units of the investment fund's net asset value in the pension fund's net asset value,

REGULATION ON PERMITTED INVESTMENTS AND ADDITIONAL INVESTMENT RESTRICTIONS FOR VOLUNTARY PENSION FUNDS (NN 103/2014, 2/2020 – unofficial consolidated text) 6 3. share in the issue of the transferable security or in the number of units of the investment fund that the pension management company intends to acquire on behalf of the pension fund or that is already held in the pension fund's assets, 4. market depth by taking into account data such as bid-ask spreads, volumes, and values of bids, especially considering the above requirement for preserving the value of the pension fund's assets. (5) When assessing the liquidity of individual transferable securities, money market instruments, and investment fund units in accordance with paragraph 4, points 1 and 4 of this Article, the pension management company must exclude data on purchases and bids for funds it manages, as well as data on trading between funds managed by the same company. (6) Based on the elements specified in paragraphs 2, 3, and 4 of this Article, the pension management company must prescribe clear and precise criteria in its internal acts by which the amount of available liquidity can be determined within reasonable timeframes, and assess the amount of liquidity at least once a year. (7) For transferable debt securities and money market instruments from Article 155, paragraph 1, point a. of the Act, whose issuers are the Republic of Croatia, another Member State, or an OECD Member State, it is presumed that they are liquid, unless information such as market inactivity is available to the pension management company indicating that they cannot be sold at a limited cost within an appropriate timeframe to meet the fund's obligations. (8) When, in accordance with paragraph 7 of this Article, information is available to the pension management company indicating that transferable securities and money market instruments are not liquid, the pension management company must assess the liquidity of those assets, taking into account all available elements from paragraph 4 of this Article, while simultaneously considering the fund's obligations as prescribed in paragraph 3 of this Article. (9) The pension management company must document and retain every assessment from this Article, along with the supporting materials required for their preparation, within the deadlines prescribed by the Act and relevant sub-legal acts. Article 10. (1) In the case of debt securities and money market instruments issued in tranches within an issuance program, outstanding securities in circulation are used for calculating investment limits from Article 156, point 11 and Article 158, paragraph 1 of the Act. (2) The size of an alternative investment fund that receives multiple investor payments made at the call of the alternative investment fund management company based on assumed capital payment obligations of investors in accordance with the alternative investment fund's rules, is considered to be the sum of the total paid-in capital and the amount of capital payment obligations on call by investors, determined on the day the alternative investment fund commences operations.

REGULATION ON PERMITTED INVESTMENTS AND ADDITIONAL INVESTMENT RESTRICTIONS FOR VOLUNTARY PENSION FUNDS (NN 103/2014, 2/2020 – unofficial consolidated text) 7 Article 11. Entities from Article 155, paragraph 1, point 7, sub-point c) of the Act shall be deemed to be subject to prudential supervision by the competent authority of a Member State in accordance with the laws regulating the capital market and the operations of credit institutions or to comply with the supervisory rules of the supervisory authority of OECD Member States that are identical to those prescribed by the laws regulating the capital market and the operations of credit institutions, if they meet the following criteria:

1. their headquarters are in a Member State or OECD countries belonging to the G-10 group,
2. they have satisfactory credit quality according to an internally selected credit quality assessment model,
3. based on counterparty analysis, it can be demonstrated that they are subject to prudential supervision by the competent authority of the country referred to in point 1 of this Article in accordance with supervisory rules that are at least as strict as those prescribed by European Union law. Article 12. (1) Special purpose securitization entities from Article 155, paragraph 1, point 7, sub-point d) of the Act are all entities established with the aim of performing securitization activities as defined by the law regulating securitization activities. (2) A bank credit line

---

[RegAlert note: the English text above is a translation of the first 24,000 characters of a 40,849-character original (59% of the document). The remainder was not translated. The complete original-language text is stored with this document.]