Regulation on the Calculation of Additional Capital Requirements for Supervised Entities and Adjusted Capital Requirements for Non-Supervised Entities in a Financial Conglomerate

Record Data Collection of Regulations Register Regulation on the Calculation of Additional Capital Requirements for Supervised Entities and for the Calculation of Adjusted Capital Requirements for Non-Supervised Entities in a Financial Conglomerate Official Gazette of the Republic of Slovenia, No. 8/07 and 52/13 ID: PRAV6547 EVA: 2005-1611-0019 SOP: 2007-01-0335 Adopted: 15. 1. 2007 Published: 28. 1. 2007 Effective from: 29. 1. 2007 Type of Act: Regulation Responsible Authority: Ministry of Finance Adopting Authority: Ministry of Finance Forms Text NPB 1

Warning: The unofficial consolidated text of the regulation represents only an informative working aid, for which the authority does not provide any warranty of compensation or otherwise.

The unofficial consolidated text of the Regulation on the Calculation of Additional Capital Requirements for Supervised Entities and for the Calculation of Adjusted Capital Requirements for Non-Supervised Entities in a Financial Conglomerate comprises:

• Regulation on the Calculation of Additional Capital Requirements for Supervised Entities and for the Calculation of Adjusted Capital Requirements for Non-Supervised Entities in a Financial Conglomerate (Official Gazette of the Republic of Slovenia, No. 8/07 of 29. 1. 2007),

• Regulation on Amendments to the Regulation on the Calculation of Additional Capital Requirements for Supervised Entities and for the Calculation of Adjusted Capital Requirements for Non-Supervised Entities in a Financial Conglomerate (Official Gazette of the Republic of Slovenia, No. 52/13 of 21. 6. 2013).

REGULATION

on the calculation of additional capital requirements for supervised entities and for the calculation of adjusted capital requirements for non-supervised entities in a financial conglomerate

(unofficial consolidated text No. 1)

Date of commencement of application: 06.07.2013

CHAPTER 1 GENERAL PROVISIONS

Article 1 (content of the regulation)

This regulation determines:

• the method of calculating capital and capital requirements in a financial conglomerate,

• the scope and method of including entities in the calculation of additional capital requirements and the possibility of excluding entities from the calculation,

• other technical principles and methods for calculating additional capital requirements,

• an adjusted method of calculating capital requirements for non-supervised entities of the financial sector,

• the method and deadlines for reporting to the coordinator.

Article 2 (meaning of terms)

The terms used in this regulation have the same meaning as in the Financial Conglomerates Act (Official Gazette of the Republic of Slovenia, No. 43/06; hereinafter: ZFK).

Article 3 (obligation to hold adequate capital)

(1) Supervised entities in a financial conglomerate must, based on the first paragraph of Article 24 of the ZFK, hold adequate capital at the level of the financial conglomerate at least in the amount of the capital requirements calculated at the level of the financial conglomerate in accordance with the provisions of Chapters 2 and 3 of this regulation.

(2) For the calculation of additional capital requirements, the method from Chapter 3 of this regulation, which the coordinator determines or requires for this financial conglomerate in accordance with the second or third paragraph of Article 26 of the ZFK, shall be used in the manner and scope specified in Chapter 2 of this regulation.

CHAPTER 2 TECHNICAL PRINCIPLES

Article 4 (entities to be included in the calculation)

(1) Based on the first paragraph of Article 25 of the ZFK, data for all parent and subsidiary, supervised and non-supervised entities of the financial sector shall be included in the calculation of additional capital requirements at the level of the financial conglomerate.

(2) Notwithstanding the preceding paragraph, the coordinator may, in the cases specified in the first to third paragraphs of Article 13 of the ZFK, exclude a specific entity from the scope of the calculation of additional capital requirements by decision.

(3) An entity that represents an insignificant part of the group's business under the first paragraph of Article 13 of the ZFK is considered an entity whose total assets do not exceed the lower of the following values:

• EUR 10 million or

• 1% of the value of the total assets of the entity to which it is directly subordinate.

(4) An entity referred to in the second paragraph of this Article may be excluded from the calculation only as long as the conditions exist on the basis of which the coordinator's decision to exclude that entity was issued.

(5) Notwithstanding the fact that an individual entity is excluded from the calculation of additional capital requirements, the group's investment in the capital of that entity must be deducted in the calculation of capital at the level of the financial conglomerate.

Article 5 (scope and method of calculating additional capital requirements)

(1) Notwithstanding the method used in a particular financial conglomerate in accordance with the second paragraph of Article 3 of this regulation for calculating additional capital requirements, data for the parent entity and subsidiary entities referred to in the first paragraph of Article 4 of this regulation shall be included in the calculation in full.

(2) Based on the preceding paragraph, for supervised subsidiary entities with a identified shortfall in required capital or for non-supervised entities of the financial sector where a shortfall in adjusted capital requirements is identified based on the calculation under Article 7 of this regulation, this shortfall shall be taken into account in full in the calculation of additional capital requirements.

(3) Notwithstanding the first and second paragraphs of this Article, it is possible to take into account the shortfall in required capital of a specific subsidiary entity in a proportional share, but only based on a decision by the coordinator, which it issues only if it determines that the obligation of the parent entity is exclusively, unambiguously, and precisely limited only to a certain share of capital that it holds in that subsidiary entity.

(4) Inclusion in a proportional share is also possible when there are no capital links between entities in the financial conglomerate and the coordinator, after consulting with other competent supervisory authorities, has decided which proportional share will be taken into account in the calculation of additional capital requirements, taking into account the obligations arising from the relationships between the individual entities.

Article 6 (other technical principles in the calculation of capital and capital requirements for supervised and non-supervised entities)

(1) Notwithstanding the method from Chapter 3 of this regulation used in accordance with the second paragraph of Article 3 of this regulation for calculating additional capital requirements, the principles defined in the second to sixth paragraphs of this Article and in Articles 7 and 8 of this regulation must be taken into account in the calculation.

(2) Double or multiple use of capital components in the calculation of capital at the level of the financial conglomerate and inappropriate intra-group creation of capital must be excluded, with sectoral regulations being applied mutatis mutandis.

(3) The calculation of capital and capital requirements for supervised entities in a financial conglomerate must be carried out in accordance with the relevant sectoral regulations of the banking sector, securities market sector, or insurance sector; for the calculation of capital and capital requirements for non-supervised entities, an adjusted calculation shall be carried out in accordance with Article 7 of this regulation.

(4) Capital requirements for each individual financial sector must be covered by capital components calculated in accordance with the relevant sectoral regulations. Only those capital components that are acceptable under the regulations of all sectors (inter-sectoral capital) may be considered as covering any identified capital shortfall in another financial sector at the level of the financial conglomerate in the calculation of additional capital requirements.

(5) If sectoral regulations impose restrictions on the inclusion or availability of individual capital components that may be considered as inter-sectoral capital, these restrictions must be applied mutatis mutandis also in the calculation of capital at the level of the financial conglomerate.

(6) In the calculation of capital at the level of the financial conglomerate, the actual transferability and availability of capital between different entities in the group must also be taken into account, considering sectoral regulations on capital adequacy.

Article 7 (calculation of adjusted capital requirements for non-supervised entities of the financial sector)

(1) Adjusted capital requirements for non-supervised entities of a particular sector in the financial sector are calculated as if that entity were a supervised entity of that particular sector.

(2) Notwithstanding the preceding paragraph, where it is not possible to calculate adjusted capital requirements for a non-supervised subsidiary entity according to the regulations of the financial sector to which the parent entity assigned to it belongs, based on the type of financial services provided by that non-supervised subsidiary entity, adjusted capital requirements shall be calculated according to the regulations of another financial sector that is more suitable for such a calculation, subject to the prior consent of the competent supervisory authorities.

(3) Notwithstanding the first paragraph of this Article, for the purpose of identifying a financial conglomerate and in the calculation of the capital requirements coefficient under the second paragraph of Article 11 of the ZFK, the adjusted calculation of capital requirements for non-supervised entities of a particular financial sector may be carried out in a simplified manner, subject to the prior consent of the competent supervisory authorities.

(4) Adjusted capital requirements for a mixed financial holding company are calculated according to the sectoral regulations of the most important financial sector in the financial conglomerate.

Article 8 (calculation of capital and capital requirements for certain supervised entities)

(1) The calculation of capital and capital requirements for certain supervised entities in a financial conglomerate that have their registered office in third countries is carried out for the purposes of this regulation based on the calculation in the country of registration, if the calculation methodologies are equivalent to those applicable to a particular sector in Member States. If the methodologies are not equivalent, the calculation must be appropriately adjusted in agreement with the coordinator.

(2) The preceding paragraph does not apply in cases where these entities are already appropriately included in the sectoral calculation on a sub-consolidated basis, if that calculation is used as a starting point for the calculation at the level of the financial conglomerate in accordance with the chosen method.

(3) The capital requirement for a management company means the capital requirement calculated based on:

• regulations governing the business of management companies in the Republic of Slovenia, for management companies with their registered office in the Republic of Slovenia,

• regulations governing the business of management companies in the Member State where the management company has its registered office,

• regulations governing the business of management companies in a third country where the management company has its registered office, if the regulations of that country are equivalent to the regulations governing the business of management companies in the Republic of Slovenia; otherwise, the regulations from the first indent of this paragraph shall apply.

CHAPTER 3 METHODS FOR CALCULATING ADDITIONAL CAPITAL REQUIREMENTS

Article 9 (methods)

The following methods may be used in calculating additional capital requirements for supervised entities in a financial conglomerate:

1. accounting consolidation method,

2. deduction and aggregation method,

3. a combination of the methods from points 1 and 2 of this Article.

Article 10 (accounting consolidation method)

(1) The accounting consolidation method means the calculation of additional capital requirements based on consolidated reports on capital and capital requirements, which are based on consolidated financial statements.

(2) Capital and capital requirements are calculated using sectoral regulations and taking into account the principles from Article 6 of this regulation.

(3) Additional capital requirements for supervised entities in a financial conglomerate using the accounting consolidation method are calculated as the difference between:

a) the capital of the financial conglomerate, calculated based on the consolidated position of the group; in the calculation, the capital components of each individual financial sector are taken into account as defined by sectoral regulations; and

b) the sum of capital requirements for each individual financial sector in the group; capital requirements for each individual financial sector in the group are calculated in accordance with sectoral regulations.

(4) If non-supervised entities from a particular sector of the financial sector are also part of the financial conglomerate and are not included in the calculation of capital requirements for a particular financial sector from the third paragraph of this Article, adjusted capital requirements for these entities must be calculated in accordance with Articles 6 and 7 of this regulation.

(5) The difference from the third paragraph of this Article must not be negative.

Article 11 (deduction and aggregation method)

(1) When using the deduction and aggregation method, the financial statements of each individual entity in the group are taken into account in the calculation of additional capital requirements for supervised entities in a financial conglomerate.

(2) Additional capital requirements for supervised entities in a financial conglomerate using the deduction and aggregation method are calculated as the difference between:

a) the sum of capital from capital reports for each individual supervised and non-supervised entity of a particular financial sector in the financial conglomerate, taking into account capital components in accordance with sectoral regulations; and

b) the sum of capital requirements of each supervised and non-supervised entity of the financial sector in the financial conglomerate and the book value of participations in the capital of other entities in the group. Capital requirements are calculated based on sectoral regulations.

(3) In the case of participation in the capital of other entities in the group, capital and capital requirements are taken into account in a proportional share of the registered capital that the parent entity holds in the subsidiary entity or the entity participating in another entity in the group. The proportional share means the direct or indirect share that an entity from the financial conglomerate holds in the registered capital of another entity of that financial conglomerate.

(4) Adjusted capital requirements for non-supervised entities from a particular sector of the financial sector are calculated in accordance with Articles 6 and 7 of this regulation.

(5) The difference from the second paragraph of this Article must not be negative.

Article 12 (struck out)

Article 13 (combination of methods)

The coordinator of a particular financial conglomerate, after consulting with other participating supervisory authorities and with the supervised entity at the top of the financial conglomerate or with the mixed financial holding company, may also determine a combination of the methods from Articles 10 to 11 of this regulation by decision.

CHAPTER 4 REPORTING AND ENACTMENT

Article 14 (obligation to submit, calculate, and report)

(1) The entity that must, based on the fourth paragraph of Article 24 of the ZFK, carry out the calculation of capital and additional capital requirements, must submit a report on the calculation to the coordinator as of the last day of each half-year.

(2) The report from the preceding paragraph of this Article must be submitted in written form. The report must include at least:

• the entities covered by the calculation, their sectoral distribution, shares, and organizational chart,

• the calculation of available capital and the calculation of capital requirements with the indication of capital and capital requirements by sectors and entities within each individual sector,

• the result (shortfall or surplus of capital) in the calculation of additional capital requirements.

(3) The coordinator may, by decision for a particular financial conglomerate, more precisely define the form and content of the report from the preceding paragraph of this Article.

(4) The deadline for submitting reports is no later than 30 April of the current year for the position as of 31 December of the previous year and no later than 30 September for the position as of 30 June of the current year.

(5) Upon the request of the coordinator, the report must also be submitted as of the date and within the deadline determined by the coordinator.

Article 15 (submission of the first report)

The entity referred to in the first paragraph of Article 14 of this regulation must submit the first report based on Article 14 of this regulation as of 30 June 2007.

Article 16 (enactment of the regulation)

This regulation enters into force on the day following its publication in the Official Gazette of the Republic of Slovenia.