Rulebook on the Procedure for Compensating Damages to Members of a Voluntary Pension Fund and/or the Voluntary Pension Fund

Croatian Financial Services Supervisory Agency, 10000 Zagreb, Franje Račkoga 6, p.p. 164, Croatia t: 01 6173 200, f: 01 4811 507, e: info@hanfa.hr, OIB: 49376181407, MB: 02016419, w: www.hanfa.hr RULEBOOK ON THE PROCEDURE FOR COMPENSATING DAMAGES TO MEMBERS OF A VOLUNTARY PENSION FUND AND/OR THE VOLUNTARY PENSION FUND (Official Gazette 101/2014, 41/2017 and 146/22 - Unofficial Consolidated Text)

I. INTRODUCTORY PROVISIONS

Article 1. (OG 146/22)
This Rulebook regulates the procedure for compensating damages that a pension company is obliged to compensate to members of a voluntary pension fund and/or the voluntary pension fund in the event of an incorrect calculation of the share price and a breach of investment restrictions within the meaning of Article 164, paragraph 4 of the Act on Voluntary Pension Funds ("Official Gazette" numbers 19/2014, 29/2018 and 115/2018).

Article 2. (OG 146/22)
Certain terms, within the meaning of this Rulebook, have the following meanings:

1. Hanfa is the Croatian Financial Services Supervisory Agency.
2. The Act is the Act on Voluntary Pension Funds ("Official Gazette" numbers 19/2014, 29/2018 and 115/2018).
3. A pension company is a company that, on the basis of Hanfa's approval, carries out the activity of managing voluntary pension funds.
4. A pension fund is a voluntary pension fund.

II. INCORRECT CALCULATION OF SHARE PRICE

Article 3.
(1) The share price in the pension fund is calculated in accordance with the Act and the rulebook adopted on the basis of Article 107, paragraph 4 of the Act.
(2) An incorrect calculation of the share price exists when the initially calculated share price in the pension fund differs from the subsequently accurately determined share price for the same day.

Significant Error in Share Price Calculation

Article 4.
(1) The procedure for compensating damages in case of incorrect calculation of the share price prescribed by this Rulebook is conducted when:

1. the difference between the initially calculated and subsequently accurately determined share price for the same day exceeds 1% (significant error) and
2. more than 1 (one) year has not elapsed since the occurrence of the aforementioned error in the calculation of the share price, except in the case where an auditor, as part of the audit of financial statements for the current year for the previous year, determines an incorrect calculation of the share price.
   (2) The procedure for compensating damages in case of a significant error in the calculation of the share price consists of the preparation of a compensation plan, informing members about the compensation of the caused damage and compensating the damage by paying the determined amount of compensation to the damaged members of the pension fund and/or the pension fund. (3) "Period of incorrect calculation" is the period during which a significant error in the calculation of the share price existed.

Calculation of Higher Share Price

Article 5.
(1) A calculation of a higher share price exists when the initially calculated share price is higher than the subsequently accurately determined share price for the same day.
(2) In the event of a significant error that led to the calculation of a higher share price, the pension company is obliged to ensure the implementation of the correction of the share price for members who acquired shares in the pension fund during the period of incorrect calculation. (3) In the event of a significant error that led to the calculation of a higher share price, the pension company is obliged to compensate the resulting damage to the pension fund, in the event that there were payments from the pension fund in accordance with Articles 124., 125., 126., 127. and 128. of the Act or transfers of funds to another pension fund during the period of incorrect calculation of the share price. The amount of compensation is equal to the difference between the initially calculated share price and the subsequently accurately determined share price multiplied by the number of redeemed shares during the period of incorrect calculation.

Calculation of Lower Share Price

Article 6. (OG 146/22)
(1) A calculation of a lower share price exists when the initially calculated share price is lower than the subsequently accurately determined share price for the same day.
(2) In the event of a significant error that led to the calculation of a lower share price, the pension company is obliged to compensate the resulting damage to members of the pension fund who had payments from the pension fund in accordance with Articles 124., 125., 126., 127. and 128. of the Act or who transferred funds to another pension fund, during the period of incorrect calculation, by paying funds to the account of the member in the new pension fund, pension insurance company or to the member of the fund, in accordance with the procedures for paying funds from the pension fund. The amount of compensation is equal to the difference between the subsequently accurately determined share price and the initially calculated share price multiplied by the number of redeemed shares during the period of incorrect calculation. (3) In the event of a significant error that led to the calculation of a lower share price, the pension company is obliged to implement the correction of the share price for members who acquired shares in the pension fund during the period of incorrect calculation. (4) Compensation for damage from paragraph 2 of this Article will not be conducted for those members for whom the determined amount of damage incurred during the period of incorrect calculation is less than 7.50 euros.

New Calculation of Share Price

Article 7.
The pension company is obliged to prepare a new calculation of the share price for each day of the period of incorrect calculation in accordance with the Act and the rulebook adopted on the basis of Article 107, paragraph 4 of the Act.

Compensation Plan

Article 8. (OG 146/22)
(1) In the cases from Article 4, paragraph 1 of this Rulebook, the pension company will, without unnecessary delay, and no later than within 60 days from learning of the incorrect calculation, prepare a compensation plan and without delay submit it to Hanfa, in the manner prescribed by the provisions of Article 15a of this Rulebook. (2) The compensation plan from paragraph 1 of this Article must contain:

1. the method and procedures by which the incurred damage will be compensated to the pension fund and/or members,
2. measures that will be taken or have been taken with the aim of eliminating the established significant errors and compensating the damage,
3. a new calculation of the share price for each day of calculation during the period of incorrect calculation,
4. the number of members of the pension fund to whom damage was incurred and the individual and total amount of compensation that will be compensated to the members of the pension fund and/or the pension fund,
5. the method and deadline by which the members of the pension fund will be informed about the compensation plan in accordance with Article 9 of this Rulebook.

Notification of Members of the Pension Fund

Article 9.
(1) When, due to a significant error in the calculation of the share price, there is an obligation of the pension company to compensate damage to damaged members of the pension fund, the pension company is obliged to make a notice about the existence of a significant error in the calculation of the share price available to members of the pension fund via its website without delay after the preparation of the compensation plan. (2) The notice from paragraph 1 of this Article contains the following information:

1. what is the cause and what constitutes the significant error in the calculation of the share price,
2. the obligation to compensate and the amount of damage,
3. deadlines and method of compensation.

Implementation of the Compensation Procedure

Article 10.
(1) After the pension company prepares the compensation plan in accordance with Article 8 of this Rulebook, it will without delay proceed to compensate the damage to damaged members of the pension fund and/or the pension fund.
(2) Costs incurred for the purpose of implementing the procedure and measures for compensating damage due to incorrect calculation of the share price are costs of the pension company and cannot be charged to the pension fund or members of the pension fund.

III. BREACH OF INVESTMENT RESTRICTIONS

Article 11.
(1) Within the meaning of this Rulebook, a breach of investment restrictions is considered a breach of investment restrictions that are the consequence of transactions concluded by the pension company, by which the restrictions were violated in accordance with the provision of Article 164, paragraph 4 of the Act at the time of their conclusion. (2) The procedure for compensating damages in case of breach of investment restrictions prescribed by this Rulebook is conducted when:

1. the breach of investment restrictions amounts to more than 10% of the total allowed investment within the meaning of Article 164, paragraph 4 of the Act,
2. more than 1 (one) year has not elapsed since the occurrence of the breach of investment restrictions, except in the case where an auditor, as part of the audit of financial statements for the current year for the previous year, determines a breach of investment restrictions.
   (3) The procedure for compensating damages in case of breach of investment restrictions consists of the preparation of a compensation plan, informing members about the compensation of the caused damage and compensating the damage by paying the determined amount of compensation to the damaged members of the pension fund and/or the pension fund.

Compensation Plan

Article 12. (OG 146/22)
(1) In the case from Article 11, paragraphs 1 and 2 of this Rulebook, the pension company will, without unnecessary delay, and no later than within 60 days from learning of the breach of investment restrictions, prepare a compensation plan and without delay submit it to Hanfa, in the manner prescribed by the provisions of Article 15a of this Rulebook. (2) The compensation plan from paragraph 1 of this Article must contain:

1. the method and procedures by which the incurred damage will be compensated to the pension fund and/or members,
2. information on the asset position relative to which the breach of investment restrictions occurred, the duration and reasons for such exceedance,
3. measures that will be taken or have been taken with the aim of aligning investments and compensating the damage,
4. the number of members of the pension fund to whom damage was incurred and the individual and total amount of compensation that will be compensated to the members of the pension fund and/or the pension fund, by paying a monetary amount to the fund and/or members,
5. the deadline by which members will be informed about the compensation plan in accordance with Article 13 of this Rulebook.

Notification of Members

Article 13.
(1) When, due to a breach of investment restrictions, there is an obligation of the pension company to compensate damage to damaged members of the pension fund, the pension company is obliged to make a notice about the existence of the aforementioned breach available to members of the pension fund via its website. (2) The notice from paragraph 1 of this Article contains the following information:

1. what is the cause and what constitutes the breach of investment restrictions,
2. the obligation to compensate and the amount of damage,
3. deadlines and method of compensation.

Amount of Compensation

Article 14. (OG 146/22)
(1) The pension company is obliged to immediately upon learning of the breach of investment restrictions align investments by implementing transactions necessary for the complete elimination of the breach of investment restrictions or in another appropriate way (e.g., maturity of deposits, new payments to personal accounts or payments for transfer of member funds to a pension insurance company, payment to the member or transfer of funds to another pension fund that cause the cessation of the breach of investment restrictions, change of method and methodology for valuing positions that caused the investment exceedance, etc.). The pension company is obliged to align investments in such a way as to completely eliminate the breach of investment restrictions. (2) When, by implementing transactions or aligning investments in another appropriate way from paragraph 1 of this Article, a profit was incurred, such profit will be allocated to the pension fund. The pension company is obliged to compensate the fund for costs incurred in the purchase and sale of asset positions or taking other actions that caused the breach of investment restrictions and the elimination of the aforementioned breach. (3) When, by implementing transactions or other actions that caused the breach of investment restrictions, a loss was incurred, the pension company is obliged to compensate the pension fund for such a loss by paying an amount corresponding to the difference between the purchase and sale price of the asset that led to the breach of investment restrictions. In the event that the breach and its elimination did not occur through the purchase or sale of an asset position but in another way, the pension company is obliged to compensate the pension fund for such a loss by paying an amount corresponding to the difference in the value of the asset that led to the breach of investment restrictions on the day the breach of investment restrictions occurred and the value of the asset achieved by aligning investments. The pension company compensates the pension fund for costs incurred in the purchase and sale of asset positions or taking other actions that caused the breach of investment restrictions and the elimination of the aforementioned breach. (4) In the cases from paragraph 3 of this Article, the pension company is obliged to compensate the damage to damaged members of the pension fund who had payments from the pension fund in accordance with Articles 124., 125., 126., 127. and 128. of the Act or who transferred funds to another pension fund, during the period from the alignment of investments to the compensation of the loss to the pension fund by the pension company by paying funds to the account of the member in the new pension fund or pension insurance company or to the member of the fund, in accordance with the procedures for paying funds from the pension fund. The amount of compensation is equal to the amount of the total loss of the pension fund from paragraph 3 of
this Article multiplied by the percentage share of the number of shares of the damaged member of the pension fund in the total number of shares of the pension fund on the day of payments from the pension fund in accordance with Articles 124., 125., 126., 127. and 128. of the Act or on the day of transfer of funds to another pension fund. (5) Compensation for damage from paragraph 4 of this Article will not be conducted for those members of the pension fund for whom the determined amount of individual damage incurred during the period of incorrect calculation is less than 7.50 euros.

Implementation of the Compensation Procedure

Article 15.
(1) The pension company will, after preparing the compensation plan, without delay proceed to compensate the damage to damaged members of the pension fund and/or the pension fund.
(2) Costs incurred for the purpose of implementing the procedure and measures for compensating damage due to breach of investment restrictions are costs of the pension company and cannot be charged to the pension fund or its members.

DELIVERY BY ELECTRONIC MEANS

Article 15a. (OG 146/22)
(1) The pension company is obliged to submit to Hanfa the documentation from Article 8, paragraph 1 and Article 12, paragraph 1 of this Rulebook in the manner and in accordance with the Technical Instruction for the Use of the WEB Form Entry and Document Delivery Service in Electronic Form and the Instruction for Filling Out WEB Forms for Pension Companies. (2) It is considered that the pension company has submitted the documentation from Article 8, paragraph 1 and Article 12, paragraph 1 of this Rulebook at the moment when the documentation is recorded on the server for sending such documentation. (3) In justified cases of technical impossibility of delivery or delivery that was not correctly performed (e.g., system failure, inability to read received documentation, etc.) in the manner prescribed by paragraph 1 of this Article, the pension company is obliged to submit the documentation in written form, directly or by mail for the purpose of timely reporting. The pension company is obliged to submit the documentation in the manner prescribed by paragraph 1 of this Article as soon as the reasons for the impossibility of such delivery cease, and no later than within 8 days from the cessation of circumstances that caused the technical impossibility of such delivery. (4) Hanfa may, in case of need, request the pension company to submit certain documentation prescribed by this Rulebook in the original or certified copy, regardless of the electronic delivery performed.

IV. AUDIT OF THE COMPENSATION PLAN

Article 16.
(1) The implemented compensation procedures are audited by an independent external authorized auditor as part of the audit of the annual reports of the pension fund.
(2) In the case from Article 8 of this Rulebook, the auditor will assess in its report and opinion whether the share price was accurately determined in the compensation procedure in accordance with Article 7 of this Rulebook and whether the calculation procedures and the amount of compensation paid to the pension fund and/or members of the pension fund were in accordance with the conditions of this Rulebook. (3) In the case from Article 12 of this Rulebook, the auditor will assess in its report and opinion whether the calculation procedures and the amount of compensation paid to the pension fund and/or members of the pension fund were in accordance with the conditions of this Rulebook. (4) If, as part of the audit of the financial statements of the pension fund, a breach of investment restrictions or an incorrect calculation of the share price is determined, the pension company is obliged without delay to take appropriate measures in accordance with the provisions of this Rulebook, regardless of whether more than one year has elapsed since the aforementioned breach of investment restrictions or incorrect calculation of the share price.

V. SIMPLIFIED COMPENSATION PROCEDURE

Article 17. (OG 146/22)
(1) When the total amount of compensation in accordance with the provisions of this Rulebook is less than 3,500.00 euros and the amount of compensation per each damaged member of the pension fund is less than 350.00 euros, the compensation plan from Article 8 and Article 12 of this Rulebook does not need to be submitted to Hanfa. (2) In the cases from paragraph 1 of this Article, it is not necessary to conduct an audit of the implemented compensation procedures as part of the audit of the annual reports of the pension fund.

VI. FINAL PROVISIONS

Article 18.
This Rulebook will be published in the "Official Gazette" and enters into force on January 1, 2015.

FINAL PROVISION
The Rulebook on Amendments and Supplements to the Rulebook on the Procedure for Compensating Damages to Members of a Voluntary Pension Fund and/or the Voluntary Pension Fund (OG 41/17), entered into force on May 1, 2017.

Article 4.
This Rulebook will be published in the "Official Gazette" and enters into force on May 1, 2017.

FINAL PROVISIONS
The Rulebook on Amendments to the Rulebook on the Procedure for Compensating Damages to Members of a Voluntary Pension Fund and/or the Voluntary Pension Fund (OG 146/22), entered into force on January 1, 2023.

Article 7.
This Rulebook will be published in the "Official Gazette" and enters into force on January 1, 2023.