Bulgaria: new solvency and other requirements for financial institutions

Financial institutions are subject to new rules affecting their solvency requirements and principal activities.

Under the changes, published in the State Gazette on 7 August 2012:

- there are new solvency requirements, with a period of grace until 31 December 2012 for all existing institutions. These require them to maintain at all times their own funds of not less than the minimum required paid-in registration capital (from c.€25,000-€125,000 depending on the type of activity carried out). Compliance is established through the quarterly and annual financial reports they are required to submit to the BNB.
- there is a more precise method for determining whether institutions satisfy the requirement for at least 50% of their business to be their principle activity. The ratio for new institutions will be calculated on the basis of their first two quarterly financial reports following registration with the BNB, with power given to the BNB to deregister them if the ratio has not been met for one year
- institutions whose principal activity is the carrying out of regulated transactions with related parties are now exempt from the requirement to register with the BNB
- institutions operating with funds provided for implementing EU targeted projects and programmes can apply to the BNB for an exemption from registration supported by well-grounded evidence

Financial institutions are those institutions (other than credit institutions) with a principal activity (comprising at least 50% of its activities) consisting of one or more specific activities, such as:

- payment services
- financial leasing
- guarantee transactions
- trading on account of clients or on own account in money market instruments, foreign currency and precious metals, transferrable securities etc.
- granting of credit with funds which have not been raised by means of collecting deposits or other repayable funds from the public

Financial institutions can only operate if they are on the Bulgarian National Bank’s public register (or are subject to a specific licensing regime). The requirements for registration with the BNB include:

- the company must be a joint-stock company, a limited liability company or a partnership limited by shares
- the company’s principal place of business must be in Bulgaria
- the company must satisfy a minimum capital requirement
- the management (and shareholders with a qualifying interest) must meet certain requirements as regards their qualifications, experience and reputation

Law:

- Credit Institutions Act, published in State Gazette, issue No. 59, dated 21 July 2006, as amended

- Regulation No. 26 of 23 April 2009 on Financial Institutions, adopted by Resolution No. 53 of 23 April 2009 of the Governing Council of the Bulgarian National Bank (State Gazette, issue No. 36 dated 15 May 2009, as amended)

- Amendment to Regulation No. 26 of 23 April 2009 on Financial Institutions published in State Gazette, issue No. 60, dated 7 August 2012.