In late July 2018, the Bulgarian National Bank ("BNB") adopted an ordinance on the internal exposures of credit institutions ("Ordinance"), providing guidance and regulation in three main areas:
- requirements for internal banking rules and procedures regarding the formation, identification, supervision and reporting of internal exposures;
- the method for calculating the values of bank's internal exposures;
- the form and content for reporting internal exposures, and the method for communicating them to the BNB.
According to the Credit Institutions Act ("Act"), those who the Ordinance applies to and fall under the scope of internal exposure inter alia include:
- bank administrators;
- direct/indirect bank shareholders with more than 10% voting power in a bank's general meeting;
- shareholders who have representatives in the management or supervisory board of a bank;
- relatives of anyone listed above;
- companies in which a bank or any of the officials listed above are qualifying shareholders;
- persons exercising direct or indirect control over a bank or a bank's qualifying shareholders.
The Ordinance further states that an internal exposure cannot be more than EUR 150,000 for a single person, and must always be unanimously approved by the bank's management and supervisory bodies. Furthermore, the national regulator should be informed of each individual decision concerning the formation of internal exposures. As for their calculation, internal exposures are to be based on their gross balance-sheet value, whereas off-balance sheet exposures are to be accounted for under their nominal value.
Banks should adopt internal rules and procedures for the formation, identification, oversight and reporting of an internal exposure, which include:
- the method for forming and identifying internal exposures and calculating their amount;
- a mechanism for complying with the obligations imposed by the Act and the Ordinance as well as the internal rules in respect of the internal exposures;
- the procedure for notifying the management bodies of a bank about internal exposures;
- the procedure for reporting internal exposures to the BNB.
Banks should keep up-to-date information on their qualified shareholders and major business partners. These lists should be updated on a regular basis. The reporting of internal exposures must be made to the BNB within ten days from the date of the resolution approving it using a template form from the regulator.
Credit institutions have six months to adopt the Ordinance's procedures and regulations.