Opinion of the European Central Bank of 27 November 2017 on transactions with related parties (CON/2017/50)
Date: 2017-11-27
Institutions: European Central Bank
Subjects: Bulgaria, banking supervision, credit institution, financial stability, financial transaction, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 27 November 2017  

on transactions with related parties 

(CON/2017/50) 

Introduction and legal basis 

On  8  November  2017  the  European  Central  Bank  (ECB)  received  a  request  from  Българска  народна 

банка  (Bulgarian  National  Bank)  (BNB),  following  correspondence  exchanged  between  BNB  and  the 

Minister for Finance, for an opinion on a draft law amending the Law on credit institutions (hereinafter the 

‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC1, as 

the  draft  law  relates  to  rules  applicable  to  financial  institutions  insofar  as  they  materially  influence  the 

stability  of  financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of  the 

Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1.  The main purpose of the draft law is to strengthen the regulatory framework for banking supervision 

in  Bulgaria,  and  in  particular  regarding  transactions  with  related  parties.  The  draft  law  therefore 
amends the Law on credit institutions2 as follows: 

 

institutions  seeking  to  obtain  an  authorisation  as  a  credit  institution  would  be  required  to 

provide to BNB additional information on persons with a direct or indirect qualifying holding in 

that institution; 

 

in order to ensure their sound and prudent management, credit institutions would be required 

to notify BNB whenever they suspect the existence of a negative influence from the persons 

who own a direct or indirect qualifying holding in that institution; 

 

credit institutions may only lend to persons who are considered to be related parties by means 

of  a  unanimous  decision  by  the  management  board  and  after  approval  by  the  supervisory 

board of the credit institution; 

 

the  draft  law  expands  the  list  of  exposures  which  are  considered  to  be  exposures  to  related 

parties; 

1  

2  

Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

Published in Darjaven Vestnik No 59, 21 July 2006. 

 
 
 
 
                                                 
ECB-PUBLIC 

 

credit institutions are required to implement internal rules and procedures to identify, monitor 

and report exposures to persons who are considered to be related parties; and 

  BNB is empowered to adopt an ordinance to further specify the implementation of the rules on 

exposures to persons who are considered to be related parties. 

1.2.  The  draft  law  also  aims  to  improve  the  legal  framework  for  the  implementation  of  European 

Banking Authority (EBA) guidelines, recommendations and other acts in Bulgaria. To this end, the 

draft  law  introduces  an  explicit  requirement  for  credit  institutions  to  comply  with  those  EBA 

guidelines,  recommendations  and  other  measures  which  BNB  has  also  announced  it  will  comply 

with.  In  addition,  the  draft  law  grants  BNB  the  power  to  issue  ordinances,  guidelines  or  other 

instruments  to  introduce  requirements,  criteria  and  conditions  resulting  from  EBA  guidelines, 

recommendations and other measures. 

2. 

General observations 

The  ECB  notes  that  the  International  Monetary  Fund  Financial  Sector  Assessment  Program  for 
Bulgaria  (hereinafter  the  ‘FSAP  Report’)3  contains  findings  regarding  the  compliance  of  the 

Bulgarian legal framework with the Basel Committee on Banking Supervision’s Core Principles for 
Effective  Banking  Supervision  (hereinafter  ‘Core  Principles’)4,  and  in  particular  with  the  Core 
Principle  on  transactions  with  related  parties5.  The  ECB  understands  that  BNB  has  already 
undertaken specific measures to address the IMF findings6 and in particular to bring the Bulgarian 
regulatory framework into compliance with the Core Principle on transactions with related parties7. 

3. 

Specific observations 

3.1  The  Core  Principles  provide  a  sound  foundation  for  the  regulation,  supervision,  governance  and 
risk management  of the  banking sector8. From a prudential  perspective, transactions  with related 
parties  may  give  rise  to  conflicts  of  interest  and  merit  careful  attention9.  The  risks  related  to 

transactions  with  related  parties  are  already  addressed,  for  example,  in  the  internal  governance 

3  

4  

5  
6  

7  
8  
9  

See  International  Monetary  Fund  (IMF),  Bulgaria:  Financial  Sector  Assessment  Program,  Detailed  Assessment  of 
Observance  on  the  Basel  Core  Principles  for  Effective  Banking  Supervision,  IMF  Country  Report  No  15/295  and 
Bulgaria,  Financial  Sector  Assessment  Program:  Technical  Note—Stocktaking  of  Progress  Achieved  by  the 
Bulgarian  National  Bank  in  Strengthening  Banking  Supervision,  IMF  Country  Report  No  17/199,  both  available  on 
the IMF’s website at www.imf.org. 
See  Basel  Committee  on  Banking  Supervision  (BCBS),  Core  principles  for  Effective  Banking  Supervision, 
September 2012, available on the BCBS’s website at www.bis.org. 

See BCBS Core Principles for Effective Banking Supervision, Principle 20. 
See Bulgarian National Bank, Plan on Reforms and Development of Banking Supervision Exercised by the Bulgarian 
National Bank, 5 October 2015, available on the BNB’s website at www.bnb.bg. 
The FSAP Report has assessed the Bulgarian legal framework as ‘materially non-compliant’ with Core Principle 20. 
See ECB, Guide to banking supervision, November 2014, available on the ECB’s website at www.ecb.europa.eu. 

See Technical working document: ECB staff drafting proposals on amendments to the Union framework for capital 
requirements of credit institutions and investment firms - Drafting proposals in relation to a proposal for a directive of 
the European Parliament and of the Council amending Directive 2013/36/EU as regards exempted entities, financial 
holding companies, mixed financial holding companies, remuneration, supervisory measures and powers and capital 
conservation measures and further proposed amendments to the current text of the Capital Requirements Directive 
(CRD), Amendment 22, available on the ECB’s website at www.ecb.europa.eu. 

2 

 
 
                                                 
ECB-PUBLIC 

rules10  and  the  disclosure  rules11  applicable  to  credit  institutions  in  the  Union.  The  ECB  supports 

the  objective  to  further  strengthen  the  Bulgarian  as  well  as  the  Union  regulatory  frameworks 
regarding transactions with related parties12. 

3.2  The  ECB  notes  the  clarifications  regarding  the  BNB’s  implementation  of  EBA  guidelines  and 

recommendations in Bulgaria contained in the draft law, which should improve legal certainty. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 27 November 2017. 

[signed] 

The President of the ECB 

Mario DRAGHI 

10  

11  

12  

See  Guidelines  (EBA/GL/2017/11)  of  the  European  Banking  Authority  on  internal  governance  under  Directive 
2013/36/EU, Final Report, 26 September 2017, in particular paragraphs 105, 113 and 176, available on the EBA’s 
website at www.eba.europa.eu.  

See Guidelines (EBA/GL/2016/11) of the European Banking Authority on disclosure requirements under Part Eight of 
Regulation (EU) No 575/2013 (EBA/GL/2016/11), Table 1, available on the EBA’s website at www.eba.europa.eu. 

See also paragraph 2.3 of Opinion CON/2016/48, available on the ECB’s website at www.ecb.europa.eu. 

3