Opinion of the European Central Bank of 19 November 2018 on the macroprudential mandate of Българска народна банка (Bulgarian National Bank) and the governance of credit institutions (CON/2018/52)
Date: 2018-11-19
Institutions: European Central Bank
Subjects: Bulgaria, central bank, credit institution, financial stability, financial supervision, harmonisation law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 19 November 2018  

on the macroprudential mandate of Българска народна банка (Bulgarian National Bank) and the 

governance of credit institutions 

(CON/2018/52) 

Introduction and legal basis 

On 19 October 2018 the European Central Bank (ECB) received a request from 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  third  and  sixth  indents  of  Article 2(1)  of  Council  Decision 
98/415/EC1, as the draft law relates to Българска народна банка (Bulgarian National Bank (BNB)), rules 

applicable  to financial  institutions insofar as they materially influence the stability  of financial  institutions 

and  markets  and  the  tasks  conferred  upon  the  ECB  concerning  the  prudential  supervision  of  credit 

institutions pursuant to Article 127(6) of the Treaty. 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 

Introduction 

The  draft  law  amends  the  Law  on  credit  institutions2  with  two  main  objectives.  First,  it  aims  to 

supplement the mandate of BNB to conduct the macroprudential supervision of credit institutions. 

Second,  it  aims  to  ensure  that  national  legislation  in  the  field  of  corporate  governance  of  credit 

institutions better complies with internationally accepted practices. 

1.2  BNB’s macroprudential mandate 

The  draft  law  proposes  to  expand  the  macroprudential  toolkit  of  BNB.  To  this  end  the  draft  law 
proposes to supplement the existing general macroprudential mandate of BNB3 with a number of 

specific  macroprudential  tools,  including  the  following  competences:  (i)  to  collect  information  for 

macroprudential  purposes;  (ii)  to  monitor,  identify  and  assess  systemic  risks;  (iii)  to  develop  and 

implement national measures to mitigate macroprudential or systemic risk identified at the level of a 

Member State under Article 458 of Regulation (EU) No 575/2013 of the European Parliament and 

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2  
3  

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. 

See Article 79(2) of the Law on credit institutions. 

 
 
 
 
                                                 
 
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of the Council4; (iv) to develop and implement measures to limit systemic risks stemming from the 

accumulation  of  excessive  credit  growth  (i.e.  borrower-based  measures);  (v)  to  develop  and 

implement measures  to  limit  the  risk  of  concentration  to  certain  economic  sectors  and  industries; 

(vi)  to  develop  and  implement  additional  minimal  requirements  in  respect  of  liquidity;  and  (vii)  to 

carry out any other actions necessary to achieve BNB’s macroprudential objectives. 

1.3  Fit and proper assessments and governance of credit institutions 

The  draft  law  revises  the  requirements  for  the  governance  arrangements  to  be  adopted  and 
updated by credit institutions5. A new draft provision introduces the requirement that the members 

of management bodies of credit institutions should collectively have sufficient knowledge, skills and 

experience to ensure the risk associated  with business is managed  in  a  way  that guarantees the 

stable  management  of  the  credit  institution.  Another  proposed  provision  seeks  to  ensure  that  at 

least one of the members of the management body of a credit institution is independent, while for 

significant credit institutions and credit institutions whose shares have been admitted to trading on 

a  regulated  market,  the  independent  members  must  be  no  less  than  a  third  of  the  total  number. 

The draft law specifies that only significant credit institutions are required to establish a nomination 

committee.  Significant  credit  institutions  are  defined  in  the  draft  law  as  those  designated  as 

significant by BNB due to their size and internal organisation, as well as in view of the nature, scale 
and complexity of the business they conduct6. 

The draft law introduces requirements for key function holders and sets out the procedure for ex-

post  authorisation  of  key  functions  holders  by  BNB.  Key  function  holders  comprise  inter  alia  the 

chief  financial  officer  and  the  heads  of  the  internal  audit,  regulatory  compliance  and  risk 
management units 7. 

The  draft  law  specifies  the  powers  of  BNB  with  regard  to  the  approval  of  the  appointment  of 
members  of  the  management  bodies  and  procurators8  and  provides  that  BNB  would  issue  an 
ordinance to specify the internal procedure for credit institutions to report breaches9. 

2. 

General observations 

2.1  The ECB understands that the part of the draft law which relates to the macroprudential mandate of 

BNB is proposed to be adopted as a result of the commitments made by the Republic of Bulgaria in 

policy  areas  which  are  of  high  relevance  for  a  smooth  transition  to,  and  participation  in,  the 
European Exchange Rate Mechanism10. 

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5  
6  
7  
8  
9  
10  

Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential 
requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  176, 
27.6.2013, p. 1). 
See proposed amendment to Article 73 of the Law on credit institutions. 

See proposed new points 50 and 51 in paragraph 1 of the additional provisions of the Law on credit institutions. 
See proposed new Article 11a of the Law on credit institutions. 

See proposed amendment to Article 11 of the Law on credit institutions. 
See proposed amendment to Article 74(4) of the Law on credit institutions. 
See  press  release,  ‘Statement  on  Bulgaria's  path  towards  ERM  II  participation’,  12  July  2018,  available  at 
www.consilium.europa.eu.  

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2.2  The  draft  law  does  not  extend  the  current  macroprudential  mandate  of  BNB.  As  a  national 

macroprudential authority, BNB is already responsible for the macroprudential supervision of credit 

institutions in order to maintain the stability of the banking system and to ensure the prevention or 

reduction of both systemic risks resulting from the activity of credit institutions and the identification 

and  limitation  of  the  incidence  of  macroeconomic  factors  threatening  the  stability  of  the  banking 
system11. The draft law does not confer genuinely new tasks on BNB, but rather specifies certain 

new macroprudential tools that BNB may use when discharging its macroprudential responsibilities. 

Consequently,  it  is  not  necessary  to  assess  whether  the  conferral  of  new  tasks  on  a  national 

central bank complies with the prohibition of monetary financing. 

2.3  The ECB understands that the draft law seeks to supplement the implementation in Bulgarian law 

of  the  governance  provisions  in  Sub-section  3,  Section  II,  Chapter  2,  Title  VII  of  Directive 
2013/36/EU of the European Parliament and of the Council 12 with additional elements derived from 

internationally  accepted  practices,  notably  the  respective  guidelines  by  the  European  Banking 
Authority (EBA) and the European  Securities and  Markets Authority (ESMA)13. In  this regard, the 

ECB  understands  that  pursuant  to  Article  74a  of  the  Law  on  credit  institutions,  credit  institutions 

established  in  Bulgaria  already  have  to  apply  the  EBA  guidelines,  recommendations  and  other 

measures  concerning 

them 

to 

the  extent  of  BNB’s  compliance  with  such  guidelines, 

recommendations or other measures. 

2.4  The ECB notes that the governance requirements for credit institutions are set out in the  Law  on 
credit  institutions  and  may  be  further  specified  in  BNB  ordinances14.  The  ECB  therefore 

understands that the draft law may in the future be supplemented by provisions on the governance 

of credit institutions adopted by means of BNB ordinances. 

2.5  The ECB also notes that on 18 July 2018 the Republic of Bulgaria filed a request to establish close 

cooperation  between  the  ECB  and  BNB,  in  line  with  the  existing  procedures  established  under 
Article  7  of  Council  Regulation  (EU)  No  1024/2013 15  and  under  Decision  ECB/2014/5  of  the 
European Central Bank on close cooperation16. This opinion is without prejudice to the assessment 

to  be  conducted  by  the  ECB  in  accordance  with  Article  4  of  Decision  ECB/2014/5,  which  will 

include  a  broader  assessment  of  the  relevant  national  legislation,  also  taking  into  account  the 

practical implementation of such legislation. 

11  
12  

13  

14  

15  

16  

See Article 79(2) of the Law on credit institutions. 
Directive  2013/36/EU  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  access  to  the  activity  of 
credit  institutions  and  the  prudential  supervision  of  credit  institutions  and  investment  firms,  amending  Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 
EBA  Guidelines  on  internal  governance  under  Directive  2013/36/EU  (EBA/GL/2017/11)  and  Joint  ESMA  and  EBA 
Guidelines on the assessment of the suitability of members of the management body and key function holders under 
Directive 2013/36/EU and Directive 2014/65/EU (EBA/GL/2017/12). BNB has indicated that it intends to comply with 
both guidelines as of 1 January 2019. See compliance tables on the EBA’s website. 
See for example Ordinance No. 7 of 24 April 2014 on organisation and risk management of banks (Darjaven Vestnik 
No 40, 13 May 2014), Ordinance No. 10 on the Internal Control in Banks (Darjaven Vestnik No 108, 12 December 
2003)  and  Ordinance  No.  20  of  28  April  2009  on  the  Issuance  of  Approvals  to  the  Members  of  the  Management 
Board  (Board  of  Directors)  and  Supervisory  Board  of  a  Credit  Institution  and  Requirements  for  Performing  their 
Duties (Darjaven Vestnik No 36, 15 May 2009). 

Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).  
Decision ECB/2014/5 of the European Central Bank of 31 January 2014 on the close cooperation with the national 
competent authorities of participating Member States whose currency is not the euro (OJ L 198, 5.7.2014, p. 7). 

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3. 

Specific observations 

3.1  Observations regarding BNB’s macroprudential mandate 

The ECB welcomes the clarification of the details of BNB’s macroprudential toolkit. The objectives 

of the draft law are also in line with the principles set out in the Recommendation ESRB/2013/1 of 
the  European  Systemic  Risk  Board17  on 

intermediate  objectives  and 

instruments  of 

macroprudential policy, in particular with regard to the objective to mitigate and prevent excessive 
credit growth and leverage18. 

From  a  financial  stability  perspective,  the  ECB  welcomes  the  implementation  of  a  legislative 
framework for borrower-based measures19. The ECB takes positive note of the fact that BNB may 

activate part or all of the abovementioned tools, thereby responding in a flexible and proportionate 

way to potential risks to financial stability. A thorough quantitative impact assessment is, however, 
important to verify the effect and appropriateness of the new tools when they are activated 20. 

3.2  Observations regarding fit and proper assessments and governance of credit institutions 

The ECB welcomes the proposed changes in the draft law and understands that the draft law may 

in  the  future  be  supplemented  by  provisions  regarding  fit  and  proper  assessments  and  the 

governance  of  credit  institutions  adopted  by  means  of  BNB  ordinances,  also  with  a  view  to 

ensuring compliance of the Bulgarian legal framework with the relevant Union rules.  

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

Done at Frankfurt am Main, 19 November 2018. 

[signed] 

The President of the ECB 

Mario DRAGHI 

17  

18  

19  

20  

Recommendation ESRB/2013/1 of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and 
instruments of macro-prudential policy (OJ C 170, 15.6.2013, p. 1). 

See  paragraph  2.2  of  Opinion  CON/2017/11,  paragraph  2.3  of  Opinion  CON/2017/21,  paragraph  3.1  of  Opinion 
CON/2018/9. 

See  press  release, 
‘Governing  Council  statement  on  macroprudential  policies’,  15  December  2016,  at 
www.ecb.europa.eu. See also, paragraph 2.3 of Opinion CON/2017/11, paragraph 2.4 of Opinion CON/2017/21 and 
paragraph 3.2 of Opinion CON/2018/9. 

See paragraph 3.2 of Opinion CON/2018/9. 

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