Opinion of the European Central Bank of 30 January 2020 on the sanctioning powers of BNB within close cooperation and the official exchange rate of the Bulgarian lev (CON/2020/5)
Date: 2020-01-30
Institutions: European Central Bank
Subjects: Bulgaria, EU banking union, administrative sanction, banking supervision, central bank, exchange rate, exchange-rate mechanism, money, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 30 January 2020 

on the sanctioning powers of BNB within close cooperation and the official exchange rate of the 

Bulgarian lev 

(CON/2020/5) 

Introduction and legal basis 

On  21  January  2020  the  European  Central  Bank  (ECB)  received  a  request  from  Българска  народна 

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

Bulgarian Minister of Finance, for an opinion on a draft law amending the Law on credit institutions and 

the Law on BNB (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  first  and  third  indents  of  Article 2(1)  of  Council  Decision 
98/415/EC1,  as  the  draft  law  relates  to  currency  matters,  BNB  and  the  tasks  conferred  on  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 

As  explained  in  the  consultation  letter,  the  draft  law  serves  a  two-fold  purpose  in  relation  to  the 

Republic of Bulgaria’s intention to join the Single Supervisory Mechanism (SSM) and the Exchange 

Rate Mechanism (ERM II). 

1.1  Draft provisions relating to sanctions in the context of banking supervision 

The  draft  law  proposes  to  amend  the  Law  on  credit  institutions2  in  relation  to  BNB’s  sanctioning 

powers,  both  in  general  terms  as  well  as  in  relation  to  ECB  instructions  in  the  context  of  close 

cooperation. 

1.1.1  Proposed changes to the general sanctioning provisions 

The  draft  law  extends  the  list  of  breaches  which  may  be  subject  to  sanctions,  as  set  out  in 

Article 152(1)  of  the  Law  on  credit  institutions,  to  also  include  breaches  of  other  relevant  directly 

applicable acts of the European Union, in addition to the existing list of breaches of certain specific 

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). 
Law on credit institutions (Закон за кредитните институции, обн. ДВ, бр. 59 от 21.07.2006 г.). 

 
 
 
 
                                                 
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Union  legal  acts 3,  of  the  Law  on  credit  institutions,  and  of  normative  acts  issued  for  their 

application. 

1.1.2  Proposed BNB sanctioning powers when acting upon an ECB instruction pursuant to Article 18(1), 

(5) and (7) of Council Regulation (EU) No 1024/2013 

The draft law proposes to amend Article 121d of the Law on credit institutions, which is contained 

in  Chapter  11a  on  close  cooperation  with  the  ECB,  in  order  to  provide  explicitly  for  the  different 

scenarios in which BNB is required to follow ECB requests in relation to administrative penalties in 

the context of close cooperation. 

On the one hand, in the event of requests issued by the ECB, BNB is required to impose a financial 

penalty for a breach of Regulation (ЕU) No 575/2013 or other directly  applicable  Union acts by a 

credit institution, financial holding company or mixed financial holding company or for a breach or 

non-compliance  by  a  credit  institution,  financial  holding  company  or  mixed  financial  holding 

company with an administrative act issued under Article 121b.  

On the other hand, in the event of requests issued by the ECB in accordance with Article 18(5) of 
Council Regulation (EU) No 1024/20134, BNB is required to begin a procedure for the imposition of 
administrative  sanctions.  Also,  if  BNB  establishes  a  breach  of  specific  Union  legal  acts 5,  of  other 

relevant directly applicable Union legal acts, or of a normative act issued for their application, or of 

an  individual  administrative  act  issued  under  the  Law  on  credit  institution,  the  person  committing 

such breach shall be subject to a financial penalty or fine to the amount specified in Article 152(1) 

to (3) of the Law on credit institutions. 

3  

4  

5  

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),  Regulation  (EU)  No  648/2012  of  the  European  Parliament  and  of  the  Council  of  4 July 2012  on 
OTC  derivatives,  central  counterparties  and  trade  repositories  (OJ  L  201,  27.7.2012,  p.  1),  Regulation  (EU) 
2015/2365  of  the  European  Parliament  and  of  the  Council  of  25  November  2015  on  transparency  of  securities 
financing  transactions  and  of  reuse  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  337,  23.12.2015,  p.  1), 
Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 on improving securities 
settlement  in  the  European  Union  and  on  central  securities  depositories  and  amending  Directives  98/26/EC  and 
2014/65/EU  and  Regulation  (EU)  No  236/2012  (OJ  L  257,  28.8.2014,  p. 1)  and  Commission  Regulation  (EU) 
No 1031/2010  of  12 November  2010  on  the  timing,  administration  and  other  aspects  of  auctioning  of  greenhouse 
gas  emission  allowances  pursuant  to  Directive  2003/87/EC  of  the  European  Parliament  and  of  the  Council 
establishing  a  scheme  for  greenhouse  gas  emission  allowances  trading  within  the  Community  (OJ  L  302, 
18.11.2010, p. 1). 
See  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). 
Under Article 18(5) of Regulation (EU) No 1024/2013, in the cases not covered by Article 18(1) of Regulation (EU) 
No 1024/2013, where necessary for the purpose of carrying out the tasks conferred on it by that Regulation, the ECB 
may require national competent authorities to open proceedings with a view to taking action in order to ensure that 
appropriate penalties are imposed in accordance with the acts referred to in the first subparagraph of Article 4(3) and 
any  relevant  national  legislation  which  confers  specific  powers which  are  currently  not  required  by  Union  law.  The 
penalties  applied  by  national  competent  authorities  shall  be  effective,  proportionate  and  dissuasive.  This  provision 
shall  be  applicable  in  particular  to  pecuniary  penalties  to  be  imposed  on  credit  institutions,  financial  holding 
companies or mixed financial holding companies for breaches of national law transposing relevant Directives, and to 
any  administrative  penalties  or  measures  to  be  imposed  on  members  of  the  management  board  of  a  credit 
institution, financial holding company or mixed financial holding company or any other individuals who under national 
law  are  responsible  for  a  breach  by  a  credit  institution,  financial  holding  company  or  mixed  financial  holding 
company. 

Regulation  (ЕU)  No  575/2013,  Regulation  (ЕU)  No  648/2012,  Regulation  (ЕU)  2015/2365,  Regulation  (ЕU) 
No 909/2014 or Commission Regulation (ЕU) No 1031/2010. 

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Furthermore,  the  draft  law  expands  the  duty  of  BNB  to  adopt  a  sanction  on  the  basis  of 

Article 152(6) of the Law on credit institutions in response to requests made by the ECB in relation 

to  all  possible  tasks  listed  in  Article  121b,  namely  in  relation  to  significant  institutions,  less 

significant institutions and macro-prudential tasks. 

1.1.3  Statute of limitations for opening a sanctioning proceeding 

Finally,  the  draft  law  specifies  that  statements  of  objections  shall  be  drawn  up  by  officials 

authorised  by  the  Deputy  Governor  of  BNB  heading  the  Banking  Supervision  Department  within 

five years of the date of the breach and, in case of continued infringement, within five years of the 

date on which the infringement ceased. 

1.2  Draft provision relating to ERM II 

1.2.1  Current framework for the exchange rate between the lev and the euro 

The  Republic  of  Bulgaria  has  in  place  a  currency  board  arrangement  with  a  fixed  exchange  rate 
between  the  lev  and  the  euro.  In  particular,  Article  29  of  the  Law  on  BNB6,  currently  in  force, 

provides that the official exchange rate of the lev shall be 1 lev per 1 Deutsche Mark, and that once 

the  euro  becomes  legal  tender  in  the  Federal  Republic  of  Germany,  the  official  exchange  rate  of 

the lev to the euro shall be determined by multiplying that exchange rate by the official exchange 
rate of conversion of the Deutsche Mark to the euro7. 

1.2.2  Proposed  amendments  to  the  current  framework  for  the  exchange  rate  between  the  lev  and  the 

euro 

The draft law proposes to supplement the existing provision on the exchange rate between the lev 

and  the  euro  with  a  provision  establishing  that  from  the  date  of  participation  of  the  Republic  of 

Bulgaria in ERM II, the official exchange rate of the lev to the euro shall be equal to the central rate 

between  the  lev  and  the  euro,  as  agreed  per  paragraph  2.3  of  the  Resolution  of  the  European 

Council on the establishment of an exchange-rate mechanism in the third stage  of economic and 
monetary union Amsterdam, 16 June 19978 (Resolution on ERM II) and Articles 1.1 and 17.1 of the 

Agreement  of  16  March  2006  between  the  ECB  and  the  national  central  banks  of  the  Member 

States  outside  the  euro  area  laying  down  the  operating  procedures  for  an  exchange  rate 
mechanism in stage  three of Economic and Monetary Union9 (ERM II Central Bank Agreement). 

2. 

General observations 

2.1  The draft law seeks to ensure that BNB will be able to adopt any measure requested by the ECB in 

relation to supervised entities, as required under the legal framework regulating close cooperation 

between the ECB and BNB. 

6  
7  

8  

9  

Law on BNB (Закон за Българската народна банка, обн. ДВ, бр. 46 от 10.06.1997 г.). 
See Council Regulation (EC) No 2866/98 of 31 December 1998 on the conversion rates between the euro and the 
currencies of the Member States adopting the euro (OJ L 359, 31.12.1998, p.1). 
Resolution  of  the  European  Council  on  the  establishment  of  an  exchange-rate  mechanism  in  the  third  stage  of 
economic and monetary union Amsterdam, 16 June 1997 (OJ C 236 2.8. 1997, p. 5). 
Agreement  of  16  March  2006  between  the  European  Central  Bank  and  the  national  central  banks  of  the  Member 
States outside the euro area laying down the operating procedures for an exchange rate mechanism in stage three 
of Economic and Monetary Union (OJ C 073 25.3.2006, p. 21). 

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2.2 

In this regard it is highlighted that this opinion is without prejudice to the overall assessment of the 

request filed on 18 July  2018 by the Republic of Bulgaria to  establish close cooperation between 

the  ECB  and  BNB,  which  is  taking  place  in  line  with  the  existing  procedures  established  under 

Article  7  of  Regulation  (EU)  No  1024/2013  and  under  Decision  ECB/2014/5  of  the  European 
Central  Bank 10.  In  particular,  this  opinion  remains  without  prejudice  to  the  assessment  being 

conducted  by  the  ECB  in  accordance  with  Article  4  of  Decision  ECB/2014/5,  which  includes  a 

broader  assessment  of  the  relevant  national  legislation,  also  taking  into  account  the  practical 
implementation of such legislation11. 

3. 

Specific observations 

3.1  Draft provisions relating to the sanctions in the context of banking supervision 

3.1.1  The  ECB  welcomes  that  the  draft  law  further  refines  the  sanctioning  powers  for  BNB  in  order  to 

fully align Bulgarian national law with the scope of the ECB’s sanctioning power under Article 18 of 

Regulation (EU) No 1024/2013. 

3.1.2  In particular the ECB welcomes that the draft law requires BNB to comply with all ECB requests for 

the  sanctioning  of  breaches  of  BNB  administrative  acts  issued  pursuant  to  ECB  requests 

mentioned in paragraphs 1 to 4 of Article 121b of the Law on credit institutions. 

3.1.3  In  addition  the  ECB  welcomes  that  the  draft  law  explicitly  mentions  that  BNB  shall  open 

proceedings  for  the  imposition  of  administrative  penalties  when  so  requested  by  the  ECB  on  the 

basis of Article 18(5) of Regulation (EU) No 1024/2013, in line with the obligations set forth under 

Article  121b  of  the  Law  on  credit  institutions.  Moreover,  the  ECB  welcomes  that  the  draft  law 

clarifies by means of cross-reference which administrative penalties may be imposed by BNB when 

it  is  acting  upon  an  ECB  request  made  on  the  basis  of  Article  18(5)  of  Regulation  (EU) 

No 1024/2013. 

3.1.4  The  ECB  welcomes  that  the  draft  law  aligns  the  statute  of  limitations  when  BNB  acts  upon  a 

request  from  the  ECB  with  the  time  limits  set  out  in  Article  4c  of  Council  Regulation  (EU) 

No 2532/98  and  Article  130  of  Regulation  (EU)  No  468/2014  of  the  European  Central  Bank 
(ECB/2014/17) 12,  namely  five  years  after  the  breach  occurred  or,  in  case  of  a  continued 

infringement, five years after the infringement ceased. 

10  

11  

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). 

See  paragraph  2.3  of  Opinion  CON/2018/49.  All  ECB  Opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

12    Regulation  (EU)  No  468/2014  of  the  European  Central  Bank  of  16  April  2014  establishing  the  framework  for 
cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent 
authorities  and  with  national  designated  authorities  (SSM  Framework  Regulation)  (ECB/2014/17)  (OJ  L  141, 
14.5.2014, p. 45). 

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3.2  Draft provision relating to ERM II 

The ECB welcomes the new provision of Article 29(3) of the Law on BNB, which is in line with the 

procedures under the ERM II Resolution and the ERM II Central Bank Agreement. 

ECB-PUBLIC 

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

Done at Frankfurt am Main, 30 January 2020. 

[signed] 

The President of the ECB 

Christine LAGARDE 

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