1. What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?

 

 

The Bulgarian National Bank (BNB) is the main regulatory authority in the banking sector. Its primary objective is to maintain price stability by participating in the formulation and implementation of the Eurosystem’s monetary policy. The BNB regulates and supervises the activities of commercial banks, as well as the those of payment system operators, payment service providers, and electronic money issuers.

 

 

The Financial Supervision Commission (FSC) is a specialized government body responsible for the regulation and supervision of various segments of the non-banking financial sector, including the capital market, insurance market, health insurance market, and pension insurance market.

 

 

The Bulgarian Deposit Insurance Fund (BDIF) is a legal entity whose main objective is to contribute to the stability and credibility of the financial system of the Republic of Bulgaria by ensuring the protection and repayment of covered deposits, as well as safeguarding the interests of creditors in bank bankruptcy proceedings.

 

 

In addition to the national authorities, EU-level institutions, such as the European Central Bank (ECB) and the European Banking Authority (EBA), also play an important role in banking regulation, supervision, and resolution in Bulgaria.

 

 

2. Which type of activities trigger the requirement of a banking license?

In Bulgaria, the requirement for a banking license is triggered by the performance of specific banking activities, as defined primarily under the Credit Institutions Act.

 

 

Only licensed banks are permitted to accept deposits or other repayable funds from the public, to accept valuables on deposit and to act as a depository or trustee institution. Any entity intending to carry out such activities must obtain a banking license from the BNB.

 

 

However, certain financial activities, such as financial leasing, guarantee transactions, electronic money issuance, or money brokering, may be carried out by non-bank financial institutions. These activities are subject to separate licensing or registration requirements and are regulated under distinct legal regimes.

 

 

3. Does your regulatory regime know different licenses for different banking services?

Under Bulgarian law, licenses can be of different types depending on the scope of activities they authorize. According to this distinction, there are universal banking licenses, which allow the performance of all types of banking activities, and restricted banking licenses, which permit only certain specific banking transactions and operations.

 

 

In addition, in case a bank wishes to obtain a permission for changing the scope of its granted license, it shall file an application with the BNB, accompanied by the modified Articles of Association, reflecting the new banking transactions or activities, a justification for expanding the bank’s scope of activities, information on the professional experience and qualification of the staff that will directly make the new form of bank transactions and information on the availability of appropriate hardware and software necessary for carrying out the new activities.

 

 

4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

 

 

A banking license does not automatically authorize all types of financial activities beyond those expressly specified in the license itself. Any financial activities falling outside the scope of the license require separate authorization or registration under the applicable legal and regulatory framework.

 

 

By way of example, the license may authorize the following additional activities:

 

 

·         financial leasing;

 

 

·         guarantee transactions;

 

 

·         trading for own account or for account of customers in foreign exchange and precious metals, excluding derivative financial instruments based on foreign exchange and precious metals;

 

 

·         money broking;

 

 

·         acquisition of accounts receivable on loans and other type of financing (factoring, forfeiting, etc.);

 

 

·         issuing of electronic money, including electronic money tokens;

 

 

·         acquisition and management of participating interests;

 

 

·         safe custody services;

 

 

·         issuance of asset-referenced tokens;

 

 

·         provision of crypto-asset services, etc.

 

        

5. Is there a "sandbox" or "license light" for specific activities?

 

 

Generally, no. The credit institutions regulatory framework is based on the European Union one and is very conservative and strict. There are no regulatory sandboxes in the financial sector locally at present.

 

 

In a way, as a “license light” could be considered the established registration regime for the so-called “financial institutions” which can perform certain specific activities that are natural for credit institutions (banks). Examples for such activities are financial leasing, guarantee transactions, factoring and granting credits (although contrary to the banks - with funds which are not raised through taking deposits). Such financial institutions are registered in a public register of the Bulgarian National Bank under a much less-stricter regime compared to the one applicable for banks (in terms of capital requirements, governance, supervision, etc.).

 

 

For a license light regime could be considered also the one under the local law implementing European Union Regulation 2023/1114 on markets in crypto-assets (MiCA), according to which banks can perform crypto related services by passing a simplified notification procedure before the Bulgarian Financial Supervision Commission (instead of the heavy licensing process laid down for other market participants).

 

 

6. What regulatory restrictions or authorisation requirements apply to banks engaging in the issuance, custody or provision of services relating to cryptoassets or other digital assets?

 

 

Generally, there are no such restrictions. Banks are empowered to provide various types of crypto services under a lightweight legal regime, i.e. no license/authorisation is required, but the bank should go through only a specific notification procedure (presenting accompanying data/documentation). 

 

 

Applicable in Bulgaria is MiCA, as well as the local Markets in Crypto Assets Act implementing MiCA. The local law basically follows MiCA and there are no notable gold-plating elements laid down therein.

 

 

7.      Can cryptoassets or digital assets constitute "deposits" or equivalent protected funds under applicable law, and are they capable of benefiting from depositor protection, client asset safeguarding or segregation regimes?

 

 

Crypto assets do not qualify as deposits and are not covered by deposit insurance and/or segregation of funds. MiCA rules apply.

 

 

8. If cryptoassets are held by the licensed entity, what are the related capital requirements (risk weights, etc.)?

 

 

MiCA rules apply. For example, when it comes to crypto-asset service providers the following capital requirements are relevant:

 

 

Class 1: Crypto-asset service provider authorised for the following crypto-asset services: (i) execution of orders on behalf of clients, (ii) placing of crypto-assets, (iii) providing transfer services for crypto-assets on behalf of clients, (iv) reception and transmission of orders for crypto-assets on behalf of clients, (v) providing advice on crypto-assets; and/or (v) providing portfolio management on crypto-assets – minimum capital in the amount of EUR 50,000.

 

 

Class 2: Crypto-asset service provider authorised for any crypto-asset services under class 1 and: (i) providing custody and administration of crypto-assets on behalf of clients, (ii) exchange of crypto-assets for funds; and/or (iii) exchange of crypto-assets for other crypto-assets – minimum capital in the amount of EUR 125,000.

 

 

Class 3: Crypto-asset service provider authorized for any crypto-asset services under class 2 and operation of a trading platform for crypto-assets – minimum capital in the amount of EUR 150,000.

 

 

The said classes apply, of course, only in case the respective crypto-asset service provider is not a bank, as in the latter case, specific capital requirements apply for the bank itself (in its capacity of a credit institution).

 

 

9. What is the general application process for bank licenses and what is the average timing?

 

 

The procedure for issuing a banking license begins with the submission of a written application by the founders of the bank through the Governor of the BNB or the Deputy Governor in charge of the Banking Supervision Department.

 

 

The application shall contain the name, registered office and headquarters of the bank, the amount of capital and the portion to be paid upon incorporation, and explicitly specify the banking activities the bank intends to carry out. It must also be accompanied by the following documents:

 

 

·         the Articles of Association of the bank;

 

 

·         a document containing particulars of the subscribed capital and of the shareholders’ contributions;

 

 

·         the bank’s plan of activities with exhaustive description of the activities to be performed, customer and product structure, objectives, policy and strategy of the bank, financial forecast of development over a three-year period;

 

 

·         a description of the managing and organizational structure of the bank;

 

 

·         a description of the internal control systems and the risk management systems, as well as an anti-money laundering programme;

 

 

·         the names and addresses of the members of the supervisory board and the management board (or of the board of directors) of the bank, as well as information about their qualifications and professional experience;

 

 

·         the name/business name and residence/registered office of any persons who or which have subscribed for 3 % and more than 3 % of the voting shares and of the 20 biggest shareholders;

 

 

·         information regarding the beneficial owner of the entities which have direct or indirect qualifying shareholding in the applicant; and

 

 

·         other documents specified by regulation or requested by the BNB, needed to establish the circumstances necessary to assess whether the conditions for granting or refusing a license are met.

 

 

Prior to taking a decision, the BNB conducts a series of checks to verify the completeness and accuracy of the submitted documents and to assess the reliability and financial standing of the applicant. This review aims to ensure compliance with all legal requirements and to determine whether the proposed banking activities guarantee soundness and financial stability.

 

 

The BNB issues its decision on the application within three months of receipt of the complete application and all required documents. Within this period, the applicant must demonstrate that the minimum capital of EUR 5 million has been paid, that the persons designated to manage and represent the bank, as well as other administrators, meet the statutory requirements, that suitable premises and the necessary technical equipment have been secured, and that effective risk management, compliance, and internal audit functions have been established.

 

 

If the applicant fails to provide evidence that these requirements have been met, the BNB issues a refusal, which is not subject to appeal. The applicant may submit a new application no earlier than 12 months after the refusal comes into effect.

 

10. To what extent may foreign or overseas banks conduct cross-border banking activities into the jurisdiction without establishing a local presence or obtaining local authorisation, and what limitations or conditions apply?

 

 

A bank licensed by the competent authorities of an EU member state may provide services in the territory of the Republic of Bulgaria either directly or through a branch, whereas a bank established in a third country can operate in Bulgaria only through a branch and after obtaining a license from the BNB through a special procedure.

 

 

11. What legal forms are permitted to operate banks in the jurisdiction (e.g. public company, private company, subsidiary or branch), and what are the key regulatory considerations associated with each structure?

 

 

The only legal form under which a bank may operate under the Bulgarian law is a joint-stock company. In addition to all requirements generally associated with this type of company, several additional specific requirements must also be observed.

 

 

Firstly, the minimum paid-in capital required for the establishment of a bank may not be less than EUR 5 million, and contributions up to this minimum must be made exclusively in cash.

 

 

Furthermore, banks are subject to the regulatory regime applicable to public companies and may issue only dematerialised shares, with each share granting its holder one vote at the General Meeting.

 

 

Banks may also operate through branches and, by way of derogation from the general rule, are permitted to open more than one branch within the same locality.

 

 

12.  Does the jurisdiction impose any structural separation or ring-fencing requirements on banks or banking groups, and what practical challenges do these create for group structures and operations?

 

 

Bulgaria does not impose a standalone national structural separation or ring-fencing regime on banks (such as mandatory separation of retail and investment banking), and instead follows the EU prudential and resolution framework. In practice, separation effects arise indirectly through EU rules on capital, liquidity, large exposures, governance, and recovery and resolution planning (CRR/CRD and BRRD), applied by the Bulgarian National Bank and, for significant banks, the ECB under the Single Supervisory Mechanism (SSM).

 

 

Supervisory authorities may require limits on intragroup exposures, local capital and liquidity buffers, or operational separability to ensure resolvability, which can function as de facto ring-fencing. For banking groups, this can complicate centralized treasury, funding, and liquidity management, particularly in cross-border structures. It may also restrict upstreaming of capital or liquidity from Bulgarian subsidiaries to the group. Overall, while there is no formal ring-fence, the practical challenge lies in managing supervisory expectations that favor subsidiarization and local resilience over full group integration.

 

 

13. What governance, risk management and internal control requirements apply to banks, including expectations regarding board composition, management oversight, committee structures and organisational culture?

 

 

As far as such organizational requirements and corporate governance of banks are concerned the land-scape is highly regulated.

 

 

General legal regimes in this regard:

 

 

•           organisation and risk management of banks

 

 

•           policies and practices on remunerations in banks

 

 

•           requirements for capital buffers and terms and procedure for their formation and updating, e.g.:

 

 

-           restrictions on dividend or interest payments with regard to own funds;

 

 

-           conditions for compulsory coverage of losses by shareholders;

 

 

-           other restrictions in case of established failure or for prevention of failure to meet the capital buffers requirements.

 

 

•           requirements to organisation, governance and internal control of banks, e.g. internal rules of the bank which should include, among others:

 

 

-           a detailed description of bank’s management and organisational structure;

 

 

-           an exhaustive definition of powers and responsibilities of administrators and key personnel;

 

 

-           function holders in the bank, as well as a description of requirements for holding such positions;

 

 

-           the bank’s strategy and plan of activities;

 

 

-           policy and structure of risk management and control;

 

 

-           appropriate and reliable accounting and financial reporting systems;

 

 

-           an effective internal control framework that includes independent risk management service, compliance function and internal audit service;

 

 

-           policy to establish, manage and prevent conflicts of interest;

 

 

-           procedure for reporting by employees of breaches committed within the bank;

 

 

-           code of ethics of administrators and employees;

 

 

-           system for providing training, evaluation and incentives to senior management and employees with supervisory functions.

 

 

•           minimum required reserves maintained with the Bulgarian National Bank

 

 

•           internal exposures - requirements for internal banking rules and procedures regarding the formation, identification, supervision and reporting of such exposures.

 

 

As far as the board composition is concerned, all members of management/supervisory boards in banks are subject to prior approval by the Bulgarian National Bank. Summarized (as the regulatory framework contains detailed rules in this regard) subject to assessment is the individual suitability of nominees for members of the management body/supervisory board, where taken into account are circumstances such as: (i) good reputation, (ii) knowledge, skills and experience for the respective position, (iii) ability to perform their functions with honesty, integrity and independence, (iv) ability to commit sufficient time to perform their functions. CRD VI rules are currently subject to implementation locally, so potential developments in this particular sphere are expected.

 

 

14. What operational resilience requirements apply to banks, including expectations relating to critical or important business services, impact tolerances, and the management of operational disruptions?

 

 

Banks in Bulgaria are required to meet operational resilience requirements primarily under EU law, in particular the Digital Operational Resilience Act (DORA), which applies directly from January 2025 and is subject to supervision by the BNB and relevant EU authorities. Banks are expected to identify their critical business services, such as payments, deposits, lending, and liquidity, and map the people, processes, systems, and key third parties that support their delivery end-to-end.

 

 

For each critical service, banks should define impact tolerances, defining the maximum acceptable level of disruption (e.g. time, volume, or customer impact), before intolerable harm occurs, and have these approved by senior management or the board. Banks must maintain effective ICT risk management, business continuity, and incident response frameworks, supported by regular scenario and resilience testing, to ensure services can be restored within agreed tolerances. Strong third-party and outsourcing management is also required, including appropriate contracts, exit plans, and contingency arrangements to protect service continuity.

 

 

15. What regulatory expectations apply to banks’ outsourcing arrangements, including the use of cloud service providers and reliance on critical third-party service providers?

 

 

Banks in Bulgaria must comply with EU-wide outsourcing and third-party risk requirements, primarily under the EBA Guidelines on Outsourcing Arrangements and the DORA, which are overseen by BNB. Banks must identify, assess, and document all outsourcing arrangements, with enhanced due diligence and governance for material or critical functions, including cloud services.

 

 

The use of cloud service providers is permitted, provided that banks ensure clear contractual rights covering access and audit, data security, business continuity, and orderly exit, including the ability of supervisory authorities to access relevant data and premises. Banks are expected to maintain an outsourcing register, perform ongoing monitoring, and ensure outsourcing does not undermine operational resilience, risk management, or supervisory oversight.

 

 

Under DORA, banks must also actively manage dependencies on ICT third-party service providers, including concentration and systemic risks. Where a provider is designated as critical at EU level, it will be subject to enhanced EU oversight, while banks remain fully accountable for the outsourced activities.

 

 

16.  How do environmental, social and governance (ESG) and climate-related regulatory requirements affect banks, including governance, risk management, disclosures and prudential supervision?

 

 

Banks in Bulgaria are subject to EU-wide ESG and climate-related requirements, which are applied and supervised by the BNB as part of prudential supervision. From a governance perspective, banks are expected to integrate ESG and climate risks into their business strategy, risk appetite, internal controls and board oversight, with clear senior management accountability. In risk management, banks must identify, measure and manage climate-related financial risks (both physical and transition risks) across credit, market, operational and liquidity risk, and reflect them in their Internal Capital Adequacy Assessment Process (ICAAP), stress testing and scenario analysis.

 

 

Banks are also subject to extensive disclosure obligations, including Pillar 3 ESG disclosures under the Capital Requirements Regulation (CRR) and sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD), covering exposures, policies, targets and risk metrics. From a prudential supervision perspective, supervisory authorities assess how effectively banks incorporate ESG risks into governance, risk frameworks and capital planning, and may require remediation where weaknesses are identified. Although ESG risks do not yet attract standalone capital charges, they are increasingly influencing supervisory reviews, stress tests and expectations on long-term resilience.

 

 

17.  What regulatory restrictions or requirements apply to banks' remuneration policies, including bonus caps, deferral, malus and clawback, and how are these enforced in practice?

 

 

Individuals subject to remuneration requirements

 

 

Each bank shall adopt a remuneration policy to be applied to the following individuals:

 

 

•           members of the management board (or respectively board of directors) and the supervisory board;

 

 

•           senior management;

 

 

•           employees responsible for the management of independent risk management departments, legal compliance departments and internal audit departments or significant business units of the bank; and

 

 

•           employees who received in the past financial year significant remuneration and meet certain conditions regarding the professional activity they carry.    

 

 

Remuneration principles/restrictions

 

 

The applied remuneration policy in every bank shall (i) promote an effective risk management and discourage excessive risk-taking, (ii) be in line with the business strategy, objectives, values and long-term interest of the bank, (iii) incorporate measures to avoid conflict of interest and (iv) be gender neutral.

 

 

Furthermore, the remuneration policy should include different criteria, determining the fixed and variable remuneration of individuals. The fixed remuneration shall depend on the relevant professional experience and organisational responsibilities of the individual and the variable remuneration – on the sustainable, effective and risk adjusted performance, as well as performance beyond the job description.

 

 

Enforcement seems to be rarely needed in practice, as local banks are usually very much compliant with the prescribed statutory rules. 

 

 

18. Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?

 

 

Yes, Bulgaria has implemented the Basel III framework with respect to regulatory capital, as part of its commitment to aligning its financial system with the EU regulations, and there are no major domestic deviations from those standards for different categories of banks.

 

 

19. Are there any requirements with respect to the leverage ratio?

 

 

Yes, Bulgaria has requirements regarding the leverage ratio for banks, in line with the European Union’s regulatory framework. The minimum leverage ratio is generally set at 3 percent, consistent with EU Basel III standards. BNB monitors all banks for compliance and may impose additional supervisory measures if necessary.

 

 

20. What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

 

 

In Bulgaria, banks are subject to liquidity requirements aligned with the Basel III framework. Banks are required to manage their liquidity in a way that ensures they can regularly and without delay meet their daily obligations, both under normal banking conditions and in times of financial stress or crisis. To achieve this, the competent managing body of each bank must adopt comprehensive internal liquidity management rules, and each bank is required to establish a dedicated liquidity management body responsible for developing, implementing, and maintaining an effective liquidity management system.

 

 

The liquidity requirements are supervised by the BNB and in case BNB determines that a bank has a significant liquidity problem that require immediate measured to be taken, the Deputy Governor heading the Banking Supervision Departments may oblige the bank to submit its liquidity reports on a weekly or daily basis to reflect its survival plans and its strategy to reach out the liquidity thresholds.

 

 

In situations where the bank meets additional criteria, the BNB may, at its discretion, provide emergency liquidity assistance to support the institution and safeguard financial stability.

 

 

21.    Which different sources of funding exist in your jurisdiction for banks from the national bank or central bank?

 

 

The BNB may not grant loans to banks except in case of liquidity risk affecting the stability of the banking system. In such case the BNB may, at its discretion, provide the bank with money or any other form of assistance that increases its liquidity. To receive such emergency support, the bank must be solvent, must have exhausted other sources of liquidity, and must provide eligible collateral to the BNB. The emergency liquidity assistance (ELA) is generally granted for a term of up to six months, or up to twelve months if the bank submits a planned strategy for ending the assistance and updates the strategy in the event of any changes in its liquidity recovery plan. The bank is required to pay interest on the granted ELA for the period of its use and may also incur an additional penalty interest margin in case of late payment.

 

 

22. Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?

 

 

Banks shall prepare and disclose publicly its annual financial report, which is a subject to independent audit jointly by two audit entities which are registered auditors. Moreover, once every six months, any bank shall publish in at least one central daily newspaper a balance sheet and a profit and loss account.

 

 

Banks are also required to comply with the disclosure requirements of Part Eight of Regulation (EU) 575/2013. If a bank discloses information under Part Eight more than once a year, such disclosure must be made within three months of the end of the reporting period, and the information must be made publicly available on the bank’s official website and in at least one media.

 

 

23. Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?

 

 

The Bulgarian National Bank is set to carry out supervision on a consolidated basis over banks, financial holding companies, mixed financial holding companies and mixed holding companies for which it exercise-es direct supervision in accordance with Article 6 of Regulation (EU) No. 1024/2013, subject to the terms and conditions of this Act, Regulation (EU) No. 575/2013 and their implementing acts. In addition, such supervision on a consolidated basis is performed over alternative investment fund managers and management companies in the manner and to the extent applicable to financial institutions.

 

 

As a consequence, bank, financial holding company, mixed financial holding company or mixed-activity holding company, which are subject to consolidated supervision by the BNB shall implement arrangements, processes and mechanisms required by the Credit Institutions Act (CIA) also in their subsidiaries, including these which are not subject to the CIA, and are established in jurisdictions with preferential arrangements. Those arrangements, processes and mechanisms shall also be consistent and well-integrated and those subsidiaries shall also be able to produce any data and information relevant to the purpose of supervision. Subsidiaries which do not fall within the scope of the CIA shall also comply with sector-specific requirements on an individual basis.

 

 

24.  What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

 

 

Under CIA, the persons who have subscribed for 10% and more than 10% of the capital of a bank, should meet the requirements for acquisition of a qualifying holding or a higher shareholding in compliance with the CIA, and the amount of the property possessed thereby and the scale and financial results of the business carried out by them correspond to the proposed acquisition of shareholding in the bank and do not raise doubt as to the reliability and capability of such persons, where necessary, to provide capital sup-port to the bank.

 

 

Where EU parent credit institution can demonstrate to the BNB that the application of the requirements for implementing the arrangements, processes and mechanisms for reporting is unlawful under the laws of the third country (where the subsidiary is established), the bank shall not apply those requirements in relation-ships with this subsidiary undertaking.

 

 

On a reporting side, subject of notification to the BNB shall be the particulars in writing of the name/business name and residence/registered office of any persons who or which have subscribed for 3% and more than 3% of the voting shares and of the 20 biggest shareholders, as well as of the professional (business) activity thereof during the last preceding five years. Further, the origin of the funds used for effecting payment towards participating interests by the persons who have subscribed for 3% or more than 3% of the capital of a bank is clear and legitimate. Any such natural person and the legitimate representatives of any such legal persons shall submit declarations in writing: (a) that the payments against subscribed shares have been effected with own funds; (b) about the origin of the funds where-from payments have been effected for subscribed shares; (c) of the taxes paid thereby during the last preceding five years.

 

 

Information regarding the beneficial owner of the persons which have direct or indirect qualifying holding in the banks are also subject of reporting.

 

 

25.  Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

 

 

The national regulation, through the CIA, imposes comprehensive requirements for owners of 3% and over 3% of the capital of banks in Bulgaria.

 

 

These requirements refer to the origin of funds of the shareholders, where the latter shall be clear and legitimate, but also to the reliability and capability of such persons, where necessary, to provide capital sup-port to the bank.

 

 

26.  Are there specific restrictions on foreign shareholdings in banks?

 

 

No such general restrictions, unless related to sanctions regimes.

 

 

27.  Is there a special regime for domestic and/or globally systemically important banks?

 

 

There is no special regime for domestic and/or globally Systemically Important Banks (SIB) but rather the EU level rules which are followed by BNB.

 

 

BNB has identified the SIB on the basis of Art. 9, para. 1 of Ordinance No. 8 of the BNB, in connection with Art. 39 par. 2 of the CIA. The criteria for identification are defined in Art. 9, para. 3 and para. 7 of Ordinance No. 8. In relation to the harmonization of the application of these criteria by all Member States, the European Banking Authority (EBA) has developed pan-European guidelines.

 

 

BNB follows the EBA Guidelines in identifying banks in Bulgaria as SIB and bases the identification on the highest level of consolidation (item 5).

 

 

According to item 7 of the EBA Guidelines, the determination of the overall rating for each credit institution is based on ten mandatory indicators (market shares) divided into four criteria: Extent, Significance (including substitutability/financial system infrastructure), Complexity/cross-border activity and Interconnection.

 

 

The arithmetic average of these indicators calculates an individual overall rating of between 1 and 10 000 basis points for each bank (point 8), which illustrates its systemic importance. In accordance with item 9 of the EBA Guidelines, the BNB reduces the minimum threshold for identification of SIIs to 275 basis points, thus ensuring strategic homogeneity and maximum coverage of systemically important credit institutions.

 

 

28. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

 

 

The sanctions are of great variety and start from BGN 1000 (or EUR 511) going to in case of a natural person – up to EUR 5 million, and in case of a legal entity –the amount of up to 10 per cent of the annual turnover, including gross income, comprising interest receivable and other similar income, income from shares and other variable or fixed yield securities income and receivables from commissions and/or fees.

 

 

The above financial sanctions may be combined with administrative coercive measures, comprising of suspension of the banking license.

 

 

29. How active are banking regulators in enforcement against banks and senior individuals, and what recent trends can be observed in supervisory or enforcement action?

 

 

The Bulgarian banking regulator – the Bulgarian National Bank is active in supervision but relatively restrained in enforcement, with actions focused primarily on institutions rather than senior individuals. The Bulgarian National Bank regularly imposes administrative measures and fines for prudential breaches, while significant banks are also subject to ECB oversight under the Single Supervisory Mechanism, where enforcement may still be considered targeted and proportionate. Recent trends show increased supervisory attention to governance, risk management, of course - AML/CTF compliance, and emerging areas such as climate-related financial risks. Direct personal enforcement against senior bank executives remains rare, with regulators favoring corrective and preventive supervisory tools over punitive individual sanctions.

 

 

30.  How are client’s assets and cash deposits protected?

 

 

The clients’ assets and cash deposits in banks are protected on a regulatory level through a special law – Bank Deposit Guarantee Act (BDGA). This Act regulates the social relations associated with the reliable functioning of the bank deposit guarantee system and the protection of depositors, as well as the organisation, objectives, functions and operation of the Bulgarian Deposit Insurance Fund, hereinafter referred to as "the Fund". This Fund shall guarantee payment of the aggregate sums held by any single person on deposits at a bank, irrespective of the number of said deposits and the number of financial means there-on, up to a level of EUR 100,000.

 

 

The following deposits shall be covered up to a level of EUR 125,000 for a period of three months after the amount has been credited to an account of the depositor, or after the depositor has acquired the right to dispose of the sum on the deposit:

 

 

A. deposits held by natural persons resulting from real estate transactions relating to housing needs;

 

 

B. deposits held by natural persons resulting from payments relating to the contracting or dissolution of a marriage, termination of an employment relationship or a civil-service relationship, invalidity or death;

 

 

C. deposits resulting from commercial or social insurance payments or based on the payment of compensation for criminal injuries or a sentence reversed.

 

 

The deposits referred to in the preceding paragraph shall be excluded from the calculation of the total amount of the liability of the bank to any single depositor within the period referred – 3 months.

 

 

In the common practice of the local banks, they are imitating their responsibility for assets held in deposit boxes between EUR 5 000 and EUR 15 000.

 

 

31.  What recovery and/or resolution planning obligations apply to banks, and how are recovery and/or resolution plans reviewed and assessed by supervisory authorities?

 

 

The bank recovery and resolution regime in Bulgaria is governed by the Recovery and Resolution of Credit Institutions and Investment Firms Act (RRCIIFA), which implements the provisions of Directive 2014/59/EU into national legislation.

 

 

Resolution regime:

 

 

The BNB is the competent authority for credit institutions, while the investment intermediaries are supervised by the Financial Supervision Commission (FSC).

 

 

The BNB covers the overall restructuring planning process based on the collection and analysis of re-porting and other information from banks and established branches of third country banks in Bulgaria, the implementation of the restructuring tools and the management of the national restructuring funding mechanism.

 

 

As of 2020, as a result of the establishment of close cooperation with the European Central Bank (ECB) and the resulting accession to the Single Resolution Mechanism, the function of restructuring credit institutions is divided between the BNB and the Single Resolution Board. The Single Resolution Board is responsible for banks subject to direct ECB supervision, while the BNB's restructuring powers include all other credit institutions operating in Bulgaria.

 

 

The RRCIIFA provides for the following resolution tools:

 

 

1. The sale of business tool;

 

 

2. The bridge institution tool;

 

 

3. The asset separation tool;

 

 

4. The bail-in tool.

 

 

Recovery planning:

 

 

The BNB, acting as the supervisory authority (and in coordination with the ECB for significant institutions), reviews and assesses recovery plans to ensure their completeness, feasibility, and credibility. The BNB evaluates whether the recovery options can be realistically implemented under stress and whether governance, escalation, and communication arrangements are adequate. If deficiencies are identified, the supervisor may require revisions, impose deadlines, or direct the bank to take specific measures to improve its recovery planning.

 

 

Banks are obliged to prepare and maintain recovery plans setting out credible measures to restore their financial position in case of significant deterioration, covering capital, liquidity, governance, and operational actions. These plans must be proportionate to the bank’s size, business model, and risk profile and are updated at least annually or after material changes.

 

 

32. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered? Does it apply in situations of a mere liquidity crisis (breach of LCR etc.)?

 

 

The RRCIIFA envisages that the respective resolution authority may apply the bail-in tool to all liabilities of an institution except: 

 

 

1. covered deposits;

 

 

2. secured liabilities including covered bonds and liabilities in the form of financial instruments used for hedging purposes which form an integral part of the cover pool and which according to the applicable law are secured in a way similar to covered bonds;

 

 

3. any liability that arises by virtue of the holding by the institution of client assets or client money including client assets or client money held on behalf of UCITS or of AIFs, provided that such a client is protected under the applicable insolvency law;

 

 

4. any liability that arises by virtue of a fiduciary relationship between the institution as fiduciary and an-other person (as beneficiary), provided that such a beneficiary is protected under the applicable insolvency or civil law;

 

 

5. liabilities to institutions, excluding entities that are part of the same group of the institution under resolution, with an original maturity of up to seven days;

 

 

6. liabilities with a remaining maturity of less than 7 days, owed to systems or operators of systems compliant with the conditions of Chapter Eight of the Payment Services and Payment Systems Act or with the relevant legislation of a Member State, or to their participants and arising from the participation in such a system, or liabilities owed to central counterparties that have been authorised to pursue business in the European Union pursuant to Article 14 of Regulation (EU) No. 648/2012, and to third-country central counterparties recognised by ESMA under Article 25 of Regulation (EU) 648/2012;

 

 

7. liabilities to any one of the following:

 

 

a) an employee, in relation to accrued salary, pension benefits or other fixed remuneration, except for the variable component of remuneration that is not regulated by a collective bargaining agreement (this exclusion shall not apply to the variable component of the remuneration of an employee whose activity has a significant impact on the risk profile of the institution);

 

 

b) suppliers of goods and services that are critical to the daily functioning of the operations of the institution, including IT services, utilities and the rental, servicing and upkeep of premises;

 

 

c) tax and social security authorities, provided that those liabilities are preferred under the applicable law;

 

 

d) deposit guarantee schemes arising from contributions due in accordance with the applicable law;

 

 

8. liabilities to an institution that is part of the same resolution group, without being a resolution entity itself, regardless of the residual term to maturity, except for the liabilities which according to the applicable insolvency legislation are satisfied in order of priority after the unsecured unprivileged liabilities.

 

 

The resolution authority may also exercise the bail-in tool, where it is appropriate, in respect of any part of a secured liability that exceeds the value of the collateral against which it is secured; and any amount of a deposit that exceeds the coverage level provided for in the Bank Deposit Guarantee Act.

 

 

In exceptional circumstances, where the bail-in tool is applied, the resolution authority may exclude or partially exclude certain liabilities from the application of the write-down or conversion powers where:

 

 

1. it is not possible to write down or convert that liability within a reasonable time notwithstanding the good faith efforts of the resolution authority;

 

 

2. the exclusion is strictly necessary and is proportionate to achieve the continuity of critical functions and core business lines of the institution in a manner that maintains the ability of the institution under resolution to continue key operations, services and transactions;

 

 

3. the exclusion is necessary and proportionate to avoid giving rise to widespread contagion, in particular as regards eligible deposits held by natural persons and micro, small and medium sized enterprises, which would severely disrupt the functioning of financial markets, including of financial market infrastructures, in a manner that could cause a serious disturbance to the economy of the Republic of Bulgaria or of the European Union, or

 

 

4. the application of the bail-in tool to those liabilities would cause a destruction in value such that the losses borne by other creditors would be higher than if those liabilities were excluded from bail-in.

 

 

33. Is there a requirement for banks to hold gone concern capital ("TLAC")? Does the regime differentiate between different types of banks?

 

 

There is a requirement for banks in Bulgaria to hold gone concern capital. As a Мember State of the EU, Bulgaria applies the EU requirements regarding the gone concern capital, based mainly on 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. Additionally, there are also several national laws and regulations, which further develop the requirements in this matter and mostly are also based on EU legislation. Generally, the regime does not differentiate between different types of banks.

 

 

34.  Is there a special liability or responsibility regime for managers of a bank (e.g. a "senior managers regime")?

 

 

In order for a person to be appointed as a manager of a bank (members of management/supervisory bodies and/or persons occupying key positions), he/she should comply with various requirements concerning education, experience, knowledge, reputation, fit and proper assessments, in some cases - preliminary approvals by the Bulgarian National Bank, etc. There is no special liability regime for such bank managers, however, if the latter participate in activities/lack of such which directly lead to violations of the law committed by the bank, it is not excluded such persons to be held individually liable under certain conditions.

 

 

Of course, general rules on civil liability apply under which such managers may be held liable for certain actions.

 

 

35. What regulatory, supervisory or market developments are likely to have the most significant impact on the banking sector in the jurisdiction over the next 12 to 18 months?

 

 

The financial sector in the country is very stable as the capitalization of the local banks is strong. At the same time, the credit institutions dispose with high levels of liquidity which makes them capable of facing challenges of different nature (political, regulatory, etc.), if needed.

 

 

In the last 10 years or so there has been a notable process of consolidation on the Bulgarian banking market, resulting in numerous mergers and acquisitions. However, this process is probably in its last stage now, where 1 or 2 more takeovers are potentially in the pipeline in the coming probably 12-18 months.

 

 

Speaking on a wider scale about the Bulgarian financial sector, the country is currently positioned as a Fintech hub in Eastern Europe as various projects in this spere choose Bulgaria to kickstart their business endeavors. In turn, this instigates innovation in the financial sector leading as an end product to better services in B2B and B2C relationships.

 

 

On the regulatory side, currently expected is the implementation of CRD VI. The changes in the local regulatory framework in this regard will be related to the responsibility of the banks to ensure that members of management bodies and persons holding key positions in a bank have the necessary knowledge, skills, and experience, as well as to guarantee diversity in the qualities and professional experience of such members. The CRD VI draft law envisages that a wider range of circumstances will be taken into account when assessing the reputation of these persons, such as administrative penalties and other measures imposed on the person.