The Bulgarian National Bank (BNB) is the main regulatory authority in the banking sector and its responsibilities include licensing banks, supervising their activity and enforcing regulatory requirements, as well as maintaining price stability by ensuring the stability of the national currency and implementing the monetary policy in accordance with the legal requirements.

The Financial Supervision Commission (FSC) does not directly regulate banks; however, it is responsible for regulation and control over different segments of the financial system such as capital market, insurance market, health insurance market, pension insurance market.

The European Central Bank (ECB) plays a critical role in the regulation and supervision of the banking sector in Bulgaria, particularly for certain systematically important banks in Bulgaria.

The European Banking Authority (EBA) sets common standards and guidelines for the banks in the EU and plays a key role in ensuring the stability and resilience of the EU banking sector, including the Bulgarian banks.

For the pursuit of banking activities, expressly specified in the Credit Institutions Act (CIA), a banking license shall be required. These activities consist in taking deposits or other repayable funds from the public and granting credits or other financing for its own account and at its own risk, acceptance of valuables on deposit and activity as a depository or trustee institution. If covered by its license, the bank may also conduct the activities, listed in the answer to question 4.

Depending on the scope of the activity to which it relates, the banking license may be universal or limited. A universal license allows the bank to carry on any type of banking activity, and in case a limited license is issued, the bank is licensed to pursuit only the banking activities, explicitly specified in its license.

The license may also differ depending on the territorial scope of the activity of the bank, i.e. whether the bank will be able to open branches abroad.

A banking license may also include some or all of the following activities, but only if they are covered by its license (i.e. there should be a specific request to have them included in the licence):

• provision of payment services in the meaning of the Payment Services and Payment Systems Act;
• issue and administration of other means of payment (travellers’ cheques and letters of credit);
• acceptance of valuables on deposit, activity as a depository or trustee institution;
• 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;
• providing services and/or carrying on activities under the Markets in Financial Instruments Act such as accepting and forwarding instructions in relation to one or more financial instrument, dealing in financial instruments on own account, portfolio management, investment advices, safekeeping and administration of financial instruments for the account of clients, services relating to underwriting of issues of financial instruments etc.;
• money broking;
• acquisition of accounts receivable on loans and other type of financing (factoring, forfeiting, etc.);
• issuing of electronic money;
• acquisition and management of participating interests;
• safe custody services;
• collection, provision of information and reference on customer creditworthiness; and
• providing crowdfunding services withing the meaning of Regulation (ЕU) 2020/1503.

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 de-posits). 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.).

There are no such restrictions (like moratoriums). Generally, applicable in Bulgaria is the European Union Regulation 2023/1114 on markets in crypto-assets (MiCA).

Bulgaria is in process of implementation of MiCA on local level, as a draft law on this subject-matter has been submitted for adoption by the Parliament. Until then, all local entities that provide (i) crypto exchange services or (ii) custodian wallet services are subject to registration in a register maintained by the Bulgarian National Revenue Agency. Such persons/entities are obliged under the local AML/CFT legislation.

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

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 application for a bank license shall be filed with the Governing Council of the BNB through the Governor of the BNB and Deputy Governor heading the Banking Supervision Department by the founders of the bank. Among many other things, the application should include:

• 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.

The BNB shall decide whether a banking license will be granted within three months of the submission of the application and all of the required documents, but in any case, not longer than 12 months from receipt of the application.

During the three-month review period, the BNB shall perform in-depth analysis of the filing and, among others, shall verify whether numerous circumstances are met. If no evidence is provided that these additional requirements are met, the BNB shall refuse to grant a license. The refusal shall be motivated and is not subject to an appeal. In this negative case of refusal, the applicant has the right to file a new application not earlier than 12 months after the initial refusal. The granted licenses are recorded in a register kept by the BNB.

If a bank is licensed in the Republic of Bulgaria, it may carry on bank activities within the territory of another European Member State after it has notified BNB, in written form, of its intention to establish a branch within the territory of another Member State. The notification contains information about:

• the Member State within the territory of which the bank plans to establish a branch and the registered office thereof;
• the persons to whom the management and the representation of the branch are to be entrusted, including description of their responsibilities;
• a programme of the operations of the branch, including description of the bank activities which it intends to carry on;
• the organisational structure of the branch; and
• additional information, which the BNB may require in case the information provided by the bank is incomplete or controversial.

If BNB considers that the planned activity within the territory of another Member State is in accordance with the organisational structure and financial situation of the bank, within three months of receipt of the notification and all the required documents, the BNB shall forward the received information to the competent authorities of the host member state, as well as information about the amount and structure of own funds and the capital adequacy ratios.

If a bank licensed in the Republic of Bulgaria intends to exercise for the first time its right to carry on activity directly within the territory of another Member State, it shall notify the BNB of its intentions, specifying the services to be provided within the territory of the host Member State. Within one month of receipt of the notification the BNB shall inform the competent authorities of the host Member State.

In case a bank wishes to obtain a permission to establish a branch in a third country, it shall file a written application with the BNB which shall contain:

• the name of the country where the bank intends to open a branch, and the registered office thereof;
• the names of at least two persons appointed to manage the branch and represent the bank abroad;
• a certified transcript of the decision of the bank’s competent management body for the establishment of the branch and for the appointment of the persons who will manage the branch and represent the bank abroad;
• a business plan, which contain economic substantiation of the need to open a branch of the bank in the respective country; and
• information of any person appointed to manage the branch of the bank.

The BNB shall refuse to grant such a permission if there is a risk that the financial position of the bank may deteriorate as a result of opening a branch abroad, the submitted business plan includes bank transactions or activities beyond the scope of the license of the bank; the proposed organizational structure of the branch does not ensure it reliable and stable management; the bank supervision exercised in the respective country is not sufficiently effective or an agreement of supervisory cooperation between the BNB and the respective host supervisory authority of the branch has not been concluded and there are some legal or administrative impediments to the bank supervision exercised over the branch by the BNB. Within ten days of receiving authorisation from the competent supervisory authority in the host country, the bank shall send a copy of the authorisation to the BNB.

The only legal form under which a bank may operate under the Bulgarian law is a joint-stock company following two-tier form of management (management board and supervisory board). The incorporation of the bank shall be carried out in accordance with the general rules of the Commercial Act, as well as the special requirements under the Credit Institutions Act.

As far as 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.

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 gen-der neutral.

Furthermore, the remuneration policy should include different criteria, determining the fixed and vari-able 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 de-scription.

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. As a result, the credit institutions in Bulgaria are subject to the requirements set in Basel III (CRR and CRD IV) and all stipulations of CRD IV have been transposed into Bulgarian law mainly through the provisions of CIA.

In Bulgaria leverage ratio requirements for banks are regulated in accordance with the capital adequacy and leverage requirements under Regulation (EU) 2019/876.

As of September 2024, according to BNB data, the leverage ratio requirement of 3% is covered by all Bulgarian banks with a significant excess, however in case a bank fails to meet the leverage ratio buffer requirement, it shall prepare a capital conservation plan and submit it to the BNB no later than five working days after it identified the failure to meet the requirements. The BNB shall approve the capital conservation plan only if it considers that its implementation would ensure the maintenance or raising of sufficient capital to enable the bank to meet the combined buffer requirement, the leverage ratio buffer requirement respectively, within an appropriate timeframe.

Banks shall manage its assets and liabilities in a manner that allows them at any time regularly and without delay to fulfil their due and payable operations, both in a normal banking environment and in a crisis situation. The banks shall adopt funding and liquidity plans consistent with the nature of its activity, maintain liquid funds to ensure mismatches between cash inflows and cash outflows; maintain a system for interest rate risk monitoring in all operations; adjust promptly the maturity structure of assets and liabilities upon a change in market conditions; maintain the necessary information about calculation of its liquidity position at any moment. Moreover, banks shall maintain adequate liquid management systems for identification, measurement, management and monitoring of the liquidity risk, which aim to hold liquid assets to cover mismatches between cash in and outflows.

The development and the implementation of the system are the responsibility of the internal liquidity management body of each bank. The liquidity management body shall prepare contingency plans in case of unexpected outflows of funds due to unforeseen events or adverse circumstances, taking into account the potential impact of institution-specific, market-wide and combined alternative scenarios. The liquidity management body shall periodically submit reports to the competent managing body concerning its operational decisions, including also results of the periodic stress tests.

The liquidity requirements are supervised by the BNB and in case BNB determines that a bank has a significant liquidity issue which requires immediate action, the sub-governor in charge of the Banking Supervision Department, may require the bank to submit weekly or daily liquidity reports, to reflect its survival plans and its strategy to reach out the liquidity thresholds.

In case a bank violates the liquidity requirements, BNB has various powers to impose enforcement measures for ensuring the stability of the bank, such as issuing a written warning, convening a general meeting of shareholders or schedule a meeting of the management board and the supervisory board, issuing a written order to cease and desist from the violation as committed, issuing a written order to take measures for improving the financial condition of the bank, and other measures, provided in the Credit Institutions Act and the Recovery and Resolution of Credit Institutions and Investment Firms Act.

Bulgaria has implemented the Basel III liquidity requirements, including regarding the LCR and NSFR, as part of its alignment with EU regulations and as of September 2024, according to BNB data, all banks in Bulgaria maintain LCR and NSFR levels significantly above regulatory requirements.

The BNB may not grant loans to banks except in case of liquidity risk affection the stability of the banking system. In such case the BNB may grant loans in BGN to a solvent bank for a period not exceeding three months, provided that the said credits are fully collateralised by pledge of gold, a foreign currency or other such highly liquid assets.

The bank applying for a loan shall file a written application to the BNB, addressed to the Deputy Governor heading the Banking Department, signed by the persons authorized by the bank and containing information about the circumstances that require the use of a loan; the amount of loan applied for; repayment term; the assets provided as a collateral and the manner of their provision under the BNB’s control; the amount and source of the expected funds for redemption of the loan as the date of maturity, as well as information about the current financial condition of the bank, and in particular, the bank’s liquidity, return, capital adequacy, asset/liability structure and classification of claims.

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.

In addition, banks shall comply with the requirements of Part Eight of Regulation (EU) 575/2013 regarding the disclosure of information, and when a bank discloses information under Part Eight of Regulation (EU) 575/2013 more than once a year, such disclosure shall be made within three months of the end of the period to which it relates and the information shall be made public through the official website of the bank and in at least one media.

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.

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 wherefrom 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.

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.

No such general restrictions, unless related to sanctions regimes.

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.

The sanctions are of great variety and start from BGN 1000 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.

The bank 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. The Bulgarian National Bank (BNB) is the resolution authority for credit institutions, while the investment intermediaries are overseed 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.

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:

1. deposits held by natural persons resulting from real estate transactions relating to housing needs;
2. 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;
3. 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 BGN 10 000 (EUR 5 000) and BGN 30 000 (EUR 15 000).

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:
   1. 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);
   2. 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;
   3. tax and social security authorities, provided that those liabilities are preferred under the applicable law;
   4. 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.

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.

In order for a person to be appointed as a manager of a bank, he/she should comply with various requirements concerning education, experience, knowledge, reputation, fit and proper assessments, preliminary approvals by the Bulgarian National Bank, etc. There is no special liability regime for 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.

In general, the local authorities are applying conservative policy towards the banks operating in the country. This approach also encompasses the banking regulatory framework as the latter lacks major amendments recently. Most changes adopted are related to the expected joining of Bulgaria in the Eurozone, which naturally, requires adjustment of some local legislative acts in order to make them “suitable” for the introduction of the new currency and all related aspects thereto. Most notably, an entirely new Law on the Bulgarian National Bank has been adopted the entry into force of which is pending the official joining of the country in the Eurozone.

More as a market trend, one may outline the process of banking consolidation locally, as in the past 10 years or so multiple M&A transactions were concluded in the country. As a result of these transactions, the number of credit institutions having a license in Bulgaria issued by the Bulgarian National Bank fell to 17 (compared to approx. 25 in the past).

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.

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 endeavours. In turn, this instigates innovation in the financial sector leading as an end product to better services in B2B and B2C relationships.

As a challenge one may outline the efforts of public and private stakeholders to galvanize the development of the local stock market which currently does not fulfil its huge potential and is still not widely recognized as a place for business to raise needed capital.