The Financial Supervision Commission considered and adopted at the first vote a draft Ordinance amending Ordinance No. 63 of 8 November 2018 on the requirements for the content, periodicity of preparation and deadlines for submission of reports for supervisory purposes of pension insurance companies and the funds managed by them. The project aims to comply with the amendments made to the Act to Amend and Supplement the Social Insurance Code (promulgated SG No. 19/2021).

Art. 185 of the Social Insurance Code stipulates that the requirements for the content, periodicity of preparation and deadlines for submission of reports for supervisory purposes of the payment funds are regulated by an ordinance of the Financial Supervision Commission (FSC). In this regard, the draft ordinance provides for the creation of templates of monthly and annual reports for the payments funds of lifelong pensions and the payment funds, which are submitted to the FSC. The reports are expected to be submitted within the same deadlines as the reports for supervisory purposes of the pension insurance companies and the supplementary pension funds. The adopted approach is to present the reports to the supervisory body in electronic form, signed with a qualified electronic signature, through an electronic portal maintained by the FSC. In accordance with the amendments to the SIC, the current models of reports for supervisory purposes have been updated.

The draft and the reasons for it are published on the website of the Financial Supervision Commission in the section Regulations, subsection Public Consultations, and the deadline for submitting comments and proposals on the draft is 14 days from its publication until 29.06.2021 inclusive.

The Financial Supervision Commission considered and adopted at the first vote a draft Ordinance to amend and supplement Ordinance No. 31 of 02.08.2006 on the terms and procedure for conducting an examination and for recognizing the legal capacity of a responsible actuary, for recognizing the legal capacity acquired outside the Republic of Bulgaria, for the form of the actuarial certification, the form and content of the actuarial report and the references under the Insurance Code which the responsible actuary certifies, as well as for the form and mandatory content of the annual actuarial report under the Social Insurance Code, in order to bring it in line with the changes made with the Act to Amend and Supplement the Social Insurance Code (promulgated SG No. 19/2021).

The ordinance updates the requirements to the annual actuarial report for each supplementary pension fund and its annexes in view of the changes in the legal level, providing for the payment of supplementary lifelong old-age pensions and deferred payments in case of acquired pension rights to be made by separate payment funds, not from universal pension funds. In connection with the establishment of the funds for payment of lifelong pensions and the funds for deferred payments, the obligatory content of the actuarial reports prepared for these funds is regulated. This provides the necessary information on the state of the payment funds and ensures their proper functioning to meet the obligations to pensioners, persons receiving deferred payments and their heirs and the supervision of this activity.

The draft and the reasons for it are published on the website of the Financial Supervision Commission in the section Regulations, subsection Public Consultations, and the deadline for submitting comments and proposals on the draft is 14 days from its publication until 29.06.2021 inclusive.

The Financial Supervision Commission considered and adopted at the first vote a draft Ordinance on the requirements for payment funds.

The Act to Amend and Supplement the Social Insurance Code (promulgated SG No. 19/2021) stipulates that the payment of pensions and deferred payments in case of acquired pension rights from universal pension funds is carried out by the funds for payment of lifelong pensions, respectively the funds for deferred payments (payment funds). The requirements for the formation and maintenance of the funds for payment of lifelong pensions and the funds for deferred payments, the calculation of the required amount in them and its excess, the supplementation of the funds and the release of funds from them are determined by an ordinance of the Financial Supervision Commission.

According to the Social Insurance Code, the main source for the formation of funds for payments are the funds in the individual accounts of the persons insured in a universal pension fund, with whom pension contracts, respectively contracts for deferred payment have been concluded. In view of the daily calculation of the value of one unit in the universal pension fund and in order to avoid a difference between the receipts in the payment funds and the obligations arising from the concluded pension contracts and deferred payment contracts, the ordinance stipulates that as a rule the accounts of the persons concluding such contracts shall be transferred to the payment funds on the day of concluding the respective contract. In order to provide sufficient time for the transfer of funds, it is possible to perform this action on the first working day after the conclusion of the contract by accruing the obligation on the day of the contract.

The law also gives the right to pensioners and persons with deferred payments to request recalculation of the received pension or deferred payment with contributions received after the conclusion of the respective contract, e.g. if the person has continued to work or as a result of the late transfer of contributions for previous months. In these cases, the transfer of funds from the accounts is made on the date provided by the legislator – the first day of the month following the month of submission of the request for recalculation, respectively on the first working day when it is a non-working day.

The ordinance regulates the required amount of the payment funds, amounting to the obligations to pensioners, the persons with deferred payments and their heirs, including the respective analytical account for the undistributed investment income of the funds received in the funds from individual accounts, intended for storage of the amount of payments in case of failure to achieve the expected return. According to the financial and economic nature and property nature of an analytical account provided for in the Social Insurance Code, the ordinance stipulates that a resource (funds) will be available for the amount / value reflected in the account, which should not be used for purposes other than updating of payments and which does not materialize financial legal relations with the pension insurance company. In other words, this account should be used to set aside funds that can be used specifically for the purpose of updating payments, and these funds do not have a functional link with the pension insurance company.

The ordinance also stipulates the deadlines for supplementing the funds for making payments, which is done from the reserves provided by law and, if necessary, with additional own funds of the pension insurance company, and the release of the excess from them. The procedure for release of funds regulated by the draft is in line with the procedure for the reserves for minimum profitability in the funds for supplementary mandatory pension insurance and the reserves for guaranteeing the gross amount of contributions to the universal pension funds.

The ordinance envisages changes in other current ordinances of the Financial Supervision Commission, which aim to harmonize and synchronize the regulations with the Social Insurance Code.

The draft and the reasons for it are published on the website of the Financial Supervision Commission in the section Regulations, subsection Public Consultations, and the deadline for submitting comments and proposals on the draft is 14 days from its publication until 24.06.2021 inclusive.

The Financial Supervision Commission considered and adopted at the first vote a draft Ordinance No. 10 on the requirements for the solvency margin and own funds of the pension insurance company, its recovery program and the minimum liquid assets of the company and the funds managed by it.

With the Act to Amend and Supplement the Social Insurance Code (promulgated SG No. 19/2021) significant changes have been made in the regulation of the payment of pensions from the universal pension funds and the related requirements to the capital of the pension insurance companies, according to the law, a number of these requirements should be developed or fully regulated by an ordinance of the Financial Supervision Commission.

The draft ordinance regulates the structure and the elements of the own funds of the pension insurance companies according to their purpose for covering the solvency margin. The fact that these funds serve as an additional guarantee for the fulfilment of the obligations for the payment of additional lifelong old-age pensions and deferred payments implies that the elements that make them up include only the funds that are reflected in the financial statements and are fully available to the respective company for use without restrictions to cover operating losses. In view of the purpose of own funds covering the solvency margin, they are offset by intangible assets that cannot be used to meet liabilities, accumulated losses, expected costs, etc.

The technical requirements in connection with the calculation of the solvency margin, which according to the Social Insurance Code is determined on the basis of the capitalized value of pensions and deferred payments with assumed guarantees, are regulated in detail. According to actuarial science, this value is determined on the basis of the present value of the commitments for these payments. In order to take into account the most recent mortality data and investment performance expectations, the mortality table published by the National Statistical Institute and the technical interest rate set by the pension insurance company as of the date of the pension or deferred payment calculation are used to determine this value.

Given the purpose of own funds covering the solvency margin of the pension insurance company, the ordinance requires them to be invested by it with the care of a good trader in compliance with the principles of quality, reliability, liquidity, profitability and diversification. The diversification of investments is also ensured through specific quantitative restrictions on the respective categories of instruments and investments in one issuer, explicitly specified in the Social Insurance Code.

The ordinance develops the requirements for the liquid assets of the pension insurance company and the funds managed by it, so as to ensure its ability to meet its current and expected obligations. The changes in the payment of the funds from the universal pension funds have been taken into account where after concluding a pension contract or a deferred payment contract the payment is not made by the pension fund, and the funds in the individual account of the person are transferred to the payment fund. In view of this, with regard to universal pension funds, it is required to maintain liquid assets, which, in addition to current liabilities, also take into account the funds transferred to the payment funds in the previous month.

The ordinance also regulates the requirements to the recovery programs of the pension insurance companies on the basis of the current regulation, adapted in accordance with the changes at the legal level. In connection with the amendments to the Social Insurance Code, the ordinance also updates the provisions of Ordinance No. 17 of 7.07.2004 on the documents required for issuing a permit for transformation of a pension insurance company and a supplementary pension insurance fund and on the requirements to the plans under Art. 327, para. 1, item 3 and Art. 336, para. 1 of the Social Insurance Code.

The draft and the reasons for it are published on the website of the Financial Supervision Commission in the section Regulations, subsection Public Consultations, and the deadline for submitting comments and proposals on the draft is 14 days from its publication until 24.06.2021 inclusive.

The Financial Supervision Commission considered and adopted at the first vote a draft Ordinance amending Ordinance No. 9 of 19 November 2003 on the manner and procedure for assessing the assets and liabilities of the supplementary pension funds and the pension insurance company, the net asset value of the fund, for calculating and declaring the value of one unit, for calculating and comparing the return on investment property and for the requirements for keeping individual accounts in order to comply with the changes made by the Act to Amend and Supplement the Social Insurance Code (promulgated SG No. 19/2021).

The draft ordinance regulates the methods for valuation of financial instruments in which the funds of the payment funds may be invested, and provides for the valuation to be carried out in accordance with the principles adopted for valuation of the same types of instruments in which the supplementary pension insurance funds can invest.

The draft ordinance regulates how the net asset value of a payment fund is determined and introduces the requirements for keeping the analytical accounts of the persons in a deferred payment fund. The scope and structure of the information to be contained in these accounts, including the transactions to be reflected in it, have been determined.

Other changes to the ordinance have been proposed in order to bring it into line with the amendments to the Social Insurance Code.

The draft and the reasons for it are published on the website of the Financial Supervision Commission in the section Regulations, subsection Public Consultations, and the deadline for submitting comments and proposals on the draft is 14 days from its publication until 24.06.2021 inclusive.

The Financial Supervision Commission conducted the XIX edition of the educational program: The Non-Banking Financial Sector in Bulgaria in partnership with the Ministry of Education and Science (MES) and the Atanas Burov Foundation.

The program is specifically aimed at students and teachers in secondary schools of economics. For the second year, the event took place online in the form of three webinars on 8, 15 and 22 October. On the three consecutive Fridays in October, the following topics were presented: Social Insurance Market, Insurance Market and Capital Market. For the first time, students were introduced to several new topics, namely Consumer Protection, Fintech Business Models and Cybersecurity and Cryptocurrencies.

The educational program welcomed the presentations of experts from the FSC and experienced specialists from both the private and public sectors. Vladimir Tashkov – Executive Director of the Atanas Burov Foundation presented to the participants the activities of the Atanas Burov Foundation and the opportunity to apply for student scholarships. The Association of Bulgarian Insurers presented the essence of insurance, types of insurance and the insurance market in Bulgaria. The students also got acquainted with the activities of the Financial Supervision Commission which regulates the non-banking financial sector in Bulgaria.

The lecture was followed by a practical step in which the participants virtually visited a pension insurance and insurance company, an investment firm and the Bulgarian Stock Exchange, where they witnessed how the capital market works, understood the nature of insurance and why pension insurance is necessary.

During the opening of the educational program, Ms. Denitsa Kirova – Secretary General of the Financial Supervision Commission thanked all partners involved in the program. In her address to the participants, she noted that the implementation of this educational program is especially important for the Financial Supervision Commission, because it presents the functioning of sectors that are extremely important for the Bulgarian economy.

“I am addressing you – students, and I would urge you to be alert, to discover the world constantly and with curiosity, to constantly seek answers to the questions that concern you. “I believe that the educational program “Non-Banking Financial Sector in Bulgaria” will give you valuable knowledge and will answer many of your questions,” said Ms. Kirova.

Thirty students and twelve teachers from secondary vocational schools with economic and financial profile from the cities of Blagoevgrad, Burgas, Varna, Veliko Tarnovo, Vidin, Velingrad, Gorna Oryahovitsa, Gotse Delchev, Dryanovo, Kyustendil, Kardzhali, Montana, Pazardzhik, Petrich, Pernik, Plovdiv, Razgrad, Ruse, Svishtov, Silistra, Sliven, Smolyan, Sofia, Stara Zagora, Haskovo and Shumen took part in the XIX edition of the educational program.

The program “Non-Banking Financial Sector in Bulgaria” is one of a kind for our country. It is one of the longest-standing initiatives of the Financial Supervision Commission, launched since its inception and has become a true tradition. The aim of the educational program is for students from secondary vocational schools in Bulgaria to get an excellent opportunity for career guidance in the non-banking financial sector, as well as to increase their knowledge and financial literacy, this is one of the strategic goals of the Commission – consumer protection through financial literacy.

The program ended on October 22, after the third webinar, with a virtual presentation of certificates to participants.

The Financial Supervision Commission adopted on a second vote an Ordinance on the technical interest rates under Art. 169, para. 1, item 3 and para. 8, item 3 of the Social Insurance Code and the formulas for calculating the supplementary lifelong old-age pensions after a repeated public consultation.

With the Act to Amend and Supplement the Social Insurance Code (promulgated SG No. 19/2021), regulating the payment of pensions for insurance in a universal pension fund, the legislator instructed the Financial Supervision Commission to determine by ordinance the formulas for their calculation, as well as the requirements to the technical interest rates for determining their amount and the pensions from the occupational pension funds.

The formulas for calculating the supplementary lifelong old-age pensions provided for in the ordinance are based on established provisions in actuarial science and practice. Defining uniform formulas for pensions from universal pension funds ensures the same way of calculating the pensions of all persons, regardless of the fund in which they are insured. The formulas provided in the ordinance make it possible to determine the amount of the pension on the basis of the transferred gross contributions or on the basis of the higher amount of funds in the individual account in accordance with the possibilities provided by law. Regardless of the chosen type of guarantee for determining the initial amount of the pension, all funds on the individual account of the person at the time of concluding the pension contract are taken into account. The formulas also allow, depending on the agreement between the pensioner and the pension insurance company, that the pension be determined both at the time of concluding the pension contract and from an earlier or later time (e.g. from the moment of acquiring the right to a pension or from at a later date if the pensioner wishes to continue working after the conclusion of the pension contract). The regulation of the formulas in a regulatory act provides clarity and legal certainty in the relations between the pension insurance companies and the pensioners, facilitates the future pensioners in planning their income after retirement and increases the transparency and trust in the activity of supplementary pension insurance.

When calculating the amount of pensions, a technical interest rate is used, which reflects the expectations for the return on investment of pensioners’ funds. The specific amount of the technical interest rate is determined by each pension insurance company in compliance with the prescribed regulatory requirements and is approved by the Financial Supervision Commission. The ordinance requires pension insurance companies to adhere to the precautionary principle when determining the specific amounts of technical interest rates in order to reduce the risk of shortage of funds for future payments, as adopted in actuarial practice. According to the legal delegation, the ordinance also regulates the maximum amounts of technical interest rates. In this regard, it is envisaged that the technical interest rate for determining the supplementary lifelong old-age pension may not be higher than the long-term interest rate for assessing the degree of convergence published by the Bulgarian National Bank (average for the last seven years). The indicator used is determined on the basis of the yield on long-term government securities, which according to the Social Insurance Code must be taken into account when determining the technical interest rate. With regard to pensions from occupational pension funds, the same indicator was used to set the maximum technical interest rate, setting a wider range (150 per cent of the long-term interest rate for assessing the degree of convergence) given the differences in their activities and investments. In both cases, the technical interest rate may not be less than zero.

The Financial Supervision Commission adopted at the second vote an Ordinance on the reserves of pension insurance companies to guarantee the gross amount of contributions to universal pension funds.

The Act to Amend and Supplement the Social Insurance Code (promulgated SG No. 19/2021), which introduces the regulation on the payment of pensions from universal pension funds, provides a mechanism for guaranteeing the gross insurance contributions of the persons insured in these funds. In particular, before the payment of a pension or a one-off or deferred payment in case of acquired pension rights from a universal pension fund, the individual account of the insured person is supplemented by the gross amount of insurance contributions reported by the National Revenue Agency and the National Social Security Institute. In order to implement the guarantee mechanism provided by law, the legislator delegated to the Financial Supervision Commission to determine by ordinance the requirements for the formation, calculation and maintenance of reserves of pension insurance companies to guarantee gross contributions, replenishment of reserves to the required amount and release of funds from them.

In this regard, the ordinance regulates the procedure for each pension insurance company establishing a reserve for guaranteeing gross contributions, requiring this to be done by the end of the month in which the first contribution to the universal pension fund was received, according to the latest information at that time (the fund’s net asset value on the last business day of the specified month). The allocation of funds to cover the reserve is made on the day of its creation. Similarly, the current recalculation of the reserve, its replenishment and release of funds from it are carried out at the end of the month for which the recalculation is made, based on the net asset value of the universal pension fund on the last working day of this month. The procedure for formation and recalculation of the reserve for guaranteeing the gross contributions regulated in the draft ensures its current adjustment in accordance with the legal requirements and parameters.

The Ordinance also amends Ordinance No. 12 of 10 December 2003 on the manner and procedure for determining the minimum return on asset management of supplementary mandatory pension insurance funds, to cover the difference to the minimum return and for the formation and use of the reserves for guaranteeing the minimum return, which are aimed at harmonizing and synchronizing with the regulation of the reserve for guaranteeing gross contributions and the amendments to the Social Insurance Code.

Today, 22.07.2021, at its meeting, the Financial Supervision Commission (FSC) adopted at the second vote an Ordinance on the requirements for the governance system of insurers and reinsurers.

The ordinance completes the national legal framework for the governance system of insurers and reinsurers in accordance with the Insurance Code (IC) and the guidelines of the European Insurance and Occupational Pensions Authority (EIOPA). Thanks to it, conditions are created for better management of the risks faced by Bulgarian insurers and reinsurers, and the guarantees for protection of the interests of the users of insurance services in the Republic of Bulgaria are strengthened. In the course of the public discussion of the Ordinance, the FSC took into account all received opinions, incl. and numerous suggestions, comments and remarks from the Association of Bulgarian Insurers.

With the ordinance, the FSC introduces into the national insurance and reinsurance legislation the following guidelines of EIOPA, which it has stated that it intends to comply with in its supervisory practice with regard to the management system of insurers and reinsurers:

1. Guidelines on the System of Governance (EIOPA-BoS-14/253 EN) and the Technical Annex thereto

These guidelines include the basic guidelines of EIOPA on the main aspects of the governance system of insurers and reinsurers, such as the requirements for the organization and operation of their management and supervisory bodies, the qualifications and reliability of their members and other key functions, risk management, structuring and operation of key functions, policies of the insurer regulating the most important aspects of its activities, internal control, outsourcing and specific aspects of the governance system at the level of a group of insurers and reinsurers.

2. Guidelines on Own Risk and Solvency Assessment (EIOPA-BoS-14/259 EN)

These guidelines include basic guidance on carrying out the important process of self-assessment of risk and solvency within the risk management system of insurers or reinsurers.

3. Guidelines on Complaints-Handling by Insurance Undertakings (EIOPA-BoS-12/069 EN)

These guidelines set out the procedures applied by insurers to deal with complaints lodged by users of insurance services.

In addition, the Ordinance provides for the FSC to issue instructions within 2 months of the Ordinance becoming effective, so as to ensure the application in its supervisory practice and the following guidelines of EIOPA:

4. Guidelines on Outsourcing to Cloud Service Providers (EIOPA-BoS-20-002)

These guidelines provide for specific requirements for the outsourcing to cloud service providers (services provided by data processing in the cloud), which are a source of additional risks for insurers and reinsurers and therefore require higher security requirements.

5. Guidelines on Information and Communication Technology Security and Governance (EIOPA-BoS-20/600)

These guidelines set out requirements to ensure compliance with the confidentiality, integrity and availability of information and information systems, as a guarantee to limit the operational risk to which insurers and reinsurers are additionally exposed as a result of the use of high technologies for storage, processing and access to data.

The new ordinance repeals Ordinance No 5 of 15.10.2003 on carrying out activity as an insurance broker and insurance agent (promulgated, SG 96/2003) and Ordinance No. 32 of 13.09.2006 on the requirements to the organization and the activity of the service for internal control of the insurer, the reinsurer and of the persons included in insurance or reinsurance group (promulgated, SG, 81/2006, amended and supplemented, issue 4 of 2010) which are issued on the basis of the repealed Insurance Act (repealed, SG No. 103/2005) and the repealed Insurance Code (repealed, SG No. 102/2015) and do not comply with the requirements of the current national and European legislation.

The ordinance provides for a 6-month period from its becoming effective, in which insurers and reinsurers should bring their policies, procedures and internal documents in line with the new requirements.

ESMA launches Common Supervisory Action with national competent authorities on the supervision of the costs and fees of Undertakings for the Collective Investment in Transferable Securities (UCITS) throughout the European Union

The joint supervisory action will take place in 2021. The purpose of this action is to establish whether the rules and legal framework regarding the obligation for investors not to be charged illegitimate costs are being complied with. Supervision of costs and fees is a key factor in ensuring investor confidence in the financial markets.

The full ESMA communication can be found at: ESMA launches a Common Supervisory Action with NCAs on the supervision of costs and fees of UCITS (europa.eu)