Opinion of the European Central Bank of 30 January 2020 on the sanctioning powers of BNB within close cooperation and the official exchange rate of the Bulgarian lev (CON/2020/5)

OPINION OF THE EUROPEAN CENTRAL BANK of 30 January 2020 on the sanctioning powers of BNB within close cooperation and the official exchange rate of the Bulgarian lev (CON/2020/5) Introduction and legal basis

On 21 January 2020 the European Central Bank (ECB) received a request from Българска народна банка (Bulgarian National Bank, BNB), following correspondence exchanged between BNB and the Bulgarian Minister of Finance, for an opinion on a draft law amending the Law on credit institutions and the Law on BNB (hereinafter the ‘draft law’). The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the first and third indents of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to currency matters, BNB and the tasks conferred on the ECB concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law

As explained in the consultation letter, the draft law serves a two-fold purpose in relation to the Republic of Bulgaria’s intention to join the Single Supervisory Mechanism (SSM) and the Exchange Rate Mechanism (ERM II). 1.1 Draft provisions relating to sanctions in the context of banking supervision The draft law proposes to amend the Law on credit institutions in relation to BNB’s sanctioning powers, both in general terms as well as in relation to ECB instructions in the context of close cooperation. 1.1.1 Proposed changes to the general sanctioning provisions The draft law extends the list of breaches which may be subject to sanctions, as set out in Article 152(1) of the Law on credit institutions, to also include breaches of other relevant directly applicable acts of the European Union, in addition to the existing list of breaches of certain specific

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

application.

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

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

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

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

the context of close cooperation.

On the one hand, in the event of requests issued by the ECB, BNB is required to impose a financial penalty for a breach of Regulation (ЕU) No 575/2013 or other directly applicable Union acts by a

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

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

company with an administrative act issued under Article 121b.

Council Regulation (EU) No 1024/2013 , BNB is required to begin a procedure for the imposition of

administrative sanctions. Also, if BNB establishes a breach of specific Union legal acts , of other

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

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

to (3) of the Law on credit institutions.

Furthermore, the draft law expands the duty of BNB to adopt a sanction on the basis of Article 152(6) of the Law on credit institutions in response to requests made by the ECB in relation to all possible tasks listed in Article 121b, namely in relation to significant institutions, less significant institutions and macro-prudential tasks. 1.1.3 Statute of limitations for opening a sanctioning proceeding Finally, the draft law specifies that statements of objections shall be drawn up by officials authorised by the Deputy Governor of BNB heading the Banking Supervision Department within five years of the date of the breach and, in case of continued infringement, within five years of the date on which the infringement ceased. 1.2 Draft provision relating to ERM II 1.2.1 Current framework for the exchange rate between the lev and the euro The Republic of Bulgaria has in place a currency board arrangement with a fixed exchange rate between the lev and the euro. In particular, Article 29 of the Law on BNB , currently in force, provides that the official exchange rate of the lev shall be 1 lev per 1 Deutsche Mark, and that once the euro becomes legal tender in the Federal Republic of Germany, the official exchange rate of the lev to the euro shall be determined by multiplying that exchange rate by the official exchange rate of conversion of the Deutsche Mark to the euro . 1.2.2 Proposed amendments to the current framework for the exchange rate between the lev and the

euro

The draft law proposes to supplement the existing provision on the exchange rate between the lev and the euro with a provision establishing that from the date of participation of the Republic of Bulgaria in ERM II, the official exchange rate of the lev to the euro shall be equal to the central rate between the lev and the euro, as agreed per paragraph 2.3 of the Resolution of the European Council on the establishment of an exchange-rate mechanism in the third stage of economic and monetary union Amsterdam, 16 June 1997 (Resolution on ERM II) and Articles 1.1 and 17.1 of the Agreement of 16 March 2006 between the ECB and the national central banks of the Member States outside the euro area laying down the operating procedures for an exchange rate mechanism in stage three of Economic and Monetary Union (ERM II Central Bank Agreement).

2. General observations

2.1 The draft law seeks to ensure that BNB will be able to adopt any measure requested by the ECB in relation to supervised entities, as required under the legal framework regulating close cooperation between the ECB and BNB.

2.2 In this regard it is highlighted that this opinion is without prejudice to the overall assessment of the request filed on 18 July 2018 by the Republic of Bulgaria to establish close cooperation between the ECB and BNB, which is taking place in line with the existing procedures established under Article 7 of Regulation (EU) No 1024/2013 and under Decision ECB/2014/5 of the European Central Bank . In particular, this opinion remains without prejudice to the assessment being conducted by the ECB in accordance with Article 4 of Decision ECB/2014/5, which includes a broader assessment of the relevant national legislation, also taking into account the practical implementation of such legislation .

3. Specific observations

3.1 Draft provisions relating to the sanctions in the context of banking supervision 3.1.1 The ECB welcomes that the draft law further refines the sanctioning powers for BNB in order to fully align Bulgarian national law with the scope of the ECB’s sanctioning power under Article 18 of Regulation (EU) No 1024/2013. 3.1.2 In particular the ECB welcomes that the draft law requires BNB to comply with all ECB requests for the sanctioning of breaches of BNB administrative acts issued pursuant to ECB requests mentioned in paragraphs 1 to 4 of Article 121b of the Law on credit institutions. 3.1.3 In addition the ECB welcomes that the draft law explicitly mentions that BNB shall open proceedings for the imposition of administrative penalties when so requested by the ECB on the basis of Article 18(5) of Regulation (EU) No 1024/2013, in line with the obligations set forth under Article 121b of the Law on credit institutions. Moreover, the ECB welcomes that the draft law clarifies by means of cross-reference which administrative penalties may be imposed by BNB when it is acting upon an ECB request made on the basis of Article 18(5) of Regulation (EU) No 1024/2013. 3.1.4 The ECB welcomes that the draft law aligns the statute of limitations when BNB acts upon a request from the ECB with the time limits set out in Article 4c of Council Regulation (EU) No 2532/98 and Article 130 of Regulation (EU) No 468/2014 of the European Central Bank (ECB/2014/17) , namely five years after the breach occurred or, in case of a continued infringement, five years after the infringement ceased.

3.2 Draft provision relating to ERM II The ECB welcomes the new provision of Article 29(3) of the Law on BNB, which is in line with the procedures under the ERM II Resolution and the ERM II Central Bank Agreement. This opinion will be published on the ECB’s website. Done at Frankfurt am Main, 30 January 2020. [signed]

The President of the ECB

Christine LAGARDE