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Non-banking financial institutions should comply with minimum equity standards

 

="Non-banking
Non-banking financial institutions should comply with minimum equity standards

 

By the latest amendments to Ordinance No. 26 on Financial Institutions (“Ordinance 26”), which entered into force as of 11 August 2012, the Bulgarian National Bank (the “BNB”) set forth inter alia the requirement financial institutions to maintain at any time equity at the following minimum amounts:

1) 50,000 BGN (equal to circa 25,565 EUR) – if the financial institution carries out activities under Article 2, paragraph 2, item 8 (trading in money market instruments, foreign currency, etc.), item 10 (money brokerage) and item 11 (advisory services regarding companies’ capital structure, reorganisations, etc) as well as under Article 3, paragraph 1, item 2 (acquisition of stakes in credit institutions or other financial institutions) of the Credit Institutions Act;

2) 250,000 BGN (equal to circa 127,823 EUR) – if the financial institution carries out activities under Article 2, paragraph 2, item 2 (issuance and administering of travellers’ cheques and other means of payment, if this does not fall within the scope of payment services as defined by special regulations), item 6 (finance lease), item 7 (guarantee transactions) and item 12 (factoring, forfaiting, etc.) as well as under Article 3, paragraph 1, item 3 (granting of credits with funds which have not been raised from the public) of the Credit Institutions Act.

Before the amendment companies, applying for registration as financial institutions, were to have minimum paid-in capital at least to the above amounts without being obliged to maintain it post-registration.

Compliance with the minimum equity standards will be monitored by the regulator on the basis of the financial reports, which financial institutions are required to file with BNB on quarterly and yearly basis. If a company-financial institution is failing to meet the said standards and this breach is not remedied within a deadline specified by the BNB, the latter is empowered to cancel the company’s registration as a financial institution (Article 9, paragraph 3, item 7 of Ordinance 26). New application for registration may be filed by the sanctioned company not earlier than six months after the coercive deregistration. Until possible new registration by the BNB the company shall not be authorised to carry out financial services as its core business.

Pre-existing financial institutions not meeting the new equity standards are granted a grace period for compliance until 31 December 2012 (§ 17 of the TFP of Ordinance 26). In the absence of compliance they would be exposed to a risk of possible deregistration as per the above referred rules.
 

Non-banking financial institutions should comply with minimum equity standards