In February 2021, the Bulgarian National Assembly passed an Amending and Supplementing Act of the Recovery and Resolution of Credit Institutions and Investment Intermediaries Act (“the Act”). Its key takeaways are:
► establishment of rules for eligible liabilities of resolution entities;
► regulation of the order and conditions for the prohibition of certain distributions;
► establishment of rules for determining the minimum capital requirement and eligible liabilities of credit and financial institutions;
► definition of the processes related to the settlement of instant payments in Bulgarian leva (BGN).
Determining the minimum capital requirement and eligible liabilities
The procedure and manner for determining the minimum capital requirement and eligible liabilities is regulated in the Act, taking into account the different hypotheses in which the Bulgarian National Bank (“the BNB”), respectively the Financial Supervision Commission exercise their function of:
i) a resolution authority at group level;
ii) a resolution authority of
а) a subsidiary that is a resolution entity;
b) an entity which is part of a group
c) a significant branch.
Order and conditions for prohibition of distributions and establishing rules for eligible requirements
The adopted amendments also introduce specific order and conditions for imposing a prohibition on certain distributions in connection with the possibility of resolving an institution. Additionally, an institution or company for which the competent authority has found that the conditions for resolution have been met, but the resolving itself would not be in the public interest, will be terminated by means of insolvency proceedings, liquidation proceedings or an appropriate procedure, in accordance with the applicable law.
Furthermore, the Act establishes rules for eligible liabilities of resolution entities and for determining the minimum capital requirement and eligible liabilities of credit and financial institutions (including those of them, which are not resolution entities). In addition, the rules for transparency, accountability, and control in the event of violations have been amended. A legal definition of eligible liabilities is also introduced with the Act. These are the liabilities and the capital instruments, which concern bail-in and which meet the conditions under Article 69a or Article 70a, paragraph 5, item 1 of the Recovery and Resolution of Credit Institutions and Investment Intermediaries Act, as well as second-tier capital instruments that meet the requirements of Regulation (EU) No 575/2013.
Processes related to the settlement of instant payments in BGN
In its transitional and final provisions, the Act also introduces amendments to the Payment Services and Payment Systems Act. In particular, the processes related to the settlement of instant payments in Bulgarian leva (BGN) are regulated.
Instant payments in BGN will be executed 24 hours a day, 7 days a week and 365 days a year in accordance with the pan-European SEPA scheme for instant payments of the European Payments Council introduced in 2017. Until now, such payments could only go through RINGS (Real-time Interbank Gross-settlement System) - the system for real-time gross settlement, which performs irrevocable and unconditional settlement of all payments in national currency on the territory of the Republic of Bulgaria. SEPA, in turn, covers the entire European Union. Other countries and territories which are part of the geographical scope of the SEPA Scheme are: Andorra, Iceland, Norway, Switzerland, Liechtenstein, Monaco, San Marino, United Kingdom, Vatican City State, Mayotte, Saint-Pierre-et Miquelon, Guernsey, Jersey and Isle of Man. Its advantages include, among others, cheaper, safer and faster cross-border payments and more transparent pricing thanks to the single set of payment schemes and standards.
There are currently a few Bulgarian and international companies which are already offering instant payment services on the Bulgarian market.
On the whole, both the legislative amendments and the fact that instant payment services are already being provided to Bulgarian customers are a step forward in the fight against the grey economy. Instant payments are a logical alternative to card payments given the convenience and speed of the transfer, and the possibility for an immediate crediting of the final recipient's account. The introduction of instant payments in BGN is expected to improve the cash flow management of companies by avoiding delays in receiving transfers and speeding up invoice payments. In addition, the risk of online retailers not receiving sales funds in a timely manner will be eliminated, as instant payments allow the receipt of goods or services to be synchronized with the payment.