1. Page 1 STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS Initiatives regarding the capital and pension insurance markets after the crisis Initiatives regarding the capital and pension insurance markets after the crisis 15 December 2009 PETAR CHOBANOV, CHAIRMAN PETAR CHOBANOV, CHAIRMAN FINANCIAL SUPERVISION COMMISSION FINANCIAL SUPERVISION COMMISSION Twinning project funded by The European Union

2. Page 2 Shortcomings of the present system, revealed by the financial crisis Lack of early warning mechanisms;Lack of early warning mechanisms; Not enough adequate macro-prudential supervision;Not enough adequate macro-prudential supervision; Diversity of the supervisory rules and powers within the Member States;Diversity of the supervisory rules and powers within the Member States; Insufficient resources in the Lamfalussy Level 3 committees;Insufficient resources in the Lamfalussy Level 3 committees; Significant impact of the financial crisis for pension insurance schemes’ members close to retirement.Significant impact of the financial crisis for pension insurance schemes’ members close to retirement. STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

3. Page 3 Regulatory Initiatives: New Architecture + Governors of NCBs + ECB President and Vice- President + European Systemic Risk Board (ESRB) Chairs of EBA, EIOPA & ESMA + European Commission + Non-voting: One representative of the competent national supervisor(s) per Member State + EFC President European System of Financial Supervisors (ESFS) European Banking Authority (EBA) European Insurance and Occupational Pensions Authority (EIOPA) European Securities and Markets Authority (ESMA) National Banking Supervisors National Insurance and Pension Supervisors National Securities Supervisors

4. Page 4 Regulatory Initiatives 1 Strengthening Supervision Colleges of supervisors - providing more effective supervision of cross-border financial groups;Colleges of supervisors - providing more effective supervision of cross-border financial groups; Including of EU dimension in the mandates of the national supervisors:Including of EU dimension in the mandates of the national supervisors: – considering financial stability concerns in other Member States; – applying guidelines and recommendations adopted by the level 3 committees; STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

5. Page 5 Regulatory Initiatives 2 Strengthening Supervision Review of existing directives - MiFID, MAD, Prospectus Directive;Review of existing directives - MiFID, MAD, Prospectus Directive; Setting principles on management remuneration – limiting incentives to take excessive risk;Setting principles on management remuneration – limiting incentives to take excessive risk; Derivatives – future policy actions to increase transparency of the derivatives market and to reduce counterparty and operational risk in trading;Derivatives – future policy actions to increase transparency of the derivatives market and to reduce counterparty and operational risk in trading; Proposal for regulation of the Alternative Investment Funds;Proposal for regulation of the Alternative Investment Funds; Credit Rating Agencies Regulation:Credit Rating Agencies Regulation: – introducing a common regulatory approach to enhance the integrity, quality and transparency of the credit ratings; – ensure smooth functioning of the EU market while achieving a high level of investor protection. STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

6. Page 6 Regulatory Initiatives 3 Investors’ Protection Packaged Retail Investment Products (PRIPs) – workstream aimed at ensuring adequate comparable requirements for disclosure and selling practices for PRIPs, irrespective of their legal form.Packaged Retail Investment Products (PRIPs) – workstream aimed at ensuring adequate comparable requirements for disclosure and selling practices for PRIPs, irrespective of their legal form. Proposal for an equivalent of the Key Information Document to be required for all Packaged Retail Investment Products;Proposal for an equivalent of the Key Information Document to be required for all Packaged Retail Investment Products; Amendments to IAS 39 and IFRS 7 concerning the fair value method for measurement of financial assets;Amendments to IAS 39 and IFRS 7 concerning the fair value method for measurement of financial assets; Amendments to the Capital Requirements Directive in order to strengthen the rules on stability;Amendments to the Capital Requirements Directive in order to strengthen the rules on stability; Multi-pillar pension strategy confirmed in almost all countries (diversifying risks across public and private pensions);Multi-pillar pension strategy confirmed in almost all countries (diversifying risks across public and private pensions); Focus on improving governance and risk management of the pension insurance companies.Focus on improving governance and risk management of the pension insurance companies. STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

7. Page 7 Current situation in Bulgaria The financial crisis caused large-scale pulling out of foreign investments from smaller and developing markets, including the Bulgarian capital market;The financial crisis caused large-scale pulling out of foreign investments from smaller and developing markets, including the Bulgarian capital market; Bulgaria has a very powerful tool against the financial crisis – consolidated supervision over the capital, insurance and social insurance market (the Financial Supervision Commission);Bulgaria has a very powerful tool against the financial crisis – consolidated supervision over the capital, insurance and social insurance market (the Financial Supervision Commission); Pension funds were more resilient to the crisis than other financial intermediaries (no liquidity concerns) and are recovering in 2009;Pension funds were more resilient to the crisis than other financial intermediaries (no liquidity concerns) and are recovering in 2009; STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

8. Page 8 Capital & Pension Insurance markets statistics In millions30 Sept 200830 Sept 2009Change Market Capitalization of the Bulgarian Stock Exchange-Sofia EUR 8,476.1EUR 6,240.6-26.37% Trading Volume on BSE-Sofia356.05 lots263.90 lots-25.88% Turnover on BSE-SofiaEUR 844.4EUR 347.2-58.88% Main Indexes of the Bulgarian Stock Exchange-Sofia 1 Jan 20091 Dec 2009Change SOFIX359.58452.2325.77% BG 40108.16122.7113.45% Pension Insurance Companies In millions1 Jan 200930 Sept 2009Change Net assetsEUR 1,174.2EUR 1,503.727,72%

9. Page 9 Undertaken Initiatives by the FSC Creating Financial Stability Task Force:Creating Financial Stability Task Force: - Identifying and assessing potential risks in the financial sector; - Analyzing and assessing the macroeconomic situation in Bulgaria and the influence of the EU regulatory measures over the country’s stability; - Creating an early warning system (indicators for potential problems); - Conducting stress-tests with the supervised entities; - Exchange of information with the relevant task forces within the Ministry of Finance and the Bulgarian National Bank. STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

10. Page 10 Undertaken Initiatives by the FSC Capital market:Capital market: -More thorough screening of short selling; -Requiring to submit information regarding additional financial indicators; -Increasing the frequency for reporting to the FSC; -Requesting additional information from the key investment intermediaries; Pension insurance market:Pension insurance market: -Requiring an Action Plan from each of the pension insurance companies; -Giving recommendations for more profound analysis in case of large expositions of the companies; -More frequent submitting of the Capital Adequacy Report in case of a potential risk. STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

11. Page 11 Perspectives after the financial crisis A genuine and complete reform of the world’s financial architecture;A genuine and complete reform of the world’s financial architecture; More active supervisory intervention on the market and closer monitoring of risk exposures;More active supervisory intervention on the market and closer monitoring of risk exposures; Improving of the risk management systems of the pension insurance companies;Improving of the risk management systems of the pension insurance companies; More comprehensive regulation over wider range of financial market players (including unregulated entities such as hedge funds, private equity funds, credit rating agencies, etc.);More comprehensive regulation over wider range of financial market players (including unregulated entities such as hedge funds, private equity funds, credit rating agencies, etc.); Intensive day-to-day cooperation and coordination between supervisors on national, European and global level (joint risk assessment).Intensive day-to-day cooperation and coordination between supervisors on national, European and global level (joint risk assessment). STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

12. Page 12 Conclusion This is a time of great challenges, both short and long term. To respond to those challenges, we must act on all possible fronts, which requires a global strategy of reforms and restructuring! STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS

13. Page 13 Looking forward to working with you! Thank you! STRENGTHENING THE REGULATORY AND SUPERVISORY CAPACITY OF THE FINANCIAL REGULATORS