(Amended by resolution of 24.08.2022)

GENERAL PROVISIONS

Article 1. (1) (amended by resolution of 09.10.2020) These Rules are adopted on the basis of Article 23 of Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65 / EU of the European Parliament and of the Council as regards organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive.

(2) The Rules under paragraph 1 aim to regulate:

1. policies and procedures for identifying the risks associated with the activities, procedures and systems of the investment intermediary (II), and for determining the level of risk accepted by the investment intermediary, if such can be established in the organizational structure and levels of responsibility for risk management of the investment intermediary;
2. policies and procedures for management and monitoring of the risks associated with the II’s activities, procedures and systems in accordance with the level of risk accepted by the investment intermediary, taking into account the nature, scope and competence of the II’s business;
3. effective risk management procedures and measures;
4. mechanisms for monitoring the adequacy and effectiveness of the policy and procedures under items 1 – 3 and on the compliance by the investment intermediary and by the persons working for the investment intermediary under contract with the procedures and measures under these Rules, including internal controls and administrative and accounting procedures for risk management and rules and procedures for assessment and maintenance of internal capital;
5. mechanisms for monitoring the adequacy and effectiveness of measures taken for elimination of established incompleteness and discrepancies in the policy and procedures under items 1-4, and the procedures and measures under these Rules, including impossibility for compliance therewith by the perso.

(3) (New, by resolution of the BoD of 30.06.2022) In these rules, the Board of Directors (BoD) develops, adopts and implements strategies, policies, processes and systems for identification, measurement, management and monitoring of:

1. the significant sources and effects of the risk for the clients and of any material impact on equity;
2. the significant sources and effects of the risk for the market and of any material impact on equity;
3. the significant sources and effects of the risk for the investment intermediary, in particular those that may decrease the amount of equity being available to the investment intermediary, which, if applicable, comprise:

• material changes in the carrying amount of assets, including any claims to linked agents;
• clients’ or counterparties’ default;
• positions in financial instruments, foreign currencies or commodities;
• liabilities to pension schemes with pre-determined pension amount.

4. the liquidity risk determined for appropriate periods with different duration, including within one day, in order to ensure that the investment intermediary maintains adequate level of liquid resources, including with regard to the treatment of the significant risk sources under items 1 – 3.

(4) (previous paragraph 3, amended by resolution of the BoD of 30.06.2022) The Company has a Risk Management Department, which operates independently and applies the policies, procedures and mechanisms for minimizing or avoiding the risk provided for in these Rules. The department ensures identification, measurement and proper reporting of all significant risks associated with the investment intermediary’s business and actively participates in the development of the strategy for taking and managing the Company’s risks and in making decisions related to the management of all significant risks. It must at all times be able to provide a comprehensive overview of all the risks the investment intermediary is exposed to.

(5) (previous paragraph 4, amended by resolution of the BoD of 30.06.2022) Apart from these Rules, the Company shall additionally adopt other relevant strategies, plans, mechanisms, rules, etc. in accordance with the specific requirements of Regulation (EU) 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 (OJ L 176/1 of 27 June 2013) (Regulation (EU) No 575/2013) and Ordinance No 50 of 30.03.2022 on capital adequacy, the liquidity of the investment intermediaries and the supervision of their compliance (Ordinance No 50), which should meet the specific requirements of the abovementioned statutory regulations, including for risks.

POLICIES, MECHANISMS AND PROCEDURES FOR IDENTIFYING, MANAGING AND MONITORING of the RISKS ASSOCIATED WITH THE ii’s BUSINESS AND SYSTEMS

Article 2 (1) The process of identifying, managing and monitoring of the risks associated with the II’s business and systems of the II is aimed at reducing the impact of external and internal risk factors on the II’s business, including risks arising from macroeconomic environment.

(2) The procedures for assessment and management of individual types of risk include:

а) identification of individual external and internal data, facts and events affecting the II’s business;

b) risk identification and measurement;

c) any type of risk management measures.

(3) R factors are being analysed and monitored on daily basis by the respective employee of the Company and by the Risk Management Department at operational level in line with the allocation of the responsibilities for risk management referred to in Articles 21 – 25 of this Policy.

(4) The risk assessment shall be performed on the basis of an analysis of the following components:

а) the principal and significant activities of the investment intermediary;

b) the type and level /degree/ of the investment intermediary’s inherent risks;

c) the adequacy and effectiveness of the policy and procedures under these Rules and on the compliance by the investment intermediary and by the persons working for the investment intermediary under contract with the procedures and measures under these Rules.

Article 3. Pursuant to these Rules, the Company shall monitor, assess, report and mitigate the following risks:

а) market risk – the probability of incurring losses or not making a profit under the influence of adverse changes in prices of financial instruments, market interest rates, exchange rates, etc.;

b) credit risk and counterparty risk, including of large exposures – the probability of violating the capital requirements of the investment intermediary;

c) operational risk – the probability of incurring losses as a result of inappropriate or incorrect internal procedures, errors of officials of the investment intermediary, including in offices or resulting from internal events;

d) legal risk – the probability of incurring losses as a result of violations of or non-compliance with laws and regulations or internal company documents;

e) reputational risk – the possibility of negative publications and statements in the media, electronic media, etc., concerning the investment intermediary, whether true or false, which would lead to a reduction of the client base, revenue or to bringing lawsuits;

f) business risk – the possibility to cause negative impacts on the investment intermediary’s business under the influence of various factors of the external environment – macroeconomic, political, etc., and working conditions in such environment;

g) position risk /general and specific/ – risk of change in the price of an instrument as a result of factors related to the issuer or in the case of a derivative instrument – related to the issuer of the underlying instrument, as well as the risk of change in the price of the instrument due to a change in the level of interest rates;

h) commodity risk – risk of positions in exchange-traded commodities or commodity derivative instruments in the investment and trading portfolio of the investment intermediary;

i) concentration risk – the risk of mismatch between the maturities between exposures and their credit protection, as well as the risk that arises from the application of credit risk mitigation techniques and large indirect credit exposures;

k) liquidity risk – the possibility that an investment intermediary will not have sufficient funds to meet its obligations when they become due and the inability to sell its assets at an appropriate price and within reasonable terms.

l) foreign exchange risk – the risk of changes in the exchange rate of the lev (BGN) against foreign currencies;

m) interest rate risk – risk of fluctuations in interest rates, insofar as interest-bearing assets and interest-bearing liabilities mature or are subject to changes in interest rates at different times and to different degrees;

n) securitization risk – risk arising from securitization exposures in the trading portfolio;

о) risk of excessive leverage – arising from the vulnerability of an institution due to the level of leverage, which may require unforeseen measures to be taken in the business plan of the investment intermediary, including emergency sale of assets 

p) residual risk

q) (amended by resolution of the BoD of 30.06.2022) other risks covered by Regulation (EU) No 575/2013 and Regulation No 50 to which the investment intermediary is or may be exposed and applicable with view of its business.

Credit risk and counterparty’s default

Article 4. Credit risk of investment intermediaries has two main components:

1. Risk of counterparty’s default in margin transactions /lending transactions/ on the capital market – foreign exchange transactions, futures, swaps, options, shares and stocks;
2. Product risk, which is measured by the possible loss in case of default by the counterparty of the transaction.

Article 5. Counterparty credit risk is the risk that a counterparty of a particular transaction will become default before the final settlement of the cash flows of the transaction.

Article 6. Counterparty credit risk arises from:

1. transactions in derivative instruments;
2. lending and borrowing transactions of financial instruments;
3. margin lending transactions;
4. long settlement transactions.

Article 7. (amended by resolution of the BoD of 30.06.2022) While managing and assessing the credit risk, the investment intermediary shall apply an effective system for ongoing risk management and monitoring for different portfolios and exposures and shall ensure risk diversification. 

Residual risk

Article 8. The investment intermediary shall monitor and control the residual risk arising from lower-than-expected performance of the credit risk mitigation techniques used and the expected loss.

Article 9. (1) (amended by resolution of the BoD of 30.06.2022) Pursuant to Article 1, Paragraph 4 of these Rules, e Company develops, adopts and separately implements policies and procedures for residual risk management, which ensure the monitoring, reporting and control of recognized credit risk mitigation techniques, if they show performance that is lower than expected.

(2) Where credit risk mitigation or expected loss is reported, the investment intermediary shall also perform a comprehensive credit risk assessment of the underlying exposure.

(3) The techniques used to deliver credit protection, the actions and steps taken should provide for credit protection agreements that are legally valid and enforceable in each relevant jurisdiction.

Concentration risk

Article 10. (1) The Company monitors the risk of concentration arising from exposures to each counterparty, including central counterparties, groups of related counterparties, counterparties from the same economic sector, geographical area or to counterparties dealing with one and the same activity or commodities, as well as the concentration risk arising from the application of credit risk mitigation techniques, including the risks associated with large indirect credit exposures, such as exposures to a single collateral provider.

 (2) (amended by resolution of the BoD of 30.06.2022) In accordance with Article 1, paragraph 4 of these Rules, the Company shall further adopt and apply risk management policy and procedures under paragraph 1.

Market risk

Article 11. (1) Market risk is the risk of losses arising from unfavorable movements in market prices of debt /interest rate/ and equity instruments and of the commodity instruments in the trading and investment portfolio of the II.

(2) (amended by resolution of the BoD of 30.06.2022) The investment intermediary shall determine the capital requirements for market risk and K-factors for risks for the market in accordance with Chapter Three, Section II of Regulation (EU) 2019/2033.

(3) While managing the market risk under these Rules, the following mechanisms shall be observed: identification and determination of an acceptable level for the market risk; its constant monitoring; undertaking measures by the investment intermediary to maintain the market risk assumed by it at a level that does not endanger its financial stability and the interests of its clients; exclusion of the use of inside information and conflicts of interest.

(5) (amended by resolution of the BoD of 30.06.2022) In accordance with article 1, paragraph 4 of these Rules, the Company shall additionally adopt and apply a policy and procedures for market risk management, which shall meet the requirements of article 76, paragraph 2 of Ordinance No 50.

Interest rate risk

Article 12. (1) Interest rate risk is the risk of a change in the price of a financial instrument as a result of a change in the level of interest rates in the case of a traded debt instrument or derivative or in the case of an equity instrument or derivative due to changes in the capital market not related to specific features of individual instruments. It arises from a potential change in interest rates that affects activities outside the trading portfolio.

(2) In accordance with these Rules, the mechanisms for management of this risk provide for the following measures and rules:

– focus on short-term and medium-term debt financial instruments at the expense of long-term ones;

– predominance of financial instruments with a floating interest rate at the expense of those with a fixed one;

– analyzing the dynamics of interest rates on net interest income, which is based on expectations about changes in interest rates in the future.

(3) (amended by resolution of the BoD of 30.06.2022) In accordance with article 1, paragraph 4 of these Rules, the Company shall additionally implement interest rate risk identification, assessment and management systems.

Operational risk

Article 13. (1) Operational risk is the risk of loss as a result of inadequate or improperly functioning internal procedures and/or processes, persons and systems or due to external events, including legal risk.

(2) (amended by resolution of the BoD of 30.06.2022) The Company shall determine the capital requirements for operational risk in accordance with Chapter Four, Section II of Regulation (EU) 2019/2033. This is a significant risk that must always be covered by equity.

(3) The Company shall determine the scope of the operational risk it is exposed to, as well as the risk factors and events related to the operational risk.

(4) The policy and procedures of the investment intermediary ensuring assessment and management of operational risk exposures comprise:

– identification of the event, which is a potential operational risk carrier, which is performed with the assistance of the Internal Control Department and any person working for the II under contract, having a relationship or contact with the respective operational event;

– provision of solution/s of the problem by the department/employee who has identified the risk;

– communicating the ready solution/s to all participants in the problem process;

– communicating the problem to the internal control department that should perform a control check over time – the time is determined by the head of the department, but not later than 1 month from the occurrence of the problem.

(5) The investment intermediary’s policy and procedures for management and minimization of this risk, in addition to the actions specified in the preceding paragraph, shall also include:

1. Measures to facilitate the processing and analysis of data – only high-quality specialized software is used, proven to be effective and error-free in use, which allows fast and accurate and reliable processing of incoming information, including processing of accounting information, which facilitates early diagnosis and identification of operational risk and minimizing the risk of errors made by the staff. The measures also envisage the use of the services of software specialists for software maintenance and prevention.
2. Measures for protection and storage of kept records, documentation and information, provided in detail in the Rules for the Internal Organization of the investment intermediary, in order to prevent the loss of information.

– The information and reporting kept on a magnetic medium must be stored on a second medium in order to prevent its loss in case of a technical failure.

– In case of loss of information resulting from a technical failure, actions shall be immediately undertaken to eliminate the accident and restore the information, and the FSC shall be notified of the actions taken and the result.

– All documentation and information related to the activity shall be stored by the investment intermediary in an easy and accessible place.

3. (amended by resolution of the BoD of 30.06.2022) Measures for legal risk mitigation – the internal control department, in accordance with its powers under the rules regarding the internal control system of the investment intermediary, carries out control, including current and preventive control, with view of the existence and compliance of contracts, orders, declarations, information and all other documentation with the requirements of applicable laws.

(6) (amended by resolution of the BoD of 30.06.2022) In accordance with article 1, paragraph 4 of these Rules and article 79, paragraph 4 of Ordinance No 50, the Company additionally maintains contingency plans to ensure business continuity and to limit losses in the event of crisis situations.

Liquidity risk

Article 14. (1) Liquidity risk, also referred to as funding risk, is the risk that an investment intermediary will encounter difficulties in raising funds to meet commitments related to its business. The reason for the liquidity risk may be the inability to quickly realize a financial asset at a value close to its fair value, as well as poor and ineffective management of other risks.

 (2) The measures and procedures for management of the risk mitigating factors shall comprise:

1. reduction to the optimal minimum of the investment intermediary’s investments in poorly liquid and unprofitable assets;
2. Good and transparent management of the overall business of the investment intermediary, which will mitigate the risk of deterioration of its reputation; 
3. Careful monitoring of market trends in financial instruments;
4. The trust management contracts concluded by the investment intermediary shall provide for a sufficient period of notice of termination or withdrawal of funds for the investment intermediary to be able provide the necessary funds without any problems;
5. (amended by resolution of the BoD of 30.06.2022) Maintenance of reserves and liquidity buffers – in order to cover extraordinary expenses.
6. Monitoring of market of financial instruments and, in particular positions whose liquidity decreases and, if necessary, reduction or disposal of such positions;
7. Operational monitoring by the accountant of the cash flows and the maturity structure of the assets and liabilities of the II in BGN and foreign currency.

(3) With view of preventing a liquidity crisis, and when such cannot be avoided, upon its occurrence, the Company shall implement the following action plan in unforeseen circumstances:

А. Preventive actions and methodology for identifying, measuring, managing and controlling funding sources

1. The Accounting Department develops detailed specific methodologies for identifying, measuring, managing and ongoing control of funding sources, which cover current and projected significant cash flows arising from assets, liabilities and off-balance sheet items, including contingent liabilities and the possible effect of reputational risk, by using the following methods to this effect: 

а) regular analysis of cash flows under conditions other than normal and giving an opinion on the following issues:

– Which sources of funding will remain in the investment intermediary in all circumstances and whether they can be increased, taking into account the effect of reputational risk;

– Which sources of funding will subside in the event of problems and how fast, taking into account the effect of reputational risk;

– Whether the investment intermediary can rely on reserve liquid funds and under what conditions, taking into account the effect of reputational risk.

b) preparation of a simple analysis, which reviews the nature of the Company’s funding sources and the external environment in which the Company operates, in order to assess its impact on cash flows under item 1, where data on specific industries, countries, regions or macroeconomic indicators that affect the current and projected cash flows of the Company may be used, in order to ensure ongoing control of those sources and their better management;

c) preparation of scenario tests, the purpose of which is to analyze and measure the discrepancy between the cash flows arising from assets, liabilities and off-balance sheet items, including contingent liabilities, as well as alternative scenarios regarding their liquidity positions and risk mitigating factors.

2. (amended by resolution of the BoD of 30.06.2022) The actions under article 27, paragraph 3 of these Rules shall be observed.

3. Maintenance of sufficient funds, government securities, respectively, as a ratio of current liabilities in compliance with regulatory requirements and restrictions.

4. Depending on the results when using the methods under item 1, sufficient liquid buffers shall always be maintained. They must be diversified. However, since it is not possible to know in advance which assets may be subsequently exposed to disturbance, the II will promote a diversified and high-quality liquidity buffer consisting of different categories of cash assets and other highly liquid financial instruments and assets to be used in case of liquidity crisis.

B. Actions in case of liquidity crisis:

1. The Accounting Department and the Risk Management Department shall carry out an analysis and assessment of the specific situation and causes leading to the occurrence of the liquidity crisis and analysis and assessment of the mismatch between cash flows arising from all assets, liabilities and off-balance sheet items, including contingent liabilities of the Company.
2. Immediate reporting of the event and the analysis under item 1 to the executive director of the Company.
3. In case of shortage of liquid funds, the executive director, the BD, respectively, together with the Risk Management Department and with the assistance of all departments related to the risk of the investment intermediary, shall develop a specific action plan with specific actions and measures that follow and include the action plan and measures referred to herein below, namely:

3.1. Increase of liquid funds.

These measures may include the sale of own assets (receivables, financial instruments from the trading and investment portfolio, etc.), taking into account both the period in which the sale can be realized and the price that can be obtained, as well as other appropriate measures depending on the specific situation.

3.2. Decrease of short-term liabilities.

These measures include taking actions, including negotiations for rescheduling of forthcoming payments, taking into account both the term of the rescheduling and the “price” of the deferral with view of avoiding a new liquidity crisis at a later time.

3.3. Cost reduction.

These measures include immediate actions involving reduction of fixed costs (financial and operating) of the Company, including by reducing the salaries and remuneration of the members of the BoD, if the specific situation requires so.

3.4. Providing additional resources.

Actions shall be taken to provide an appropriate borrowing or other resource to cover urgent expenses and liabilities in compliance with the rule that such resource should not deepen and increase the liquidity crisis of the Company or create a threat of a future one.

3.5. Creating profitability.

This measure is undertaken, and in the short term it includes the measures under item 3.3., and in the long term new markets (clients) are sought and implementation of all possible services covered by the Company’s license.

3.6. Management of available liquid asset.

At any time, including at the time of liquidity crisis, the investment intermediary manages its stocks of liquid assets in a way that ensures maximum accessibility to them under adverse conditions, while avoiding holding large concentrations of certain asset. 

3.7. Use of liquid buffers.

In case of liquidity crisis, when the investment intermediary needs an immediate increase of its liquidity, the liquidity buffers maintained by it under Section A, subsection 4 shall be used, if standard sources of funding are not sufficient.

3.8. Actions shall be taken to increase the capital of the Company in an amount sufficient to overcome the occurred liquidity crisis.

The actions referred to in Section B, subsection 3 shall be performed either subsequently or simultaneously, depending on the specific situation and the extent of the liquidity crisis. The specific plans under Section B, subsection 3 are subject to regular testing and updating based on the results obtained from the alternative scenarios and the scenario tests referred to in Section A, subsection 1(c) shall be reported to and approved by the BoD.

Position risk

Article 15. (1) The Company shall calculate the capital requirements for position risk under Part Three, Section IV, Chapter 2 of Regulation (EU) No 575/2013. 

(2) The procedures and methods for management and control of this risk are: determination of an effective structure of financial instruments by portfolio diversification that ensures minimization of the potential losses from the negative movement of prices of individual financial instruments in the portfolio of the investment intermediary and each client in case of trust management, whereas the diversification shall be carried out in relation to issuers – related parties, issuers in the same industry, geographical area, etc.

(3) With view of the management of this risk, if the investment intermediary has netted its positions in one or more securities constituting a stock exchange index, against one or more positions in a stock-index-linked future or other stock-index-linked product, there must be adequate internal capital to cover the underlying risk of loss that may result from a mismatch between the change in the value of the future or other relevant product, and the change in the value of the securities that make up the index. The investment intermediary must also have adequate internal capital when holding opposite positions in exchange-traded futures that are not identical in terms of their maturity or composition, or both.

Foreign exchange risk

Article 16. (1) (amended by resolution of the BoD of 30.06.2022) The main risk is due to the change of the BGN exchange rate with regard to foreign currencies. The Company maintains limited foreign currency positions and therefore the investment intermediary is exposed to minimum risk of occurrence of such risk.

(2) Notwithstanding the above paragraph, the mechanisms for managing this risk provide for monitoring of the processes in the country in this direction by the Risk Management Department and taking possible and necessary actions, depending on the specific situation and possible expected consequences.

Securitization risk

Article 17. (1) The securitization risk is a risk arising from securitization transactions, reflected in exposures in the trading portfolio, where the investment intermediary is an investor, originator or sponsor.

(2) For the purposes of these Rules and in accordance with Regulation (EU) No 575/2013, a securitization is a transaction or scheme of transactions in which the credit risk by an exposure or group of exposures is divided into tranches, provided that it has the characteristics for that as specified in the above Regulation.

(3) In accordance with these Rules, the amount of risk-weighted exposures for securitization positions shall be determined in accordance with Chapter 5 of Regulation (EU) No 575/2013, as well as the amount of the expected loss for the securitized exposures.

(4) (amended by resolution of the BoD of 30.06.2022) In accordance with article 1, paragraph 4 of these Rules and article 75, paragraph 1 of Ordinance No 50, the Company shall additionally develop, adopt and implement policy and procedures for securitization risk management, which ensure the monitoring, assessment, reporting and risk mitigation. The internal policies and procedures as set out in the first sentence shall take into account the reputational risk arising from complex structures or products and shall ensure that the economic substance of the transaction is fully reflected in the risk assessment and in the management decision-making process.

Risk of excessive leverage

Article 18. (1) The risk of excessive leverage arises from vulnerability due to the level of leverage or contingent leverage, which may require the inclusion of unforeseen, corrective measures in the business plan, including urgent sale of assets, which may lead to a loss or revaluation of the Company’s remaining assets, where the term “leverage” has the meaning given in Regulation (EU) No 575/2013.

(2) The leverage ratio is a new regulatory mechanism aimed at preventing major risks taken by the II due to excessive leverage leading to high and unexpected losses and the final outcome should be to ensure sufficient equity to cover unexpected losses.

(3) The indicators for the risk of excessive leverage shall include a leverage ratio, calculated in accordance with article 429 of Regulation (EU) No 575/2013, and mismatches between assets and liabilities.

(4) With view of protecting against this risk, the Company shall take measures to overcome the risk of excessive leverage by duly taking into account its increase due to reduction of equity as a result of expected or incurred losses, depending on the applicable accounting rules under the Bulgarian law, for the purposes of being able to withstand a series of crisis situations related to the risk of excessive leverage.

(5) (amended by resolution of the BoD of 30.06.2022) In accordance with article 1, paragraph 4 of these Rules and article 86, paragraph 2 of Ordinance No 50, the Company shall additionally adopt policies and procedures that govern the risk of excessive leverage, which ensure that it identifies, manages and monitors the risk of excessive leverage.

Other risks in the course of carrying out the II’s business

Article 19. (1) A risk that exists in the business carried out by the II is related to the adequate and effective storage of the financial instruments and funds of the clients.

(2) In the course of managing this risk, the following measures shall be undertaken for its identification and minimisation:

1. (amended by resolution of 09.10.2020) The II, and the persons working for the investment intermediary under contract, respectively, shall strictly observe the legal requirements, respectively the rules for storage established in the Rules for the Internal Organization, where financial instruments and funds of clients shall be stored only in depository institutions explicitly specified in MFIA and regulations with direct effect, and the funds provided by clients or received as a result of investment services performed on their behalf shall be deposited by the end of the next business day at the latest.
2. (amended by resolution of the BoD of 30.06.2022) The II shall not accept cash payments from clients for the provision of investment and/or supplementary services.
3. Where the II opens an account for financial instruments of its client at a third party or stores the client’s funds, respectively, due care shall be taken in respect of the client’s interests when appointing that person and assigning them to keep the client’s financial instruments, and periodically, but at least once a year, the choice of these persons shall be reviewed by taking the same care, and the conditions under which they store the client’s financial instruments, cash respectively.
4. When determining the persons who will store funds or financial instruments of clients, the II or the persons working for it under contract, respectively, shall take into account the professional qualities and market reputation of those persons, as well as the legal requirements and market practices related to holding of such financial instruments, which may infringe the rights of the client. Necessary actions shall also be undertaken to ensure that storing financial instruments of its clients at a third party is carried out in a way that ensures the identification of the client’s financial instruments separately from the financial instruments of the investment intermediary and the third party, by keeping separate accounts by that third party or by applying other measures ensuring the same level of protection, and in respect of cash, that those deposited with clients are kept in individual accounts or clients’ accounts separately from the investment intermediary’s cash. 

Article 20. (1) When assigning the performance to a third party there is a risk of a change in the legal relations of the investment intermediary with its clients or in its obligations to them under the MFIA and its implementing regulations and of violation of the requirements of the  MFIA and its implementing regulations.

(2) Pursuant to these Rules, the following mechanisms and policies for identification and minimization of this risk are provided:

1. assignment of important operational functions or performance of investment activities to a third party shall be carried out only in case where it is objectively impossible for the II to carry out its business normally without the participation of a third party under paragraph 1.
2. the assignment under item 1 shall be made on the basis of a contract, whereby the II shall take due care for its conclusion, operation and termination, taking into account whether the third party has the necessary capabilities, resources and legally required licenses for reliable and professional performance of the functions assigned to them, whether the third party is able to effectively perform the services assigned to them, whether they exercise proper control over the performance of the functions assigned to them and adequately manage the risk associated with such assignment. 
3. The II shall undertake the respective appropriate actions, if it is evident that the person under item 1 cannot perform the functions assigned to them effectively and in accordance with legal and regulatory requirements, including to exercise control and risk management regarding the functions assigned to the third party through its own Risk Management Department, and it may further terminate the contract of assignment, if necessary, without prejudice to the continuity and quality of the provision of services to clients.
4. (amended by resolution of 09.10.2020) The II shall monitor and ensure compliance with all other requirements, restrictions and measures provided for in Regulation 565 in respect of the third party and the effect of the contract concluded with it.

Article 21 (1) A risk, which exists in the business carried out by the II, is related to the adequate and effective implementation of the activities related to the offered services, including acceptance and execution of client orders, the transmission/submission of orders for execution, respectively.

(2) With view of identifying and managing these risks, the II shall adopt and apply in its business activities a Policy for determining the client as a professional, retail and eligible counterparty, a policy for execution of client orders and for transmission / submission of orders, policy for  treatment of conflicts of interest (in the Rules for the Internal Organization), rules for the internal control system, it shall conclude its contracts with clients on the basis of general terms and conditions in which it provides clients with maximum information according to regulatory requirements, where applicable, and the said policies, rules and general terms and conditions and the measures, rules, restrictions, prohibitions, modes of conduct in certain situations, etc. provided for in them shall be strictly applied by the persons working for the II under a contract. 

ORGANIZATIONAL STRUCTURE AND ALLOCATION OF RISK MANAGEMENT RESPONSIBILITIES – RISK IDENTIFICATION AND MANAGEMENT

Article 22 (1) Identification of risks and their management is related to the overall organizational structure established in the Rules for the Internal Organization of the Company, which includes both the BoD and the specialized Risk Management Department and all employees working for the investment intermediary under a contract.

(2) The organizational structure and the levels of responsibility for risk management of the investment intermediary, established in the Rules for the Internal Organization of the investment intermediary, shall determine clear and precise allocation and segregation of responsibilities between all units in the Company and restriction of the movement of information within the Company, i.e observance of the principle of the “Great Wall of China” and minimum dissemination of information within the Company, in order to prevent conflicts of interest both between the Company and its customers and between customers themselves. 

(3) The purpose of the organization referred to in the preceding paragraph shall be to mitigate the risk of “front running” when concluding transactions, including when concluding transactions of persons related to the investment intermediary on their account, and the risk of trading in inside information within the meaning of the Market Abuse of Financial Instruments Act.

(4) The allocation of functions and responsibilities under the Rules for the Internal Organization established by the II shall provide for strict determination of the level of competence of each person working for the Company under the contract, which allows quick identification, respectively, management of the risks associated with the systems in the Company (system for storage of documentation, record-keeping system, including accounting system, system for performance of the activities of the investment intermediary as an II, and in general the overall system of organization within the II) 

Article 23. Pursuant to these Rules, in addition to the specialized Risk Management Department, which has exclusive functions for risk management, each unit (department) shall participate in both the identification and management of risks for the purposes of assisting for the detection and resolution of issues related to the identification of the risks for the II, with the involvement and contribution of all employees.

Article 23а. (1) (new, by resolution of the BoD of 30.06.2022) For the time being, the II has made Professional Liability insurance.

(2) The II’s own cash may be held at cash desk or in current or deposit accounts at any bank, which is not subject to insolvency proceedings or special supervision, in accordance with article 43 of Regulation (EU) 2019/2033. II’s own cash in current or deposit bank accounts must be in an amount not less than 70 percent of all cash of the investment intermediary. Clients’ cash are held in accordance with article 93 of MFIA.

(3) Own cash in current or deposit bank accounts with which the investment intermediary may dispose at any time must be in an amount not less than 70 percent of all cash, whereas the investment intermediary shall undertake actions for their diversification.

(4) II shall duly take into account any material impact on equity, where risks exist that are not properly covered by the capital requirements as set out in article 11 of Regulation (EU) 2019/2033.

Article 24. The BoD of the investment intermediary has the following responsibilities for identifying and managing risks:

1. To adopt the relevant rules, procedures, policies, plans, measures, strategies, etc. required by Ordinance No 50 and Regulation (EU) No 575/2013 concerning the monitoring, assessment and management of the various types of risks the investment intermediary is exposed to, and the risk in general, and to monitor their update, including to approve the implementation of the strategic objectives of the investment intermediary and the strategy on risk and internal management;
2. To adopt and update, within the periods specified therein and the legal regulations, all internal acts of the II;
3. To control risk factors for the investment intermediary and be responsible for the management and control of risks.
4. To make decisions for personnel, software and other provision of risk management activities.
5. To periodically assess the effectiveness of the management systems of the investment intermediary, by undertaking, if needed, the necessary measures to eliminate the identified mismatches;
6. To make decision for personnel, material and technical and methodological provision of the risk management activities.

Article 25. (1) Responsibility for identifying each risk the II is exposed to shall be borne jointly by the respective head of department, and in the absence of such person – by the employees of such department and by the employees of the Risk Management Department. The head of the department and the employees, respectively, shall be responsible for the proper organization of the activity and work processes in the respective department, including in the Risk Management Department itself. Where the persons under the previous sentence identify any risk, the same shall be reported immediately to the Executive Director.

(2) The persons under paragraph 1 shall implement the adopted strategies, measures, plans, procedures, policies for management, monitoring and mitigation of the risks to which the investment intermediary is exposed or may be exposed, including the risks arising from the macroeconomic environment.

Article 26. Employees working for the investment intermediary under contract shall have the following responsibilities related to risk management:

1. The brokers shall:

а) (amended by resolution of 09.10.2020) perform functions in the front office for accepting orders and concluding contracts with clients;

b) directly conclude transactions – in accordance with the policy applied by the II for execution of client orders and transmission/submission of orders and in accordance with all regulatory requirements;

c) monitor to avoid potential and other conflicts of interest, and if any, they shall be obliged to strictly comply with the policy adopted by the internal organization for the treatment of conflicts of interest, including, they shall notify the internal control department, if required;

d) control the relationships with clients on issues related to deposit, blocking, collateral of financial instruments.

2. The back-office department shall:

а) organize a true and accurate presentation of the investment intermediary’s performance;

b) carry out timely and proper filing of transactions;

c) monitor on a daily basis the movements of the concluded transactions, the opened client and speculative positions, the state of the client accounts and, if needed, take actions for solving problematic situations;

d) (amended by resolution of 31.01.2020) make all contacts in a timely manner, including exchange of electronic and other messages with depository institutions related to the completion of transactions, and in case of errors, delays or software bugs it shall immediately inform the line manager, the Risk Management Department and the Executive Director. Upon detection of increased levels of risk by an employee of the Back Office Department, they shall immediately report, but not later than the end of the next business day, to the head of the department or the Executive Director indicating the type of risk, the deviation and the possible reasons for it.

3. The Internal Control Department shall:

а) apply measures and procedures for identification of any risk of the II’s failure to meet its obligations, by constantly monitoring and assessing the adequacy and effectiveness of the measures and procedures provided for in the Rules for the Internal Organization of the II, as well as the measures implemented to eliminate inconsistencies in the II’s business with the requirements of MFIA and its implementing regulations, by performing the functions assigned to it according to the rules for the internal control system of the II with view of the scale and complexity of the risks inherent to the business model and activities of the investment intermediary. The aim is to apply internal control systems that allow verification of the compliance of the investment intermediary’s activity with the rules adopted in accordance with the MFIA,  Regulation (EU) 575/2013 and Ordinance No 50 at any time;

b) provide advice and assistance to the persons responsible for the services and activities performed by the investment intermediary, in order to ensure their implementation in accordance with the requirements of the MFIA and its implementing regulations;

c) (new, by resolution of 31.01.2020)control the consideration of market risk assessments in the day-to-day risk management and the integrity of management information system; 

d) (new, by resolution of 31.01.2020) control the process of approving the methods and systems for risk assessment used by the directorates engaged in executing and accounting for transactions;

e) (new, by resolution of 31.01.2020) control the scope of market risks and approval of all significant changes in the risk measurement process;

f) (new, by resolution of 31.01.2020) control the accuracy and completeness of data on positions, the accuracy and appropriateness of volatility and correlation assumptions, as well as the accuracy of risk sensitivity assessment and calculations;

g) (new, by resolution of 31.01.2020) control the inspection performed by the Company to assess the compatibility, timeliness and reliability of the data sources used in the internal models (if used), including the independence of information sources.

h) (previous subitem “c”, amended by resolution of 31.01.2020) apply a three-lines risk control mechanism: preventive, ongoing and follow up.

– (amended by resolution of 09.10.2020) Preventive control regarding the assessment of risk factors, including by organizing professional briefing for the persons under article 65, paragraph 1, item 1-3 of Ordinance No 38 and for the employees in the internal control department, including conducting briefings at least once a year and if required, as well as other preventive control functions in accordance with the rules of the internal control system;

– Ongoing control, follow-up control, respectively, which includes the powers of the department related to document checks, document certifications, requesting explanations from persons working for the II under contract, constant operational monitoring of the overall activity performed by the II and the functioning of each system (of storage of information, reporting, etc.), etc. especially in terms of operational risk, where the role of the internal control department is crucial.

– (amended by resolution of 31.01.2020) Follow-up control consisting of an annual assessment of the internal organization and control system operating in the investment intermediary, including the rules for the internal organization through a report to the Board of Directors, in order to ensure the lawful operation of the investment intermediary and timely establishment that activities are performed in violation of the regulatory requirements, as well as proposals to the BoD for adoption of changes in these Rules, in case they do not sufficiently ensure the implementation of these requirements. The report is prepared and submitted by the department to the BoD not later than 31 January of the year following the year for which the assessment is made. The report shall explicitly state whether corrective actions have been undertaken in the event of deficiencies or not.

4. Accounting Department

In accordance with the accounting policy of the investment intermediary and its organizational structure, it should strictly follow the following procedures in order to manage and minimize the risk:

– Compliance with the accounting policy of the investment intermediary approved by the BoD, prepared in accordance with the International Financial Reporting Standards;

– True, accurate and timely accounting of business processes;

– Providing the necessary information flow to the accounting unit;

– Timeliness of information submitted to the accounting department;

– Structuring the individual chart of accounts for the purposes of obtaining the necessary accounting information;

– Daily accounting of all operations of the investment intermediary, as well as revaluation of the financial instruments of the trading and investment portfolio, in accordance with the regulatory requirements and the adopted accounting policy;

– (amended by resolution of the BoD of 30.06.2022) Daily extraction, provision to the relevant departments and to the management of the investment intermediary, as well as analysis of the information on risk assessment, capital adequacy and liquidity of the investment intermediary. Daily preparation of analytical trial balance and reports on financial information under IFRS (FINREP), as well as capital adequacy and liquidity statement (COREP) under Regulation 2019/2033 (ЕU) on prudential requirements for investment intermediaries and amending Regulations (EU) No 1093/2010, (EU) No 575/2013, (EU) No 600/2014 and (EU) No 806/2014, and Ordinance No according to approved templates;

– Timely corrections in case of errors of different nature in the accounting unit;

– Reliable storage of hardcopies of the information by ensuring suitable premises for that purpose;

– Availability of software products aimed at automation of processes, systematization of information, facilitating access to data from primary documents and sources and their reliable back-up.

– (amended by resolution of 31.01.2020) Upon detection of increased levels of risk by an employee of the Accounting Department, they shall immediately but not later than the end of the next business day report to the head of the department or directly to the Executive Director indicating the type of risk, the deviation and the probable reasons for it.

5. The Risk Management Department shall

а) implement the policies, procedures, measures and mechanisms under these risk management rules;

b) monitor and evaluate how the measures, procedures and mechanisms provided for in the rules referred to in b) are applied, and in the overall activity of the II;

c) (amended by resolution of the BoD of 06.2022) undertake measures to eliminate any identified incompleteness and discrepancies in the policy and procedures under subitems “a” and “b”, and submit to the BoD an ad hoc report specifying any identified incompleteness and inconsistencies in the risk management policy and procedures;

d) also ensure the identification, measurement and proper reporting of all material risks associated with the investment intermediary’s business; 

e) actively participate in the development of the strategy for assuming and managing the risks of the II and in making decisions related to the management of all significant risks. It must at all times be able to provide a comprehensive overview of all the risks the investment intermediary is exposed to;

f) report directly to the Executive Director in cases where the development of a specific risk affects or may affect the II.

g) exercise its power under article 28 of these Rules.

6. Investment consultant

It is involved in risk management in cases where the Company provides investment advice to clients or manages a portfolio, not only by performing investment analysis and giving advice on financial instruments for clients, including preparing investment strategies and financial plans, but also reviewing and revising them, depending on market conditions and the accompanying risks.

MONITORING AND EVALUATION OF IMPLEMENTED MEASURES AND POLICIES IN THESE RULES

Article 27. (1) In accordance with these Rules, each department, its manager or each person working for the II under contract shall apply the respective policy, measures, plans, strategies, procedures, etc. related to the risks accepted by the Company, where the specialized Risk Management Department shall bear the greatest burden and responsibility for the application of the rules. However, this does not release the BoD, in its capacity of a managing body of the II, from its responsibility for risk management and control.

(2) (amended by resolution of the BoD of 30.06.2022) These Rules shall be reviewed and evaluated by the BoD at least once a year not later than the 31 January, and in case of incompleteness and/or any need for improvement of the risk management, it shall adopt amendments and supplements thereto. The BoD shall adopt amendments and supplements to these Rules also upon finding that this is necessary to do so, in addition to the previous sentence. 

(3) Through its powers under paragraph 2, the BoD shall also:

а) monitor and evaluate how the measures and procedures provided for in these Rules are implemented in the overall activity of the II and in all established systems of the Company, including it shall monitor the adequacy and effectiveness of the policy and procedures and their observance by the II and the persons working for it under contract. In addition to the measures and procedures under the previous sentence, the BoD  shall monitor and periodically evaluate all other strategies, measures, plans, policies and the like adopted by the Company in accordance with Regulation (EU) No 575/2013 and Ordinance No 50. 

b) undertake the necessary measures, as the case may be, to remedy the deficiencies and inconsistencies found in the policies and procedures under these Rules, respectively, in all other strategies, measures, plans, policies and the like, adopted by the Company in accordance with Regulation (EU) No 575/2013 and Ordinance No 50, when it finds incompleteness and inconsistencies in them related to risk management in the II.

c) monitor and evaluate the adequacy and effectiveness of the measures undertaken for elimination of established incompletenesses and discrepancies in the policies and procedures under article 1, paragraph 2, items 1-4 of these Rules. 

(4) (new, by resolution of 31.01.2020) The members of the BoD of the investment intermediary shall commit sufficient time to the address risk-related issues. The members of the BoD shall actively participate in the process of managing all significant risks specified in Regulation (EU) No 575/2013, MFIA and Ordinance No 50 of the FSC, as well as in the valuation of assets (positions), the use of external credit ratings and internal models associated with those risks. 

(5) (new, by resolution of 31.01.2020) By the adoption of these Rules, the investment intermediary shall establish clear reporting mechanisms to the BoD and define levels of responsibility to cover all significant risks, risk management policies and their amendments.

Article 28.(1) (amended by resolution of 31.01.2020 and by resolution of 30.06.2022) The Risk Management Department, if any, shall prepare and submit to the BoD a report on the activities of the department at least once a year, which shall specify any incompleteness and inconsistencies identified in the  policies, procedures, mechanisms and measures provided for in these Rules, respectively in all other strategies, measures, plans, policies and the like adopted by the Company in accordance with Regulation (EU) No 575/2013 and Ordinance No 50, as well as the measures taken to eliminate them. The report shall be submitted to the BoD by the 10^th day of the month following the month in which it was drawn up. The report shall also contain an assessment of whether the II has taken and complies with the necessary actions regarding risk management under article 23 of Commission Delegated Regulation (EU) 2017/565 of 25 April 2016. The report shall explicitly indicate whether any corrective actions have been undertaken in the event of deficiencies.

 (2) (new, by resolution of 31.01.2020) The Risk Management Department shall also monitor and evaluate the adequacy and effectiveness of the measures taken by the Department to eliminate identified deficiencies and inconsistencies in the policies and procedures under these Rules, and if necessary, it shall also make reasonable proposals for amending or supplementing thereof to the BoD. 

(3) (new, by resolution of 31.01.2020) The Risk Management Department shall actively participate in the development of the strategy for taking and managing the risks of the investment intermediary and in making decisions related to the management of all significant risks. It must at all times be able to provide a comprehensive overview of all the risks the investment intermediary is exposed to.

(4) (new, by resolution of 31.01.2020) The Risk Management Department shall report directly to the BD, in cases where the development of a specific risk affects or may affect the investment intermediary. The actions of the Risk Management Department under the previous sentence do not release the BoD from its liability under  MFIA, Ordinance No 50 of the FSC and Regulation (EU) No 575/2013 in connection with risk management.

(5) (new, by resolution of 31.01.2020) The head of the Risk Management Department (if no other officer has been appointed) may be a member of the senior management staff who is explicitly assigned with the responsibility for the risk management function. If the appointment of an individual responsible officer does not correspond to the nature, scale and complexity of the II’s business, another person of the senior management may perform this function, provided that there is no conflict of interest.

(6) (new, by resolution of 31.01.2020) The head of the Risk Management Department cannot be dismissed without the prior approval of the BoD. The head of the Risk Management Department has the right to address and ask questions acting in this capacity directly to the BoD and to the General Meeting as well.

ADMINISTRATIVE AND ACCOUNTING PROCEDURES FOR RISK AND INTERNAL CAPITAL ASSESSMENT

(new, by resolution of 31.01.2020)

Article 29. The accounting procedures regarding the risk management and the assessment of the internal capital are actions adopted and followed by the investment intermediary related to processing the incoming financial accounting information, preparation of analytical trial balance and financial information reports according to IFRS (FINREP), as well as a capital adequacy and liquidity report (COREP), based on which assessments of risk levels, capital adequacy and liquidity are made.

Article 30. (1) The main purpose of the accounting procedures is the adequate classification, processing and presentation of reliable, systematized and timely information for:

1. the degree of risk the investment intermediary is exposed to; 
2. the necessary capital for covering the risks incurred as a result from the II’s activities.

Article 31. The timely and accurate presentation of the information on the degree of risk exposure and the capital adequacy of the investment intermediary to the head of the Risk Management Department and the Executive Director, is a prerequisite for preventing the concentration of risks and incurring financial losses. 

Article 32. A number of actions and coordination with all departments of the investment intermediary are required to achieve the objectives of the accounting procedures for risk management and assessment of capital adequacy and liquidity.

Article 33. The prerequisites for the proper functioning of accounting procedures are as follows:

1. Compliance with the accounting policy of the investment intermediary approved by the BoD, prepared in accordance with the International Financial Reporting Standards;
2. True, accurate and timely accounting of business processes;
3. Structuring the individual chart of accounts for the purposes of obtaining the necessary accounting information;
4. Active interaction with the Risk Management Department and the other departments at the investment intermediary for obtaining accurate and timely information on the degree of risk exposure and, respectively, the required level of capital corresponding to the risk exposures;
5. Organizational structure of the Accounting Department in accordance with the needs of the investment intermediary, with clearly defined rights, responsibilities and levels of access to information;
6. Preparation of an analytical trial balance, balance sheet, a financial information report under IFRS (FINREP), as well as a capital adequacy and liquidity report (COREP);
7. Possibility for control of the activities by the Internal Control Department and the members of the BD of the investment intermediary;

Article 34. The investment intermediary shall define certain rules that it will consistently observe in connection with calculation of capital requirements for different types of risks. The rules of operation so determined shall bind the investment intermediary to the requirements when calculating capital commitments for various types of risks. 

(2) The investment intermediary shall adopt and apply various internal rules, which ensure the lawful implementation of the activity of the Company. The rules under paragraph 2 shall include properly distributed powers and obligations of the employees through which the Company is able to operate, within the normative restrictions of its business activities.

(3) The administrative procedures necessary for carrying out the business activities of the Company are as follows:

• Procedure for approving or amending the internal rules;
• Existence of a system for internal control and legal compliance;
• A series of actions of employees in connection with the performance of investment services and activities offered by the investment intermediary subject to the license issued to it;
• Authorization of employees to confirm and sign documents within the II’s activities;
• Procedure for creation, operation and management of data and documents in the investment intermediary, including their back-up;
• Administration and management of information systems;
• Rules and responsible employees for notifying the Financial Supervision Commission of the II’s business.

Article 35. (1) The investment intermediary shall use the data from the regulated securities markets – BSE and other foreign places of execution, as sources for price information on the basis of which a daily and/or monthly revaluation of the items in its trading and investment portfolio shall be performed. 

(2) Sources of quotations may be recognized world news agencies such as REUTERS, BLOOMBERG, etc. For valuation of Bulgarian government securities, quotations from primary dealers can be used, in which case it is required to determine the dealers and the persons responsible for collecting and processing information.

Article 36. For each of the positions in financial instruments that do not have current price quotations, a method for calculating their fair price is determined, and this method is consistently followed and its suitability and adequacy are checked periodically.

Article 37. The investment intermediary should delegate responsibilities to employees to monitor for deviations in the settlement of debt instruments, shares, currencies and commodities transactions. In case of mismatch between the settlement with the agreed date, as well as in the presence of credit risk of the counterparty, the investment intermediary shall calculate and maintain equity to cover those risks.

Article 38. The responsibilities for monitoring and compliance with the requirements for covering the capital requirements of the various types of risk shall be allocated between the departments and units of the Company on the basis of these Rules.

INTERNAL CAPITAL ALLOCATION. CAPITAL REQUIREMENTS 

(new, by resolution of 31.01.2020)

Article 39. (1) The internal capital of the Company shall represent the capital necessary for covering the risks, related to the overall activity of the Company. The internal capital shall be calculated in accordance with the provisions of Ordinance No 50 and Regulation No 575/2013.

Article 40. (1) The capital requirements for the different types of risk shall be monitored and calculated on the basis of the entries recorded in the information and accounting system of the Company and the determined criteria for maintaining the value, types and distribution of the internal capital. 

(2) The amount of the internal capital shall be calculated on a daily basis by the Accounting Department in accordance with the legal provisions contained in ordinances and regulations and the data for the separate lines of business of the II for which allocation of financial resources is required. 

(3) The required amount of internal capital depends on both the ongoing operations of the investment intermediary and its operations in previous years, because for certain risks, the calculations are based on data from previous financial years. 

(4) When calculating the capital requirements for settlement risk in case of transactions in debt or equity instruments, foreign currency, or commodities, the price difference in connection with which the investment intermediary is exposed to risk shall be determined. 

(5) When determining the capital requirements for position risk, the sum of the capital requirements for general and specific risk related to the positions in debt and equity instruments shall be calculated. 

(6) When determining the capital requirements for foreign exchange risk, the investment intermediary shall calculate the sum of the total net position in foreign currency and the net position in gold. 

(7) When calculating the capital requirements for commodity risk, the investment intermediary shall apply the simplified approach. 

(8) When calculating the capital requirements for operational risk, the investment intermediary shall apply the reference indicator approach. 

(9) A standardized method shall be applied when calculating the capital requirements for the risk when adjusting the credit assessment.

MECHANISMS FOR LEGAL COMPLIANCE AND CONTROL WITH REGARD TO VARIOUS TYPES OF RISKS

(new, by resolution of 31.01.2020)

Article 41. (1) At least once a year, the Internal Control Department shall make a review of the Company’s business, including a risk assessment, which shall include the inspections specified above in these Rules. 

(2) The Internal Control Department shall carry out periodic compliance inspections of the Company’s business with regard to the risk profile of the investment intermediary.

(3) (amended by resolution of the BoD of 30.06.2022) The internal controls of the Company shall ensure the establishment and documentation of all large exposures and the subsequent changes threin and for the purposes of subsequent monitoring of these exposures as part of the overall exposure monitoring process.

(4) The Internal Control Department shall carry out periodic inspections for the timely reflection of the information on the operational activities of the Company by the operational departments and units in the information and accounting system of the Company.

Article 42 (1). The preventive control regarding the assessment of risk factors in the transactions carried out by the Company is aimed at:

1. Organizing professional briefing of the employees with whom the Company has concluded contracts, as well as with the persons concluding contracts and accepting orders from clients;
2. Submitting proposals for timely updating and improvement of the internal company documents in accordance with adopted new regulatory requirements or directly applicable EC Regulations, as well as in accordance with ESMA guidelines;
3. Carrying out regular briefings of the employees in the offices of the Company regarding omissions, mistakes, weaknesses in their work on transactions and orders, as well as for the changes in intracompany regulations adopted by the BoD.

(2) Ongoing control in terms of proper risk management shall include:

1. Daily monitoring of exposures to one person or to a group of connected clients shall not exceed the established percentage limits, in order to limit the risk of their excessive concentration; monitoring the timely identification and documentation of all major exposures;
2. Timely notification to the Financial Supervision Commission in case of exceeding any large exposures by indicating the reasons that have led to such excess and the specific measures for bringing the exposures in compliance with the established limits;
3. Monitoring for valuation of positions at easily accessible closing prices from an independent source, such as stock exchange prices or prices originating from market information systems.

(3) Follow-up control on risk management shall include:

1. Mandatory recommendations for implementation in case of breach of the risk management rules and seeking disciplinary and financial liability from the breaching officials;
2. Submission of specific proposals to the BoD for change in the internal documents of the Company, in order to prevent omissions, weaknesses and violations and bring them in compliance with legal requirements;
3. Regular training of employees.

PROFIT DISTRIBUTION RULES

(new, by resolution of 31.01.2020)

Article 43. (1) (amended by resolution of the BoD of 30.06.2022) This section is adopted on the grounds of article 162 of Ordinance No 50 of the FSC and introduces internal rules ensuring that the amount of distributable profit and the maximum amount for distribution are properly calculated. 

(2) The rules under this Section shall be applied in strict compliance with the requirements of Regulation (EU) No 575/2013 and Ordinance No 50. 

(3) The adoption of the rules in this Section aims to ensure that the amount of distributable profit and the maximum amount to be distributed are correctly calculated, and that the II can prove their accuracy upon the request of the FSC.

Article 44. (1) The Company may distribute profit if it has fulfilled the requirements of article 247a of the CA. 

(2) The proposal for distribution of profit shall comply with the capital adequacy and liquidity of the II. No proposal for distribution of the profit is made if the distribution will lead to violation of the legal requirements for capital adequacy and liquidity of the II.

(3) The amount of the distributable profit shall be determined by the General Meeting of Shareholders in accordance with the requirements of article 221, item 7 of the CA. The amount of distributable profit can be determined as absolute value per share and/or as a total absolute value.

(4) If the amount of the distributable profit is determined as an absolute value per share, the maximum amount for distribution shall be equal to the product of the determined absolute value and the number of shares. 

(5) If the amount of the distributable profit is determined as a total absolute value, this shall also be the maximum amount for distribution. 

(6) The BoD of the Company shall verify whether the amount of the distributable profit and the maximum amount for distribution have been correctly calculated, taking into account the legal requirements and these Rules. Upon request by the FSC, the investment intermediary shall be required to provide copies of all documents proving the accuracy of the calculations.

FINAL PROVISIONS

• (amended by resolution of 09.10.2020) In the cases where the II has assigned important operational functions or investment services and activities to be performed by a third party under article 20 of these Rules, these Rules also apply to such third party in order to effectively manage the risks of that assignment.
• These Rules are adopted by resolution of the BoD of Ever Financial AD of 05.09.2015 and repeal the rules previously adopted thereby on the grounds of article 82, paragraph 1 of Ordinance No 38. These Rules have been amended by resolution of the Board of Directors of 09.10.2020 г., further amended by resolution of the BoD as of 30.06.2022, and amended by resolution of 24.08.2022.