Slovakia: Banking & Finance (2nd Edition)

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This country-specific Q&A provides an overview to banking and finance laws and regulations that may occur in Slovakia.

This Q&A is part of the global guide to Banking & Finance. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance-2nd-edition/

  1. What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?

    The main national authority for banking regulation and supervision in the Slovak Republic is Slovak cen-tral bank (in Slovak Národná banka Slovenska) (hereinafter “NBS”) which acts as main regulatory and supervisory authority in the financial sector.

    In accordance with the Financial Market Supervision Act (the “FMSA”) and the Act on Banks (the “AOB”), NBS supervises financial market participants active in the banking, capital market, insurance and pension fund sectors. The FMSA regulates general rules of procedure for supervision of the financial market and the AOB provides general competences to NBS as well as general provisions regarding supervision.

    Another authority, known as the Resolution Council (in Slovak: Rada pre riešenie krízových situácií) which was established on the 1 January 2015, plays a role in financial regulation and supervision. The Resolu-tion Council exercises its competences over selected institutions which are for example: banks and in-vestments firms with registered capital at least EUR 730,000, financial holdings companies, mixed finan-cial holding companies established in Slovak Republic, their parents with registered office in the Slovak Republic, EU and mixed-activity, branches of selected institutions established in a third country. General objective of the Resolution Council is to prevent the failure of selected institutions or firms in the finan-cial sector and to avoid crisis on the financial markets.

  2. Which type of activities trigger the requirement of a banking license?

    Following activities may be performed by the bank and require a banking license:

    a) accepting deposits and provision of loans;

    b) provision of payment services and settlement;

    c) provision of investment services, investment activities and ancillary services, and investments in securities for own account;

    d) trading for the bank's own account;

    e) management of receivables for the client's account, including advisory services,

    f) financial leasing,

    g) provision of guarantees, and opening and endorsing of letters of credit;

    h) business advisory services;

    i) issuing of securities, participation in securities issues, and provision of related services;

    j) financial intermediation;

    k) safe custody of assets;

    l) renting of safe deposit boxes;

    m) provisions of banking information;

    n) performing the function of a depository pursuant to separate regulations;

    o) processing of banknotes a coins;

    p) issuance and administration of electronic money.

  3. Does your regulatory regime know different licenses for different banking services?

    No, the Slovak law recognizes only one type of banking license. However, each banking license contains banking activities which the bank is going to perform, its extent and scope, as well as conditions under which the banking license was issued.

  4. Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?

    No, a banking license allows the holder to perform only banking activities which are contained in the li-cense and for which the bank has applied.

  5. Is there a “sandbox” or “license light” for specific activities?

    No. AOB allows exercising of banking activities just on the base of banking license issued by NBS and the process is standardized for every proceeding.

  6. Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?

    We are not aware of any such restrictions at the moment. Except to guidance of the Ministry of Finance of Slovak Republic, which concerns taxation of crypto currencies, so far there is no national regulation for crypto currencies.

  7. What is the general application process for bank licenses and what is the average timing?

    The application process for issuance of the bank license begins with the submission of the application to the NBS. To issue the bank license the following conditions under the AOB shall be met, in particular:

    a) a monetary contribution of at least EUR 16,600,000 into the bank’s registered capital is fully paid up;

    b) the monetary contribution into the registered capital and other financial resources of the bank have a transparent and legal background;

    c) prospective shareholders with a qualifying holding in the bank are eligible and acceptable, and their relationships with other persons are transparent, especially as regards interests in the regis-tered capital and in the voting rights;

    d) persons nominated to positions that include members of the statutory body, the authorized rep-resentative, members of the supervisory board, senior employees, and the head of internal con-trol and internal audit are fit and proper persons;

    e) the draft articles of association of the bank are available;

    f) a business plan based on the strategy proposed for the bank’s activities, supported by real eco-nomic calculations, is available;

    g) a group with close links that includes a shareholder with a qualifying holding in the bank is trans-parent;

    h) the exercise of supervision is not impeded by the close links of the group mentioned in subpar-agraph (g);

    i) the exercise of supervision is not impeded by the legal system or the application of laws in a country in the territory of which the group mentioned in subparagraph (h) has close links;

    j) the bank’s registered office, headquarters, and place of business will be in the territory of the Slovak Republic; the bank may also conduct banking activities outside the territory of the Slovak Republic through its branches or directly, without establishing a branch, under the conditions laid down in AOB,

    k) the shareholders establishing the bank can prove their financial capacity to overcome an adverse financial situation faced by the bank;

    l) the conditions equivalent to those for the issuance of an authorization for investment services are met, as appropriate, in relation to the requested scope of investment services, investment ac-tivities, and ancillary services,

    m) the conditions equivalent to those for the issuance of an authorization to provide payment ser-vices are met, as appropriate, in relation to of the requested scope of payment services;

    n) the conditions equivalent to those for the issuance of an authorization to issue electronic money are met, as appropriate, in relation to of the requested issue of electronic money;

    o) appropriate technical systems and procedures, and adequate resources, material and technical conditions are available for the proper conduct of banking activities;

    p) adequate organizational conditions, qualified personnel, and a functional management and con-trol system, including internal control and internal audit, a risk management system, and pruden-tial rules and regulations are available for the conduct of banking activities;

    q) the applicant has not been convicted of any criminal offence; this fact is to be proved and doc-umented with a proof of a clean criminal record, no older than three months.

    If the application form is duly filled out and all annexes / documents are properly delivered to the NBS, then on average the process takes up to 9 months.

  8. Is mere cross-border activity permissible? If yes, what are the requirements?

    Yes. Credit institution which obtained license in EEA member state are authorized to provided banking services either via i) setting up of a branch in line with the freedom of establishment or ii) if provision of the service is not permanent than on the basis of freedom to provide services. The process is rather standardized and involves communication between NBS and regulator which granted the license to for-eign bank. The notification shall be delivered prior to commencement of the activity in respective mem-ber state.

  9. What legal entities can operate as banks? What legal forms are generally used to operate as banks?

    The bank may have only a legal form of joint stock company (in Slovak akciová spoločnosť).

  10. What are the organizational requirements for banks, including with respect to corporate governance?

    Banks are obliged to set in its articles of association a bank’s organizational structure and management system so as to ensure the proper and secure performance of banking activities in line with the banking license and to prevent a conflict of interests arising within the bank. Banks shall also regulate the rela-tions and cooperation between the bank’s statutory body, supervisory board, senior employees, and its internal control and internal audit unit. Furthermore, a bank shall regulate principles of remuneration, which are taken into account in the bank’s risk management system and which support that system. The Bank shall also set cover for the activities of the bank’s remuneration committee if established or the activities of the person responsible for the bank’s remuneration system. In its articles of association, a bank shall also separate and regulate the powers and responsibilities within the bank for example for (i) the setting, implementation, monitoring, and oversight of the bank’s business objectives; (ii) the internal control system, including a separate and independent internal control and internal audit unit correspond-ing to the complexity of banking activities and the risks involved; (iii) risk management conducted inde-pendently and separately from banking activities, including a management system for the risks to which the bank is exposed, and for the activities of the risk management committee; (iv) the conduct of credit transactions separately from investment transactions; (v) separate monitoring of the risks to which the bank is exposed when performing banking activities vis-à-vis persons in a special relationship with the bank; (vi) the information system; (vii) protection against money laundering and terrorist financing; (vii) the activities of the bank’s remuneration committee.

  11. Do any restrictions on remuneration policies apply?

    Yes, restriction on remuneration apply and are incorporated in the AOB. A bank shall apply the remunera-tion principles to i) all members of the bank’s statutory body and supervisory board; ii) senior employees in charge of risk management and in charge of transaction processing; iii) employees responsible for risk management, including employees authorized to set limits or exceed limits in managing the risks faced by the bank; iv) the head of the bank’s internal control and internal audit unit; and v) other employ-ees who are responsible for risk management and whose professional activities have a material impact on the bank’s risk profile.

    In accordance with these remuneration principles, banks shall apply the following remuneration components:

    a) a guaranteed fixed remuneration component, specifically;

    b) a basic wage or salary for employees;

    c) a fixed remuneration component for statutory body members and supervisory board members; and

    d) a variable remuneration component.

    The remuneration principles has to be consistent with the bank’s effective risk management system, business strategy and long-term objectives, and are to include measures for the prevention of conflicts of interest.

    Remuneration restrictions under the AOB do not apply to foreign banks conducting banking activities through its branch and their employees.

  12. Has your jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?

    Yes, Basel III framework is implemented via EU regulations, in particular via the CRR and CRD IV di-rective. There are no major deviations and the banks in the Slovak Republic shall maintain own funds prescribed by CRR.

  13. Are there any requirements with respect to the leverage ratio?

    Requirements contained in the CRR are directly applicable in the Slovak Republic and banks in Slovakia are required to counteract the risk of excessive leverage. Banks are obliged to disclose their leverage to the NBS.

  14. What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?

    Yes, Basel III liquidity requirements were implemented in the Slovak Republic and are applicable. Banks in Slovakia shall maintain a liquidity coverage of at least 100%.

  15. Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?

    Yes, banks shall publish their financial statements annually via their submission into the section of the registry of accounting documents. They shall do so within 30 days after the financial statements are ap-proved by the general meeting.

    A foreign banks shall publish their annual reports in Slovak language, including a summary of any differences between the rules used for the preparation of financial statements in the Slovak Republic and in the country where the foreign bank has its registered office, within 60 days after the report is approved. An annual report of a foreign bank shall be published on the bank’s website and shall remain published there at least until the publication of the annual report for the next accounting period.

    The auditor’s report on the verification of the annual report shall be deposited in public register by 30 June following the end of the accounting period for which the annual report is audited. Branches of a foreign bank deposit the auditor’s report on the verification of the annual report in the non-public section of the public register.

    Interim reporting is obliged for branch of a foreign bank or legal persons belonging to a consolidated group.

    Branches of a foreign bank shall prepare interim financial statements as at the last day of each calendar quarter and submit it in writing to NBS within 30 calendar days following the end of the respective calendar quarter.

    A legal persons belonging to a consolidation group shall prepare interim financial statements as at the end of the calendar half-year.

    A parent bank or a parent financial holding company shall prepare interim consolidated financial statements as at the end of the calendar half-year and shall submit it in writing to NBS within 60 calendar days following the end of the respective calendar half-year.

  16. Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?

    Yes, consolidated supervision exits in the Slovak Republic. If NBS declares that it will exercise supervi-sion on a consolidated basis it triggers further scrutiny for the bank. A person included in a consolidated group shall create control mechanisms to ensure that the information provided for the purposes of su-pervision on a consolidated basis is correct, and shall also ensure that the control mechanisms are suffi-ciently harmonized within the internal control system and that the information required for supervision on a consolidated basis is accessible and correct. For the purposes of supervision on a consolidated ba-sis, persons included in a consolidated group shall provide each other with the information required to meet the obligations arising from their inclusion in the consolidated group.

    Consequence of exercising supervision on a consolidated basis means that a person included in a con-solidated group and its parent companies/bank, shall produce and submit to NBS, either directly or indi-rectly through a parent company/bank etc., any statements, reports, and other disclosures required for the exercise of supervision on a consolidated basis, in the stipulated manner within the stipulated time limits. Their structure, scope, contents, form, classification, deadlines, method, procedure, and place of presentation, including the methodology of preparation, are stipulated by NBS in a decree.

    In case of breach of the above mentioned obligations, NBS has a wide scope of measures to ensure their remedy (from imposing an obligations through imposing fines to limitation or suspension of bank-ing license).

  17. What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?

    To acquire or increase a qualifying holding in a bank so that the share in the bank’s share capital or vot-ing rights reaches or exceeds 20%, 30% or 50%, or so that the bank becomes a subsidiary of a person that acquires such a holding in one or more transactions, whether directly or by acting in concert, is re-quired the prior approval of NBS. The prior approval of NBS shall be required also to consolidate, merge, or split a bank, including the consolidation or merger of another legal person with the bank or sell a bank, a foreign bank branch, or parts thereof.

    Among other things, for issuing of prior approval must be documented, the transparent and credible origin, sufficient volume, and correct structure of financial resources. Prior approval for increase a quali-fying holding in a bank may only be issued if the acquisition or exceeding of a holding by the acquirer does not prove to affect adversely the bank’s ability to meet the obligations stipulated by Act on Banks. The splitting, consolidation, merger, or dissolution of a bank, including its merger with another legal per-son, or the sale of a bank, a foreign bank branch or part thereof, may not be to the detriment of the bank’s creditors.

    Without prior approval from NBS, every legal act for which prior approval is required shall be null and void. A legal act performed on the basis of a prior approval granted on the basis of false data shall also be invalid. This shall not apply to the acquisition of, or increase in, a qualifying holding in a bank indirect-ly as a result of a foreign stabilization measure aimed at mitigating the impacts of the global financial crisis and the sale of a foreign bank branch or part thereof under paragraph through which the foreign stabilization measure alleviates the impacts of the global financial crisis.

  18. Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?

    There are no specific conditions imposed. However, general conditions applicable to obtaining of the license, in particular prospective shareholders with a qualifying holding in the bank are eligible and ac-ceptable, and their relationships with other persons are transparent, especially as regards interests in the registered capital and in the voting rights.

  19. Are there specific restrictions on foreign shareholdings in banks?

    No, there are no such restrictions. Additional requirements may apply though.

  20. Is there a special regime for domestic and/or globally systemically important banks?

    NBS as regulator shall identify credit institutions qualifying globally or systematically important taking into account certain features of the given institutions, such as – among others – the size and complexity of the group and cross-border activities. The NBS shall also allocate global systemically important credit institutions in six sub-categories. According to the AOB, credit institutions allocated to the lowest sub-category shall maintain a capital buffer of 1 % of the total risk exposure amount calculated in accord-ance with the CRR for global systemically important credit institutions. The buffer assigned to each sub-category shall increase in gradients of 0.5 % to and including the fourth sub-category, but the credit insti-tutions allocated to the highest sub-category shall be subject to a buffer of 3.5 %.

  21. What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?

    NBS has a wide variety of sanctions which it can impose on banks. Type of sanction shall correspond to the seriousness of the violation. The most severe sanction is the withdrawal, suspension or limitation of a banking license (for banking activities). In addition, the NBS may impose on the bank for violation of the bank rules a fine up to EUR 332,000 or in case of repeated or serious breach of up to 10% of the total annual turnover for the previous calendar year on a bank. NBS may also impose on a bank a forced ad-ministration (receivership) or impose an obligation to maintain higher value of own funds.

  22. What is the resolution regime for banks?

    The Slovak Republic implemented the Directive 2014/59/EU (the “BRRD”) into Slovak law via adoption of the Act on Solving of Crisis Situations on the Financial Market. The priority of the Act is to implement the effective crisis management system created by the BRRD.

    According to the Act, the Resolution Council was established on January 1 2015 as the national resolution authority in the Slovak Republic. The Resolution Council is part of the Single Resolution Mechanism (SRM), which comprises (i) the Single Resolution Board, based in Brussels; (ii) the national resolution authorities of the euro area countries; (iii) the national resolution authorities of those other EU member states that have opted to participate in the SRM.

    The main objective of the Resolution Council is to prevent the failure of institutions and groups in the financial sector and to ensure their effective resolution (if failure cannot be avoided), through the protec-tion of financial stability and client assets. In this respect, the main tasks of the Resolution Council are: to draw up resolution plans for institutions incorporated in the Slovak Republic and to contribute to the drafting of resolution plans for groups that have a subsidiary incorporated in the Slovak Republic; to comment on recovery plans of those institutions or groups; to assess the resolvability of institutions; to set minimum requirements for own funds and eligible liabilities for individual institutions incorporated in the Slovak Republic; to set the amount of financial contributions to the national resolution fund paid by individual institutions incorporated in the Slovak Republic; to issue decisions under specific regulations in relation to institutions incorporated in the Slovak Republic; and, to perform other activities relating to its participation in the SRM.

    If NBS informs the Resolution Council that a particular institution is failing or is likely to fail in the near future, the Resolution Council will assess whether the conditions for resolution proceedings are met.

    Resolution proceedings will then take place in the public interest, to the necessary extent and in a rea-sonable scope, if the objectives of the Act cannot be attained through insolvency or similar proceedings. The most weighty measure in resolution proceedings is the Resolution Council´s power to intervene in the rights of shareholders and creditors. As a rule, the shareholders of the failing institution should bear losses first, and no creditor should incur greater losses in resolution proceedings than it would have incurred under insolvency proceedings according to the Bankruptcy Act. In practical terms, the exercise of some of the Resolution Council's powers may result in a relatively invasive disturbance of the rights of private parties, which in Slovak law may raise a host of issues regarding application.

  23. How are client’s assets and cash deposits protected?

    Clients deposit protection is secured in the Slovak Republic through the Deposit Protection Fund, which concentrates monetary contributions from banks and branches of foreign banks to provide compensa-tion for unavailable deposits deposited in bank and branches of foreign banks. The Fund also performs the cash-managements activities of the National Crisis Management Fund.

    Clients deposits deposited in banks are protected by the Deposit Protection Act up to EUR 100,000.

    The branch of a foreign bank is not obliged to participate in deposit protection under Slovak legislation if deposits deposited in it are protected in the state where the founding foreign bank has its registered office at least under extent of Slovak legislation and provided that mutuality is guaranteed. This rule does not apply to branches of foreign banks benefiting from one bank license under European Union law.

    Banks are required to contribute to the Fund an entry contribution of EUR 35,000 and annual contribution at least 0.01% of the amount of covered deposits in the relevant bank, taking into consideration the risk profile of the bank and under certain circumstances extraordinary contribution.

  24. Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?

    Yes. The Slovak Act on Solving of Crisis Situations on the Financial Market entitles the national resolu-tion authority to either convert certain claims into shares or to write-down their value. All claims against a credit institution are, in principle, eligible for bail-in except those specifically stated in the Act on Solving of Crisis Situations on the Financial Market.

  25. Is there a requirement for banks to hold gone concern capital (“TLAC”)?

    Credit institutions in the Slovak Republic are required to hold gone concern capital in accordance with respective EU regulations applicable in the Slovak Republic. No specific Slovak legislation applies in this respect and TLAC standards have not been implemented yet.

  26. In your view, what are the recent trends in bank regulation in your jurisdiction?

    We can see steady focus on protection of consumers and further inflow of EU legislation. In our view the regulatory focus shifted also on new risks such as cyber risk and crypto currencies seems to increase. Furthermore, there is a tendency towards reporting single data cubes instead of aggregated reports.

  27. What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?

    It is difficult to predict and assess what will be the biggest threat. Since Slovak financial sector is more or less dependent and interlinked with the EU financial market, definitely one of the threats is hard Brexit. Furthermore, overwhelming regulatory and rigid environment might deter new entrants and start-ups seek-ing for alternative routes for financial sources which may lead in the long run to decrease of bank’s role and work.