UK Banks operating in Bulgaria: a no-deal scenario perspective


With the Brexit transition period between the EU and UK ending on 31 December 2020 and the prospects of an agreement fading, a significant level of uncertainty is enveloping in a multitude of sectors, including the operation of UK-based credit institutions in EU member states like Bulgaria.

The following article explores the impact of a possible no-deal outcome on UK banks doing business in Bulgaria.

Operating in Bulgaria as a third-country institution

According to the Bulgarian Credit Institutions Act, banks licensed in an EU member state / EEA country can operate directly in Bulgaria and perform activities provided by Bulgarian credit institutions to the extent that the activities are included in the license of the respective foreign bank, and that the foreign credit institution's supervisory body – which granted the institution its licence – informed the Bulgarian National Bank of the institution's intention to provide services on Bulgarian territory.

Since the current passporting mechanism is coming to an end and the prospect of a comprehensive trade agreement between the EU and UK is in doubt, UK banks will need to evaluate the scenario whereby they would be deemed a "third country" credit institution. In this case, two main options need to be evaluated:

  • Establishing a branch in Bulgaria: in this scenario, a UK-based bank will ask the Bulgarian National Bank to issue an approval for creating a branch in Bulgaria. Although the licensing regime for branches is not as stringent as it is for establishing new credit institution, the regulator still requires a large amount of information and detail before approval can be granted. In addition, the Bulgarian national bank would pay special attention to the following factors:
    • Does the UK regularly exercise effective control over the bank and its branches abroad?
    • Does UK legislation promote effective oversight on a consolidated basis and the bank's ability to provide information?
    • Does the UK regulator offer Bulgarian banks reciprocal access to its market?
  • Establishment of a subsidiary in another member state: in this case, a UK-based bank with a subsidiary in another member state will have the opportunity to provide services directly in Bulgaria. The subsidiary would benefit from the passporting regime available to all credit institutions operating in a EU member state.

A UK-based bank can also opt out and establish a subsidiary credit institution in Bulgaria. However, this process would be time-consuming and – given the saturated national market – not feasible.

Further considerations

In the event a UK bank establishes a subsidiary in another member state and opts to provide services directly in Bulgaria, the Bulgarian National Bank requires EU-based credit institutions to notify it each time they intend to provide new services on Bulgarian territory. This differs from the past practice where banks notified the regulator only once, and the notification did not necessarily cover all the services provided in the territory.

Furthermore, in June 2020 the European Banking Authority published its final draft amending Regulatory Technical Standards and Implementing Technical Standards on Passport Notifications under Article 35, 36 and 39 of Directive 2013/36/EU. Pursuant to this, the EBA introduced requirements EU credit institutions specify each passported activity accurately, and provide the national reference code of the respective credit institution and its Legal Entity Identifier.

Given the uncertainty between the EU and UK during this transition period, UK credit institutions should ensure they are prepared to continue uninterrupted operations in Bulgaria and other EU member states.

For further information on the Bulgarian financial sector, call or email your regular CMS contact or our local CMS experts Dimitar Zwiatkow and Ivan Gergov, CMS Sofia.