This country-specific Q&A provides an overview to Banking & Finance laws and regulations that may occur in Serbia.
What are the national authorities for banking regulation, supervision and resolution in your jurisdiction?
In our jurisdiction the National Bank of Serbia (NBS), Deposit Insurance Agency, and the Securities Com-mission are the national authorities for banking regulation, supervision and resolution.
Which type of activities trigger the requirement of a banking licence?
Activities of deposit and lending services, as well as custody bank activities trigger the requirement of applying for a banking license.
Does your regulatory regime know different licenses for different banking services?
Our regulatory regime differentiates between licenses for different banking services. License issued by the National Bank of Serbia is required for deposit and lending services, while the license issued by the Securities Commission is required for custody banking and broker-dealer services.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
The bank may perform services for which it has received consent of the National Bank of Serbia as well as services that are, by nature, similar to the services for which consent was received. Special license of the Securities Commission is required for broker-dealer services.
Is there a “sandbox” or “license light” for specific activities?
Serbian legislation does not recognize “sandbox” or “license light” framework.
Are there specific restrictions with respect to the issuance or custody of crypto currencies, such as a regulatory or voluntary moratorium?
Issuance of crypto currencies has not been regulated in Serbian jurisdiction. The National Bank of Serbia has no legal authority to issue permits for virtual currencies trade, or to set up virtual currency ATMs, etc. Since the National Bank of Serbia does not issue licenses for virtual currency trade, the subjects that trade in crypto currency as well as virtual currency trade internet platforms cannot be considered subjects of the National Bank of Serbia supervision in terms of the laws regulating financial institutions in the Republic of Serbia.
What is the general application process for bank licenses and what is the average timing?
Founders of the bank submit to the National Bank of Serbia a preliminary approval request for the bank incorporation, containing data on founders, memorandum of association and other data and documents prescribed by the law. The NBS shall render a decision on the request within 90 days. The founders of the bank are obligated to, within 60 days from the reception of the preliminary approval, submit the request for the issuance of the bank operating license to the National Bank of Serbia, containing the evidence on the payment of the pecuniary share capital, as well as the evidence on the transfer of non-monetary assets into the share capital of the bank accompanied with the statement on the assets origin, data on the organizational structure and staff qualification, as well as other data and documents prescribed by the law. The NBS shall render a decision on the request within 30 days. Bank’s Founding Assembly shall be held within 30 days form the reception of the NBS decision on the issuance of the bank operating license. Founding Assembly is to (i) adopt Articles of Association, (ii) appoint president and members of both the Managing Board and Executive Board, (iii) adopt three-year action plan, (iv) adopt business policy, and (v) adopt the initial shares emission decision. Bank founders are obligated to submit the bylaws adopted on the Founding Assembly to the National Bank of Serbia for approval within five days, and after the reception of the approval, they must submit the application for the registration of the bank into the Companies Register within 30 days. The bank acquires the status of a legal entity at the moment of registration into the Companies Register. The banking license application process lasts approximately 90 days on average.
Is mere cross-border activity permissible? If yes, what are the requirements?
Cross-border activities are allowed. For opening a foreign representative office, the bank submits a request to the National Bank of Serbia for approval. Furthermore, under conditions prescribed by law, foreign lending transactions are allowed, including loans approved by the bank or a foreign bank, as well as loans between residents and non-residents, on which the residents are to submit report to the National Bank of Serbia.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
The bank is a joint stock company seated in the Republic of Serbia with an operating license issued by the National Bank of Serbia performing deposit and lending transactions and may perform other activities in accordance with the law. Therefore, the bank is founded only in the form of the joint stock company with prior consent granted by the National Bank of Serbia. Apart from the banks, the National Bank of Serbia issues licenses for the provision of payment services and for the issuance of e-money to the payment institutions and e-money institutions founded in the form of legal entity (joint stock company or limited liability company).
What are the organizational requirements for banks, including with respect to corporate governance?
The bank has a mandatory organizational structure and qualified staff. The General Assembly of the bank is comprised of shareholders. Management bodies of the bank include Managing Board and the Executive Board, whose members must have a sound business reputation and appropriate qualifications, including banking and finance experience. The President of the Executive Board represents and acts on behalf of the bank. The bank is obligated to establish a committee for monitoring the operations of the bank (audit committee), credit committee, and assets and liabilities management committee. The bank may form other committees as well. The bank establishes an organizational unit responsible for compliance, including identification, measurement, and monitoring of risk from money laundering and financing terrorism and management of such risk, as well as the organizational unit responsible for internal audit. The bank shall establish such internal organization, i.e. organizational structure that will functionally and organizationally separate the activities of risk management (Middle Office) and support activities (Back Office) from risk management (Front Office) with a clearly determined separation of jobs and duties of employees preventing conflict of interest.
Do any restrictions on remuneration policies apply?
If a control determines that the bank operated contrary to regulations or standards of cautious banking business, or that solvency of the bank is jeopardized in any other way, the National Bank of Serbia may order the bank, by way of decision, to reduce its operating costs, including the amounts of bonuses and rewards depending on the level of achievement of business targets, paid to the members of the Managing Board, Executive Board or employees.
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?
Our jurisdiction applied Basel III framework with respect to the regulatory capital by adopting several regulations in December 2016. Regulator may determine capital adequacy indicators for the bank that are higher than the ones regulated if the solvency and legality control of the bank determines this necessary for stable and safe banking operations, that is, meeting its obligations towards the creditors. Therefore, there are no differences related to certain bank categories, they depend on solvency and operations of the specific bank.
Are there any requirements with respect to the leverage ratio?
The bank shall, at every moment, maintain the capital on the level required for the coverage of all risks the bank is exposed to or may be exposed to in its operations, at minimum in the amount required for the maintenance of regulated capital adequacy indicators, that is, increased indicators, including the requests related to leverage ratio.
What liquidity requirements apply? Has your jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
Liquidity level of the bank is presented by: – bank liquidity indicator, – narrow liquidity indicator, – coverage by liquid assets indicator. The bank is obligated to manage liquidity risk, by maintaining the liquidity level in line with regulated indicators, so that: 1) liquidity indicator: – amounts to a minimum of 1.0 when calculated as an average of liquidity indicators for all business days of the month, – is not lower than 0.9 for more than three consecutive days, – is a minimum of 0.8 when calculated for one business day, 2) narrow liquidity indicator – amounts to a minimum of 0.7 when calculated as an average of liquidity indicators for all busi-ness days of the month, – is not lower than 0.6 for more than three consecutive days, – is a minimum of 0.5 when calculated for one business day. The bank is obligated to maintain the indicator of coverage with liq-uid assets, in sum of all currencies, on the level not under 100%. Our jurisdiction applied Basel III liquidity requirements, including the ones referring to LCR and NSFR.
Do banks have to publish their financial statements? Is there interim reporting and, if so, in which intervals?
The banks must publish their annual financial reports and submit them to the National Bank of Serbia. Interim reporting does not exist as an obligation in certain intervals, only in cases prescribed by law, for example, extraordinary financial statement is prepared in case of status change.
Does consolidated supervision of a bank exist in your jurisdiction? If so, what are the consequences?
Consolidated jurisdiction of banks exists in our jurisdiction. The bank is obligated to submit to the National Bank of Serbia consolidated financial statements of the banking group with the report of the external auditor, for the previous business year – within 150 days from the end of such year. In case the National Bank of Serbia determines that the audit of the bank, banking holding or banking group was not performed in line with the provisions of applicable law and by-laws, especially in case it is determined, in the control procedure or in any other manner, that the auditor’s report is not based on true and objective facts – the National Bank of Serbia will not accept such audit report and shall demand audit of another auditor, at the expense of the bank.
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
No person can acquire direct or indirect ownership in the bank enabling 5% to 20%, over 20% to 33%, over 33% to 50% and over 50% of voting rights without prior consent of the National Bank of Serbia. Therefore, the acquisition of share or control over banks is possible only with prior consent of NBS.
Does your regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
Regulatory regime imposes a number of conditions for bank owner’s qualification, referring to its proper financial condition, good business reputation, business activities, transparency, possibility of determination of origin of assets used for the purchase of shares of the bank, lack of indications that activities connected to acquiring shares in the bank were performed for money laundering or financing terrorism, etc.
Are there specific restrictions on foreign shareholdings in banks?
In principle, 100% of bank shares may be held by foreign entity or natural person. Specific limitations refer to the adequate system of control and monitoring in a foreign country. If the applicant for the consent for acquisition of shares in a domestic bank is a foreign bank or a foreign entity from the financial sector, the National Bank of Serbia shall provide such consent under the condition: 1) control, or supervision on the consolidated basis of this applicant is to be performed by the regulatory body of the state of origin in a manner satisfying the regulated conditions of the National Bank of Serbia, 2) there is appropriate cooperation between the National Bank of Serbia and the regulatory body of the state of origin of the applicant, 3) other conditions regulated by the National Bank of Serbia are met.
Is there a special regime for domestic and/or globally systemically important banks?
Special regime for domestic systemically important banks exists in the procedure of bank resolution initiated by the National Bank of Serbia. In case of a systemically important bank, it is considered that the bank resolution is in public interest, which is one of the conditions for the initiation of this procedure.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
In case of violation of laws regulating banks, the regulator may order a number of sanctions, that is, to take one of the following corrective and coercive measures: 1) send a letter or warning, 2) issue orders and measures for the removal of determined irregularities (for example, temporary termination or limitation of loan approvals, reduction, i.e. limitation of exposure; dismissal of members of the Managing Beard and/or Executive Board; change the bank’s governance or organizational structure, etc.), 3) cancel the operating license of the bank. The National Bank of Serbia may determine a pecuniary fine to the bank, member of the Managing Board, or the Executive Board, in the amount of up to 10% of the annual income of the bank, or in the amount of annual compensation/salary.
What is the resolution regime for banks?
The resolution regime for banks is regulated in detail by law. The National Bank of Serbia prepares the resolution plan for each bank. The resolution instruments include: 1) sales of shares, or assets and obligations, 2) transfer of shares, or assets and liabilities to a special purpose bank, 3) assets carve-out, 4) distribution of loss to shareholders and creditors. Prior to the initiation of the bank resolution proceeding the National Bank of Serbia may write off relevant elements of the bank’s capital or its conversion to shares or other equity instruments of that bank, and after the initiation of this proceeding the write off or equity conversion shall be performed prior to the application of appropriate resolution instrument.
How are client’s assets and cash deposits protected?
Assets and deposits of clients are protected by mandatory insurance of deposits of natural persons, entrepreneurs, micro, small and medium companies with banks, up to EUR 50,000 per deponent, in case of bankruptcy or bank liquidation.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?
Our jurisdiction recognizes the bail-in instrument in bank resolution (distribution of loss to shareholders and creditors). This covers all the obligation of the bank in resolution, less the exceptions prescribed by law, such as: obligations from insured deposits, under the amount of EUR 50,000; secured obligations by pledge, mortgage, financial securities or other similar rights; liabilities from asset and cash management of clients, including assets or cash of clients kept by the bank in resolution for investment and pension funds; tax obligations and obligations from contributions for mandatory social security, etc.
Is there a requirement for banks to hold gone concern capital (“TLAC”)?
There is no requirement for banks to hold gone concern capital.
In your view, what are the recent trends in bank regulation in your jurisdiction?
Bank consolidation trend is present in our jurisdiction, through mergers, preceded by the sales of shares of the bank to the new owner. Also, bank operations are regulated through the application of the Basel III framework, with the application of EU standards.
What do you believe to be the biggest threat to the success of the financial sector in your jurisdiction?
The biggest threat to the success of Serbian financial sector is the potential impact of new world economic crises or other possible impacts of the global economic or political instability.