EU-Report Accession Bulgaria

Chapter 3: Freedom to provide services

Since last year's Regular Report, Bulgaria has made good progress in implementing the banking acquis but is less advanced in the field of insurance and securities.

In the field of the right of establishment and the freedom to provide services (other than financial services), Bulgaria has made progress as regards the general nondiscriminatory regime of national treatment for foreign nationals and companies performing economic activities in Bulgaria. In particular, amendments to the Law on Foreigners entered into force in January 2002 to eliminate discriminatory permit requirements imposed on EU nationals engaged in free-lance activities. However, related amendments to the Ordinance have not yet been adopted.

In the field of financial services, with regard to the banking sector, in December 2001, the Parliament adopted amendments to the Law on Bank Deposit Guarantee. Bank deposits of up to BGN 10 000 (approx. 5 000) will be guaranteed by the State in case of bank bankruptcy. A Law on Bank Bankruptcy was adopted in September 2002. The establishment of the Consultative Council for Financial Sector Supervision is a step in the right direction but it still remains to be seen if this will function effectively.

Only one amendment to the Ordinance on mandatory insurance can be reported during the period under review. The Insurance Supervision Agency was established as of January 2002, when the amendment to the Law on Gambling provided for the separation of the supervision of insurance from the supervision of gambling. Progress was made in the area of motor vehicle insurance (``green-card insurance'') with the establishment of the Green-Card Bureau.

Two new regulations were adopted in the field of securities.

The Law on Personal Data Protection was adopted by Parliament in December 2001. The Bulgarian National Assembly adopted a decision on the ratification of Council of Europe Convention No 108 for the Protection of Individuals with regard to Automatic Processing of Personal Data. The Law also provides for the establishment of an independent supervisory authority (see also Chapter 24 ­ Justice and Home Affairs).

Concerning information society directives, three Ordinances were adopted in January 2002, as required by the Law on E-Document and E-Signature adopted in April 2001 to transpose the EC Directive on a Community framework for electronic signatures.

Overall assessment

In the field of the right of establishment and freedom to provide services, the amendments to the Law on Foreigners attempt to exempt free-lance activities from the requirement for a permit to exercise economic activity. However, the definition of ``freelance activity'' is not clear and it remains to be seen whether discrimination against EC economic operators providing services is removed in practice. Bulgaria needs to identify and eliminate remaining legal provisions and administrative practices that are incompatible with the EC Treaty provisions on right of establishment and freedom to provide services.

The financial sector of Bulgaria continues to be small and dominated by the banking sector.

As regards banking services, the amendments to the Law on Bank Deposit Guarantee contributed to the gradual adoption of the respective acquis within the set timeframe.

The performance of the banking sector has improved in terms of extended credit, total banking assets and profitability. However, the recovery of confidence in the banks is a slow process and the pre-1996 level has not been reached yet. The banking supervision structure is well equipped and competently supervises the commercial banks and financial brokerage houses with a view to ensuring compliance with prudential regulations. However, the Bulgarian National Bank needs to obtain broader powers to investigate the identity and suitability of direct and indirect shareholders of banks especially in some offshore jurisdictions.

In the field of insurance, most of the EC insurance acquis (2nd and 3rd generation of Directives, insurance accounts Directive, motor insurance Directives) remains to be transposed in the period 2003-2005. The decision to separate supervision of insurance from supervision of gambling is a positive step and should help improve the operation of supervision in both sectors. The insurance sector, although well diversified and with good representation of foreign companies, is relatively small. Privatisation of the sector has advanced with one company privatised and procedures for others in progress. Bulgaria is gradually transposing the acquis on the approximation of the laws relating to insurance against civil liability in respect of the use of motor vehicles.

Since the last Report, Bulgaria has only made limited progress on bringing its legislation into line with the securities acquis. Bulgaria will need to intensify its efforts in order to avoid falling behind in a sector that is already changing rapidly. The Directive on undertakings for collective investments in transferable securities (UCITS) is only partially implemented.

In the area of pension funds, capacity strengthening is needed as regards both the State Insurance Supervision Agency (the supervising authority) and corporate governance of pension funds.

Concerning data protection, the Data Protection Act of December 2001 aims at aligning Bulgarian legislation in this field with the acquis. However, the structure of the Act, the concepts and the criteria introduced are in many cases different from those of the acquis. This poses a number of problems of compatibility. Some of the provisions of the Directive have not been transposed either. Therefore further amendments will be necessary if the Act is to be brought in line with the acquis. Steps should be taken to put administrative capacity in place to implement and enforce the Act.

Conclusion

In its 1997 Opinion, the Commission concluded that, while there was some progress in the financial services area and a clear commitment existed on the part of the authorities to undertake further steps, the full adoption of the acquis was dependent on the implementation of the economic and structural reform programme, including the strengthening of the supervisory structure, for which several steps had already been undertaken. The Commission added that the process would require a sustained effort over several years before Bulgaria's financial system would be able to sustain the impact of integration in the internal market.

Since the Opinion, Bulgaria has made steady progress in most areas of the chapter, both in terms of legislation and strengthening the administrative and regulatory infrastructure required to supervise the financial services sector. It has reached a reasonable degree of alignment and needs to further strengthen administrative capacity for implementation and enforcement.

Negotiations on this chapter have been provisionally closed. Bulgaria has been granted a transitional period (until 31 December 2009) as regards the investor compensation scheme, at the end of which it should reach the minimum level of coverage set out in the acquis. Bulgaria is generally meeting the commitments it has made in the accession negotiations in this field.

Bulgaria should focus further efforts on the field of insurance and securities. Bulgaria has made some progress as regards discrimination in the areas of freedom of establishment and freedom to provide services, but further efforts are still required to identify and implement measures that will ensure full non-discrimination.

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