What is Decree No. 163 / 2014 Coll.?

Decree No. 163 / 2014 Coll., on the performance of the activities of banks, savings and credit cooperatives and securities dealers — Decree on the performance of the activities of banks, savings and credit cooperatives and securities dealers.

When it became Decree No. 163 / 2014 Coll. effectiveness?

Decree No. 163 / 2014 Coll. became effective 07.08.2014.

Is Decree No. 163 / 2014 Coll. still valid?

Yes, Decree No. 163 / 2014 Coll. is still valid and effective.

Decree No. 163 / 2014 Coll. - Decree on the performance of the activit...

163

DECLARATION

of 30 July 2014

on the performance of the activities of banks, savings and credit cooperatives and securities dealers

The Czech National Bank provides, pursuant to § 8b (7), § 8c (3), § 11a (6), § 11b (7), § 12a (4), § 12d (6), § 12m (6), § 13 (2), § 14 (3), § 22 (2), § 24 (1) and § 7ad (3), § 7b (10), § 8aa (6), § 8aa (6), § 8b (1), § 27 (1) of Law No 87 / 1995 Coll.

ČÁST PRVNÍ

INTRODUCTORY PROVISIONS

§ 1

Subject matter

This decree incorporates the relevant European Union1), following the directly applicable European Union2) and provides for

(a) requirements for the control and control system;

(b) rules for covering and limiting risks;

(c) certain information and supporting documents submitted to the Czech National Bank.

Personal scope

§ 2

This decree shall apply to a bank, savings and credit cooperative, securities dealer, financial holding company or mixed financial holding company approved under Section 27 (1) of the Banking Act, a person temporarily designated under Section 31 (2) of the Banking Act and a foreign bank from outside the Member State.

§ 3

(1) Part Three, Titles I and III and Part Four, Title I shall not apply to the Bank.

(2) Paragraphs 69a to 69c do not apply to a bank that is not designated as a global systemically important institution under Section 12 of the Banking Act.

(3) Paragraph 1 (3) (h) of the Banking Act does not apply to a bank that does not have an authorised activity in a bank licence.

(4) For savings and credit cooperatives, part three of Title I, Sections 69a to 69c, part three of Title III and part four of Title I shall not apply.

§ 4

Section 116a of the Capital Market Act applies to a securities trader.

§ 5

(1) For a financial holding person or a mixed financial holding person approved under Section 27 (1) of the Banking Act and for a person temporarily designated under Section 31 (2) of the Banking Act, Sections 8 to 51 and Section 63 to 70 shall apply.

(2) The person referred to in paragraph 1 who is designated as a global systemically important institution under Section 12 of the Banking Act shall be subject to Sections 69a to 69c.

§ 6

Section 54 to 62, Sections 70a to 74, Section 76, 78, 92, Sections 107 to 116, Sections 116b and 118 shall apply to the branch of a bank other than a Member State.

§ 7

Definition of terms

(1) For the purposes of this decree:

(a) net cash flow difference between inflows and outflows of funds;

(b) an ECAI by an ECAI pursuant to Article 4 (1) (98) of Regulation (EU) No 575 / 2013 of the European Parliament and of the Council ("the Regulation");

(c) a summary of personnel, technical, organisational and other assumptions defined in order to ensure the performance of a particular activity or set of activities of the obliged entity;

(d) an information and communication system of a functional unit providing for the acquisition, processing, transmission, sharing and storage of information in whatever form, including the mandatory internal and external communication system;

(e) institutions of an institution as referred to in Article 4 (1) (3) of the Regulation;

(f) internal approach

1. the internal rating approach referred to in Article 143 (1) of the Regulation;

2. an approach based on internal models in accordance with Article 221 of the Regulation;

3. the internal model method referred to in Article 283 of the Regulation;

4. an approach based on an alternative internal model in accordance with Article 325az of the Regulation; or

5. the internal evaluation method referred to in Article 265 (2) of the Regulation;

(g) capital capital as referred to in Article 4 (1) (118) of the Regulation;

(h) the own funds instrument referred to in Article 4 (1) (119) of the Regulation;

(i) by the client of the depositor, the debtor, the member of the savings and credit cooperative and other persons in a similar position to the obligor, including those who might be in one of those positions in the future;

(j) a key function of a function which has been so designated by the obliged person on the basis of an assessment of the importance of the function as key to the activity of the obliged person;

(k) collateral item used to hedge the exposure;

(l) the consolidated basis of the consolidated basis referred to in Article 4 (1) (48) of the Regulation;

(m) the supervisory board, the control board, the management board in the exercise of its powers of control or any other management body having similar powers of control, depending on the legal form of the person concerned.

(2) For the purposes of this Order, the following definitions shall also apply:

(a) qualifying holdings as referred to in Article 4 (1) (36) of the Regulation;

(b) the liquidity position of the expected net cash flow within the specified time zones;

(c) indirect capital investment indirect capital investment as referred to in Article 4 (1) (114) of the Regulation;

(d) a non-executive member of a management body who does not hold an executive management function in a obliged person;

(e) the trading book trading book referred to in Article 4 (1) (86) of the Regulation;

(f) remuneration, cash and non-cash benefits and other income of the worker;

(g) operational risk operational risk as referred to in Article 4 (1) (52) of the Regulation;

(h) by an authority other than the general meeting or the membership meeting, depending on the legal form of the person concerned;

(i) a financial sector entity as referred to in Article 4 (1) (27) of the Regulation;

(j) the controlling person of the parent undertaking referred to in Article 4 (1) (15) of the Regulation;

(k) control of the control referred to in Article 4 (1) (37) of the Regulation;

(l) controlled by a person by a subsidiary as referred to in Article 4 (1) (16) of the Regulation.

(3) For the purposes of this Order, the following definitions shall also apply:

(a) the lever lever referred to in Article 4 (1) (93) of the Regulation;

(b) by a compulsory person, a bank, a savings and credit cooperative, a financial holding person or a mixed financial holding person approved under Article 27 (1) of the Banking Act, a person temporarily designated under Article 31 (2) of the Banking Act,

(c) a worker is a person who is in a basic employment relationship or similar relationship with a obliged person or another person if he is a member of the institution or committee of the obliged person;

(d) the originator referred to in Article 4 (1) (13) of the Regulation;

(e) a regulated market as referred to in Article 4 (1) (92) of the Regulation;

(f) by restructuring the compulsory restructuring provided for in Article 178 (3) (d) of the Regulation;

(g) the risk of a model to a potential loss that may arise to the obligor as a result of a decision taken, in particular, on the basis of the results of internal models due to errors in the development, implementation or use of such models;

(h) the risk of excessive leverage as referred to in Article 4 (1) (94) of the Regulation;

(i) the managing authority of the management board, the managing director, the management board, the management board in the exercise of management responsibilities or any other management body having similar management responsibilities, depending on the legal form of the person concerned;

(j) securitisations of securitisations referred to in Article 4 (1) (61) of the Regulation;

(k) a special purpose securitisation unit, as referred to in Article 4 (1) (66) of the Regulation;

(l) a securitisation exposure position as referred to in Article 4 (1) (62) of the Regulation.

(4) For the purposes of this Order, the following definitions shall also apply:

(a) default of the default debtor under Article 178 of the Regulation;

(b) sponsor as referred to in Article 4 (1) (14) of the Regulation;

(c) the sub-consolidated basis of the sub-consolidated basis referred to in Article 4 (1) (49) of the Regulation;

(d) synthetic capital investment synthetic capital investment as referred to in Article 4 (1) (126) of the Regulation;

(e) a systemically significant institution of a person referred to in Article 4 (1) (29), a person referred to in Article 4 (1) (31) of the Regulation, a person referred to in Article 4 (1) (32) of the Regulation or an institution whose failure or malfunctioning could lead to systemic risk,

(f) systemic risk risk risk of disruption of the continuity of the financial system with possible serious negative effects on the financial system and the real economy;

(g) a CCP as referred to in Article 4 (1) (34) of the Regulation;

(h) the department of the person or group of persons responsible for carrying out a particular activity of the obliged entity, including the authorities and committees of the obliged entity;

(i) close interconnection of close links as referred to in Article 4 (1) (38) of the Regulation;

(j) the recognised stock exchange referred to in Article 4 (1) (72) of the Regulation;

(k) managing authority and control authority;

(l) internal rules of procedure, organisational rules, statutes, plans and other internal rules, rules, procedures and acts of internal management,

(m) an executive member of the management body holding an executive management function in the obliged entity;

(n) the special pension benefits provided for in Article 4 (1) (73) of the Regulation.

ČÁST DRUHÁ

MANAGEMENT AND CONTROL SYSTEM

HLAVA I

REQUIREMENTS FOR THE MANAGEMENT AND CONTROL SYSTEM

(K § 8b (9), § 8c (3) and § 10a (3) of the Bank Act and § 7a (5), § 7ab (3) and § 7ad (3) of the Savings and Credit Cooperatives Act)

Díl 1

Presumption of good governance

Basic requirements for performance

§ 8

The obliged entity shall ensure that the management and control system is coherent and covers all its activities throughout the course of the activity of the obliged entity in the financial market.

§ 9

The mandatory person complies with the requirements laid down for the management and control system and its components (3), taking into account his size, his business model, his complexity and associated risks, organisational arrangements, nature, scale and complexity of the activities he or she intends to carry out. It shall take account of developments in the environment in which it operates, including developments in good governance.

§ 10

(1) The obligor shall ensure that the requirements laid down for the management and control system and its components and procedures for the compliance of the obligor and in the conduct of other activities are reflected in the internal rules of the obligor. The mandatory person shall establish a procedure for the adoption, amendment and application of internal rules.

(2) For the purpose of fulfilling the presumption of sound administration and management by applying proper procedures, the obliged person shall choose, incorporate into internal rules and apply in his or her activity the recognised and proven principles and procedures adopted by recognised publishers and used in activities of a similar nature (hereinafter referred to as "recognised standard ').

(3) For the purpose of fulfilling the presumption of good governance through the application of good practices, the obliged person shall always:

(a) comply with its activities and incorporate into internal rules;

1. legal obligations; and

2. general instructions of the European Supervisory Authority (European Banking Authority) (4), of the European Supervisory Authority (European Securities and Markets Authority) (5), of the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (6), of the Joint Committee of the European Supervisory Authorities (7) and of the European Systemic Risk Board (ESRB), unless their specific provisions are contrary to or permit circumvention of the legal requirements; and

b) takes into account the information published by the Czech National Bank in the Bulletin of the Czech National Bank, with the obligation to always take into account when determining recognised standards under paragraph 2

1. an overview of selected recognised standards and selected recognised publishers; and

2. comparative standards, the Czech National Bank's expectations of meeting the requirements of this decree.

(4) The projection of the standards referred to in paragraph 3 (b) into internal rules and their application by the mandatory person shall be considered to comply with the provisions of paragraph 2. This shall be without prejudice to the right of the obliged entity to choose and to reflect other recognised standards in the internal rules; However, their content or use shall not be contrary to or circumvent the requirements of the legislation.

(5) The obliged entity shall regularly verify whether the internal rules and the standards adopted by it are up-to-date and in accordance with other requirements of this Decree and other legislation.

(6) The mandatory person shall ensure that the rules for:

(a) registration of complaints and complaints by clients, their handling and monitoring of the measures taken; and

(b) internal staff reports on infringements or threats of the requirements laid down in this Decree, the law which implements it, by regulations or other relevant regulations, including internal rules, as well as rules on the communication of specific concerns to workers regarding the functionality and effectiveness of the management and control system or certain components thereof, outside the normal information flows.

§ 11

(1) The obliged person shall ensure that his authority, committee and members thereof, as well as their activities, comply with the requirements laid down in paragraphs 13 to 19 and with the other requirements laid down by that decree or by the law implementing that decree, by regulation or other relevant provisions, including internal rules.

(2) The obliged entity shall ensure that all approval and decision-making processes, as well as control and other relevant activities, including related responsibilities and powers and internal rules, can be traced back and reconstructed, including the scope and powers, the composition and functioning of the bodies and committees of the obliged entity and the scope, powers and activities of their members. In order to ensure this requirement, the information storage system established and maintained by the obliged entity shall also be used.

(3) The mandatory person shall ensure a balance between the scope of approval, decision-making and control activities and avoid undue influence by a single person or a small group of persons on such processes.

§ 12

(1) Where an activity which would otherwise be carried out or could be carried out by the obliged person itself is carried out by the obliged person through another person ("outsourcing '), this shall not affect the liability of the obliged person.

(2) The mandatory person shall ensure that, in respect of outsourcing:

(a) the compliance of the activities thus carried out with the relevant legislation, the possibility of checking them by a compulsory person, the fulfilment of information obligations towards the Czech National Bank, the exercise of supervision, including, where appropriate, the control of the facts subject to supervision by the outsourcing provider, the auditing of the accounts and other verifications provided for by other legislation8),

(b) the effectiveness, consistency and adequacy of the assumptions of good governance, risk management and internal control, including compliance with legal obligations, in particular rules on prudent business, are not jeopardised;

(c) is without prejudice to the legal relationship of the obliged entity with the client; and

(d) rules are laid down for the control of the activities thus carried out by the obliged person, including, where appropriate, the control of the facts relating to the activity in question by the outsourcing provider.

(3) The mandatory person enters into an outsourcing contract in such a way as to capture its content, controllability and enforceability as well as conservation.

Bodies and committees

§ 13

(1) The supervisory authority shall monitor whether the management and control system is effective, coherent and proportionate and shall evaluate the findings of this activity at least annually. As part of the fulfilment of this obligation, it shall also regularly discuss matters relating to the strategic direction, management and results of the activities of the obliged entity and the direction of the risks to which the obliged entity is or could be exposed, including in terms of ensuring the continued functioning of the obliged entity on the financial market in accordance with the subject matter and the plan of its activity.

(2) The supervisory authority shall monitor and ensure the implementation of the agreed strategies, including risk management strategy, the integrity of accounting and financial reporting systems, including the reliability of financial and operational control, compliance with legal obligations and relevant standards by the obliged entity, the adequacy of its communication and disclosure system and the overall functionality and effectiveness of the management and control system.

(3) As part of the performance of its control activities, the supervisory authority shall contribute critically and constructively in particular to:

(a) evaluation of strategic and financial management;

(b) risk management evaluation;

(c) evaluation

1. compliance of internal legislation with legislation;

2. the mutual compliance of internal rules; and

3. compliance of activities with laws and regulations

("compliance activities'), and

(d) directing, planning and evaluating internal audit activities.

(4) Within its scope, the Authority is to decide on appropriate measures to remedy the deficiencies identified.

(5) In carrying out those activities of the supervisory authority in the area of the management and control system where there is a conflict of interest of the executive members (hereinafter referred to as "the specific control activity of the supervisory authority '), the obliged entity shall ensure that the matter is discussed and decided on without the presence of the executive members; in that case, a decision taken by a majority of non-executive members shall be deemed to be a decision of the institution. The specific control activities of the supervisory authority shall always be those referred to in Section 14.

§ 14

(1) The supervisory authority shall assess the activities of the members of the managing authority accordingly. In assessing the activities of the members of the managing authority and, where appropriate, the search for its new members, the supervisory authority shall take into account a sufficiently broad range of characteristics and competences and shall also apply principles promoting an efficient and proportionate diversity in the overall composition of the managing authority.

(2) The supervisory authority shall express its views in advance on the proposal to delegate a natural or legal person to a risk management function, compliance function and internal audit function or on its appeal. The supervisory authority shall assess the activities of such persons in an appropriate manner. A person may not be removed from these functions without the consent of the supervisory authority. Where more than one person is involved in the performance of his duties, the supervisory authority shall only comment on the application for delegation or removal of the person in charge of the function concerned.

(3) The supervisory authority shall, in particular, lay down the principles of remuneration of the person to whom it is entrusted in advance in accordance with paragraph 2 and of the members of the managing authority, provided that this is not within the competence of the general meeting or the member meeting.

(4) The supervisory authority shall evaluate the overall remuneration system. The detailed definition of certain remuneration requirements is set out in Annex 1 to this Decree.

§ 15

(1) The mandatory person shall take measures to ensure that the supervisory authority as a whole and its members have appropriate professional, time and other conditions for the performance of their activities and give them adequate and sufficient capacity. A sufficient degree of independence in the performance of its duties is part of the appropriate assumptions for the exercise of the activities of the supervisory authority as a whole. Similarly, these requirements shall apply to the Committee of the Supervisory Body and its members.

(2) Where the obliged entity establishes, by its own decision or by law or other legislation, a committee of the supervisory authority, it shall clearly define its responsibilities and powers, composition, manner of action and decision-making and the inclusion of the committee in the organisation and information flows of the obliged entity. The activities of the Committee shall aim at effectively supporting the activities of the supervisory authority. The responsibility of the supervisory authority may not be delegated to its committee, unless otherwise provided by other legislation.

(3) Where the obliged entity does not establish a committee or committees of the supervisory authority, the requirements laid down in this decree or other legislation on the composition and activity of a committee of the supervisory authority shall apply mutatis mutandis to its supervisory authority and its members and such activities shall be considered as a specific control activity of the supervisory authority.

(4) The detailed definition of certain requirements for the activities and committees of the supervisory authority is set out in Annex 2 to this Decree.

(5) For the purpose of setting up committees for appointment, risk and remuneration, the status of the debtor shall be considered significant if the share of the debtor in the total balance sheet of all obliged persons on the market is or exceeds 5%.

(6) A mandatory person who is not considered to be significant pursuant to paragraph 5 may merge the risk committee and the audit committee (9), subject to the application of the requirements laid down for each committee by analogy.

§ 16

(1) The managing authority shall ensure the establishment of a comprehensive and proportionate management and control system and the continuous maintenance of its functionality and efficiency in both its whole and parts, including:

(a) the implementation of the defined strategies, principles and objectives and day-to-day management of the activities of the obliged entity;

(b) ensuring compliance of the management and control system with legislation, in particular compliance with legal obligations and relevant standards by the obliged person; the provision of professional care activities is part of this requirement;

(c) setting up and maintaining the management and control system to ensure the adequacy of information and communication in the performance of the activities of the obliged entity, in particular the establishment and maintenance of a functional and efficient system for the acquisition, use and storage of information, including an internal and external communication system and the publication of information by the obliged entity;

(d) the establishment and maintenance of a functional and effective organisation including separation of incompatible functions and avoidance of potential conflicts of interest;

(e) the allocation of adequate and sufficient capacity to carry out the activities of the debtor, in particular for the following areas:

1. management of significant risks;

2. capital and liquidity management, financial management, accounting, valuation and activities directly related to these activities;

3. the use of external ratings; and

4. internal risk management models and internal models related to those activities, including internal validation and review of those models;

(f) ensuring the integrity of accounting and financial reporting systems;

(g) ensuring the reliability of financial and operational control; and

(h) ensuring the smooth operation of the activity and the continued functioning of the obliged entity on the financial market in accordance with the subject matter and plan of its activity.

(2) The managing authority shall develop and monitor the implementation of plans containing quantifiable objectives and processes to monitor and address financial risks arising from:

(a) in the short, medium and long term, from environmental, social and governance factors ("ESG factors");

(b) the adaptation process and the transformation trends in relation to the regulatory objectives and legal acts of the European Union and of the Member States in relation to the ESG factors, in particular the objective of achieving climate neutrality, and, where relevant, the regulatory objectives and legal acts other than those of the Member States.

(3) Climate neutrality as referred to in paragraph 2 (b) means the general objective of achieving climate neutrality by 2050 as set out in Article 2 (1) of the directly applicable European Union law governing the European legal framework for climate 24).

(4) The managing authority in the procedure referred to in paragraph 2 shall take into account the reports and measures adopted by the European Scientific Advisory Committee on Climate Change. Where the obliged entity draws up a sustainability report or a consolidated sustainability report under the Accounting Act or similar foreign legislation, the managing authority shall ensure that the plans referred to in paragraph 2, which include in particular measures relating to the model and business strategy of the obliged entity, are consistent with those set out in the sustainability report or the consolidated sustainability report.

(5) The managing authority of a obliged entity which is a small and not too complex institution as referred to in Article 4 (1) (145) of the Regulation may apply one or more simplifications in the procedure referred to in paragraphs 2 and 3, consisting of:

(a) to a lesser extent, the details and frequency of the preparation of the plans;

(b) in establishing a smaller number of scenarios and a narrower thematic range of plans, which may be based on a simplified set of main parameters and assumptions, including only selected relevant risks, time horizons and territorial breakdown of impacts;

(c) in a more limited set of indicators when setting targets and the possibility to formulate targets in a more qualitative manner.

§ 17

(1) The managing authority shall ensure the establishment of an overall strategy, in particular sufficiently specific principles and objectives for its implementation, and the development, establishment and maintenance of procedures for the implementation of the strategy.

(2) The managing authority shall ensure that rules are laid down which clearly formulate ethical and professional principles and the proposed models of conduct and conduct of workers in accordance with those principles and rules, and their enforcement, application and enforcement.

(3) The managing authority shall ensure that the principles of human resources management, in particular those for the selection, remuneration, evaluation and motivation of workers are established and maintained in accordance with the overall remuneration system approved by it. The principles shall also include the requirement that all activities, including those of the institutions and committees, where they are set up, and their members, senior management persons and persons in key functions be carried out by qualified personnel with adequate knowledge and experience, and that the extent and nature of the activities of the persons to whom the person responsible ensures the performance of his or her activities do not hinder the proper performance of the individual activities of those persons.

(4) The managing authority shall ensure that they are established, maintained and applied:

(a) requirements for the credibility, knowledge and experience of the persons by whom it ensures the performance of its activities, including members of the institutions and committees;

(b) requirements for the overall knowledge and experience of persons forming an authority or committee, senior management and persons in key functions; and

(c) the scope and requirements of:

1. demonstration of the required knowledge and experience and credibility;

2. verification of continued credibility; and

3. checking that the knowledge and experience of the persons to whom the obliged entity ensures the performance of its activities is still up to date and proportionate to the nature, scale and complexity of the activities.

(5) The managing authority shall ensure that the obliged entity consistently applies sound management, administrative, accounting and other procedures. The managing authority shall ensure that all personnel are familiar with and comply with the relevant internal rules, understand and actively participate in the management and control system; to ensure this requirement, the influence of the business culture is also served by the management body and its members and by the obliged entity's internal communication system.

(6) The managing authority shall ensure that management systems and procedures are applied which:

(a) ensure compliance with the defined strategies, principles, objectives and procedures; and

(b) lead to the avoidance of undesirable activities or phenomena which are in particular:

1. prioritisation of short-term results and objectives that are inconsistent with the implementation of the overall strategy;

2. a remuneration scheme which is unduly dependent on short-term performance; and

3. Other procedures which do not promote the functionality and effectiveness of the activities allow for misuse of resources or the concealment of shortcomings or other inappropriate conduct, including circumvention of the purpose of the legislation.

Citation	Decree No. 163 / 2014 Coll., on the performance of the activities of banks, savings and credit cooperatives and securities dealers
Regulation Type	-
Author	-
Collection	Code of Laws

Date of Promulgation	07.08.2014
Effective from	07.08.2014
Effective until	-
Status	Valid

Decree No. 163 / 2014 Coll.

Decree on the performance of the activities of banks, savings and credit cooperatives and securities dealers

Contents