The basic tenets of the Slovenian banking regulation regime ensure the long-time stability of banks in Slovenia, balanced with the need to foster growth and develop new opportunities for both banks and their clients.
Slovenian banking regulation can be divided into EU rules (which are transposed or apply directly), national banking laws, other financial regulations and regulation by the Slovenian banking regulator.
The EU laws are as follows:
The core national law is the Slovenian Banking Act (Zakon o bančništvu – Zban-3), which regulates the conditions for the establishment of banks and their functioning, corporate governance, capital maintenance requirement and business. The Banking Act transposes and incorporates several EU-wide directives and regulations, including CRV IV and CRR.
The Financial Conglomerates Act (Zakon o finančnih konglomeratih – ZFK) regulates the monitoring and auditing of financial conglomerates in an effort to reduce risks stemming from transactions between connected entities.
Consumer crediting is governed by the Slovenian Consumer Credit Act (Zakon o potrošniških kreditih – ZPotK-2), which sets out the conditions under which lenders, including banks, may provide loans to consumers.
The Deposit Guarantee Scheme Act (Zakon o sistemu jamstva za vloge – ZSJV) governs the deposit guarantee scheme, which ensures depositor guarantees for deposits in Slovenian banks.
Other Pertinent Financial Laws
With respect to financial markets, the primary legislative act is the Slovenia Market in Financial Instruments Act (Zakon o trgu finančnih instrumentov – ZTFI-1), which transposes EU rules on financial markets, specifically Directive 2014/65/EU (MiFID II). Investment funds are captured by the Investment Funds and Management Companies Act (Zakon o investicijskih skladih in družbah za upravljanje – ZISDU-3), which regulates how investment funds should be managed and marketed, among other matters. The management and marketing of alternative investment funds is regulated in the Alternative Investment Fund Managers Act (Zakon o upravljavcih alternativnih investicijskih skladov – ZUAIS).
Finally, the Payment Services, Services for Issuing Electronic Money and Payment Systems Act (Zakon o plačilnih storitvah, storitvah izdajanja elektronskega denarja in plačilnih sistemih – ZPlaSSIED) regulates e-money and payment services.
The supervisory authority for banks in Slovenia is the Bank of Slovenia (Banka Slovenije). The Slovenian Securities Market Agency (Agencija za trg vrednostnih papirjev) regulates the market in financial instruments. While both adopt decisions on general matters within their jurisdiction, which affect how banks may operate, the Bank of Slovenia is in charge of monitoring and regulating banks.
Depending on its activity, a company can apply for many different licences, including the credit institution licence (colloquially known as the banking licence), which is obtained pursuant to the Banking Act and Council Regulation (EU) No 1024/2013. This licence typically also includes several of the lower-ranked licences for individual services.
A company can also apply for a payment institution licence, a consumer credit licence or an investment services licence.
Credit Institution Licence
Under Slovenian law, banking services may only be performed by the following:
Banking services are defined as accepting deposits and other repayable funds from the public and giving loans for own account.
Consumer Credit Licence
Companies that provide credit to consumers require a consumer credit licence, which must be obtained from the bank of Slovenia before services are commenced. However, a credit institution does not require a separate consumer credit licence.
Payment Institution Licence
A company that provides payment services or issues e-money requires a payment institution licence. A credit institution may also apply for a licence to perform such services when filing for a credit institution licence.
Investment Services Licence
Investment services in Slovenia may be performed by the following:
Investment services may also be provided by a bank that has obtained a licence from the Bank of Slovenia for the provision of such services. A bank has to request such a licence explicitly from the Bank of Slovenia.
Investment services include the following:
Filing a Request and Statutory Conditions
Before a bank can be incorporated, it has to obtain a licence from the Bank of Slovenia and the ECB.
The Bank of Slovenia reviews whether the following requirements for the new bank are fulfilled pursuant to the Banking Act:
If these conditions are not fulfilled, the Bank of Slovenia denies the application for a licence. If the conditions are fulfilled, the Bank of Slovenia submits the filing to the ECB, which grants a permit pursuant to Regulation (EU) No 575/2013.
The whole process is quite lengthy. By law, the Bank of Slovenia has up to six months to decide on a request for a licence, but any request for supplementation effectively freezes this deadline so the process can take longer, depending on the additional information requested by the Bank of Slovenia.
Any person intending to acquire bank shares in order to achieve or exceed a qualifying holding must obtain previous authorisation from the Bank of Slovenia. This includes persons who have agreed to act in concert to acquire bank shares with the aim of concluding a shareholders’ agreement.
The authorisation to acquire a qualifying holding sets out the level of participation in the voting rights or capital of a bank for which authorisation is issued, in one of the following ranges:
The Bank of Slovenia assesses the suitability of the future qualifying holder on the basis of the following criteria:
The intended acquirer of a qualifying holding must obtain an authorisation prior to obtaining shares in the bank and must file a request with the Bank of Slovenia.
A bank has to be structured as a joint-stock company; no other forms of legal entity are allowed.
A bank may have either a dual-tier system of corporate governance with a management board and supervisory board members, or a single-tier system of corporate governance with executive and non-executive members of the board.
While no specific codes relate to the banking sector, most banks are subject to the Management code for publicly traded companies. Most banks are a part of global banking groups, which have their own group-level governance codes.
As a general rule, a bank’s governing body must be composed in such a manner that it possesses the relevant knowledge, skills and experience required for the in-depth understanding of the bank’s activities and the risks to which it is exposed.
The bank itself must implement a process for assessing the suitability of members of its governing body both prior to their appointment and afterwards should circumstances arise that require the reassessment of suitability, and at least once a year.
One aspect that must be assessed pursuant to the Banking Act is the compatibility of the number of other directorships the bank’s governing body members can hold at the same time.
There must be at least two management board members, who jointly act on behalf of and represent the bank in legal transactions. It is prohibited for management members to have sole representation rights. At least one member of the management board shall have sufficient knowledge of the Slovenian language to properly perform their duties as a member of a bank’s management board.
The function of a member of a bank’s management board may only be performed by a person who has obtained authorisation to do so.
A bank must formulate a remuneration policy that encompasses all remuneration and considers the size of the bank, its internal organisation and the nature, scope and complexity of the bank’s activities.
The remuneration policies apply to categories of employees who could have a material impact on the bank’s risk profile in the scope of their competences or work tasks and activities, including the following in particular:
A bank must take into account the following principles when determining its remuneration policy and practices:
There are further principles for determining the variable part of any renumeration, taking into account that it should be based on the success of the individual and the bank, that it should not exceed 100% of the fixed remuneration, etc.
The bank should generally have a remuneration committee, which is an advisory body to the supervisory board and manages any risks related to remuneration. If the bank does not have such a committee, the supervisory board must review its remuneration policies and payments.
The Bank of Slovenia will invariably review remuneration policies in the event of a breach or the unsustainability of capital maintenance requirement rules. It may also limit the variable remuneration of employees if the payment of such amounts would jeopardise the fulfilment of the bank's capital adequacy obligations or objectives.
Moreover, the Banking Act prescribes a fine of between EUR25,000 and EUR250,000 for a bank that does not ensure the functioning of a committee to review remuneration. The responsible management and supervisory board members face a fine of between EUR2,500 and EUR10,000, or potentially up to EUR5 million if the breach is especially severe. Other responsible bank employees face a fine of between EUR800 and EUR10,000, or between EUR2,500 and EUR30,000 in the case of a severe breach.
Anti-money laundering legislation is regulated in the Prevention of Money Laundering and Terrorist Financing Act (Zakon o preprečevanju pranja denarja in financiranja terorizma – ZPPDFT-1), which transposes the fifth European Anti-Money Laundering directive (Directive (EU) 2018/843).
Banks are considered obligated persons under the AML Act, and have general duties regarding identifying the identify of their customers. This includes identifying the client and its ultimate beneficial owners, obtaining information on the intent and envisaged nature of the business relationship and transaction, and regularly monitoring the business activities of the client.
Banks also have to adopt the necessary internal controls for risk management, which include the identification of politically exposed individuals.
Banks have a specific duty to verify the identify and status of credit or financial institutions from other EU Member States or third countries in the event of concurrent relationships between credit and financial institutions. This includes requesting data on the licence of the credit/financial institution and a description of the systemic AML and CTF regulation that applies in the Member State or third country.
The Bank of Slovenia has adopted a decision requiring banks to annually report circumstances that could give rise to increased risk of money laundering or financing terrorism. Such reports should include information on:
The Depositor Protection Regime is based on EU regulation, as most recently updated with Directive 2014/49/EU of the European Parliament and of the Council on deposit guarantee schemes, which has been in force since July 2014.
Directive 2014/49/EU was transposed into the Slovenian legal system by the Deposit Guarantee Scheme Act.
The deposit guarantee scheme in Slovenia is operated by the Bank of Slovenia, which does the following:
Which Deposits Are Covered?
The deposits of private individuals, private individuals pursuing registered business activities, sole traders and legal entities (corporates) are covered by the deposit guarantee scheme.
The deposit guarantee scheme does not cover the following deposits:
The total amount of the guarantee for a deposit is EUR100,000.
The total of guaranteed deposits amounted to EUR22.32 billion as of 31 December 2020. Banks pay an annual amount until the guarantee scheme reaches the necessary level. The amount paid per bank is determined by the number of guaranteed deposits held by a bank, compared to other banks. This can be supplemented by extraordinary contributions imposed by the Bank of Slovenia.
Pursuant to the Banking Act, all data, facts and circumstances at a bank’s disposal regarding an individual client are considered to be confidential data, subject to bank secrecy.
A bank has a duty to protect such confidential data, regardless of the manner in which it was obtained. Internally, this means that the members of a bank’s bodies, its shareholders and employees, or other persons to whom the confidential data is in any way accessible in the course of their work in the bank or while they are providing services for the bank, may not disclose this data to third parties, nor enable a third party to make use of it, nor use it for their own purposes.
Exceptions to Banking Secrecy
The principal exceptions to secrecy are as follows:
In all instances of disclosure, the bank shall ensure that it is possible to subsequently establish which confidential data was forwarded, to whom, when and on what basis, for a period of ten years following the forwarding of that data.
Breach of Secrecy
The Banking Act prescribes a fine of between EUR25,000 and EUR250,000 for a bank in the event of a breach of a confidentiality obligation. The responsible management and supervisory board members face a fine of between EUR2,500 and EUR10,000, or potentially up to EUR5 million if the breach is especially severe. Other responsible bank employees face a fine of between EUR800 and EUR10,000, or between EUR2,500 and EUR30,000 in the case of a severe breach.
Status of Basel III Standards in Slovenia
Basel Committee positions are not a formal source of law in Slovenia, but the standards have made their way into the Banking Act by way of EU legislation. The Bank of Slovenia is also active in the development of new standards in the Committee.
Both the CRD IV and CRR transpose the Basel III capital standard, and these are now part of law in the Banking Act.
Minimal Capital Requirement
A bank must have a minimal initial share capital of EUR5 million, which may be comprised of one or more elements from points (a) to (e) of Article 26(1) of the CRR:
Risk Management Rules for Banks
The Banking Act requires the management board to organise a risk management function that reports directly to the management board and that is functionally and organisationally separated from the bank’s other functions in which conflicts of interest could arise vis-à-vis the risk management function.
The risk management function should ensure:
In terms of substantive rules, the Banking Act relies on the CRR in determining the relevant banking ratios (such as capital ratios, the leverage ratio, the net stable funding ratio and the liquidity ratios).
There are currently eight systemically important banks in Slovenia, and they have to maintain different capital buffers, which are reviewed annually by the Bank of Slovenia.
Insolvency proceedings are generally governed by the Slovenian Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act (Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju – ZFPPIPP), which provides for the following types of insolvency proceedings:
The general rules regarding insolvency also apply to banks. However, insolvency proceedings cannot be instituted against a credit institution on the basis of the general insolvency act, but rather under a specific act for the resolution of banks.
The Resolution and Compulsory Winding-Up of Banks Act (Zakon o reševanju in prisilnem prenehanju bank – ZRPPB-1) transposes Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms (the BRRD) into Slovenian law, and sets out in detail the implementation of Regulation (EU) No 806/2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund.
The Resolution Act regulates:
In applying the resolution actions, the Bank of Slovenia must comply with the following principles:
Status of Deposits
Those deposits that are covered by the guarantee scheme (see 6.1 Depositor Protection Regime) will be secured up to the amount provided by law (EUR100,000), so depositors are guaranteed repayment for this amount. For all amounts above this amount, they still may have a valid claim against the bank.
Any regulatory changes that take place will invariably be a result of changes in European rules. At the forefront are anticipated changes in how to regulate cryptocurrencies or crypto-assets.
In this respect, the Bank of Slovenia has followed the position of the ECB and the European Banking Authority that cryptocurrencies are not considered a currency, e-money or anything that could fit within the current regulatory framework.
In terms of national law, there is a hope and expectation that certain AML and identification obligations will be amended to further support the ever-growing digitalisation of banking services.
There has been a recent push for digitalisation and bureaucratisation from the government, which aims to shake things up and allow for easier access to services. One of the proposed suggestions pertains to e-public notary services. As public notary services are required for the perfection of real estate mortgages, the digitalisation and simplification of such services could spur the real estate market and consumer credit market to new growth.
That being said, there are several steps that need to be addressed and finalised to allow for such a revolution.
Banking Regulation in Slovenia
In recent years, banking regulation has been further consolidated with EU banking and financial market rules, finally clarifying long-running debates on outstanding issues.
In 2021, amendments were adopted for the Slovenian Market in Financial Instruments Act, the Alternative Investment Fund Managers Act and the Investment Funds and Management Companies Act to transpose EU Directive 2019/2034 on the prudential supervision of investment firms and EU Directive 2019/2177 on the sharing of financial system information.
EU legislation has generally been the main driver for updates to Slovenian legislation. There was quite a delay in transposing the MiFID II directive into Slovenian law, but the majority of the legislation has now been transposed.
Fintech Propels Traditional Banking Establishments
Traditionally, Slovenian banks were averse to mobile banking, with several banks lacking in proper mobile phone applications for banking. However, fintech has succeeded in disrupting the Slovenian banking market, and the presence of foreign EU banks offering their services in Slovenia under the banking passport regime has forced Slovenian banks to modernise rapidly.
Thankfully, regulation has maintained pace with the digitalisation of services, at least to some extent. For instance, under the Slovenian Consumer Credit Act (Credit Act), before a creditor gives a loan to a consumer, it must verify the credit-worthiness of a consumer prior to the conclusion of a credit agreement. To do so, the creditor has to access the national central credit register, which it can do only if the person’s identity has been verified. Accessing the credit register is only allowed for in-person or digital identity identification, but the rules have recently been amended by the Bank of Slovenia (the Slovenian banking regulator) to allow for electronic video identification under certain conditions.
This is a step in the right direction, but is still a far cry from fully digitalising access for banking services, especially for foreign banks. However, more revolutionary developments would require a more systemic change in Slovenian law.
For instance, a mortgage on real estate for consumer credits can only be established in the form of a notarial deed, pursuant to the Credit Act. Notarial deeds are documents that are strict in structure and form, require the presence of a notary, and have to be entered in Slovenian (with some exceptions) in person (or via a power of attorney in the proper form). Any digitalisation of mortgage credits would necessitate the institution of e-notarial services. While there has been talk of such changes, it is unclear whether they will actually be adopted.
New Banking Act
A new Banking Act was adopted on 27 July 2021 (ZBan-3). The majority of the legislative solutions concern the transposition of several EU Directives, and the majority of the adoptions pertain to capital maintenance requirements and governance rules for credit institutions. Some changes were also made to reflect recent court practice. For instance, a part of the previous law was considered unconstitutional as it did not allow the participation of employees in the management of banks. This has now been amended.
The Open Question of Reverse Solicitation
After quite a long period of uncertainty, the Slovenian Market in Financial Instruments Act finally defined the concept of reverse solicitation, with Article 215 providing that a third-country investment company may perform an individual investment service or deal if the company requests it of its own accord. This was a step towards clarifying this regime, but some confusion remained in the market as to how to classify follow-up marketing and sales.
The new 2021 amendment to the Act clarified that follow-up marketing – whereby the investment firm would market its services to the client that requested services based on reverse solicitation – is not considered reverse solicitation, and a branch office must be established. Marketing or offering investment services via other entities or affiliated persons is also not allowed.
Status of Crypto-Assets
The current position of the Bank of Slovenia follows that of the ECB and the EBA, which is that cryptocurrencies cannot be considered as money or e-money and are thus outside the current regulatory framework. However, once the question of the status of cryptocurrencies is regulated at an EU level, it is expected that Slovenian legislators will follow.
This has the potential to affect a wide variety of crypto start-ups. Internationally, Slovenia has been seen as a crypto-friendly space, which supports such industries. So far, Slovenian authorities have assisted this position to an extent by publicly stating that they do not consider classic cryptocurrencies (which are not tied to classical assets or securities) as being subject to regulation.
However, with the evolution of crypto-products and facilities, including lending and decentralised finance, there are calls for either a new confirmation or clarification of how the market should and could be regulated. Numerous failed or deceitful projects have made the calls for regulation louder.