FINANCIAL MARKET SUPERVISION REPORT 2018 FINANCIAL MARKET SUPERVISION REPORT 2018 ISBN 978-80-87225-91-2 CONTENTS INTRODUCTION 5 SUMMARY 6 PARTA 8 1. THECNB’SCOREACTIVITIESINTHEAREAOFFINANCIALMARKETSUPERVISIONIN2018 9 2. REGULATIONSINTHECZECHREPUBLICIN2018 12 2.1Changestolaws 12 2.2CNBdecrees 15 2.3Officialandotherinformationissued 16 3. EUREGULATIONSIN2018 17 3.1RegulationsanddirectivesoftheEuropeanParliamentandoftheCouncil 17 3.2Draftdirectivesandregulations 19 3.3Guidelines 20 4. FINANCIALMARKETSUPERVISIONIN2018 21 4.1Supervisionofcreditinstitutions 21 4.2Supervisionofinsurancecompanies 30 4.3Supervisionofpensionmanagementcompaniesandretirementfunds 36 4.4Supervisionofinvestmentfirms 38 4.5Supervisionofmanagementcompaniesandinvestmentfunds 41 4.6Supervisionofbureauxdechange 44 4.7Supervisionofpaymentserviceprovidersandelectronicmoneyissuers 46 4.8Supervisionofconsumercreditproviders 49 4.9Supervisionofretaildistributors 52 4.10Supervisionofhandlersofdomesticbanknotesandcoins 55 4.11Securitiesissuesandregulatedmarkets 55 4.12Supervision-relatednotification,registrationandinformationactivities 57 4.13TheCNB’sactivitiesintheFinTechinnovationarea 62 5. INTERNATIONALCOOPERATIONIN2018 63 5.1CooperationwithintheEuropeansupervisoryauthorities 63 5.2CooperationwithinEuropeanSystemicRiskBoard(ESRB)structures 67 5.3CooperationwithinthecommitteesoftheEuropeanCentralBank(ECB) 68 5.4CooperationwiththeEUCouncilanditsstructures 69 5.5Cooperationwithinotherinternationalorganisationsandassociations 70 5.6Cooperationwithinsupervisorycollegesandotheractivities 71 Czech National Bank / Financial Market Supervision Report 2018 CONTENTS PARTB 72 1. THEECONOMICENVIRONMENTIN2018 73 2. CREDITINSTITUTIONSECTORS 75 2.1Structureofthebankingsector 75 2.2Employeesandbankingunits 77 2.3Activitiesofthebankingsector 78 2.4Bankingsectorassetquality 88 2.5Bankingsectorperformanceandprofitability 90 2.6Capitalisationofthebankingsector 94 2.7Thecreditunionsector 96 3. THEINSURANCEMARKET 101 3.1Insurancemarketentities 101 3.2Premiumswritten 102 3.3Claimsettlementcosts 104 3.4Assetsofinsuranceundertakings 105 3.5Liabilitiesofinsuranceundertakings 106 3.6Profitsofinsuranceundertakings 106 3.7Solvencyandminimumcapitalrequirement 108 4. THECAPITALMARKET 109 4.1Pensionmanagementcompaniesandtheirfunds 109 4.2Investmentfirms 113 4.3Fundinvestment 116 4.4Regulatedmarkets 120 PARTC 124 LISTOFTABLES–PARTA 138 LISTOFCHARTS–PARTA 139 LISTOFTABLES–PARTB 140 LISTOFCHARTS–PARTB 141 ABBREVIATIONS 143 Czech National Bank / Financial Market Supervision Report 2018 INTRODUCTION 5 The Czech National Bank has issued a Financial Market Supervision Report since 2006 1 on the basis of Article 45d of Act No. 6/1993 Coll., on the Czech National Bank, as amended. The CNB is obliged to compile such a report each year and submit it for information to the Chamber of Deputies, the Senate and the Government by 30 June of the following year at the latest. The Financial Market Supervision Report 2018 consists of three parts. Part A gives information on CNB supervision, including supervision of compliance with the rules of consumer protection, on licensing and enforcement procedures, on changes in the Czech and EU legislation regulating the financial market and on the CNB’s activities in the area of international cooperation. Part B focuses on the Czech financial market supervised by the CNB and describes developments in the banking, credit union and insurance sectors and the capital market, including pension management companies and their funds. Part C contains annexes relating to financial market supervision. The Financial Market Supervision Report 2018 was discussed and approved by the CNB Bank Board on 13 June 2019. It will be published on the CNB website in Czech and English. 1 The Financial Market Supervision Reports for 2006–2017 are published on the CNB website (www.cnb.cz > Supervision, regulation > Aggregate information on the financial sector > Financial Market Supervision Reports). Czech National Bank / Financial Market Supervision Report 2018 6 SUMMARY The CNB performed the role of integrated financial market supervisory authority in 2018 based on powers conferred on it by Act No. 6/1993 Coll., on the Czech National Bank. In addition to supervision of supervised entities and capital market infrastructure, it also carried on other activities in this role. These included licensing, approval and authorisation work, the imposition of penalties and remedial measures where shortcomings had been detected, and activities in the fields of regulation and international cooperation. The CNB was supervising 23 domestic banks, including five building societies, and ten credit unions as of the end of 2018. To a limited extent, it was also supervising 27 branches of foreign banks, 25 of them based in the European Economic Area. Off-site surveillance of credit institutions, where the CNB applies a risk-oriented approach, was focused mainly on compliance with prudential rules and regular assessment of the financial condition of supervised institutions. As part of its supervision of credit institutions, the CNB also conducted 12 examinations in banks and four examinations in credit unions in 2018. The domestic banking sector could be regarded as stable in 2018. The sector’s total assets amounted to CZK 7,281 billion at the end of 2018, up by 4% on a year earlier. The volume of client loans and receivables rose by 7.2% year on year in 2018 amid a continued (albeit slower) downward trend in the ratio of non-performing exposures to total exposures. Banks’ net profit recorded a year-on-year rise of 8%, amounting to CZK 81.4 billion. The capitalisation of the domestic banking sector remained satisfactory in 2018. The total capital ratio increased slightly by 0.3 pp to 19.6%. The CNB was supervising 26 domestic insurance companies, one reinsurance company and, to a defined extent, also the Czech Insurers’ Bureau and the Export Guarantee and Insurance Corporation in 2018. To a limited extent, it was also supervising 20 branches of foreign insurance companies, all of them based in EEA countries. The CNB’s off-site surveillance of the insurance sector was primarily based on regularly assessing the financial condition and solvency situation of the supervised entities and on compliance with governance system requirements and the obligations related to regulatory reporting and information disclosure. The CNB conducted ten examinations in the insurance sector in 2018. The Czech insurance sector was stable in 2018. The number of domestic insurance companies having a dominant share of the insurance market was unchanged. The total assets of domestic insurance companies (including foreign branches) increased slightly to CZK 491 billion. Gross premiums written also rose, by 2.7% to CZK 155.5 billion, due mainly to higher premiums written in non-life insurance, as total premiums in life insurance dropped slightly in year-on-year terms. Insurance companies’ net profit increased substantially in 2018. It totalled CZK 14 billion, up by CZK 3.2 billion on the previous year. The median ratio of the eligible own funds of domestic insurance companies to the solvency capital requirement was 207% at the year-end, well above the minimum criterion of the solvency capital requirement. The CNB was supervising eight pension management companies managing 28 participation funds and eight transformed funds at the end of 2018. Pension management companies generated a net after-tax profit totalling CZK 1.4 billion, up by 2.7% on a year earlier. There were 4.4 million planholders in the third pension pillar at the year-end, a decline of 14,000 from the previous year. Pension funds’ total assets rose by 5.6% year on year to CZK 470.3 billion. At the end of 2018, the CNB was also supervising 37 entities holding an investment firm licence, 30 management companies, 138 investment funds with legal personality and 242 mutual funds. Investment firms recorded a decline in client assets of 4.4% to CZK 4,448.7 billion in 2018. At the aggregate level, the sector remained profitable and sufficiently capitalised. The aggregate net profit of management companies rose by 12.3% year on year to CZK 1.1 billion despite a stock market correction at the end of 2018 which negatively affected the value of the assets managed. The CNB also supervised bureaux-de-change licence holders in 2018. This supervision mainly took the form of on-site examinations and local investigations. Supervisory activities also focused on payment institutions, electronic money institutions, small-scale electronic money issuers, small-scale payment service providers, investment and insurance intermediaries, and consumer credit providers and intermediaries. Czech National Bank / Financial Market Supervision Report 2018 SUMMARY 7 Supervisory activities in the area of compliance with the duties set out in the Consumer Protection Act were another integral part of the CNB’s supervisory work. These activities were focused mainly on checking whether unfair commercial practices had been used against consumers and whether financial market entities had complied with the duty to treat customers with professional care, and on checking shortcomings in informing consumers. As regards regulation, the CNB was involved in the preparation of numerous important legal rules concerning the domestic financial market. In this respect, it is worth mentioning the CNB’s involvement in the preparation of amendments to the Act on Banks and the Act on Credit Unions, amendments to laws in the area of regulation