One of the most important duties of the financial supervisory authorities across the globe is to publicly announce and prohibit the activities of unregulated investment intermediaries in their respective territories to prevent illegal actions, fraud and financial losses to victims. Bulgaria does not make a difference as according to Article 281, para.1 of the Markets in Financial Instruments Act (MFIA) – Disclosure on Websites- By decision of the commission [the Financial Supervision Commission – FSC] upon proposal of the deputy chairperson, websites through which the provision of investment services is offered by persons who are not entitled to provide such services on the territory of the Republic of Bulgaria shall be disclosed. In order to stop violations of this law, an up-to-date list of such websites shall be maintained on the commission’s website. Such types of lists are commonly known around the world as Black Lists due to the negative consequences for the included therein.
Two relevant lists can be found on the FSC website, Warnings Section – https://www.fsc.bg/za-potrebitelya/preduprezhdeniya-za-potrebitelite/ot-komisiata-za-finansov-nadzor/: 1/ List of companies which license has been revoked by the FSC and are not entitled to carry out activities as an investment intermediary, management company or special investment purpose company on the territory of the Republic of Bulgaria in Excel и 2/ List of companies that are not licensed by the FSC and are not entitled to carry out activities as an investment intermediary or management company in the territory of the Republic of Bulgaria in Word (List).
One of our clients was included in the List more than 5 years ago without ever operated as an investment intermediary in Bulgaria. However, its presence in the List is currently a reason for a financial supervisory authority from a Member State of the European Union to believe that the FSC has issued 14 warnings for the period May 2020 – August 2023 that the client unlawfully provided services on the territory of Bulgaria without a license. Therefore, the beneficial owner is invited to provide a statement on whether, as a result of these warnings for violations, his influence as the beneficial owner of the companies in the group may be detrimental to the proper and prudent management of the companies, given the negative reputation created as a result of the numerous warnings. Therefore, the client assigned us to take action to exclude the company from the List. The FSC did not even respond to our request, so the dispute was forwarded to the competent administrative court.
Just within the court proceedings it was revealed that the List is not the one provided for in Article 281, para. 1 of the MFIA or in any other legal provision, so is an unnamed one, as well as that the FSC is not properly fulfilling its obligations under Article 281, para. 1 of the MFIA, as follows:
- There is no legal ground for the existence of the List, there is no legal ground and an administrative act for the entry of the client and its website in the List:
The FSC itself explicitly admitted that there were no reasons for including the client’s website in the list under Article 281, para. 1 of the MFIA, as well as that there were no specific legal grounds for including this website in any list. The FSC did not establish when, by whom and on what basis the entry was made, therefore this entry in the List can be considered as initially unlawful.
If there is no legal basis for the compilation and announcement of the List, it may be qualified as a so- called unnamed list. It should be noted, however, that in public law in general and in administrative law in particular there are and cannot exist unnamed acts – those that are not regulated by law.
Unnamed contracts exist only in civil law as an expression of the autonomy of will and freedom of negotiation of equal civil law subjects. Such subjects are free to determine the content of the counter-performances themselves and to agree on various mutual rights and obligations outside and in deviation from the legally regulated content of the contract. Contractual freedom is a principle of civil law; it is limited only by the imperative provisions of the law and good morals. Such freedom is not available to the public authorities that should exercise only their powers provided for by law.
- The List misleads the investors instead of informing them and presupposes an abuse of the right to appeal:
According to the FSC, the List was an expression of good practice and with a view to realising the objectives set out in Article 2 of the MFIA, specifically item 1: ensuring protection of investors in financial instruments, including by creating conditions for increasing their awareness of the financial instruments market. Thus, without having a legal basis for maintaining such a list, it preventively announced companies and their internet addresses when there were complaints filed by consumers, but it was not established after an inspection that the companies and/or internet sites in question offered investment services on the territory of the country. There were no sanction consequences for those included in the List.
In fact, by announcing the List, instead of protecting and informing, the FSC is misleading the consumers that the client and a large part of the others included in it are committing violations of the MFIA. The name of the List in no way indicates to the consumer that the relevant companies are not operating in the country, that is, they are not violating the law.
Particularly worrying is the FSC’s admission that the sole basis for inclusion in the List is the existence of a complaint/report against a given company/website. It is puzzling why, after the FSC’s inspection has established that there is no offering of investment services on the territory of the country and there are no violations, the website and name of the relevant company are still announced to the public.
In this way, an unfounded complaint is made public, which has no analogue in the legislation and is not a good practice, just the opposite – it stimulates the perverse filing of complaints by pretenders against the competition and bullying with the law. In complete contradiction to the principle “innocent until proven guilty”, the FSC applies forever guilty even after proven innocent in view of the inaction and the lack of delisting from the List at all.
Moreover, the lack of formal sanctioning consequences does not mean that there are no negative consequences from the entry in the List, on the contrary, there are reputational damages due to damage to the good name, loss of trust and clients, etc. Such negative effects of the Company’s inclusion in the List are among the reasons for changing the client’s name after its membership in a new corporate group.
- Is there even a list of the FSC under Article 281, para. 1 of the MFIA:
Apart from the two lists mentioned above, there is no third list announced on the FSC website, although the law is clear – there must be a separate list under Article 281, para. 1 of the MFIA, as the publication of the FSC decisions under Article 281, para. 2 MFIA in a completely different section and subsection of the FSC website is not equivalent to maintaining an up-to-date list.
Since there is no third list announced on the FSC website, and at the same time all websites from the seven decisions issued by the FSC under Article 281 of the MFIA are included in the List, two conclusions can be drawn about violations of the law by the FSC:
- that this is the list under Article 281, para. 1 of the MFIA, which is why the client should not have been included in it at all and therefore the list must be updated and the client and other related data deleted therefrom, or
- that the FSC, without any legal grounds, has “mixed” both lists (two in one), by announcing in one combined list the websites that carry out and those that do not carry out unauthorised activities on the territory of the Republic of Bulgaria, thus confusing consumers and violating the rights and legitimate interests of the companies owning the respective blacklisted websites.
- Maintaining the List Up-to-Date by Analogy:
If assumed that the List is some kind of other legally unregulated list compiled by the FSC, the norms of the MFIA and other laws governing lists compiled and announced by the FSC should be applied to it by analogy, meaning that the FSC shall not only include, but also exclude companies/websites from it in view of the factual circumstances when changed.
Application of law by analogy (analogia legis – statutory) is a legal interpretation technique used to fill gaps (lacunae) in the law by applying existing rules governing a specific case to a similar, unregulated case. Based on the principle “where the reason is the same, the law is the same” (Ubi eadem est ratio, ibi idem ius), it relies on functional similarities.
Specifically, the FSC should apply by analogy to the List not only the already cited Article 281, para. 1, clause 2 of the MFIA, but also Article 189 of the MFIA – List of Regulated Markets: “(1) The FSC shall prepare and maintain an up-to-date list of regulated markets for which the Republic of Bulgaria is the home country. The FSC shall publish the list on its website and provide it to the relevant competent authorities of the other Member States and to ESMA. (2) The FSC shall notify the Member States and ESMA of any change to the list under Art. 1; Article 251, para. 3 of the MFIA: “The FSC shall maintain a list of financial holding companies and mixed financial holding companies over which it exercises supervision on a consolidated basis. The FSC shall provide this list to the other competent authorities, the European Commission and the EBA and shall notify them of any change to it”; Article 35a of the Crypto Asset Markets Act: “By decision of the FSC upon proposal of the Deputy Chairman, websites through which the provision of services related to crypto assets is offered by persons who do not have the right to provide such services on the territory of the Republic of Bulgaria shall be disclosed. In order to stop violations of this Act and Regulation (EU) 2023/1114, an up-to-date list of the websites under sentence one shall be maintained on the FSC website.”
The conclusions are that the FSC does not fulfill its obligation under Article 281, para. 1 of the MFIA to compile, announce and maintain an up-to-date prohibition list of websites. At the same time, it announces without legal grounds a list of companies/websites that have not violated the law. Moreover, the FSC does not even keep the List up to date, as it does not exclude companies/websites even in the presence of new circumstances. Thus, both those unlawfully included in the List and all consumers and investors are harmed and misled by the FSC instead of being warned.
