El Estado: una institución de beneficio común

The supervision of the non-banking financial sector in Croatia is regulated by the Croatian Financial Services Supervisory Authority Act, which has been enacted in 2005. The Croatian Financial Supervisory Authority (HANFA) was established on 1 January 2006 by uniting the then-existing institutions for the supervision of the non-banking sector - the Croatian Securities Commission, Insurance Companies Supervisory Authority and the Agency for the Supervision of Pension Funds and Insurance Companies. HANFA is financed from the state budget, fees on assets and income of entities under its supervision and fees for services rendered. It is independent in its work and accountable to the Croatian Parliament.

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As at 31 December 2005, there was a 51 open-end investment fund with assets totalling HRK 10.9bn and 6 closed-end investment funds with net assets totalling HRK 1.5bn. There are also 22 investment fund management companies registered in Croatia.

Complete turnover on the two stock exchanges in the Republic of Croatia, the Zagreb Stock Exchange and the Varaždin Stock Exchange is also under the jurisdiction of HANFA. At the end of June, market capitalisation at the Zagreb Stock Exchange was HRK 147bn, while that at the Varaždin Stock Exchange during the same period was HRK 56bn.

HANFA supervises the operations of 4 mandatory pension funds with total assets of HRK 11.7bn and 14 voluntary pension funds with total assets of HRK 227m. It also supervises the operation of 17 leasing companies with assets of HRK 18bn and 3 factoring companies with assets of 320m. HANFA supervises the operations of insurance companies whose number was 25 at the end of December 2005 with assets totalling HRK 16.5bn as well as insurance brokers and insurance agents.

The Croatian insurance market grew by 10.4% in the first half of 2006. Total gross premium underwritten by insurance companies in 2005 was HRK 7.35bn of which HRK 5.45bn went to non-life insurance premiums and HRK 1.9bn to life insurance premiums. Thanks to high growth of life insurance over the previous years the share of this insurance business segment in the total portfolio has been continuously rising, totalling 25.8% in 2005, while the share of non-life insurance has been gradually declining, totalling 74.2% in 2005.

In performing its public responsibilities, HANFA is authorised to:

• enact regulations relating to the implementation of the Croatian Financial Supervisory

Authority Act and other Acts under its responsibility;

• _{perform supervision pursuant to its authorisation under the Act over operations of}

different entities;

• order measures aimed at elimination of determined violations and irregularities;

• issue and withdraw licences, approvals and authorisations when authorised to do so by

the Act;

• facilitate, organise and supervise measures for efficient functioning of the financial

market;

• _{keep books and registries pursuant to the provisions of the Act;}

• _{launch initiatives for enactment of other acts and regulations and inform the public of}

the principles applied in the operation of the financial market;

• enact subordinate legislation;

• give opinions on the implementation of the Act;

• notify other supervisory, administrative and judicial authorities on all issues directly or

indirectly related to their responsibilities and competences on proceedings run before these authorities which are connected with the proceedings under to the responsibility of HANFA.

As for its administrative capacity, HANFA introduced a new organisational structure adding 14 trainees and 6 new employees to its existing staff of 80, starting from 1 November 2006. It adopted a Code of Conduct as well as signed a Co-operation Agreement with the Croatian National Bank. In 2006, exams were carried out for 1400 insurance brokers and agents, training was prepared for 350 brokers, investment advisors and pension fund managers. HANFA also participates in the process of uniting the Zagreb and the Varaždin Stock

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Exchange and it successfully demonstrated its administrative capacity on the example of the Pliva takeover.

In addition to the Croatian Financial Supervisory Authority Act, the following acts were adopted in relation to the non-banking sector in 2005: the Insurance Act, the Act on compulsory Insurance within the Transport Sector, the Act on Investment Funds and the Accounting Act. By the end of this year adoption of subordinate legislation is planned in connection with the Insurance Act, the Act on compulsory Insurance within the Transport Sector and the Act on Investment Funds.

Further efforts will be made in 2006 in connection with the regulation of the non-banking sector. As a result, the following acts will be adopted until the end of the year the Leasing Act, the Act on Credit Unions and the Act on the Amendments to the Securities Market Act. The Leasing Act is exceptionally important because, individually speaking as well as by assets per GDP, the leasing industry is the second largest industry in Croatia. Together 15 leasing companies account for assets of some HRK 15bn, inclusive of operative and financial leasing. The Leasing Act will define the status of leasing companies from the accounting and the tax aspect. The economic impact of the leasing industry in Croatia reflected itself in the intensive external debt growth especially when the CNB introduced marginal reserve requirement on all foreign sources of funds. This turned leasing companies into SPVs (special purpose vehicles) for their parent banks. The adoption of the Leasing Act will place leasing companies under the supervision of the Croatian Financial Supervisory Authority which will enact all implementing acts within the realm of leasing companies operations.

The Act on Credit Unions will regulate the system of micro-lending in more detail, thus ensuring stability and growth of this share of financial services. The Act will also regulate in more detail the supervision over the operations of credit unions and lays down measures for securing stable operations.

The Act on the Amendments to the Securities Market Act planes changes related to the ownership structure of the stock exchange, thus enabling even unauthorised companies to establish a stock exchange. Such as for instance, investment fund management companies, pension fund management companies, insurance companies, etc. The share capital of the stock exchange will be raised to HRK 40m and a limit will be introduced for the share of the individual shareholder in the capital or voting rights. The Act will introduce changes aimed at increasing the transparency of the market. A provision will be introduced, under which HANFA has the possibility of prescribing data that issuers of securities entered in the first quotation on the stock exchange are obligated to disclose, as well as time limits and the manner of their disclosure. The Act will also regulate special trading on the stock exchange (Market Making), that is, transactions involving securities with simultaneous publication of the sale and purchase offer, for own name and account, for the purpose of maintaining constant supply and demand for certain security.

In year 2007 some more acts are planned to be adopted: the Companies Takeover Act, the Financial Conglomerates Act and the Act on the Amendments to the Act on Mandatory and Voluntary Pension Funds which will contribute further to regulation and development of non- banking system.

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