1. National regulations relating to investigating and supervisory of brokerage houses DISCLAIMER The views expressed in this publication do not necessarily reflect the views of KNF Bartłomiej Krasuski * * Deputy Director, Financial Supervision of Investment Institution Commission of Financial Supervision KNF, Poland

2. Capital Market in Poland Supervisory Authorities The Polish Securities and Exchange Commission (KPWiG) PFSA 1991 2006 Regulations Act on Public Trading in Securities Act on Trading in Financial Instruments Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies Act on Capital Market Supervision Act on Investment Funds Act on Financial Market Supervision 1991 2005 2004 2006 Supervised Institutional Entities Investment firms Warsaw Stock Exchange (GPW) The National Depository for Securities (KDPW) Investment fund companies

3. Organisational Chart of the PFSA Office CHAIRPERSON CAPITAL MARKET SUPERVISIO N FINANCIAL SERVICES, LICENSING AND FUNCTIONAL SUPERVISION DEPARTMENT ISSUES DEPARTMENT TRADING SUPERVISION DEPARMENT INSURANCE AND PENSION SYSTEM INTEGRITY SUPERVISION DEPARTMENT INSURANCE FINANCIAL SUPERVISION DEPARTMENT RISKS MONITORING DEPARMENT PENSION INVESTMENTS SUPERVISION DEPARMENT FINANCIAL MARKET DEVELOPMENT AND CROSS- SECTOR POLICY DIVISION BANKING SUPERVISION BANKING LICENCE DEPARTMENT BANKING SECTOR SUPERVISION DEPARTMENT COOPERATIVE BANKING DEPARMENT INSPECTION DEIVISION STANDARDS AND PROCEDURES INSPECTION DEPARTMENT RISK ASSESSMENT DEPARTMENT LAW AND LEGISLATION LEGAL DEPARTMENT ENFORCEMENT DEPARTMENT VICE- CHAIRPERSON FINANCIAL SUPERVISION DIVISION

4. Polish Capital Market Supervision Regulations Act of 29 July 2005 on Trading in Financial Instruments Act of 29 July 2005 on Capital Market Supervision Act of 21 July 2006 on Financial Market Supervision

5. Act on Trading in Financial Instruments Act on TFI Financial Instruments Trading Depository and Settlement System National Depository for Securities Market Manipulation Regulated Market Secondary Trading in Financial Instruments Stock Exchange Market Over the Counter Market

6. Act on Trading in Financial Instruments Act on TFI Activities of Investment Firms 1. Brokerage Houses 2. Banks Conducting Brokerage Activities Securities Brokers and Investments Advisers

7. Number of entities conducting brokerage activities and operating securities accounts, 2008-2010 Type of entity200820092010 Brokerage houses454650 Banks conducting brokerage activities 13 14 Total717278

8. Number of client accounts operated by brokerage houses and banks conducting brokerage activities, 2008-2010 Number of client accounts% of total 200820092010 Brokerage houses614,328812,9541,323,95967.1 Banks conducting brokerage activities 547,422532,325649,68032.9

9. Activities of Investment Firms The conduct of investment services shall require a licence, to be granted by the PFSA upon application and submitted by the party concerned. Investment services shall encompass the following activities: 1) the acceptance and transfer of orders to acquire or dispose of financial instruments; 2) the execution of the orders referred to for the account of the customer; 3) the acquisition or disposal, for the broker’s account, of financial instruments; 4) the management of portfolios including one or more financial instruments; 5) investment advice; 6) offering financial instruments; 7) the provision of services under standby underwriting agreements and firm commitment underwriting agreements or the execution and performance of other similar agreements on financial instruments; 8) organising an multilateral trading facility.

10. Activities of Investment Firms The following actions by an investment firm shall also be considered as investment services: 1) the storage or registration of financial instruments, including the keeping of securities accounts and cash accounts; 2) giving loans to finance transactions in one or more financial instruments, if the transaction is effected through the intermediation of the investment firm giving the loan; 3) advising companies on capital structure, corporate strategy and other matters related to such structure or a strategy; 4) advisory and other services relating to the mergers, demergers and acquisitions of companies;

11. Activities of Investment Firms 5) providing foreign-exchange services where these are connected with investment services; 6) the preparation of investment analyses, financial analyses and other recommendations of a general nature relating to transactions in financial instruments; 7) additional services related to standby underwriting and firm commitment underwriting; 8) conducting the activities, related to the underlying instruments of derivatives, if those activities are connected with investment services.

12. Initial capital of an intermediary house EUR 125,000 The initial capital of an intermediary house to finance the business activities EUR 50,000 If an intermediary house does not conduct the business activities such as the storage or registration of financial instruments, including the keeping of securities accounts and cash accounts EUR 730,000 If an intermediary house conducts the business activities such as the acquisition or disposal, for the broker’s account, of financial instruments; the provision of services under standby underwriting agreements and firm commitment underwriting agreements or the execution and performance of similar agreements on financial instruments.

13. Application for a brokerage licence An application for a brokerage licence shall contain the following: 1) the personal details of the members of the management board, or partners or general partners in a partnership, the members of the supervisory board and the audit committee, if such a committee is established, and other persons who are responsible for launching investment services by the applicant or will manage such operations, as well as information on their professional qualifications and careers; 2) the list of shareholders holding shares of the applicant, whether directly or indirectly through subsidiaries, specifying the number of shares held by them and the percentage of the total vote conferred by such shares; 3) in the case of shareholders who are natural persons and hold the right to 10 or more per cent of the total vote or 10 or more per cent of the applicant’s share capital – personal details of such persons, information on their professional careers or on business activities conducted by them;

14. Application for a brokerage licence 4) in the case of shareholders who are legal persons and hold the right to 10 or more per cent of the total vote or 10 or more per cent of the share capital of the joint-stock company which makes the application – information on their business activities, a valid excerpt from the relevant register, and the most recent financial statement together with an auditor’s opinion and the audit report, if such an audit is required by the law; 5) in the case of shareholders who are organisational units without legal personality and who hold the right to 10 or more per cent of the total vote or 10 or more per cent of the share capital of the applicant, the information referred to in 4), accordingly; 6) information on the entities belonging to the same group as the applicant; the information shall include the company name or the first name and surname, the address of the registered office or the address of residence, the description of business, and, in the case of a legal person being the parent entity of the applicant, if the parent entity is a financial holding company, the personal particulars of the persons being members of its management or supervisory boards and information on their professional qualifications and careers.

15. Application for a brokerage licence 7) information specified in 6) with respect to the shareholders or members of the parent entity of the group which the applicant belongs to; 8) the description of the scope of activities to be performed by the applicant; 9) information on the amount of the initial capital, specifying its source, or information on the insurance agreement, including in particular the name of the insurance undertaking and the sum insured; 10) the study of the economic and financial feasibility of conducting investment services for a period of one year from the date of their launch;

16. Application for a brokerage licence 11) representations by the persons specified in 1), with the exclusion of partners or general partners in a partnership, to the effect that they have not been found by a final court judgment guilty of a tax offence, an offence against reliability of documents, property, business transactions and cash and securities transactions, and other offences specified in the Industrial Property Law, offences specified in the Commodity Exchange Act, the Public Offering Act, or offences specified in the Act on Trading in Financial Instruments; 12) information on the proposed organisation of the business, with an indication of the addresses of its head office and branches, if any, and on the telecommunications equipment owned and the offices occupied; 13) in the case of an intention to organising an multilateral trading facility, an indication of the entity or entities that will make, under the agreement with the applicant, the clearing and settlement of transactions concluded in an multilateral trading facility, and the rules of making the clearing and settlement of transactions by the entity or entities;

17. Application for a brokerage licence 14) information on the business activities conducted previously by the applicant; 15) information on the parent entities and subsidiaries of the shareholders holding the right to 10 or more per cent of the total vote or 10 or more per cent of the share capital of the applicant, including the company names or the first names and surnames of the shareholders, the addresses of the registered offices or the addresses of residence, and a description of their business activities.

18. Application for a brokerage licence The application shall be accompanied by: 1) the articles of association and an excerpt from the register of entrepreneurs or, if the applicant is a foreign entity, from the relevant register; 2) rules specifying how the operations involving the activities shall be performed, in the case of an intention to provide services to a retail customer; 3) rules specifying how the operations involving the activities shall be performed, in the case of an intention to provide services to a professional customer; 4) organisational rules, internal audit rules and the rules for the supervision of the compliance of the operations with the law; 5) rules for the protection of the flow of inside information, information protected by professional secrecy and the internal procedures to counteract the introduction into financial circulation of property values derived from illegal or undisclosed sources; 6) rules for managing the conflicts of interest;

19. Application for a brokerage licence The application shall be accompanied by: 7) the rules of investing in financial instruments by persons related to the investment firm or for such persons' account; 8) in the case of an applicant who has previously performed business activity, the most recent financial statement together with an auditor’s opinion and an audit report, if such an audit is required by the law; 9) the list of securities brokers or investment advisers employed by the applicant; 10) in the case of applicants taking advantage of the exemption under Art 98.9, a copy of an insurance agreement; 11) representations, subject to criminal liability, made by shareholders who are natural persons and hold the right to 10% or more of the total vote or share capital of the applicant, concerning the source of funds used to pay for the shares of the applicant subscribed for or acquired; 12) a copy of an agreement on participation in the compensation scheme concluded with the National Depository for Securities under the condition of being authorised to conduct investment services.

20. Notification concerning to the license An investment firm shall promptly notify the PFSA of: 1)any changes of the information contained in the application for a licence and the documents attached thereto; 2)any changes in the composition of shareholders or members holding shares, whether directly or indirectly through subsidiaries: a)resulting from reaching or exceeding 20, 33 or 50 per cent of the total vote or the share capital; b)in the case of shareholders or members who have at least 20, 33 or 50 per cent of the total vote or the share capital, reducing the share respectively to less than 20, 30 or 50 per cent of the total vote or share capital;

21. Notification concerning to the license c)any acquisition of a number of shares in other companies which confers the right to 5 or more per cent of the total vote; d)information regarding the activities performed by the investment firm and its financial standing, including, in the case of an intermediary house, information regarding its compliance with capital adequacy requirements, as well as any occurrences which could influence the activities performed by the investment firm or its financial standing.

22. Employment of securities brokers and investment advisers 1 securities broker Investment services shall encompass the following activities: the acceptance and transfer of orders to acquire or dispose of financial instruments, the execution of the orders referred to above for the account of the customer, the acquisition or disposal, for the broker’s account, of financial instruments, offering financial instruments, organising a multilateral trading facility. The action of the storage or registration of financial instruments, including the keeping of securities accounts and cash accounts shall also be considered as investment service of an investment firm. 2 investment advisers They are needed to perform the management of portfolios including one or more financial instruments. 1 investment adviser or 1 securities broker They are vital for performing investment advice. Investment firm shall employ at least

23. Employment of securities brokers and investment advisers The conditions shall be deemed to be met if the activities specified in application are performed by a securities broker or an investment adviser who is a general partner in a limited joint-stock partnership or limited partnership, or a partner in a registered partnership or limited-liability partnership operating as an investment firm. The provisions shall not apply to foreign investment firms conducting investment services in the Republic of Poland which are not required to open a branch for this purpose.

24. Administrative Sanctions for Infringement of Regulations PFSA may: 1) revoke the brokerage licence or limit its scope, 2) choose not to apply the sanctions referred to in (1) but impose a pecuniary penalty of up to 10 million zloty on the investment firm, 3) impose one of the sanctions referred to in (1) and at the same time impose the pecuniary penalty.

25. Administrative Sanctions for Infringement of Regulations PFSA may impose administrative sanctions if an investment firm: 1) grossly violates the provisions of the law; 2) fails to comply with the principles of fair trading; 3) compromises the customer’s interest; 4) has discontinued the activities specified in the licence for at least six months; 5) no longer meets the conditions on the basis of which the licence was granted; 6) has been granted the licence on the basis of misrepresentations or false documents.

26. Administrative Sanctions for Infringement of Regulations If an intermediary house does not meet the capital adequacy requirements, PFSA may order, by way of a decision: 1)that an intermediary house maintains supervised capital at a level higher; 2)the intermediary house to modify procedures, processes, mechanisms or strategies that the intermediary house is obliged to implement in order to fulfil the obligation; 3)to apply specific rules for calculating the total capital requirement or impairment of the value of the assets, or specific rules for determining the level of supervised capital; 4)to reduce the size of the intermediary house activities or to reduce the network of the intermediary house organizational units; 5)the intermediary house to reduce the risk inherent in the activities of the intermediary house or the risks associated with a specific product, services or the internal system of the intermediary house.

27. Act on Capital Market Supervision ● PFSA Organisation and Rules of Operation ● Exchange of Information between Supervisory Authorities ● Inspections ● Supervisory Visit ● Explanatory Proceedings

28. Inspection The subject of the inspection shall be compliance of the activities or the financial situation of the inspected entity with: - the provisions of the law, - the rules, - the terms and conditions of authorisations, - the principles of fair trading or the interests of the customers. The scope of the inspection shall cover all or some specific issues related to the activities or the financial situation of the inspected entity.

29. Inspection The purpose of the actions undertaken by inspectors in the course of inspections (inspection activities) shall be to determine: ● the actual state of affairs and document it in a reliable manner, ● making it possible to evaluate the correctness of the inspected entity’s activities, ● in the event of any irregularities to determine the extent of such irregularities, their causes and the persons responsible for their occurrence.

30. Inspection Inspection authorisations shall be issued in writing by the Chairman of the Authority, who shall specify in such authorisation: 1) the legal basis of the inspection; 2) the designation of the inspection authority; 3) the date and place of issue; 4) first names, surnames and positions of the inspectors; 5) the subject and scope of the inspection; 6) the date of commencement and the anticipated duration of the inspection; 7) information on the rights and obligations of the inspected entity.

31. Inspection The inspection shall be carried out: - by an inspection team comprising at least two inspectors, -who shall show their authorisation and a service identification card or another identification document to the inspected entity, -or its authorised representative. The duration of an inspection may not exceed six months.

32. Inspection Inspection findings shall be made on the basis of: 1) documents; 2) explanations given by the persons; 3) data and information contained in the inspected entity’s IT systems; 4) representations of third parties; 5) other materials which may contribute to the determination of the actual state of affairs in the areas covered by the inspection.

33. Inspection 1) Inspection findings shall be described in an inspection report. 2) The inspection report is prepared in two copies, with one copy to be delivered to the inspected entity within 30 days from the inspection beginning. 3) The inspection report shall be signed by the inspector and the person authorised to represent the inspected entity. 4) The inspected entity shall have the right to express reservations as to the inspection report.

34. Inspection 1.The reservations shall be submitted to the Chairman of the Authority in writing within 14 days of the receipt of the inspection report. 2.The Chairman of the Authority may provide the inspected entity with a recommendation concerning removal of the irregularities identified on the basis of the inspection, within a period of no less than 14 days from the date of receipt of such recommendations. 3.In urgent cases, the Chairman may issue recommendations even before the inspection has been completed, specifying a deadline shorter than 14 days to remove the irregularities. 4.The inspected authority, shall notify the Authority of the manner in which the recommendations are to be complied with, indicating in detail the manner in which the irregularities are to be removed.

35. A Supervisory Visit ● Authorised employees of the Office may make a supervisory visit to the brokerage house with regard to an analysis and evaluation of the conformity of the brokerage house with capital adequacy rules. ● The inspection provisions shall apply accordingly to the supervisory visit. ● The supervisory visit must not exceed two months. ● The day on which the last supervisory activity was carried out in the offices of the inspected entity shall be deemed the day of the completion of the supervisory visit. The brokerage house shall be informed of the completion of the visit without delay in writing.

36. Explanatory proceedings The Chairman of the Authority may order that explanatory proceedings be carried out, in order to determine whether there are: - grounds for filing the notification of a suspected offence concerning an offence specified in the following acts: a) on Public Offerings, on Trading in Financial Instruments, on Investment Funds, on Commodity Exchanges, b) and other acts to the extent concerning actions directed against the interests of capital market participants, connected with the activity of the supervised entities, - or for instigating administrative proceedings concerning a breach of law, to the extent falling within the scope of the Authority’s supervision.

37. Explanatory proceedings The explanatory proceedings shall be carried out by an employee of the Office holding a written authorisation of the Chairman of the Authority. Explanatory proceedings must ot continue for more than six months. Upon completion of the explanatory proceedings, the Chairman of the Authority: - shall file a notification of a suspected offence, - instigate administrative proceedings, - or decide to close the explanatory proceedings.

38. CRD Directives DIRECTIVE 2006/48/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions DIRECTIVE 2006/49/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006 on the capital adequacy of investment firms and credit institutions

39. CRD Implementation Implementation in Polish Law Act on TFI Act on Capital Market Supervision Regulations of the Minister of Finance Regulations of the Minister of Finance

40. Thank for your attention