A World Bank report has called for Bulgaria to strengthen the independence and resources of the Financial Supervision Commission (FSC), the country’s regulator for pensions and other non-banking financial sectors.

The report follows a joint World Bank-IMF Financial Sector Assessment Program mission to the country in January.

While the FSC was notionally independent of the government, the World Bank said, its independence was undermined by a reliance on the state budget for the bulk of its funding.

The report recommended that the FSC Act should be amended to enable the regulator to finance itself through levies on supervised entities. In the case of pension companies, this would mean using funds under management rather than contribution premiums as the basis.

Describing the FSC as “significantly underresourced”, the report emphasised that levies should be set at levels that minimise its reliance on penalties and financial sanctions.

The report said: “There is anecdotal evidence that excessive fines and sanctions diminish the standing of the supervisor in the supervised entities, as the entities consider that the primary motivation of the supervisor is to supplement its budget.”

In order for the FSC to attract and retain staff, the report recommended salary levels in line with those paid by supervised companies.

Currently, many staff start their careers at the FSC, then move to better paid jobs in the financial sector, with the regulator “virtually becoming the training facility for the industry”, the World Bank said.

The report also recommended that the FSC staff sign a contract preventing them from joining a supervised company for a year after leaving the commission.

Additionally, the report called for statutory indemnity for the commission and its personnel, so staff would not be held personally liable for supervisory actions taken in good faith.

The report stated: “The provision of legal protection is to allow the parties to perform their duties without fear of being sued or having to pay the costs of defending legal actions.”

Operationally, the report recommended that the FSC’s supervision should focus more on risk than compliance, particularly in the pensions sector, where currently both the funds and custodians must independently produce daily investment portfolio details.

It also identified significant duplication between the work of the FSC’s onsite supervisors and funds’ external auditors.

The report also addressed some issues within the pensions industry itself, including the underwhelming returns of the mandatory pension funds, which it blamed on the existing restrictive investment rules.

It was highly critical of the 2015 decision allowing members to switch, annually, between the first and second pillar, questioning whether members were in a position to make an informed decision on the issue.

In the case of members who opted back into the second pillar, it also questioned the ‘capital preservation’ rationale for returning their funds without any accrued interest.

The FSC itself welcomed the report, stating on its website that it accepted the envisaged measures and had already started work on implementing some of the proposals.