Transcript Slide 1

Freedom of Establishment. Prohibition of
Requirements Limiting Freedom of
Establishment under Directive 2006/123/EC
Seminar on Competitiveness of the Service Sector
24/11/2008
Ankara
Elizabeth Parushkova
BNB
Freedom of Establishment. Key points
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What does ‘Freedom of establishment’ mean? Significance of
Freedom of Establishment
Freedom of Establishment under art.43-48 of European
Community (EC) Treaty. Barriers to exercising of Freedom of
Establishment under the EC Treaty
Ways the Service Directive 2006/123/EC tackles barriers to
exercising Freedom of Establishment. Administrative
simplification (art. 5-8), Simplification of authorisation procedure
(art. 9-13)
Requirements that are prohibited or subject to evaluation (art.1415)
What is incompatible with art. 43-48 of EC Treaty in accordance
with practice of European Court of Justice
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Freedom of Establishment. EC Treaty
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Significance of Freedom of Establishment
What does ‘Freedom of establishment’ mean?
Art. 43 of the EC Treaty provides the unrestricted right
of establishment for natural persons
The same rights are granted for corporations under art.
48
For art. 43 to be applicable, the establishment must be
permanent and the establishment must be set up to
make profits
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Freedom of Establishment
Legal Position. Art 43 -48 EC Treaty
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Article 43: “Within the framework of the provisions set out
below, restrictions on the freedom of establishment of
nationals of a Member State in the territory of another Member
State shall be prohibited. Such prohibition shall also apply to
restrictions on the setting-up of agencies, branches or
subsidiaries by nationals of any Member State established in
the territory of any Member State.
Freedom of establishment shall include the right to take up
and pursue activities as self-employed persons and to set up
and manage undertakings, in particular companies or firms
within the meaning of the second paragraph of Article 48,
under the conditions laid down for its own nationals by the law
of the country where such establishment is effected, subject to
the provisions of the Chapter relating to capital.”
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Freedom of Establishment. Some Differences
from Other Freedoms
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The difference from art. 49 which deals with provision
of services is mainly that a permanent establishment
leads to the application of art. 43, whereas a temporary
presence leads to the application of art. 49
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There is also difference between freedom of
establishment and freedom of movement for workers.
The difference from art. 39 is simply that employees fall
under art. 39, while self-employed persons can appeal
to art. 43
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Freedom of Establishment under Services
Directive in the Context of the Treaty
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The Freedom of Establishment under Services
Directive has its context in the EC Treaty and must be
interpreted and implemented in this context
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The principles the European Court of Justice (ECJ)
has developed on the basis of the application of these
articles have to be respected
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Barriers to Freedom of Establishment Recognised by the
Service Directive, in the Context of EC Treaty
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Although the EC Treaty has guaranteed (in articles
43-48) the right of service providers to establish
themselves in other Member States, in practice they are
still faced with numerous barriers
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Prohibitions (further on clarified)
Dissuasive barriers (further on clarified)
Natural barriers (not addressed directly)
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Prohibitive Barriers
Prohibitive barriers: legal requirements that prevent
Member State (MS) service providers outright from
establishing in other MS, such as:
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• nationality requirements in respect of service providers,
shareholders, management and staff;
• residential requirements governing the number of nondomestic service providers, in terms of population or
geographical distance; and
• single-establishment requirements to have one single
establishment or the principal establishment in the MS
concerned
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Dissuasive Barriers
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Dissuasive barriers - legal and administrative barriers
which prevent service providers from establishing in
another MS, even where it is technically possible for
them to do so, such as:
 Registration requirements: e.g. a service provider is obliged to
register with an administrative authority, a professional body or trade
association in order to establish in a particular Member State; and
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Administrative requirements and burdens: e.g. a service
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provider is required to supply notifications and declarations or
documentation in a particular format
Compliance costs: e.g. significant legal costs, where extensive
legal advice is required to identify national requirements and
procedures, as well as for other formalities to be fulfilled
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Ways of Dealing with Barriers to Freedom of
Establishment under Service Directive
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Ways of dealing with barriers to Freedom of Establishment
under Chapters II and III of the Service Directive
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1) Administrative simplification (Articles 5-8);
2) Simplification of authorisation procedures (Articles 9-13), and
3) Prohibition or Assessment of certain particularly restrictive
legal requirements (Articles 14-15)
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Administrative Simplification.
Chapter II, Section 1, Articles 5 – 8 of Service Directive
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Article 5 – a host Member State must accept an
equivalent document from another Member State or
from one which shows the requirement has been met
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Article 5 (3) - a host Member State cannot insist on
having an original, a certified copy or a certified
translation of such a document, unless some
circumstances under art.5 (3) are in place
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Administrative Simplification (continued)
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Article 6 - requires MS to set up ‘single points of
contact’ to enable business to complete all formalities
and applications for authorisation at one point
Article 7 - makes clear that single points of contact are
not themselves regulatory bodies - their role is
facilitative
Also under Article 7 - MS are required to provide all
relevant information on legal and administrative
requirements linked to service activities, and
to introduce electronic means for the fulfilment of
procedures and formalities by the end of 2009 (Article 8)
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Authorisations (Authorisation Schemes).
Chapter III, Section 1, Articles 9 – 13, Service Directive
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Article 9 - MS are obliged to ensure that authorisations for
access to, and exercise of, service activities are not required,
unless some circumstances under art. 9 are in place
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MS are also required to:
 • base authorisation schemes on objective and transparent
criteria (Article 10 para 1 and para 2);
 • ensure that authorisation is granted as soon as it has been
determined that the conditions for authorisation are met Article
10(5); and
 • provide a fully reasoned explanation of refusals or
withdrawals of authorisations, which should be open to challenge
before the courts (Article 10 para 6)
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Authorization Schemes (continued)
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Article 11 sets out the rules concerning authorisations
which are limited in duration
Article 12 sets out the rules concerning situations where
limited numbers of authorisations are available
because of scarcity of natural resources or technical
capacity
Article 13 sets out the detail of how authorisation
schemes should work procedurally
Article 13(4) provides for tacit consent where the
authorising body does not reply to the applicant within
the published deadline
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Prohibited Requirements.
Chapter III, Section Two, Article 14
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Requirements included in so-called Blacklist prevent or discourage
service providers from one MS from setting up in another. For this reason:
MS will have to examine their legislation, and remove requirements of the
type listed in Article 14 in a systematic way and for all service activities
covered by the Directive
Member States are also prevented from newly introducing such
requirements in the future. In view of the very restrictive nature of the
requirements listed in Article 14, and because of the fact that in many
cases the ECJ has already found them to be incompatible with Article 43
of the EC, Member States should consider removing them also in sectors
not covered by the Services Directive
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Blacklist under Service Directive
Article 14
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• Discriminatory requirements (including nationality, place of
registered office);
• Ban on having an establishment in more than one MS
• Ban on restriction of choice as to where principal establishment is to be
located;
• Conditions of reciprocity between home MS of service
provider and host MS where he intends to establish;
• Requirement to carry out an economic test;
• Involvement of competing operators in authorisation or supervision
procedure;
• Obligation to provide a financial guarantee or to take out insurance
with a provider from the host MS
• Obligation to be entered in the registers of the host MS,
or to have exercised activity, for a given period
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Prohibition of Requirements Based Directly or Indirectly
on Nationality
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Article 14(1) prohibits all discrimination based directly or indirectly
on grounds of nationality or, as regards companies, the location of
the registered office
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Direct discrimination - requirements based on nationality/ location of
the registered office;
Indirect discrimination - requirements based on residence/ location of
the registered office
Article 14(1) explicitly mentions requirements which make access to
or exercise of a service activity conditional upon the nationality or
residence of the provider;
Article 14(1) also prohibits:
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rules which make the access to or the exercise of the service
activity for foreign service providers more burdensome than for
domestic players
requirements which restrict the legal capacity or the rights of
companies to bring legal proceedings
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Prohibition of Requirements Limiting the Establishment
of Service Providers to One Member State
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Article 14(2) requires MS to remove all requirements
prohibiting service providers from having an establishment in
more than one MS, as well as requirements prohibiting service
providers from being entered in registers or enrolled with
professional bodies or associations in more than one MS
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MS has to identify and abolish any rule which prohibits a
provider from registering with a professional association if
already a member of a similar association in another MS
MS has to abolish any requirement obliging service providers to
give up their previous establishment in another Member State
upon their establishment in such Member States’ territory
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Prohibition of Requirements Limiting the Choice of the Service
Provider Between Principal and Secondary Establishment
Under Article 14(3), MS will have to remove requirements which
restrict the choice of a provider, already established in a Member
State, as to the type of establishment he wants to have in another
Member State (principal or secondary establishment or a specific
type of secondary establishment, such as a branch or a
subsidiary)
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MS will have to abolish obligations imposed on providers to
have the principal establishment in their territory
MS will have to abolish requirements which limit the freedom
to choose between different types of secondary
establishment ( obligations to establish a subsidiary, but not a
branch, etc.)
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Prohibition of Conditions of Reciprocity
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Article 14(4) prohibits any requirement on the basis of which a MS
would make access to or exercise of a service activity by service
providers from another Member State subject to a condition of
reciprocity
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Reciprocity is generally not compatible with the idea of an Internal
Market based on the principle of equal treatment of all Community
operators
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MS will have to abolish requirements, according to which a service
provider already established in another MS can only enrol in
professional registers in its territory if his MS of first establishment
also allows the registration of nationals from the MS where the
registration is being requested.
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Prohibition of Economic Tests
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Article 14(5) requires MS to abolish requirements that may exist in
their legislation laying down a case-by-case application of
economic tests
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Economic tests exist in some Member States, in particular in the
commerce sector and often require service providers to carry out
costly and time-consuming economic studies whose outcome is
generally uncertain. They delay the establishment of service
providers considerably, if they do not indeed fully hinder the
establishment of newcomers
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Article 14(5) clarifies that the prohibition set out in this provision
does not concern territorial planning requirements which do not
pursue economic aims but serve overriding reasons relating to the
public interest (such as the protection of the environment, urban
environment, safety of road traffic, etc.)
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Prohibition of the Involvement of Competing Operators
in the Decisions of Competent Authorities
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Under Article 14(6), MS will have to abolish any rule which
envisages the involvement of competing operators in decisions
about individual applications for an authorisation. The opposite
will go against the basic goal of ensuring objective and
transparent procedures
MS are not prevented from maintaining in place systems whereby
the participation/ consultation of potential competitors would be
envisaged in matters other than individual cases
Article 14(6) does not prevent professional bodies or other
organisations from deciding about individual applications if these
professional bodies are themselves acting as competent authorities
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Prohibition of Obligations to Obtain Financial
Guarantees or Insurances from Operators Established in
the Same Member State
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According to Article 14(7), MS will have to abolish requirements for
providers to take out insurance with, or to provide a financial
guarantee issued by, an operator established in their own territory
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Article 14(7) does not prevent MS from imposing insurance
requirements as such (see art.23 of Directive)
Article 14(7) does not prevent MS from maintaining in force
requirements relating to participation in a collective compensation fund
(lawyers’ contributions in a Bar Association in order to compensate any
damage and losses caused to clients by the malpractice of its members
would not be affected by this provision)
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Prohibition of Obligations to Have Been Previously Registered or
to Have Previously Exercised the Activity for a Given Period in the
Same Member State
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Article 14(8) requires Member States to abolish requirements
making establishment in their territory conditional on a previous
registration or a previous exercise of activities of the provider in their
territory
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Requirements that allow only operators which have already carried out
activities in a Member State for a certain number of years to provide
certain categories of services will normally exclude access to the
market for new service providers
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Requirements to be Evaluated
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Article 15 requires MS to examine (again during the transposition
stage) a number of requirements (Grey List) that restrict the freedom
of establishment, but which may be justified in certain cases
This differs from Article 14 in that, whilst MS will have to examine
whether requirements of this kind exist in their legal systems, they
will not automatically have to eliminate them (as required in
Article 14)
Instead, MS will first have to verify whether any such requirements
meet the criteria of non-discrimination, necessity and
proportionality under Article 15 (3)
The concept of overriding reason relating to the public interest
refers to legitimate non-economic grounds (public policy, public
health, public security, the protection of the environment, the
protection of consumers and social policy objectives)
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Requirements to be Evaluated (continued)
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MS can maintain requirements which comply with
the criteria in Article 15(3)
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By virtue of Article 15(6), from the coming into force of
the Directive, MS must not introduce requirements
falling within those listed in Article 15(2), unless they
are in accordance with the conditions in Article 15(3)
and arise from new circumstances
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Grey List under Service Directive
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Article 15
• Quantitative or territorial restrictions;
• Requirements of businesses’ legal form;
• Requirements relating to shareholding;
• Reserving right to service activity to particular providers, other than
due to qualification or EC Law;
• Ban on more than one establishment on territory;
• Requirements which stipulate a minimum number of employees;
• Fixed minimum or maximum tariffs;
• Prohibitions or obligation on underselling and sales;
• Requirements that providers must allow access to other providers’
services; and
• Requirements that providers must supply other services jointly with
theirs service
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Some of the Most Commonly Quoted Cases of
European Court of Justice Dealing with art.43-48, the EC
Treaty
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In these cases, ECJ interprets the Freedom of Establishment under
art.43-48, EC Treaty not only as a prohibition of discrimination, but
also as a prohibition of restriction
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The difference between a discrimination and a restriction is that in
case of discrimination a person with a link to the EC (for example
a foreigner) is discriminated against (treated differently) as
compared to a person without a link to the EC (home national in this
example), whereas in case of restriction both persons are treated
the same way but that treatment inhibits the person with the link to
the EC to execute the freedom of establishment
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Case 107/83 Klopp
Court of Justice [1984] ECR 2971
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Klopp case: a German lawyer had been refused admission to the
Paris Bar on the sole ground that he already maintained an office
as a lawyer in another MS
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The ECJ ruled that, although it was for the states to regulate the
exercise of professions in their own territory, they could not require a
lawyer who wished to practice there, to have only one establishment
throughout the Community, since Article 43 specifically
guarantees the freedom to set up more than one place of work
in the Community
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Case C-55/94 Gebhard
Court of Justice ECR [1995] I-04165
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Gebhard case concerned a German national against whom disciplinary
proceedings were brought by the Milan Bar Council for pursuing a
professional activity as a lawyer in Italy on a permanent basis, in chambers
set up by himself and using the title avvocato, although he had not been
admitted as a member of the Milan Bar and his training, qualifications,
and experience had not formally been recognized in Italy
Having established that in the absence of Community rules, MS may
justifiably subject the pursuit of self-employed activities to bona fide rules
relating to organization, ethics, qualifications, titles, etc., the ECJ continued:
National measures liable to hinder or make less attractive the exercise
of fundamental freedoms guaranteed by the Treaty must fulfil four
conditions: 1) they must be applied in a non-discriminatory manner; 2) they
must be justified by imperative requirements in the general interest; 3) they
must be suitable for securing the attainment of the objective which they
pursue; 4) and they must not go beyond what is necessary in order to attain
it
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Case C-212/97 Centros
Court of Justice [1999] ECR I-1459
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Centros Ltd, a private limited company formed under English law
(“Centros”), applied for the registration of a branch in Denmark.
Centros’ share capital was held by Danish nationals residing in
Denmark. Centros had never traded since its formation in the UK
and was in fact seeking to establish in Denmark not a branch, but a
principal place of business, by circumventing the national rules
concerning the paying-up of minimum share capital
The registration authorities refused the registration of the
branch based on the grounds that the establishment of a branch in
Denmark would be a way of avoiding the national rules on paying-up
of minimum share capital
According to the ECJ, it was contrary to Articles 43 and 48 of the
Treaty for a Member State to refuse to register a branch of a
company formed in accordance with the law of another Member
State in which it has its registered office
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Case 2/74 Reyners
Court of Justice [1974] ECR 631
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M. Reyners, a Dutch national, was prohibited from practicing as an
advocate in the Belgian courts on the grounds that he did not have
Belgian nationality. Such discrimination would be forbidden by (what
is now) Art. 43 of the ECTreaty, but it was unclear whether Art. 43
had Direct Effect. Under the principle of VanGendEnLoos1963, a
Treaty provision would be directly effective if, inter alia, it were
unconditional and did not leave any further implementation to the
MS. However, in this case Art. 44 provided that the Commission
would issue various directives creating the necessary legal
obligations to give effect to Art. 43. These directives had not been
created at the time the case was heard
The ECJ held that the principle of Art. 43 - non-discrimination on the
grounds of nationality - was clear. Despite the lack of specific
directives, Art. 43 did prohibit member states from acting in
particular ways, and it was therefore directly effective
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Summary
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Major objective of the Directive is to eliminate obstacles to the
freedom of establishment for service providers by setting
rules for:
1) administrative simplification including the establishment of
“single points of contact”; and by
2) requiring removal of specified prohibited requirements
Under the provisions of Service Directive, MS must also
assess requirements imposed on access to, and exercise of,
service activities and report to the Commission on the results,
specifying which requirements Member States plan to retain
and their justifications for doing so
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Elizabeth Parushkova
[email protected]
+359 02 9145 2116
BNB
Bank Supervision Department
Supervisory and Legal Directorate
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