Investment Consultants in Bulgaria: Qualification, Investment Advice and the MiFID II Regulation

AML, Private Clients Insights

The regulatory framework governing investment advice in Bulgaria forms part of the broader European framework established by Directive 2014/65/EU on markets in financial instruments (“MiFID II”) and its implementing and delegated measures.

One of the most important distinctions for individuals entering this field is the difference between holding a professional qualification as an investment consultant and being authorised to provide regulated investment services on a standalone basis.

In Bulgaria, obtaining the professional qualification of an investment consultant does not, by itself, amount to an authorisation to operate an investment business. Rather, the qualification enables the individual to perform certain regulated functions within an appropriate legal and regulatory structure.

This distinction is particularly important for professionals seeking to build an independent advisory practice, work with an investment firm established in another EU Member State, operate as a tied agent, or provide investment-related educational content without inadvertently crossing the regulatory boundary into investment advice.

The regulatory framework

The Bulgarian regime should be understood within the wider EU financial services framework.

At EU level, the principal instrument is MiFID II, which establishes the regulatory framework for investment firms providing investment services and carrying out investment activities in relation to financial instruments.

MiFID II is supplemented by, among others:

• Commission Delegated Regulation (EU) 2017/565, which supplements MiFID II with regard to organisational requirements and operating conditions for investment firms and defines concepts relevant to the Directive;
• Regulation (EU) No 600/2014 (MiFIR), which establishes, among other matters, requirements concerning transparency, transaction reporting and certain organisational and market-related obligations;
• Directive (EU) 2019/2034 (IFD), concerning the prudential supervision of investment firms; and
• Regulation (EU) 2019/2033 (IFR), concerning prudential requirements applicable to investment firms.

At national level, the principal legislation is the Bulgarian Markets in Financial Instruments Act (Закон за пазарите на финансови инструменти), together with the secondary legislation adopted by the Financial Supervision Commission (FSC), including Ordinance No. 7 of 27 May 2021 on the procedure for acquisition, recognition and withdrawal of the professional qualification of financial instrument brokers and investment consultants. 

The framework is therefore not based on a standalone investment consultant licence. Instead, it distinguishes between the professional qualification of the individual and the authorisation of the entity through which regulated investment services are provided.

What does an investment consultant qualification actually allow?

Under Bulgarian law, an investment consultant is a natural person who, under an agreement with an appropriate regulated entity, provides investment advice concerning financial instruments, performs portfolio management functions and carries out other activities falling within the statutory framework.

The relevant Bulgarian rules expressly contemplate an investment consultant acting under an agreement with an:

• investment firm;
• management company;
• investment company;
• pension insurance company;
• national investment fund;
• tied agent;
• alternative investment fund manager; or
• another person required by law to enter into an agreement with an investment consultant.

This is an important point in practice.

The professional qualification belongs to the individual, but the regulated investment service must be provided within an appropriate regulatory structure.

Accordingly, an individual who has passed the relevant examination and obtained the professional qualification cannot simply establish a website and begin providing personalised investment recommendations to clients for remuneration on the basis of that qualification alone.

Three principal models for exercising the profession

For professionals seeking to use their investment consultant qualification in practice, three broad models may be considered.

Working within an existing regulated entity

The most straightforward model is to enter into an employment contractual relationship with a regulated entity falling within the scope of the Bulgarian regulatory framework.

Under this model, the individual acts within the organisational and compliance framework of the relevant regulated entity.

This generally provides the clearest regulatory structure because matters such as client onboarding, suitability, record-keeping, conflicts of interest, remuneration, complaints handling, AML controls and regulatory reporting are integrated into the framework of the regulated business.

The investment consultant therefore performs the professional function, while the regulated entity remains responsible for the provision of the relevant investment service.

Acting as a tied agent

For professionals seeking greater operational independence, the tied agent model can be particularly relevant.

Under MiFID II, a tied agent is a natural or legal person who, under the full and unconditional responsibility of only one investment firm, promotes investment and/or ancillary services, receives and transmits client orders, places financial instruments or provides advice to clients or prospective clients in respect of financial instruments or services offered by that investment firm.

Article 29 of MiFID II requires the investment firm to remain fully and unconditionally responsible for the actions and omissions of the tied agent when acting on its behalf. The investment firm must also monitor the tied agent’s activities and ensure compliance with the applicable regulatory requirements.

The tied agent must also be appropriately registered and must satisfy applicable requirements concerning reputation, knowledge and competence.

The Bulgarian framework similarly allows a tied agent to be either a natural person or a legal entity. Where investment advice is provided through a tied agent, such advice must be provided through a person holding the professional qualification of an investment consultant. A written agreement must govern the relationship between the tied agent and the investment firm, and a tied agent may act on behalf of only one investment firm under the Bulgarian regime.

This model can therefore provide a useful middle ground between employment by an investment firm and establishing a fully licensed investment business.

It is particularly relevant to professionals who wish to develop their own commercial presence and client relationships while operating within the regulatory infrastructure and responsibility of an established investment firm.

Establishing a licensed investment firm

A third possibility is to establish an investment firm and obtain the relevant authorisation to provide investment services.

This is fundamentally different from obtaining an individual investment consultant qualification.

An investment firm is subject to a substantially broader regulatory framework, including requirements concerning capital, governance, organisational arrangements, internal controls, risk management, compliance, client asset protection, conduct of business, reporting and prudential supervision.

The applicable prudential framework is supplemented at EU level by the Investment Firms Regulation (EU) 2019/2033 and the Investment Firms Directive (EU) 2019/2034.

For an individual whose principal objective is to provide investment advice rather than operate a full-scale investment business, establishing a licensed investment firm will generally represent a significantly more complex regulatory undertaking.

What constitutes investment advice?

The regulatory boundary becomes particularly important when considering what activities may be performed outside a regulated investment services structure.

Under MiFID II, investment advice means the provision of a personal recommendation, upon the client’s request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments.The Bulgarian legislation adopts the same conceptual framework.

Under Article 9 of Delegated Regulation (EU) 2017/565, a personal recommendation is a recommendation addressed to a person in their capacity as an investor or potential investor and which recommends that the person take one of a defined range of actions in relation to a particular financial instrument.

The distinction is therefore not simply between “information” and “advice”. The key issue is whether the communication amounts to a personal recommendation concerning a particular financial instrument.

This may include recommendations to:

• buy;
• sell;
• subscribe for;
• exchange;
• redeem;
• hold; or
• underwrite a particular financial instrument.

A general statement made to the public does not, merely because it concerns investments, become investment advice. The regulatory analysis changes when information is transformed into a recommendation directed to a particular investor and relating to a particular financial instrument.

General financial education versus regulated investment advice

This distinction is increasingly relevant to professionals developing educational investment platforms, online courses, newsletters, podcasts and social media content.

There is generally a significant difference between:

“An ETF is a financial instrument that typically tracks the performance of an index.” and: “Given your age, income, financial objectives and risk tolerance, you should invest 20% of your portfolio in this particular ETF.”

The first statement is general financial education. The second is potentially a personal recommendation and therefore may constitute investment advice.

The same principle applies to portfolio construction.

Explaining generally how diversification works, discussing different asset classes or describing the characteristics and risks of ETFs can fall within educational or informational activity.

By contrast, analysing an individual’s financial circumstances and recommending a particular allocation between shares, bonds, ETFs or other financial instruments may cross the regulatory boundary into investment advice.

The distinction must therefore be assessed by reference to the substance of the activity, rather than simply the label attached to it.

This is particularly important for online businesses. Website terms and disclaimers can form an important part of the compliance framework, but they should reflect the actual nature of the service rather than attempt to override the regulatory classification of the activity.

Cross-border advisory models within the EU

The EU single market also creates opportunities for investment consultants to work with investment firms established in other Member States.

MiFID II establishes a framework under which investment firms authorised in one Member State may provide investment services across the European Economic Area, subject to the applicable passporting, notification and supervisory arrangements.

Conclusion

The central regulatory principle is straightforward but often misunderstood:

An investment consultant qualification is a professional qualification. It is not, by itself, an authorisation to operate an investment business.

The provision of investment advice is a regulated investment service under the MiFID II framework. The relevant activity must therefore be conducted through an appropriate regulatory structure, whether through an existing investment firm or other eligible regulated entity, through a properly structured tied agent relationship, or, where commercially justified, through the establishment of an authorised investment firm.

At the same time, the regulatory framework does not prevent professionals from providing general financial education or developing educational investment content. The critical question is whether the activity remains genuinely general and informational or crosses the line into a personal recommendation concerning a particular financial instrument.

For professionals building an investment-related business in Bulgaria, the most important exercise is therefore not simply determining whether a particular service is investment advice, but designing the business model from the outset so that the professional qualification, regulated investment services, client relationship, educational activities and compliance framework operate consistently with one another.

New Balkans Law Office advises Bulgarian and international clients on financial services regulation, investment services, MiFID II compliance, regulatory structuring, AML compliance and cross-border financial services matters. For enquiries regarding investment services and financial markets regulation, please contact our regulatory and compliance team.