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Czech Republic Seeks to Strengthen Banking Regulation with New Update

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Prague, Czech Republic - The Czech government has taken steps to strengthen banking regulation in the country with a series of updates set to take effect from January 1, 2024.

New Decree Amends Implementing Decrees

On December 14, the Ministry of Finance issued Decree No. 443/2023, which amends implementing decrees on accounting act for entrepreneurs, banks and other financial institutions, insurance companies, and reporting entities whose main subject of activities is not business.

Aligning with International Standards

The updates aim to bring Czech banking regulations in line with international standards, particularly the International Financial Reporting Standards (IFRS).

Key Changes

Introduction of a new concept called “functional currency”, which allows reporting entities to choose a currency other than the Czech currency for accounting purposes.
Definition of functional currency as the currency of the primary economic environment in which the reporting entity operates.
Reporting entities will be able to use either the general exchange rate or a fixed exchange rate for conversion of foreign currencies into their chosen functional currency.

Determining Net Turnover

The decree also introduces new rules for determining net turnover, which is now defined as the amount of revenue from the sale of products and goods and from the provision of services.

Top-Up Tax for Large Multinational and Domestic Groups

Large multinational and domestic groups of companies with annual revenues of more than EUR 750 million will also be required to pay a top-up tax starting from 2024. The decree requires these reporting entities to disclose in their financial statements that they expect to become payers of the top-up tax and describe and quantify the expected impact.

Impact on Financial Sector

The updates are seen as a step towards strengthening banking regulation in the Czech Republic, which has been working to improve its regulatory framework in recent years. According to experts, the changes will bring more transparency and accountability to the financial sector, making it easier for investors and stakeholders to understand the financial performance of reporting entities.

“It’s a positive move by the government to strengthen banking regulation,” said Pavel Novák, an economist at the Czech Academy of Sciences. “It will help to improve trust in the financial system and make it more attractive for foreign investment.”

Timeline

The updates are expected to take effect from January 1, 2024, with reporting entities required to comply with the new regulations by December 31, 2024.

In related news, the Czech government has also announced plans to introduce a new banking supervision authority, which will be responsible for monitoring and regulating banks in the country. The authority is expected to start operations in 2025.