Banking Regulation in Spain

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Regulatory framework

Key policies

What are the principal governmental and regulatory policies that govern the banking sector?

Spanish banking regulation is primarily focused on ensuring the stability of banks and other financial intermediaries, the efficiency of the financial markets and protecting the interests of clients and investors.

The global financial crisis of 2008 has shown the need to enhance the quality of prudential regulation of credit institutions. In Spain, in parallel with the rest of the European Union (EU) in general, and the eurozone in particular, this is achieved by way of a set of regulations that becomes more complex and wide-ranging every day, aimed at monitoring bank solvency and risk management on an ongoing basis.

Apart from solvency and prudential requirements, Spanish banking regulation is based on activities reserved for credit institutions (ie, receiving deposits from clients is only allowed to them), suitability requirements for directors and significant shareholders, corporate governance and the specific restructuring and resolution system of banks with financial difficulties.

This banking regulation is highly influenced (increasingly so) by determined EU regulation, especially in relation to solvency and capital requirements and the Single Supervisory Mechanism (SSM).

Primary and secondary legislation

Summarise the primary statutes and regulations that govern the banking industry.

The primary statute governing the banking sector is Law No. 10/2014, on organisation, supervision and solvency of credit institutions. The purpose of this Law is twofold: implementing Directive 2013/36/EU (CRD IV) into Spanish law and recasting Spanish banking regulation into one single set of provisions. This Law governs:

• regulatory requirements and the authorisation process for incorporating banks;
• acquisition of significant holdings;
• requirements applicable to directors and senior officers (suitability, incompatibilities and limitations);
• corporate governance (including remuneration policies and internal functions);
• solvency;
• supervision; and
• disciplinary regime.

Law No. 10/2014 is developed by Royal Decree-Law No. 84/2015 and Circular No. 2/2016 of Banco de España (Bank of Spain), which regulates the aspects governed by it in more detail. Together with Law No. 10/2014, the pillar of financial stability is Law No. 11/2015, which governs the recovery and resolution of banking institutions and implements the Banking Recovery and Resolution Directive 2014/59/EU (BRRD).

Particular areas of the banking sector are governed by specific rules, including:

• Law No. 16/2011 (consumer credit);
• Law No. 16/2009 (payment services);
• Order No. EHA/2899/2011 (transparency of banking services); and
• several Bank of Spain circulars on prudential supervision and information reporting.

The Spanish legal framework is completed by directly applicable European regulation, such as Regulation (EU) No. 575/2013 on prudential requirements for credit institutions (CRR).

Regulatory authorities

Which regulatory authorities are primarily responsible for overseeing banks?

The Bank of Spain is the national banking authority, responsible for supervision of Spanish banks. However, since the implementation of the SSM, it shares supervision duties with the European Central Bank (ECB). See question 9 for further information.

Government deposit insurance

Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.

Deposits of up to €100,000 per depositor and per institution (with exceptions) are insured by the Deposit Guarantee Fund of Credit Institutions (FGD). The purpose of the FGD is to guarantee reimbursement of deposits to the clients of credit institutions. Cash and securities deposits are both covered by the FGD through two different divisions (for cash and securities deposits).

The FGD has its own legal personality, and it is mainly funded by the annual contributions of its members, namely all the Spanish credit institutions (banks, saving banks and credit unions), and branches of non-EU banks, if the deposits held in Spain are not covered by a guarantee system in their home country or if the protection provided by their national guarantee system is lower than the FGD’s (in this case, the branches will join the FGD only for the difference between the FGD and their home country guarantee system).

Annual contributions are determined by the FGD’s management committee (whose members are appointed by the Ministry of Economy, the Ministry of Finance, the Bank of Spain and banking associations). The FGD’s financial resources must be at least 0.8 per cent of the guaranteed deposits (for the cash deposit division) and 0.3 per cent of the guaranteed securities (for the securities division).

FGD-guaranteed deposits are excluded from contribution to bail-in in the event of bank resolution. See question 13 for more information.

The FGD has contributed to the financial assistance of Spanish banks in the past through asset-protection schemes (eg, Caja Castilla-La Mancha, Caja de Ahorros del Mediterráneo and Unnim). However, the Spanish public authorities have acquired ownership interest in banks in resolutions processes through the Fund for Orderly Bank Restructuring (FROB). Since 2009, the FROB has provided public funds amounting to €53.6 billion as financial assistance for restructuring of the Spanish banking system in different forms of capital and become the controlling owner of a significant number of banking institutions. Currently, the FROB is divesting gradually regarding these institutions by selling its ownership interest to other banks and investors, holding stakes only in Bankia SA (through BFA Tenedora de Acciones SA).

Transactions between affiliates

Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.

The legal regime on the transactions that banks may carry out with their affiliates is made up of different rules and provisions. Their limitations refer mainly to the implications of intra-group transactions on calculating the banks’ regulatory own funds. For example, holdings higher than 10 per cent in non-financial institutions should be deducted from own funds, and no risks taken against the non-consolidated part of the bank’s group can be higher than 25 per cent of its own funds.

Additionally, there are restrictions on the possibility of incorporating affiliates abroad. In particular, incorporating a foreign credit institution in a non-EU member state and acquiring a significant stake in an institution are subject to the authorisation requirements of the Bank of Spain.

With respect to the activities that may be carried out by Spanish financial institutions, they depend on their specific regulatory status. Credit institutions (ie, banks, saving banks and credit unions) have the widest scope of activities, as they are the only institutions that may take deposits from the public. They may also render other banking services (eg, financing, payment services, e-money), investment services and even intermediation in insurance products. However, they may not manage collective investment schemes, although they may manage their investment portfolios under the activity of discretionary portfolio management upon delegation of the relevant management company.

The rest of financial institutions have a limited scope of services:

• investment firms may render investment services but not carry out banking activities;
• specialised credit institutions may only grant financing, under any form (consumer financing, mortgage loans, etc);
• payment entities may only provide payment services. Hybrid payment entities may also grant financing;
• electronic money entities may issue e-money and provide payment services; and
• crowdfunding platforms, whose activities are limited to promote and manage the crowdfunding platforms launched by them.

All the financial institutions above have an exclusive corporate purpose, meaning that they may only render the relevant financial services provided by law with exclusion of other activities. Exceptionally, they may carry out other activities if they are reasonably linked to their financial business.

Regulatory challenges

What are the principal regulatory challenges facing the banking industry?

In recent years, Spanish regulation has taken important steps to consolidate the banking sector. Aspects such as transparency and client protection have been significantly developed, while consolidation of a prudential regime for resolution and restructuring of the banking sector and a harmonised regime on solvency have taken place.

However, the challenges to the Spanish banking sector are practical in nature. In particular, three aspects should be analysed in the coming years:

• the implications of providing third-party service providers with access to clients’ information, following the obligations set out in Directive 2366/2015/EU (PSD2);
• the cooperation or competition relationships with firms applying disruptive technologies to fintech; and
• the business of securities distribution under the regime provided in Directive 2014/65/EU (MiFID II), which restricts the possibility to receive inducements from issuers and global distributors.

Consumer protection

Are banks subject to consumer protection rules?

Banks are subject to general consumer protection rules, as well as to specifically approved bank consumer protection regulations.

The general consumer protection rules are compiled in Legislative Royal Decree-Law No. 1/2007, approving the recast text of the Law on the Protection of Consumers and Users. Legislative Royal Decree-Law No. 1/2007 provides a catalogue of possible contractual clauses with consumers that may be considered abusive, and therefore, void. The catalogue considers unfair those clauses linking the agreements to the will of the company, implying a restriction of consumers’ basic rights or a lack of reciprocity between the parties to benefit the company. The catalogue includes all the abusive clauses listed in Annex to Council Directive 93/13/EEC of 5 April 1993, on unfair terms in consumer contracts, plus others, such as those stipulating the explicit submission to a court other than that corresponding to the consumer by virtue of his or her address, the place where the obligation is met, the location of the real estate asset, or the submission of the contract to foreign law with respect to the place where the consumer makes the business statement or where the company draws up contracts of an identical or similar nature.

Regarding specific banking regulation on consumer protection, the primary statute is Order No. EHA/2899/2011, which provides the general framework on banking transparency and the protection of bank service clients. It also governs the specific regime for mortgage loans and credits. Under this Order, banking institutions are required to provide clients with clear, appropriate, sufficient, objective and non-misleading pre-contractual information. This obligation is supplemented by the duty of financial institutions to provide clients with sufficient and suitable explanations about the main terms of any banking services.

The regulation of the Order in relation to credit and loans is especially notable. As a general principle, banking institutions are required to assess the clients’ solvency before entering into any loan or facility agreement. This assessment may be carried out by considering the information provided by the clients themselves for this purpose, without prejudice to the banks using other sources they may consider appropriate. Additionally, the obligation to provide pre-contractual information is particularly stringent (if not burdensome and redundant) in relation to mortgage loans. There are at least three different documents that should be provided to clients on a pre-contractual basis:

• pre-contractual information, a standardised document describing the main terms of the mortgage financing, merely for guidance purposes as it is not prepared considering the personal information obtained from clients;
• a personalised information sheet, which provides clients with personalised information about the loan that may help them compare the loans available on the market and make a reasoned decision on whether to enter the loan agreement.
• once the client and the banking institution have decided to enter into a mortgage loan agreement, the client may request the bank to provide a binding offer, which will be valid for at least 14 calendar days from its delivery date.

The consumer protection banking regulation is completed by a set of specific provisions applicable to particular aspects of the banking sector, including:

• consumer credit, governed by Law No. 16/2011 (implementing Directive 2008/48/EC), which also requires banks to provide pre-contractual information on a standardised basis under the consumer credit information form;
• mortgage loans, where Law No. 1/2013, on measures for reinforce the protection of mortgage debtors, debt restructuring and social renting, which was approved in response to the high number of evictions in the recent years;
• distance marketing on financial services, governed by Law No. 22/2007, under which consumers may withdraw from the agreement without penalty and without giving any reason within a 14-day period;
• payment services, regulated by Law No. 16/2009, which also provides obligations on the information to clients and their rights, along with Royal Decree-Law No. 19/2017 on comparability of fees and payment accounts with basic features; and
• investment services, subject to the Securities Market Law (Legislative Royal Decree-Law No. 4/2015) and Royal Decree-Law No. 217/2008, implementing EU MiFID Directives into Spanish law.

Future changes

In what ways do you anticipate the legal and regulatory policy changing over the next few years?

At this time, it is difficult to anticipate the next trends of regulatory provisions in Spain because prudential regulation has been approved and implemented recently by way of directly applicable EU regulation (ie, SSM and CRR) and its local developments. Any further change will be conducted at EU level.

With respect to other aspects of the banking business, Spanish regulation has been reinforced in recent years by way of approval of several sets of rules covering different aspects (corporate governance, consumer protection, transparency, etc) that are at a stage of consolidation rather than restructuring. There is, however, one aspect that should be followed up in the coming years: the use of intensive and disruptive technology, not only with respect to the provision of services (eg, robo-advisers), but also in relation to market infrastructures (eg, use of blockchain technology in post-trading services) and prudential supervision (RegTech applications). All these technological applications may lead the regulators to approve specific regulation in the future, which will have a significant impact on the activities of banks.

Supervision

Extent of oversight

How are banks supervised by their regulatory authorities? How often do these examinations occur and how extensive are they?

The SSM modified the Spanish banks’ supervision regime on 4 November 2014. Currently, Spanish banks are supervised by the ECB and the Bank of Spain.

From a general perspective, the ECB’s supervisory tasks are related to:

• granting and withdrawing authorisation to credit institutions;
• cross-border services in EU states not participating in the SSM;
• notifications of acquisition of qualifying holdings;
• supervisory reviews (eg, stress tests);
• compliance with the ECB’s resolutions on prudential and governance requirements (including own resources, large exposure limits, liquidity and leverage);
• supervision of consolidated groups;
• recovery plans; and
• early intervention.

The way in which the ECB’s supervisory tasks are carried out differs depending on whether the relevant credit institution qualifies as a significant or less significant supervised entity (also on a group basis, as the case may be). Qualification as significant or less significant depends on factors such as size, systemic importance, cross border activities, etc. In particular, the ECB is responsible for directly supervising significant institutions or groups, while the Bank of Spain (as the national competent authority) is responsible for directly supervising less significant institutions or groups. In any event, the Bank of Spain is subject to the overview of the ECB, which may address general instructions on less significant institutions to the Bank of Spain and retains investigatory powers over all supervised entities within the SSM. At any rate, Spanish significant institutions, by application of the size criterion, account for more than 90 per cent of the country’s total deposits, so the ECB is, by far, in charge of most of the Spanish financial system.

The ECB’s supervision powers include requesting information from supervised entities, conducting investigations and on-site inspections and imposing administrative penalties in the event of intentional or negligent breach of the obligations provided under the directly applicable EU regulation. The Bank of Spain assists the ECB in implementing any acts relating to the exercise of the ECB’s supervisory tasks, including the ongoing, day-to-day supervision of significant institutions and related on-site inspections. Additionally, the ECB may exercise all the powers attributed to the Bank of Spain under EU directives and regulations and may instruct the Bank of Spain to make use of its powers under the Spanish national law.

Regarding the less significant institutions, the Bank of Spain has direct supervision powers in relation to:

• prudential requirements;
• cross-border activities in EU states not participating in the SSM;
• robust governance (risk management, internal control, remuneration policies, etc); and
• stress tests.

Some responsibilities in relation to these less significant institutions are allocated to the ECB, including the granting and withdrawal of authorisations to credit institutions and the assessment of notifications of acquisition and disposal of qualifying holdings in credit institutions, except in the case of a bank resolution. The Bank of Spain has powers to adopt all relevant supervisory decisions, request information and perform on-site inspections.

In any case, supervisory tasks not conferred on the ECB are carried out by the Bank of Spain. Such tasks are related to supervising:

• non- ‘credit institution’ entities (ie, those not authorised to take deposits);
• non-EU institutions operating through branches or free to provide services;
• receiving notifications on the right of establishment and the free provision of services;
• prevention of money laundering and terrorist financing; and
• consumer protection.

The Bank of Spain has discretionary powers to carry out inspections in the credit institutions for matters for which it is responsible. Apart from this, the Bank of Spain has to review the systems, strategies and procedures of the credit institutions and the risks taken by them, in order to determine whether they have implemented solid risk management. The frequency of these reviews depends on the systemic importance, nature and complexity of the activities of the relevant banks.

Enforcement

How do the regulatory authorities enforce banking laws and regulations?

As stated in question 9, banking regulation may be enforced by the ECB and the Bank of Spain under the SSM.

The widest enforcement powers are conferred to the ECB, which is not only competent to enforce EU regulation (including regulations directly applicable and directives conferring powers to the Bank of Spain), but also national laws in relation to powers not conferred to the ECB under the SSM Regulation.

The enforcement powers of both the ECB and the Bank of Spain include:

• restricting or limiting the bank business and operations;
• requesting divestment of activities posing excessive risks;
• requiring institutions to limit variable remuneration;
• requesting the use of net profits to strengthen own funds;
• imposing specific liquidity requirements;
• removing members from the management body at any time; and
• imposing administrative pecuniary penalties for breaching regulations.

What are the most common enforcement issues and how have they been addressed by the regulators and the banks?

In recent years, there have been two enforcement issues with important implications in the banking sector: the promotion of preferred shares to retail investors and the execution of agreements and transactions for hedging floating rates.

Between 2005 and 2010, preferred shares were markedly commercialised to retail investors, mainly by savings banks, taking advantage of their use as capital instruments for solvency purposes. They were typically marketed as an alternative to deposits (with low returns at that time). Retail investors were provided with insufficient and misleading information about the product’s characteristics and risks. Many of them have been able to get their funds back, alleging lack of information in court claims and arbitration systems. In order to prevent these cases, the Spanish government has approved Order No. ECC/2316/2015, which requires classifying products by risk level using a colour and numeric scale.

With respect to agreements for hedging floating rates, products such as over-the-counter derivatives were marketed to retail clients and small companies without providing sufficient information about the risks of these products. Many of them have been declared null and void by the courts because of the misleading information provided. However, the most relevant case is the wide spread insertion of floor clauses (ie, minimum interest rate) in consumer mortgage loan agreements, to those who have been unable to the take advantage of the low floating market rates. Based on the European Union Court of Justice judgment of 21 December 2016 (joined cases C-154/15, C-307/15 and C-308/15), which declares the nullity of such floor clauses and requires the refund of all payments made by consumers under them, the Spanish government approved Royal Decree-Law No. 1/2017, under which banks have to implement pre-judicial claim systems allowing their clients to apply for such repayment.

Resolution

Government takeovers

In what circumstances may banks be taken over by the government or regulatory authorities? How frequent is this in practice? How are the interests of the various stakeholders treated?

Under Law No. 10/2014, the Bank of Spain may decide to intervene in a credit institution, or to provisionally replace its governing body, if:

• a significant holding in the credit institution has been acquired without complying with the applicable regime (see question 21 below), or there are accredited reasons to understand that the influence of the acquirers may jeopardise the sound and prudential management of the institution and its financial situation; or
• there is evidence that the situation of the credit institution may damage its stability, liquidity and solvency, when such situation is different from those governed by Law No. 11/2015.

Additionally, credit institutions may be intervened in the cases provided by Law No. 11/2015 (ie, the set of rules establishing the general framework for the restructuring and resolution of credit institutions (and investment firms), which are the same outlined in the BRRD).

Bank intervention and resolution is governed by the following principles:

• shareholders will have to bear losses first;
• creditors will bear losses after the shareholders and pursuant to the seniority of their credits;
• creditors with same seniority will be treated equivalently;
• shareholders and creditors will not bear higher losses than those that would have been borne under an insolvency proceeding;
• directors may be replaced and will be liable for any damages caused to the bank; and
• guaranteed deposits (see question 4) are fully protected.

The mechanisms of Law No. 11/2015 were applied in June 2017 to the resolution of Banco Popular Español SA, one of the largest Spanish banks. Following Regulation (EU) No. 806/2014 and the ECB’s statement about the significant deterioration of the liquidity of the bank, the European Single Resolution Board (SRB) resolved to transfer all shares and capital instruments of the bank to Banco Santander SA for €1. Such resolution was notified to the Spanish resolution authority (FROB) for implementation.

Bank failures

What is the role of the bank’s management and directors in the case of a bank failure? Must banks have a resolution plan or similar document?

The role of management and directors in a bank’s failure depends on the specific bank situation.

In any case, Spanish credit institutions must draw up and maintain a recovery plan providing measures to be taken to restore their position in the event of a significant deterioration in their financial situation. The plan must be approved by the bank’s management body and updated at least annually, or after a material change in its situation. See question 15 for further information.

In addition to the recovery plan, and also on a preventive basis, the resolution authority, after consulting the FROB and the competent authority, as well as the resolution authorities of the jurisdictions in which any significant branches are located insofar as is relevant to the significant branch, should draw up a resolution plan for each institution that is not part of a group subject to consolidated supervision. This resolution plan provides the resolution actions which will be taken by the resolution authority it the bank meets the conditions for resolution.

The resolution plan may not assume any extraordinary public financial support, any central bank emergence liquidity assistance or any central bank liquidity assistance provided under non-standard collateralisation, tenor and interest rate terms. Resolution plans should be reviewed and updated at least annually and after any material changes.

In the case of groups, group-level resolution authorities, together with the resolution authorities of subsidiaries and after consulting the resolution authorities of significant branches insofar as is relevant to the significant branch, draw up group resolution plans. Group resolution plans should include a plan for resolution of the group headed by the parent undertaking as a whole, either through resolution of the parent undertaking or through break-up and resolution of the subsidiaries.

In the case of bank resolution, the members of the board of directors and the managing director will be replaced, unless considered strictly necessary for achieving the purpose of the resolution. In any case, directors must provide all possible assistance under the resolution process.

Are managers or directors personally liable in the case of a bank failure?

Directors’ liability in the event of bank failure may be civil, criminal and administrative.

Civil liability implies that the directors may be liable for any damages caused if the bank failure is because of gross negligence or wilful misconduct of the directors.

Criminal liability exists in cases of:

• false accounting;
• negligent business management;
• destruction of required documentation; and
• fraudulent transactions, etc.

From an administrative perspective, pecuniary sanctions may be imposed on directors in the event of obstructing the functions of the authorities with respect to analysis of the bank’s situation.

Planning exercises

Describe any resolution planning or similar exercises that banks are required to conduct.

As a preventive measure under Law No. 11/2015, Spanish credit institutions must draw up and maintain a recovery plan providing measures that would be taken to restore their position in the event of a significant deterioration in their financial situation. The recovery plan must include quantitative and qualitative indicators that will be taken as reference to initiate the relevant measures. The plan may not assume any access to, or receipt of, extraordinary public financial support.

The plan must be approved by the bank’s management body and reviewed by the supervisor. It must be updated at least annually, or after a material change in its situation (its business, organisational structure, financial situation, etc), although the competent authorities may require banks to update their recovery plans more frequently.

In the case of consolidated groups, recovery plans should consist of a recovery plan for the group headed by the parent undertaking as a whole and provide measures that may be required to be implemented by the parent undertaking and each individual subsidiary.

Capital requirements

Capital adequacy

Describe the legal and regulatory capital adequacy requirements for banks. Must banks make contingent capital arrangements?

Spanish credit institutions are subject to Regulation (EU) 575/2003 (CRR), which provides the general prudential requirements for all the European credit institutions and investment firms by implementing the standards of the Basel Committee of December 2010 (Basel III).

Under the CRR, banks must at all times meet the following own funds requirements:

• a common equity Tier 1 (CET1) capital ratio of 4.5 per cent;
• a Tier 1 capital ratio of 6 per cent; and
• a total capital ratio of 8 per cent.

The CRR requirements are supplemented by individual arrangements established by the national authorities. In the case of Spain, these are provided by Royal Decree-Law No. 84/2015, which sets the levels of countercyclical capital buffer and systemic risk buffer, and Circular No. 2/2016 of the Bank of Spain.

In addition, Spanish banks should have a minimum share capital of €18 million.

With respect to contingent capital arrangements, the CRR requires that instruments recognised in the Additional Tier 1 capital of a credit institution be written down, or converted into CET1 instruments, when the CET1 capital ratio falls below 5.125 per cent, without prejudice that institutions may issue Additional Tier 1 instruments if there is a trigger higher than 5.125 per cent. Apart from this, there are no other forms of contingent capital for the purposes of meeting regulatory capital requirements.

How are the capital adequacy guidelines enforced?

Credit institutions are required to report information about their financial situation (own funds, liquidity, leverage, etc) to the authorities on an ongoing basis. Based on such information, the Bank of Spain may detect whether a bank is not duly capitalised and, if this is the case, to proceed as described in question 18.

Undercapitalisation

What happens in the event that a bank becomes undercapitalised?

Credit institutions breaching the combined capital buffers are required to draft a capital conservation plan, which will be submitted to the Bank of Spain within five days of the date on which the breach is verified. This plan will have to provide an estimate of balance, profit and losses, information about the measures for increasing capital ratios and a schedule for increasing the bank’s own resources. The Bank of Spain will have to approve the plan; otherwise, new restrictions on distributions and a new schedule may be imposed.

If it is foreseeable that the bank will not be able to comply with the solvency requirements in the near future, but it is in a position to revert to the fulfilment on its own, then the Bank of Spain may adopt certain preventive measures, including:

• requesting the bank’s management bodies to apply additional measures;
• requesting the dismissal or replacement of directors; and
• appointing a representative to monitor the process.

Insolvency

What are the legal and regulatory processes in the event that a bank becomes insolvent?

If, despite the measures mentioned in question 18 above, a bank is not able to comply with the solvency requirements in the near future, or if it is insolvent (or will be in the near future), the FROB may initiate the bank’s resolution, which implies replacing the directors. The bank’s resolution may result in the sale of the bank’s business, the transfer of the assets and liabilities to a bridge institution or a management company, or the internal recapitalisation of the bank. The process is handled under Law No. 11/2015.

Banks are not exempted from ordinary, court-driven insolvency proceedings (eg, under the general Insolvency Law No. 22/2003). Banks may end up filing for bankruptcy if the FROB decides, under Law No. 11/2015, that it is not worthwhile to resolve the bank otherwise, or subsequent to the application of special resolution or recovery tools under Law No. 11/2015, an institution (with its legacy assets) may be rerouted to the bankruptcy court.

Recent and future changes

Have capital adequacy guidelines changed, or are they expected to change in the near future?

The capital adequacy rules are not expected to be amended in the near future. The approval of CRD IV and CRR in the EU means the establishment of a single book harmonising the banking prudential regulation in the EU. The development of this regulation was approved in Spain by way of Law No. 10/2014, Royal Decree-Law No. 84/2015 and Circular No. 2/2016 of the Bank of Spain. Note, however, that this regulation system is to be phased in, and has not entirely been implemented, and further amendments may be expected as new standards are agreed in the Basel Committee in the next few months (Basel IV).

Ownership restrictions and implications

Controlling interest

Describe the legal and regulatory limitations regarding the types of entities and individuals that may own a controlling interest in a bank. What constitutes ‘control’ for this purpose?

The acquisition or transfer, either directly or indirectly, of a significant holding in a bank is subject to the ECB’s prior consent, upon the proposal of the Bank of Spain. For this purpose, a stake is considered ‘significant’ if:

• it exceeds 10 per cent of the capital or voting rights;
• together with the stake already held by the potential acquirer, it reaches 20, 30 or 50 per cent of the capital or voting rights or, regardless of the amount, it results in the potential acquisition of control over the institution; or
• whatever its amount, it enables the holder to exercise ‘significant influence’ (for these purposes, the capacity to appoint or dismiss a director is always deemed ‘significant influence’).

Consent to the transaction will not be granted if the acquirer does not meet the requirements of business reputation and solvency or if, as a result of the transaction, it would not be possible to supervise the bank properly. Additionally, prior to granting authorisation for the transaction, the Bank of Spain will request a report from the anti-money laundering (AML) authority (SEPBLAC), which will also analyse the transaction and the acquirer.

Foreign ownership

Are there any restrictions on foreign ownership of banks?

There is no general restriction, that is, foreign persons may own banks. Notwithstanding, specific prudential rules apply.

When incorporating a bank, if it is to be controlled by another financial institution authorised in an EU member state, or by its shareholders, the Bank of Spain will have to inform the relevant national authority about the incorporation process before granting the authorisation.

However, once the transaction is completed, if the persons controlling the Spanish bank are to be domiciled or authorised in a non-EU state, the Bank of Spain may require a guarantee covering all the activities of the Spanish bank.

Implications and responsibilities

What are the legal and regulatory implications for entities that control banks?

Entities controlling banks are subject to limited supervision of the Bank of Spain for prudential purposes. In particular, entities controlling banks will have to comply with the duties and responsibilities referred to in question 24.

Controlling entities, and holders of significant stakes, are liable to administrative sanctions if they exercise a negative influence over, or otherwise destabilise, the entity in question.

What are the legal and regulatory duties and responsibilities of an entity or individual that controls a bank?

In addition to question 23, parent companies of banks are subject to suitability requirements that also apply to their directors, meaning that directors and senior officers of the parent companies must comply with the requirements of business reputation, experience and independence applicable to bank directors. For example, the parent company’s proposal for appointing directors will have to be submitted to the Bank of Spain prior to its effectiveness. The Bank of Spain may refuse the appointment if the proposed directors do not meet the suitability requirements.

What are the implications for a controlling entity or individual in the event that a bank becomes insolvent?

Under the resolution regime of banks, shareholders will be the first in bearing losses, but they will not bear any losses higher than those that the shareholders would have to bear within an insolvency proceeding. In the case of banks, this means that the maximum losses that shareholders must bear is their contribution to the share capital. Additionally, any debts that shareholders holding at least 5 per cent of the share capital may have against the bank are considered subordinated credits, meaning that they will have less seniority in comparison with other credits in the banks’ accounts.

Changes in control

Required approvals

Describe the regulatory approvals needed to acquire control of a bank. How is ‘control’ defined for this purpose?

The acquisition of a significant holding in a bank is subject to ECB approval (non-opposition), upon the proposal of the Bank of Spain. This proposal will be issued by previously considering the SEPBLAC’s report on the implications of the transaction from the perspective of AML.

For this purpose, a significant holding means a direct or indirect holding in a bank representing 10 per cent or more of the share capital or of the voting rights, or that makes it possible to exercise a significant influence over the management of that bank.

Foreign acquirers

Are the regulatory authorities receptive to foreign acquirers? How is the regulatory process different for a foreign acquirer?

The regulatory process may be slightly different if the acquirers are foreign persons. As discussed in question 22, if the control of the bank will be held by another financial institution authorised in an EU member state, or by its shareholders, the relevant national authorities of such state will have to be informed by the Bank of Spain.

If, however, the control of the bank will be held by persons domiciled or authorised in a non-EU state, then the Bank of Spain may require a guarantee covering all the activities of the Spanish bank.

In general, the Bank of Spain is receptive to foreign acquirers and has given the go-ahead to certain purchases of Spanish banks by investors located in non-European jurisdictions. The Bank of Spain’s assessment is focused on the continuity of the proper prudential supervision of the bank, including the fulfilment of the AML regulation, and that the jurisdiction of the purchasers should not be an obstacle per se.

Factors considered by authorities

What factors are considered by the relevant regulatory authorities in an acquisition of control of a bank?

The factors analysed by the Bank of Spain when assessing the acquisition of control in a Spanish bank are mainly:

• the business reputation of the acquirer and the persons controlling it;
• the directors and senior officers of the bank who may be appointed as a result of taking control, who will have to comply with the requirements of business reputation, experience and independence;
• the financial solvency of the acquirer for complying with the commitments in relation to the activities to be carried out by the bank;
• the capacity of the bank for complying, on a stable basis, with the applicable disciplinary rules;
• the acquisition of control should neither jeopardise the proper prudential supervision of the bank, nor impede the exchange of information between the competent authorities and the allocation of duties and responsibilities between them; and
• the existence of signs that may reasonably lead to suspicion that the transaction is related to money laundering and terrorism financing.

Filing requirements

Describe the required filings for an acquisition of control of a bank.

The following information must be filed with the Bank of Spain as part of the authorisation process for acquiring control of a Spanish bank:

• information about the acquirer and its controlling persons:
• identity;
• group structure;
• composition of the managing bodies;
• reputation and experience;
• financial situation;
• existence of links and relationships (financial and non-financial) with the bank; and
• assessments carried out by international AML bodies; and
• information about the transaction:
• purpose;
• price and payment terms;
• impact on the distribution of voting rights; and
• financing of the transaction and existence of agreements with third parties or other shareholders in relation to the transaction; and
• impact on the bank:
• business and strategic plans;
• amendments to the corporate governance structure;
• internal controls; and
• AML processes.

Timeframe for approval

What is the typical time frame for regulatory approval for both a domestic and a foreign acquirer?

The Bank of Spain and ECB must accept or oppose to the transaction within 60 business days following the receipt of the application, provided it includes all the required information. This period may be extended if the application is not complete or if the Bank of Spain has to consult other regulators.

If there is no express resolution from the Bank of Spain on the proposed transaction within this period of 60 business days, authorisation may be considered granted.