I INTRODUCTION

Spain boasts a diversified modern financial system that is fully integrated with international and European financial markets. The Spanish banking regulator, Banco de España, joined the European System of Central Banks (ESCB) on 1 January 1999. As a result, the definition and implementation of the country's monetary and exchange rate policy, the management of official currency reserves, the efficiency of the payment systems and the issuing of banknotes are now controlled by the ESCB.

Also as a consequence of such integration, the Spanish regulatory system governing credit institutions largely mirrors the legal framework in other EU Member States. As such, credit institutions from other EU Member States may provide banking services in Spain, and vice versa, without the need to establish a branch or a subsidiary.

After a number of years during which Spanish regulatory activity followed to a great extent EU-wide requirements, the outbreak of the Spanish financial crisis and, mainly, the return of the Spanish economy to technical recession, which occurred at the end of 2011, triggered a revolution in the Spanish banking system that started in 2012 and continues today.

In May 2012, the government adopted Royal Decree-Law 18/2012, now Law 8/2012 of 30 October, which regulates the obligation for credit entities to take their foreclosed assets or those received in payment of debts linked to the real estate sector to a separate asset management company. Simultaneously, the government entrusted two independent appraisers with the duty of carrying out an analysis of the Spanish banking system's balance sheets to determine what the capital needs of each Spanish credit institution would be in a stress scenario.

In the same month, the conversion of preferred shares held by the Fund for Ordered Bank Restructuring (FROB) in Bankia, the fourth-largest Spanish banking institution, and its public statement of needing up to €17 billion to restore its regulatory capital, resulted in its nationalisation by the government and, subsequently, a request to the European Union for financial assistance for the recapitalisation of certain Spanish financial institutions that was concluded upon the signing of the memorandum of understanding (MoU) of 20 July 2012 between the Spanish and European authorities, with the participation of the International Monetary Fund (IMF).

According to the MoU, the Spanish banking sector would be provided with up to €100 billion in financial assistance under a programme that would cover an 18-month period. The MoU comprised several specific conditions, the main of which were:

  • a the identification of the individual needs of capital after complete bank-by-bank stress tests;
  • b the recapitalisation, restructuring or resolution of weak banks by means of the implementation of plans to address any capital shortfalls identified in the stress tests;
  • c the enacting of resolution and burden-sharing legislation to provide the legal framework for a swift and orderly restructuring of the banking sector with minimum costs to taxpayers; and
  • d the reform of the regulatory and supervisory framework of the financial sector.

Additionally, the terms of the MoU provided for those banks receiving public funding support to segregate their problematic assets related to real estate development and their foreclosed assets into the external Asset Management Company for Assets Arising from the Bank Restructuring (SAREB). The design, incorporation and performing of SAREB constitutes one of the major achievements derived from the restructuring of the Spanish financial system.

SAREB's share capital is 55 per cent privately owned (mainly by banks from
Group 0 (those proved by the stress tests to be adequately capitalised) and by insurance companies (both domestic and foreign)), while 45 per cent is owned by public authorities. SAREB has the mandate to divest the assets over 15 years, optimising levels of recovery and value preservation, and minimising negative impacts on the real estate market and economy and the costs to the taxpayers.

Overall, the final capital needs of the Spanish banks proved to be lower than those initially identified. Out of the original €56 billion of capital needs identified by the stress tests, approximately €41 billion were disbursed.

The EU financial assistance programme for certain Spanish financial institutions was successfully ended on 22 January 2014 (as scheduled). Such termination led to a new supervision post programme that will be in place until Spain repays at least 75 per cent of the funds provided, which is expected to occur no earlier than in 2026.

Although the overhaul of the Spanish legal and regulatory framework for banks, savings banks and other financial institutions in 2016 has been considerably slowed in comparison to 2015, various pieces of ancillary legislation have been approved that are likely to impact credit institutions' activities, the most remarkable being the following:

  • a The completion of the implementation in Spain of the CRR/CRD IV package2 by means of the approval of the Banco de España Circular 2/2016 of 2 February to the credit entities on supervision and solvency and completing the adaptation of the Spanish legal system to Directive 2013/36/EU and Regulation (EU) No. 575/2013 (Circular 2/2016). Circular 2/2016, together with Law 10/2014 of 26 June, on the organisation, supervision and solvency of credit institutions (Credit Institutions Solvency Law), Royal-Decree 84/2015 of 13 February, developing the Credit Institutions Solvency Law (RD 84/2015) and Royal Decree-Law 14/2013 of 29 November on urgent measures for the adaptation of the Spanish law to the EU rules and regulations on supervision and solvency of financial entities (RDL 14/2013) set forth the new Spanish legal regime on supervision and solvency of credit institutions (Credit Institutions Solvency Law, RDL 14/2013, RD 84/2015 and Circular 2/2016, jointly, the Credit Institutions Solvency Regulations). In addition to the continued implementation of the CRR/CRD IV package, the Credit Institutions Solvency Regulations have repealed and combined the numerous and diffuse rules on organisation and discipline of credit institutions.
  • b The approval of an amendment of Banco de España Circular 4/2004 of 22 December to credit institutions regarding the rules on public and reserved financial information and financial statements (commonly known as the ‘Accounting Circular'), which updates Annex IX of the Circular on ‘credit risks analysis, allowances and provisions' to adapt it to the latest developments in banking regulations and to strengthen consistency in credit institution's application of international financial reporting standards.
  • c The entry into force of Banco de España Circular 7/2016 on accounting information for banking foundations, developing standards and models of financial information for banking foundations.
  • d The approval of Royal Decree-Law 5/2017 of 17 March amending specific laws regarding the reinforcement of the protection of certain mortgage debtors (see Section IV.i, infra) (RDL 5/2017), which, inter alia, broadens the scope of the mortgage debtors at risk of social exclusion protection measures that are currently in place; extends by three additional years the moratorium on evictions on mortgagors in situations of extreme difficulty from their principal resident, which was originally established by Law 1/2013 (see Section IV.i, infra); and establishes specific leasing arrangements in favour of foreclosed mortgagors whose eviction had been stayed.

Finally, the European Court of Justice's final ruling of 21 December 2016 on ‘floor clauses' (Ruling) is notable.3 The Ruling held that the temporary limitation imposed by the Spanish Supreme Court4 on the amounts that borrowers qualifying as consumers under the Spanish law on consumer protection who had entered into mortgage agreements with ‘floor clauses' that were judicially declared void had to be refunded is contrary to EU law. Hence, borrowers who had paid more interest under their mortgage agreement than what they would have paid had the ‘floor clause' not existed would be entitled to a refund of all excess amounts paid as from the entry into force of the underlying contract (and not merely since 9 May 2013, as initially declared by the Spanish Supreme Court) if the floor clauses included in their mortgage contracts were judicially declared void.

According to calculations by Banco de España, Spanish credit institutions will face issuing refunds of €4 billon as a consequence of the Ruling (although the actual impact on their balance sheets will be lower due to already-allocated provisions). Moreover, on the day the Ruling was publicly announced, several listed Spanish banks saw their share price tumble (BBVA's shares fell by as much as a 10 per cent, Banco Sabadell's by 7.5 per cent and Banco Popular's by 10.5 per cent).

The Ruling's main legislative consequence was the enactment of Royal Decree-Law 1/2017 of 20 January on urgent consumer-protection measures in connection with ‘floor clauses' (RDL 1/2017), which establishes a mechanism that increases the potential for customers and credit entities to reach out-of-court settlements for the refunding of the corresponding excess amounts; a mechanism customers may opt to pursue at their discretion. Briefly, RDL 1/2017's main provisions are the following:

  • a credit entities must set up a voluntary out-of-court settlement procedure for customers to address any claims brought by their customers that fall within the scope of RDL 1/2017, as well as guarantee that all their customers are aware of the existence of the procedure;
  • b the procedure is triggered by the customer's submission of the corresponding claim; in its response, the credit entity must include a breakdown of the amounts to be refunded to the customer. If the credit entity concludes that no refund is owed, it must clearly state that conclusion as well as the reasons for supporting it;
  • c within the three months following the customer's submission of the claim, an agreement must be reached on the amount to be refunded, and the credit entity must refund the corresponding amount to the customer;
  • d while the out-of-court procedure remains in progress, no actions can be brought by the parties against each other in connection with the subject of the procedure. If a claim pertaining to the equivalent subject is filed prior to the end of the procedure, the new proceeding must be stayed until the procedure governed by RDL 1/2017 is resolved.

In sum, a new institutional and legal framework for the Spanish banking system has been established in a multi-stage procedure commenced in 2012, which developed intensely from 2013 to 2015 and slowed in 2016, and which is likely to continue during the coming years, although at a less intense pace. Within this process, a number of measures have been taken with the aim of improving bank transparency, regulation and supervision, and speeding up the recovery of the Spanish financial system within the context of a more propitious economic environment.

II THE REGULATORY REGIME APPLICABLE TO BANKS

The Spanish regulatory regime for credit institutions is currently set out in the Credit Institutions Solvency Regulations, Law 26/2013 of 27 December on savings banks and banking foundations (Savings Banks and Banking Foundations Law) and its regulations, and Law 13/1989, of 26 May 1989, on credit cooperatives.5 Such regulatory framework may be supplemented by the circulars, rules and guidelines issued, from time to time, by Banco de España or by the ECB.

A credit institution is defined under Spanish law as a company duly authorised to receive from the public deposits or other forms of repayable funds and grant credits for their own account. Spanish credit institutions may therefore primarily engage in a number of retail banking services.

Credit institutions must be recorded in a register maintained by Banco de España before they commence banking activities. Further to credit institutions, there are other types of regulated entities that play an important role in the Spanish market for financial services, among which financial credit establishments, electronic money entities and payment service entities are especially noteworthy.

i Credit entities: banks, savings banks and credit cooperatives

Credit entities in the Spanish financial system consist of banks, savings bank, credit cooperatives and the Official Credit Institute (ICO), which is the country's financial agency. Excluding the figures of the ICO, banks represent 47.58 per cent of the total number of Spanish credit entities, with credit cooperatives representing 50.81 per cent and savings banks 1.61 per cent.6 Banks are nevertheless by far the most important category of credit institution in Spain, as the value of their assets represents a 96.51 per cent of the sector, while credit cooperatives' represent 3.42 per cent and savings banks 0.07 per cent.7

The raising of funds from the general public, except through activities subject to the securities markets regulations, is reserved for credit entities.

Based on the foregoing figures, banks play a central part of the financial system because of the sheer volume of their business and their involvement in every segment of the Spanish economy. Most Spanish banks provide a full range of services for corporate and private customers, including collection and payment services outside Spain through foreign branches. Banks have the legal form of public limited companies (sociedades anónimas), and are therefore subject to general principles of company law as well as to banking regulations.

Savings banks are a specific type of credit entity that accounted, until recent times, for nearly half of the Spanish financial sector. Savings banks tended to be locally oriented entities of variable (but generally limited) size with strong economic and social ties to their home region. Although savings banks fully participated in the market, they were a special category within the financial services industry, as they were structured as foundations rather than companies and governed by representatives of collective shareholders: mainly depositors, employees and local authorities. Any positive result was allocated to social welfare and cultural projects.

The corporate model of savings banks has completely changed in recent years. After a number or partial reforms during 2011 and 2012 (as a consequence of which most of the Spanish savings banks were transformed into banks through different integration processes), a comprehensive revolution of their legal regime was put in place in December 2013 when the Savings Banks and Banking Foundations Law was passed. That regulatory revolution considerably deepened in 2015 and 2016 as a result of the approval of various pieces of ancillary legislation developing the Savings Banks and Banking Foundations Law.8

In the light of the radical changes in the savings banks sector (since 2010, 43 out of 45 of them (99.39 per cent of the aggregate average assets of the sector) have taken part in a consolidation process, which has resulted in a total of 11 banking groups, deriving from savings banks, operating as of today; the number of branches has been reduced by 41 per cent and the workforce by 37 per cent since late 2008),9 the Savings Banks and Banking Foundations Law aims to limit the role of savings banks in the credit institutions' sector (capping their balance sheets, market share and geographical scope of banking activities), as well as clarifying the role of former savings banks in their capacity as shareholders of credit institutions and strengthening incompatibility requirements regarding the governing bodies of the former savings banks and the commercial banks controlled by them. Some of the main features of the new regime are the following:

  • a savings banks will only be entitled to engage in the solicitation of repayable deposits from the public and the granting of credits within the territory of one autonomous region or a maximum of 10 neighbouring provinces;
  • b savings banks need to be engaged mainly in the deposit-taking and lending business;
  • c any person holding an executive position in a political party, trade union or professional association, as well as elected representatives in public administrations, senior officers in such public administrations and those that have held any of the foregoing positions during the past two years, will not be allowed to be a member of the management bodies of savings banks. This is a breakthrough on the prior regime that aims to avoid the previous failures in savings banks' management;
  • d any savings banks holding assets in excess of €10 billion or with a market share in relation to the deposits in its autonomous region of more than 35 per cent shall transfer its financial activity to a credit entity and become a ‘banking foundation' or a ‘regular foundation', depending on the stake it holds in the entity receiving its financial activity; and
  • e ‘banking foundations' are those foundations with a (direct or indirect) holding in a credit entity of at least 10 per cent of its share capital or voting rights or such other percentage allowing the appoint or removal of at least one member of the board. These entities shall have the purpose of managing their stake in the relevant credit entities and pursuing their social project or corporate responsibility programme. Depending on the stake of the banking foundation in the credit entity (the relevant thresholds being 10, 30 and 50 per cent), a number of internal rules and protocols shall be in place. Additionally, the dividend distribution of credit entities controlled by banking foundations shall be subject to a minimum voting majority of two-thirds.

Credit cooperatives are private institutions whose corporate purpose is to attend to the financial needs of members and those of third parties by means of the development of those activities that are also carried out by credit institutions. Their current regime is contemplated in Law 13/1989, of 26 May 1989, on credit cooperatives as its developing regulation, as approved by Royal Decree 84/1993 of 22 January.

ii Other types of regulated entities that do not qualify as credit entities under Spanish law
Financial credit establishments (EFCs)

EFCs are a special type of regulated entity that do not qualify as credit institutions (although they did until the Credit Institutions Solvency Law was approved) and that carry out, in a professional manner, one or several of the following activities:

  • a granting of loans and credits, including consumer loans and mortgage-backed loans;
  • b factoring, with or without recourse, and other ancillary activities;
  • c leasing;
  • d granting of security interests; and
  • e granting of reverse mortgages.

The legal framework governing EFCs is established in Law 5/2015 of 27 April on promoting corporate financing (Law 5/2015), the main features of which include the following: the creation of EFCs requires authorisation from the Ministry of Economy, Industry and Competitiveness, which, in turn, requires the issuance of a mandatory prior report by Banco de España; Law 5/2015 regulates the existence of hybrid institutions (i.e., EFCs that also provide payment services or issue electronic money); and a significant portion of the obligations applicable to credit entities on solvency, conduct of business, control of major shareholdings and transfer of business and corporate governance are also applicable to EFCs.

Finally, it is worth noting that in October 2015, the Ministry of Economy, Industry and Competitiveness made public a draft regulation aimed at developing the legal framework of EFCs. The draft regulation has not yet been approved.

Electronic money entities (EDEs)

EDEs are recognised as a special type of regulated entity that issues electronic money. The legal regime for EDEs was established in 2008 and amended in 2011 by a law regulating the issuing of electronic money and the legal regime of EDEs, partially implementing EU Directive 2009/110/EC. Secondary legislation was approved by Royal Decree-Law 778/2012 of 4 May developing the legal framework of EDEs, clarifying the definition of e-money and the scope of the applicable Spanish regulations, and establishing the requirements for the setting up and running of EDEs, their supervision and sanction regime being very similar to that applicable to credit entities. Royal Decree-Law 778/2012 fully implemented EU Directive 2009/110/EC.

Payment services entities

In 2009, Spain made provision for a new type of regulated entity that renders, in a professional manner, payment services that coincide with those set out in the Annex of Directive 2007/64, of the European Parliament and of the Council, of 13 November 2007. Secondary legislation was approved in May and June 2010 establishing the conditions and requirements for the rendering of these activities, and further guidelines on transparency and customer protections were set out by Banco de España.

III PRUDENTIAL REGULATION

It must be noted that, given its participation in the SSM, Banco de España qualifies as a ‘national competent authority' (NCA), which implies that Spanish credit entities considered as significant are supervised by the ECB, while less-significant Spanish institutions are directly supervised by Banco de España and, indirectly, by the ECB. Of the 125 significant institutions supervised by the ECB, 14 are Spanish (figures are as of 1 January 2017). These 14 significant institutions represent more than 90 per cent of deposit assets in Spain.

i Relationship with the prudential regulator

Although Banco de España no longer sets the country's monetary and exchange rate policy, except in its role as a member of the ESCB, it remains in control of, inter alia, the following functions:

  • a management of currency and precious metal reserves not transferred to the ECB;
  • b supervision of the solvency and behaviour of credit institutions (pursuant to the distribution of competencies set forth by the SSM);
  • c promotion of the stability of the financial system and of national payment systems, without prejudice to the functions of the ECB; and
  • d mintage and circulation of coins and other types of legal tender.

Banco de España carries out continuous monitoring and analysis of Spanish credit entities, assessing the reports and regular information received from them, and conducting on-site inspections. There is close interaction between Banco de España and the entities subject to its supervision. In Spain, provisioning rules are straightforward, transparent and verified by Banco de España.

Banco de España's responsibilities include the verification of maximum rates and charges for banking services rendered by credit institutions. Banco de España also verifies the customer protection rules and keeps several registries of public banking information, including the register of institutions, register of senior officers and register of shareholders, auditors' reports, and a special registry of articles of association of the supervised institutions. Banco de España also receives confidential information from institutions on their financial situation and their shareholders.

Banco de España may issue general or specific recommendations and requirements to entities (i.e., requiring adequate provisioning for less solvent obligors and improvements in the quality control over assets). It may also initiate disciplinary proceedings against institutions and their boards of directors or managers, or may even intervene and replace directors to remedy deficiencies or non-compliance.

Banco de España has powers to enforce compliance with the organisational and disciplinary regulations applicable to credit institutions operating in the Spanish financial sector. Such powers are exercised not only over credit institutions and other financial institutions subject to its oversight, but also over directors and managers, who can be penalised for very serious or serious infringements when they are attributable to wilful misconduct or negligence. Sanctions can also be imposed on the owners of significant shareholdings in credit institutions and on Spanish nationals that control a credit institution in an EU Member State.

Additionally, as a consequence of the CRR/CRD IV package and the entry into force of RDL 14/2013, the supervisory powers of Banco de España and the CNMV have been widened and strengthened to ensure appropriate enforcement of the new banking and supervisory discipline. Likewise, RDL 14/2013 has amended Law 13/1994, of 1 June 1994 (the rule setting out the competences and regime applicable to Banco de España) to allow it to issue technical guidelines and answer binding questions on supervisory regulation.

Finally, according to the regime set forth by the Recovery and Resolution Regulations, Banco de España is the pre-emptive resolution authority, while executive resolution powers are vested in the FROB (see Section III.iv, infra).

ii Management of banks

The board of directors of a credit institution (with at least five members) has prominent powers to administer and manage the operations and financial matters of the entity. Members of the board and senior management must have good commercial and professional reputations, appropriate experience and the ability to carry out proper governance of the entity.

A new suitability regime was established in 2014. Although it was in line with the regime applicable up to then (which was repealed), this new regime brought some novelties. Among others: the board of directors is required to monitor the process for the appointment of its members so that it favours a diversity of experience and knowledge, facilitates the appointment of female members and is not discriminatory; and where appropriate, the purchasers of a significant holding will be required to assess the suitability of directors, general managers and holders of similar positions.

Additionally, Banco de España is entitled under the Credit Institutions Solvency Law to determine the maximum number of positions that may be held simultaneously by a director, general manager or the holder of a similar position in view of the particular circumstances of the institution and the nature, size and complexity of its activities. Save in the case of directors appointed pursuant to a replacement measure, directors, general managers and holders of similar positions in institutions that are significant in size, or that are more complex or of a special nature, may not hold more than four non-executive positions simultaneously, or one executive position at the same time as two non-executive positions (it is noteworthy that for these purposes, the positions held within the relevant credit entity's corporate group are counted as one).

The Credit Institutions Solvency Law obliges credit institutions to put corporate governance arrangements in place that are sound and proportionate in view of the risks taken by the institution. In addition, the following obligations are established:

  • a the board of directors may not delegate functions related to corporate governance arrangements, the management and administration of the institution, the accounting and financial reporting systems, the process for the disclosure of information and the supervision of the senior management;
  • b the chair of the board of directors must not hold the position of managing director simultaneously, unless this situation is justified by the institution and authorised by Banco de España;
  • c a website must be maintained on which the information required by the Credit Institutions Solvency Law is published and on which the institution explains how it complies with its corporate governance obligations;
  • d the obligation to draft and keep an up-to-date general viability programme that considers all the measures that will be taken to restore the viability and financial soundness of institutions in the event that they suffer any significant damage;
  • e the obligation to establish a nomination committee comprising non-executive directors and in which, at a minimum, one-third of its members, and in any case its chair, are independent directors. This committee must decide on a target figure for the representation of the gender currently underrepresented on the board of directors;
  • f the board must actively participate in the management and valuation of the assets, and approve and review the risk policies and strategies of the institution on a regular basis; and
  • g Banco de España will be entitled to determine which institutions must establish a risk committee or, as the case may be, those institutions that may establish combined audit committees to perform the functions of the risk committee.

Significant attention has been devoted in Spain to remuneration policies during the past few years, as has been the case at both the European and international level. In particular, the Credit Institutions Solvency Law includes the provisions of the CRR/CRD IV package relating to the obligation of credit institutions to put in place remuneration policies that are consistent with their risks. In a nutshell, these provisions relate to:

  • a the obligation to make a clear distinction between the criteria used for setting fixed remuneration and variable remuneration;
  • b the obligation that the remuneration policy applicable to members of the board of directors of a credit entity is subject to the approval of the general shareholders' meeting or equivalent body under the same terms as those applicable to listed companies;
  • c the principles that will apply to variable elements of remuneration (inter alia, the variable component must not exceed 100 per cent of the fixed component save in cases of approval of the general shareholders' meeting granted in accordance with the procedure laid down in Law 10/2014, in which case, it may reach up to the 200 per cent; at least 40 per cent of the variable remuneration is deferred over a period of between three to five years; or the variable remuneration is paid or vests only if it is sustainable according to the financial situation and results of the institution), with special attention in this regard to credit institutions that benefit from public financial assistance; and
  • d the obligation to establish a remuneration committee or, if Banco de España so determines, a joint nomination and remuneration committee.

Finally, as previously mentioned, credit entities (other than credit cooperatives and savings banks) are incorporated as sociedades anónimas. As such, general corporate rules will fully apply to them (i.e., they must have a suitable structural organisation, compliance and internal audit functions and risk assessments, and certain separate and delegated committees within the board, including an internal audit committee). Such rules are primarily contemplated in Royal Legislative Decree 1/2010 of 2 July, approving the Spanish Companies Law, which was amended in December 2014 to import into Spain best practices in corporate governance, including regarding directors' remuneration, term of directors' appointment, conflicts of interest, diligence and fiduciary duties, and shareholders' rights.

iii Regulatory capital and liquidity

Spain's capital and liquidity requirements legislation has traditionally incorporated capital adequacy requirements in line with international standards as set out by the Basel Committee on Banking Supervision. According to these, a banking group should be adequately capitalised overall (in terms of both volume and capital quality), and there should be an adequate distribution of the capital and the allocation of risk with sufficient buffers to allow ordinary growth.

Several laws, decrees and regulations on own funds, capital requirements and liquidity of individual credit institutions and consolidable groups have been approved through the years, most of them to implement the Basel I, Basel II and Basel III Accords in Spain. Such regulations have been followed by specific circulars and guidelines issued by Banco de España determining the technical specifications and control of minimum funds.

Nonetheless, the entry into force of the CRR/CRD IV package and of the Credit Institutions Solvency Regulations has led not only to a deep change (both at a European and Spanish level) in the regulation of solvency and liquidity of credit entities but, more generally, to a fundamental step forward in the creation of the Banking Union. Since 1 January 2014, the nuclear regime for credit entities solvency is condensed in the CRR (which is directly applicable in EU Member States). Where needed, the Credit Institutions Solvency Regulations supplement such regime in Spain.

One of the most interesting changes deriving from the entry into force of the Credit Institutions Solvency Law is the inclusion of ‘capital buffers' (i.e., additional capital requirements to those envisaged under the CRR), the regime of which is further developed by RD 84/2015 and Circular 2/2016. Failure to comply with capital buffers entails restrictions on distributions and payments relating to components of common equity Tier 1 (such as shares) or additional Tier 1 capital (such as contingent convertible bonds) and on the payment of variable remuneration, and the obligation to submit a capital conservation plan that must be approved by the competent supervisor.

In particular, the various capital buffers provided for in the Credit Institutions Solvency Regulations are as follows:

  • a capital conservation buffer (2.5 per cent of the institution's risk exposure): a non-discretionary buffer the application of which is being phased in from 1 January 2016 (in 2017, the applicable buffer is 1.25 per cent);
  • b countercylical capital buffer: a specific buffer for each institution or group, which is calculated as the weighted average of the countercyclical buffer percentages applicable in each of the territories in which an institution has exposures. The percentage applicable to risk exposures located in Spain is set by Banco de España and ranges between zero and 2.5 per cent. According to the Credit Institutions Solvency Law, the applicable buffers are to be phased in from 1 January 2016 to 31 December 2018. Banco de España has decided to maintain the countercyclical buffer applicable to risk exposures in Spain for the second quarter of 2017 at zero per cent (as it was set up for the immediately preceding quarters);10
  • c buffers for global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs): buffers specifically applicable to certain institutions by reason of their systemic importance. The identification of which institutions are to be considered G-SIIs or O-SIIs is decided by Banco de España, which must annually review the classification it has carried out. Banco de España also has to set the buffer to be maintained by each of these types of institution, which in the case of the G-SIIs will range from 1 to 3.5 per cent, and in the case of O-SIIs may not exceed 2 per cent. These buffers are applicable from 1 January 2016, although in the case of both G-SIIs and O-SIIs these must be fulfilled in tranches in the following four years. The only credit institution identified by Banco de España as G-SII for 2017 is Banco Santander, which belongs to Subcategory A. Owing to the gradual implementation of this buffer foreseen in the Credit Institutions Solvency Law, the capital buffer it needs to meet in 2017 is equivalent to 0.50 per cent of its total risk exposure (on a consolidated basis). Moreover, the following credit institutions have been classified as O-SIIs by Banco de España for 2017: Banco Santander, BBVA, CaixaBank, Bankia, Banco Popular and Banco Sabadell;11 and
  • d systemic risk buffer: a buffer that may be set by the Banco de España to cover non-cyclical systemic or macroprudential risks where there is a risk of disruption in the financial system with the potential to have serious negative consequences for the financial system and the real economy.

Regarding liquidity, the Credit Institutions Solvency Law sets out that Banco de España will assess business models, corporate governance procedures and systems, supervision and evaluation findings, and all systemic risks.

iv Recovery and resolution

The Recovery and Resolution Regulations12 have updated the Spanish legislation on the recovery and resolution of credit institutions that was introduced in 2012 with the entry into force of Law 9/201213 to adapt it to very recent EU legislation14 on this matter.

The Recovery and Resolution Regulations foresee three different phases that correspond to the various stages in the deterioration of an institution's financial situation. The rules governing each of these phases are based upon the following two main principles:

  • a the separation of supervisory and executive resolution functions. The resolution powers in the pre-emptive resolution phase are entrusted to Banco de España, as regards credit institutions, and the CNMV, as regards investment firms, while the FROB holds the resolution powers in the executive phase; and
  • b public resources cannot be used to fund recovery and resolution proceedings, the cost of which must be borne first by the shareholders of the institution under resolution, secondly by certain creditors, and finally by the credit institutions and investment firms sector (if needed).

The three phases are as follows.

Early intervention phase

Prior to any breach of the solvency, regulatory or disciplinary rules or the declaration by the competent authority of any of the phases described herein, an institution must draw up and periodically update a recovery plan elaborating on the measures and actions to be taken to restore its financial position should it deteriorate significantly. The plan must be approved by the institution's board of directors and reviewed by the relevant supervisor.15

Early intervention measures can be adopted by the relevant supervisor when an institution or a parent of a consolidated group of institutions breaches, or is likely to breach, solvency, regulatory or disciplinary rules, provided that it is foreseeable that the institution will be able to overcome the situation by its own means. Such measures include requiring the removal of one or several members of the governing body of the institution, convening a general meeting and proposing items on its agenda, or requiring the board of directors of the institution to draw up a plan for the restructuring of the institution's debt or requiring changes be made to its business strategy.

Pre-emptive resolution phase

The pre-emptive resolution authority must draw up, approve and maintain a resolution plan for each individual institution or consolidated group that falls under its remit. Among other measures, it must consult the resolution authorities from those jurisdictions in which an institution or group has established a significant branch.

When drawing up the report, the pre-emptive resolution authority must determine whether the individual institution or consolidated group is resolvable (as this term is defined in Article 15.1 of the Recovery and Resolution Directive). Should any obstacles to the resolution of the institution be identified, the ‘non-resolvable' institution must propose measures to remove them. These measures have to be approved by the relevant pre-emptive resolution authority. If it does not consider the proposed measures to be sufficient, it may request the relevant institution to adopt alternative measures (in particular, any of those foreseen in Article 17.5 of the Recovery and Resolution Directive as transposed into Spanish law).

Executive resolution phase

An institution will be resolved when all of the following circumstances are met:

  • a it is non-viable (as this term is defined in the Recovery and Resolution Law mirroring the definition included in the Recovery and Resolution Directive) or it is reasonably foreseeable that it will become so in the near future;
  • b there is no reasonable prospect that private-sector measures, supervisory measures (such as the early intervention measures), or the conversion or redemption of capital instruments16 will prevent the institution from becoming non-viable within a reasonable period of time; and
  • c owing to public interest reasons, it is necessary or advisable to proceed with the institution's resolution rather than liquidating it or winding it up in the applicable insolvency proceedings.

The FROB has the power to initiate the resolution process. The opening of the execution phase of the resolution will normally entail the replacement of the institution's board of directors, managing directors or similar officers (although the FROB may maintain them) with the person or persons who the FROB appoints to manage the institution under its supervision.The resolution tools available to the FROB are:

  • a the sale of the institution's business;
  • b the transfer of assets or liabilities to a bridge entity,
  • c the transfer of assets or liabilities to an asset management company, and
  • d internal recapitalisation (the Spanish bail-in tool).

It is noteworthy that, in contrast to Law 9/2012, the use of a bail-in as a resolution tool is now specifically envisaged in the Recovery and Resolution Law. Moreover, the scope of such tool has been broadened in comparison to that of the measure which was foreseen in Law 9/2012 (the redemption or conversion of subordinated debt instruments). The Spanish bail-in tool, which came into force on 1 January 2016, allows all the institution's liabilities (including senior debt) not expressly excluded by the Resolution and Recovery Law (or by an express decision of the FROB)17 to be amortised or converted into capital to recapitalise the institution. This tool may be used to recapitalise the institution so that it resumes its activities and market confidence is restored in it, or convert into capital or reduce the principal amount of the credits or debt instruments transferred through the use of the resolution tools referred to previously. When using the Spanish bail-in tool, the FROB will require the body, person or persons in charge of the management of the institution under resolution to submit an activities reorganisation plan containing the necessary measures to restore the long-term viability of the institution, or of a portion of its business, over a reasonable time frame.

Finally, the Recovery and Resolution Law has created a National Resolution Fund financed by the credit institutions and investment firms themselves which, under certain circumstances, will finance the resolution measures adopted by the FROB (briefly, when there are losses arising from a resolution process that have not been covered entirely by the eligible liabilities).

IV CONDUCT OF BUSINESS

i Conduct of business rules

According to the Credit Institutions Solvency Law, credit institutions rendering services in Spain, whether domestic entities or foreign entities authorised in another Member State that open a branch or provide cross-border services in Spain, must observe the applicable rules setting out the discipline of credit entities, as well as those enacted in the interest of the general good, whether they are dictated by the state, autonomous communities or local entities.

The ‘general good' includes, inter alia, protection of the recipients of services, protection of workers, consumer protection, preservation of the good reputation of the national financial sector, prevention of fraud and protection of intellectual property.

Some conduct of business rules relate to compliance with regulations on advertising (i.e., a prohibition on misleading or subliminal advertising, aggressive commercial practices), or to conduct that may injure or is likely to injure a competitor, as well as to consumer-related matters. Credit entities are subject to Spanish regulations protecting financial services users, and they must establish consumer services departments and a customer ombudsman to handle complaints of individuals or legal persons who are deemed users of their financial services.

Further, a credit institution must make certain information available to customers, including:

  • a the existence of the customer service department and of the customer ombudsman, as the case may be, including postal and e-mail addresses;
  • b its obligation to serve and resolve customers' complaints within two months;
  • c the existence and contact information of Banco de España's Complaints Service;
  • d its internal customer service regulations; and
  • e references to the legislation in force on transparency and protection of financial services customers.

Further, there are rules on the delivery of contracts and a number of specific provisions regarding the valid incorporation of terms into consumer contracts (some of which are currently the subject of legal debate after several recent Supreme Court decisions declaring null and void certain terms traditionally used by Spanish banks).

Since 2010, anti-money laundering laws and regulations applying to credit institutions (including EU credit institutions rendering services in Spain on a cross-border basis) set forth certain particularities in relation to credit institutions' compliance with Spanish anti-money laundering rules, including:

  • a requirements regarding identification details;
  • b information on the purpose of banking transactions;
  • c the nature of customers' activities; and
  • d the obligation to analyse transactions and business relationships on a continuous basis, including for existing clients (in particular in relation to the contracting of new products or when significant or complicated transactions are carried out, or special obligations in relation to ‘politically exposed persons', their close relatives and known related parties.

After the implementation of MiFID18 in Spain, a number of rules were introduced for effective protection of consumers of investment services that apply to credit entities (categorisation of investors, delivery of appropriate and comprehensible information on the financial instruments and investment strategies offered to the customer, etc.), including rules to check that the conduct of credit entities is sufficiently diligent, and guidelines issued by the CNMV that should also be followed by credit institutions. In this regard, Ministerial Order ECC/2316/2015 of 4 November on information obligations and the classification of financial products is especially noteworthy, as it establishes certain information and classification obligations that must be observed by institutions that market specific financial products (such as banking deposits). Credit entities are specifically included within the subjective scope of this order.

New legislation approved since 2012 on consumer protection and on evictions in cases of mortgage default is aimed at reinforcing the protection of some vulnerable mortgage debtors. The main pieces of legislation in connection with this matter are:

  • a Royal Decree Law 6/2012 of 9 March on urgent measures to protect mortgage debtors without resources (RDL 6/2012), which provides for a series of mechanisms to protect mortgage debtors at risk of social exclusion, the main pillar of which is the creation of a code. This Code - which, although it provides for voluntary accession, has been signed by the vast majority of credit entities operating in Spain - envisages three consecutive stages of action the purpose of which is to accomplish the restructuring of the relevant mortgage debt;
  • b Law 1/2013 of 14 May on measures to reinforce the protection of mortgage debtors, the restructuring of debt and social renting (Law 1/2013), which established a four-year moratorium from 15 May 2013 on evictions on mortgagors in situation of extreme difficulty from their principal resident (which has been extended for three more years by RDL 5/2017); and
  • c Law 25/2015 of 28 July on a ‘second chance' mechanism, diminishing of the financial burden and other social-related measures, which, inter alia, sets out a number of protections for debtors within their insolvency proceedings (including the possibility of release from all the debts in cases where the debtor's assets do not cover his or her aggregate debts), improves the Code of Good Practices in relation to the mortgage debtors without resources approved by RDL 6/2012 and broadens the scope of application of such code so that a wider amount of debtors can benefit from it.
ii Spanish banking secrecy

The duty on credit institutions to keep their clients' information confidential from third parties other than the supervisory authorities has traditionally been a common feature of the Spanish banking system, and is codified in law. Credit institutions, their managers and directors, and significant shareholders and their managers and directors, must safeguard and keep strictly confidential all information relating to balances, operations and any other customer transactions unless required to disclose such by applicable law or the supervisory authorities. In these exceptional cases, the delivery of confidential data must comply with the instructions of the client or with those provided by applicable law.

The delivery of confidential information among credit entities pertaining to the same consolidated group is not subject to these restrictions. Any breach of the aforementioned regulations will be deemed a serious offence, which may be punished according to the ordinary sanctions procedure provided under Spanish banking regulations.

V FUNDING

The main funding for Spanish credit institutions has obviously been based on deposits made by their customers. However, according to Banco de España, the global amount of deposits taken from the private sector has decreased during the past few years.

In addition, both capital and debt issuance have also been sources of funding. These instruments include (in addition to common shares) perpetual subordinated debt, rights issues and preferred shares, in many cases issued by special purpose entities. There are no major restrictions on the issuance of such instruments, but they are subject to the securities market regulations and must be verified by the relevant supervisor to confirm they meet the conditions established by the bank solvency regulations.

In recent years, mistrust in Spanish public finances and the financial system resulted in a substantial increase in funding costs and difficulties in gaining access to wholesale markets, which had a considerable effect on sovereign debt during the summer of 2012. Additionally, as already mentioned, the Recovery and Resolution Regulations have introduced a number of instruments eligible for the recapitalisation of credit institutions within a resolution scenario, as well as specific FROB powers.

In the past few years, among other measures adopted due to the economic and financial crisis the government established a fund for the acquisition of financial assets issued by credit institutions and special purpose vehicles. The provision of state guarantees to new funding transactions launched by Spanish-resident entities with a maximum maturity of seven years was also approved.

Finally, in 2015 and 2016, Spanish credit institutions have managed to open the wholesale markets, and have had access to them issuing bonds and other instruments.

VI CONTROL OF BANKS AND TRANSFERS OF BANKING BUSINESS

i Control regime

The Spanish regime for the prudential assessment of Banco de España regarding acquisitions and increases of holdings in Spanish credit institutions is contemplated in the Credit Institutions Solvency Regulations. The regime set forth therein must be construed in light of the entry into force of the SSM and the distribution of competencies between the ECB and the NCAs set out in the SSM Regulations.19

According to the regime established on occasion of the entry into force of the SSM, the acquisition of a significant holding is subject to a mandatory pre-acquisition non-opposition from the ECB. The corresponding application shall be notified through Banco de España. A ‘significant holding' is defined as the direct or indirect holding (taking into account conditions regarding aggregation laid down in the Spanish regulations) of shares in the issued share capital or voting rights of a Spanish credit entity in excess of 10 per cent, as well as any holding below that threshold that allows the holder to have a ‘notable influence' over the corresponding credit institution. In accordance with Article 23 of RD 84/2015, ‘significant influence' shall be deemed to exist when there is the capacity to appoint or dismiss a board member of the corresponding credit entity.

A similar prior control procedure shall be carried out if the owner of a significant holding intends to increase such holding up to or above 20, 30 or 50 per cent of the issued share capital or voting rights of a Spanish credit entity; or if, as a consequence of a potential acquisition, the relevant shareholder could acquire control over the Spanish credit institution.

The disposal of a significant shareholding in a Spanish credit entity, as well as the reduction of a significant shareholding below 20, 30 or 50 per cent of the issued share capital or voting rights of a Spanish credit entity or the loss of control over a Spanish credit entity, require prior notification to the competent supervisory body.

Likewise, immediate written notification to both the competent supervisor and the relevant credit entity is required if, as a result of the acquisition, the acquirer would hold, either on its own or in concert with other entities, directly or indirectly, 5 per cent or more of the issued share capital or voting rights of a Spanish credit entity.

The obligation to seek non-opposition for a proposed acquisition or increase of qualifying shareholding falls on the acquirer. However, the Spanish bank whose shareholding may be acquired must notify the competent supervisor as soon as it becomes aware of the proposed acquisition.

Within the framework of the assessment of the suitability of a potential acquirer as well as the financial strength of the proposed acquisition, a report from the Commission for the Prevention of Money Laundering and Monetary Infractions is needed, the aim of which is to ensure that the relevant credit entity is managed in a prudent manner taking into account the influence that may be exercised by such acquirer.

Finally, two provisions modifying the previous regime on significant holding positions are noteworthy: resolutions passed by a credit institution with the votes of a shareholder acting in breach of the notification obligations may only be challenged in court to the extent that the votes corresponding to those shares have resulted in the passing of such resolutions, as opposed to being subject to potential challenge in all cases; and the authority to take measures in the event of the influence of significant shareholders that may damage the management or financial situation of the institution no longer corresponds to the Ministry of Economy, Industry and Competitiveness, but to the relevant credit institution's supervisor.

ii Transfers of banking business

The Spanish financial system has recently moved towards greater consolidation, mainly for efficiency and profitability, in an increasingly mature financial market and as a consequence of the restructuring of the Spanish banking system. The need to strengthen solvency is also a key driving factor behind this tendency. Naturally, the same factors also apply to transfers of banking business, particularly considering the crucial importance of size in gaining access to wholesale capital markets.

The transfer of banking business by virtue of mergers, total and partial spin-offs, or assignments of assets and liabilities, as well as any legal or economic arrangement analogous to any such transaction, and any structural modification deriving from the foregoing, is subject, in addition to general corporate law, to regulatory approval from the Spanish Ministry of Economy, Industry and Competitiveness as set forth in the Credit Institutions Solvency Law and the Credit Institutions Solvency Regulations.

Of particular relevance in Spain in recent times have been the mergers or integrations between savings banks instigated by Banco de España. Few mergers had been carried out between savings banks other than in cases of financial difficulty. Once the transfer of the savings banks' banking business was achieved, the next step that took place during 2014 was the transformation of savings banks into banking foundations. The most noteworthy example of this is Fundación Bancaria Caixa d'Estalvis i Pensions de Barcelona, ‘la Caixa', which was created in June 2014 as a consequence of the transformation of ‘la Caixa' into a foundation in compliance with the Savings Banks Law. This banking foundation (the largest in Europe in terms of assets) is the sole shareholder of Criteria CaixaHolding, which in turn is the major shareholder of CaixaBank (one of the four largest banks in Spain).

Special regimes for the transfer of banking businesses are set out in the Recovery and Resolution Regulations (see Section III.iv, supra).

VII THE YEAR IN REVIEW

A number of new provisions have been enacted since the financial crisis began in 2007 to, inter alia, enhance the capacity of Spanish credit institutions to increase the supply of credit to firms and individuals, to authorise the state to guarantee new funding transactions of medium-term bank debt, or to establish temporary and partial moratoria on the monthly instalments payable by unemployed debtors. In recent years, and certainly between 2012 and 2016, most of these provisions have been implemented as a consequence of the MoU signed with the European authorities and setting up a programme that was in place until January 2014.

Although legislative production considerably slowed in 2016, important reforms were approved that are likely to impact on the activity of credit entities in Spain. The completion of the implementation of the CRR/CRD IV package, by means of the enactment of Circular 2/2016, is especially noteworthy. This notwithstanding, the most crucial event for the Spanish credit institutions sector in 2016 has been, without doubt, the publishing of the Ruling. Although most of the Spanish credit entities with exposure to ‘floor clauses' have stated that they have already allocated most of the required provisions, the depth of the impact of the Ruling on their books, as well as on the relationship with their customers (which will mainly depend on how the mechanism established by RD 1/2017 is implemented), is still to be ascertained.

According to official data disclosed by the National Institute of Statistics, Spanish full-year GDP for 2016 increased 3.2 per cent. In addition, according to the IMF's 2016 annual report, it is expected to grow by 2.3 per cent in 2017 and 2.1 per cent in 2018. Thus, the signs of improvement in the Spanish economy that emerged in 2014 and were consolidated in 2015 have continued during 2016.

As regards the main figures of the Spanish credit institutions sector for 2016, although the total volume of new credit operations fell 13.8 per cent in 2016 (which can be considered a setback if compared to the 12 per cent increase of 2015), this is mainly due to a 33 per cent fall in new lending to major corporations (which, in turn, is conditioned by their access to other sources of financing such as debt issuance as well as by 2015's strong growth), while the remaining credit portfolios notably grew (which represents a positive sign). Moreover, the delinquency rate for the system was reduced to 9.27 per cent as of the last quarter of 2016. In addition, although in October 2016 the volume of non-performing loans (NPLs) grew for the first time after 34 months of continuous reductions, the accumulated drop in NPLs since December 2013 amounts to 40 per cent.20

VIII OUTLOOK AND CONCLUSIONS

The Spanish banking supervision model stems from two financial crises - the first resulting from the transition from dictatorship to democracy and the second at the beginning of the 1990s - and the collapse of a number of entities. As a result, Banco de España had to forge a model that not only kept entities in good financial condition, but obliged them to ‘save for a rainy day' in prosperous times. This policy, while extremely useful during the current economic crisis, has not been enough, as the request by the government for financial assistance from the banking sector in June 2012 proved.

Nine years after the international crisis started, the resilience of the Spanish banking sector, historically subject to regulation and supervision based on the prudent and stringent application of international standards, was outstanding until 2012, certainly in comparison to many other developed countries. However, to strengthen the solvency of the Spanish financial system and complete restructuring of the sector, further measures were adopted in the past few years with various consecutive reforms. In 2012, the MoU imposed the establishment and approval of new measures, inter alia:

  • a new levels of capital requirements;
  • b coverage for risk exposure through new provisions;
  • c transparent processes on write-downs and accounting rules; and
  • d a framework for the restructuring and resolution of banks.

Systemically important banks maintain a solid position, which in turn enables them to continue their domestic and international expansion, and to continue to deal with the crisis without requiring public support or intervention. However, the position of some small and medium-sized credit institutions and the economic conditions of the country have been substantially jeopardised during the past few years.

Now that the programme set out in the context of the now-defunct MoU has been successfully exited, the Spanish financial sector is subject to post-programme surveillance by the European Commission, the ECB and the ESM. According to the conclusions reached in the context of the last surveillance visits:

a the Spanish economy is showing clear signs of recovery, and is growing at a faster pace than the eurozone average;

b the orderly deleveraging of the private sector has further advanced and, at the same time, access to credit, in particular for households and healthier companies (including SMEs) with positive growth prospects, has improved significantly;

c job creation has accelerated, but unemployment, in particular youth and long-term unemployment, remains very high, as does labour market segmentation;

d government debt is still increasing, and bringing it back to the 60 per cent reference value will require a continued fiscal effort in the long run; and

e the banking sector's stabilisation continues, marked by the improvement of banks' asset quality, strengthened solvency and liquidity and a return of the sector to profitability. Nonetheless, these signs are not uniform across financial institutions. A key milestone for improving the management of SAREB's financial assets has been completed with the introduction of incentives in servicers' contracts that link remuneration with performance.

In conclusion, the profound reforms put in place during 2012 to 2016, both as a consequence of the MoU, and as a result of the overhaul of the capital and liquidity requirements and governance and compensation regimes at the global, European and Spanish levels, are already taking form in Spain. Today, Spain's banking sector is made up of fewer banks with adjusted risk profiles and improved corporate governance, although the legislative reforms still remain to be tested in the market. In any event, the general economic environment, and the numerous and well-targeted advances in the restructuring of the Spanish banking system, allow us to believe that the future can be looked at with reasonable confidence.

1 Juan Carlos Machuca is a partner and Joaquín García-Cazorla is an associate at Uría Menéndez Abogados, SLP.

2 Regulation (EU) No. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No. 648/2012 (applicable since 1 January 2014) (CRR); and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (CRD IV).

3 ‘Floor clauses' are contractual clauses that set minimum interest rates in mortgage agreements. Under a mortgage with a variable interest rate and floor clause, the borrower would never benefit from an interest rate that falls below the corresponding floor. ‘Floor clauses' were used extensively in Spanish consumer mortgage contracts.

4 On 9 May 2013, the Spanish Supreme Court heard a claim brought by a Spanish consumer association against three credit entities (a bank, BBVA; a former savings bank, Caixagalicia; and a credit cooperative, Cajamar) challenging the validity of the floor clauses those entities commonly used in mortgage contracts with customers qualifying as consumers under the Spanish law on consumer protection. The Court's decision (which was of immense importance in Spain as it was likely to impact the general validity of ‘floor clauses') stated that, although ‘floor clauses' are not illegal per se, they can be considered illegal if they are not drafted in a clear, understandable manner; or, even if drafted clearly and understandably, if they have nevertheless not been explained to customers in the mortgage agreement negotiation process with clarity and transparency. The Court's decision also stated that it lacked retroactive effects, so defendants were not obliged to return money received before 9 May 2013 that was received in excess of what they would have received had the ‘floor clauses' not been included.

5 As regards credit cooperatives, certain matters and rules are also regulated at regional level.

6 Amounts obtained from Banco de España's registry of institutions as of 28 February 2017, available at www.bde.es/f/webbde/SGE/regis/ficheros/es/renl184.pdf.

7 Figures calculated on the basis of the data publicly available on the websites of the AEB (the Spanish banking association), UNACC (the Spanish national union of credit cooperatives), Caixa Pollença and Caixa Ontinyent (the only two savings banks in existence as of today).

8 In brief, Royal Decree 877/2015 of 2 October, which, inter alia, develops the Savings Banks and Banking Foundations Law in connection with the reserve fund to be created by specific banking foundations; Ministerial Order ECC/2575/2015 of 30 November, establishing the content, structure and the disclosure requirements for the annual corporate governance report of certain banking foundations; National Securities Market Commission (CNMV) Circular 3/2015 of 23 June on the technical and legal specifications and information requirements for websites of listed companies and savings banks that issue securities on official secondary securities markets; and Banco de España Circular 6/2015 of 17 November to savings banks and banking foundations on specific matters pertaining to remuneration and the corporate governance reports of savings banks that do not issue securities admitted to listing on official secondary securities markets and on the obligations of specific banking foundations derived from stakes in credit institutions (collectively, the Savings Banks and Banking Foundations Developing Regulations).

9 Presentation on the status of the regulatory and financial outlook of the savings banks' sector issued by the Spanish Confederation of Savings Banks on 21 February 2017.

10 Banco de España press release dated 23 March 2017, available at www.bde.es/f/webbde/GAP/Secciones/SalaPrensa/NotasInformativas/17/presbe2017_19.pdf.

11 Banco de España, ‘Briefing note on the setting of the capital buffers for systemic institutions for 2017', 7 November 2016. Available at www.bde.es/f/webbde/GAP/Secciones/SalaPrensa/ComunicadosBCE/NotasInformativasBCE/16/Arc/Fic/presbe2016_50.pdf.

12 Law 11/2015 of 18 June on the recovery and resolution of credit institutions and investment firms (Recovery and Resolution Law) and Royal Decree 1012/2015 of 6 November developing the Recovery and Resolution Law and amending Royal Decree 2606/1996 of 20 December on deposit guarantee funds (jointly with the Recovery and Resolution Law, the Recovery and Resolution Regulations).

13 Law 9/2012 of 14 November, on the framework for the restructuring and resolution of financial institutions (Law 9/2012), which has been approved as a consequence of the subscription of the MoU and which was a major achievement in the Spanish regulatory landscape. The Recovery and Resolution Regulations constitute a continuation of the regime established by Law 9/2012 as they share the same principles and replicate, to a great extent, its structure and sections. This notwithstanding, the Recovery and Resolution Regulations have broadened the scope of the Spanish recovery and resolution legislation as it applies to investment firms, which were not included in the scope of Law 9/2012.

14 Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EEC, 2007/36/EEC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No. 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council (Recovery and Resolution Directive).

15 The Recovery and Resolution Regulations entrust powers to the relevant supervisor (Banco de España or the ECB for credit institutions, and the CNMV for investment firms), which will play a major role in the early intervention phase; the pre-emptive resolution authority (Banco de España or the CNMV, as applicable); and the executive resolution authority (the FROB).

16 The Recovery and Resolution Law foresees that the FROB may agree to the redemption or conversion of certain capital instruments, which will be done either separately from the use of any resolution tool (including internal recapitalisation) or together with any of the available resolution tools (provided that the circumstances triggering the resolution process are met).

17 The excluded liabilities set forth in the Recovery and Resolution Law are those listed in Article 44.2 of the Recovery and Resolution Directive.

18 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on market in financial instruments.

19 Council Regulation (EU) No. 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions and Regulation (EU) No. 468/2014 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation).

20 Figures obtained from the BBVA Research Banking Outlook Report as of December 2016, available at www.bbvaresearch.com/wp-content/uploads/2016/12/Banking-Outlook-Q416_Cap1.pdf.