The Council of Ministers has been informed today about the Draft Law on Savings Banks and Banking Foundations for subsequent submission to the Council of State. The standard complies with the commitments contained in the Memorandum of Understanding (MoU) agreed with the European Union (EU) as part of the assistance program for the recapitalization of the financial sector. This agreement implies on the Spanish side the approval of a new legal framework to clarify the role of the savings bank sector as shareholders of banks, the reinforcement of the rules of good corporate governance and the incompatibility requirements both in savings banks and in banks. controlled by them.
This rule is part of the National Reform Program that the Government approved last week. The new legislation on savings banks aims to advance the process of consolidation and recapitalization of the financial sector, as an essential basis for a return to economic growth and job creation. On the other hand, it means advancing Spain's compliance with the calendar agreed with the EU within the MoU. At the end of last November, a regulatory text was submitted to public information, which now enters the final stretch for its approval as a Bill by the Government, predictably at the end of the month and its subsequent parliamentary procedure.
With regard to savings banks, the Draft Law represents a return to the original limits of these institutions with regard to their financial activity, which will focus on the retail segment and its territorial scope of action. If these limits are exceeded, the savings banks must transfer their financial activity to a bank that will be participated by a banking foundation. The limits are as follows:
- Material: explicit linkage of the financial activity of the savings banks with retail clients and small and medium-sized companies. The savings banks may not engage in other complex financial activities.
- Territorial: the scope of action of savings banks may not exceed that of an Autonomous Community or ten neighboring provinces.
- Of volume: the savings banks may not have an asset of more than 10,000 million euros or a deposit quota above 35% of those of the Autonomous Community in which they operate.
In addition, a new regulation of the governing bodies of the savings banks is introduced, which affects the general assembly, the control commission and the board of directors. The control commission is maintained because the savings banks have no shareholders and it is therefore necessary to regulate an electoral mechanism to constitute the general assembly. The control commission will ensure the proper functioning of this electoral procedure and the social work of the fund, among other functions related to the operation of the board of directors. The figure of the CEO has been removed.
An electoral system is established by virtue of which it is intended to achieve two fundamental objectives: to avoid the political control of the savings banks and to attribute said control to the main stakeholders, the depositors or depositors.
- The general assembly will include the representation of the depositors, the founding will of the fund and the recipients of the social work.
- The number of general directors will be between 30 and 150. The mandate will be between 4 and 6 years.
- Representatives are credited with between 50% and 60% of the general directors. The Public Administrations in no case may designate more than 25% of the general directors.
- There will be a turn of great depositors, of not less than 50%, to guarantee that they are adequately represented in the general assembly. The rest of the general councilors corresponding to this shift will be chosen by the system of arbitrators, designated by lottery among the rest of the depositors. The renewal of the general directors representing the depositors will be done by halves.
The norm increases, on the other hand, the professionalization of the governing bodies of the savings banks in the following aspects:
- Measures to ensure that the members of the governing bodies of the savings banks carry out their functions in their exclusive interest and in accordance with criteria of efficiency and good financial management. The incompatibility of being part of the governing bodies with the assumption of executive positions in political parties, business and union organizations is strengthened.
- The members of the board of directors are no longer required to reflect the proportions of representative quotas existing in the general meeting. On the contrary, it is required that at least half of the board members be independent, and those who are general directors cannot have such consideration.
- It requires that all the members of the board of directors have the appropriate knowledge and experience for the performance of their duties, in the same terms that are foreseen for the members of the boards in banks. They will be required to have the requirements of good repute, experience and good governance required by legislation.
- Proportionality is also required based on the economic dimension of each box to determine the total number of members of the Assembly and the board of directors.
- More than half of the members of the board of directors and the control committee are required to be independent directors. The chairman of the control commission must also have this condition.
As for banking foundations, the Draft Law defines their legal regime. Heirs of the special interest foundations provided for in Royal Decree-Law 11/2010, of July 9, governing bodies and other aspects of the legal regime of the Savings Banks, are those foundations that have a participation of more than 10% in a credit institution.
The MoU approved by Spain demanded that a gradual divestment of the former savings banks in the banking entities take place until their participation reached levels of non-control. To achieve this objective, the draft law provides for two measures that operate consecutively:
- In the first place, the preliminary draft Law requires that the savings banks that currently carry out their actions in an indirect exercise regime, as well as the savings banks that have a volume greater than the limits established in the regulation (that is, when it maintains a participation in a credit institution that reaches, directly or indirectly, at least 10% of the entity's capital or voting rights, or that allows it to appoint or remove a member of its administrative body), become foundations banking.
- Once transformed into banking foundations, a legal regime has been designed for these new entities that reinforces financial control based on the degree of effective control that they exercise in the investee bank.
The preliminary draft law distinguishes:
- General obligations for all bank foundations (those that have a participation in the credit institution of at least 10%, regardless of whether or not they were previously savings banks)
- Obligations for bank foundations with a participation in the credit institution of at least 30%.
- Obligations for bank foundations with a participation in the credit institution of at least 50% or with a controlling interest.
All banking foundations, without exception, are subject to rigorous corporate governance requirements. In particular, the members of the board of trustees of banking foundations are prevented from being members of the board of directors of the credit institution. In addition, they will be subject to a control regime that will be carried out by the Bank of Spain within the framework of its financial supervision functions and by the corporate governance protectorate. The protectorate will correspond to the Ministry of Economy and Competitiveness when the banking foundation has a main scope of action superior to that of the Autonomous Community.
In addition, bank foundations with a participation of more than 30% in a credit institution must submit to the Bank of Spain for approval a protocol for managing their participation in the bank. This will regulate the criteria for managing the foundation's participation in the bank, the relationships between the two, the rules on related-party transactions and the Financial Plan to cover the bank's capital needs.
Additionally, bank foundations with a participation greater than 50% or that hold control positions in a credit institution will be obliged to present in their Financial Plan a strategy of diversification of investments and risk management that avoids the concentration in assets issued by a same counterparty. In addition, it will have to have a Reserve Fund to meet possible needs of the investee's own resources.
Banking foundations may not participate in capital increase processes of the investee for the purpose of reaching or maintaining control positions. They may only approve the distribution of dividends with a reinforced quorum and majority (presence of 50% of the capital on first call and 25% on second call, plus approval of three-fourths of the capital present at the Meeting).
As a whole, the regulation related to savings banks and bank foundations must respect the competence of the Autonomous Communities, with the State having to enact basic legislation. The established distribution of powers regime is not altered in this regard. In the case of banking foundations, as well as in ordinary foundations, the state or autonomous dependency will depend on whether their main activity is carried out in a single CCAA (in which case the protectorate will be exercised by the CCAA), or if it is developed in more than one CCAA (in which case the protectorate will be exercised by the State, through the Ministry of Economy and Competitiveness).