The Council of Ministers has approved the Draft Law on the Organization, Supervision and Solvency of Credit Institutions, a rule that reinforces the level of demand towards the financial sector in the area of prudential regulation. With this, Spanish regulations incorporate international agreements adopted in response to the financial crisis of 2008 and on a preventive basis. The Bill (PL) completes and absorbs the royal decree law 14/2013 of November 29 that regulated the most urgent matters in this regard. It will be sent to the Courts for urgent processing.
The so-called “Global regulatory framework to strengthen banks and banking systems” of the Basel Committee on Banking Supervision, better known as the Basel III Agreement, was the most relevant international response to the regulatory deficiencies detected with the crisis. The central axes of this agreement were transformed in the middle of last year into harmonized regulations of the European Union through a regulation and a directive that are now fully transferred to Spanish regulations.
The PL approved today is organized in three blocks. The first addresses the legal regime of credit institutions which includes the requirements for authorization, suitability, honorability and corporate governance. The second deals more specifically with the prudential supervision and solvency of credit institutions, as well as the penalty system. The third and last modifies the Securities Market Law to adapt it to the European standard; adapts the system of preferred shares, adapts the regulation of financial conglomerates and modifies the composition of the Management Commission of the Deposit Guarantee Fund.
In the first block the loss of the condition of credit institution is collected by the credit financial establishments, since they cannot capture deposits or other reimbursable funds and that was already established in the royal decree law of last November. There will, however, be a transitional period in which they will be able to maintain such a condition until a single regime is approved for this activity. In matters of corporate governance and remuneration The news is as follows:
- Limits are imposed on the number of councils in which a director can participate (two more if executive functions are exercised and up to four if executive functions are not exercised).
- The simultaneous exercise of the positions of chairman of the board of directors and chief executive officer (exceptionally authorized by the Bank of Spain) is prohibited.
- The variable remuneration is limited to 100% of the fixed remuneration unless the shareholders meeting authorizes up to the maximum limit of 200%.
- Part of the total variable remuneration, to be determined by the entity, must be subject to reduction or even recovery clauses for remuneration already paid.
- It also introduces the obligation for entities to have a remuneration committee and an appointment committee weighing that obligation by the size, nature and scope or complexity of their activities.
- Entities are required to publish the total remuneration received annually by all members of their board of directors.
In the Second block and regarding supervision, the main novelties are:
- The express obligation of the Bank of Spain is established for the first time to present at least once a year a Supervisor Program that collect the content and the form that will take the supervisory activity and the actions to undertake in virtue of the obtained results. This program will include the development of a stress test at least once a year.
- The obligation of the credit institutions to publish the denominated annually is established Annual Banking Report, a document where data such as the number of employees, taxes payable or public subsidies received among others are collected on a consolidated basis.
Within this block all the new solvency requirements that remain at national decision. For this purpose, the great novelty is the capital buffers, which allow supervisors to demand capital levels higher than those established in Regulation (EU). Specifically, five types of mattresses are defined:
- Capital conservation mattress for unexpected losses. It will be applied from January 1, 2016 and will be 2.5% in 2019.
- Mattress of specific countercyclical capital which aims to avoid the procyclical effect of prudential regulation. It will be applied from January 1, 2016 and its level will be up to 2.5%.
- Capital mattress for entities of global systemic importance and other entities of systemic importance. It will be applied as of January 1, 2016 and will be between 1% and 3.5%, depending on the more or less systemic nature of the entity to which it applies.
- Mattress against systemic risks. It can reach 5% levels and the supervisor decides discretionally when and to what extent to demand it, in order to reduce the risks derived from the effect of the evolution of the economy in the financial system.
These mattresses suppose a complement to the Regulation of direct application, by virtue of which the ordinary level 1 capital is raised (common equity tier 1, composed of capital and reserves) up to at least 4.5% of risk-weighted assets as of 2015. Similarly, a definition of capital more stringent to guarantee the real capacity to absorb capital losses. Finally, there is a greater demand for the requirements of liquidity, sufficient to cover needs in stress scenarios, and a new ratio of leverage which will be applied since 2018.
In the third and final block, the most notable thing is the change in the composition of the Management Committee of the Deposit Guarantee Fund, as it is an institution included within the scope of fiscal consolidation. It will consist of 11 members, a representative of the Ministry of Economy and Competitiveness, one of the Ministry of Finance and Public Administration, four appointed by the Bank of Spain and five by the representative associations of the credit institutions attached (three of banks, one of savings banks and one of credit unions). The presidency will be maintained by the deputy governor of the Bank of Spain.