Circular 1/2013 of the Bank of Spain on the Risk Information Centre and amending Circular 4/2004 on financial information standards

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Circular 1/2013, of May 24, of the Bank of Spain, on the Risk Information Centre and amending Circular 4/2004, of December 22, to credit institutions, on public and reserved financial information standards, and models of financial statements. (BOE of May 31, 2013). [ 1 ]

[ 2 ]

[ 3 ]

[1]

Includes error correction published in the BOE of June 7, 2013

[2]

See the second final provision of this Circular.

[3]

See Law 44/2002, of November 22, and Order ECO/697/2004, of March 11.

The current legal framework of the Risk Information Centre (CIR) was introduced by Law 44/2002, of November 2, on measures to reform the financial system (hereinafter, Law 44/2002), Chapter VI, which confers upon the CIR the nature of a "public service" and attributes to it two clearly differentiated purposes. On the one hand, to allow the Bank of Spain to use the data declared in the exercise of its supervisory and inspection functions and to contribute to the proper development of the other functions legally attributed to it. On the other, to provide the reporting entities with the data necessary for the exercise of their activity.

Law 44/2002 establishes the basic criteria of the CIR regarding the content of the data to be declared, its use by the Bank of Spain and the reporting entities, as well as regarding the right of access, rectification, and cancellation of the declared data, and empowers the Bank of Spain to, directly or with prior authorization from the Minister of Economy and Competitiveness, develop its operating rules. The law has been developed by Order ECO/697/2004, of March 11, on the Risk Information Centre. The changes introduced by both norms were incorporated into Bank of Spain Circular No. 3/1995, of September 25, on the Risk Information Centre (hereinafter, Circular 3/1995), by Circular No. 1/2004, of June 29.

The role of risk centres in the credit market, which is not alien to various academic studies and international organizations, contributes to limiting adverse selection, bounding the aggregate risk level, and, through these channels, favouring financial stability. Likewise, risk centres have significant utility, not only in the traditional supervision of credit institutions, but for the proper development of macroprudential supervision, so that they contribute to the preservation of the stability of the financial system as a whole. The financial crisis that began internationally in 2007, and which has also affected the Spanish banking sector, has emphasized the utility and relevance of the CIR from the perspective of macroprudential supervision and financial stability analysis, activities that, due to the broad and changing nature of systemic risks, are very data-intensive. Therefore, in 2011, the Bank of Spain initiated a reflection process in order to improve the information declared to the CIR, so that in the future it can contribute more effectively to maintaining the financial stability of the Spanish credit system.

In this context, Spain acquired the commitment to improve the quantity and quality of the data declared to the CIR within the framework of the Memorandum of Understanding on Financial Sector Policy Conditions, of July 23, 2012, as a consequence of the European financial assistance request formulated by the Spanish Government.

To comply with the above, Law 44/2002 and Order ECO/697/2004 have been modified, with the aim of empowering the Bank of Spain to set different declaration contents and thresholds depending on the different purposes of the CIR, and to establish that data be declared in euro units, which facilitates that the necessary data can be substantially increased to improve the contribution of the CIR to the financial stability of the Spanish credit system.

Under the authorizations contained in both Law 44/2002 and Order ECO/697/2004, the Bank of Spain, considering the significant changes that will be introduced with this reform, has opted to issue a new circular on the CIR and repeal the current Circular 3/1995.

The main novelties introduced in the operation of the CIR with respect to the previous regulation are specified, basically, in the following aspects:

– The obligation to declare risks, operation by operation, in euro units, is established, without fixing, as a general rule, a minimum declaration threshold, instead of declaring them as has been done until now, in aggregate by type of operation, in thousands of euros and with a threshold of 6,000 euros for resident holders and 300,000 euros for non-residents. In addition, all persons involved in each of the operations must be identified, indicating the capacity in which they intervene (holder of direct risk, guarantor, person subsidizing principal or interest, etc.), as well as the amount of risk that corresponds to them, if any.

– A greater breakdown of the main product types currently declared (commercial credit, financial credit, etc.) is contemplated, to better identify the characteristics and risks of different operations. Likewise, new data are requested, such as those related to interest rates and the dates of formalization, maturity, default, and liquidation of principal and interest.

– The information and detail of real guarantees received are considerably increased, as it moves from simply declaring the type of personal or real guarantee received to providing detailed information on each of the assets received as collateral. These data are especially exhaustive for real estate mortgages.

– Credit institutions are required to indicate monthly, in addition to the risk of operations existing at the end of each month –broken down according to whether it is principal, ordinary interest, default interest, or due expenses–, the reason or reasons why the loan risk is reduced (such as cash payment, refinancing, award of assets, etc.) and, if applicable, the amount of the reduction due to each reason.

– Restructured, refinanced, renegotiated, subrogated, and segregated operations must be identified and, in addition, linked to the data of operations previously declared to the CIR from which they may originate.

– Operations guaranteed by other reporting entities to the CIR will be linked to the operations declared by the guaranteeing entities. Furthermore, the beneficiary entity of the guarantee must provide the guaranteeing entity, through the CIR, with data on the guaranteed operations.

– In the assignment of loans to third parties where management is retained, assigning entities will continue to declare the assigned risks as before, but will additionally identify the assignees, as well as the risk they continue to assume and the risk that has passed to the assignees.

– For each operation in which entities continue to assume risk, accounting and own resources information will be provided, such as credit rating, specific provisions established, risk-weighted exposure, probability of default, etc.

In order to minimize the administrative cost entailed by the significant increase in information to be declared to the CIR, the data have been divided into basic and dynamic. Basic data are those that, due to their stability over time, only need to be declared once, unless modified subsequently, while dynamic data must be declared periodically: monthly, quarterly, or semi-annually, depending on their nature.

On the other hand, in application of the principle of proportionality, a regime has been established whereby reporting entities to the CIR that are not supervised by the Bank of Spain only have to declare the data necessary exclusively for the purpose of providing them to the credit system. On the other hand, supervised entities will only have to declare data related to received guarantees when the accumulated amount of operations with mortgage collateral is equal to or greater than 10 million euros, although they must maintain such information in their databases available to the Bank of Spain. Additionally, for holders belonging to the "households", "non-financial corporations", and "non-profit institutions serving households" sectors, it is established that only aggregate data will be declared quarterly when certain requirements are met, including that their accumulated risk is less than 6,000 euros.

With regard to the threshold for data to also be declared for the purpose of providing them to reporting entities, this circular raises it to 9,000 euros, updating in monetary terms the threshold of 6,000 euros set in 1995. Likewise, and in relation to the information returned to reporting entities, in addition to the monthly report with consolidated information of the entire system for holders with whom the entity maintains an accumulated risk equal to or greater than 9,000 euros, it is established that the Bank of Spain will deliver two reports to reporting entities when they request data on a potential client: Those corresponding to the last closed monthly declaration and to the declaration closed six months prior. Consequently, data on holders whose accumulated risk in an entity is less than 9,000 euros will not be provided to reporting entities, given that they are declared exclusively in compliance with the information obligations established by the Bank of Spain in the exercise of its supervisory and inspection functions and other functions legally attributed to it.

The activity of providing data to credit institutions to analyze the ability of their current and potential clients to meet obligations, which constitutes a very relevant function of the CIR since its creation in 1962, is also carried out by the financial solvency and credit files. The activity of the CIR in this matter is complementary to that of said files to guarantee the concurrence of private nature entities regulated by Article 69 of Law 44/2002. Therefore, credit institutions, to comply with what is provided in Article 18 of Order EHA/2899/2011, of October 28, on transparency and protection of banking service clients, regarding access to the "customer credit history", before granting credit must take into account that the financial solvency and credit files provide additional information to that of the CIR. In order for this information to be truly useful for the analysis of a person's payment capacity, in addition to providing data on customer defaults (negative files), it should contain data on their indebtedness (positive files).

Given the significant changes introduced in the operation of the CIR, this circular provides for a phased entry into force of the declaration obligations and establishes a transitional regime for new data that are difficult to obtain and affect operations formalized prior to certain dates.

Given the need for entities to send data to the Bank of Spain, operation by operation, of elements that, assuming credit risk from a prudential point of view, do not fit within the concept of credit risk regulated by Law 44/2002, it is necessary to modify Bank of Spain Circular No. 4/2004, of November 22, on public and reserved financial information standards, and models of financial statements (hereinafter, Circular 4/2004), to include new statements to obtain individualized data on derivative instruments, equity instruments, and assets awarded or received in payment of debts, as well as some data on complementary debt securities representative of those declared to the CIR. These statements, in application of the principle of proportionality, are also contemplated to not have to be sent by entities whose accumulated amount in each of these activities is less than 10 million euros.

Finally, this circular is also used to modify certain statements of Circular 4/2004, with the aim of requesting information necessary for the preparation of balance of payments statistics, to include a new reserved statement with data on the cost of funding captured in the corresponding month for business in Spain and another with information on the delivery of housing awarded or received in payment of debts from credit operations to households for housing acquisition, as well as to harmonize the content of the minimum sectorization scheme in the database and the special accounting register of mortgage operations with what is established in the new circular on the CIR.

Consequently, in exercise of the powers granted, the Governing Council of the Bank of Spain, upon proposal of the Executive Committee, prior report of the Spanish Data Protection Agency and in agreement with the Council of State, has approved this circular, which contains the following norms:

CHAPTER ONE

Reporting Entities and Declared Risks and Persons

First Rule.

Reporting Entities.

1 The obligation to declare to the public service of the CIR extends to the following entities and to real estate lenders (hereinafter, "reporting entities"):

a) Credit institutions (Instituto de Crédito Oficial, banks, savings banks, and credit cooperatives), including branches in Spain of foreign credit institutions and those operating in Spain under the regime of free provision of services.

b) Financial credit establishments.

c) Payment institutions, including those operating in Spain, in the exercise of the right of freedom of establishment and under the regime of free provision of services, that carry out the credit activity indicated in Article 20.3 of Royal Decree-Law 19/2018, of November 23, on payment services and other urgent measures in financial matters.

d) Electronic money institutions, including those operating in Spain, in the exercise of the right of freedom of establishment and under the regime of free provision of services, that carry out the credit activity indicated in Article 8.1.b) of Law 21/2011, of July 26, on electronic money.

e) Mutual guarantee societies and reinsurance societies.

f) Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria, SA (Sareb).

g) Bank of Spain.

h) Deposit Guarantee Fund of Credit Institutions.

i) Sociedad Anónima Estatal de Caución Agraria (Saeca).

j) Real estate lenders referred to in Law 5/2019, of March 15, regulating real estate credit contracts, not included in previous categories.

2. The obligation collected in paragraph 1 reaches, in the case of Spanish entities, the entirety of their business, including that carried out by their branches abroad, and that of instrumental companies integrated into their consolidatable group when they are residents in Spain, and their business, extension of the activity of said group.

Branches in Spain of foreign credit institutions, as well as payment institutions and electronic money institutions operating in Spain in exercise of the right of freedom of establishment, will only declare to the CIR the operations of their offices in Spain.

Credit institutions, payment institutions, and electronic money institutions operating in Spain under the regime of free provision of services will only declare to the CIR the operations carried out with residents in Spain.

For the purposes of this circular, and in order to determine the obligations to transmit information, the following reporting entities will be understood as entities subject to reduced declaration: credit institutions operating in Spain under the regime of free provision of services included in letter a) of paragraph 1, payment institutions referred to in letter c) of paragraph 1, electronic money institutions referred to in letter d) of paragraph 1, and real estate lenders referred to in letter j) of paragraph 1.

When reporting entities cannot provide individually all or part of the data that must be declared for operations registered in a branch abroad because it is located in a country whose legislation prevents it, they must send a sworn declaration to the Bank of Spain justifying this circumstance sufficiently, detailing specifically which data the legal impossibility of transmission to the CIR affects and the legislation on which it is based, a copy of which will be sent along with the aforementioned sworn declaration. The sworn declaration must be updated at least every two years if the legal impediment to provide data individually persists. If the cause preventing the sending of data ceases, reporting entities must communicate this to the Bank of Spain and, from that moment on, begin to declare them individually. [ 4 ]

3. For the purposes of this circular, the definition of observed agent will be that established in Article 1.9 of Regulation (EU) No. 867/2016 of the European Central Bank, of May 18, on the collection of granular credit and credit risk data (ECB/2016/13) [hereinafter, Regulation (EU) 867/2016]. To this effect, an observed agent will be understood as:

a) The domestic part of the credit institution resident in a reporting Member State (business in the country of residence of its head office) and, if applicable, each of its branches abroad.

b) Branches in a reporting Member State of a credit institution that is non-resident in one of those States.

A reporting Member State is understood to be one that reports to the European Central Bank in accordance with Regulation (EU) 867/2016. [ 5 ]

[4]

Paragraphs 1 and 2 drafted according to Circular 1/2021, of January 29, first rule.

[5]

Paragraph 3 incorporated according to Circular 1/2017, of June 30, single rule.

Second Rule.

Declared Risks.

1. The risks declared to the CIR are operations instrumented in the form of loans, debt securities, financial guarantees, loan commitments, other commitments with credit risk, and securities lending.

The declaration of these operations will be carried out with the clarifications indicated in the following paragraphs and with the detail regulated in Annex 2 of this circular.

For the purposes of this circular, the following are considered:

a) Loans: Financing granted by the entity, regardless of the form in which they are instrumented, except for debt securities, even if the amounts have not been disposed of.

Loans are classified, depending on their characteristics, into:

i) Commercial Credit: Loans granted based on receivables (bills or other documents) that arise from delaying the collection of sales of goods or provision of services operations. Commercial credit includes:

1. Operations with recourse: When the assignor of the receivables retains substantially all risks and benefits, regardless of how the operation is named in the contract, or when, without transferring or retaining them substantially, the reporting entity does not acquire control of their cash flows.

2. Operations without recourse: When the assignor transfers substantially all risks and benefits of the receivables, or when, without transferring or retaining them substantially, the reporting entity acquires control of their cash flows.

ii) Financial Credit: Operations that, being loans declared to the CIR, are not instrumented as commercial credit, financial leasing, or reverse repurchase loan. [ 6 ]

iii) Financial Leasing: Leasing operations that the reporting entity must account for as loans because it has transferred substantially all risks and benefits inherent to the ownership of the asset subject to the contract, even if they have the status of operating lease for the lessee. This concept includes the installments the lessee must pay. [ 7 ]

iv) Reverse Repurchase Loans [ 6 ]: Loans granted in exchange for securities or gold transferred temporarily via a non-optional repurchase agreement, as well as amounts delivered as cash collateral for securities received on loan.

Operations that must be declared as loans to the CIR do not include, even if they are receivables in favor of the entity, pending amounts to be collected by checks, balances against clearing houses and liquidating bodies for operations in stock exchanges and organized markets, cash deposits, due passive dividends, commissions for financial guarantees, and other debtor balances that do not have the nature of a loan for the statistical requirements of the Economic and Monetary Union.

b) Debt Securities: Bonds and other securities that create or recognize a debt for their issuer, including negotiable instruments issued for trading among an open group of investors, which accrue remuneration consisting of an interest, implicit or explicit, whose rate, fixed or defined by reference to others, is contractually established, or incorporate an implicit derivative with characteristics and economic risks different from those of the main contract, and are instrumented in titles or book entries, regardless of the issuing subject, except households.

c) Financial Guarantees: Contracts that require the issuer to make specific payments to reimburse the creditor for the loss incurred when a specific debtor fails to meet its payment obligation according to the original or modified conditions of a debt instrument, regardless of its legal form.

d) Loan Commitments: Firm commitments to grant loans with pre-established conditions and terms, except those available in operations that meet the definition of loan.

e) Other Commitments with Credit Risk: Commitments that meet the definition of credit risk declared to the CIR not included in the previous paragraphs. Specifically, this category includes guarantees and bonds provided that do not meet the definition of financial guarantee, irrevocable documentary credits, and those available in other commitments (global-multi-use risk policies and guarantee lines, documentary credits, and credit by disbursements).

f) Securities Lending: Operations in which the reporting entity cedes full ownership of certain securities to the borrower with the commitment to return others of the same class as those received without making any disbursement, except for the payment of commissions. When in a securities lending operation both entities exchange securities, it is cons...