Circular 4/2019 of the Bank of Spain on Public and Reserved Financial Information Standards and Financial Statement Models

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Document BOE-A-2019-17286

Circular 4/2019, of November 26, from the Bank of Spain, to credit institutions, on public and reserved financial information standards, and financial statement models. View consolidated text

Published in:

« BOE » no. 289, of December 2, 2019, pages 131917 to 131932 (16 pages)

Section:

I. General Provisions

Department:

Bank of Spain

Reference:

BOE-A-2019-17286

Permalink ELI:

https://www.boe.es/eli/es/cir/2019/11/26/4

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Text

ORIGINAL TEXT

Index

Preliminary Title. General Provisions.

Rule 1. Scope of application and object.

Title I. Public financial information.

Chapter I. Content of public financial information.

Rule 2. Individual annual accounts.

Rule 3. Consolidated annual accounts.

Rule 4. Content of individual and consolidated annual accounts.

Rule 5. Individual public financial statements.

Rule 6. Consolidated public financial statements.

Chapter II. Recognition, valuation, presentation, and information criteria to be included in the Notes.

Rule 7. Characteristics and elements of financial information.

Rule 8. Recognition, valuation, presentation, and information criteria to be included in the Notes.

Title II. Reserved financial information.

Chapter I. Preparation criteria.

Rule 9. Recognition, valuation, presentation, and breakdown criteria.

Rule 10. Segmentation of personal balances by holders.

Chapter II. Reserved statements to be submitted to the Bank of Spain.

Rule 11. Individual reserved financial statements.

Rule 12. Consolidated reserved financial statements.

Rule 13. Reserved statements relating to the statistical requirements of the Economic and Monetary Union.

Title III. Internal accounting development and management control.

Rule 14. Internal accounting development and management control.

Title IV. Presentation of financial information to the Bank of Spain.

Rule 15. Presentation of annual accounts, statements, and other financial information to the Bank of Spain.

Single Additional Provision. Provisions for prudential supervision purposes.

First Transitional Provision. First application of this circular to annual accounts.

Second Transitional Provision. First application of this circular to public financial statements.

Third Transitional Provision. First application of this circular to reserved financial statements.

Single Final Provision. Entry into force.

I

This circular, which constitutes the accounting regime for credit institutions, determines the documents that these institutions and their groups must publish, as well as the recognition, valuation, presentation, information to be included in the Notes, and breakdown standards that must be applied in their preparation, including the models for public and reserved financial statements.

In accordance with Title II, on the legal regime of credit institutions, of Law 5/2015, of April 27, on the promotion of business financing, this circular takes as reference the accounting standards for credit entities, either by establishing analogous criteria to those of these entities or by directly referring to the standards of Circular 4/2017, of November 27, to credit entities, on public and reserved financial information standards, and financial statement models. The differences in the nature, scale, and complexity of the activities of the institutions compared to credit entities result in a simplified regime of financial statement requirements, consisting of a subset of the public and reserved financial statements of credit entities, with, in some cases, a lower frequency of submission or a longer maximum deadline for submission.

This approach is consistent with the previous accounting regime of credit institutions, which, while having the status of credit entities, applied the accounting standards of the latter until December 2013, although they enjoyed simplified financial statement requirements. Since January 2014 – the date on which they lost their status as credit entities, by virtue of Royal Decree-Law 14/2013, of November 29, on urgent measures to adapt Spanish law to European Union legislation on the supervision and solvency of financial entities – institutions have maintained their previous accounting regime on a transitional basis, including the aforementioned simplifications in the matter of financial statements. With the approval of this circular, said transitional accounting regime is deemed concluded, and is replaced by specific legislation.

This new circular, which constitutes the development of the Commercial Code for these institutions, maintains the convergence of national accounting standards with the International Financial Reporting Standards adopted by the European Union (IFRS-EU), in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, of July 19, 2002, on the application of international accounting standards (IAS Regulation). In this way, the Bank of Spain continues the strategy of compatibility of the accounting regime of supervised entities with the most advanced accounting criteria of IFRS-EU, respecting the principles of the Commercial Code. In particular, the criteria of IFRS-EU 9, on financial instruments, including the expected loss approach for the estimation of credit risk provisions, are incorporated into the accounting standards of the institutions.

II

This circular consists of fifteen rules, one additional provision, three transitional provisions, and one final provision.

The preliminary title, which includes a single rule, determines the subjective scope of application of the circular – credit institutions, groups of credit institutions, and consolidatable groups of credit institutions – and clarifies whether, in the preparation of public and reserved financial information, this circular or IFRS-EU directly must be applied.

Individual financial information will be prepared applying the accounting criteria of this circular. IFRS-EU apply directly in the preparation of consolidated financial information of groups of securities issuers, in accordance with the IAS Regulation, and of groups that have not issued securities that opt for them, in accordance with Article 43 bis of the Commercial Code. Therefore, the consolidated financial information of groups that apply IFRS-EU directly falls outside the scope of the accounting criteria of this circular regarding recognition, valuation, presentation, and information to be included in the Notes. The remaining groups will prepare their consolidated financial information applying the accounting criteria of this circular. Nevertheless, all groups are subject to the specificities collected in this circular in terms of public and reserved financial statement models, information breakdowns, frequency, and submission deadlines.

In any case, as has been noted, the criteria regarding recognition, valuation, presentation, and information to be included in the Notes collected in this circular for the institutions are identical to those required in Circular 4/2017, of November 27, for credit entities. Therefore, the Bank of Spain understands that the considerations indicated in the preamble of said Circular 4/2017 regarding compliance with the accounting criteria collected therein by groups that apply IFRS-EU directly are fully applicable to said institutions.

The first title, on public financial information, consists of two chapters. The first chapter, which includes five rules, determines the documents that must be published (annual accounts, management report, and audit report) and general requirements regarding the content of annual accounts, individual and consolidated. Regardless of their obligation to prepare annual accounts, institutions must periodically publish the models for individual and consolidated public financial statements stipulated in this circular. The second chapter, which includes two rules, contains a reference to Circular 4/2017, of November 27, for the standards of recognition, valuation, presentation, and breakdown of information in the Notes of the annual accounts.

The second title, on reserved financial information, consists of two chapters. The first chapter, which includes two rules, establishes that groups are subject to the specificities collected in this title, regardless of whether they apply the accounting criteria of this circular or IFRS-EU directly. The second chapter, which includes three rules, collects the specificities of the reserved statements – individual, consolidated, and relating to the statistical requirements of the Economic and Monetary Union (EMU) – in terms of models, breakdowns, frequency, and submission deadlines.

The third title, on internal accounting development and management control, and the fourth title, on the presentation of financial information to the Bank of Spain, both include a rule that refers to Circular 4/2017, of November 27.

The single additional provision establishes that the reference to Annex 9 of Circular 4/2017, of November 27, made in this new circular is only with respect to accounting criteria, and not regarding certain provisions on the management of credit and counterparty risk for prudential supervision purposes.

The first transitional provision will apply to the annual accounts of the 2020 financial year, and to the comparative information of the 2019 financial year that must be included in these. This first transitional provision allows – by reference to Circular 4/2017, of November 27, and Circular 2/2018, of December 21, which modifies Circular 4/2017, of November 27, and Circular 1/2013, of May 24, on the Risk Information Central – that the first application of the new accounting criteria on January 1, 2020, be carried out retroactively, as if the new criteria had always been applied, or to opt for a regime with various simplifications, in which adjustments are made against reserves on the date of first application.

Institutions will apply to financial instruments, accounting hedges, tangible assets, inventories, non-current assets held for sale, and commissions and other income, the transitional regime of Circular 4/2017, of November 27, although adapting the dates of said transitional regime to the entry into force of this new circular (January 1, 2020). For leasing transactions, institutions will also apply, adapting the dates to the entry into force of this new circular, the transitional regime of Circular 2/2018, of December 21. The rest of the effects on the annual accounts of the first application of the new circular will be accounted for prospectively.

Notwithstanding the above, a simplification is provided in the event that the institution is part of a group of credit entities or a group listed on a regulated market in the European Union (EU). These institutions are allowed to, for the comparative information presented in the first financial year, opt to take as a starting point – or to make use of – the transition information they had already prepared in previous years, for internal purposes, for the first application of the accounting criteria of Circular 4/2017, of November 27, or of IFRS-EU 9, 15, and 16 in the consolidated annual accounts of the larger group to which they belong. In this way, instead of with reference to January 1, 2020, the criteria of the transitional regime of Circular 4/2017, of November 27, which are equivalent to those of IFRS-EU 9 and 15, may be applied with reference to January 1, 2018, and those of Circular 2/2018, of December 21, which are equivalent to IFRS-EU 16, with reference to January 1, 2019.

The second transitional provision regulates the presentation of interim public financial statements during the 2020 financial year.

The third transitional provision establishes the regime for the first application of the new reserved statements. The reserved statements relating to the statistical requirements of the EMU enter into force in January 2020. Between January and May 2020, consolidated reserved statements do not have to be submitted, and only a reduced subset of the models of individual reserved statements in force before the entry into force of this circular, prepared with the new recognition and valuation criteria, is sent. The first individual and consolidated reserved statements that must be submitted to the Bank of Spain in accordance with the new circular – distinct from the aforementioned EMU statistical statements – will be those of June 2020.

Finally, in accordance with the single final provision, this circular will enter into force on January 1, 2020.

III

This circular attends to the principles of good regulation required by Article 129 of Law 39/2015, of October 1, on the common administrative procedure of Public Administrations.

Regarding the principles of necessity and efficacy stipulated in said law, this circular undertakes the necessary changes in the accounting regulation of the institutions to conclude their transitional accounting regime, so that they must apply the same accounting criteria as credit entities.

As for the principle of proportionality, the circular limits itself to including those requirements necessary to meet the objectives of convergence with the accounting standards of credit entities and with IFRS-EU, within the framework of the Commercial Code, without imposing additional obligations on the institutions. The differences in the nature, scale, and complexity of the activities of the institutions compared to credit entities result in a simplified regime of requirements for public and reserved statement models.

Regarding the principles of legal certainty and efficiency, they are achieved by prescribing this circular a stable, predictable, complete, and clear accounting regulation for the institutions, which must apply the same accounting criteria as credit entities. Since the regulation of the institutions is consistent with that of credit entities and with the framework of IFRS-EU, the coexistence of two different accounting frameworks in the same group of credit entities or in the same group of securities issuers traded in the EU in which the institution is integrated is avoided, and it is allowed for the institutions to apply the most appropriate accounting principles to reflect their activities.

The principle of transparency is achieved through the prior public consultation of potential affected parties, established by Article 133 of Law 39/2015, of October 1, and the public hearing of interested parties, so that both form part of the processing process of this circular.

The Bank of Spain is empowered to establish and modify the accounting standards and the models of the public and reserved financial statements of the institutions, in accordance with what is provided in the third additional provision of Order ECE/228/2019, of February 28, on basic payment accounts, procedure for the transfer of payment accounts, and requirements of comparison websites, which in turn refers, in what is not expressly provided for therein, to the Order of the Ministry of Economy and Finance of March 31, 1989, which empowers the Bank of Spain to establish the accounting standards of credit entities.

The section "General Framework for Credit Risk Management" of Annex 9 of Circular 4/2017, of November 27, to which this circular refers, contains certain provisions on the management of credit and counterparty risk for prudential supervision purposes. The reference to Annex 9 of Circular 4/2017, of November 27, is only with respect to accounting criteria, and not regarding the aforementioned supervisory provisions. Specifically, within the "General Framework for Credit Risk Management," the supervisory provisions are collected in points 11 to 17 of Section I.A) "Granting of operations," with the exception of letter c) of point 11, which collects accounting criteria.

Finally, with regard to the specific financial information that institutions that have issued certain securities and the associated special accounting records must publish, the empowerment of the Bank of Spain rests on:

– Article 21 of Royal Decree 716/2009, of April 24, which develops certain aspects of Law 2/1981, of March 25, on the regulation of the mortgage market and other norms of the mortgage and financial system, with respect to issuers of mortgage bonds or mortgage notes.

– Article 10 of Royal Decree 579/2014, of July 4, which develops certain aspects of Law 14/2013, of September 27, on support for entrepreneurs and their internationalization, in the matter of bonds and internationalization notes, with respect to the issuers of said bonds and notes.

Consequently, in exercise of the powers granted, the Governing Council of the Bank of Spain, upon proposal of the Executive Commission and in accordance with the Council of State, has approved this circular, which contains the following rules:

PRELIMINARY TITLE

General Provisions

Rule 1. Scope of application and object.

1. This circular shall apply, with the scope provided in the following subsections, to:

a) Credit institutions regulated in Article 6 of Law 5/2015, of April 27, on the promotion of business financing, including hybrid credit institutions characterized in subsections 2 and 3 of said article.

b) Groups of credit institutions.

c) Consolidatable groups of credit institutions.

Any reference in the circular to the "institution" or "institutions" shall be understood to refer to all the aforementioned entities.

2. For the purposes of this circular, the following are understood:

a) Groups of credit institutions:

i) Groups whose dominant entity is a credit institution.

ii) Groups whose dominant entity is subject to Spanish legislation and, either has as its main activity the holding of participations in one or more credit institutions that are subsidiaries, or the activity of said dependent credit institution or institutions is the most important within the group.

b) Consolidatable groups of credit institutions: are those groups that must comply, on a consolidated or sub-consolidated basis, with the prudential requirements established in Regulation (EU) No 575/2013 of the European Parliament and of the Council, of June 26, 2013, on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No 648/2012, in accordance with Article 57 of Law 10/2014, of June 26, on the organization, supervision, and solvency of credit entities, with Article 12 of Law 5/2015, of April 27, and with its developing regulations.

In groups that are simultaneously a group of credit institutions and a group of credit entities, as defined in letter a) of subsection 2 of Rule 1 of Circular 4/2017, of November 27, to credit entities, on public and reserved financial information standards, and financial statement models, or a consolidatable group of credit institutions and a consolidatable group of credit entities, as defined in letter b) of said subsection 2, the second consideration shall prevail and Circular 4/2017, of November 27, shall be applied to them.

3. The rules contained in Title I of this circular constitute the development and adaptation of the accounting standards established in the Commercial Code, applicable to credit institutions and to groups of credit institutions.

In the case of groups, it shall be taken into account that, in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, of July 19, 2002, on the application of international accounting standards, the international financial reporting standards adopted by the European Union apply directly to the public consolidated financial statements of groups of credit institutions that are securities issuers. Also, as provided in Article 43 bis of the Commercial Code, said international standards apply directly to the remaining groups of credit institutions that opt for them.

Likewise, the accounting standards applicable for the preparation of individual and consolidated annual accounts, in accordance with the preceding paragraphs, will be used in the preparation of the corresponding public financial statements referred to in Rules 5 and 6 of this circular, with the specificities in terms of models, breakdowns, frequency, and submission deadlines established in said rules.

4. The rules contained in Title II of this circular shall apply to the individual reserved financial statements of credit institutions, as well as to the consolidated reserved financial statements of consolidatable groups of credit institutions.

The accounting criteria for the preparation of said individual and consolidated reserved statements shall be those applicable for the preparation of the corresponding public financial statements, in accordance with the preceding subsection 3, with the specificities in terms of models, breakdowns, frequency, and submission deadlines established in that Title II.

5. The rule comprising Title III of this circular, on the internal accounting and management control development necessary for the preparation and formulation of their public and reserved financial information, shall apply to all institutions in subsection 1 of this rule.

6. The rule comprising Title IV of this circular, on the presentation of financial information to the Bank of Spain, shall apply to all institutions in subsection 1 of this rule.

TITLE I

Public Financial Information

CHAPTER I

Content of Public Financial Information

Rule 2. Individual annual accounts.

Credit institutions shall prepare their individual annual accounts applying what is provided in this Title and shall publish them together with the corresponding management and audit reports. Credit institutions may not prepare abbreviated annual accounts.

Rule 3. Consolidated annual accounts.

1. A group