Royal Decree 877/2015, of October 2, developing Law 26/2013, of December 27, on Savings Banks and Banking Foundations, regulating the reserve fund that certain banking foundations must constitute; modifying Royal Decree 1517/2011, of October 31, approving the Regulation developing the consolidated text of the Audit Law, approved by Royal Legislative Decree 1/2011, of July 1; and modifying Royal Decree 1082/2012, of July 13, approving the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions.

Ministry of Economy and Competitiveness

"BOE" No. 237, of October 3, 2015

Reference: BOE-A-2015-10636

INDEX

Preamble ................................................................ 3 Articles ................................................................. 5 Article 1. Object. ....................................................... 5 Article 2. Scope of application. .............................................. 5 Article 3. Constitution and use of the reserve fund. .................................. 5 Article 4. Determination of the reserve fund...................................... 6 Article 5. Form of constitution of the reserve fund. ................................ 7 Article 6. Deadline for constitution of the reserve fund. ................................ 7 Additional Provisions ...................................................... 7 First Additional Provision. Suspension of the obligation to contribute to the reserve fund. ......... 7 Transitory Provisions ...................................................... 8 First Transitory Provision. Submission of the financial plan........................... 8 Consolidated Legislation Page 1

Second Transitory Provision. Requirements applicable to entities of public interest. ........... 8 Repealing Provisions ..................................................... 8 Single Repealing Provision. Repeal of legislation.................................. 8 Final Provisions ......................................................... 8 First Final Provision. Modification of Royal Decree 1517/2011, of October 31, approving the Regulation developing the consolidated text of the Audit Law, approved by Royal Legislative Decree 1/2011, of July 1. ......................... 8 Second Final Provision. Modification of the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions, approved by Royal Decree 1082/2012, of July 13. .................................... 9 Third Final Provision. Competential title. ...................................... 11 Fourth Final Provision. Regulatory authorization...................................... 11 Fifth Final Provision. Entry into force. ........................................ 11

OFFICIAL STATE GAZETTE CONSOLIDATED LEGISLATION Page 2

CONSOLIDATED TEXT

Last modification: May 27, 2020

Law 26/2013, of December 27, on Savings Banks and Banking Foundations, has established a legal framework aimed at completing the transformation process of savings banks that has occurred in our country in recent years.

Following the financial crisis, during which a relevant part of the savings banks faced significant difficulties, norms were issued oriented towards these entities transferring their financial activity to a bank and maintaining only foundational activity, the basis of which was found in the need to improve the corporate governance and solvency of this type of entity.

This process concludes with the current law, whose declared purpose is that savings banks exercise their activities in the traditional manner, that is, focusing their activities on the regional scope and the retail sector.

The new legal regime outlined by Law 26/2013, of December 27, also brings to prominence a new type of institution important in the financial sphere: banking foundations, which are those foundations that maintain a participation in a credit institution reaching, directly or indirectly, at least 10 percent of the capital or voting rights of the entity, or that allows them to appoint or dismiss a member of its administrative body.

The regulation contained in Law 26/2013, of December 27, regarding the banking foundation has a dual purpose: on one hand, to establish clear corporate governance obligations to ensure that banking foundations operate in financial markets appropriately and with full guarantee of safeguarding financial stability; and on the other hand, to promote that foundations gradually reduce their participation in credit institutions, for which purpose the law establishes various mechanisms that incentivize a policy of orderly disinvestment from credit institutions.

In order to achieve its objectives, Law 26/2013, of December 27, establishes a triple category of obligations that banking foundations must observe, taking into account their level of participation and control in the participated credit institution.

At a first level, it is required that all banking foundations, by virtue of being such, comply with certain corporate governance obligations, including the presentation of an annual corporate governance report. These obligations constitute a minimum, basic, and necessary element to guarantee that no dysfunctions occur that, due to their impact on the participated credit institution, could have consequences on the stability of the financial system.

There is a second type of obligation, of greater intensity, for those banking foundations that hold a participation equal to or greater than 30 percent of the capital in a credit institution or that allows them control thereof. These entities will have to elaborate a management protocol that will regulate certain aspects of the relationship between the banking foundation and the participated credit institution, and additionally, a financial plan in which they determine how they will meet the capital needs that the entity in which they participate might incur, and the basic criteria of their investment strategy in financial entities.

Finally, banking foundations that hold a participation equal to or greater than 50 percent in a credit institution or that allows them control thereof, apart from other specific additional obligations, must include a plan for diversification of investments and risk management regarding the participated credit institution and fund a reserve fund to meet possible needs for own resources of the credit institution that cannot be covered with other resources and that, in the opinion of the Bank of Spain, could endanger the fulfillment of its obligations regarding solvency.

Taking into account this gradation of obligations, this Royal Decree establishes the particularities of the constitution of the reserve fund, in accordance with the authorization conferred upon the Government by the twelfth final provision of the law.

The Royal Decree has been structured as follows: Articles 1 and 2 delimit the object and scope of application, highlighting that the constitution of the reserve fund, according to the law, is mandatory for all banking foundations that have a direct or indirect participation equal to or greater than 50 percent in the participated credit institution or a position of control therein.

The statement of reasons of the law is clear regarding the obligation for all banking foundations with majority participation in the entity or that control it to constitute the reserve fund, when it states that "The highest degree of intervention of state regulation will finally fall upon those banking foundations that hold positions of control over a credit institution or have a participation greater than 50 percent. These entities must elaborate a disinvestment plan for their investments to minimize risks and constitute a reserve fund to guarantee the financing of the participated credit institution in situations of difficulty (...)".

Therefore, the reserve fund must be effectively constituted by all this type of banking foundation, although it will only be used in the case that the participated credit institution faces a situation of need for own resources and, as the law states, cannot cover it with other types of resources.

The calculation of the reserve fund is performed initially based on the value of the risk-weighted assets of the participated entity, which must be understood from a prudential perspective as the risk-weighted assets of the group or sub-group consolidable whose parent company is the participated credit institution. In this regard, it must be taken into account that prudential requirements, and therefore the calculation of risk-weighted assets, are not always required at the individual level, as derived from Article 7 of 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, but there are occasions when the calculation is only made at the group level. Furthermore, it is necessary to guarantee that the calculation of the volume of risk-weighted assets does not vary merely because the participated credit institution creates an asset-holding entity within its own group, as this would be a way to evade what the law intends by requiring the reserve fund.

Consequently, the solution adopted by the Royal Decree is fully respectful of the legislator's intention: the reserve fund is a mechanism that allows improving the solvency of the participated credit institution and, at the same time, incentivizes disinvestment in it.

Additionally, the requirements for the reserve fund to be constituted by a banking foundation through a holding entity are determined, and the period of time in which the fixed level of the reserve fund must be reached for each banking foundation is established.

In Articles 3 to 6, specific regulation is carried out on the manner in which the reserve fund must be calculated for entities, and on its use, starting from an objective minimum amount that will be modified upwards or downwards based on a series of factors extracted from the law itself.

Likewise, the Royal Decree establishes a transitory regime for the submission of the first financial plans since the approval of the legislation regulating the reserve fund, and additionally introduces provisions referring to the competential titles by virtue of which it is issued and fixing the date of its entry into force.

Additionally, this Royal Decree also modifies the Regulation developing the consolidated text of the Audit Law, approved by Royal Decree 1517/2011, of October 31. The eighth final provision of Law 22/2015, of July 20, on Audit, establishes a one-year deadline for the Government, upon proposal of the Minister of Economy and Competitiveness, to determine the conditions that entities must meet to have the status of entities of public interest due to the significant public importance they may have by the nature of their activity, by their size, or by their number of employees, in compliance with the regulatory authorization provided for in Article 3.5.b) of the cited consolidated text.

A similar authorization existed in the previous law and, in its use, by regulatory means, through Article 15 of the Regulation developing the consolidated text of the Audit Law, the concept of "entity of public interest" was delimited until now in force.

In order to duly comply with the cited mandate, and taking into account the convenience of adapting the current number of entities of public interest to the parameters or criteria of other Member States of the European Union, it is appropriate to modify Article 15 of the aforementioned current Regulation.

Likewise, compliance is given to the regulatory authorization contained in paragraph 3.b) of the third additional provision of Law 22/2015, of July 20, which allows dispensing certain entities of public interest from having an Audit Committee whenever EU legislation permits it, as is the case with collective investment institutions.

Finally, this Royal Decree modifies the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions, with two objectives. First, to flex the liquidity coefficient of financial collective investment institutions (IIC), such that the minimum requirement of 3 percent of their equity in liquid assets is replaced by a minimum coefficient of 1 percent and the obligation for IIC to have a sufficient level of assets convertible into cash daily that allow them to meet reimbursements within the deadlines established in the regulations. And second, Article 132 is modified, with the purpose of explicitly stating in the regulation the principles to which the currently existing provision refers, which are those established in Article 16 of Directive 2006/73/EC, of August 10, 2006, implementing Directive 2004/39/EC of the European Parliament and of the Council as regards the organizational requirements and operating conditions of investment firms, and defined terms for the purposes of that Directive.

In virtue thereof, upon proposal of the Minister of Economy and Competitiveness, in accordance with the Council of State and prior deliberation of the Council of Ministers in its meeting of October 2, 2015,

I HEREBY ORDER:

Article 1. Object. This Royal Decree aims to develop Article 44.3.b) of Law 26/2013, of December 27, on Savings Banks and Banking Foundations, regarding the reserve fund that banking foundations provided for in Article 44.3 of that law must constitute.

Article 2. Scope of application. This Royal Decree shall apply to all banking foundations that possess a direct or indirect participation equal to or greater than 50 percent in a credit institution or that allows them control thereof in the terms provided for in Article 42 of the Commercial Code, and that have not manifested their intention to avail themselves of what is provided in Article 44.3.b), last paragraph, of Law 26/2013, of December 27.

Article 3. Constitution and use of the reserve fund. All banking foundations referred to in Article 2 must constitute a reserve fund in the terms provided for in Article 44.3 of Law 26/2013, of December 27.

The Bank of Spain will develop the cases and the manner in which the banking foundation must use the reserve fund to meet the solvency needs of the participated entity. In all cases, the reserve fund must be used whenever there has been a significant decrease in the own resources of the participated entity, which, in the opinion of the Bank of Spain, could endanger the compliance with the solvency regulations of the entity.

Article 4. Determination of the reserve fund.

1. The reserve fund must reach an objective minimum amount that results from applying a percentage to the total risk-weighted assets of the group or sub-group consolidable whose parent company is the participated credit institution. The risk-weighted assets will be calculated in accordance with what is 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.

2. The percentage indicated in the previous paragraph will be the result of applying the following table depending on whether the total capital ratio calculated in accordance with Article 92.2.c) of Regulation (EU) No 575/2013, of June 26, 2013, that the group or sub-group consolidable whose parent company is the participated credit institution maintains, falls within any of the following values:

Total Capital Ratio	%
< 10%	1.75
≥ 10 % and < 11 %	1.50
≥ 11 % and < 12 %	1.25
≥ 12 % and < 13 %	1.00
≥ 13 %	0.75

3. The amount of the reserve fund resulting from the application of the criteria established in the previous paragraph will be increased or reduced, as appropriate, with the amounts resulting from the application of the following percentages on the risk-weighted assets cited in paragraph 1:

a) Reduction of 0.5 percent in those cases where the shares of the participated credit institution are admitted to trading on official securities markets or active markets, provided that the percentage of shares owned by third parties unrelated to the group to which the entity belongs is greater than 25 percent. For the purposes of this letter, active markets are those defined by the Bank of Spain in its accounting regulations.

b) Increase of 1 percent when the sum of the instruments computable as own resources that the banking foundation holds in other financial entities, excluding the participation in the participated credit institution, is greater than 40 percent of its net equity.

c) Reduction or increase of the following percentages depending on the direct participation, or indirect through an intermediate company, held in the credit institution:

Participation in the credit institution	%
< 50 %	-0.5
≥ 50 % and < 60 %	0
≥ 60 % and < 70 %	+0.5
≥ 70 %	+1

4. The objective amount of the reserve fund cannot be less than 0.6 percent of the risk-weighted assets referred to in paragraph 2, without prejudice to the Bank of Spain, considering the individual circumstances of the banking foundation, being able to fix a lower one.

5. The amount of the reserve fund will be calculated annually in the financial plan, which must contain a schedule of minimum endowments until reaching the amount resulting from the application of this Royal Decree.

6. The constituted reserve fund must be invested in financial instruments of high liquidity and credit quality, which must be available at all times for use by the foundation.

Article 5. Form of constitution of the reserve fund.

1. The reserve fund may be constituted within the banking foundation itself or through a holding entity. It will only be possible to use a holding entity when the following requirements are met:

a) That the banking foundation directly holds 100 percent of the capital of the holding entity. In the case where several banking foundations participate in the capital of a credit institution and constitute a single holding entity, 100 percent of the direct participation in it must be distributed among the banking foundations in proportion to the participation of each of them in the credit institution.

b) That the holding entity is the owner of assets of sufficient liquidity and credit quality, which it can dispose of freely, immediately, and without any limitation derived, among other cases, from the need to obtain the consent of third parties, all with the object of making effective the purpose of the reserve fund.

c) That the holding entity does not form part of the prudential consolidation perimeter of the participated credit institution, directly or indirectly, by the banking foundation.

2. The assets in which the reserve fund is materialized can only be contributed to the participated credit institution to meet its solvency needs in such a way that they do not generate additional needs for own resources for it.

Those assets that, due to the application of the previous paragraph, must be sold or swapped prior to their transfer to the participated credit institution, will be accounted for in the reserve fund with a reduction in value that may reach up to 33 percent, to be determined by the Bank of Spain based on the liquidity of said assets and the estimated loss in value that might occur at the time of their sale or swap.

3. It corresponds to the Bank of Spain to supervise the compliance with the requirements provided for in this article, in order to ensure that the reserve fund can effectively fulfill the purpose provided for in the first paragraph of Article 44.3.b) of Law 26/2013, of December 27.

Article 6. Deadline for constitution of the reserve fund.

1. The objective volume of the reserve fund must be reached within a maximum period of 8 years from the entry into force of the circular of the Bank of Spain that develops this Royal Decree or from the date on which the banking foundation acquires control or a participation greater than 50 percent in the participated credit institution, if any of these events occur subsequently.

2. If, as a consequence of the evolution of the economic-financial situation of the participated credit institution or the development of market conditions, it is evident that the objective volume of the reserve fund cannot be reached within the maximum period of eight years referred to in the previous paragraph, the banking foundation may request the Bank of Spain for an extension of said period by up to one year.

3. The schedule of endowments to the reserve fund must be detailed in the financial plan that the banking foundation must submit to the Bank of Spain. The periodic endowments provided for in the said schedule must be linear in time, without prejudice to eventual modifications of the schedule justified by the variation of the own resource needs provided for in the financial plan or other relevant circumstances.

4. Until the reserve fund reaches the minimum objective amount resulting from the application of the criteria established in Article 4, banking foundations must allocate to the reserve fund, at least, 30 percent of the amounts received from the participated credit institutions in the concept of cash dividend distribution.

First Additional Provision. Suspension of the obligation to contribute to the reserve fund. Due to the economic effects derived from the COVID-19 pandemic, the banking foundations referred to in Article 2 will not be obligated to make endowments to the reserve fund during the year 2020. The deadline for constitution of the reserve fund, provided for in Article 6, will be suspended during the natural year 2020.

OFFICIAL STATE GAZETTE CONSOLIDATED LEGISLATION Page 7

Second Transitory Provision. Requirements applicable to entities of public interest.

Repealing Provisions

Single Repealing Provision. Repeal of legislation.

Final Provisions

First Final Provision. Modification of Royal Decree 1517/2011, of October 31, approving the Regulation developing the consolidated text of the Audit Law, approved by Royal Legislative Decree 1/2011, of July 1.

Second Final Provision. Modification of the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions, approved by Royal Decree 1082/2012, of July 13.

Third Final Provision. Competential title.

Fourth Final Provision. Regulatory authorization.

Fifth Final Provision. Entry into force.