Circular 2/2023 of the Bank of Spain modifying Circular 1/2013 on the Risk Information Central

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Circular 2/2023, of March 17, from the Bank of Spain, amending Circular 1/2013, of May 24, on the Risk Information Central. (Official State Gazette of March 25, 2023).

I

The main objective of this circular is to adapt Circular 1/2013, of May 24, from the Bank of Spain, on the Risk Information Central (hereinafter, Circular 1/2013) to the changes introduced by Order ETD 600/2022, of June 29, which modifies the entry into force dates for the reduction of the exemption from individualized reporting to the CIR established by Order ETD/699/2020, of July 24. This change means that, from January 2, 2023, reporting entities must report to the CIR, in an individualized manner, all operations of holders whose accumulated risk in the entity is equal to or greater than 3,000 euros.

II

This circular consists of a single provision, a single final provision, and two annexes. The provision updates Circular 1/2013, the single final provision establishes the entry into force of this circular, and the annexes update annexes 1 and 2 of Circular 1/2013.

Order ETD/699/2020, of July 24, on the regulation of revolving credit (hereinafter, OM of revolving credit), introduced changes in Order ECO/697/2004, of March 11, on the Risk Information Central (hereinafter, OM of the CIR) that affect various aspects of the functioning of the Risk Information Central (CIR) and launched a process of review and adaptation of its regulatory framework aimed at expanding the information available to reporting entities. Some of these changes entered into force in January 2021, and in July 2022, the entry into force of other modifications was scheduled. Specifically, the reduction to 1,000 euros of the reporting exemption threshold and the advance to the 7th day of each month of the deadline for sending information to the Bank of Spain.

The Bank of Spain, to comply with what is established in the additional second provision of the aforementioned OM, sent to the Ministry of Economy and Digital Transformation (METD) in November 2021 a report analyzing certain aspects of the functioning of the CIR. In it, various proposals were presented that took into account the opinions of reporting entities collected through the survey that the CIR sent to them for this purpose.

In this context, on June 30, 2022, Order ETD 600/2022 was published in the "Official State Gazette" (BOE), which delays the entry into force of the reduction of the reporting exemption threshold to 1,000 euros until January 2027, establishing a transitional period by which, from January 2, 2023, reporting entities must report to the CIR, in an individualized manner, all operations of holders whose accumulated risk in the entity is equal to or greater than 3,000 euros.

On the other hand, the Code of Good Practices for the renegotiation framework for clients with guaranteed financing provided for in Royal Decree-Law 5/2021, of March 12, on extraordinary measures to support corporate solvency in response to the COVID-19 pandemic (hereinafter, Code of Good Practices), establishes that financial entities must indicate in their accounting and risk management systems the operations covered by any of the three measures it contemplates – the extension of the maturity date, the transformation into participatory loans, and the reduction of the outstanding principal – and incorporate this indication into the CIR of the Bank of Spain.

Likewise, the agreement of the Council of Ministers of May 10, 2022, which establishes the terms and conditions of the first tranche of the guarantee line of Royal Decree-Law 6/2022, of March 29, on urgent measures in the framework of the National Plan to respond to the economic and social consequences of the war in Ukraine, provides that entities must identify these operations in their declaration to the CIR of the Bank of Spain.

On the other hand, the Bank of Spain integrated into Circular 1/2017, of June 30, from the Bank of Spain, amending Circular 1/2013, the information requirements established in Regulation (EU) 2016/867 of the European Central Bank, of May 18, 2016, on the collection of granular credit and credit risk data (ECB/2016/13) (hereinafter, AnaCredit Regulation), which makes it necessary to incorporate some modifications in the CIR to keep both information schemes aligned.

Finally, the experience acquired in the management of the CIR makes it advisable to introduce some additional changes to clarify the information to be sent regarding certain operations, simplify the way information is presented in some modules, and introduce some additional dimension or extend the scope for which certain information is requested. This is the case, for example, with the incorporation, among the information requirements to the CIR, of the accounting data of loans to individuals, which have been requested since 2018 for legal entities, and the request for information on the annual disposable income of the holder at the start of the operation for loans to households. This information is considered very relevant for the proper exercise of the prudential and conduct supervision competencies assigned to the Bank of Spain and, in addition, will contribute to the correct development of the remaining functions attributed to the Bank of Spain, thus fulfilling the purposes entrusted to the CIR in Law 44/2002.

III

This circular complies with the principles of necessity, effectiveness, proportionality, legal certainty, and efficiency regulated in article 129 of Law 39/2015, of October 1, on the common administrative procedure of Public Administrations, insofar as it achieves the pursued ends without imposing unnecessary or accessory burdens, regulating in a coherent manner with the rest of the legal system only the essential aspects.

IV

The Bank of Spain's authorization to modify Circular 1/2013 comes from Law 44/2002, of November 22, on measures to reform the financial system, and from Order ECO/697/2004, of March 11, on the CIR, which develops it.

In compliance with the fourth paragraph of article 8 of the Internal Regulations of the Bank of Spain and following the principle of transparency, during the preparation of this circular, a prior public consultation was carried out with potentially affected persons and entities, and the draft circular was submitted to the procedures of public hearing and information. Both processes, regulated in article 133 of Law 39/2015, of October 1, were carried out through their publication on the Bank of Spain's website and the sending of informative letters to representative associations of the sector and interested public bodies, giving the recipients of the regulation, competent bodies, and interested parties in general the opportunity to express their observations.

Consequently, in exercise of the powers granted, the Board of Governors of the Bank of Spain, on the proposal of the Executive Commission and in agreement with the Council of State, has approved this circular, which contains the following Provision:

Single Provision. Modification of Circular 1/2013, of May 24, from the Bank of Spain, on the Risk Information Central.

The following modifications are introduced in Circular 1/2013, of May 24:

[ 1 ]

One. In the second provision "Reportable Risks", paragraph 3 is modified, which reads as follows:

"3. Reportable risks must be reported to the CIR in an individualized manner, that is, operation by operation. To this end, reporting entities will assign to each operation – or to each part into which it must be divided in accordance with the third provision, paragraph 3 – a unique code, which must remain unchanged during its life. This code cannot be reused in the future to declare other operations. When, for internal management reasons, it is strictly necessary, the Bank of Spain may allow a change of code. In this case, entities will adhere to what is established in the eleventh provision, letter A).

Notwithstanding the above, operations will not be reported when they are term loans (provided their purpose is consumption, their amount at the start of the operation does not exceed 3,000 euros, and their original term is equal to or less than twenty-four months), non-recourse factoring, credit cards, overdrafts, advances of pensions or salaries, or other demand loans, and, in addition, all holders meet the following criteria:

a) They belong to the institutional sector of households or are non-financial corporations or non-profit institutions serving households, in which entities with the status of the Spanish public sector, in accordance with article 2 of Organic Law 2/2012, of April 27, on budgetary stability and financial sustainability, do not participate in their capital or via voting rights;

b) They do not have any other type of reportable operations to the CIR;

c) Their accumulated risk, direct and indirect, in the reporting entity is less than 3,000 euros, and

d) They do not have amounts classified as normal in special monitoring or doubtful, or the total amount of operations with such classifications is less than 100 euros."

Two. In the third provision "Holders and other reportable persons", paragraphs 5 and 6 are modified, which read as follows:

"5. Holders of risks, direct and indirect, will be reported to the CIR in an individualized manner, regardless of the amount of their risk in the reporting entity, except when their operations are not reportable, in accordance with the second provision, paragraph 3. Exceptionally, the effects in which they have committed their signature may be excluded from the declaration of indirect risk in the name of a holder, provided their amount is less than 3,000 euros and they are part of a commercial credit operation with recourse. Likewise, entities subject to reduced declaration will not report to the holders of indirect risk who intervene in the operation as a counterparty of a purchased credit derivative, as a guarantor without the holder's knowledge, or as a third party committed to paying amounts in a financial leasing operation.

The data of holders, including their operations, whose accumulated risk in the reporting entity is less than 1,000 euros are declared exclusively for the purpose provided for in article 60, fourth paragraph, letter a), of Law 44/2002. For these purposes, the accumulated risk is the amount of operations in which the person intervenes as a holder of risk, direct or indirect, with the following clarifications:

a) The amounts of operations declared as the following are not included in the calculation of accumulated risk:

1. Financial guarantees instrumented as credit derivatives or credit risk commitments of financial leases for the lessor.

2. Other commitments with credit risk instrumented as credit risk commitments of operating leases for the lessor.

3. Other leases, according to the definition of other leases established in the "Product Type" dimension of module B.2 of annex 2.

b) The amount of direct risk assumed in operations is the sum of the amounts disbursed (principal, accrued interest and commissions, late payment interest, and payable expenses) pending collection plus the available amounts (with immediate and conditional availability).

c) The amount of indirect risk that counts as accumulated risk is the maximum risk guaranteed by the holder of the operations in which they intervene exclusively as a guarantor or because they have committed their signature in commercial portfolio operations or financial effects. When the holder has committed their signature in effects that are part of commercial portfolio operations with recourse that are not reported to the CIR in accordance with the first paragraph of this paragraph, the risk not declared for this reason will not be counted for these purposes.

d) In syndicated loans and other loans in which several lenders participate jointly, each reporting entity will count as accumulated risk exclusively the amount of risk it assumes from the operations. In the different modules, only the amount of risk the entity assumes in these loans will be reported, without prejudice to the specific treatment for guarantees, if any, which will be reported in accordance with what is stated in the eighth provision, paragraphs 3, 8, and 11.

e) In financial guarantees and non-financial guarantees and sureties granted jointly by several entities, each reporting entity will count as accumulated risk the total amount of the operation.

f) In the accumulated risk, in addition to the amounts directly assumed by the reporting entity with the holder, those transferred to third parties from operations in which it continues with its management against the holder, even if they have been written off from the asset, as well as those registered in the books of its resident special purpose vehicles in Spain, will be included.

g) In the accumulated risk of entities that have acquired operations that continue to be reported to the CIR by another entity, the amounts they have assumed in said operations are also included, even if, in accordance with the fourteenth provision, letter B), they do not report them to the CIR as dynamic data of direct and indirect risks.

h) The amounts of the operations referred to in the second provision, paragraph 1 bis, will not be included in the accumulated risk.

6. Notwithstanding the above, the Bank of Spain, the Deposit Guarantee Fund of Credit Entities, the State Public Company for Agricultural Surety (SAECA), credit entities operating under the regime of free provision of services, and real estate lenders will only report the operations whose holders belong to the institutional sectors of households, non-financial corporations, or non-profit institutions serving households whose accumulated risk is equal to or greater than 3,000 euros."

Three. In the fourth provision, "Data Modules and General Provisions", paragraphs 1 and 2 are modified, which read as follows:

"1. Reporting entities will be obliged to send the Bank of Spain the following data modules, insofar as they are applicable to them, in accordance with the provisions of this chapter:

The data modules are included as annex 1, and the instructions for their preparation, in annex 2. Additionally, the Bank of Spain may develop technical applications to facilitate the preparation of the different modules. In any case, the declaration of the CIR dimensions that coincide with those in the AnaCredit Regulation, in what is not expressly contemplated in this circular or in the technical applications, will be done applying the criteria that, if any, the ECB publishes.

When the day of the maximum deadline for submitting the modules is a holiday in Madrid, the data may be sent on the first business day in that locality following the maximum submission day.

Dynamic data (that is, those with monthly or quarterly frequency) will be those corresponding to the situation on the last day of the natural month or quarter to which the declaration refers.

Amounts will be declared in units of euros. Amounts denominated in currencies other than the euro will be declared by their euro equivalent, using for basic data the exchange rate applicable on the date of formalization of the operations and for dynamic data the closing exchange rate corresponding to the date to which the data refer, which will coincide with the rate used for the preparation of financial statements.

2. The following reporting entities will not have to declare the modules indicated below, even if they have data susceptible to being declared in them:

a) Spanish credit entities and branches in Spain of foreign credit entities whose registered office is not located in another country of the European Economic Area will not declare module I.

b) Branches in Spain of foreign credit entities whose registered office is located in another reporting Member State will not declare modules D, H, and I. However, the Bank of Spain may require the sending of modules D and H when the information from these modules is necessary to comply with the obligations established by the AnaCredit Regulation. In this case, the information to be sent regarding module D will be the same as that required for branches in Spain of foreign credit entities whose registered office is located in another country of the European Economic Area that is not a reporting Member State. The requirement will be made in writing, with a minimum advance of three months before the first submission.

c) Branches in Spain of foreign credit entities whose registered office is located in another country of the European Economic Area that is not a reporting Member State will not declare module D.3, D.5, and I.

d) Mutual guarantee societies will not declare modules B.3, C.3, C.4, E, F, H, and I.

e) The Bank of Spain, the Deposit Guarantee Fund of Credit Entities, reinsurance societies, and the State Public Company for Agricultural Surety (SAECA) will not declare modules B.3, C.3, C.4, D, E, F, G, H, and I.

f) The Asset Management Company arising from the Banking Restructuring, SA (SAREB) and financial credit establishments will not declare modules B.3, C.3, C.4, H, and I.

g) Entities subject to reduced declaration will not declare modules B, C, D, E, F, G, and H."

Four. In the sixth provision, "Basic Data of Operations and Relationships with Persons", paragraph 1 is modified, which reads as follows:

"1. Module B.1, "Basic Data Linking Persons to Operations", will be sent to link the operations that must be reported in an individualized manner, in accordance with the second provision, paragraph 3, with all their holders, for both direct and indirect risk, as well as with the rest of the persons intervening in them, except with counterparties that sell credit protection in synthetic securitizations, which will be linked with the operations in module F, "Data on Transfers and Synthetic Securitizations of Financial Assets", and with counterparties that are providers of guarantees, which will be linked with the guarantees in module D.1.1, "Basic Data of Received Guarantees"."

Five. In the eleventh provision, "Linking of Codes", the title of paragraph A) Basic Data Linking Codes and paragraphs 7, 8, 9, and 10 are eliminated. Additionally, paragraphs 1, 3, 4, 5, and 6 are modified, which read as follows:

"1. Module G, Data Linking Codes, will be sent to link new codes with other codes declared to the CIR by the entity itself or by other reporting entities for the reasons indicated in the following paragraphs. The data of the module must be sent when the first declaration of the codes to be linked is made."

"3. The code of an operation of the reporting entity will be linked with the codes of operations declared to the CIR by other entities when:

a) The operations are financial guarantees or non-financial guarantees and sureties granted to another reporting entity.

b) The operations originate from the acquisition of operations from another reporting entity that maintains management against the holders.

c) The operations originate from a merger, transfer of financial activity, or business acquisition carried out with another reporting entity.

4. In module G, the codes used to identify the codes of securities, asset transfers, maximum real guarantees, received guarantees, and real estate promotions will also be linked when they need to be modified.

5. The Bank of Spain, whenever necessary to facilitate the management of the data declared by entities, may request them to link in module G any new code with which it had previously been used to declare it by it or another entity.

6. When in module G, for management reasons, merger, total transfer of financial activity, or business acquisition, two operation codes, received guarantee codes, or adjudicated asset codes are linked by code change, the new code will not be declared as a data variation in the remaining modules."

Six. In the twelfth provision, "Complementary Prudential Information", the title of paragraph A and paragraphs 1, 2, and 3 are modified, which read as follows:

"A) Accounting Data of Loans.

1. Module H.1, Accounting Data of Loans, will be declared to inform about accounting data of loans.

The amounts to be reported, if any, will be exclusively those corresponding to the risk assumed by the entity.

B) Data on the Risk of Legal Entities that are Counterparties in Loans.

2. Module H.2, Data on the Risk of Holders of Loans that are Legal Entities, will be sent to inform about the probability of default of legal entities and entities without legal personality that are holders of direct and indirect risk of loans declared to the CIR, except for those holders of indirect risk who intervene in the operation as a third party committed to paying amounts in a financial leasing operation.

This module will be sent by entities exclusively when they estimate said probability for counterparties in accordance with articles 160, 163, 179, and 180 of Regulation (EU) No 575/2013.

C) Data on the Default Situation of Legal Entities that are Counterparties in Loans.

3. Module H.3, Data on the Default Situation of Holders of Risk of Loans that are Legal Entities, will be sent to inform about the default situation of legal entities and entities without legal personality that are holders of direct and indirect risk of loans declared to the CIR, except for those holders of indirect risk who intervene in the operation as a third party committed to paying amounts in a financial leasing operation.

In this module, only counterparties for which the entity has determined their default situation based on their total obligations in accordance with article 178 of Regulation (EU) No 575/2013 will be declared."

Seven. In the fourteenth provision, "Operations Transferred to Third Parties", paragraphs 1 and 3 are modified, which read as follows:

"1. Reporting entities that transfer operations to third parties (hereinafter, assigning entities), if they retain management against the holders, must continue to report them to the CIR in the different modules, with the clarifications that,