Circular 3/2023 of the Bank of Spain, of 31 October, amending Circular 2/2016 on supervision and solvency and Circular 1/2022 on liquidity and prudential rules

CIRCULAR 3/2023, OF 31 OCTOBER, OF THE BANK OF SPAIN, AMENDING CIRCULAR 2/2016, OF 2 FEBRUARY, TO CREDIT INSTITUTIONS ON SUPERVISION AND SOLVENCY, WHICH COMPLETES THE ADAPTATION OF THE SPANISH LEGAL ORDER TO DIRECTIVE 2013/36/EU AND REGULATION (EU) NO. 575/2013, AND CIRCULAR 1/2022, OF 24 JANUARY, TO FINANCIAL CREDIT ESTABLISHMENTS ON LIQUIDITY, PRUDENTIAL RULES AND INFORMATION OBLIGATIONS (BOE OF 14 NOVEMBER).

I

In September 2022, Law 18/2022, of 28 September, on the creation and growth of companies, was published, which modifies paragraph 4 of Article 13 of Law 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions, to include the prohibition on collecting deposits or other repayable funds from the public in the regime for providing services without a branch in Spain by credit institutions headquartered in states that are not members of the European Union. This circular amends Circular 2/2016, of 2 February, on supervision and solvency, aligning its wording with the content of the reform of Law 10/2014 by Law 18/2022 regarding the operation in Spain without a branch by non-EU entities, and introduces some valuation criteria in the authorization process.

On the other hand, this circular reviews the information obligations to the Bank of Spain regarding remuneration for both credit institutions and financial credit establishments.

The periodic information that credit institutions must report on their remuneration policies and the remuneration granted constitutes the prudential report to the supervisor in this matter, and contributes to the supervisor exercising its duty of oversight over them, as set out in Directive 2013/36/EU of the European Parliament and of the Council, of 26 June 2013, transposed into our legal order through Law 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions, and Royal Decree 84/2015, of 13 February. This information is detailed in rule 64 of Circular 2/2016, of 2 February, to credit institutions on supervision and solvency.

From the outset, the information to be reported to the Bank of Spain on remuneration has been aligned with that provided by the European Banking Authority (EBA) in its exercises on the comparison of remuneration practices and the collection of information from staff with the highest levels of income. In June 2022, the EBA published the "Guidelines on the exercise of comparison of remuneration practices, the gender pay gap and the highest ratios authorized under Directive 2013/36/EU [EBA/GL/2022/06]" and the "Guidelines on the exercise of collection of information relating to highly remunerated persons under Directive 2013/36/EU and Directive (EU) 2019/2034 [EBA/GL/2022/08]" (collectively referred to as the "Guidelines"), through which it updates and expands the information to be submitted under the aforementioned exercises. This update has led the Bank of Spain to review the supervisor report collected in Circular 2/2016 to adapt it to what is established in them. These Guidelines were adopted as their own by both the European Central Bank and the Bank of Spain at the end of 2022, and their specifications must be taken into account by the entities.

For their part, the information obligations regarding remuneration for financial credit establishments are set out in rule 25 of Circular 1/2022, of 24 January, on liquidity, prudential rules and information obligations of financial credit establishments. Since rule 25 makes a direct reference to the regime applicable to credit institutions, it has been necessary to modify it to update such reference.

The authorization of the Bank of Spain to modify Circular 2/2016 derives from the general power granted to it by the final provision sixth of Royal Decree 84/2015, of 13 February, which develops Law 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions. For its part, the authorization to modify Circular 1/2022 regarding the remuneration report derives from the general power granted to it by the final provision fourth of Royal Decree 309/2020, of 11 February, on the legal regime of financial credit establishments and which modifies the Commercial Register Regulation, approved by Royal Decree 1784/1996, of 19 July, and Royal Decree 84/2015, of 13 February, which develops Law 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions.

The modifications to Circular 2/2016, of 2 February, and Circular 1/2022, of 24 January, will enter into force twenty days after their publication in the BOE.

II

This circular consists of two rules, a final provision and an annex. The first rule updates Circular 2/2016 and the second, Circular 1/2022. The final provision establishes both the entry into force of this circular and the initial date for the submission of remuneration statements. For its part, the annex updates Annex IV of Circular 2/2016.

On the one hand, the update of Circular 2/2016, carried out in the first rule of this circular, aims to align the wording of said rule with the content of the modification of Law 10/2014 carried out by Law 18/2022 regarding the operation in Spain without a branch by non-EU entities. Additionally, the minimum aspects that will be analyzed in the authorization process are introduced, and the reference to the application of Article 149 of Law 6/2023, of 17 March, on Markets in Financial Instruments and Investment Services, is included for entities intending to offer investment services in Spain under the regime of providing services without a branch; furthermore, the content of the application form is eliminated. These modifications affect rule 4 of Circular 2/2016, titled "Branches and provision of services without a branch in Spain by credit institutions headquartered in states that are not members of the European Union".

On the other hand, the aforementioned first rule of this circular also introduces several modifications in the prudential information on remuneration collected in Circular 2/2016. Specifically, variations are introduced in rules 62 and 64; rules 64 bis and 64 ter are added, within chapter 9, on information obligations to the Bank of Spain, and Annex IV, relating to the statements to be submitted on remuneration, is modified. Following the approach of Circular 2/2016, the scope of application of the remuneration statements is extended in general to all credit institutions, taking into account, as far as possible, the principle of proportionality.

Rule 64 collects the general periodic information to be submitted on remuneration. The information established in this rule corresponds to the EBA exercises on the comparison of remuneration practices and the collection of information from staff with the highest levels of income. In this scope, the report to the supervisor is aligned with the information disclosure regime to the market, which applies proportionally to credit institutions, and is constituted by the REM1, REM2, REM3, REM4 and REM5 statements included in Commission Implementing Regulation (EU) 2021/637, of 15 March 2021, establishing technical standards for implementing public disclosure [Pillar 3] by entities of the information referred to in Part Eight, Titles II and III, of Regulation (EU) No. 575/2013 of the Parliament and of the Council. Additionally, the existing statements in Circular 2/2016 are adapted to those established in the new Guidelines.

In turn, rules 64 bis and 64 ter incorporate two newly created statements, coming from EBA/GL/2022/06. Rule 64 bis incorporates the report on the gender pay gap, and rule 64 ter the periodic report of the information to be used for the purpose of comparing the highest authorized ratios between the fixed and variable components of remuneration.

Additionally, the wording of rule 62 is adapted to accommodate the new frequencies established for the remuneration statements provided for in rules 64 bis and 64 ter.

Finally, variations are introduced in Annex IV to incorporate the templates collected in the Guidelines.

For its part, the second rule of this circular modifies rules 19 and 25 of Circular 1/2022 and adds rule 25 bis, in order to align the information obligations of financial credit establishments with those of credit institutions, also taking into account the principle of proportionality.

III

This circular complies with the principles of necessity, effectiveness, proportionality, legal certainty and efficiency regulated in Article 129 of Law 39/2015, of 1 October, on the Common Administrative Procedure of Public Administrations, insofar as it achieves the pursued ends without imposing unnecessary or ancillary burdens, regulating in a coherent manner with the rest of the legal order only the essential aspects.

Likewise, in application of the principle of transparency established in the same norm, this circular, in the section corresponding to the modification of Circular 2/2016 and Circular 1/2022, has been submitted to the consultation, hearing and public information procedures regulated in Article 133 of Law 39/2015, of 1 October.

Consequently, in exercise of the powers granted, the Governing Council 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 rules:

Rule 1. Modification of Circular 2/2016, of 2 February, of the Bank of Spain, to credit institutions on supervision and solvency.

The following modifications are introduced in Circular 2/2016, of 2 February:

[1]

a) In rule 4, "Branches and provision of services without a branch in Spain by credit institutions headquartered in states that are not members of the European Union", section B, "Provision of services without a branch in Spain by credit institutions headquartered in states that are not members of the European Union", is modified, which shall read as follows:

"8. Credit institutions headquartered in states that are not members of the EU intending to operate under the regime of providing services without a branch shall be subject to the provisions of Article 13.4 of Law 10/2014 and Article 17.4 of Royal Decree 84/2015.

9. When authorizing the provision of services without a branch by credit institutions headquartered in states that are not members of the EU, the Bank of Spain will analyze, among other elements:

a) The volume of activity, the income generated, the type of clientele and the complexity of the products or services that the entity intends to provide in Spain.

b) That compliance with rules issued for reasons of general interest is guaranteed.

c) That the entity is subject in its home country to requirements equivalent to those established by the solvency regulations applicable in Spain.

d) The financial situation of the entity and its group.

e) The supervision regime of the third country in terms of legal framework, individual and consolidated supervision approach, confidentiality regime and supervisor powers, cooperation regime between supervisors and whether there is reciprocity in the granting of authorizations to Spanish entities in that non-member state.

Compliance with the requirements of letters c) and e) shall be evidenced, for the aspects where applicable, by a declaration of equivalence from the European Commission on those points. For the remaining aspects of letter e), or when there is no declaration of equivalence, compliance with the requirements must be justified, to the satisfaction of the Bank of Spain, by a declaration from the supervisory authority of the Entity or a report from an independent expert.

10. The Bank of Spain, once the received documentation has been evaluated, may request an expansion of the information supplied, as well as deny the exercise of the activities that the entity intends to carry out in Spain, or some of them, or condition its authorization to the fulfillment of additional requirements, when, in its opinion, it is necessary to guarantee respect for the rules issued for reasons of general interest.

11. Credit institutions headquartered in states that are not members of the EU intending to offer investment services in Spain must establish a branch in cases where this is necessary in accordance with what is established in Article 149.2 of Law 6/2023, of 17 March, on Markets in Financial Instruments and Investment Services, and must request authorization from the Bank of Spain under the terms established in Article 13.1 of Law 10/2014 and Article 17.1 of Royal Decree 84/2015."

b) Paragraph four of rule 62, "General Provisions", shall read as follows:

"4. The frequency of the statements, which are established in this circular, is indicated in the following rules of this chapter and shall have as the reference date the last day of the natural period to which they correspond."

c) Rule 64, "Periodic information to be submitted on remuneration", is replaced by the following:

"Rule 64. General periodic information to be submitted on remuneration.

1. The general statements to be submitted on remuneration are the following:

2. Statement R 03.00 and statements R 09.00 to R 12.00 correspond to statements EU REM1 to EU REM5 set out in Annex XXXIII of Commission Implementing Regulation (EU) 2021/637, and must be completed taking into account the instructions set out in Annex XXXIV of said regulation. The remaining statements are in Annex IV of this circular.

3. The remuneration statements listed in paragraph one must be submitted to the Bank of Spain with the information required therein at consolidated level. Entities not integrated into any group or sub-group consolidable in Spain shall submit the statements on an individual basis, as shall branches of credit institutions headquartered in a state that is not a member of the European Union. The statements shall be submitted as follows:

a) Large entities, including large subsidiaries, shall send all statements listed in paragraph one.

b) Small and non-complex entities that have securities admitted to trading on a regulated market of a Member State shall send all statements listed in paragraph one, with the exception of statement R 12.00.

c) Unlisted small and non-complex entities shall send exclusively from statement R 01.00 to statement R 05.00.

d) The remaining entities not mentioned in letters a), b) and c) above, and that have securities admitted to trading on a regulated market of a Member State, shall send all statements listed in paragraph one.

e) The remaining entities not mentioned in letters a), b) and c) above, and that are unlisted, shall send all statements listed in paragraph one, with the exception of statement R 12.00.

f) Subsidiaries of parent entities from another Member State of the European Union that do not have the status of large subsidiary shall send exclusively from statement R 01.00 to statement R 05.00.

g) Branches of credit institutions headquartered in states that are not members of the European Union shall send from statement R 01.00 to statement R 05.00, with the exception of statement R 04.01. As an exception to what is provided in this letter, branches of credit institutions headquartered in states that are not members of the EU that have been exempted from compliance with the obligations of section 3 of chapter 4 of this circular shall submit exclusively statement R 03.00 and statement R 04.00.

4. In the case of statement R 04.01, it shall be the parent entity in Spain that submits it to the Bank of Spain. Said statement shall contain information on highly remunerated persons who are members of investment firms in the group subject to the provisions of Articles 25 and 34 of Directive (EU) 2019/2034 of the European Parliament and of the Council, of 27 November 2019, on the prudential supervision of investment firms.

5. The statements listed in paragraph one must be submitted to the Bank of Spain before 15 June of the year following the corresponding reference date."

d) Rule 64 bis is added, in the following terms:

"Rule 64 bis. Periodic information to be submitted on the gender pay gap.

1. The statement to be submitted with information on the gender pay gap is in Annex IV of this circular and is detailed below:

2. The statement included in the previous paragraph must be submitted to the Bank of Spain, on an individual basis, with the information required therein, by all credit institutions incorporated in Spain, whether or not integrated into a consolidable group of credit institutions. This statement shall not be sent in the case of small and non-complex entities, nor in the case of entities that, on an individual basis, have a workforce equal to or less than 50 persons. Subsidiaries of parent entities from another Member State of the EU shall also not send this information.

3. Statement R 06.00 must be submitted to the Bank of Spain before 15 June of the year following the corresponding reference date."

e) Rule 64 ter is added, in the following terms:

"Rule 64 ter. Information to be submitted on the highest authorized ratios between variable and fixed remuneration.

1. In those cases where the general meeting of shareholders or equivalent body of the entity approves a level of variable remuneration higher than 100% of the fixed component of total remuneration, and without prejudice to the communication obligations set out in Article 34.1.g) of Law 10/2014, the entity shall submit, on an individual basis, the statement set out in Annex IV of this circular and detailed below:

2. Statement R 07.00 must be submitted to the Bank of Spain before 15 June of the year following the corresponding reference date."

[1]

Texts incorporated in Circular 2/2016, of 2 February.

Rule 2. Modification of Circular 1/2022, of 24 January, of the Bank of Spain, to financial credit establishments on liquidity, prudential rules and information obligations.

The following modifications are introduced in Circular 1/2022, of 24 January:

[2]

a) Paragraph three of rule 19, "General Provisions", shall read as follows:

"3. The frequency of the statements, which are established in this circular, is indicated in the following rules of this chapter and shall have as the reference date the last day of the natural period to which they correspond."

b) Rule 25, "Periodic information to be submitted on remuneration", is replaced by the following:

"Rule 25. General periodic information to be submitted on remuneration.

1. The general statements to be submitted on remuneration are the following:

2. Statement R 03.00 and statements R 09.00 to R 11.00 correspond to statements EU REM1 to EU REM4 set out in Annex XXXIII of Commission Implementing Regulation (EU) 2021/637, and must be completed taking into account the instructions set out in Annex XXXIV of said regulation. The remaining statements are in Annex IV of Circular 2/2016.

3. The remuneration statements listed in paragraph one must be submitted to the Bank of Spain with the information required therein at consolidated level. Financial credit establishments that do not belong to any group or sub-group consolidable in Spain shall submit the statements on an individual basis. The statements shall be submitted as follows:

a) As a general rule, the statements listed in paragraph one of this rule must be submitted.

b) As an exception to the foregoing, financial credit establishments considered as small and non-complex, and that do not have securities admitted to trading on a regulated market of a Member State, shall only send from statement R 01.00 to statement R 05.00.

4. The statements listed in paragraph one must be submitted to the Bank of Spain before 15 June of the year following the corresponding reference date."

c) Rule 25 bis is added, in the following terms:

"Rule 25 bis. Periodic information to be submitted on the gender pay gap.

1. The statement to be submitted with information on the gender pay gap is in Annex IV of Circular 2/2016 and is detailed below:

2. The statement included in the previous paragraph must be submitted to the Bank of Spain, on an individual basis, with the information required therein, by all financial credit establishments incorporated in Spain, whether or not integrated into a consolidable group. This statement shall not be sent in the case of financial credit establishments that have the status of small and non-complex, nor in the case that, on an individual basis, they have a workforce equal to or less than 50 persons.

3. Statement R 06.00 must be submitted to the Bank of Spain before 15 June of the year following the corresponding reference date."

[2]

Texts incorporated in Circular 1/2022, of 24 January.

Single Final Provision. Entry into force.

1. This circular shall enter into force twenty days after its publication in the BOE.

2. The first submission of statements R 01.00 to R 12.00 shall be that referring to the information corresponding to 31 December 2023, and shall be made no later than 15 June 2024. As an exception to the foregoing, the first submission of statement R 07.00 shall be that referring to the information corresponding to 31 December 2024, and shall be made no later than 15 June 2025.

ANNEX I

Annex IV of Circular 2/2016 is replaced by the following [3]:

[3]

Texts incorporated in Circular 2/2016, of 2 February.

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