Law 10/2014, of June 26, on the regulation, supervision and solvency of credit institutions. Correction of errors of Law 10/2014, of June 26

Law 10/2014, of June 26, on the regulation, supervision and solvency of credit institutions.

Head of State "BOE" No. 156, of June 27, 2014 Reference: BOE-A-2014-6726

INDEX

Preamble ................................................................ 3 TITLE I. On credit institutions ................................................. 10 CHAPTER I. General provisions ............................................... 10 CHAPTER II. Authorization, registration and revocation......................................... 13 CHAPTER II bis. Approval regime for holding companies and mixed financial holding companies .................................................... 19 CHAPTER II ter. EU intermediate parent undertakings .................................. 22 CHAPTER III. Significant holdings ............................................ 23 CHAPTER IV. Suitability, incompatibilities and register of senior management .......................... 26 CHAPTER V. Corporate governance and remuneration policy .............................. 28 TITLE II. Solvency of credit institutions .......................................... 36 CHAPTER I. General provisions ............................................... 36 CHAPTER II. Internal capital and liquidity ............................................... 37 CHAPTER III. Capital buffers ................................................. 37 TITLE III. Supervision........................................................... 43 CHAPTER I. Supervisory function .................................................. 43 CHAPTER II. Scope of the supervisory function.......................................... 46 CHAPTER III. Cooperation between supervisory authorities ................................ 48 CHAPTER IV. Prudential supervision measures ........................................ 53 CONSOLIDATED LEGISLATION Page 1

CHAPTER V. Intervention and substitution measures....................................... 56 CHAPTER VI. Information and publication obligations ................................... 58 TITLE IV. Sanctioning regime .................................................... 64 CHAPTER I. General provisions ............................................... 64 CHAPTER II. Offences ....................................................... 66 CHAPTER III. Sanctions........................................................ 71 CHAPTER IV. Procedural rules.............................................. 76 CHAPTER V. Reporting of offences ........................................... 78 Additional Provisions ...................................................... 80 Transitory Provisions ...................................................... 90 Repealing Provisions ..................................................... 94 Final Provisions ......................................................... 94 ANNEX. List of activities subject to mutual recognition .................................. 143 OFFICIAL STATE GAZETTE CONSOLIDATED LEGISLATION Page 2

CONSOLIDATED TEXT Last modification: June 29, 2023 FELIPE VI KING OF SPAIN To all who see and understand this. Know: That the General Courts have approved and I come to sanction the following law: PREAMBLE I The financial sector, and especially the banking sector, plays a vital economic role, by operating as the most powerful channel for transforming savings into financing for companies, families and public administrations. Access to this credit on competitive terms, both in terms of cost and volume, is an indispensable condition for the growth of the economy and is, therefore, intimately linked to the creation of employment and national wealth. At the same time, risk and uncertainty are inherent to banking activity. The own cyclical tendency of economies, the natural appetite of financial companies for business models that prioritize the optimization of short-term profits, the unpredictable evolution of financial innovation and the growing and worldwide interdependence between entities and financial markets, can lead these institutions and the entire economies to situations of difficulty, with serious consequences for the global functioning of the economic system. These consequences sometimes reach dimensions such that they may require public financial support, thereby removing the financial sector from the general and spontaneous market rule of individual failure and selection of agents. It is for all the above that corresponds to the legal system to articulate, with a greater depth of intervention than those used in other areas of economic activity, the necessary regulation for the best prevention and management of financial risks and, at the same time, the promotion of the most favorable conditions for financing the economy. It can be said that the ultimate foundation of all financial legislation consists in the need to guarantee the stability and the efficient functioning of financial markets in order to protect the agents involved, especially clients and investors, and, ultimately, to provide to the economies with optimal but prudent financing conditions to boost their prosperity in the long term. In short, banking activity must be subject to rules that reconcile the necessary capacity of credit institutions to develop their purposes in the context of a market economy, with the due order and discipline on those aspects that can cause, as has happened on previous occasions, serious harm to the economy. These considerations, the result of sustained experience over time and the succession of crises, were taken into account by the legislator from the moment when the activity financial positioning in a central place in the economy, and they drove the creation of the Spanish system for the regulation and supervision of credit institutions. The first rules referred to the Spanish banking sector, then alien to any public interference, were the Law of Banks of Issue and the Law of Credit Societies of 1854. But the true inaugural legislation of a comprehensive framework of prudential regulation was the Law Relative to the Banking Order of 1921, known as the Cambó Law, who in the defense in Parliament of the bill already pointed out that "the losses of a bank do not affect only its shareholders, they affect its clients, they affect the entire economy of the country...". Since then, the rules that have given continuity to the intervention of BOLETIN OFICIAL DEL ESTADO CONSOLIDATED LEGISLATION Page 3

public powers, such as the Banking Order Law, of December 31, 1946, which comes to definitively repeal this Law, or the Law of Bases for the Order of Credit and the Banking, of April 14, 1962. The last body of legal prudential banking regulation, which is replaced by this Law, is formed by Law 13/1985, of May 25, on investment coefficients, own resources and information obligations of financial intermediaries and Law 26/1988, of July 29, on the Discipline and Intervention of Credit Institutions. These rules arose from two historical circumstances that are now clearly recognizable. First, the deep crisis that affected the entire banking system between the years 1977 and 1985 and which resulted in the failure of more than half of the banks operating in the country at the beginning of 1978. And, secondly, the incorporation of Spain into the Community Economic European in 1986, which opened the current stage of linkage of the regulation Spanish financial to the prolific evolution of the community acquis in this matter. Since then, banking legislation, influenced by European Union Law and international agreements on the matter, has been configuring a complex legal framework and deep that operates in practice as a true professional statute of the entities of credit. This legal body is responsible, first of all, for the continuous surveillance of the solvency and risk management of entities, attributed with broad prerogatives to the Bank of Spain. But it does not limit itself absolutely to that surveillance and reaches other elements very substantive and peculiar to the regulation of credit institutions such as the reserve of activity, the control of access and suitability of directors and most significant shareholders, the specific reinforcement of corporate governance requirements or, ultimately, the very singular treatment of entities with viability difficulties, which includes the possibility of intervention and substitution of their administrators or the imposition of losses to their respective creditors. In the same way that happened in the mid-eighties, the new regulation that incorporates this Law is driven by two powerful currents. One is the evolution international banking law and the other is the realization that the financial crisis has left on the need to improve the quality of prudential regulation of entities of credit. Indeed, one of the most substantial changes that has occurred in the financial market in recent decades has to do with the complete internationalization of this activity, in parallel, but also at the forefront, of the phenomenon of greater scope of economic globalization. This fact has had important repercussions in the scope normative since, while supervision and regulation systems were applied on a national scale, the banking business became global and it was noted the need to adopt a supranational regulatory perspective. Therefore, it is now intended to harmonize the prudential requirements of solvency regulations on a global scale, avoiding undesirable regulatory arbitrage between different jurisdictions and, at the same time, improving the tools of international cooperation between supervisors. The international authority that leads the harmonization of international financial regulation is the Basel Committee on Banking Supervision. Through the agreements reached by this Committee, a first regulation was articulated that fixed for credit institutions a minimum capital of 8% on the entirety of their risks (Basel I, 1988). Subsequently, in 2004, the regulations were sophisticated (Basel II) improving the sensitivity of the mechanisms for estimating risk and building two new pillars: the risk self-assessment by each entity in dialogue with the supervisor (Pillar II) and the market discipline (Pillar III). But neither of the two previous reforms, incorporated in Spain through separate transpositions of European Union Law, avoided the effects of the crisis triggered in 2008. The quality and quantity of the capital of the entities has been shown insufficient to absorb the losses arising in a context of strong turbulence and the regulation also failed to temper the procyclical behavior of entities, which increased credit excessively in the expansion phase and reduced it substantially in recession, which initially aggravated financial instability and later worsened the effects and duration of the economic crisis. Given the important challenges that arose regarding the stability of financial markets and on the world economy from 2008 onwards, and after the political impetus of the BOLETIN OFICIAL DEL ESTADO CONSOLIDATED LEGISLATION Page 4

great world leaders met in November of that year in Washington around the Group of Twenty, the Basel Committee on Banking Supervision agreed in December 2010 the "Global regulatory framework to strengthen banks and banking systems" (Basel III), which, trying to avoid future crises and improve international cooperation, comes to reinforce significantly the capital requirements of banks. The European Union transferred the aforementioned agreements to its legal system through 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 service companies, and amending Regulation (EU) No. 648/2012 and Directive 2013/36/EU of the European Parliament and of the Council, of June 26, 2013, on access to the activity of credit institutions and on the prudential supervision of credit institutions and investment service companies, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, whose transposition to our legal system began with Royal Decree-Law 14/2013, of November 29, measures urgent to adapt Spanish law to European Union regulations in matters of supervision and solvency of financial entities, and continues now. These European Union rules have, in turn, a greater purpose and dimension than the mere adoption of the Basel III Agreements, since, on the one hand, they deepen the objective of reducing excessive dependence on credit rating agencies for the measurement of exposures to different risks and, on the other hand, they advance substantially in the creation of a genuine single banking regulation in matters of solvency. This exercise of harmonization will be essential for the constitution of the Banking Union, which will rely firmly on this common financial regulation for the constitution of the single mechanisms for the supervision and resolution of credit institutions of the euro area. Likewise, the reduction of dependence on external rating agencies is essential to reinforce solvency as the financial crisis has shown how the analysis methods of these agencies undervalued the risks of certain assets. During the last few years Spain has known the serious effects caused by the credit institution crisis. The unviability of certain credit institutions without financial support has required a resolute public intervention to carry out their health and restructuring. Having made this effort, it is now appropriate to approve a new regulation prudential that ensures a framework in which our financial entities exercise their activities, which are vital for the economy, with the least possible risk for the financial stability of the country. II The main object of this Law is to adapt our legal system to the changes normative that are imposed in the international and European Union scope, continuing the transposition initiated by Royal Decree-Law 14/2013, of November 29. In this sense, Regulation (EU) No. 575/2013, of June 26, and Directive 2013/36/EU, of June 26, suppose, as already mentioned, a substantial alteration of the regulations applicable to the credit institutions, since aspects such as the supervision regime, the capital requirements and the sanctioning regime are extensively modified. But this Law also undertakes an enterprise whose realization has been lived as a need for years, such as the consolidation into a single text of the main rules of order and discipline of credit institutions. The very frequent modification of the existing laws has been deteriorating their intelligibility to such an extent that the regulation lacked already the minimum systematic rigor necessary to guarantee the coherence of the whole and facilitate its correct application and interpretation. The elaboration, therefore, of a single normative text, in which, at the same time that the transposition of the regulations dictated recently by the European Union, the rules of the national scope that regulate the matter in a dispersed and inconex manner are integrated, contributes decisively to the improvement of the efficiency and quality of our financial legal system. This Law contains, therefore, the essential core of the legal regime applicable to the credit institutions, without prejudice to the existence of other special regulations that regulate BOLETIN OFICIAL DEL ESTADO CONSOLIDATED LEGISLATION Page 5

concrete aspects of their activity or the particular legal regime of a specific type of credit institution, as is the case with savings banks and credit cooperatives. The structure of the text must be explained starting from its interweaving with the Regulation (EU) No. 575/2013, of June 26, of its vocation to transpose the Directive 2013/36/EU, of June 26, and the national provisions currently in force that it is necessary to consolidate. The Regulation and the Directive constitute the fundamental legal regime of solvency and access to the activity of credit institutions. This Law will regulate the general aspects of the legal regime of access to the condition of credit institution, the operation of its governing bodies and the supervisory and sanctioning instruments to be used by the authorities, in order to guarantee the full effectiveness of the regulations. The European Union Regulation, for its part, establishes the fundamental obligations of the capital and solvency requirements and adequate risk management of entities. Title I includes the general provisions of the legal regime by which credit institutions must be governed. Thus, it collects their definition and enumerates those entities that are considered credit institutions, establishes the content of the activity whose exercise is reserved exclusively for these entities and the sources of their legal regime. Additionally, said Title regulates other aspects that, due to their specialty, are linked to the very nature of credit institutions and that are developed in the following chapters: their authorization and revocation regime, the regime of significant holdings, the regime of suitability and incompatibilities of the members of the board of directors or equivalent body and the regime of corporate governance and remuneration policies. The rule makes a very substantial advance in matters of corporate governance. These reforms arise from the evidence that the prudential regulation of entities must promote the most efficient and optimal management practices for the development of a complex and risky activity such as financial. Fundamentally, there are two areas affected: the establishment of efficient corporate governance systems and the development of a remuneration policy better aligned with the medium-term risks of the entity. Although the core rule in matters of solvency of credit institutions is from January 1, 2014, Regulation (EU) No. 575/2013, of June 26, Title II collects the provisions in the matter that must be maintained in the national legal system. These provisions refer, first of all, to the assessment of the adequacy of the capital of the entities for the risk they assume. This assessment constitutes a complement to the resource requirements established in the Regulation with a clearly generalist and automatic vocation, which might not take into account the singularities derived from the risk profile of each entity. In short, it is about that each entity determines if the capital requirements established in the Regulation are sufficient or if, on the contrary, given its business model and level of exposure to risk, it requires a higher level of capital. The final decision regarding these requirements is determined in a dialogue between the supervisor and the entity that is known as the Basel Pillar II. Likewise, in this Title, the criteria that the Bank of Spain must take into account to fix possible liquidity requirements within the framework of the review of the strategies, procedures and systems implemented by entities to comply with solvency regulations. This faculty aims to contribute to the prevention of liquidity crises, during which entities find difficulties in accessing markets and this ends up deteriorating their solvency. This faculty is, likewise, a complement individualized for each entity to the liquidity requirements that will be required from 2016 in accordance with what is provided by the Regulation. Thirdly, a set of additional ordinary level 1 capital requirements is articulated than those established in Regulation (EU) No. 575/2013, of June 26. These are the so-called capital buffers. Two of these buffers have a non-discretionary nature: the capital conservation buffer and the one provided for entities of global systemic importance. Additionally, the buffer for other entities of systemic importance grants a certain discretion to the Bank of Spain for its requirement to certain entities. These three buffers obey the need to have capital supplements against unexpected losses or to cover risks arising from the systemic nature of certain entities. On the other hand, the countercyclical buffer and the buffer against systemic risk are tools at BOLETIN OFICIAL DEL ESTADO CONSOLIDATED LEGISLATION Page 6

disposal of the Bank of Spain in order to attenuate the procyclical effect on credit of the capital requirements, and, if applicable, to address the appearance of risks that may affect the financial system as a whole. Against possible non-compliance with the provisions that regulate the capital buffer regime, a system is articulated based on restrictions on distributions and the preparation of a capital conservation plan. Pursuant to Title III and in line with currently in force legislation, the Bank of Spain as the supervisory authority of credit institutions. For this purpose, it is granted the faculties and powers necessary to carry out this function, the scope subjective and objective of its supervisory action is delimited and it is granted the capacity to take measures to guarantee compliance with solvency regulations. In accounting matters, the possibility is foreseen that the Minister of Economy and Competitiveness enables the Bank of Spain, to the National Securities Market Commission or to the Institute of Accounting and Auditing of Accounts to establish and modify the accounting rules and the models to which the financial statements of the entities of credit and of the entities regulated in article 84.1 of Law 24/1988, of July 28, of the Securities Market, as well as the consolidatable groups of certain investment service companies and other entities. This authorization is understood without prejudice to the reports that the Institute of Accounting and Auditing of Accounts must request in matters of accounting planning. Likewise, as long as the activity of credit institutions is circumscribed in a increasingly integrated environment, particularly at the European level, it is necessary to regulate the relations of the Bank of Spain with other supervisory authorities and, in particular, with the European Banking Authority. In this context, it is worth highlighting that from the entry into force and complete effectiveness of the Single Mechanism