Order ECC/1762/2012 of 3 August developing Article 5 of Royal Decree-Law 2/2012 on remuneration limits for entities receiving public financial support

OFFICIAL STATE GAZETTE No. 189 Wednesday, 8 August 2012 Sec. I. Page 56612 I. GENERAL PROVISIONS MINISTRY OF ECONOMY AND COMPETITIVENESS 10609 Order ECC/1762/2012, of 3 August, developing Article 5 of Royal Decree-Law 2/2012, of 3 February, on the restructuring of the financial sector, regarding remuneration in entities that receive public financial support for their restructuring or reorganization. (Correction of errors)

Royal Decree-Law 2/2012, of 3 February, on the restructuring of the financial sector, has specified in its Article 5 the regime applicable regarding remuneration to entities that receive public financial support from the Bank Restructuring and Orderly Resolution Fund (FROB) for their restructuring or reorganization, establishing a series of limitations on fixed and variable remuneration that administrators and executives may receive while the financial entity has this public financial support. In accordance with Article 86.2 of the Spanish Constitution, the Congress of Deputies, in its session of 16 February 2012, agreed to its validation.

The aforementioned royal decree-law empowers the Minister of Economy and Competitiveness, in the same Article 5, to develop and specify the limits to remuneration; this will be done by defining the minimum content that entities requesting financial support from the Bank Restructuring and Orderly Resolution Fund must incorporate into the contracts regulating their relationship with their board members and executives.

These limits will also apply, in accordance with the provisions of the Royal Decree-Law, to the administrators and executives of credit entities in which the Bank Restructuring and Orderly Resolution Fund holds a majority stake or which have already received financial support from it.

The ministerial order specifies the limits on the remuneration of board members and executives of credit entities, distinguishing whether the entities are majority-owned by the Bank Restructuring and Orderly Resolution Fund or have received financial support from the Fund, which will affect the limits applicable to fixed and variable remuneration.

The order clarifies what is understood by entities majority-owned by the Bank Restructuring and Orderly Resolution Fund, being those in which the Fund holds a direct majority stake.

Conversely, entities that have received public financial support are understood to be those that are directly or indirectly owned by the aforementioned entities, provided they form part of the same group within the terms provided in Article 42 of the Commercial Code. Likewise, entities that would have given rise to such majority participation have been included within this latter group, in order to avoid leaving out the responsible parties of entities that create the need for support but do not receive it directly due to the designed schemes.

Finally, entities that have received public financial support are also considered to be those that, without being majority-owned by the Bank Restructuring and Orderly Resolution Fund, have received any form of financial support provided for in Royal Decree-Law 9/2009, of 26 June, on banking restructuring and strengthening the own resources of credit entities, as well as dependent entities of those in the terms provided in Article 42 of the Commercial Code.

For the purposes of calculating the limits, remuneration received from the various entities belonging to the group in which the entity participated in or supported by the Bank Restructuring and Orderly Resolution Fund is integrated, as well as those received from entities where administrators and executives hold any position on behalf of or representing the entity participated in or supported by the Fund.

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OFFICIAL STATE GAZETTE No. 189 Wednesday, 8 August 2012 Sec. I. Page 56613 Furthermore, in line with what is provided in Royal Decree-Law 3/2012, of 10 February, on urgent measures for the reform of the labor market, it is prohibited that the contract or agreements of the administrators and executives included in the scope of application of this order contain provisions for contract termination indemnities higher than those provided in said royal decree-law, providing a definition of what shall be understood, for the purposes of the ministerial order, as indemnity.

The ministerial order also includes a special regime for the case of entity integration, in which case a list of executives and administrators must be submitted to the Bank of Spain, specifying those who will be affected by the restrictions established in this order and those who will not. Additionally, it is foreseen that the Minister of Economy and Competitiveness may modulate or exempt from the application of the provisions of this order, under certain circumstances, those executives and administrators who came from the entity that motivated the support of the Bank Restructuring and Orderly Resolution Fund.

Finally, in the event that financial support from the Bank Restructuring and Orderly Resolution Fund occurs during a competitive divestiture procedure, the Minister of Economy and Competitiveness, upon a motivated proposal from the Bank of Spain, may also modulate or exempt from compliance with the aforementioned limits.

In virtue thereof, in accordance with the Council of State, I decree:

Article 1. Object. This ministerial order aims to develop the remuneration regime, specifying the limits on maximum remuneration and indemnities to be received by executives and administrators of credit entities that are majority-owned by the Bank Restructuring and Orderly Resolution Fund, have received support from said Fund, or are going to request it, for their restructuring or reorganization, in accordance with what is provided in Article 5 of Royal Decree-Law 2/2012, of 3 February, on the restructuring of the financial sector.

Article 2. Scope of application.

1. This order shall apply to the administrators of credit entities, as well as to those executives who have an employment relationship of a special nature for senior management personnel with the entity, within the terms of Article 1 of Royal Decree 1382/1985, of 1 August, regulating the special employment relationship of senior management personnel.

The order shall apply to those credit entities that, with the aim of proceeding to their restructuring or reorganization: a) are majority-owned by the Bank Restructuring and Orderly Resolution Fund, b) have received support from the Bank Restructuring and Orderly Resolution Fund, without being majority-owned by it; or, c) request support from the Bank Restructuring and Orderly Resolution Fund.

2. For the purposes of this order, entities majority-owned by the Bank Restructuring and Orderly Resolution Fund are understood to be those in which the Fund holds a direct majority stake, and entities that have received public financial support are those directly or indirectly owned by the aforementioned entities, provided they form part of the same group within the terms provided in Article 42 of the Commercial Code, as well as entities that would have given rise to such majority participation.

Likewise, entities that have received public financial support are considered to be those that, without being majority-owned by the Bank Restructuring and Orderly Resolution Fund, have received any form of financial support provided for in Royal Decree-Law 9/2009, of 26 June, on banking restructuring and strengthening the own resources of credit entities, as well as dependent entities of those in the terms provided in Article 42 of the Commercial Code.

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OFFICIAL STATE GAZETTE No. 189 Wednesday, 8 August 2012 Sec. I. Page 56614 3. This order shall also apply, to the extent applicable, to the remuneration conditions of executives and administrators of the entities provided for in paragraph 1, whose relationship with the entity is not regulated by any written contract.

4. Entities requesting financial support from the Bank Restructuring and Orderly Resolution Fund for their restructuring or reorganization, as a necessary requirement to enjoy it, must incorporate into the remuneration contracts or agreements regulating their relationship with their executives and administrators, the content and rules provided for in this order.

5. The limitations established in this order shall apply from the 2012 financial year and shall be lifted once restructuring has occurred, as declared by the Bank of Spain, following a report from the Bank Restructuring and Orderly Resolution Fund, considering that the majority participation or financial support of the aforementioned Fund over the entity has ceased, and following the payment, amortization, redemption, or alienation of the titles subscribed by the Fund, or when in any other way the financial support provided is understood to be reimbursed to it.

Article 3. Limits on maximum remuneration in entities majority-owned by the Bank Restructuring and Orderly Resolution Fund.

1. Non-executive members of the collegiate administrative bodies of entities majority-owned by the Bank Restructuring and Orderly Resolution Fund may not receive a gross annual fixed remuneration exceeding that indicated in Article 5.3.a) 1st of Royal Decree-Law 2/2012, of 3 February, for all concepts.

2. Executive Presidents, Chief Executive Officers, or similar positions, as well as Executives of entities majority-owned by the Bank Restructuring and Orderly Resolution Fund may not receive a gross annual fixed remuneration, for all concepts, exceeding that indicated in Article 5.3.a) 3rd of Royal Decree-Law 2/2012, of 3 February.

3. The persons referred to in the preceding paragraphs shall not receive variable remuneration while the Bank Restructuring and Orderly Resolution Fund holds a majority stake.

Article 4. Limits on maximum remuneration in entities receiving financial support from the Bank Restructuring and Orderly Resolution Fund.

1. The gross annual fixed remuneration, for all concepts, of non-executive members of the collegiate administrative bodies of entities that, without being majority-owned in the Bank Restructuring and Orderly Resolution Fund, receive financial support from it, shall not exceed that indicated in Article 5.3.a) 2nd of Royal Decree-Law 2/2012, of 3 February.

2. Executive Presidents, Chief Executive Officers, and Executives of entities that, without being majority-owned by the Bank Restructuring and Orderly Resolution Fund, receive financial support from it, may not receive a gross annual fixed remuneration, for all concepts, exceeding that indicated in Article 5.3.a) 4th of Royal Decree-Law 2/2012, of 3 February.

3. The annual variable remuneration of the executives and administrators provided for in this article shall not exceed 60% of the gross annual fixed remuneration. The commencement of its receipt shall be deferred three years from its accrual, conditioned in any case on obtaining results, in relation to the fulfillment of the plan drawn up for obtaining financial support, that justify its receipt. The variable remuneration may reach up to 100% of the gross annual fixed remuneration, with prior approval from the Bank of Spain, in the case of executives hired subsequently or simultaneously with the receipt of financial support from the Bank Restructuring and Orderly Resolution Fund.

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OFFICIAL STATE GAZETTE No. 189 Wednesday, 8 August 2012 Sec. I. Page 56615 4. In any case, it corresponds to the Bank of Spain to expressly authorize the amount, accrual, and payment of any variable remuneration to administrators and executives under the terms established in the preceding paragraph, in Article 76 septies of Royal Decree 216/2008, of 15 February, on own resources of financial entities, and in the hundredth-fifth rule of Circular 3/2008, of 22 May, of the Bank of Spain to credit entities, on the determination and control of minimum own resources.

Article 5. Rules for calculating limits.

1. For the calculation of the limits provided for in the preceding articles, all remuneration received from the various entities belonging to the group in which the entity majority-owned or supported by the Bank Restructuring and Orderly Resolution Fund is integrated shall be taken into account, in the terms provided in Article 42 of the Commercial Code. Likewise, it shall be understood that remuneration includes remuneration, allowances, indemnities, or assimilated amounts that executives and administrators receive from entities where they hold any position on behalf of or representing the entity participated in or supported by the Bank Restructuring and Orderly Resolution Fund.

For the purposes of applying the limits provided for in the order, when an executive or administrator simultaneously performs different functions in different entities within the group, the limit corresponding to the position in the credit entity that directly conducts the financial business shall apply to the total sum of remuneration that the executive or administrator receives.

2. For the purposes provided for in this order, contributions to pension plans or any other social foresight instrument derived from a convention or collective agreement shall have the status of fixed remuneration.

3. For the purposes provided for in this order, discretionary pension benefits, in the terms described by Article 76 quinquies of Royal Decree 216/2008, of 15 February, shall have the status of variable remuneration.

4. Likewise, any type of remuneration in kind shall be considered remuneration, whether fixed or variable, at its corresponding valuation.

Article 6. Indemnities.

The contract or agreements of the executives and administrators included in the scope of application of this order shall not contain provisions for contract termination indemnities higher than those provided in the additional seventh provision of Royal Decree-Law 3/2012, of 10 February, on urgent measures for the reform of the labor market, without prejudice to what is provided in its paragraph 1.2. Likewise, they must guarantee that the payment of such indemnities shall comply with what is provided in Article 76 quinquies.1.h).1st of Royal Decree 216/2008, of 15 February, including clauses that condition and, if applicable, extinguish the right to receive indemnities based on the solvency and results of the entity.

For the purposes provided for in this order, the term indemnity for contract termination includes any amount of an indemnity nature that the executive or administrator may receive as a consequence of the termination of their contract, regardless of its cause, origin, or purpose, so that the sum of all amounts that may be received shall not exceed the limits provided in Royal Decree-Law 3/2012, of 10 February.

Article 7. Rules applicable in entity integration processes.

1. In the case of entity integration provided for in Article 5.6 of Royal Decree-Law 2/2012, of 6 February, executives and administrators who were not part of the entity majority-owned or supported by the Bank Restructuring and Orderly Resolution Fund or that gave rise to such participation or support shall not be affected by the limitations contained in this order even if they were to perform their functions in the entity participated in or supported subsequently to the integration.

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OFFICIAL STATE GAZETTE No. 189 Wednesday, 8 August 2012 Sec. I. Page 56616 2. For the purposes of the preceding paragraph, a list of executives and administrators must be submitted to the Bank of Spain, specifying those who will be affected by the restrictions established in this order and those who will not, as well as those to whom it is intended to apply the provision of the following paragraph 3. Said list shall be submitted simultaneously with the rest of the documents that, according to applicable regulations, must be submitted to the Minister of Economy and Competitiveness with the aim of obtaining authorization for the integration.

3. Regarding executives and administrators who came from the entity that required financial support or that gives rise to it, the Minister of Economy and Competitiveness, upon a motivated proposal from the Bank of Spain, viewing the remuneration plan presented within the framework of the integration process regulated in Article 2 of Royal Decree-Law 2/2012, of 6 February and the economic-financial situation of the participating entities, and, in particular, attending to the objective of achieving more efficient management, may modify the criteria and limits established in this ministerial order and in Royal Decree-Law 2/2012, of 3 February, in accordance with what is provided in 5.6 of the aforementioned royal decree-law. For these purposes, the affected entity must determine which executives and administrators the aforementioned provisions will apply to, as well as the remuneration proposed, adequately justifying the need to modify the criteria and limits established in this ministerial order and in Royal Decree-Law 2/2012, of 3 February, in the proposed manner, taking into account the market situation. In any case, the proposed variable remuneration for administrators and executives shall not exceed 100% of the fixed remuneration.

Article 8. Rules applicable in divestiture processes.

When the financial support of the Bank Restructuring and Orderly Resolution Fund occurs during a competitive divestiture procedure through any of the measures provided for in Article 7.3.a) of Royal Decree-Law 9/2009, of 26 June, on banking restructuring and strengthening the own resources of credit entities, and provided that such support remains within the scope of Article 5.3 of Royal Decree-Law 2/2012, of 3 February, the Minister of Economy and Competitiveness, upon a motivated proposal from the Bank of Spain viewing the economic-financial situation of the entity and, in particular, attending to the objective of achieving more efficient management, may modulate or exempt from compliance with the limits provided for in this order the executives and administrators who will perform their functions in the awarded entity.

First Final Provision. Competence title. This ministerial order is issued under the authority of what is established in Articles 149.1.6th, 11th, and 13th of the Spanish Constitution.

Second Final Provision. Development powers. The Bank of Spain is empowered to issue the necessary norms for the development and execution of this order.

Third Final Provision. Entry into force. This order shall enter into force the day following its publication in the "Boletín Oficial del Estado".

Madrid, 3 August 2012.–The Minister of Economy and Competitiveness, Luis de Guindos Jurado.

cve: BOE-A-2012-10609 http://www.boe.es OFFICIAL STATE GAZETTE D. L.: M-1/1958 - ISSN: 0212-033X