Circular 3/2023 of the Bank of Spain modifying Circular 2/2016 on supervision and solvency and Circular 1/2022 on liquidity and prudential rules

I. GENERAL PROVISIONS BANK OF SPAIN 23052 Circular 3/2023, of October 31, of the Bank of Spain, modifying Circular 2/2016, of February 2, to credit institutions, on supervision and solvency, which completes the adaptation of the Spanish legal system to Directive 2013/36/EU and Regulation (EU) No 575/2013, and Circular 1/2022, of January 24, to financial credit establishments, on liquidity, prudential rules and information obligations.

I In September 2022, Law 18/2022, of September 28, on the creation and growth of companies, was published, which modifies paragraph 4 of Article 13 of Law 10/2014, of June 26, 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 service provision regime without a branch in Spain by credit institutions with headquarters in states that are not members of the European Union. This circular modifies Circular 2/2016, of February 2, 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 of 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 June 26, 2013, transposed into our legal system through Law 10/2014, of June 26, on the regulation, supervision and solvency of credit institutions, and Royal Decree 84/2015, of February 13. This information is detailed in rule 64 of Circular 2/2016, of February 2, to credit institutions, on supervision and solvency.

From the beginning, 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 level of income.

In June 2022, the EBA published the "Guidelines on exercises to compare 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 collecting 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.

OFFICIAL STATE GAZETTE No. 272 Tuesday, November 14, 2023 Sec. I. Page 150636 cve: BOE-A-2023-23052 Verifiable at https://www.boe.es

For its part, the information obligations regarding remuneration for financial credit establishments are set out in rule 25 of Circular 1/2022, of January 24, 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 Bank of Spain's authorization to modify Circular 2/2016 derives from the general power granted to it by the final sixth provision of Royal Decree 84/2015, of February 13, which develops Law 10/2014, of June 26, 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 fourth provision of Royal Decree 309/2020, of February 11, on the legal regime of financial credit establishments and modifying the Commercial Register Regulation, approved by Royal Decree 1784/1996, of July 19, and Royal Decree 84/2015, of February 13, which develops Law 10/2014, of June 26, on the regulation, supervision and solvency of credit institutions.

The modifications to Circular 2/2016, of February 2, and Circular 1/2022, of January 24, 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 that 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 of non-EU entities. Additionally, the minimum aspects to be analyzed in the authorization process are introduced into the authorization process and the reference to the application of Article 149 of Law 6/2023, of March 17, on the Securities Markets and Investment Services, for entities intending to offer investment services in Spain under the service provision regime without a branch; likewise, 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 with headquarters 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 level of income. In this area, 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 March 15, 2021, establishing technical implementing standards regarding 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 the exercise of comparison of the highest ratios authorized 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 a rule 25 bis, in order to align the information obligations of financial credit establishments with those of credit institutions, taking into account, likewise, the principle of proportionality.

III In this circular, 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, are complied with, in that 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.

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 October 1.

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 February 2, of the Bank of Spain, to credit institutions, on supervision and solvency. The following modifications are introduced in Circular 2/2016, of February 2: a) In rule 4, "Branches and provision of services without a branch in Spain by credit institutions with headquarters in states that are not members of the European Union", section B, "Provision of services without a branch in Spain by credit institutions with headquarters in states that are not members of the European Union", is modified, which reads as follows:

"8. Credit institutions with headquarters in states that are not members of the EU intending to operate under the service provision regime 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 that have their headquarters 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 country of origin 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, approach to supervision on an individual and consolidated basis, confidentiality regime and supervisor's powers, regime of collaboration between supervisors and whether there is reciprocity in the granting of authorizations to Spanish entities in that non-member state. The compliance with the requirements of letters c) and e) will be accredited, for the aspects in which it is applicable, by a declaration of equivalence of the European Commission on those points. For the rest of the aspects of letter e), or when there is no declaration of equivalence, the compliance with the requirements must be justified, to the satisfaction of the Bank of Spain, by a declaration of the supervisory authority of the Entity or a report from an independent expert.

10. The Bank of Spain, once the documentation received has been evaluated, may ask for 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 compliance with additional requirements, when, in its opinion, it is necessary to guarantee respect for the rules issued for reasons of general interest.

11. Credit institutions with headquarters in states that are not members of the EU that intend 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 March 17, on the Securities Markets and Investment Services, and must request the authorization of 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 4 of rule 62, "General Provisions", reads as follows:

"4. The frequency of the statements, which are established in this circular, is indicated in the following rules of this chapter and will 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 that regulation. The rest of the statements are in Annex IV of this circular.
3. The remuneration statements listed in paragraph 1 must be submitted to the Bank of Spain with the information required in them at consolidated level. Entities not integrated into any group or sub-group consolidable in Spain will submit the statements on an individual basis, as will branches of credit institutions with headquarters in a state that is not a member of the European Union. The statements will be submitted as follows: a) Large entities, including large subsidiaries, will send all the statements listed in paragraph 1. b) Small and non-complex entities that have securities admitted to trading on a regulated market of a Member State will send all the statements listed in paragraph 1, with the exception of statement R 12.00. c) Non-listed small and non-complex entities will send exclusively from statement R 01.00 to statement R 05.00. d) The rest of the 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, will send all the statements listed in paragraph 1. e) The rest of the entities not mentioned in letters a), b) and c) above, and that are non-listed, will send all the statements listed in paragraph 1, 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 will send exclusively from statement R 01.00 to statement R 05.00. g) Branches of credit institutions with headquarters in states that are not members of the European Union will 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 with headquarters 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 will present exclusively statement R 03.00 and statement R 04.00.
4. In the case of statement R 04.01, it will be the parent entity in Spain that will submit it to the Bank of Spain. This statement will 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 November 27, 2019, on the prudential supervision of investment firms.
5. The statements listed in paragraph 1 must be submitted to the Bank of Spain before June 15 of the year following the corresponding reference date."

d) A 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 in it, by all credit institutions established in Spain, integrated or not in a consolidable group of credit institutions. This statement does not have to 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 people. Subsidiaries of parent entities from another Member State of the EU will also not send this information.
3. Statement R 06.00 must be submitted to the Bank of Spain before June 15 of the year following the corresponding reference date."

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

"Rule 64 ter. Information to be submitted on the highest ratios authorized 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 will submit, on an individual basis, the statement that is in Annex IV of this circular and is detailed below:
2. Statement R 07.00 must be submitted to the Bank of Spain before June 15 of the year following the corresponding reference date."

Rule 2. Modification of Circular 1/2022, of January 24, 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 January 24: a) Paragraph 3 of rule 19, "General Provisions", reads as follows:

"3. The frequency of the statements, which are established in this circular, is indicated in the following rules of this chapter and will 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 that regulation. The rest of the statements are in Annex IV of Circular 2/2016.
3. The remuneration statements listed in paragraph 1 must be submitted to the Bank of Spain with the information required in them at consolidated level. Financial credit establishments that do not belong to any group or sub-group consolidable in Spain will submit the statements on an individual basis. The statements will be submitted as follows: a) As a general rule, the statements listed in paragraph 1 of this rule must be submitted. b) As an exception to what is provided in the previous letter, 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, will only send from statement R 01.00 to statement R 05.00.
4. The statements listed in paragraph 1 must be submitted to the Bank of Spain before June 15 of the year following the corresponding reference date."

c) A 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 in it, by all financial credit establishments established in Spain, integrated or not in a consolidable group. This statement does not have to 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 people.
3. Statement R 06.00 must be submitted to the Bank of Spain before June 15 of the year following the corresponding reference date."

Sole Final Provision. Entry into force.

1. This circular will enter into force twenty days after its publication in the BOE.
2. The first submission