Circular 1/2020 of the National Securities Market Commission modifying Circulars 5/2013 and 4/2013 on corporate governance and remuneration reporting models

OFFICIAL STATE GAZETTE
No. 270 Monday, October 12, 2020 Sec. I. Page 87033
I. GENERAL PROVISIONS
NATIONAL SECURITIES MARKET COMMISSION
12141 Circular 1/2020, of October 6, of the National Securities Market Commission, modifying Circular 5/2013, of June 12, which establishes the models for the annual corporate governance report of listed joint-stock companies, savings banks, and other entities issuing securities admitted to trading on official securities markets; and Circular 4/2013, of June 12, which establishes the models for the annual remuneration report of directors of listed joint-stock companies and of the members of the board of directors and the supervisory board of savings banks issuing securities admitted to trading on official securities markets.

The approval of the partial revision of the Code of Good Governance for Listed Companies, by agreement of the Council of the National Securities Market Commission on June 25, 2020, makes it necessary to modify the models for the annual corporate governance report and the directors' remuneration report included, respectively, in Circular 5/2013, of June 12, of the National Securities Market Commission, which establishes the models for the annual corporate governance report of listed joint-stock companies, savings banks, and other entities issuing securities admitted to trading on official securities markets, and in Circular 4/2013, of June 12, of the National Securities Market Commission, which establishes the models for the annual remuneration report of directors of listed joint-stock companies and of the members of the board of directors and the supervisory board of savings banks issuing securities admitted to trading on official securities markets, following the modifications introduced by Circular 2/2018, of June 12, of the National Securities Market Commission.

The changes introduced in the annual corporate governance report model mainly affect section G, in which companies must indicate the degree of compliance with corporate governance recommendations. The review process of the Code has affected recommendations 2, 4, 6, 7, 8, 14, 15, 22, 24, 37, 39, 41, 42, 45, 53, 54, 55, 59, 62, and 64 to varying degrees, so this section has been adapted to the modifications introduced in the Code.

The modification of recommendation 2 has resulted in an expansion of the scope of application of section D.7. The draft contemplates not only the case where the listed company and its parent company are listed, but also applies to other cases where the listed company is under the control of another entity, whether listed or not.

Section C.1.28 has been updated, in line with the modification in recommendation 8, to reflect that the objective the board of directors must pursue in formulating the annual accounts is that, to the best of its knowledge, the principles and criteria of accounting are correctly applied.

The model for requesting additional information on gender diversity is also modified. In section C.1.6, companies must explain whether, among the measures agreed upon by the nominations committee to promote gender diversity on the board of directors, there is one to incentivize the company to have a significant number of senior female executives. Section C.1.14 includes information on the number of women in senior management.

In the partial revision of the Code, recommendation 22 has been strengthened to clarify that the rules the Code recommends companies establish for directors to inform and, if appropriate, resign in situations that could harm the credit and reputation of the company must refer to situations affecting them, related to or not with their performance within the company itself. In accordance with this modification, section C.1.36 has been adapted.

Likewise, recommendation 22 proposes that the board examine, as soon as possible, any situation affecting a director that could harm the credit and reputation of the company, assess such situations without delay, and decide whether to take any action, a practice for which information is requested in section C.1.37 of the annual corporate governance report model.

The second part of section C.1.2 has been adapted to the modification in the text of recommendation 24, which avoids some interpretative doubts that could arise with the previous wording.

Likewise, the term "relevant fact" has been eliminated in accordance with the changes introduced in the Securities Market Law regarding market abuse by Royal Decree-Law 19/2018, of November 23, on payment services and other urgent measures in the financial field. Thus, the expression "relevant fact" has been modified to "other relevant information."

Finally, a transitional provision has been included establishing the criteria to clarify how to report in section G of the 2020 annual corporate governance report regarding the degree of compliance with recommendations that have been modified.

Regarding the directors' remuneration report model, two new sections are included in sections A.1 and B.7, so that companies, in accordance with recommendation 59, explain the criteria they apply to verify that the conditions linked to variable remuneration have been effectively met.

The second final provision of Order ECC/461/2013, of March 20, which determines the content and structure of the annual corporate governance report, the annual remuneration report, and other information instruments of listed joint-stock companies, savings banks, and other entities issuing securities admitted to trading on official securities markets, empowers the CNMV to detail the content and structure of the corporate governance and directors' remuneration reports, for which purpose it may establish models according to which entities must make the aforementioned reports public.

In virtue thereof, the Council of the National Securities Market Commission, in its meeting of October 6, 2020, in exercise of the powers conferred, after receiving the report of its Advisory Committee, has ordered:

First Rule. Modification of Circular 4/2013, of June 12, of the National Securities Market Commission, which establishes the models for the annual remuneration report of directors of listed joint-stock companies and of the members of the board of directors and the supervisory board of savings banks issuing securities admitted to trading on official securities markets.

Circular 4/2013, of June 12, of the National Securities Market Commission, is modified as follows:

One. The model of the annual remuneration report of directors of listed joint-stock companies, included in Annex I of Appendix I of Circular 4/2013(1), of June 12, is replaced by that contained in Annex I of Appendix I of this Circular, and must be completed in accordance with the instructions contained therein.
(1) According to the wording given by Circular 2/2018, of June 12, of the CNMV.

Two. Rule Four is drafted as follows:

"Rule Four. Method of submission of the annual remuneration report to the CNMV.

1. For its dissemination as other relevant information, the reports provided for in the first and second rules of this Circular shall be submitted to the CNMV Electronic Registry, in accordance with what is established in the Resolution of the President of the National Securities Market Commission of November 16, 2011, creating and regulating the CNMV Electronic Registry, as a standardized electronic document through the procedure enabled for this purpose in the CIFRADOC/CNMV service.
2. The obligation to submit shall be considered fulfilled when the entity receives a message of correct incorporation of the corresponding report and, if applicable, the corresponding statistical appendix via telematic means from the CNMV.
3. Listed entities that so wish may submit the annual remuneration report of directors in free PDF format, without using the standardized electronic document, provided that the content of the model defined in the First Rule is respected; in this case, the report in free format, accompanied by the statistical appendix Annex III, shall be disseminated as other relevant information and submitted to the general meeting of shareholders for a consultative vote.
4. Those listed entities that opt to submit the report in free format must necessarily accompany and publish the annual report with a statistical appendix that shall adhere, in terms of format, content, and structure, to the model defined in Annex III statistical of this Circular and shall be submitted as a standardized electronic document, through the procedure enabled for this purpose in the CIFRADOC/CNMV service. The instructions of the annual remuneration report model shall also be valid for the completion of the statistical appendix. Both the annual remuneration report in free format and the statistical appendix must be submitted simultaneously.
5. Savings banks issuing securities admitted to trading on regulated markets that so wish may also submit the annual remuneration report in free PDF format, provided that the content of the model defined in the Second Rule is respected. Savings banks that opt to submit the report in free format shall not submit a statistical appendix.
6. Notwithstanding the provisions of the preceding paragraphs and at the request of the entity, the CNMV may exceptionally and for justified reasons authorize that the reports provided for in the first and second rules, along with the corresponding statistical appendix Annex III if applicable, be submitted by another means in the appropriate model, without this exempting the obligated entity from the subsequent submission of the report and, if applicable, the statistical appendix through the procedure enabled for this purpose in the CIFRADOC/CNMV service."

Second Rule. Modification of Circular 5/2013, of June 12, of the National Securities Market Commission, which establishes the models for the annual corporate governance report of listed joint-stock companies, savings banks, and other entities issuing securities admitted to trading on official securities markets.

Circular 5/2013, of June 12, of the National Securities Market Commission, is modified as follows:

One. The model of the annual corporate governance report of listed joint-stock companies included in Annex I of Appendix II of Circular 5/2013(2), of June 12, is replaced by that contained in Annex I of Appendix II of this Circular.
(2) According to the wording given by Circular 2/2018, of June 12, of the CNMV.

The model of the statistical appendix included in Annex V of Appendix II of Circular 4/2013, of June 12, is replaced by that contained in Annex V of Appendix II of this Circular.

Two. Section 2 of the First Rule is drafted as follows:

"2. Without prejudice to the foregoing, companies that do not comply with the recommendations of the Code of Good Governance for Listed Companies indicated below are not obliged to complete the corresponding sections of Annex I:
In relation to recommendation 14, section C.1.7.
In relation to recommendation 19, section C.1.8.
In relation to recommendation 22, sections C.1.36 and C.1.37.
In relation to recommendation 27, section C.1.26.
In relation to recommendation 36, section C.1.17, second paragraph, and C.1.18.
In relation to recommendation 42.2.c), section C.1.31.
In any case, in chapter "G" of the annual corporate governance report, the appropriate explanations shall be included when the company does not follow, or partially follows, the recommendations of the Code of Good Governance for Listed Companies."

Three. Rule Six is drafted as follows:

"Rule Six. Method of submission of the annual corporate governance report.

1. For its dissemination as other relevant information and for the purposes of information treatment for statistical purposes, as well as the publication of information provided for in section 5 of Article 540 of the consolidated text of the Capital Companies Law, approved by Royal Legislative Decree 1/2010, of July 2, the reports provided for in the first, second, third, and fourth rules of this Circular shall be submitted to the CNMV Electronic Registry, in accordance with what is established in the Resolution of the President of the National Securities Market Commission of November 16, 2011, creating and regulating the CNMV Electronic Registry, as a standardized electronic document, when applicable, or in PDF format by entities that opt to present the reports in free format, accompanied, in that case, by the corresponding statistical appendix through the procedure enabled in the CIFRADOC/CNMV service.
2. The obligation to submit shall be considered fulfilled when the entity receives a message of correct incorporation of the corresponding report and, if applicable, the corresponding statistical appendix via telematic means from the CNMV.
3. Entities subject to the scope of the models established in the First and Second Rules, that so wish, may submit the annual corporate governance report in free PDF format, without using the standardized electronic document, provided that the content of the model defined in the aforementioned Rules is respected, as applicable; this report, accompanied in that case by the corresponding statistical appendix, shall be disseminated through the CNMV and shall form part of the Management Report.
4. The entities referred to in the preceding paragraph that use a free format must necessarily accompany and publish the annual report with a statistical appendix, which shall adhere, in any case, in terms of format, content, and structure, to the model defined in Annex V or VI, as applicable, of this Circular and shall be submitted as a standardized electronic document, through the procedure enabled for this purpose in the CIFRADOC/CNMV service. Both the annual corporate governance report in free format and the corresponding statistical appendix must be submitted simultaneously.
5. Savings banks issuing securities admitted to trading on regulated markets that so wish may also submit the annual corporate governance report in free PDF format, provided that the content of the model defined in the Third Rule is respected. Savings banks that opt to submit the annual report in free format shall not submit a statistical appendix.
6. Entities that are part of the institutional public sector shall submit their annual corporate governance report in PDF format respecting the content and format established in the model referred to in the Fourth Rule.
7. Notwithstanding the provisions of the preceding paragraphs and at the request of the entity, the CNMV may exceptionally and for justified reasons authorize that the reports provided for in the first, second, third, and fourth rules of this Circular be submitted by another means in the appropriate model, without this exempting the obligated entity from the subsequent submission of the report and, if applicable, the statistical appendix, through the procedure enabled for this purpose in the CIFRADOC/CNMV service."

Transitional Provision. 2020 Annual Corporate Governance Report.
For the purposes of the duty to comply or explain, in the annual corporate governance report corresponding to the 2020 fiscal year, the following rules shall apply:
a) Recommendations 2, 4, 7, 8, 14, 41, 42, 45, 54, 62, and 64. It shall be indicated that they are complied with if during the first half of 2020 they had been complied with under the terms prior to their modification and, additionally, at the end of the fiscal year, the bylaws of the board of directors or internal policies or procedures had been adapted to the modified recommendations or, if it were necessary to adapt the company bylaws or the general meeting regulations, there is sufficient record of the board of directors' intention to propose to the general meeting the corresponding adaptation. Otherwise, it shall be indicated that they are not complied with or partially complied with, including the corresponding explanation. b) Recommendations 22, 24, and 39. It shall be indicated that they are complied with if, had the circumstances provided for in them occurred, during the first half of 2020 they had been complied with under the terms prior to their modification, subsequently the modified recommendations had been complied with, and, additionally, in the case of recommendation 22, at the end of the fiscal year, the corresponding internal rules had been adapted. Otherwise, it shall be indicated that they are not complied with or partially complied with, including the corresponding explanation. c) Recommendations 37, 53, 55, and 59. It shall be indicated that they are complied with when, at the end of the 2020 fiscal year, the bylaws of the board of directors or internal policies or procedures had been adapted to the modified recommendations or, if it were necessary to adapt the company bylaws or the general meeting regulations, there is sufficient record of the board of directors' intention to propose to the general meeting the corresponding adaptation. Otherwise, it shall be indicated that they are not complied with or partially complied with, including the corresponding explanation.

Final Provision. Entry into force.
This Circular shall enter into force the day following its publication in the "Official State Gazette" and shall apply to annual corporate governance reports and annual directors' remuneration reports that obligated entities must present corresponding to fiscal years closed from December 31, 2020, inclusive.

Madrid, October 6, 2020.–The President of the National Securities Market Commission, Sebastián Albella Amigo.

APPENDIX I
Model and Statistics of the Annual Report on Directors' Remuneration of Circular 4/2013, of the CNMV

ANNEX I MODEL
ANNUAL REPORT ON DIRECTORS' REMUNERATION OF LISTED JOINT-STOCK COMPANIES ISSUER IDENTIFICATION DATA END OF REFERENCE FISCAL YEAR TAX ID NUMBER Company Name:
Registered Address:

ANNUAL REPORT ON DIRECTORS' REMUNERATION OF LISTED JOINT-STOCK COMPANIES A. COMPANY REMUNERATION POLICY FOR THE CURRENT FISCAL YEAR A.1 Explain the current remuneration policy for directors applicable to the current fiscal year. To the extent that it is relevant, specific information may be included by reference to the remuneration policy approved by the general meeting of shareholders, provided that the incorporation is clear, specific, and concrete. The specific determinations for the current fiscal year must be described, both for the remuneration of directors in their capacity as such and for the performance of executive functions, which would have been carried out by the board in accordance with what is provided in the contracts signed with executive directors and with the remuneration policy approved by the general meeting. In any case, the following aspects must be reported at a minimum:

• Description of the procedures and bodies of the company involved in the determination and approval of the remuneration policy and its conditions.
• Indicate and, if applicable, explain whether comparable companies have been taken into account to establish the company's remuneration policy.
• Information on whether any external advisor has participated and, if applicable, their identity.
• Relative importance of variable remuneration components compared to fixed ones (remuneration mix) and what criteria and objectives have been taken into account in their determination and to guarantee an adequate balance between the fixed and variable components of remuneration. In particular, indicate the actions adopted by the company regarding the remuneration system to reduce exposure to excessive risks and adjust it to the long-term objectives, values, and interests of the company, which will include, if applicable, a reference to measures provided to ensure that the remuneration policy takes into account the long-term results of the company, measures adopted regarding those categories of personnel whose professional activities have a material impact on the risk profile of the entity, and measures provided to avoid conflicts of interest.
  Likewise, indicate whether the company has established any vesting or consolidation period for certain variable remuneration components, in cash, shares, or other financial instruments, a deferral period for the payment of amounts or delivery of financial instruments already vested and consolidated, or if any clause has been agreed upon reducing deferred remuneration not yet consolidated or obliging the director to return received remuneration, when such remuneration was based on data whose inaccuracy has subsequently been demonstrably proven.
• Amount and nature of the fixed components that directors will accrue in their capacity as such during the fiscal year.
• Amount and nature of the fixed components that will be accrued during the fiscal year for the performance of senior management functions by executive directors.
• Amount and nature of any remuneration component in kind that will be accrued during the fiscal year including, but not limited to, insurance premiums paid in favor of the director.
• Amount and nature of variable components, distinguishing between those established for short and long...