Circular 3/2018 of the National Securities Market Commission on Periodic Information of Issuers with Securities Admitted to Trading on Regulated Markets Regarding Semi-Annual Financial Reports, Interim Management Statements, and Quarterly Financial Reports

OFFICIAL STATE GAZETTE
No. 160 Tuesday, July 3, 2018 Sec. I. Page 66361
I. GENERAL PROVISIONS
NATIONAL SECURITIES MARKET COMMISSION
9222 Circular 3/2018, of June 28, of the National Securities Market Commission, on periodic information of issuers with securities admitted to trading on regulated markets regarding semi-annual financial reports, interim management statements, and, where applicable, quarterly financial reports.

European Parliament and Council Directive 2004/109/EC of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (hereinafter, the Transparency Directive) established, among other aspects, the scope of issuers obliged to comply with its provisions, the content of semi-annual financial information and interim management statements, the accounting standards for preparing interim information, and the liability regime.

On 8 March 2007, Commission Directive 2007/14/EC was published, establishing implementing provisions for certain requirements of the Transparency Directive, including the minimum content of unaudited condensed semi-annual financial statements and significant related party transactions to be included in the interim management report.

The Transparency Directive was incorporated into our legal order by Law 6/2007, of 12 April, amending Law 24/1988, of 28 July.

The obligation to submit periodic information was included in Articles 118, 119, 120, and 121 following Royal Legislative Decree 4/2015, of 23 October, which approved the consolidated text of the Securities Market Law.

In development of Law 6/2007, of 12 April, Royal Decree 1362/2007, of 19 October, on regulated information, was published in the "Boletín Oficial del Estado" on 20 October 2007. This decree specifies, among other aspects, the content, periods, and deadlines for submitting semi-annual financial reports and interim management statements, the accounting principles required for their preparation, and the authorization granted to the National Securities Market Commission (hereinafter, CNMV) to establish models for periodic regulated information of a quarterly and semi-annual nature. This Royal Decree was modified to implement changes resulting from Law 11/2015, of 18 June, through Royal Decree 878/2015, of 2 October, on the compensation, settlement, and registration of negotiable securities represented by book entries, on the legal regime of central securities depositories and central counterparties, and on transparency requirements for issuers of securities admitted to trading on a regulated market.

Circular 1/2008, of 30 January, of the CNMV, developed the models for periodic information relating to semi-annual financial reports, individual and consolidated, as well as interim management statements, and, where applicable, the content of quarterly financial reports. Given the different nature of issuers and the applicable accounting standards, three types of formats were established corresponding to the general model, the model for credit institutions, and the model for insurance entities.

The Transparency Directive was modified again by European Parliament and Council Directive 2013/50/EU of 22 October, which, regarding semi-annual financial information, extended the deadline for submitting first-half information from two to three months from the closing date and eliminated the obligation to break down new debt issuances. The changes introduced by this Directive were incorporated into our legal order through Law 11/2015, of 18 June, on the recovery and resolution of credit institutions and investment firms, in its final provision first.

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Circular 1/2008 was modified through Circular 5/2015, of 28 October, primarily to adapt the models established in Annex II of Circular 1/2008 for credit institutions to the new models provided for by Circular 5/2014, of 28 November, of the Bank of Spain. Additionally, with this modification: (i) certain additional information breakdowns were included in Annex II, relating to aspects such as solvency or the credit quality of the loan portfolio and receivables; and (ii) the new requirements introduced by the first final provision of Law 11/2015, of 18 June, were incorporated, specifically the extension of the deadline to three months for presenting the first-half financial report and the suppression of the obligation to publish and disseminate information on new debt issuances.

The objective of this Circular is to adapt the content of the models for semi-annual financial reports, individual and consolidated, as well as interim management statements, and, where applicable, quarterly financial reports, to the following changes: (i) international accounting standards, mainly the entry into force, from 1 January 2018, of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers, which modify the recognition criteria for financial instruments and ordinary revenues, respectively; and (ii) national regulations, mainly Circular 4/2017, of 27 November, of the Bank of Spain, and Royal Decree 583/2017, of 12 June, modifying the Accounting Plan for insurance and reinsurance entities and rules on the preparation of consolidated annual accounts of groups of insurance and reinsurance entities, approved by Royal Decree 1317/2008, of 24 July. Likewise, it is intended, based on experience and suggestions received in recent years, to introduce into this Circular those improvements that, without significantly modifying its content, facilitate its understanding.

Given the scope and significance of the planned modifications, this new Circular replaces Circular 1/2008 and its partial modification by Circular 5/2015, to ensure internal coherence and its adequate understanding as a whole.

Among the changes introduced in this Circular, the following should be highlighted:
– Adaptation of the consolidated financial statements of the general model included in Chapter IV of Annex I to the modifications introduced by IFRS 9. In particular, the classification of financial assets has been adapted to the new requirements established by IFRS 9, whose central axis is the business model and its characteristics. In this context, and given that the level of breakdown provided for financial assets in the statement of financial position itself has been expanded, section 13 of Chapter IV, relating to the breakdown of financial instruments, has been eliminated.

The consolidated and individual financial statements of the credit institution model, included in Chapter IV of Annex II, have also been modified to adapt them to Circular 4/2017 of the Bank of Spain and to include the modifications introduced by IFRS 9.

Finally, it should be noted that the consolidated financial statements of the insurance model have been adapted, in all those aspects that do not contravene international accounting standards adopted, to Royal Decree 583/2017, which, for consolidation purposes, has not incorporated the modifications introduced by IFRS 9, due to the option collected in the modification of IFRS 4 adopted by the European Union, dated 3 November 2017, which allows delaying its application to 2021.

– It has been decided to dedicate Chapter V, Semi-annual Financial Information, to include the summarized or complete semi-annual accounts or, where applicable, the explanatory notes, together with the individual interim management report and, where applicable, consolidated. In this chapter, the full audit report or limited review of said summarized or complete semi-annual accounts will be included, where applicable.

However, a specific chapter (Chapter VI) has been left for the incorporation, where applicable, of the special audit report.

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– The content of Chapter IV of Annexes I, II, and III has been modified so that the statistical information to be provided in the second half, by debt securities issuers and equity issuers who submit the annual financial report within two months following the end of the fiscal year to which they refer, coincides with Chapter IV of the first half so that the "normalized" information submitted via XBRL in both periods is the same.

– The section relating to "Dividends Paid" in Chapter IV has been modified to include information relating to flexible payments.

– The information to be included in the "Segmented Information" section of Chapter IV has been simplified, so that it must be reported: (i) the distribution of the net amount of turnover by geographic area, distinguishing between the national and international market, distinguishing in this case between the European Union (euro zone and non-euro zone) and Rest; and (ii) the net amount of turnover and the result for each of the segments. However, issuers must include in the explanatory notes or in the semi-annual accounts information relating to revenue from ordinary activities from external customers and the total assets and liabilities linked to each of the segments.

– In the section relating to "Remuneration Accrued by Directors and Executives," the remuneration concepts on which information is reported have been modified to adapt them to the concepts included in the Annual Report on Remuneration to Directors.

– In the section relating to "Transactions with Related Parties" in Chapter IV, a third table has been included to capture closing balances, and the level of breakdown to be provided regarding expenses and income and other transactions has been reduced.

– In the individual income statement and in the consolidated statement of comprehensive income in Chapter IV of Annex I, the columns for percentage of net turnover have been eliminated.

– Current period information has been included in the consolidated statement of other comprehensive income, which will allow distinguishing in the second-half information between second-half information and year-to-date information.

These modifications have resulted in a change in the numbering of chapters and sections of Chapter IV, as well as the modification of the corresponding instructions.

Consequently, by virtue of the authorization collected in Article 22 of Royal Decree 1362/2007, of 19 October, prior to the mandatory report of the Institute of Accounting and Auditing and its Advisory Committee, the Council of the CNMV in its meeting on 28 June 2018, has approved this Circular containing the following rules:

First Rule. Scope and Object.

1. When Spain is the home Member State, issuers whose shares are admitted to trading on a Spanish regulated market or on another regulated market domiciled in the European Union shall submit to the CNMV: (i) a semi-annual financial report relating to the first six months of the fiscal year; (ii) a second semi-annual financial report relating to the twelve months of the fiscal year; and (iii) two interim management statements or, where applicable, quarterly financial reports, during the first and second half of the fiscal year.

When Spain is the home Member State, issuers whose debt securities are admitted to trading on a Spanish regulated market or on another regulated market domiciled in the European Union shall be obliged to submit to the CNMV a semi-annual financial report relating to the first six months of the fiscal year.

Equity issuers, who submit the annual financial report within two months following the end of the fiscal year to which it refers, and debt securities issuers shall submit only to the CNMV, for statistical purposes, the selected financial information included in Chapter IV of the corresponding semi-annual model, on the same date that their annual financial report is made public.

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2. Issuers whose shares or debt securities have been admitted to trading on a Spanish regulated market or on another regulated market domiciled in the European Union after the closing of the accounting period subject to periodic information, but before the end of the maximum deadline allowed for its submission, shall be obliged to submit the periodic information corresponding to that closing.

Likewise, issuers whose shares or debt securities have been excluded from trading before the maximum deadline allowed for submitting a certain periodic information expires, shall not be obliged to send said periodic information.

3. Issuers who, as a result of a change in the closing date of the fiscal year, prepare financial statements for a period of less than twelve months, shall submit a second semi-annual financial report that will be compared with the data submitted in the previous year for the second semi-annual financial report, unless there have been changes in accounting criteria or policies or corrections of errors, in which case the provisions of Article 16 of Royal Decree 1362/2007 shall apply.

Where applicable, the interim management statement prior to the second semi-annual financial report of the period of less than twelve months, corresponding to the period between six and three months prior to the new closing date, shall be compared with the data submitted in the previous year for the interim management statement of the third quarter, unless there have been changes in accounting criteria or policies or corrections of errors, in which case the provisions of Article 16 of Royal Decree 1362/2007 shall apply.

With regard to the first semi-annual financial report and the interim management statement prior to the first semi-annual financial report of the period of less than twelve months, the same criteria indicated in the two immediately preceding paragraphs shall apply.

Without prejudice to the foregoing, the entity may include, in the explanatory notes to the financial statements, comparative pro forma information for the same interim period that it considers necessary for the adequate understanding of the semi-annual financial report being presented.

In the year following the change in closing date, comparative information will only be included for those periods for which interim financial information had been submitted in the year of the change, that is, in the year in which financial statements for a period of less than twelve months were prepared.

4. The content of the semi-annual financial reports and interim management statements and, where applicable, quarterly financial reports, is established in the second and third rules respectively.

The method of presentation of the aforementioned reports is established in the sixth rule.

Second Rule. Content of Semi-Annual Financial Reports.

1. The content of the semi-annual financial reports shall be that resulting, according to the nature of the issuer, from the applicable model among those included in Annexes I, II, and III of this Circular, to be completed in accordance with the instructions contained therein.

2. The deadline for publishing and disseminating the first semi-annual financial report, relating to the first six months of the fiscal year, shall be a maximum of three months from the end of the first half of the economic year of the issuer to which it refers.

The deadline for publishing and disseminating the second semi-annual financial report, relating to the twelve months of the fiscal year, shall be a maximum of two months from the end of the second half of the economic year of the issuer to which it refers.

3. Both the first semi-annual financial report, relating to the first six months of the fiscal year, and the second semi-annual financial report, relating to the twelve months of the fiscal year, shall comprise the summarized or complete semi-annual accounts (hereinafter, semi-annual accounts) together with the interim management report, individual and, where applicable, consolidated, and the declarations of responsibility regarding their content.

The content of the individual semi-annual accounts and, where applicable, consolidated, and of the interim management report is established in the fourth and fifth rules respectively.

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4. The Secretary of the Board of Directors, or equivalent position of the issuer, shall be responsible for verifying that the declarations of responsibility regarding the content of the semi-annual financial report, which shall be submitted by telematic means, this being the CIFRADOC service regulated in the sixth rule, as well as regarding any subsequent modifications that may be made, have been previously signed by each of the directors of the issuer.

The Secretary of the Board must be in a position to prove to the CNMV, upon its request, that the aforementioned declarations of responsibility have been signed by all members of the Board of Directors.

Third Rule. Content of the Interim Management Statement and/or Quarterly Financial Reports.

1. The content of the interim management statement or quarterly financial report shall be that established in Annex IV of this Circular, to be completed in accordance with the instructions contained therein.

2. The issuer shall publish two interim management statements or two quarterly financial reports, during the first and second half of the fiscal year, within a maximum period of 45 calendar days after the date of completion of the first and third quarters, and shall contain information for the period elapsed from the beginning of the economic year to the end date of each quarter.

3. The interim management statements shall include, at least, an explanation of the significant events and transactions that have taken place in the corresponding period and their impact on the financial situation of the issuer and its controlled companies, and a general description of the financial situation and results of the issuer and its controlled companies during the corresponding period. Therefore, the interim management statement must include all that information of an individual nature that is relevant for the adequate understanding of the significant events and transactions that have taken place during the corresponding period and their impact on the financial situation of the issuer.

Interim management statements shall not be required when the issuer voluntarily publishes, within the same deadline, a quarterly financial report relating to the period elapsed from the beginning of the economic year to the end date of the first and/or third quarter.

When the issuer publishes a quarterly financial report, it must prepare it in accordance with the applicable international accounting standard adopted for interim financial information, if it is obliged to prepare consolidated information, or in accordance with what is established by the fourth rule of this Circular, if it is individual information, taking into account the instructions collected for this purpose in Annex IV.

4. When the issuer is required, under current regulations, to prepare consolidated financial information for the interim period corresponding to the quarterly financial report being presented, it shall not need to prepare an individual quarterly financial report, provided that it includes an individual interim management statement in which it provides all that information of an individual nature that is relevant for the adequate understanding of the significant events and transactions that have taken place during the corresponding period and their impact on the financial situation of the parent company, which shall be included in Chapter III.

5. If, after the submission of the interim management statement, the issuer prepares a quarterly financial report, it shall submit it to the CNMV as a modification of the previously submitted information.

If, after the submission of the quarterly financial report, the issuer submits it to any type of review by its auditor, they shall submit to the CNMV as a modification of the previously submitted information the auditor's report and the quarterly financial report with the modifications, where applicable, made.

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Fourth Rule. Content of Semi-Annual Accounts.

1. The individual semi-annual accounts and, where applicable, consolidated, that issuers must submit to the CNMV shall contain, at least, the following information:
   (a) The selected financial information of Chapter IV individual and, where applicable, consolidated.

If the models of the individual and/or consolidated financial statements of Chapter IV do not show each of the major groupings, headings, and items of the most recent annual financial statements of the issuer, as established in Article 13.2 of Royal Decree 1362/2007, the issuer shall break down in the explanatory notes the different presentation and grouping criteria used in its semi-annual accounts and reconcile them with those provided in Chapter IV.

(b) The explanatory notes to said selected individual and, where applicable, consolidated financial information, required by the applicable international accounting standard adopted for interim financial information.

These explanatory notes or, where applicable, the semi-annual accounts –when prepared voluntarily by the entity or for the reasons indicated in the previous section– individual and, where applicable, consolidated, shall be attached in Chapter V Semi-annual Financial Report.

2. When the issuer is required to prepare consolidated financial information for the interim period corresponding to the semi-annual financial report being presented, the completion of the individual semi-annual financial report can be satisfied by completing the individual financial information required