CIRCULAR 4/2019, OF NOVEMBER 26, OF THE BANK OF SPAIN, TO CREDIT INSTITUTIONS, ON STANDARDS FOR PUBLIC AND RESERVED FINANCIAL INFORMATION, AND MODELS OF FINANCIAL STATEMENTS (BOE OF DECEMBER 2, 2019).

INDEX

Preliminary Title. General Provisions.

Norm 1. Scope of application and object.

Title I. Public Financial Information.

Chapter I. Content of public financial information.

Norm 2. Individual annual accounts.

Norm 3. Consolidated annual accounts.

Norm 4. Content of individual and consolidated annual accounts.

Norm 5. Individual public financial statements.

Norm 6. Consolidated public financial statements.

Chapter II. Recognition, measurement, presentation, and disclosure criteria to be included in the Notes.

Norm 7. Characteristics and elements of financial information.

Norm 8. Recognition, measurement, presentation, and disclosure criteria to be included in the Notes.

Title II. Reserved Financial Information.

Chapter I. Preparation criteria.

Norm 9. Recognition, measurement, presentation, and breakdown criteria.

Norm 10. Segmentation of personal balances by holders.

Chapter II. Reserved statements to be submitted to the Bank of Spain.

Norm 11. Individual reserved financial statements.

Norm 12. Consolidated reserved financial statements.

Norm 13. Reserved statements relating to the statistical requirements of the Economic and Monetary Union.

Title III. Internal accounting development and management control.

Norm 14. Internal accounting development and management control.

Title IV. Submission of financial information to the Bank of Spain.

Norm 15. Submission of annual accounts, statements, and other financial information to the Bank of Spain.

Single Additional Provision. Provisions for prudential supervision purposes.

First Transitional Provision. First application of this circular to annual accounts.

Second Transitional Provision. First application of this circular to public financial statements.

Third Transitional Provision. First application of this circular to reserved financial statements.

Single Final Provision. Entry into force.

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I

This circular, which constitutes the accounting regime for credit institutions, determines the documents that these institutions and their groups must publish, as well as the recognition, measurement, presentation, disclosure in the Notes, and breakdown standards that must be applied in their preparation, including the models for public and reserved financial statements.

In accordance with Title II, on the legal regime of credit institutions, of Law 5/2015, of April 27, on the promotion of business financing, this circular takes as reference the accounting standards of credit institutions, either by establishing analogous criteria to those of these institutions or by directly referring to the standards of Circular 4/2017, of November 27, to credit institutions, on standards for public and reserved financial information, and models of financial statements. The differences in the nature, scale, and complexity of the activities of credit institutions compared to credit institutions result in a simplified regime of financial statement requirements, formed by a subset of the public and reserved financial statements of credit institutions, with, in some cases, a lower frequency of submission or a longer maximum deadline for submission.

This approach is consistent with the previous accounting regime of credit institutions, which, while they had the status of credit institutions, applied the accounting standards of the latter until December 2013, although they enjoyed simplified financial statement requirements. Since January 2014 – the date on which they lost their status as credit institutions, by virtue of Royal Decree-Law 14/2013, of November 29, on urgent measures to adapt Spanish law to European Union legislation on the supervision and solvency of financial entities – credit institutions have maintained their previous accounting regime on a transitional basis, including the aforementioned simplifications in the matter of financial statements. With the approval of this circular, said transitional accounting regime is deemed concluded, and is replaced by specific legislation.

This new circular, which constitutes the development of the Commercial Code for these institutions, maintains the convergence of national accounting standards with the International Financial Reporting Standards adopted by the European Union (IFRS-EU), in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, of July 19, 2002, on the application of international accounting standards (IAS Regulation). In this way, the Bank of Spain continues the strategy of compatibility of the accounting regime of supervised entities with the most advanced accounting criteria of IFRS-EU, respecting the principles of the Commercial Code. In particular, the criteria of IFRS-EU 9, on financial instruments, including the expected loss approach for the estimation of credit risk provisions, are incorporated into the accounting standards of credit institutions.

II

This circular consists of fifteen norms, one additional provision, three transitional provisions, and one final provision.

The preliminary title, which includes a single norm, determines the subjective scope of application of the circular – credit institutions, groups of credit institutions, and consolidatable groups of credit institutions – and clarifies whether, in the preparation of public and reserved financial information, this circular or IFRS-EU directly must be applied.

Individual financial information will be prepared applying the accounting criteria of this circular. IFRS-EU are directly applicable in the preparation of consolidated financial information of groups of securities issuers, in accordance with the IAS Regulation, and of groups that have not issued securities that opt for them, in accordance with Article 43 bis of the Commercial Code. Therefore, the consolidated financial information of groups that directly apply IFRS-EU is outside the scope of the accounting criteria of this circular regarding recognition, measurement, presentation, and disclosure in the Notes. The remaining groups will prepare their consolidated financial information applying the accounting criteria of this circular. However, all groups are subject to the specificities set out in this circular in terms of models of public and reserved financial statements, information breakdowns, frequency, and submission deadlines.

In any case, as has been pointed out, the criteria regarding recognition, measurement, presentation, and disclosure in the Notes collected in this circular for credit institutions are identical to those required in Circular 4/2017, of November 27, for credit institutions. Therefore, the Bank of Spain understands that the considerations set out in the preamble of said Circular 4/2017 regarding compliance with the accounting criteria collected therein by groups that directly apply IFRS-EU are fully applicable to said credit institutions.

The first title, on public financial information, consists of two chapters. The first chapter, which includes five norms, determines the documents that must be published (annual accounts, management report, and audit report) and general requirements regarding the content of annual accounts, individual and consolidated. Regardless of their obligation to formulate annual accounts, credit institutions must periodically publish the models of individual and consolidated public financial statements stipulated in this circular. The second chapter, which includes two norms, contains a reference to Circular 4/2017, of November 27, for the standards of recognition, measurement, presentation, and breakdown of information in the Notes of the annual accounts.

The second title, on reserved financial information, consists of two chapters. The first chapter, which includes two norms, establishes that groups are subject to the specificities collected in this title, regardless of whether they apply the accounting criteria of this circular or directly IFRS-EU. The second chapter, which includes three norms, collects the specificities of the reserved statements – individual, consolidated, and relating to the statistical requirements of the Economic and Monetary Union (EMU) – in terms of models, breakdowns, frequency, and submission deadlines.

The third title, on internal accounting development and management control, and the fourth title, on the submission of financial information to the Bank of Spain, both include a norm that refers to Circular 4/2017, of November 27.

The single additional provision establishes that the reference to Annex 9 of Circular 4/2017, of November 27, made in this new circular is only with respect to accounting criteria, and not with respect to certain provisions on credit and counterparty risk management for prudential supervision purposes.

The first transitional provision will apply to the annual accounts of the 2020 financial year, and to the comparative information of the 2019 financial year that must be included in them. This first transitional provision allows – by reference to Circular 4/2017, of November 27, and Circular 2/2018, of December 21, which amends Circular 4/2017, of November 27, and Circular 1/2013, of May 24, on the Risk Information Central – that the first application of the new accounting criteria on January 1, 2020, be carried out retroactively, as if the new criteria had always been applied, or to opt for a regime with various simplifications, in which adjustments are made against reserves on the date of first application.

Credit institutions will apply to financial instruments, accounting hedges, tangible assets, inventories, non-current assets held for sale, and commissions and other income, the transitional regime of Circular 4/2017, of November 27, although adapting the dates of said transitional regime to the entry into force of this new circular (January 1, 2020). For lease transactions, credit institutions will also apply, adapting the dates to the entry into force of this new circular, the transitional regime of Circular 2/2018, of December 21. The rest of the effects on the annual accounts of the first application of the new circular will be accounted for prospectively.

Notwithstanding the above, a simplification is provided in the event that the credit institution is part of a group of credit institutions or a group listed on a regulated market in the European Union (EU). These credit institutions are allowed to, for the comparative information presented in the first financial year, opt to take as a starting point – or to make use of – the transition information they had already prepared in previous years, for internal purposes, for the first application of the accounting criteria of Circular 4/2017, of November 27, or of IFRS-EU 9, 15, and 16 in the consolidated annual accounts of the parent group to which they belong. In this way, instead of with reference to January 1, 2020, the criteria of the transitional regime of Circular 4/2017, of November 27, which are equivalent to those of IFRS-EU 9 and 15, may be applied with reference to January 1, 2018, and those of Circular 2/2018, of December 21, which are equivalent to IFRS-EU 16, with reference to January 1, 2019.

The second transitional provision regulates the presentation of interim public financial statements during the 2020 financial year.

The third transitional provision establishes the regime for the first application of the new reserved statements. The reserved statements relating to the EMU statistical requirements enter into force in January 2020. Between January and May 2020, no consolidated reserved statements need to be submitted, and only a reduced subset of the models of individual reserved statements in force before the entry into force of this circular, prepared with the new recognition and measurement criteria, is sent. The first individual and consolidated reserved statements that must be submitted to the Bank of Spain in accordance with the new circular – distinct from the aforementioned EMU statistical statements – will be those of June 2020.

Finally, in accordance with the single final provision, this circular will enter into force on January 1, 2020.

III

This circular attends to the principles of good regulation required by Article 129 of Law 39/2015, of October 1, on the common administrative procedure of Public Administrations.

Regarding the principles of necessity and efficiency stipulated in said law, this circular undertakes the necessary changes in the accounting regulation of credit institutions to conclude their transitional accounting regime, so that they must apply the same accounting criteria as credit institutions.

As for the principle of proportionality, the circular is limited to including those requirements necessary to meet the objectives of convergence with the accounting standards of credit institutions and with IFRS-EU, within the framework of the Commercial Code, without imposing additional obligations on credit institutions. The differences in the nature, scale, and complexity of the activities of credit institutions compared to credit institutions result in a simplified regime of requirements for models of public and reserved statements.

Regarding the principles of legal certainty and efficiency, they are achieved by prescribing this circular a stable, predictable, complete, and clear accounting regulation for credit institutions, which must apply the same accounting criteria as credit institutions. Since the regulation of credit institutions is consistent with that of credit institutions and with the framework of IFRS-EU, the coexistence of two different accounting frameworks in the same group of credit institutions or in the same group of securities issuers traded in the EU in which the credit institution is integrated is avoided, and it allows credit institutions to apply the most appropriate accounting principles to reflect their activities.

The principle of transparency is achieved through the prior public consultation with potential affected parties, established by Article 133 of Law 39/2015, of October 1, and the public hearing with interested parties, so that both are part of the processing process of this circular.

The Bank of Spain is empowered to establish and modify the accounting standards and the models of the public and reserved financial statements of credit institutions, in accordance with what is provided in the third additional provision of Order ECE/228/2019, of February 28, on basic payment accounts, procedure for the transfer of payment accounts, and requirements of comparison websites, which in turn refers, in what is not expressly provided for in it, to the Order of the Ministry of Economy and Finance of March 31, 1989, which empowers the Bank of Spain to establish the accounting standards of credit institutions.

The section "General Framework for Credit Risk Management" of Annex 9 of Circular 4/2017, of November 27, to which this circular refers, contains certain provisions on credit and counterparty risk management for prudential supervision purposes. The reference to Annex 9 of Circular 4/2017, of November 27, is only with respect to accounting criteria, and not with respect to the aforementioned supervisory provisions. Specifically, within the "General Framework for Credit Risk Management", the supervisory provisions are collected in points 11 to 17 of Section I.A) "Granting of operations", with the exception of letter c) of point 11, which collects accounting criteria.

Finally, with regard to the specific financial information that credit institutions that have issued certain securities and the associated special accounting records must publish, the empowerment of the Bank of Spain rests on:

– Article 21 of Royal Decree 716/2009, of April 24, which develops certain aspects of Law 2/1981, of March 25, on the regulation of the mortgage market and other norms of the mortgage and financial system, with respect to issuers of mortgage certificates or bonds.

– Article 10 of Royal Decree 579/2014, of July 4, which develops certain aspects of Law 14/2013, of September 27, on support for entrepreneurs and their internationalization, in the matter of certificates and internationalization bonds, with respect to the issuers of said certificates and bonds.

Consequently, in exercise of the powers granted to it, the Board of Governors of the Bank of Spain, on the proposal of the Executive Committee and in accordance with the Council of State, has approved this circular, which contains the following norms:

PRELIMINARY TITLE

General Provisions

Norm 1. Scope of application and object.

1. This circular will be applicable, with the scope provided for in the following sections, to:

a) Credit institutions regulated in Article 6 of Law 5/2015, of April 27, on the promotion of business financing, including hybrid credit institutions characterized in sections 2 and 3 of said Article.

b) Groups of credit institutions.

c) Consolidatable groups of credit institutions.

Any reference in the circular to the "institution" or "institutions" shall be understood to refer to all the aforementioned entities.

2. For the purposes of this circular, the following are understood:

a) Groups of credit institutions:

i) Groups whose dominant entity is a credit institution.

ii) Groups whose dominant entity is subject to Spanish legislation and, either has as its main activity the holding of participations in one or more credit institutions that are subsidiaries, or the activity of said dependent credit institution or institutions is the most important within the group.

b) Consolidatable groups of credit institutions: are those groups that must comply, on a consolidated or sub-consolidated basis, with the prudential requirements established in 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 firms, and amending Regulation (EU) No 648/2012, in accordance with Article 57 of Law 10/2014, of June 26, on the organization, supervision, and solvency of credit institutions, with Article 12 of Law 5/2015, of April 27, and with its developing regulations.

In groups that are simultaneously a group of credit institutions and a group of credit institutions, as defined in letter a) of section 2 of Norm 1 of Circular 4/2017, of November 27, to credit institutions, on standards for public and reserved financial information, and models of financial statements, or a consolidatable group of credit institutions and a consolidatable group of credit institutions, as defined in letter b) of said section 2, the second consideration shall prevail and Circular 4/2017, of November 27, shall be applied to them.

3. The norms contained in Title I of this circular constitute the development and adaptation of the accounting standards established in the Commercial Code, applicable to credit institutions and to groups of credit institutions.

In the case of groups, it shall be taken into account that, in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, of July 19, 2002, on the application of international accounting standards, the international financial reporting standards adopted by the European Union are directly applicable to the public consolidated financial statements of groups of credit institutions that are securities issuers. Also, as provided for in Article 43 bis of the Commercial Code, said international standards are directly applicable to the remaining groups of credit institutions that opt for them.

Likewise, the accounting standards applicable for the formulation of individual and consolidated annual accounts, in accordance with the provisions of the previous paragraphs, will be used in the preparation of the corresponding public financial statements referred to in norms 5 and 6 of this circular, with the specificities in terms of models, breakdowns, frequency, and submission deadlines established in said norms.

4. The norms contained in Title II of this circular will be applicable to the individual reserved financial statements of credit institutions, as well as to the consolidated reserved financial statements of consolidatable groups of credit institutions.

The accounting criteria for the preparation of said individual and consolidated reserved statements will be those applicable for the preparation of the corresponding public financial statements, in accordance with the provisions of the previous section 3, with the specificities in terms of models, breakdowns, frequency, and submission deadlines established in that Title II.

5. The norm that makes up Title III of this circular, on the internal accounting development and management control necessary for the preparation and formulation of their public and reserved financial information, will be applicable to all institutions in section 1 of this norm.

6. The norm that makes up Title IV of this circular, on the submission of financial information to the Bank of Spain, will be applicable to all institutions in section 1 of this norm.

TITLE I

Public Financial Information

CHAPTER I

Content of Public Financial Information

Norm 2. Individual annual accounts.

Credit institutions shall formulate their individual annual accounts applying what is provided for in this title and shall publish them together with the corresponding management and audit reports. Credit institutions shall not formulate abbreviated annual accounts.

Norm 3. Consolidated annual accounts.

1. A group of credit institutions is formed by a dominant entity and all dependent entities, in accordance with what is stipulated in section 1 of Norm 43 of Circular 4/2017, of November 27.

2. Any dominant entity of a group of credit institutions shall formulate consolidated annual accounts, without prejudice to...