Circular 5/2020 of 25 November from the Bank of Spain on financial reporting and statement models for payment and e-money institutions, amending Circulars 6/2001 and 4/2017

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Circular 5/2020, of 25 November, from the Bank of Spain, to payment entities and electronic money entities, on rules for public and reserved financial information, and models for financial statements, and which amends Circular 6/2001, of 29 October, on holders of currency exchange establishments, and Circular 4/2017, of 27 November, to credit entities, on rules for public and reserved financial information, and models for financial statements. (BOE of 4 December 2020)

INDEX

Preliminary Title. General Provisions.

Rule 1. Subject entities.

Rule 2. Scope of application.

Title I. Public financial information.

Chapter I. Content of public financial information.

Rule 3. Individual annual accounts.

Rule 4. Consolidated annual accounts.

Rule 5. Content of individual and consolidated annual accounts.

Rule 6. Individual public financial statements.

Rule 7. Consolidated public financial statements.

Chapter II. Recognition, valuation, presentation criteria and information to be included in the notes.

Rule 8. Characteristics and elements of financial information.

Rule 9. Recognition, valuation, presentation criteria and information to be included in the notes.

Title II. Reserved financial information.

Chapter I. Preparation criteria.

Rule 10. Recognition, valuation, presentation and breakdown criteria.

Rule 11. Segmentation of personal balances by holders.

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

Rule 12. Individual reserved financial statements.

Rule 13. Consolidated reserved financial statements.

Rule 14. Reserved statements relating to the statistical requirements of the Economic and Monetary Union.

Title III. Internal accounting development and management control.

Rule 15. Internal accounting development and management control.

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

Rule 16. Submission of annual accounts, statements and other financial information to the Bank of Spain.

Single Additional Provision. Provisions for hybrid financial credit establishments.

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 statements.

First Final Provision. Amendment of Circular 6/2001, of 29 October, on holders of currency exchange establishments.

Second Final Provision. Amendment of Circular 4/2017, of 27 November, to credit entities, on rules for public and reserved financial information, and models for financial statements.

Third Final Provision. Entry into force.

Appendix 1. Information on branches operating in Spain of foreign payment or electronic money entities whose head office is located in a Member State of the European Economic Area and of entities providing payment services under the exemption regime provided for in Article 14.1 of Royal Decree-Law 19/2018, of 23 November, on payment services and other urgent measures in the financial field.

Appendix 2. Individual reserved financial statements.

I

This circular establishes the accounting regime for payment entities and electronic money entities. This circular sets out the accounting documents that these entities and their groups must prepare, including the models for public and reserved financial statements. It also determines the recognition, valuation, presentation, information to be included in the notes and breakdown of information rules that must be applied in their preparation. This circular takes as reference the accounting regulations for credit entities, either by setting criteria analogous to those of such entities or by directly referring to the rules of Circular 4/2017, of 27 November, to credit entities, on rules for public and reserved financial information, and models for financial statements.

The obligation of payment entities and electronic money entities (as well as hybrid financial credit establishments) to report separately on payment services provision or electronic money issuance activities, the provision of other operational or auxiliary services closely linked to them, and other economic activities carried out is materialized in specific information requirements that must be included in the notes. This information includes both a qualitative description of the activities carried out and quantitative data in predefined formats. These formats coincide with those established for public financial statements. These statements, in turn, constitute a subset of the reserved financial statements, which facilitates reconciliation between the two.

The differences in the nature, scale and complexity of the activities of payment entities and electronic money entities compared to credit entities result in a simplified regime of public and reserved financial statement requirements. That is, compared to credit entities, payment entities and electronic money entities have to complete a much smaller set of financial statement models, and with less frequency in the vast majority of cases.

In short, this circular, by taking as reference the accounting regulations for credit entities, constitutes the development of the Commercial Code for payment entities and electronic money entities, and represents an advance in the harmonization of national accounting regulations for financial entities and their convergence with the European accounting framework formed by the financial information standards adopted by the European Union (IFRS-EU). In this regard, it should be recalled that, as explained in its preamble, Circular 4/2017, of 27 November, maintains the strategy of compatibility with IFRS-EU when establishing a complete accounting framework, with special development of the most relevant aspects for financial activities. Therefore, Circular 4/2017, of 27 November, also constitutes the reference for the accounting regulations applicable to financial credit establishments by virtue of Circular 4/2019, of 26 November, to financial credit establishments, on rules for public and reserved financial information, and models for financial statements.

II

This circular consists of sixteen rules, one additional provision, three transitional provisions and three final provisions. In addition, the circular includes two appendices, one with the statement model on the activity of branches operating in Spain of foreign payment or electronic money entities whose head office is located in a Member State of the European Economic Area and of entities providing payment services under the exemption regime provided for in Article 14.1 of Royal Decree-Law 19/2018, of 23 November, on payment services and other urgent measures in the financial field; and another with the models of individual reserved financial statements.

The preliminary title, which includes two rules, determines the subjective scope of application of the circular – payment entities (including those of a hybrid nature), electronic money entities (including those of a hybrid nature), account information service providers, entities providing payment services under the exemption regime, branches operating in Spain of payment or electronic money entities whose head office is located in a Member State of the European Economic Area, branches operating in Spain of electronic money entities whose head office is not located in a Member State of the European Economic Area and groups of payment or electronic money entities – 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 apply directly in the preparation of consolidated financial information of groups of value issuers, in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, of 19 July 2002, on the application of International Accounting Standards (IAS Regulation), and of groups that have not issued values that opt for them, in accordance with Article 43 bis of the Commercial Code. Therefore, the consolidated financial information of groups that apply IFRS-EU directly is outside the scope of the accounting criteria of this circular relating to recognition, valuation, presentation and information to be included 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 public and reserved financial statement models, information breakdowns, frequency and submission deadlines.

In any case, since the criteria relating to recognition, valuation, presentation and information to be included in the notes set out in this circular are identical to those required in Circular 4/2017, of 27 November, for credit entities, the Bank of Spain considers that the considerations of the preamble of said circular regarding compliance with the accounting criteria set out therein are fully applicable by groups that apply IFRS-EU directly.

The accounting regime of entities providing payment services under the exemption regime provided for in Article 14.1 of Royal Decree-Law 19/2018, of 23 November, is not modified, so these entities will continue to prepare public financial information in accordance with Royal Decree 1514/2007, of 16 November, approving the General Accounting Plan, and are only subject to the reserved financial information submission requirements established in this circular.

The first title, on public financial information, consists of two chapters. The first chapter, which includes five rules, determines the documents that must be published (annual accounts, management report and audit report) and general requirements on the content of annual accounts, individual and consolidated. Regardless of their obligation to formulate annual accounts, entities must periodically publish the models for individual and consolidated public financial statements stipulated in this circular. The second chapter, which includes two rules, contains a reference to Circular 4/2017, of 27 November, for the recognition, valuation, presentation and breakdown of information rules in the notes of the annual accounts. Additionally, in the second chapter, specific information requirements to be included in the notes of the annual accounts on payment services provision or electronic money issuance activities, the provision of other operational or auxiliary services closely linked and other economic activities carried out are established.

The reference to Appendix 9 of Circular 4/2017, of 27 November, made in this first title is only with regard to accounting criteria, and not with regard to certain provisions on credit and counterparty risk management. Specifically, within the section "General framework for credit risk management" of Appendix 9, these 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.

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

The third title, on internal accounting development and management control, and the fourth title, on submission of financial information to the Bank of Spain, each include one rule referring to Circular 4/2017, of 27 November.

The accounting regime of hybrid financial credit establishments is established in Circular 4/2019, of 26 November, to financial credit establishments, on rules for public and reserved financial information, and models for financial statements. The single additional provision of this circular complements this regime by setting the information to be included in the notes on the provision of payment services, the issuance of electronic money and the provision of other operational or auxiliary services closely linked, as well as the models for public and reserved financial statements relating to these activities that these establishments must prepare.

The first transitional provision will apply to the annual accounts of the 2021 financial year, and to the comparative information of the 2020 financial year that must be included in them. This first transitional provision allows – by reference to Circular 4/2017, of 27 November, and Circular 2/2018, of 21 December, amending Circular 4/2017, of 27 November, and Circular 1/2013, of 24 May, on the Risk Information Central – that the first application of the new accounting criteria on 1 January 2021 be carried out either retroactively, as if the new criteria had always been applied, or following a regime with various simplifications, under which adjustments are made against reserves on the date of first application.

Entities will apply the transitional regime of Circular 4/2017, of 27 November, to financial instruments, accounting hedges, tangible assets, inventories, non-current assets held for sale, and commissions and other income, although adapting the dates of said transitional regime to the entry into force of this new circular (1 January 2021). For lease transactions, entities will also apply, adapting the dates to the entry into force of this new circular, the transitional regime of Circular 2/2018, of 21 December. The rest of the effects that the first application of the new circular will have on the annual accounts will be accounted for prospectively.

Notwithstanding the above, a simplification is provided for in the event that the payment entity or the electronic money entity is part of a group of credit entities or a group listed on a regulated market in the European Union (EU). These entities are allowed to, for the comparative information to be 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 27 November, or of IFRS-EU 9, 15 and 16 in the consolidated annual accounts of the larger group to which they belong. In this way, instead of with reference to 1 January 2021, the criteria of the transitional regime of Circular 4/2017, of 27 November, which are equivalent to those of IFRS-EU 9 and 15, may be applied with reference to 1 January 2018, and those of Circular 2/2018, of 21 December, which are equivalent to IFRS-EU 16, with reference to 1 January 2019.

The second transitional provision regulates the presentation of public financial statements in the 2021 financial year.

The third transitional provision sets the regime for the first application of the new reserved statements.

The first final provision collects the modifications made in Circular 6/2001, of 29 October, on holders of currency exchange establishments, so that such holders submit the model of reserved financial statement on foreign currency purchase and sale that this circular introduces for payment entities and electronic money entities, in substitution of the equivalent reserved statement model they have been submitting to the Bank of Spain.

The second final provision collects the modifications introduced in Circular 4/2017, of 27 November, to maintain its alignment with the European accounting framework and the European Central Bank guide for credit entities on non-performing loans, expressly regulate issues not contemplated and introduce clarifications that facilitate its understanding. Among these modifications stands out the express regulation of the accounting treatment of dividend distributions by delivery of assets other than cash ("in-kind dividends").

Finally, in accordance with the third final provision, this circular will enter into force on 1 January 2021. As an exception, the modifications introduced in Circular 4/2017, of 27 November, by letter d) of the second final provision will enter into force the day following the publication of this circular in the "Boletín Oficial del Estado".

III

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

With respect to the principles of necessity and efficacy stipulated in said law, this circular serves to establish the specific accounting regime of payment entities and electronic money entities, and represents an advance in the convergence of national accounting regulations for financial entities with the European accounting framework formed by IFRS-EU.

As for the principle of proportionality, the differences in the nature, scale and complexity of the activities of payment entities and electronic money entities compared to credit entities result in a simplified regime of requirements for public and reserved statement models. In addition, entities providing payment services under the exemption regime provided for in Article 14.1 of Royal Decree-Law 19/2018, of 23 November, will only have to send to the Bank of Spain a subset of the reserved financial statement models established in this circular.

With respect to the principles of legal certainty and administrative efficiency, they are achieved by prescribing in this circular a stable, predictable, complete and clear accounting regulation for payment entities and electronic money entities, which must apply the same accounting criteria as credit entities. Since the regulations for these entities are coherent with those of credit entities and with the IFRS-EU framework, the coexistence of two different accounting frameworks in the same group of credit entities or in the same group of value issuers traded in the EU in which the entity is integrated is avoided.

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

The Bank of Spain is authorized to establish and modify the accounting rules and the models for public and reserved financial statements of payment entities and electronic money entities – including, in both cases, those of a hybrid nature – by the second additional provision of Order ECE/1263/2019, of 26 December 2019, which in turn refers, in what is not expressly provided for in it, to the Order of the Ministry of Economy and Finance, of 31 March 1989, by which the Bank of Spain is authorized to establish and modify the accounting rules of credit entities.

As for the submission of reserved financial statements by entities providing payment services under the exemption regime provided for in Article 14.1 of Royal Decree-Law 19/2018, of 23 November, the Bank of Spain is authorized to request from payment service providers the information necessary for the development of its functions, by Article 26.1 of said Royal Decree-Law, and to determine the information on the amount of payment services provided that these entities will submit under the exemption regime, by Article 4.2.d) of Royal Decree 736/2019, of 20 December, on the legal regime of payment services and payment entities and by which Royal Decree 778/2012, of 4 May, on the legal regime of electronic money entities, and Royal Decree 84/2015, of 13 February, by which Law 10/2014, of 26 June, on the ordering, supervision and solvency of credit entities, is modified.

The Bank of Spain is authorized to establish specific financial information on payment services and electronic money issuance that hybrid financial credit establishments must prepare by the third additional provision of Order ECE/228/2019, of 28 February, on basic payment accounts, procedure for transfer of payment accounts and requirements of comparison websites.

As for the modification of Circular 6/2001, of 29 October, which is carried out through the first final provision of this circular, the Bank of Spain is authorized to require from holders of currency exchange establishments the accounting information it needs for the development of its functions by Article 12 and the second final provision of Royal Decree 2660/1998, of 14 December, on the exchange of foreign currency in establishments open to the public other than credit entities.

Finally, with respect to the modifications of Circular 4/2017, of 27 November, introduced by the second final provision, the Bank of Spain is authorized to establish and modify the accounting rules of credit entities by the Order of the Ministry of Economy and Finance, of 31 March 1989.

Consequently, in exercise of the powers granted, the Governing Council 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 rules:

PRELIMINARY TITLE

General Provisions

Rule 1. Subject entities

1. This circular shall apply, with the scope provided for in the following rule, to:

a) Payment entities defined in Article 3.15 of Royal Decree-Law 19/2018, of 23 November, on payment services and other urgent measures in the financial field, including those that have a hybrid character by carrying out economic activities other than those of

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