Circular 3/2021 of the National Securities Market Commission modifying Circular 4/2013 on Directors' Remuneration Reports and Circular 5/2013 on Corporate Governance Reports

I. GENERAL PROVISIONS NATIONAL SECURITIES MARKET COMMISSION 16391 Circular 3/2021, of September 28, of the National Securities Market Commission, amending 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 control committee of savings banks that issue securities admitted to trading on official securities markets; and 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 that issue securities admitted to trading on official securities markets.

Law 5/2021, of April 12, amending the consolidated text of the Capital Companies Law, approved by Royal Legislative Decree 1/2010, of July 2, and other financial regulations, with regard to the promotion of long-term shareholder engagement in listed companies, transposes Directive (EU) 2017/828 of the European Parliament and of the Council of May 17, 2017, amending Directive 2007/36/EC as regards the promotion of long-term shareholder engagement in listed companies, and has introduced certain changes in the areas of corporate governance and directors' remuneration, making it necessary to modify the models for the remuneration reports of directors and the corporate governance reports of listed companies.

The main modifications introduced in the model for the annual remuneration report of directors of listed companies are as follows.

In section B.1, it has been added that there must be reporting on any deviation from the procedure for applying the remuneration policy as well as on any temporary exception applied to said policy, derived from exceptional circumstances.

Section B.3 has also been modified to include an explanation of how the remuneration accrued and vested in the financial year contributes to the sustainable and long-term performance of the company.

Finally, a new section has been added to establish comparisons between the annual accrued amounts and the annual variations experienced over the last five years in the remuneration of each director, in the consolidated results of the company, and in the average remuneration on a full-time equivalent basis of the employees of the company and its subsidiaries who are not directors.

With regard to the annual corporate governance report of listed companies, the main modifications introduced in the model are those indicated below, primarily derived from the approval of Law 5/2021, of April 12.

Among other things, the so-called "loyalty double voting shares" have been introduced into our legal system. To determine whether companies have contemplated this figure in their articles of association and to have information on the additional voting rights assigned to loyalty double voting shares, section A.1 of the annual corporate governance report model has been modified.

Furthermore, it is considered convenient, to know the ownership structure of the company, to have information on the total number of shares for which the attribution of the double voting right by loyalty is sought from shareholders who have requested their registration in the special register of loyalty double voting shares and are pending attribution because the mandatory holding period has not yet elapsed, as well as on the number of votes of significant participations that correspond to additional votes attributed by loyalty.

Law 5/2021 has included a new chapter in the Capital Companies Law in which related-party transactions are defined and regulated. It seems appropriate that, with regard to definitions and criteria, concerning related-party transactions in the corporate governance report, the provisions of this chapter be followed.

Two new paragraphs have also been included in Article 540 of the Capital Companies Law, which establishes the minimum content of the annual corporate governance report. In the first of them, information is requested on the positions held by directors in other entities, whether listed or not. In the second paragraph, it is established that companies must report on other remunerated activities of directors. Section C.1.11 of the corporate governance report model has been modified to collect this information.

In section C.1.13, the terminology has been equalized with that appearing in the directors' remuneration report, in order to clarify what information must be provided in this section and avoid the doubts generated by its completion.

Finally, the Law repealed the obligation for entities other than listed joint-stock companies, which issue securities traded on regulated markets, to prepare a corporate governance report. Therefore, the second and fourth provisions of Circular 5/2013, of June 12, of the National Securities Market Commission, which established the report models for these entities, are repealed.

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 that issue 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 the entities must make the aforementioned reports public.

By virtue thereof, the Council of the National Securities Market Commission, in its meeting of September 28, 2021, in exercise of the powers conferred, prior to the report of the Advisory Committee, has ordered:

First Provision. 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 control committee of savings banks that issue 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 name of the Circular is modified and will have the following denomination: "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 control committee of savings banks that issue securities admitted to trading on regulated markets."

Two. The references in Circular 4/2013, of June 12, to official securities markets shall be understood as references to regulated markets.

Three. 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, of June 12(1), 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) As amended by Circular 1/2020, of October 6, of the CNMV.

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

Second Provision. 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 that issue 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 name of the Circular is modified and will have the following denomination: "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 and of savings banks that issue securities admitted to trading on regulated markets."

Two. The references in Circular 5/2013, of June 12, to official securities markets shall be understood as references to regulated markets.

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

(2) As amended by Circular 1/2020, of October 6, of the CNMV.

Four. The model of the statistical appendix, included in Annex V of Appendix II of Circular 5/2013, of June 12, is replaced by that contained in Annex V of Appendix II of this Circular.

Single Repealing Provision.

The second and fourth provisions of Circular 5/2013, of June 12, of the National Securities Market Commission, which establish, respectively, the models for the annual corporate governance report of other entities –other than savings banks– that issue securities traded on regulated markets and of entities that make up the institutional public sector that issue securities traded on regulated markets, are repealed.

Final Provision. Entry into force.

This Circular shall enter into force the day following its publication in the "Boletín Oficial del Estado" and shall apply to the annual remuneration reports of directors and the annual corporate governance reports that companies obliged to present them correspond to financial years closed on December 31, 2021, or later.

Madrid, September 28, 2021.–The President of the National Securities Market Commission, Rodrigo Buenaventura Canino.

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 DATE OF REFERENCE FINANCIAL YEAR TAX ID NUMBER Company Name: Registered Address:

ANNUAL REPORT ON DIRECTORS' REMUNERATION OF LISTED JOINT-STOCK COMPANIES

A. REMUNERATION POLICY OF THE COMPANY FOR THE CURRENT FINANCIAL YEAR

A.1.1 Explain the current remuneration policy for directors applicable to the current financial year. To the extent that it is relevant, specific information may be included by reference to the remuneration policy approved by the shareholders' general meeting, provided that the incorporation is clear, specific, and concrete. The specific determinations for the current financial year must be described, both for the remuneration of directors in their capacity as such and for the performance of executive functions, which the board of directors would have carried out in accordance with 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: a) Description of the procedures and bodies of the company involved in the determination, approval, and application of the remuneration policy and its conditions. b) Indicate and, if applicable, explain whether comparable companies were taken into account to establish the company's remuneration policy. c) Information on whether any external advisor participated and, if so, their identity. d) Procedures contemplated in the current directors' remuneration policy to apply temporary exceptions to the policy, conditions under which recourse to such exceptions is permitted, and components that may be subject to exception according to the policy.

A.1.2 Relative importance of variable remuneration components compared to fixed ones (remuneration mix) and what criteria and objectives were 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 align it with the company's long-term objectives, values, and interests, which will include, if applicable, a reference to measures planned to ensure that the remuneration policy takes into account the long-term results of the company, the measures adopted regarding those categories of personnel whose professional activities have a material impact on the entity's risk profile, and measures planned to avoid conflicts of interest.

Likewise, indicate whether the company has established any vesting or accrual 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 accrued and vested, or if any clause for the reduction of deferred remuneration not yet vested or requiring the director to return received remuneration has been agreed upon, when such remuneration was based on data whose inaccuracy was subsequently demonstrated in a manifest manner.

A.1.3 Amount and nature of the fixed components that directors are expected to accrue in the financial year in their capacity as directors.

A.1.4 Amount and nature of the fixed components that will be accrued in the financial year for the performance of senior management functions by executive directors.

A.1.5 Amount and nature of any remuneration component in kind that will be accrued in the financial year, including, but not limited to, insurance premiums paid in favor of the director.

A.1.6 Amount and nature of variable components, distinguishing between those established for the short and long term. Financial and non-financial parameters, including among the latter social, environmental, and climate change parameters, selected to determine variable remuneration in the current financial year, explanation of the extent to which such parameters relate to the performance of both the director and the entity and to their risk profile, and the methodology, time frame required, and techniques planned to determine, at the end of the financial year, the effective degree of compliance with the parameters used in the design of variable remuneration, explaining the criteria and factors applied regarding the time required and methods to verify that the performance conditions or any other conditions linked to the accrual and vesting of each component of variable remuneration have been effectively met.

Indicate the monetary range of the different variable components based on the degree of compliance with the established objectives and parameters, and if there is any absolute maximum monetary amount.

A.1.7 Main characteristics of long-term savings systems. Among other information, the contingencies covered by the system, whether it is a contribution or defined benefit plan, the annual contribution to be made to defined contribution systems, the benefit to which beneficiaries are entitled in the case of defined benefit systems, the vesting conditions of economic rights in favor of directors, and their compatibility with any type of payment or indemnification for early termination or cessation, or derived from the termination of the contractual relationship, under the terms foreseen, between the company and the director, will be indicated.

It must be indicated whether the accrual or vesting of any of the long-term savings plans is linked to the achievement of specific objectives or parameters related to the short and long-term performance of the director.

A.1.8 Any type of payment or indemnification for early termination or cessation or derived from the termination of the contractual relationship under the terms foreseen between the company and the director, whether the termination is voluntary by the company or the director, as well as any type of agreed covenants, such as exclusivity, post-contractual non-compete, and retention or loyalty, that entitle the director to any type of benefit.

A.1.9 Indicate the conditions that must be respected by the contracts of those exercising senior management functions as executive directors. Among other things, information will be provided on the duration, limits on the amounts of indemnification, retention clauses, notice periods, as well as payment in lieu of the said notice period, and any other clauses relating to signing bonuses, as well as indemnifications or golden parachutes for early termination or termination of the contractual relationship between the company and the executive director. Include, among others, covenants or agreements on non-compete, exclusivity, retention, or loyalty and post-contractual non-competition, unless explained in the previous section.

A.1.10 The nature and estimated amount of any other supplementary remuneration that will be accrued by directors in the current financial year in consideration for services rendered other than those inherent to their office.

A.1.11 Other remuneration concepts such as those derived, if applicable, from the company granting the director advances, loans, and guarantees and other remuneration.

A.1.12 The nature and estimated amount of any other supplementary remuneration planned not included in the previous sections, whether paid by the entity or another entity in the group, that will be accrued by directors in the current financial year.

A.2 Explain any significant changes in the remuneration policy applicable in the current financial year derived from: a) A new policy or a modification of the policy already approved by the General Meeting. b) Significant changes in the specific determinations established by the board for the current financial year of the current remuneration policy compared to those applied in the previous financial year. c) Proposals that the board of directors would have agreed to present to the shareholders' general meeting to which this annual report will be submitted and which are proposed to be applicable to the current financial year.

A.3 Identify the direct link to the document containing the current remuneration policy of the company, which must be available on the company's website.

A.4 Explain, taking into account the data provided in section B.4, how the vote of the shareholders at the general meeting, to which the annual remuneration report of the previous financial year was submitted for a consultative vote, was taken into account.

B. GLOBAL SUMMARY OF HOW THE REMUNERATION POLICY WAS APPLIED DURING THE CLOSED FINANCIAL YEAR

B.1.1 Explain the process followed to apply the remuneration policy and determine the individual remunerations reflected in section C of this report. This information will include the role played by the remuneration committee, the decisions taken by the board of directors, and, if applicable, the identity and role of external advisors whose services were used in the process of applying the remuneration policy in the closed financial year.

B.1.2 Explain any deviation from the established procedure for applying the remuneration policy that occurred during the financial year.

B.1.3 Indicate whether any temporary exception to the remuneration policy has been applied and, if so, explain the exceptional circumstances that motivated the application of these exceptions, the specific components of the remuneration policy affected, and the reasons why the entity considers that these exceptions were necessary to serve the long-term interests and sustainability of the company as a whole or to ensure its viability.

Quantify, likewise, the impact that the application of these exceptions had on the remuneration of each director in the financial year.

B.2 Explain the different actions adopted by the company regarding the remuneration system and how they have contributed to reducing exposure to excessive risks and aligning it with the company's long-term objectives, values, and interests, including a reference to the measures that have been adopted to ensure that the accrued remuneration has taken into account the long-term results of the company and achieved an adequate balance between the fixed and variable components of remuneration, what measures have been adopted regarding those categories of personnel whose professional activities have a material impact on the entity's risk profile, and what measures have been adopted to avoid conflicts of interest, if applicable.

B.3 Explain how the remuneration accrued and vested in the financial year complies with the provisions of the current remuneration policy and, in particular, how it contributes to the sustainable and long-term performance of the company.

Also report on the relationship between the remuneration obtained by the directors and the results or other performance measures, in the short and long term.