Published and draft legislation - Spain

Greater responsibility for board members

Reform to Appendix IX of accounting circular 4/2004

On 1st October 2016, the reform to Appendix IX of the accounting circular 4/2004, passed in May this year by Spain’s central bank Banco de España (BE), will come into force. The revised text brings accounting regulations into line with the latest developments in banking regulation, keeping them fully compatible with the IFRS accounting framework.

Specifically, it strengthens areas affecting: i) policies, methodologies, procedures and criteria for managing credit risk, including those relative to collateral received, in accounting-related areas; ii) the accounting classification of transactions by credit risk, and iii) individual and collective provisioning estimates.

The reform makes board members responsible for the approval of credit policies and for credit risk management criteria. Specifically, the reform stipulates that board members will have to:

  •      Approve credit risk management criteria, essentially in matters relating to provisioning, as well as assess, monitor and correct these criteria.
  •      Approve said credit policies in writing, specifying the information used to assess the financing transactions, the criteria used when provisioning and the internal procedures the bank has in place for reviewing levels of cover and the frequency with which they are revised.
  •      Approve in writing the policy for assessing the collateral behind the credits being originated. The BE will require board members to define the frequency and mechanisms with which they will verify any possible impairment to the value of these collaterals; it will also require them to justify the criteria for selecting the companies that carry out these valuations.

Each institution’s internal control bodies will review the methodologies and procedures applied and will regularly report on these to the Board, which has the final responsibility for communicating to the BE the corrective measures adopted.

This reform mirrors international trends on board members’ responsibility and their interaction with senior management on specific strategic issues.