Actualidad Spain

Updating legal framework for credit establishments

Bill for Royal Decree

This bill repeals Royal Decree 692/1996 and establishes the implementing clauses for Title II of Law 5/2015 for promoting business finance, regarding the legal regime for financial credit establishments (FCE). A financial credit establishment is similar to the old credit entities with limited operating scope (known as ECAOL in Spanish) and forms part of the strategy of encouraging the growth a more robust system to enable Spanish companies to raise funding.

The bill establishes conditions of access to this business, solvency requirements for FCEs and rules on their supervision and oversight. It also dedicates a chapter to their corporate governance.

Conditions of access to the business

The FCEs are limited liability companies requiring authorisation from the Ministry of the Economy & Competitiveness, based on a report from the Bank of Spain and the Executive AML Service. They must be filed at the Companies Registry and in the Bank of Spain's Special Registry of financial credit establishments.  They are licenced to grant credit and carry out other ancillary activities. They may also provide payment services and issue electronic money, when they have the necessary permits to do so. They are expressly forbidden to raise customer funds in the form of deposits, loans, assignments of financial assets or other similar activities.

They must have a minimum share capital of €5m, their limited corporate purpose must be defined in their bylaws and they must have their corporate domicile in Spain.

Solvency requirements and supervision

The bill refers to the solvency requirements, the rules on supervision and corporate governance established in Law 10/2014 on the regulation, supervision and solvency of financial entities, RD 84/2015, and the EU Regulation 575/2013.   They must also have a sufficient buffer of high-quality liquid assets to cope with a period of serious financial instability. The size of such buffer will be determined by the Bank of Spain.

They are subject to the supervision and oversight of the Bank of Spain.

Corporate governance

The bill establishes the principles of corporate governance that the financial credit establishments must follow, in order to obtain and keep their permit to engage in this business. Thus, they must have:

  • Suitable administrative and accounting organisation and adequate internal control procedures to ensure the establishment is managed in a healthy and prudent fashion.
  • A board of directors comprising at least three members vetted for their commercial and professional honour, with experience and expertise fitted to their duties.
  • Suitable rules of internal procedures and organisation established by the board of directors, to help its members meet their obligations and be accountable.

The requirements demanded of directors regarding their repute, knowledge and experience will also be demanded of general managers or similar.

In line with the requirements on financial institutions for their corporate governance and their remuneration policy in Law 10/2014, the establishments must constitute an Appointments Committee, which may also act as Remuneration Committee. They may also set up mixed audit committees that will carry out the duties corresponding to the risks committee.