Spain

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KEY COUNTRY FACTS
Flag of Spain
System of government: constitutional monarchy
Population: 47.74 million
Currency: euro (€)
FX regime: free float
GDP: €1,058bn in 2014, current prices
IGTA member: yes
FATF member: yes
Treasury association: Asociación Española de Financieros y Tesoreros de Empresa (ASSET) (Spanish Association of Financial Managers and Company Treasurers)
Other professional financial/banking associations: AEB Asociación Española de Banca (Spanish Banking Association)

Financial regulatory framework

Bank supervision

On 4 November 2014, the European Central Bank (ECB) adopted the authority to monitor the financial stability of banks within the eurozone through its Single Supervisory Mechanism (SSM), in line with the EU’s SSM Regulation No 1024/2013 conferring specific tasks on the ECB with regard to the prudential supervision of credit institutions. The ECB has final supervisory authority, with member states’ national supervisory authorities now providing a supporting role. The ECB directly supervises the 120 “most significant” banks within each eurozone member state. The ECB is responsible for supervisory reviews, on-site inspections and investigations; granting/withdrawing banking licences; assessing bank acquisitions; ensuring compliance with EU prudential rules; and, if required, setting higher capital requirements to counter financial risks. Spain’s national supervisory authority is Banco de España. The Autonomy Law defines Banco de España as a government institution subject to public law which, although reporting to the government in general terms, enjoys full autonomy as far as monetary policy is concerned, with the main objective of such policy being price stability. The Autonomy Law has been adapted in view of Spain’s participation in the third stage of European Monetary Union. The aim of this reform is the full integration of Banco de España into the European System of Central Banks (ESCB) and the recognition of the authority of the European Central Bank in the field of monetary policy. The Banco de España supervises solvency and compliance with the specific regulations of the institutions that it is responsible for supervising. The supervision model is based on four elements:

  • Effective and prudent regulation, with rules for accessing and carrying out the activity.
  • Continuous supervision of financial institutions, with receipt and analysis of periodic information and on-site inspections.
  • Corrective measures: Requirements and recommendations, restructuring plans; intervention or replacement of directors.
  • A disciplinary and sanctioning system, which covers institutions and their directors.

This section offers information on the Bank’s supervisory framework and the regulations or criteria for supervision, among other information.

Banco de España’s supervisory function

Reasons for its existence

A classic definition of a bank is a business that receives funds from the public to invest on its own account in loan and credit transactions and, in addition to this function, assumes the risks of liquidity, which arises when maturities are transformed, and of borrower insolvency. However, the activity carried out by credit institutions has developed in line with financial and technological innovation. As a result, the proliferation of new, increasingly complex instruments such as financial futures, options, securitisations, credit derivatives, etc. and the existence of numerous factors that influence daily management (counterpart solvency, interest rates, exchange rates, transaction maturity, procedures, applicable legislation, strategies and politics, etc.) give rise to a broad spectrum of risks that must be subjected to a prudential regulation and supervision process to guarantee confidence in the system. There are more reasons that justify the existence of a special administrative supervisory system for financial institutions, namely:

  • The important role they play in economic development and, in particular, payment systems and financial intermediation.
  • The highly leveraged nature of the banking business, so that impairment of a small percentage of its assets could have a very significant impact on its capital and, consequently, its solvency.
  • The proper functioning of the financial system, its efficiency and stability is in the public’s interest.
  • Additionally, an effective regulation and supervision model promotes the fluidity of financial intermediation mechanisms and generates confidence, on the part of savers, in the institutions.
  • It encourages efficiency in the financial system, since it forces credit institutions to adopt comprehensive and prudent risk management systems, as well as promoting competition and stimulating the adoption of good practices that increase transparency for the customer and the markets in general.
  • Finally, it minimises the impact and cost of banking crises and avoids outbreaks of the “system risk” effect.

In short, banking supervision benefits:

  • The credit institutions themselves, by providing a sound and prudent regulated channel for the pursuit of their business and a system of supervision to supplement that of the directors, shareholders and internal and external auditors.
  • Depositors and investors, who can take their decisions in an environment marked by greater confidence.
  • Society in general, which will have a healthy and efficient financial system.
  • Finally, the aforementioned reasons also justify the existence of two additional functions in relation to public models of supervision: the “lender of last resort” function, whereby the monetary authorities address temporary liquidity problems and, the creation of a legal framework for the Deposit Guarantee Funds.

The supervisory model

Financial institutions are subject to a special regulatory and supervisory scheme that is much stricter than other economic sectors, due to the fact that it receives significant amounts of public funds by intermediating between deposits and loans, and due to the positive effect of a solvent and well-managed financial system on financial stability and economic activity in general. Article 7 of the Law of Autonomy of the Banco de España establishes that it is responsible for promoting the smooth functioning and stability of the financial system and is responsible for supervising, in accordance with the prevailing provisions, the solvency, conduct and compliance of the specific regulations of credit institutions. The supervisory model of the Banco de España is aimed at guaranteeing the effectiveness and efficiency of this function, ensuring that credit institutions are adequately capitalised, that they comply with the regulations in force and prudently manage and control their business and risks. The basic objective of the supervisory process of the Banco de España is to determine and keep the risk profile of each institution updated, as well as adopting the necessary measures to correct it where necessary. This risk profile aggregates the possibility of a credit institution developing solvency, profitability or liquidity problems in the future, into a single variable. In order to achieve its objective, the Banco de España carries out three types of supervisory procedures:

  • Remote monitoring and analysis.
  • Supervisory visits.
  • Continuous monitoring in situ.

The supervision process also comprises four different activities:

  • Auditing, including the valuation of assets and liabilities.
  • Financial analysis.
  • Review of general regulatory compliance.
  • Review and evaluation of risks and solvency.

The method used by the Banco de España is called Supervision of the Banking Activity By Risk Approach (SABER), which provides a uniform and structured framework for rating entities. The elements analysed are represented in a risk matrix, in which the rating, based on the knowledge and opinion of institutions at any given time, takes into account all the relevant supervisory procedures. It is not an automatic rating system, since the different ratings of the risk matrix, in addition to considering objective figures, always include a subjective judgement from the assessment of numerous qualitative aspects such as management and control, which are not quantifiable. The SABER method helps to ascertain which institutions are more likely to develop problems in the future, in order to dedicate additional supervisory resources and prevent future crises. Special attention is paid to those institutions with a supervisory risk profile above a certain rating. The supervision framework for the different institutions is based on the supervisory risk profile and systemic importance of institution, and includes the supervisory strategy and intensity of supervision that must be applied. The supervisory framework is updated as required and always once a year.


Basic objectives

The basic purpose of banking supervision is to safeguard the stability of the financial system, in order to prevent the vital role of the banking sector in the economy from suffering significant shocks or even collapsing. The Banco de España therefore focuses on the solvency and conduct of supervised institutions. This framework establishes the reasonable scope of banking supervision, which has two facets:

  • The objective is to minimise the effects of individual crises; this does not imply that the existence of poorly managed or inefficient institutions can be avoided, as responsibility for the proper functioning of banks falls directly and exclusively on their managers.

Accordingly, the supervisory function of the Banco de España consists of designing and applying systems to analyse institutions, which help to forestall potential crises and to reduce their number, importance and cost.

  • The objective of financial stability requires more than just reducing individual crises and preventing one or several crises from generating a chain of default that could affect the system. It is essential to ensure the smooth operation of payment systems and to establish proper protection against risks of contagion. Consequently, the minimisation of “systemic risk” is certainly a concern (and supervisory task) of the utmost importance, to which the greatest effort is devoted.

In any event, efficiency is strengthened through the response of institutions to competitive forces. This is why banking supervision cannot be interventionist, but must be respectful of market mechanisms and the autonomy of directors and managers in business matters.

In view of its legal mandate, the Banco de España’s supervision is designed to verify compliance with the specific banking provisions for which it is responsible, among which should be highlighted, along with those relating to the financial situation and solvency of the institutions, those relating to customer protection and transparency vis-à-vis the market. In this context, it is important to point out that there are other provisions that do not affect credit institutions alone, and which other authorities are responsible for supervising, in particular:

  • Tax authorities with powers in relation to tax provisions.
  • The National Securities Market Commission (CNMV), with powers in relation to the operating rules of such markets.
  • The Directorate General of Insurance, responsible for provisions relating to insurance contracts and pension funds.
  • The Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offences, with powers in these fields.

Nevertheless, when the Inspection Department of the Banco de España obtains relevant information that could be of interest to other authorities, these are duly informed – where applicable and pursuant to law.

Supervision limits

The supervisory functions of the BE are specified and framed in the light of the objectives mentioned above, which enables them to be distinguished from others with which they sometimes have common features. These include:

  • Management and administration of the institutions. Although directors and managers are responsible for the progress, successes and failures of the institution, the supervisor carries out the necessary analysis and verifications to obtain a reasonable awareness of their solvency and situation. The supervisor therefore uses the most appropriate procedures in light of the situation of each institution, taking into account its size, complexity, risk profile and the possibility that potential difficulties in the institution or default thereby may spread to the financial system.

Such activities do not involve, nor could they involve, exhaustive review of the operations carried out by the institution. That task is only entrusted, exceptionally, to legally appointed administrators, in accordance with the provisions of the LDI, in particularly serious cases.

  • External auditing of accounts. The external auditor is required to check and report whether the annual accounts give a true and fair view of the net worth, financial position and net profit of the company audited. It states its opinion in a report filed at the Mercantile Registry, to ensure that it has adequate publicity and to secure the relevant effects vis-à-vis third parties. The BE also carries out data verification tasks during its on-site inspections as part of the continuous supervision of credit institutions and consolidated groups, but its work is focused on the achievement of the objectives described above, not on supplying information to third parties on the conclusions reached. In fact, with the exceptions expressly provided for, all the data and information in its possession is secret and may not be divulged to third parties (see article 6 of Royal Legislative Degree 1298/1986 of 28 June 1986).

At the same time, external auditors, in accordance with the technical rules that regulate their activity, assess the viability of credit institutions over a one-year time horizon, while the supervisor makes its assessment without any limit. Nevertheless, the annual report of the external auditors furnishes confidence to the system insofar as it is periodic, independent and public, and provides information that is useful to the supervisory authorities themselves.

  • Internal auditing and risk control. Internal auditors review the different areas of the institution, ensuring that the internal controls established by the directors and managers, including the internal rules and procedures in force, are correctly applied. In turn, the supervisor relies on the work of internal auditors, among others, and like them performs checks, but it never takes part in the management of credit institutions.

Investor compensation and deposit guarantee schemes. Financial supervision seeks to give the system the necessary stability, which involves a reduction in the probability of bank crises. In this respect, supervision is, indirectly, a means of protecting depositors and creditors in general. However, the supervisory authorities cannot guarantee, in the strict sense, the transactions of bank customers. To carry out that function, guarantee schemes have been organised in developed countries, which, in the event of crisis, provide for the repayment of deposits or for compensation for the loss of securities entrusted to credit institutions, on certain conditions. The Spanish system is basically regulated by Royal Decree 2606/1996 of 20 December 1996, on Credit Institutions’ Deposit Guarantee Funds. This royal decree envisages the payment of compensation to depositors and holders of securities or financial instruments deposited with credit institutions for the purpose of provision of an investment service.

  • Independent external analysis of credit institutions. Although external analysts and credit rating agencies make an independent assessment of the situation of each institution, for the purpose of guiding the decisions of potential investors, the supervisory process also involves analytical work, but its purposes are limited to the securing by the supervisory authority of the information necessary to take its decisions.

When exercising its supervisory powers the BE is mindful of the objectives and limits of its function. It efficiently assigns its resources and defines its supervision plans taking into account the importance and the risk profile of each institution and the priority that it should afford to the monitoring of its solvency.

In addition, supervisory procedures are based on the principle of prudence and are constructively oriented, as their objective is to solve any problems that may arise in order to ensure the solvency and viability of credit institutions and the stability of the system. This involves carrying out numerous activities with discretion possibly over a long period. In addition, the supervisor must have the agility to take urgent measures in the event that the Bank faces a situation of crisis.

Supervised institutions

The Banco de España supervises solvency and compliance with the specific regulations of the following institutions:

  • Banks.
  • Savings banks.
  • Credit co-operatives.
  • Branches of foreign credit institutions.
  • Specialised credit institutions.
  • E-Money issuing entities.
  • Payment institutions.
  • Mutual guarantee and reguarantee companies.
  • Currency exchange bureaux.
  • Appraisal companies.
  • Company for the management of assets from the restructuring of the banking system (SAREB).

In the case of branches of institutions from European Union (EU) countries, their powers are limited to controlling branch liquidity and compliance with regulations of general interest.

Memorandums of Understanding on supervisory matters

The Memorandums of Understanding (MoU) on supervisory matters are agreements signed between different supervisory authorities establishing the terms of an agreement of co-operation and relationship between those authorities about some regulated issues of common interest, such as: competencies for action, exchange of information, co-operation or the management of potential crises. The Banco de España has signed several bilateral and multilateral MoUs with different Spanish and foreign authorities.

National bilateral MoUs

On a domestic level, the Banco de España has signed bilateral MoUs with the different sector supervisors pursuant to the terms laid down in the Law 44/2002 of 22 November 2002 on Measures to Reform the Financial System. The purpose of these MoUs is to standardise the exchange of information on the respective control and supervisory tasks of financial institutions and to improve the efficiency, effectiveness and quality of supervisory procedures. The Banco de España has signed MoUs with the following national supervisors:

  • The Directorate General of Insurance and Pension Funds of the Ministry for Economic Affairs and Finance (12.03.2004).
  • The National Securities Market Commission (01.06.2009).
  • The Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offences (31.10.2013).

International bilateral MoUs within the EU

These agreements arose as a practical application of the rules of supervision, co-operation and communication established in the Second Banking Directive (Directive 89/646/EEC). Following the derogation of this directive, these agreements are currently contained in the Directive 2013/36/EC and are, in principle, a mere development of this directive and as such, their scope of application was basically that of the branch offices. These MoUs were signed with those countries where, at that moment, there were branch offices that were of some importance to either of the two parties. These MoUs specify how supervisors must notify each other in the event of branches being opened, detailing the content of the notice, and the co-operation in the supervision of liquidity and market risks; they also establish the reporting requirements of the host country supervisor, and they deal with the different aspects with respect to co-operation in the supervisory tasks. The European Union (EU) countries that have signed are the following:

  • Germany (1993)
  • Belgium (1993)
  • France (1993)
  • Netherlands (1994)
  • Italy (1993)
  • Luxembourg (1995)
  • Portugal (1993)
  • Romania (2010)

Additionally, 16 MoUs have been signed under article 115 of Directive 2013/36/EC in order to facilitate and establish effective supervision of European credit institution groups.

Multilateral MoUs within the European Union

Among the efforts of the EU and more precisely of the European Central Bank to attain greater financial stability and to be able to develop the co-operation and co-ordination between the different financial authorities, both for the prevention and the resolution of potential crises, the signing of different co-operation agreements has been promoted, to which the Banco de España is party:

  • MoU between the financial supervisory authorities, central banks and finance ministries of the European Union on cross-border financial stability (2008), extended to all European Economic Area countries in 2010.
  • MoU on high-level principles on co-operation between the banking supervisors and central banks of the European Union in crisis management situations (2003).
  • MoU on the exchange of information among central credit registers for the purpose of passing it on to reporting institutions (2003).
  • MoU on co-operation between payment system overseers and banking supervisors in stage three of economic and monetary union (2001).

Other international bilateral MoUs

The existence of Spanish banking groups conducting financial activities in Latin American countries through local subsidiaries – and the possible inverse situation – entails the need for a better mutual understanding of both the banking system and the supervisory domain and for increasing the co-operation and exchange of information between the authorities entrusted with the prudential supervision in both countries for a better exercise of the respective responsibilities and tasks entrusted to them. With these objectives in mind and conforming to the Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision (1997, revised in 2006 and 2012), the Banco de España has signed bilateral agreements with the supervisory authorities of non-European Union countries. These agreements explain, i.a., the reasons advising the arbitration of co-operation procedures, the general allocation of supervisory responsibilities between host and home supervisor, the minimum content for information sharing, the confidentiality provisions prevailing in each country, the criteria for the exercise by the home supervisor and, under exceptional circumstances, of in situ inspections of the subsidiaries, as well as aspects referring to technical co-operation, operational contacts and bilateral meetings. The countries with which such agreements have been signed are the following:

  • Andorra (2011)
  • Argentina (1998)
  • Brazil (2002)
  • Chile (1998)
  • People’s Republic of China (2006)
  • Colombia (1998)
  • Mexico (2000, including amendment in 2014)
  • Peru (1998)
  • Puerto Rico (2008)
  • Turkey (2013)
  • United States of America (2008)
  • Uruguay (2005)
  • Venezuela (1998)

Exchange controls

Residents must report the opening of new accounts abroad and any transactions carried out through them to Banco de España.

Taxation framework

Details of the Spanish tax system can be accessed (in English) on the site of the Spanish tax authorities (Agencia Estatal de Administracion Tributaria) at www.agenciatributaria.gob.es, by selecting the “Business and professionals” red box in the home page, and then “Non-residents”. An introduction to Spanish corporate taxation in English can also be accessed at the website of Invest in Spain. The general rate of corporate tax is 30%, with small and medium-sized enterprises (SMEs) paying 25%.

Banking service provision

Apart from Banco de España, another big player within the Spanish banking system is the Spanish Banking Association (AEB). Created in 1977 as a professional association which looks after its members’ interests, it has, since then, been involved in standardising banking practices, e.g. with regard to payment instruments. The AEB has become the representative body of the institutions that formed the High Banking Council, and has consequently taken over almost all the duties previously performed by the council. The counterpart of the AEB among savings banks (Cajas de Ahorro) is the Spanish Confederation of Savings Banks (CECA). Constituted in 1928, it used to comprise 45 Spanish savings banks, which were legally constituted as private foundations with a social purpose. Since the financial sector restructuring, there are only 11 institutions left, of which only two remain in their original form. The law does not establish functional differences between these groups, so that they can all engage in any activity permitted under EU law. The differences existing between them are due to their different spheres of action; credit co-operatives are significant in rural areas, but are smaller than commercial and savings banks. The law to reform the framework for savings bank came into force at the end of 2013. It has strengthened the regulatory regime for the savings banks that are still carrying out directly a banking activity by enhancing corporate government rules and banning such banks from undertaking banking activity beyond their home region. It has also transformed former savings banks that indirectly exercised banking activity (through ownership of a commercial bank) into banking foundations. The main banking groups are Banco Santander, Banco Bilbao Vizcaya Argentaria (BBVA) and CaixaBank.

Overview: payment systems

Payment and securities settlement systems are key elements of a country’s economic and financial activity and, broadly speaking, constitute the infrastructure used to move assets within an economy. As a result, the smooth functioning of settlement systems is vital for financial stability. Promoting the smooth functioning of payment systems is one of the Banco de España’s functions. The Bank is also responsible for their oversight, which is the basic tool for identifying and assessing inherent risks, and for verifying that all systems are equipped with proper control mechanisms. This section provides information on the payment and securities clearing and settlement systems that exist in Spain. It also details the main characteristics of projects in this field which cover the Euro area (Single Euro Payments Area, TARGET2-Securities or CCBM2). Furthermore, it contains information on the oversight of payment systems and initiatives for business continuity, as well as on the most relevant aspects of securities clearing and settlement from the perspective of the Banco de España and the Eurosystem as a whole.

Overview: settlement systems in Spain

The Spanish interbank payment system is structured around two systems: TARGET2-Banco de España, for processing large-value payments; and the National Electronic Clearing System (SNCE), for small-value payments. TARGET2-Banco de España came into operation on 18 February 2008 and replaced the Banco de España Settlement System (SLBE). This is the Spanish version of TARGET2 and, like its predecessor, it is a real time gross settlement system (no previous clearing). Settlement takes place in the accounts the participants hold in the common technical platform of TARGET2. The National Electronic Clearing System is managed by Iberpay, a private company owned by the participating credit institutions. This system processes transactions conducted using retail payment instruments: transfers, cheques, direct debits, bills and various other transactions (non-standardised documents, commissions and fees on loans or documented batches, foreign currency exchange, etc.). The settlement of these transactions is conducted in the accounts the participants hold in TARGET2-Banco de España. The securities clearing and settlement systems in Spain are integrated into the holding company called Bolsas y Mercados Españoles (BME) and are as follows:

  • La Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A. Unipersonal – which operates under the trade name of IBERCLEAR. The Spanish securities central depository is responsible for the accounting records and the clearing and settlement of securities admitted for trading on Spanish Stock Exchanges (Securities Clearing and Settlement System), on the Public Debt Book-entry Market (Book-entry System), on the AIAF Bond Market (Securities Clearing and Settlement System-Association of Financial Assets Intermediaries), and on Latibex, the Latin-American securities market in euro. IBERCLEAR manages two settlement platforms – the Book-entry System and the Securities Clearing and Settlement System. The first settles fixed interest securities (public and private) and the second settles securities traded on the stock exchange.
  • The Securities Settlement System of the Barcelona, Bilbao and Valencia Stock Exchanges.
  • MEFF (Spanish Financial Futures Market) – acts as a market and clearing house for futures and options on gilt-edged securities and IBEX 35, as well as futures and share options. MEFFCLEAR is an entity which acts as a clearing central counterparty for transactions on fixed interest securities traded on securities markets between settling members or customers.

All Spanish securities clearing and settlement systems settle using money from the central bank, or in other words the cash settlement of securities transactions is carried out on TARGET2-Banco de España.

Overview: the Single Euro Payments Area (SEPA)

Since the introduction of euro banknotes and coins on 1 January 2002, citizens of the euro area have been paying in cash using the same currency in any of the member states, as easily as they once did in their respective countries using their former national currencies. However, to enable the full implementation of the euro as a single currency in euro area countries it was necessary for the Single Euro Payments Area (SEPA) to become a reality; i.e., to enable individuals and companies to make cashless payments throughout the euro area from a single account located anywhere within the area, using a single set of payment instruments and as easily, efficiently and safely as they can in their home country. However, the objective of SEPA is not only to improve euro payment processes between countries, but also to develop common instruments, standards, procedures and infrastructures. When this project is complete, all payments in the SEPA area will be considered internal and the current differentiation made between domestic and cross-border payments will no longer exist. This project is directed by the European Payments Council (EPC), the main decision-making and coordinating body of the European banking industry in this matter. It is also responsible for defining new instruments and the standards needed for guaranteeing the efficiency of payments in the SEPA. From an institutional point of view, the European Commission and the central banks will collaborate closely during the process, helping to eliminate any possible technical, legal or commercial obstacles, and endorsing the objectives to create a single area. The European Commission has drawn up the Payment Services Directive, which establishes a set of rules applicable throughout the European Union (EU). In July 2013, the European Commission proposed a revised Payment Services Directive (PSD2) and a Regulation on Multilateral Interchange Fees (MIFs) in order to better serve the needs of an effective European payments market. Since January 2008, citizens and companies can order transfers using the new SEPA instrument, in addition to the existing domestic transfers. All payment cards within the SEPA zone have been required to be SEPA-compliant EMV cards since the end of 2010. Migration to SEPA credit transfers and direct debits was finalised on 18 March 2014 and 10 June 2014, respectively. However, national niche payment instruments will remain in use until February 2016.

Retail payment system: the SNCE

The National Electronic Clearing System (SNCE) is the Spanish retail payment system. It was initially managed by the Banco de España, but as a result of the reform of the payment systems in Spain in 2005, this function was transferred to IBERPAY (Sociedad Española de Sistemas de Pago), a private company whose shareholders are the credit institutions participating in the National Electronic Clearing System. The Banco de España is responsible for approving the rules governing the system and its oversight. The National Electronic Clearing System processes transactions made using retail payment instruments (cheques, SEPA transfers, SEPA direct debits, bills and various other transactions). From an operating point of view, it is structured into various sub-systems where the institutions exchange all information concerning payments. Generally speaking, transactions are cleared when the settlement is made for the net amount. Settlement takes place in the accounts the participants hold in TARGET2-Banco de España. The system is based on electronic communication networks and a common infrastructure to exchange transactions. The majority of the sub-systems are decentralised so that the participants exchange information bilaterally. Then, they calculate their bilateral net positions in each sub-system, which are communicated to IBERPAY so that the latter can process their clearing and subsequent settlement. The sub-systems for processing SEPA transactions, however, follow a centralised multilateral exchange mode, or in other words, the institutions send their transactions to the system which processes their clearing and subsequent settlement. The following can be members of the National Electronic Clearing System: the Banco de España – to channel its own retail payments and those of the central government, and banks, savings banks and credit co-operatives, provided that they comply with the regulations and requirements established by the National Electronic Clearing System Regulations.

Retail payment system: Bank payment cards

Bank cards are one of the payment instruments that have acquired most importance over the last few years. With over 730 million units in circulation throughout Europe and an annual transaction volume exceeding 1,900bn euro, today payment cards are one of the most important retail payment instruments in the European Union (EU). In order to get a better understanding of the situation of said market in our country, for several years the Banco de España has regularly monitored its development. This section provides timely information on some of the major questions concerning payment cards, as well as regular and up-to-date statistics which reflect their most important aspects.

The securities clearing and settlement systems

The Eurosystem and the securities clearing and settlement systems Central banks, as promoters of financial stability, pay close attention to the smooth functioning of securities clearing and settlement infrastructures. These systems are key elements for financial markets, as their disruption can affect the entire financial system due to the systemic risk they present. Therefore, central banks are particularly interested in monitoring these infrastructures. However, central banks of the Eurosystem also play a double role in the settlement of securities: as cash settlement service providers, and as users. Securities clearing and settlement systems settle the cash of securities transactions in the payment systems managed by central banks, or in other words, in the cash accounts that participants maintain on their books (central bank money). Any incident or disruption occurring to the securities clearing and settlement system during settlement directly affects the payment system, due to the interdependencies that exist between the two. They also play a relevant role as users. Central banks use securities settlement systems to execute financing, monetary policy and intraday credit operations. Most of these operations are guaranteed by securities registered in said systems. The incorrect functioning of these systems can imply a risk for central banks. Therefore, the Eurosystem periodically assesses securities settlement systems and their links in accordance with the standards established by the Eurosystem itself. Compliance with these standards allows them to be used by central banks when performing securities operations. The Banco de España, as a member of the Eurosystem, participates in all the activities performed by the latter in the securities industry and collaborates with other central banks and the securities regulators in this field. Among other activities, of particular importance is the preparation of certain recommendations for securities settlement systems and central counterparty clearing houses, work of the group formed by the European System of Central Banks (ESCB) and the Committee of European Securities Regulators (CESR) during May 2009. On a national level, the Banco de España closely collaborates with the National Securities Market Commission within the collaboration framework established between both institutions.

TARGET2-Securities

TARGET2-Securities (T2S) is a Eurosystem project, designed to facilitate the centralised settlement in central bank money of securities operations in euro or other currencies. It uses synergies with other Eurosystem utilities, particularly the TARGET2 payment system. T2S is addressed at Central Securities Depositories (CSD), offering them the possibility of using a common service for settling securities transactions. The SCDs will maintain business relations and contracts with participants and continue providing custody and administration services for securities (such as managing corporate rights), as well as other added value services. The T2S platform will allow securities accounts and cash to be grouped on a single platform, thereby offering an integrated settlement service. It is a neutral, borderless settlement platform with state-of-the-art functions. T2S constitutes a major step forward in the delivery of a single integrated securities market for financial services. The European cross-border settlement of securities within this system will become as efficient and cost-effective as domestic settlement. Furthermore, it will complement and facilitate other European initiatives in the securities industry, such as the Code of Conduct on Securities Clearing and Settlement, the harmonisation efforts through the Giovannini process and the Markets in Financial Instruments Directive (MIFID).

Project status

On 8 March 2007, the Governing Council of the European Central Bank (ECB), after assessing the feasibility study conducted by the Eurosystem, concluded that T2S was a feasible project and decided to work on the definition of user requirements, in close collaboration with CSDs and market participants. On 17 July 2008, bearing in mind said requirements and the support received from the market, it decided to launch the T2S project and to provide the resources required. It also decided to assign the development and operation of T2S to the Deutsche Bundesbank, the Banco de España, the Banque de France and the Banca d’Italia (the group of central banks known as 4CB). Of particular note among the documents drawn up are the General Functional Specifications, published on 21 January 2010, and the Detailed Functional Specifications. T2S is expected to come into operation on 22 June 2015.

Governance structure

The T2S project belongs to the Eurosystem and responsibility for the programme therefore falls on the Executive Board and Governing Council, as the highest decision-making bodies, although it is being developed in close collaboration with all market players. The governance structure has evolved as the project has progressed, always based on the principle of transparency, an aspect which the market has valued highly. On 19 March 2009, the Governing Council decided to set up the T2S Programme Board (PB), granting it responsibility for the programme and for relations with the market and the 4CB. The PB submits proposals to the Governing Council regarding strategic project affairs. From the beginning of the project, an Advisory Group was created involving all the central banks, central securities depositories and users, together with other authorities and institutions interested in the project. Its function is to support the project in the definition of user needs and to ensure that the general and detailed specifications meet said needs. It also assesses price policy and harmonisation within the context of securities settlement systems for T2S. The Advisory Group has set up substructures to prepare specific issues. Subsequently, a Contact Group was set up with the CSDs. It is the group responsible for negotiating and preparing the contract between the Eurosystem and the CSDs. Another specific group has likewise been set up to negotiate and draw up the contract with the central banks from outside the euro area. In Spain, as in each country participating in the Eurosystem or in other interested European states, a National User Group (NUG) has been created to identify the concerns, worries, specific characteristics and interests of the national agents involved in T2S. One of the ways to express an opinion is by responding to the mini-consultations presented by the Advisory Group substructures. Furthermore, the ECB holds regular information sessions to report the status of the project to the market as well as any other major issues under discussion at any given time.

The ECB website offers detailed information on various aspects of the project and the groups that make up its governance structure.

Wholesale payment system

TARGET2–Banco de España

On 18 February 2008, TARGET2-Banco de España, a system which forms part of TARGET2, came into operation replacing the Banco de España Settlement System (SLBE). This system serves to make large-value payments in euro with real time gross settlement.

Money laundering

Spain is a member of FATF.

Netting, sweeping and pooling

In Spain, there continues to be a strong development of cash pooling solutions to ease liquidity management. The diversity of systems provided derives basically from the specific requirements of each client in terms of their legal and financial structure and the objectives envisaged for treasury management. Most banks now offer two different cash management systems: zero balance cash concentration and notional pooling. In both systems both resident and non-resident accounts may participate. In the zero balance cash concentration system the centralising account can either be under a resident or a non-resident company, and might have an overdraft facility when required. The tax treatment for the group is important in order to decide which system better fits a company.

Liquidity management

For short-term investments there is increasing demand for commercial paper, which contrasted with the usual trend of investors who mostly preferred treasury bills (letras del tesoro). Short-term investors differentiate not by sector but credit quality; and a minimum “A” rating, or equivalent, by rating agencies is required. Liquidity and return are key factors for investors when deciding whether or not to invest in commercial paper. At the same time, most mutual funds are ratings-driven, investing mostly in A1/P1-rated funds. The preferred maturity is six months, which allows investment funds to avoid marking their portfolios to market on this maturity.

Websites

Government website

Central Bank

Instituto Nacional de Estadística (National Institute of Statistics)

Agencia Estatal de Administración Tributaria (Spanish Tax Authorities)

Invest in Spain

Asociación Española de Financieros de Empresa (ASSET) (Spanish Association of Financial Managers and Company Treasurers)

AEB Asociación Española de Banca (Spanish Banking Association)

CECA: Confederación Española de Cajas de Ahorros (Spanish Confederation of Savings Banks)