I

The prudential supervision of credit institutions and investment firms is aimed at ensuring the stability of the entire Spanish financial system, avoiding the emergence of crises between entities that make up your fabric. One of the key instruments of such financial supervision is the requirement for credit institutions and investment firms of specific levels of own resources, which are technically adjusted to their real needs and risks.

At present, national supervisory public activity is insufficient in a context of increasingly international financial markets, which also require measures to harmonise the criteria. prudential rules on the own resources of the financial intermediaries in each country. This is why, through international harmonization projects, we are trying to solve the problems, particularly of competitiveness and financial stability, which arise from the existence of very different regulations depending on the Member States.

By means of two different laws, one of these harmonisation projects has been incorporated into our system: the Basel II Capital Agreement of 2004, which was subsequently found at Community level in two directives, the Directive 2006 /48/EC of the European Parliament and of the Council of 14 June 2006 on the taking up and pursuit of the business of credit institutions (recast) and Directive 2006 /49/EC of the European Parliament and of the Council of 14 June 2006 of 2006, on the capital adequacy of investment firms and entities in the credit (recast) These two laws are, in the field of credit institutions, Law 36/2007 of 16 November amending Law 13/1985 of 25 May 1985 on investment coefficients, own resources and information obligations of intermediaries. financial system and other rules of the financial system, and, in the field of investment firms, Law 47/2007 of 19 December, amending Law 24/1988 of 28 July on the Stock Market.

This royal decree seeks to develop these two legal norms, making substantial progress in the process of transposition of the two mentioned Community directives.

In general terms, both Basel II and Directives 2006 /48/EC and 2006 /49/EC seek to approximate the risk measurement by the supervisor to determine the own resources requirements, to the mechanisms themselves for the measurement of financial institutions, recognising, in turn, that the treatment of the solvency of credit institutions and investment firms should consist of more than just the setting of minimum ratios, and encouraging the development of appropriate internal risk management procedures. In this way, the main objective of ensuring a sufficient level of solvency and achieving a competitive equality between the entities, Basel II, and the directives that transpose it, also add other purposes, such as making the regulatory capital required more sensitive to real risks, to incentivise better risk management by institutions or not to alter the overall level of capital in the international financial system.

With these objectives, both Basel II and the two directives have developed a set of structured measures on the basis of three mutually reinforcing pillars. Each of these pillars represents a different approach to supervision: the former emphasizes the adoption of uniform rules and determines the minimum capital requirements; the second puts in place an entire supervisory review system. in order to promote the improvement of the internal management of the risks of the institutions, and the third responds to the disciplinary effect of the market scrutiny by obliging the entities to disclose to this information on the key aspects of your business profile, risk exposure and forms of risk management.

II

Within this broad context, the present royal decree addresses the transposition of the above-mentioned directives. However, this is a new part of a partial transposition in so far as the technical specification of a good part of the two Community rules makes it necessary to complete the transposition process in lower-ranking provisions.

The first article is dedicated to establishing a series of definitions common to the two titles of the royal decree.

In Title I, the provisions relating to credit institutions are contained. A first chapter details its scope, where the obligations to be met by credit institutions are laid down. In particular, the level to which the different obligations and requirements apply, whether individual, consolidated or sub-consolidated, is specified.

In Chapter II, the elements which make up the own resources of the credit institutions are laid down; the elements which are deducted from the calculation of these own resources are detailed; certain conditions are laid down for the (a) the ability of certain elements, for example, in relation to the capital of credit unions, silent actions, salvageable shares, preference shares or subordinated financing; and, finally, establishes the distinction between basic own resources, own resources of the second category and auxiliary resources.

Chapter III contains three initial articles and is subsequently divided into four different sections, the link of which is the fact that they are related to the treatment of credit risk in the calculation of the own resource requirements.

The first three articles specify in quantitative terms the requirement of own resources for the risk dealt with in this chapter and set the option for the entities to choose the method of calculation of this risk. a requirement that is more appropriate to its size or degree of sophistication between the standard method and the method based on internal ratings. The purpose of both methods is to obtain the denominator of the solvency ratio that is applied for the credit risk incurred in the transactions of the financial institution concerned. This denominator results from the sum of the value of each of the risk-weighted exposures.

The first section of the chapter contains the specifications of the standard method. The risk weights of the different exposures are calculated within this method by reference to the credit ratings of external rating agencies or, in certain cases, to Export Credit Agencies. The second section of this chapter contains the specifications concerning the method based on internal ratings. This method, the use of which by credit institutions is subject to the prior authorisation of the Banco de España, means that the institutions use for the purposes of determining their own minimum own resources requirements credit institutions for their exposures that they themselves have calculated with internal risk models based on data from their past experience with each type of exposure. The third section of this chapter deals with credit risk mitigation techniques that are acceptable to reduce the risk weight of the different exposures calculated in accordance with one of the two previous sections. Section 4 closes Chapter III with the calculation specifications for one of the exposure categories of particular complexity, positions in securitisations, whether they are as an originator or as an investor in the resulting securities.

Chapter IV deals with the treatment of counterparty risk assumed by credit institutions for the purposes of the calculation of credit risk-weighted exposure amounts, whether they are calculated in accordance with the standard method or according to the internal ratings based method described in the previous chapter.

Chapters V, VI and VII require entities to maintain sufficient own resources to cover three types of risks, respectively. First of all, the risks to credit institutions arising from the possible unfavourable development of exchange rates and the price of gold, second, of derivatives from their positions in financial instruments and commodities which make up your trading book and, finally, the risks of losses due to events that may occur within the entity's own functioning (operational risk).

The limits to the major risks are set out in Chapter VIII. A great risk is that contracted against the same counterparty, when its value exceeds ten per cent of the credit institution's own resources which grants the financing or assumes the risk. From that definition, two essential limits are laid down. First of all, it is fixed as a maximum threshold for the assumption by credit institutions of this type of risk of 25% of its own resources. And, second, it is determined that the aggregate of the big risks does not exceed in any case the eight hundred percent of the own resources of the credit institution.

Chapter IX includes first of all, a series of organisational requirements required of the entities in order to ensure compliance with the regulatory obligations set out in the royal decree. These requirements include the existence of an appropriate organisational structure, the establishment of internal audit and regulatory compliance functions or the obligation to carry out a process of self-assessment of internal capital. On the other hand, the chapter determines the requirements to be met by credit institutions, first of all, to use internal models for the calculation of own resources requirements for position, exchange rate or risk-based risk. raw materials; and, second, in order to be able to apply the trading portfolio treatment. And finally, the basic system of delegation of the provision of services or the exercise of functions of credit institutions is included in this chapter.

Chapter X regulates the disclosure of information to the market by credit institutions, thus collecting the third pillar of the Basel II agreement. Through transparency and disclosure of information, it is intended to achieve a certain market discipline, that is, information disclosure and competition pressure will encourage the adoption of best practices and increase the investor confidence.

Chapter XI contains the measures to be taken, in each case, by groups of credit institutions or credit institutions on an individual basis, if they cease to comply with the own resources requirements that are derived of the royal decree or overpass the limits to the great risks established therein and the obligations that arise in such situations.

III

In Title II, there are provisions relating to investment firms, which are in many cases parallel to those laid down

Title I.

In Chapter I of the scope of application, the obligations to be fulfilled by investment firms are laid down and the level to which the different obligations and requirements apply, be it individual. or consolidated.

In Chapter II, in the same way as in Title I for credit institutions, the form of calculation of the own resources of the general definition of investment firms is established, also specifying the consolidated balance sheet items to be added to calculate the own resources of a consolidable group. Complete this chapter the alternative definition of own resources and limits to their computability, which is applicable to investment firms and groups of the same ones that must meet the requirements of own resources for risks linked to the trading book.

In Chapter III, reference is made to the own resources requirements to be maintained by investment firms. In particular, it is established that own resources must be equal to or greater than the greater than four concepts: the sum of the own resources requirements linked to different risks (risk of a trading book, exchange rate risk, credit risk, operational risk), the fourth part of the structure costs of the preceding financial year, two thirds of the minimum capital required for the establishment of the type of investment firm concerned or the five per thousand of the volume of the managed portfolios.

Chapter IV sets out a number of organisational and risk assessment requirements for the risks to which investment firms ' risks are or may be exposed do not increase from the risks to which they are exposed. Undue form. The chapter also includes the obligation for investment firms to have an internal capital self-assessment mechanism in place. It is also noted that all of these policies and procedures should be summarised in an annual self-assessment report on domestic capital that is referred to the National Securities Market Commission.

In Chapter V, certain aspects of Directive 2006 /49/EC are transposed, which in most cases represent a concrete form of the supervisory powers under the Securities Market Act.

Chapter VI refers to the information to be disclosed to the market by investment firms by means of the document known as "Solvency Information". The frequency with which such a document should be published is established, as well as the possibility that the National Securities Market Commission (CNMV) will determine a higher frequency of disclosure for certain data or information.

Chapter VII contains the measures to be taken, in each case, by groups of financial services entities or investment firms on an individual basis, in case they cease to comply with the requirements of the own resources derived from the actual decree or overpass the limits to the great risks established therein and the obligations arising in such situations.

IV

Two transitional provisions have been introduced in this royal decree from the Community directives which refer to the exemption of certain requirements for the availability of historical data for the use of certain advanced methods of measurement of credit risk, as well as exposures denominated in foreign currency of countries of the European Economic Area.

Likewise, the only derogation contains the repeal of all the rules of equal or lower rank which are contrary to the provisions of the royal decree and, in particular, the repeal of Royal Decree 1343/1992 of 6 November 1992. on the development of Law 13/1992 of 1 June of own resources and supervision on a consolidated basis of financial institutions.

The present royal decree also has nine final provisions. The first and second final provisions amend Royal Decree 2345/1996 of 8 November 1996 on the rules governing the administrative authorisation and solvency requirements of mutual guarantee companies and Royal Decree 1644/1997 of 31 October 1997. on the rules for the administrative authorisation and solvency requirements of the reining companies, respectively. They set out a number of specialisms in this respect from the system of own resources and obligations relating to the solvency of mutual guarantee companies and the reaffientability companies. In particular, it is recognised that refunding, when a number of conditions are met, is an instrument that reduces credit risk and therefore has to lead to a consequent reduction in the own resources requirements of the commitments. which benefit from general reaval or reafirenchment contracts.

A number of specific powers are laid down in the third final provision, which are attributed to the Banco de España and the CNMV; the fourth, fifth and sixth final provisions contain, respectively, the (a) basic of the rule, the qualifications under which it is issued and the powers for its development; the seventh final provision contains the right for the Banco de España to give the necessary implementing provisions for the application of the scheme provided for in the first transitional provision of Law 36/2007; Eighth refers to the incorporation of Community law; and the law is closed with the ninth final provision which establishes the date of its entry into force.

In its virtue, on the proposal of the Minister of Economy and Finance, in agreement with the Council of State and after deliberation of the Council of Ministers at its meeting on February 15, 2008,

D I S P O N G O:

Article 1. Definitions.

1. For the purposes of this royal decree,

following definitions shall apply:

(a) "parent credit institution of Spain" means a Spanish credit institution which has as a subsidiary a credit institution or a financial institution, or has a stake in those entities, and which is not in turn a subsidiary of another credit institution authorised in Spain or a financial holding company incorporated in Spain;

(b) "parent credit institution of the European Union" means a parent credit institution of Spain which is not a subsidiary of another credit institution authorised in any Member State of the European Union or a financial holding company constituted in any Member State of the European Union;

(c) 'financial holding company' means a financial institution whose subsidiary undertakings are, exclusively or principally, credit institutions or other financial institutions, one of which shall be at least one credit institution; and that it is not a mixed financial holding company for the purposes of Article 2.7 of Law 5/2005 of 22 April of the supervision of financial conglomerates and amending other laws of the financial sector;

(d) "parent financial holding company of Spain" means a Spanish financial holding company which is not itself a subsidiary of a credit institution authorised in Spain or a financial holding company incorporated in the Spain;

(e) 'parent financial holding company of the European Union' means a financial holding company in Spain which is not a subsidiary of a credit institution authorised in any Member State, or of another financial holding company established in any Member State;

(f) "consolidated group of credit institutions" shall be the definition of this term as set out in Article 8 of Law 13/1985 of 25 May, of Investment Coefficient, Own Resources and Information Obligations of financial intermediaries.

Without prejudice to the provisions of Article 8 (3) of Law 13/1985, where a credit institution or a consolidated group of credit institutions is in turn dominated by one or more of the financial corporations of the foreign portfolio, based in a Member State of the European Union, without any of them having the same nationality, the dominant entity and its other consolidable subsidiaries, whatever their nationality, they shall integrate a group credit institutions, for the purposes of this royal decree, provided that it is in the presence of any of the following assumptions:

i) that Spanish credit institutions are the only subsidiaries of that nature at Community level.

(ii) That an agreement between the Banco de España and the competent authorities of those other countries, including the country of the host country, would have been reached between the Banco de España and the other Community countries. the dominant entity, by virtue of which the supervision competition is assigned on a consolidated basis to the Banco de España.

(iii) That, in the absence of the agreement referred to in the previous subparagraph, the credit institution of the group with the highest balance sheet has, in the absence of the agreement referred to in the previous subparagraph, the credit institution of the Spanish and other Community countries Spanish nationality or, if the balance sheet totals were equal, was Spanish the credit institution authorised in the first place.

(g) "economic group" means a set of undertakings or entities, irrespective of the activity or social object thereof, constituting a unit of decision, as provided for in Article 42 of the Trade Code.

(h) "parent investment firm of Spain" means an investment firm which has as a subsidiary an investment firm or financial institution or has a stake in those entities and which is not a subsidiary of another entity authorised in Spain or of a financial holding company established in Spain.

(i) 'parent investment firm of the European Union' means a parent investment firm in Spain, which is not a subsidiary of another entity authorised in any Member State of the European Union, or of a company financial portfolio established in any Member State of the European Union;

(j) 'group of investment firms': without prejudice to Article 86 of the Law 24/1988 of 28 July 1988 on the Securities Market, the consolidated groups of investment firms are those of the financial groups in which any of the following conditions are met:

i) That an investment firm controls one or more financial institutions.

(ii) the dominant entity is an entity whose principal activity is to have holdings in investment services companies.

iii) That a natural person, a group of persons acting systematically in concert, or a non-consolidated entity controls several entities, all of which are investment services companies.

When an investment firm or a consolidable group of investment firm is, in turn, dominated by one or more foreign entities, based in a Member State of the European Union, whose the principal activity consists of having a stake in an investment firm or a financial institution, without any of them having the same nationality, the dominant entity and its other consolidable subsidiaries, whichever is the nationality, they shall integrate a consolidated group of investment firm, for the purposes of this royal decree, provided that it is in the presence of any of the following assumptions:

1. When Spanish-nationality investment firms are the only subsidiaries of that nature at Community level.

2. When, in the case of Spanish subsidiary investment firms and other Community countries, an agreement would have been reached between the National Securities Market Commission and the competent authorities of those other countries. countries, including the host country of the parent company, by virtue of which supervision competence is assigned on a consolidated basis to the National Securities Market Commission.

3. When, in the absence of the agreement referred to in the previous subparagraph, the investment services company of the group with a view to the existence of the investment services companies of Spain and other Community countries the highest balance sheet had Spanish nationality or, if the balance sheet totals were equal, the investment firm authorised in the first place was Spanish.

2. Where reference is made in this royal decree to credit institutions, the provisions of Articles 2 to 10 shall be laid down to determine the basis on which they are obliged to comply with the corresponding obligations.

TITLE I

Provisions concerning credit institutions

CHAPTER I

Scope

Article 2. Scope.

1. All credit institutions shall comply with the following:

(a) Chapters III, IV, V, VI, VII,

b) Chapter VIII, and

(c) Article 66.

2. The Spanish subsidiaries of credit institutions may request from the Banco de España that except for the application of paragraph 1, provided that its parent is subject to the supervision of the Banco de España, the subsidiary is included in the supervision in the consolidated basis of that parent credit institution and the following conditions are met in order to ensure that own funds are properly distributed between the parent undertaking and the subsidiaries:

(a) that there is no foreseeable practical or legal impediment to the immediate transfer of own funds or the repayment of liabilities by the parent undertaking;

b) the parent undertaking carries out a prudent management of the subsidiary and has declared itself to be a guarantor of the commitments entered into by the subsidiary, or that the risks in the subsidiary are not significant;

(c) the assessment, measurement and risk control procedures of the parent undertaking include the subsidiary; and,

d) the parent undertaking holds more than 50% of the voting rights attached to the shares or shares of the subsidiary or has the right to appoint or terminate the majority of the members of the administrative board or equivalent organ of the subsidiary.

3. The Spanish credit institutions subsidiaries of Spanish financial holding companies may apply to the Banco de España for the exception of the application of paragraph 1, provided that the parent is subject, together with the subsidiary, to supervision on a basis consolidated by the Banco de España, and the other conditions set out in the preceding paragraph are met in order to ensure that own funds are properly distributed between the parent company and the subsidiaries.

4. The parent credit institutions subject to supervision on a consolidated basis by the Banco de España may request the Bank of Spain to exempt them from the provisions of paragraph 1, provided that the following conditions are met to ensure the own funds are properly distributed between the parent company and the subsidiaries:

(a) that there is currently no foreseeable material, practical or legal impediment to the immediate transfer of own funds or to the repayment of the liability to the parent undertaking; and,

(b) that the relevant risk assessment, measurement and control procedures for supervision on a consolidated basis cover the parent credit institution.

5. The Banco de España may authorise the parent credit institutions to incorporate in their calculation the requirement referred to in paragraph 1, their subsidiaries, provided that:

(a) the assessment, measurement and risk control procedures of the parent undertaking include the subsidiary;

(b) the parent undertaking holds more than 50% of the voting rights attached to the shares or shares of the subsidiary or has the right to appoint or terminate the majority of the members of the board of directors or body equivalent of the subsidiary;

(c) relevant exposures or liabilities, including capital, of subsidiaries are in respect of such parent entities; and,

(d) the parent credit institution fully demonstrates to the Bank of Spain the circumstances and the provisions, including those of a legal nature, for which no relevant practical or legal impediment to the institution exists. immediate transfer of own funds or repayment of liabilities where the subsidiary is due to its parent undertaking.

Article 3. Individual requirements for Spanish credit institutions that are dependent on a consolidated group of another Member State.

In addition to the provisions of Article 2, Spanish credit institutions which are subsidiaries of a consolidated group of credit institutions authorised and supervised in another Member State of the European Union shall comply with the provisions laid down in this Article. in:

(a) Article 16; and,

(b) Article 68.

Article 4. Individual requirements for independent credit institutions and for entities excluded from consolidation.

In addition to the provisions of Article 2, any credit institution not integrated into a consolidated group of credit institutions and any credit institution belonging to one of those groups which is not included in the consolidation of in accordance with Article 8 (5) of Law 13/1985, it shall comply with the provisions of

(a) Article 16; and,

(b) Article 68.

Article 5. Requirements on a consolidated basis for consolidable groups of credit institutions.

Consolidated groups of credit institutions shall comply, on a consolidated basis, with:

(a) Article 16;

(b) Chapters III, IV, V, VI, VII;

(c) Chapter VIII;

(d) Article 66; and,

e) Article 68.

Article 6. Requirements on a sub-consolidated basis.

subsidiary credit institutions holding a credit institution, a financial institution or an asset management company as subsidiaries in a third State or a holding in those companies shall comply with the following conditions: subconsolidated

(a) Article 16;

(b) Chapters III, IV, V, VI, VII;

(c) Chapter VIII;

(d) Article 66; and,

e) Article 68.

Article 7. Calculation of the requirements for credit and counterparty risk payable.

The Bank of Spain is enabled to establish the specific conditions for the calculation of own resources for the calculation of the credit and counterparty risk requirements payable to the parent credit institutions and subsidiaries, on an individual or sub-consolidated basis.

Article 8. Branches of credit institutions based in third countries.

In the case of branches of credit institutions based in third countries, the limits to the concentration of risks shall be calculated on the own resources of the foreign entity as a whole. The branch shall inform the Bank of Spain twice a year of its own resources, calculated in accordance with its national legislation. If the branch is unable to provide this data, the calculation will be made with the own resources elements located in the branch.

Article 9. Report on the implementation of Article 2.4.

The Bank of Spain shall report the application of Article 2.4 to the other competent authorities of all other Member States of the European Union. In particular, it will publish the following:

(a) the criteria it applies to determine that there are no material, practical or legal impediments to the immediate transfer of own funds or the repayment of liabilities;

(b) the number of parent credit institutions benefiting from the application of 2.4, and, among them, the number of entities incorporating subsidiaries located in a third country; and,

c) in aggregate:

(i) the consolidated total amount of own funds of the parent credit institution benefiting from the application of 2.4, which are held by subsidiaries located in a third country;

(ii) the percentage of the consolidated total of own funds of credit institutions benefiting from the application of 2.4, represented by own funds held by subsidiaries located in a third country; and,

(iii) the percentage of the minimum consolidated total of own funds required of parent credit institutions benefiting from the application of 2.4, represented by own funds held by subsidiaries located in a third country.

Article 10. Report on the implementation of Article 2.5.

When the Bank of Spain applies Article 2.5, it shall regularly, and at least once a year, inform the competent authorities of all other Member States. If the subsidiary is in a third State, the Banco de España shall provide the same information to the competent authorities of that third State.

In particular, the Banco de España will make the following public:

(a) the criteria it applies to determine that there are no material, practical or legal impediments to the immediate transfer of own funds or the repayment of liabilities;

(b) the number of parent credit institutions benefiting from the application of Article 2.5, including the number of entities incorporating subsidiaries located in a third State;

c) in aggregate:

(i) the total amount of own funds of the parent credit institutions benefiting from the application of Article 2.5, held by subsidiaries located in a third State;

(ii) the percentage of the total own funds of parent credit institutions benefiting from the application of Article 2.5, represented by own funds held by subsidiaries located in a third State; and,

(iii) the percentage of the minimum total of own funds required of the parent credit institutions benefiting from the application of Article 2.5, represented by own funds held by subsidiaries located in a third Status.

Article 11. Enable the Banco de España.

The Bank of Spain may specify the scope of this Title I, as well as define the required entity of each group to meet the requirements on a consolidated or consolidated basis.

CHAPTER II

Defining the own resources of credit institutions and their consolidable groups

Article 12. Composition of own resources.

1. For the purposes of Title II of Law 13/1985, the own resources of credit institutions shall comprise the following elements:

(a) The share capital of public limited liability companies, excluding the share of the same referred to in point (f) below; the funds and the equity shares of the savings banks, as well as the social fund of the The Spanish Confederation of Savings Banks and the participative shares of association issued by it; the contributions to the social capital of the credit unions, and the endowment fund of the branches of foreign credit institutions.

(b) The effective and express reserves, including the participation fund and the reserve fund of the savings banks and their confederation.

Until the application of results takes place, credit institutions may incorporate into this item the part of the results of the exercise that is intended to be applied to reserves, in accordance with the general requirements that establish the Banco de España to ensure the effectiveness of the resources applied.

For the purposes of this royal decree, it is understood to be included in the effective reserves and express the Fund for the compulsory reserve of credit unions.

(c) reserves of regularisation, updating or revaluation of assets, as well as capital gains that are accounted for within the net worth by application to the assets of the fair value criterion, provided that they are subject to the accounting rules in force for credit institutions. The Banco de España may agree, taking into account the volatility of the different types of assets, a reduction of up to two thirds in its gross amount.

(d) The accounting balance of the generic coverage corresponding to the risk of clients ' insolvency, i.e. linked to the losses inherent or not specifically assigned by the risk of credit risk, as well as in the case of institutions using the internal ratings based approach to calculate the own resources requirements for credit risk, the excess over the expected losses in their exposures to the value adjustments impairment and provisions related to such exposures, provided that they are subject to accounting rules in force for credit institutions, and with the limits that the Banco de España may agree with a general nature in relation to the risks that have been used as a basis for the calculation of the coverage, weighted in the form that determine according to Chapter III of this royal decree.

e) The funds of the benefit-social work of savings banks, those of their Confederation and those of education and promotion of credit unions, provided that they are permanent in nature. It is understood that they have such a character that they are materialized in real estate.

(f) The share of the share capital corresponding to the shares without a vote and to the salvageable shares whose duration is not less than that provided for in point (h) below for subordinated financing, regulated in the sections 5. and 6. of Chapter IV of the recast of the Law of Companies, approved by the Royal Decree of Law 1564/1989, of December 22.

g) The preferred shares issued as provided for in the second provision of Law 13/1985.

(h) subordinated financing received by the credit institution whose original period of time is at least five years; if the date of its expiry has not been fixed, a notice of withdrawal shall be required for the withdrawal of the less, five years. Subordinated financing is defined as those which, for the purposes of credit ranking, are placed behind all the common creditors.

(i) Subordinated financing of an indeterminate duration which establishes the possibility of a deferral of interest, and of the application of the debt and the interest to be paid to the absorption of losses without the need for proceed with the dissolution of the entity.

j) In order to provide exclusive coverage to the requirements of own resources resulting from the application of Chapters V and VI of this Title, subordinated financings with an original period of at least two years, and in which neither the principal nor the interest can be paid where there is a deficit of own resources.

For inclusion among own resources, the items listed in points (a), (f), (g), (h), (i) and (j) shall be computed in the part that is actually disbursed.

2. In the own resources of a consolidated group of credit institutions, reserves in companies shall be integrated, in addition to the elements indicated in the preceding number resulting from the consolidation of the corresponding accounting statements. consolidated, as well as, in accordance with the conditions and limits which the Banco de España may establish in general in order to ensure its effective availability for the group in conditions commensurate with its particular nature, shares representing the minority interests of the companies in the consolidated group.

Article 13. Deductions from own resources.

1. They shall be deducted from the own resources of the credit institutions:

(a) The negative results of previous financial years and the current financial year, as well as the intangible assets integrated into its assets.

(b) Shares, contributions or other transferable securities, such as own resources of the entity in its possession, as well as, in the terms and conditions established by the Bank of Spain, those held by the Bank of Spain undertakings of the group or have been the subject of any transaction or commitment, whether of funding or other order, which would prejudice their effectiveness in covering losses of the entity or group.

(c) Shares in other credit institutions and non-integrated financial institutions in the consolidable group, which are greater than 10% of the capital of the investee.

(d) Subordinated financing or other transferable securities as own resources issued by the participating entities referred to in the preceding letter and acquired by the entity holding the units.

(e) units in other credit institutions and financial institutions other than those referred to in point (c) above, and not integrated in the consolidable group, and subordinated financing issued by them and acquired by the entity or group holding the shares, in the party where the sum of all the shares exceeds 10% of the credit institution's own resources, calculated after the deductions to which they relate points (a) and (b) of this paragraph.

(f) Equity holdings in insurance, reinsurance or other entities whose principal activity consists in taking shares in insurance institutions, under the conditions laid down by the Bank of Spain, the extent of the integrated management and internal control of the investee, if applicable, in the event that it is integrated into the consolidated accounts of the credit institution. To this end, the definition of participation indicated in Article 185.1 of the Law on Limited Companies shall be defined and, in any event, shall be considered as such higher than 20 percent of the capital of the investee.

g) The excess of the shares in non-financial entities referred to in Article 10 of Law 13/1985, and Article 16 of this royal decree.

h) In the case of credit institutions calculating risk-weighted exposure amounts in accordance with Section 2 of Chapter III, the Bank of Spain shall determine the appropriate deductions from own resources in respect of for the treatment of expected losses.

(i) The amount of exposures in securitisations that are assigned a risk weight of 1250% and the amount of which has not been weighted in accordance with Section 4. of Chapter III, and calculated in accordance with this set.

(j) In the case of a credit institution originator of a securitisation, the net profits arising from the capitalisation of future income from the securitised assets shall be excluded from the item specified in the letter (b) provided that they constitute a credit enhancement of the positions of the securitisation.

2. The deductions referred to in the preceding number shall be made, where appropriate, by their value in the books of the holding entity.

3. The own resources of a consolidated group of credit institutions shall be deducted from the items set out in the preceding number resulting from the consolidation of the corresponding accounting statements.

4. Where shares are temporarily held in another credit institution, financial institution, insurance undertaking or reinsurance undertaking or insurance holding company, in the framework of a financial assistance operation for the purpose of the reorganisation and rescue of that financial institution The Bank of Spain may allow derogations from the deductions referred to in points (c) to (f) of paragraph 1.

Article 14. Conditions for the computability of own resources.

1. For the purposes of its consideration as own resources, the capital of credit unions shall be composed of contributions from partners and associates who meet the following requirements:

(a) Your remuneration shall be conditional upon the existence of net results or, subject to the authorisation of the Bank of Spain, sufficient reserves to satisfy it.

b) Its duration will be indefinite.

(c) Your eventual reimbursement shall be subject to the conditions arising from Article 7 (4) of Law 13/1989, of 26 May, of credit unions.

2. The share of the share capital corresponding to the silent shares and the salvageable shares whose duration is not less than that provided for in paragraph 4 below for subordinated financing, as laid down in Sections 5 and 6 of the Chapter IV of the Recast Text of the Companies Act, as well as any other type of preferred stock or financial instruments that present hybrid characteristics of capital and debt issued by foreign consolidable entities, distribute among the basic and complementary own resources referred to in Article 15 in accordance with the conditions and limits to be established by the Banco de España on the basis of its financial characteristics and, in particular, its:

a) full disbursement;

(b) remain, without prejudice to the fact that the instrument may contain an early repayment option in favour of the issuing institution, provided that such a clause cannot jeopardise the ability of the institution to continue having the own resources generated by the instrument in the event of financial difficulties;

(c) capacity to absorb losses, both in case of liquidation, and without the need to proceed to it; and,

d) full flexibility in the remuneration of the instrument, in cases where the institution may experience financial difficulties.

For their part, the preferred shares shall be subject, at all times, for the purposes of their computability as basic own resources, to the limit of 30% referred to in point (i) of the second provision of Law 13/1985, or to which the Bank of Spain establishes in accordance with that rule, and which may be less when the issue provides for incentives for early repayment or greater in cases in which through conversion into shares or other incentives are encouraged to capitalization the entity or group.

3. In order to be considered as own resources, the reserves, funds and provisions referred to in points (c), (d) and (e) of 12.1 shall, to the satisfaction of the Bank of Spain, comply with the following requirements:

(a) To be freely usable by the institution to cover the risks inherent in the exercise of the banking activity, even before any losses or losses have been determined.

b) Reflect on the accounting of the institution, having been verified its amount with a favourable report by the external auditors of the institution and communicated such verification to the Banco de España.

c) Be duty free or reduce the amount of taxes that are likely to be attributable to them.

4. The subordinated financing referred to in Article 12 (1) (h) shall, for the five years preceding its expiry date, reduce the amount of such funds as own resources at a rate of 20% per year, until the remaining period is less than one year. year, at which time they will cease to be computed as such.

Subordinated financing may not contain redemption, redemption or early repayment terms, except in the event of liquidation of the issuing institution, and without prejudice to the Bank of Spain's being able to authorise the debtor's early repayment if the solvency of the institution is not affected.

The Banco de España may set the general terms and conditions to the effect to regulate both the incentives applicable to early repayment and the repurchase of such instruments.

5. The Bank of Spain shall be responsible for the rating and inclusion in the own resources of a credit institution or a consolidated group of credit institutions of all types of preferred stock or preferred shares or financing. subordinated, issued in accordance with rules that are applicable, issued by the entities themselves or by instrumental companies and other subsidiaries.

The Banco de España will take care in particular that the legislation of the country where the issue is made, or the own interposition of the instrumental or subsidiary companies, do not weaken the effectiveness of the requirements and limitations. established for those instruments, nor their value as the group's own resources, and may limit, as a general rule, the computability of these instruments as the group's own resources on the basis of such circumstances, without any there are elements of discrimination.

Article 15. Limits on the computation of own resources.

1.

for the purposes of the following paragraph:

(a) The basic own resources of a credit institution shall consist of the sum of the items listed in points (a), (b) and (g) of Article 12.1 net of losses, own shares and intangible assets.

For their part, the basic own resources of a consolidated group of credit institutions shall include, with their sign, the elements referred to in the preceding paragraph resulting from the consolidation of the corresponding states. accounting; the shares representing the minority interests, in the party that are available to be computable in accordance with the provisions of Article 12.2.

(b) The second-category own resources of a credit institution or a consolidated group of credit institutions shall be made up of the remaining items of the credit institution except those referred to in point (a) of Article 4 (1) of CRR. next.

(c) The ancillary own resources of a credit institution or a consolidated group of credit institutions shall be made up of the subordinated financing referred to in Article 12.1.j

2. They shall not be eligible as own resources of the second category of a credit institution or a consolidated group of credit institutions:

(a) The excess of the items referred to in Article 12.1.h) and other instruments equivalent to them in accordance with Article 14.2, on 50% of the core own resources of the consolidable entity or group.

(b) The excess of the own resources of the second category on 100 per cent of the core own resources of the entity or the consolidable group, in the part where that excess has not been disposed of in accordance with the provisions laid down in point (a) of this paragraph.

3. However, own resources of a second category exceeding the limits referred to in the preceding subparagraphs of this paragraph may be included among the ancillary own resources. The excess of the ancillary own resources in respect of the own resources requirements required of the institution or group for the risks required in accordance with those linked to Chapters V and VI of this royal decree shall not be counted as own resources.

4. In any case, the ordinary capital and reserves, individual or consolidated, net of losses and own shares, and the representative units of minority interests that are available to be computable shall exceed 50% of the core own resources of the credit institution or the consolidable group of credit institutions.

5. The Banco de España may authorise credit institutions and consolidable groups of credit institutions to compute as their own resources, transitional and exceptionally, the excess over the limits set out in this paragraph.

Article 16. Qualifying holdings in non-financial institutions.

1. In accordance with the provisions of Article 10 of Law 13/1985, they shall be deducted from the own resources of the consolidated groups of credit institutions, or from credit institutions not belonging to one of these groups, the largest of which The following amounts:

(a) The total amount of their qualifying holdings in undertakings which do not have the character of financial institutions or of their financial institutions, in the part where the total amount exceeds 60% of the total own resources of the consolidable group or the credit institution holding the holdings.

(b) the amount of qualifying holding in a single undertaking or the sum of qualifying holdings in undertakings belonging to the same economic group, provided that the undertakings are not of a financial character or of such financial corporations, in the share of each holding or sum of shares exceeding 15% of the own resources of the consolidable group or of the credit institution holding the holdings.

2. For the purposes of the preceding number, a consolidated group of credit institutions, or a credit institution not belonging to one of these groups, shall be deemed to hold a qualifying holding when, in relation to the undertaking investee:

(a) owns at least 10 percent of its capital or voting rights, including the ownership through entities controlled by the consolidable group or by the credit institution, or through persons acting on behalf of one or the other, and that of what is arranged in concert with any other person; or,

b) can exert a significant influence on its management. It shall be understood that this possibility exists where at least 20% of the members of the investee company may be designated, or have actually been, by the consolidable group or the credit institution holding the holding.

3. For a financial assistance operation carried out by a consolidated group of credit institutions, or a credit institution not belonging to one of these groups, to allow the exclusion of a qualifying holding from the limitations to which This article shall be required:

(a) that the transaction affects a company in which the consolidable group or the credit institution, or other entities in their respective economic groups, previously held a holding of no less than 5 percent of the capital; they were permanently involved in their management; or they were creditors with a share in the total of the company's liability liabilities of more than 25%.

b) That the affected company has been declared a contest, or experiences serious and permanent solvency problems.

c) That, in the opinion of the Banco de España, there are no alternative possibilities to guarantee the interests of the credit institution in the company in difficulty.

The Bank of Spain will set the maximum period of exclusion on the basis of the company's consolidation programme. That period may not exceed four years.

4. Where the consolidated group or the credit institution holds a qualifying holding as a result of the underwriting of a securities issue, the non-inclusion of that holding in the deduction provided for in this Article shall not exceed a year from the acquisition of the securities by the entity.

5. The non-inclusion in the deduction set out in this article of shares held on its own behalf, but on behalf of third parties, shall require the existence of a written contract of mandate and shall be incompatible with the existence of a participation the same undertaking by the consolidable group or by the credit institution or, where appropriate, by other entities in their respective economic groups.

CHAPTER III

Own resources requirements for credit risk

Article 17. Solvency ratio.

The own resources requirements for credit risk and the risk of dilution, as referred to in Article sexto.1.a) of Law 13/1985, shall be 8% of the total of the risk-weighted exposure of the institution. calculated in accordance with the following Article.

Article 18. Choice of calculation method.

The value of the exposures weighted by the risk referred to in the previous Article shall be calculated in accordance with the standard method referred to in Section 1 of this Chapter or, if authorised by the Bank of Spain, according to the method based on internal ratings, as referred to in Section 2. of this Chapter.

Article 19. Definition of exposure.

For the purposes of this Chapter, an exposure means any asset item, and any item included in the credit institution's order accounts that incorporates credit risk.

Section 1. Standard Method

Article 20. Exposure value.

1. The exposure value of an asset item shall be its balance sheet value and the exposure value of a item included in the order accounts shall be the following percentage of its book value:

a) 100 percent if it is a high risk item;

b) 50 percent if it is a medium risk item;

c) 20 percent if it is a medium/low risk item; and,

d) 0 percent if it is a low risk item.

The Banco de España will determine which items in the order accounts should be considered for these purposes, as well as the classification of these in each of the risk categories of this article.

The Banco de España may, in such cases as it determines, increase the exposure value by adjusting appropriate volatility when an exposure takes the form of securities or commodities sold, delivered or provided in accordance with an operation with a repurchase agreement or a loan operation of securities or commodities or of securities or of commodities on loan, and of financing operations with margin replenishment.

2. The exposure value of a derivative instrument shall be determined in accordance with Chapter IV taking into account the effects of the novation contracts and other clearing arrangements. The exposure value of transactions with a repurchase agreement, the lending operations of securities or commodities or the taking of securities or of commodities on loan, of transactions pending settlement with a credit institution Central counterparty or deferred settlement and collateral financing operations may be determined in accordance with Chapter IV or Section 3 of this Chapter.

The Bank of Spain shall determine the derivative instruments to which this paragraph applies and the conditions under which the provisions of Chapter IV shall apply, where applicable.

3. Where collateral or similar instruments are used for the credit risk coverage of an exposure, its value may be modified in accordance with the provisions of Section 3 of this Chapter.

Article 21. Categories of exposure to credit risk in the standard method.

For the purposes of this Section, each credit risk exposure shall be assigned to one of the following categories:

(a) exposures to central governments or central banks;

(b) exposures to regional governments or local authorities;

(c) exposures to public sector entities and non-profit institutions;

d) exposures to multilateral development banks;

e) exposures to international organisations;

(f) exposures to institutions, that is, to credit institutions and investment firms;

g) exposures to companies;

h) retail exposures;

i) exposures secured with real estate;

j) exposures in default;

k) high risk exposures;

l) covered bonds;

m) positions in securitisations;

n) short-term exposures to institutions and companies;

(o) exposures to collective investment institutions; or,

p) other exposures.

The Bank of Spain will determine the criteria for assigning different exposures to each category.

Article 22. Exposures to central governments or central banks.

1. The exposures to the General Administration of the State, the Banco de España, and to the other central banks and administrations of the other European Economic Area countries, denominated and financed in their national currencies, As against the European Central Bank, they will be weighted to 0 percent.

2. The remaining exposures assigned to the category of central governments and central banks shall be weighted in accordance with the credit quality method of the counterparty, which shall be established by the Banco de España. For this purpose, account shall be taken of the existence or otherwise of an assessment of the credit quality of the counterparty by a credit rating agency recognised as provided for in Articles 27 to 30.

3. However, where the competent authorities of a third country applying supervisory and regulatory arrangements at least equivalent, in the view of the Banco de España, to those applied in the European Union, assign a lower risk weight to the Credit institutions may, in the same way, weigh these exposures in the same way as those referred to in paragraph 2 to exposures with their central government and the central bank denominated and financed in the national currency.

Article 23. Exposures to regional and local authorities.

1. The public debt issued by the autonomous communities and local Spanish entities shall be weighted as the exposures to the General Administration of the State.

2. The remaining exposures allocated to the category of regional governments and local authorities shall be weighted using the weighting-based method that is at risk to the central government of the country to which they belong, taking into account Therefore, in the form indicated by the Banco de España, the credit quality level assigned by the aforementioned credit rating agencies should be available.

3. However, where the competent authorities of the European Economic Area or of a third country applying supervisory and regulatory arrangements at least equivalent, in the case of the Banco de España, to those applied in the European Union, its exposures to regional governments and local authorities the same treatment as exposures to its central government, credit institutions may in the same way be able to weigh the risks with such exposures. regional administrations and local authorities.

Article 24. Exposures to public sector entities.

1. The exposures to the self-employed and the business public entities governed by Title III of Law 6/1997 of 14 April of the organization and operation of the General Administration of the State, and against the other entities governed by public law linked to or dependent on the General Administration of the State, vis-à-vis the management entities, common and mutual services of Social Security and in front of the Institute of Official Credit may receive the same treatment the exposures to the State administration.

The exposures to the self-employed and public entities dependent on the autonomous communities provided that, in accordance with the applicable laws, they are similar in nature to that provided for in the General administration of the State, and vis-à-vis public bodies or entities of administrative nature dependent on Spanish local authorities, provided that they are not for profit and develop administrative activities of their own such entities shall receive the weighting applicable to the administration of which they are dependent.

For these purposes, the Banco de España will disclose public sector entities that have to receive the same treatment, in terms of risk weight, as the administration of which they are dependent.

2. The remaining exposures assigned to the category of public sector entities and non-profit institutions shall be assigned a risk weight of 100 per cent. However:

(a) where the competent authorities of another Member State grant exposures to certain entities in their public sector the same treatment as exposures to institutions, or exposures to exposures in the case of the central administration in whose jurisdiction they are incorporated, credit institutions may weigh such exposures in the same manner; and,

(b) where the competent authorities of a third country applying supervisory and regulatory arrangements at least equivalent, in the view of the Banco de España, to those applied in the European Union, grant exposures to the to certain public sector entities the same treatment as exposures to institutions, credit institutions may in the same way weigh their exposures to those public sector entities.

Article 25. Retail exposures.

The exposures referred to in point (h) of Article 21 shall meet the following conditions:

(a) The exposure shall be assumed against one or more natural persons or a small or medium-sized enterprise.

(b) The exposure shall be part of a significant number of exposures with similar characteristics, so that the risks associated with that type of loan are substantially reduced.

(c) and the total amount due to the credit institution, its parent undertaking and its subsidiaries, including any previous exposure in default, by the client or group of clients linked to each other and obliged to pay, excluding any contingent claims or commitments secured with residential real estate, shall not, according to the data available to the credit institution, exceed one million euro. The credit institution shall take reasonable steps to obtain such data.

Values cannot belong to the retail exposure category.

The Bank of Spain will establish the circumstances and how financial leasing payments may be included in this retail exposure category.

Article 26. Risk weight of exposures in standard method.

1. For the calculation of risk-weighted exposure amounts, all exposures shall be subject to risk weights, unless they are deducted from own funds. The application of the risk weights shall be based on the exposure class to which the exposure is assigned and on its credit quality.

Without prejudice to the foregoing article:

(a) the credit quality may be determined by reference to the credit assessments of external rating agencies, in accordance with Articles 27 to 29, or credit assessments of credit rating agencies. export credit referred to in Article 30.

(b) the Banco de España shall determine the risk weights to be applied to each exposure in accordance with the principles set out in this paragraph, as well as exposures that may be deducted from the resources own.

2. For the purposes of applying the risk weights referred to in paragraph 1, the exposure value shall be multiplied by the risk weight specified or determined in accordance with this Section.

3. Credit institutions shall calculate the risk weights of exposures to institutions in accordance with the weighting-based method that is at risk from the central government of the country to which they belong, taking into account it therefore counts, in the form indicated by the Banco de España, the level of credit quality assigned by the aforementioned rating agencies where it exists.

4. By way of derogation from paragraph 1, where an exposure is subject to credit risk coverage, the risk weight applicable to that item may be amended in accordance with Section 3 of this Chapter.

5. In the case of securitisation positions, risk-weighted exposure amounts shall be calculated in accordance with Section 4. of this Chapter.

6. With the exception of exposures giving rise to liabilities in the form of the items referred to in points (a) to (j) of Article 12, credit institutions may assign a risk weight of 0% to their exposures to a credit institution. a counterparty which is its parent undertaking, its subsidiary or a subsidiary of its parent undertaking, or an undertaking which is in one of the situations listed in Section I of Chapter II of Royal Decree 1815/1991 of 20 December 1991 approving the Rules for the formulation of annual accounts, provided that the following conditions are met:

(a) the counterparty shall be an institution or financial holding company, a financial institution, an asset management company or ancillary services undertaking subject to appropriate prudential requirements;

(b) the counterparty shall be fully included in the same consolidation as the credit institution;

(c) the counterparty shall be subject to the same risk assessment, measurement and risk control procedures as the credit institution;

(d) the counterparty shall be established in Spain; and

e) shall not currently exist or be foreseeable that there is any material or legal impediment to the immediate transfer of own funds or the repayment of liabilities of the counterparty to the credit institution;

7. With the exception of exposures that give rise to liabilities in the form of the items referred to in points (a) to (j) of Article 12.1, credit institutions may assign a risk weight of 0% to exposures to exposures in the form of counterparties belonging to the same institutional protection system as the lending credit institution, provided that, in the case of the Banco de España, the following conditions are met:

(a) the counterparty shall be a credit institution, a financial holding company, a financial institution, an asset management company or ancillary services undertaking subject to appropriate prudential requirements; and established in the same Member State;

(b) that the credit institution and the counterparty have reached a contractual or legal arrangement of liabilities that includes the credit institution and the counterparty that protects those institutions and, in particular, that it guarantees its liquidity and solvency in order to avoid bankruptcy where necessary, hereinafter referred to as the ' institutional protection system

;

(c) that the arrangements ensure that the institutional protection system may grant the necessary support in accordance with its tasks, from funds available for immediate purpose;

(d) that the institutional protection system has adequate and uniform mechanisms for monitoring and classification of risks, which provide a comprehensive overview of the risk situation of each Member States and the institutional system of protection as a whole, with the corresponding possibilities for subject to influence; such systems shall adequately control exposures deemed to be in default;

e) that the institutional protection system carries out its own risk assessment and communicates it to its members;

(f) the institutional protection system shall compile and publish once a year either a consolidated report comprising the balance sheet, the profit and loss account, the status report and the system risk report institutional protection as a whole, be it a report comprising the aggregated balance sheet, the aggregate profit and loss account, the status report and the risk report of the institutional protection system as a whole;

g) that members of the institutional protection system who wish to leave it are obliged to notify it at least 24 months in advance;

h) to eliminate the multiple use of eligible items for the calculation of own funds, as well as any inappropriate constitution of own funds among members of the institutional protection system; and,

i) that the institutional protection system is based on a broad participation of credit institutions with a predominantly homogeneous activity profile.

The Bank of Spain will also be able to require that the entities under the same institutional protection system be linked to the instructions that the management bodies may establish in order to ensure the solvency and liquidity of the system.

Article 27. Recognition of external rating agencies.

1. In accordance with Article 6 (2) of Law 13/1985, only an external credit rating may be used to determine the risk weight of an exposure in accordance with this Chapter, where the credit rating agency is external qualification to be recognised by the Bank of Spain as eligible for those purposes, in accordance with the criteria laid down for this purpose, and assessing, in any case, the objectivity, independence, transparency and ongoing review of the the methodology applied, as well as the credibility and acceptance in the market of the ratings credit made by that agency.

2. Where an external rating agency is recognised as eligible by the competent authorities of another Member State of the European Union, the Banco de España may recognise the same external rating agency as eligible without leading to Your own assessment process.

3. The Banco de España will make public an explanation of the recognition process and a list of eligible external rating agencies.

Article 28. Association of external ratings with credit quality.

1. The Banco de España will determine to what degree of credit quality the corresponding credit ratings of an eligible external rating agency should be associated. Such determinations shall be objective and consistent; and may take into account the guides which, on this issue, approve the international bodies or committees active in banking regulation and supervision.

2. Where the competent authorities of another Member State of the European Union have made a determination pursuant to paragraph 1, the Banco de España may recognise that determination without carrying out its own process of determining the credit quality level.

Article 29. Use of external credit ratings.

1. The use of credit ratings by external rating agencies for the calculation of the risk-weighted exposure amounts of a credit institution shall be consistent and consistent with the principles established by the Bank of Spain. Credit ratings will not be used selectively.

2. Credit institutions shall use requested credit ratings. However, with the authorisation of the Banco de España, they may use unsolicited ratings.

Article 30. Credit rating agencies for export.

1. Credit ratings carried out by an export credit agency shall be recognised by the Banco de España to determine the risk weight of exposures to central governments or central banks, referred to in Article 21 (a), if they fulfil one of the following conditions:

(a) which consists of a consensus risk score of export credit agencies participating in the "Agreement on Guidelines on Export Credits with Official Support" of the Organization for the Cooperation and Economic Development (OECD); or,

(b) the export credit agency publishes its credit assessments and subscribes to the methodology agreed by the OECD, and that the credit assessment is associated with one of the eight minimum export insurance premiums (MEIP) established in the methodology agreed by the OECD.

2. Exposures subject to a credit assessment carried out by an export credit agency and recognised for the purposes of risk weight shall be assigned a risk weight in accordance with the system determined by the Bank of Spain.

Section 2 Internal Ratings Based Method

Article 31. Authorization for use of the method based on internal ratings.

1. In accordance with Article 18, credit institutions shall require the authorisation of the Banco de España to calculate its risk-weighted exposure amounts by using the method based on internal ratings.

2. Such authorisation shall be granted only where the Banco de España has guarantees that the credit institution's systems for the management and rating of exposures at risk of credit are sufficiently integrated in the management itself. the risk of the institution as well as, in particular, where the following rules are met:

(a) the credit institution's rating systems shall provide for a significant assessment of the characteristics of the debtor and of the transaction, a significant differentiation of risk and exact quantitative estimates; and consistent risk;

(b) internal ratings and estimates of default and loss used for the calculation of own resource requirements and associated systems and procedures will play an essential role in the process of risk management and decision-making, as well as credit approval, internal capital allocation and corporate governance functions of the credit institution;

(c) the credit institution shall have a credit risk control unit responsible for its rating systems and duly independent and free from undue influence;

(d) the credit institution shall collect and store all relevant data in order to effectively support its credit risk measurement and management process; and,

e) the credit institution shall document its rating systems, as well as the reasoning on which they are based, and validate such systems.

To this end, the Banco de España will determine the minimum requirements necessary to understand how the rules of the previous paragraph are met.

When a parent credit institution of the European Union and its subsidiaries or a parent financial holding company of the European Union and its subsidiaries use the method based on internal ratings in a unified manner, The Bank Spain may allow the parent institution and its subsidiaries to be considered together to meet those minimum requirements.

3. Any credit institution applying for the use of the internal ratings-based method shall demonstrate that it has used, for the exposure categories in question, rating systems that are in general consonance with the minimum requirements determined by the Banco de España for the purposes of measurement and internal risk management for at least three years before being admitted to using the internal ratings based method.

4. Any credit institution applying for the use of own estimates of loss in the event of default or conversion factors shall credit that it has calculated and used own estimates of loss in the event of default and conversion factors in general, in accordance with the minimum requirements for the use of the own estimates of these parameters to be determined by the Banco de España, for at least three years before being admitted to use estimates of the loss in case of default or conversion factors.

5. Where a credit institution ceases to comply with the requirements set out in this Section, it shall submit to the Banco de España a plan for the timely return to compliance or credit, to the satisfaction of the Banco de España, that the effect of such Non-compliance is irrelevant. Otherwise, the authorisation granted for the use of the method based on internal ratings shall be revoked, without prejudice to the imposition of the penalties which, where appropriate, are applicable.

6. For the purposes of the authorisation referred to in paragraph 1, where the method based on internal ratings is to be used by a parent credit institution of the European Union and its subsidiaries, or by the parent financial holding company of the European Union and its subsidiaries, the Banco de España shall cooperate closely with the competent supervisory authorities of the European Union, in accordance with the provisions of Article 10 (2) (c) of Law 13/1985.

Article 32. Application of the method based on internal ratings.

1. Without prejudice to Article 36, credit institutions shall apply the method based on internal ratings to all exposures.

With the authorization of the Banco de España, such application may be carried out in succession to the various categories of exposure referred to in Article 33, within the same business unit, in different business units. the same group or with a view to the use of own estimates of losses in the event of default or conversion factors to calculate the risk weights of exposures to companies, institutions, central governments and central banks.

In the case of the retail exposure class referred to in Article 33, the application of the internal ratings-based approach may be carried out in succession to the various categories of exposure determined by the Bank. from Spain.

2. The successive application of the method based on internal ratings referred to in paragraph 1 shall take place within a reasonable period of time, which shall be agreed with the Bank of Spain. The Bank of Spain shall determine the conditions under which such application shall be carried out, in such a way as to ensure that the flexibility permitted by paragraph 1 is not used selectively in order to reduce the minimum requirements for capital in respect of those categories of exposure or business units that are yet to be included in the internal ratings-based method, or in the use of own estimates of loss in the event of default or conversion factors.

3. Credit institutions using the internal ratings based approach for any exposure category shall at the same time use this method for the variable income exposure class.

4. By way of derogation from paragraphs 1 to 3 of this Article and in Article 36, credit institutions which have obtained the authorization referred to in Article 31 to use the method based on internal ratings shall not return to apply Section 1 of this Chapter for the calculation of risk-weighted exposure amounts, except for justified reasons and with the authorisation of the Banco de España.

5. By way of derogation from paragraphs 1 and 2 of this Article and in Article 36, credit institutions which have obtained the permit referred to in Article 34.5 to use their own estimates of loss in the event of default and Conversion factors shall not revert to the use of loss values in the event of default or conversion factors referred to in Article 34.4, except for justified reasons and with the authorisation of the Banco de España.

Article 33. Categories of exposure to credit risk in the method based on internal ratings.

1. Credit institutions shall allocate their exposures to one of the following categories:

(a) exposures to central governments and central banks;

b) exposures to institutions;

(c) exposures to companies;

d) exposures to retailers;

e) variable income values;

f) positions in securitisations; or,

g) other assets that are not financial assets.

2. The following exposures shall be considered exposures to central governments and central banks:

(a) exposures to regional governments, local authorities or public sector entities that are considered exposures to central governments in accordance with Section 1 of this Chapter; and,

(b) exposures to multilateral development banks and international organisations that enjoy a 0% risk weight in the standard method as established by the Bank of Spain.

3. The following exposures shall be considered exposures to institutions:

(a) exposures to regional governments and to local authorities that are not considered exposures to central governments in accordance with Section 1 of this Chapter;

(b) exposures to public sector entities that are considered exposures to institutions in accordance with Section 1 of this Chapter; and,

(c) exposures to multilateral development banks that do not enjoy a 0% risk weight in the standard method as established by the Bank of Spain.

4. In order to belong to the retail exposure class referred to in paragraph 1 (d), the exposures shall meet the following criteria:

(a) the exposures shall be taken against one or more natural persons or a small or medium-sized enterprise, in the latter case on condition that the total amount due to the credit institution and the parent companies and their subsidiaries, including any previous exposure in arrears, by the client or group of clients linked to each other and forced to pay, but excluding contingent claims or commitments secured with residential real estate, not exceeds one million euro as the credit institution has established, which must have adopted measures reasonable to confirm such an end;

(b) the credit institution shall manage them within its risk management systems in a consistent manner over time and in a similar manner;

(c) may not be individually managed in the manner of exposures in the category of exposures to companies; and,

(d) each shall represent an exposure of a significant number of managed exposures in the same way.

The Bank of Spain will establish the circumstances and how financial leasing payments may be included in this retail exposure category.

5. The following exposures shall be classified as variable income exposures:

(a) capital instruments that grant a residual and subordinated right on the issuer's assets or income; and,

b) debt exposures the economic substance of which is similar to the exposures specified in point (a)

6. In the category of exposures to companies, credit institutions shall separately identify exposures that have the following characteristics as specialised financing exposures:

(a) the exposure is assumed against an entity specifically created to finance or operate with physical assets;

(b) the contractual arrangements give the lender an important degree of control over the assets and rents they generate; and,

(c) the main source of the obligation to repay the obligation is the income generated by the assets financed, rather than the independent capacity of a commercial undertaking taken as a whole.

7. Without prejudice to the above paragraphs, the methodology used by the credit institution to allocate exposures to different categories shall be appropriate in accordance with the rules established by the Bank of Spain and consistent with the time.

8. The Bank of Spain shall specify the criteria referred to in this Article and determine, where appropriate, the additional criteria necessary to assign the different exposures to each category.

Article 34. The risk weight of exposures in the method based on internal ratings.

1. Risk-weighted exposure amounts belonging to the categories referred to in Article 33 (1) (a) to (e) or (g), unless they are deducted from own funds, shall be calculated in accordance with the rules determined by the Bank of Spain.

2. The Bank of Spain shall base the rules for the calculation of risk-weighted exposures in the relevant parameters relating to the exposure in question. These shall include the probability of default, the loss in the event of default, the effective maturity and the value of the exposure. The probability of default and loss in the event of default may be considered separately or jointly.

3. In the case of exposures falling within the categories referred to in Article 33 (1) (a) to (d), credit institutions shall use their own estimates of the probability of default in accordance with Article 33 (1) of the CRR. 31, in the terms established by the Bank of Spain.

Also, for exposures falling within the category referred to in Article 33 (1) (d), credit institutions shall use their own estimates of loss in the event of default and the factors of conversion in accordance with Article 31.

4. In the case of exposures belonging to the exposure classes referred to in points (a) to (c) of Article 33 (1), credit institutions shall use the loss values in the event of default and conversion factors. to determine the Bank of Spain.

5. By way of derogation from the above paragraph, for all exposures falling under the exposure classes referred to in points (a) to (c) of Article 33 (1), the Banco de España may permit the institutions to credit uses own estimates of loss in the event of default and conversion factors, in terms that you establish for this purpose.

6. By way of derogation from paragraph 2, the Banco de España may authorise the use of alternative methods for the calculation of risk-weighted exposure amounts for the credit risk of all exposures belonging to the variable income category as referred to in Article 33 (1) (e). In addition, the calculation of the risk-weighted exposure amounts of the specialised financing exposures may be calculated in the terms established by the Bank of Spain. The Banco de España shall publish guidance on the manner in which credit institutions should assign risk weights to specialised finance exposures and approve the methodologies for the allocation of institutions.

7. The risk-weighted exposure amounts for the category of positions in securitisations referred to in Article 33 (1) (f) shall be calculated in accordance with Section 4. of this Chapter.

8. In cases where exposures are in the form of shares or units in collective investment institutions, the Banco de España may require credit institutions to deal with the underlying exposures when calculating the exposures. risk-weighted exposure amounts and the expected loss amounts in accordance with the methods set out in this Section, where they meet the criteria that the Bank of Spain establishes for this purpose. The Bank of Spain shall determine the method of calculation of those parameters for credit institutions that do not meet the conditions for using the methods set out in this Section.

9. The Bank of Spain shall also determine the method of calculation of the risk-weighted exposure amounts and the expected losses to be used by credit institutions when exposures in the form of shares or units in institutions collective investment does not meet the criteria established by the Bank of Spain under the previous paragraph or the credit institution has no knowledge of all the underlying exposures of the collective investment institution.

Article 35. Calculation of expected loss.

1. The calculation of the expected losses corresponding to the exposures belonging to each of the categories referred to in Article 33 (1) (a) to (e) and (g) shall be made in accordance with the methods established by the Bank of Spain.

2. The expected losses corresponding to the securitised exposures referred to in Article 33 (1) (f) shall be calculated in accordance with Section 4. of this Chapter.

Article 36. Subsidiary use of the standard method.

By way of exception, credit institutions to which the method based on internal ratings is permitted to be used for the calculation of risk-weighted exposure amounts and expected losses corresponding to one or more more categories of exposures may apply on a permanent basis the provisions of Section 1 of this Chapter to those exposures which are subject to the prior authorisation of the Bank of Spain and in accordance with the provisions of the Bank of Spain effect.

Section 3. Rd Credit Risk Reduction

Article 37. Credit risk mitigation techniques.

The credit institutions referred to in this Section shall be those that may benefit from a reduction in their exposures to credit risk as a result of the use of reduction techniques. These techniques include both the use of collateral as well as personal guarantees, including the use of collateral for credit derivatives.

Article 38. Use of credit risk mitigation techniques.

Credit institutions using the standard method or the method based on internal ratings, but do not use their own estimates of loss in the event of default and conversion factors according to the Articles 34 and 35, may recognise the reduction of credit risk in the calculation of risk-weighted exposure amounts for the purposes of Article sexto.1.a) of Law 13/1985 or as expected losses relevant for the purposes of the calculation referred to in the Article 13.h).

Article 39. Requirements to be met by credit risk reduction techniques.

1. The technique used for credit risk coverage, together with the measures and provisions adopted and the procedures and policies applied by the credit institution, shall be subject to a substantive legal regime which, in all case, provide for and guarantee its enforcement in any of the jurisdictions whose right would apply.

2. Credit institutions shall take all appropriate measures to ensure the effectiveness of credit risk coverage and to address the associated risks.

3. In the case of credit risk hedges by collateral or similar instruments, to be eligible for recognition, the assets used as collateral shall be sufficiently liquid, and their value over time, sufficiently stable, to provide an adequate degree of certainty as to the credit risk coverage obtained, taking into account the method used to calculate risk-weighted exposure amounts and the degree of recognition allowed.

4. Similarly, in the case of hedge of credit risk by means of collateral or similar instruments, the credit institution shall have the right to liquidate for its own benefit or to take the ownership of the assets on which it is based. the protection in the event of the debtor's default, insolvency or contest, or other credit events referred to in the transaction's documentation. Where the insolvency or insolvency situation applies, where appropriate, to a depositary of the collateral, the institution shall have the right to call for the change of depositary or to take control of the collateral concerned. The degree of correlation between the value of the assets on which the protection is based and the credit quality of the debtor shall not invalidate the effectiveness of the credit protection.

5. In the case of credit risk hedges by means of personal guarantees, in order to be eligible for recognition, guarantors must be sufficiently solvent, and the protection arrangements shall be subject to a legal regime. (a) a substantive law which, in any case, provides for and guarantees its execution in any of the jurisdictions the right of which is applicable to provide an adequate degree of certainty as to the coverage of the credit risk obtained, taking into account the method used to calculate risk-weighted exposure amounts and the degree of recognition allowed.

6. For the purposes of this Article, the Banco de España shall determine the characteristics of assets and compensation arrangements for eligible assets and liabilities such as collateral or similar instruments; the characteristics of the guarantors and the types of Eligible protection agreement as personal guarantees; as well as the remaining minimum requirements that all of them must meet for effective recognition.

Article 40. Effects of the reduction of credit risk.

1. Where the requirements of Article 39 are met, the calculation of the risk-weighted exposure amounts and, where appropriate, of expected losses, may be modified by the use of credit risk mitigation techniques in terms of the Banco de España.

2. No exposure in respect of which a credit risk reduction is obtained shall produce a risk-weighted exposure or expected loss greater than an identical exposure for which there is no reduction in the risk of credit. credit.

3. In cases where the risk-weighted exposure amount already takes into account the coverage of the credit risk provided by a real or personal guarantee, in accordance with the standard method or, where applicable, the method based on ratings internal, such coverage shall not be taken into account again for the purposes of this section.

Section 4. Entitled

Article 41. Calculation of the risk weight for the securitisation.

1. The calculation of the credit risk-weighted exposure amounts for securitisation positions referred to in Article 21.m), for credit institutions using the standard method, or the articu-33.1.f), for institutions that are: use the method based on internal ratings, shall be carried out in accordance with the provisions of this Section, but in the case of originator institutions it will be necessary for the securitisation to effectively transfer a significant credit risk of the securitised exposures.

2. The Bank of Spain shall determine the different methods to be used for the calculation of the credit risk-weighted exposure amounts of securitisation positions or the own resources requirements that cover the credit risks assumed in the securitisations, taking into account their value adjustments or provisions, in accordance with the principles set out in this section. For this purpose, it shall take into account whether credit institutions use, in the case of originator institutions, or use, in the case of sponsor or investor entities, the standard method or the method based on internal ratings to the time to calculate the own resources requirements for the credit risk of the securitised exposures, as well as the possible membership of the exposures and the securitisation positions to the trading book.

3. By way of derogation from paragraph 1, originator institutions may at any time opt out of the calculation of the credit risk weighted exposure amounts corresponding to the positions held in the securitisation. In this case, or where the effective transfer requirement of a significant part of the credit risk is not met, the originator institutions shall continue to calculate the credit risk-weighted exposure amounts and, where applicable, the expected losses corresponding to the securitised exposures, according to the method that they previously applied to the securitisation and shall not be required to calculate the risk-weighted exposure amounts for any position that can maintain in that securitisation.

Article 42. Securitisation of exposures by originator credit institution.

1. Securitisation credit institutions which effectively transfer a significant part of the credit risk associated with the securitised exposures, as provided for in paragraph 2 of this Article, may, in accordance with the with what the Bank of Spain establishes:

(a) in traditional securitisations, in which the securitised exposures are transmitted to a special purpose vehicle for securitisation which segments the credit risk of those in tranches with a different ranking and which are independently transmitted, excluding from the calculation of risk-weighted exposure amounts, and, where appropriate, expected losses, to securitised exposures by calculating risk-weighted exposures in their place corresponding to the positions which, if any, were retained in the securitisation; and,

(b) in synthetic securitisations, in which the credit risk segmentation of the securitised exposures and their transmission is achieved through the use of credit derivatives or eligible personal guarantees in accordance with as referred to in Article 39 (6), the calculation of the risk-weighted exposure amounts and, where applicable, expected losses, in respect of the securitised exposures taking into account the reduction in the credit risk obtained through the guarantees received.

2. For the purposes of paragraph 1, the effectiveness of the transmission of credit risk shall require that the legal instruments used are valid in all relevant jurisdictions, that the contractual clauses, as is the case of the options for extinction or early repayment, do not question the transfer of the risks and the originator does not provide the securitisation with support that exceeds its contractual obligation, or any other improvements that are intended for purposes reduce potential or actual losses for investors

3. For the purposes of paragraph 1 of this Article, it shall be understood that there is a significant transfer of the credit risk when a relevant part of the most concentrated tranches has been transmitted to third parties. agreement with the order of precedence established, the credit risk.

In accordance with this general principle and the other conditions it establishes, the Banco de España will determine whether the credit risk transfer produced by the securitisation can be considered as significant.

Article 43. Risk weight of positions in securitisation.

1. For the calculation of the risk-weighted exposure of a securitisation position, the risk weights shall be assigned to the exposure value of the position according to the credit quality of the position, which may be determined by reference to the credit rating of an external rating agency recognised for such purposes or otherwise producing similar results, as determined by the Bank of Spain.

2. Where exposures exist in different tranches of a securitisation, the exposure in each tranche shall be considered as an independent securitisation position. Credit hedge providers to positions in a securitisation shall be considered to hold positions in the securitisation. Securitisation positions shall include exposures to securitisations resulting from contracts of interest rate or foreign currency.

3. Where a securitisation position is subject to credit risk hedges by means of collateral or similar instruments or with personal guarantees, the risk weight applicable to that position may be modified in accordance with the Section 3 of this Chapter.

4. Without prejudice to the possible deduction of securitisation positions from own resources, as provided for in Article 13.1 (i), the remaining risk-weighted positions shall be included in the total of the exposures weighted by risk of the credit institution within the meaning of point (a) of Article sexto.1 of Law 13/1985.

Article 44. Use of external credit risk ratings on securitisation.

1. A credit rating carried out by an external rating agency may only be used to determine the risk weight of a securitisation position in accordance with Article 43, where the credit rating agency has been recognized as eligible for these purposes by the Banco de España.

2. The Banco de España shall only recognise an external rating agency as eligible for the purposes of paragraph 1 where it has obtained guarantees of compliance with the requirements laid down in Article 27 and that it has a capacity demonstrated in the field of securitisation, which may be evidenced by its wide acceptance in the market.

3. If an external rating agency has been recognised as eligible by the competent authorities of other Member States of the European Union, or even third countries, for the purposes of paragraph 1, the Banco de España may recognise that external rating agency as eligible for those purposes without carrying out its own assessment process.

4. The Banco de España will make public an explanation of the recognition process and a list of eligible external rating agencies.

5. To be used for these purposes, the credit ratings of an eligible external rating agency shall comply with the principles of credibility and transparency established by the Banco de España.

6. The use by institutions of credit ratings carried out by external rating agencies to calculate credit risk-weighted exposure amounts of securitisation positions in accordance with Article 43 shall be consistent and according to what the Bank of Spain establishes. Credit ratings shall not be used selectively.

Article 45. Credit quality level allocation.

1. When applying risk weights to securitisation positions, the Bank of Spain shall determine at which credit quality levels relevant for the purposes of the calculation of the credit risk-weighted exposure amounts to be associated with the securitisation positions. corresponding credit ratings of an eligible external rating agency. Such correspondence shall be conducted in an objective and consistent manner.

2. Where the competent authorities of another Member State of the European Union, or even third countries, have carried out a correspondence in accordance with paragraph 1, the Banco de España may recognise it without carrying out its own process of assignment.

CHAPTER IV

Counterparty risk

Article 46. Counterparty risk.

1. For the purposes of the calculation of credit risk-weighted exposure amounts in accordance with the provisions of Sections 1 and 2 of Chapter III with respect to the standard method and the method based on internal ratings, as appropriate, provisions contained in this Chapter shall apply for the determination of the exposure value of:

(a) derivative instruments determined by the Bank of Spain,

(b) forward transactions with a repurchase agreement,

(c) the lending operations of securities or commodities,

d) transactions with deferred settlement, and,

e) the financing operations of the guarantees.

2. The Bank of Spain shall fix the methods and criteria applicable by credit institutions for the calculation of the corresponding counterparty risk exposure values.

3. By way of derogation from the above paragraph, the counterparty risk exposure value shall be equal to zero in the following assumptions:

(a) In the case of credit default swaps sold, included in the investment portfolio, where they are treated as a credit protection provided by the credit institution and are subject to resource requirements own to cover the credit risk for the total notional amount of the contract.

(b) In general, where the counterparty is a central counterparty that has a clearing mechanism that requires the provision of adjustable security deposits on a daily basis according to the transactions and the the evolution of the contributions that fully cover the risk in their agreements.

For these purposes, the Banco de España may inform the institutions, by drawing up lists or by any other means it deems appropriate, of the central counterparties which, in their view, do not count with mechanisms that provide an adequate guarantee.

(c) When institutions purchase protection through a credit derivative to cover an exposure of their investment portfolio or an exposure subject to counterparty risk. In such cases, the exposure value of the credit derivative for the purposes of counterparty risk shall be zero, and institutions may calculate their own resource requirements for the exposure covered under the terms of the Chapter III, Section III, as regards the effects of hedges based on personal guarantees and credit derivatives, or, subject to the authorisation of the Banco de España, in accordance with the rules of double default or the rules for the the internal estimation by institutions of the effects of the guarantees of signature and credit derivatives which, in development of Chapter III, be provided.

Article 47. Contractual compensation at counterparty risk.

In terms of and with the requirements determined by the Bank of Spain, credit institutions may use the following contractual netting agreements as risk mitigation techniques: contracts (a) bilateral clearing between a credit institution and its counterparty, other bilateral netting agreements between the credit institution and its counterparty and contractual cross-product clearing arrangements.

CHAPTER V

Own resource requirements for exchange rate risk

Article 48. Risk of exchange rate and positions in gold.

For the purposes of Article 6 (1) (c) of Law 13/1985, credit institutions shall, at all times, have sufficient own resources to cover the risk of exchange rates and the risk of positions in gold which assume.

Such own resources will be additional to those required by other obligations set forth in this royal decree.

Article 49. Standard method of calculation of own resources requirements for exchange rate and gold risk.

When the sum of the entity's net foreign currency position and its net gold position exceeds 2 percent of its total own resources, the entity will multiply the sum of its net foreign currency position and net position in 8 percent gold in order to calculate the own resources requirements against the exchange rate risk.

The Bank of Spain will establish the method for the calculation of net positions in foreign currency and gold.

Article 50. Exceptions.

By way of derogation from the foregoing Article, the Banco de España may exempt from the calculation of net positions in foreign currency and gold, closed or offset positions in foreign currencies that are closely correlated, or which are subject to a legally binding intergovernmental agreement aimed at reducing the fluctuations of those currencies with respect to others covered by the same agreement. Where appropriate, these exempted cleared positions would be subject to the application of a coefficient of less than 8% and greater than or equal to 1,6%, to be determined by the Banco de España.

Article 51. Calculation of own resources requirements for exchange rate and gold risk.

By way of derogation from Article 48 and on the basis of Article 69, the Banco de España may authorise institutions which, when calculating their own resources requirements for the exchange rate risk and the positions in gold, use their own internal risk management models instead of the standard method or in combination with it.

To this end, credit institutions shall comply with the minimum qualitative conditions laid down in Article 69.

The Banco de España will carry out an individualized evaluation of these models to verify their rigor in the measurement of the exchange rate risk, and can revoke the authorization of the model in case the evaluation does not result. satisfactory for these purposes.

CHAPTER VI

Risk of the trading book

Article 52. Scope of application.

1. Credit institutions shall calculate the own resources requirements for the risk of the trading book referred to in Article sext.1.b) of Law 13/1985, in accordance with this Chapter.

2. The provisions of this Chapter shall not apply where the size of the credit institution's trading book meets the following requirements:

(a) the trading book value does not exceed, normally, more than 5 percent of its total activity;

(b) the total of the positions in the trading book does not normally exceed the amount of EUR 15 million; and,

(c) the trading book does not exceed in any case 6% of its total activity, and the total of the positions in the trading book does not exceed in any case the amount of EUR 20 million.

Similarly, the provisions of this Chapter shall not apply if credit institutions do not comply with the general requirements for the application of the trading book treatment contained in Article 70 of this royal decree, and the requirements relating to the process of valuation of positions and the inclusion of internal hedges established by the Bank of Spain.

On the other hand, the Banco de España may admit the non-application of the provisions contained in this Chapter VI, at the request of the credit institution, when, in accordance with the provisions of (a) and (b) above, exceed the figures set out in point (c), at least 75% of the days observed for the purposes of this Article.

The Bank of Spain shall determine the applicable rules for the calculation of the proportions referred to in paragraph 2.

When the provisions of this chapter do not apply, the calculation of the own resources requirements shall be performed in accordance with the rules contained in Chapters III, IV, and V of this royal decree.

Article 53. Composition of the trading book.

1. The trading book of an institution shall consist of all positions in financial instruments and commodities held by it, either for the purpose of trading or for the purpose of hedging other elements of the trading book, which must be be free from restrictions for negotiation or for their coverage.

2. Positions held for trading purposes are those held with the intention of reselling them in the short term or with the intention of benefiting from actual or expected short-term differences between purchase and sale prices, or other variations of the prices or interest rates. The term positions includes own positions, those arising from the provision of services to customers and those of market creation.

3. The intention to negotiate shall be demonstrated by the strategies, policies and procedures established by the institution to manage the position or portfolio in accordance with Article 70.1.

4. Domestic hedges may be included in the trading book when they meet the requirements established by the Bank of Spain. Internal coverage means a position that significantly or completely compensates for the existing risk component of a position not included in the trading book or a set of positions.

Article 54. Own resource requirements for trading portfolio risk.

1. The own resources requirements of the trading book shall be determined by the sum of the following items:

(a) Requirements for the price risk of fixed income positions, including convertible instruments.

b) Requirements for price risk of positions in shares and units.

c) Requirements for the price risk of units in collective investment institutions.

d) Requirements for price risk of commodity positions.

e) Requirements for risk of settlement and delivery, without prejudice to their requirement for the overall position of the balance sheet on the terms that the Bank of Spain, if any, determines.

(f) Counterparty credit risk requirements linked to the trading book. The calculation of these requirements shall be carried out in accordance with the provisions of Chapter IV of this Title.

g) Requirements for exchange rate risk and gold positions.

2. The Banco de España will determine the methods of calculating the own resources requirements listed in the previous section.

Article 55. Specialties for certain exposures.

1. For the purposes of calculating the own resources requirements for specific risk of positions in negotiable debt instruments, a weighting of 0% shall be assigned to debt securities issued or guaranteed by government. central banks, central banks, international organisations, multilateral development banks or regional or local public authorities of the Member States, where such securities are denominated and financed in national currency.

2. The Banco de España is enabled to establish a specific risk requirement for exposures in covered bonds.

Article 56. Big risks in the trading book.

By way of derogation from Chapter VIII of this Title, institutions which calculate the own resources requirements for their trading book under this Chapter shall monitor and monitor their own resources. large exposures as provided for in Chapter VIII.

Article 57. Assessment of positions for information purposes.

1. All positions in the trading book shall be subject to the prudent valuation rules specified by the Bank of Spain, in accordance with Article 69 of this Royal Decree. These rules shall require institutions to ensure that the value applied to each of the positions in the trading book reflects the current market value. This value shall contain an appropriate degree of certainty in view of the dynamic nature of the positions in the trading book, the requirements of prudential soundness and the way in which capital requirements are operated and targeted in respect of the positions of the trading book.

2. If it is not possible to have market prices immediately available, the Banco de España may not apply the provisions of paragraph 1 and require institutions to apply other valuation methods, subject to prior approval by the Bank of Spain. part.

CHAPTER VII

Own resources requirements for operational risk

Article 58. Operational risk.

1. Credit institutions shall calculate the own resources requirements for operational risk as referred to in Article sexto.1 (d) of Law 13/1985, by any of the methods referred to in this Article.

2. For these purposes, the risk of loss shall be taken to mean the risk of loss due to the inadequacy or failure of procedures, staff and internal systems, or external events, including legal risk.

3. The methods of calculation of own resources requirements for operational risk are the basic indicator method, the standard method and its variant the alternative standard method, and the advanced methods based on the own measurement systems of each entity. Credit institutions shall, in each case, comply with the requirements laid down for each of them in Articles 59 et

.

4. The use of the alternative standard method and the advanced methods will require prior authorisation from the Banco de España, which will be granted when the credit institutions meet the requirements laid down for each of these methods in the Articles 61 and 62. The Banco de España may revoke such authorisation in the event that credit institutions cease to comply with those requirements.

5. Credit institutions applying the standard method or the alternative standard method shall not be able to apply the basic indicator method again, except for justified reasons and with the authorisation of the Banco de España.

6. Institutions applying advanced methods shall not be able to reapply the basic indicator method or the standard method or the alternative standard method, except for justified reasons and subject to the authorisation of the Banco de España.

7. The Banco de España may authorise credit institutions to apply a combination of methods under the conditions it determines.

Article 59. Basic indicator method.

1. The own resources requirements corresponding to the operational risk according to the basic indicator method will be 15 percent of an indicator based on relevant income that is given by the sum of net income by interest and net income not corresponding to the interest of the credit institution.

2. The Bank of Spain shall determine the form of calculation of the indicator referred to and, in particular, the accounting items of revenue and expenditure that make up the indicator, as well as appropriate adjustments.

Article 60. Standard method.

1. For the use of the standard method, credit institutions shall divide their activities into the business lines specified by the Banco de España.

2. The own resources requirements corresponding to the operational risk according to the standard method shall be calculated on the basis of the aggregation of relevant revenues for each line of business, defined in a similar way to the indicator method basic, weighted on the basis of coefficients ranging from 12 percent to 18 percent, depending on the level of operational risk considered corresponding to each line of business.

3. The Bank of Spain shall determine the calculation of the own resources requirements, the items of income, expenses and adjustments that make up the relevant revenue of each line of business, including internal items between lines of business, as well as the weighting coefficients applicable to the relevant revenue for each line of business.

4. In order to be able to apply the standard method, credit institutions shall comply with a number of specific criteria determined by the Banco de España, in addition to the risk management requirements set out in Article 67 (g) of this Regulation. royal decree.

Article 61. Alternative standard method.

1. By way of derogation from the foregoing Article, the Banco de España may authorise a credit institution to replace, in the calculation referred to in paragraph 2 of that Article, the relevant revenue corresponding to the lines of business Retail banking and commercial banking for standard relevant revenue.

2. For these lines of business, the relevant standard income shall be determined by the accounting balances of the financial assets assigned to the corresponding line of business multiplied by 0,035. These financial assets will be taken without valuation adjustments.

3. In any event, the authorisation for the use of the relevant standard revenue shall be subject to compliance with the general conditions for the acceptance of the use of the standard method and the following requirements:

a) The credit institution will be very active in retail or commercial banking, assuming at least 90 percent of its revenue.

(b) The credit institution shall demonstrate to the competent authorities that a significant percentage of its retail or commercial banking activities include loans associated with a high probability of default, and that the alternative standard method provides a better basis for assessing operational risk.

Article 62. Advanced measurement methods.

1. Credit institutions may use advanced measurement methods based on their own operational risk measurement systems, provided that the Bank of Spain expressly authorizes the use of the corresponding models for the purpose of calculating the own resources requirements for operational risk.

2. The use of advanced measurement methods shall be subject to compliance with the general risk management requirements set out in Article 69 of this Royal Decree and to the additional qualitative and quantitative criteria which establish the Banco de España.

3. Credit institutions may recognise the effect of insurance and other operational risk transfer mechanisms when they are in accordance with the conditions set out by the Bank of Spain provided that they can demonstrate to the Bank of Spain that they are manages to reduce the impact of such risks in an obvious way.

4. Where an advanced measurement method is intended in principle to be used by a parent credit institution of the European Union and its subsidiaries or by the subsidiaries of a parent financial holding company of the European Union, the Banco de España and the other competent authorities of the various legal entities shall cooperate closely in accordance with the provisions of Article 10a (2) (c) of Law 13/1985.

5. Where a parent credit institution of the European Union and its subsidiaries or subsidiaries of a parent financial holding company in the European Union employ an advanced measurement method in a unified manner, the Banco de España may allow the parent entity and its subsidiaries, considered together, meet the requirements set out in paragraph 2 of this Article. In this case, the request for the use of an advanced measurement method for the whole group shall include a description of the methodology used to calculate the own resources requirements for operational risk of the various entities in the group and how they have considered the effects of diversification, being eligible for such effects a system for the allocation of the own resources requirements of the group.

CHAPTER VIII

Limits to big risks

Article 63. Limits to the big risks.

1. A person, entity or economic group, including the non-consolidated party itself, shall be regarded as a major risk when its value exceeds 10% of the own resources of the credit institution granting the credit institution. funding or take the risk.

2. The value of all the risks that a credit institution contracts with a single person, entity or foreign economic group may not exceed 25% of its own resources.

If the risks are maintained against non-consolidable persons or entities but with which there is a control relationship within the meaning of Article 42 of the Trade Code, the above limit shall be 20 percent.

3. All the major risks identified in paragraph 1 shall not exceed 800% of the credit institution's own resources.

4. For the purposes of compliance with this Chapter, credit institutions shall:

(a) They shall carry out appropriate monitoring of the concentration of their risks through safe administrative and accounting procedures and appropriate internal control mechanisms. These means shall enable the above mentioned entities to identify and record all major risk operations and the changes to them, as well as to monitor their exposures, taking into account the policy of the credit institution in risk material and pay particular attention to the relationships of participation, cross-guarantees and relationships of commercial dependence between its clients.

(b) For the purposes of the limits set out in paragraphs 2 and 3 of this Article, they shall accrue to the risks held against the same person or group of persons held against natural or legal persons who, by be economically interlinked with the above, they may be in serious difficulty in meeting their commitments if the person or economic group they are interlinked with will be in a situation of insolvency or lack of of liquidity. The Bank of Spain will be responsible for monitoring compliance with this letter and may establish that certain sets of clients are considered as a unit for the purposes of the application of those limits, even if they do not belong to the same economic group.

5. The Bank of Spain may allow the application of the reference limits on an individual basis, or shall be added to only certain components of an economic group where its autonomy of management, limitation of liability or specific activity is advise.

6. The Bank of Spain shall regulate the system of notification of major risks, as defined in paragraph 1

7. The Bank of Spain shall determine how the risks for the calculation of the limits set out in this Article, including rules relating to exposures at credit risk, risks arising from the portfolio of the portfolio, should be added. trading, positions in securitisation funds, investment companies or funds or similar vehicles, and risks with multi-group companies.

Article 64. Exceptions to the limits of large risks.

1. They shall not be subject to the limitations set out in paragraphs 2 and 3 of the previous Article:

(a) The risks incurred by the General Administration of the State and the Bank of Spain; vis-à-vis the autonomous communities and the local authorities for the acquisition of public debt issued by them; European Communities, and vis-à-vis central governments and central banks in other countries or in the face of multilateral development banks, provided that all of them receive, without guarantee, a 0% weighting according to the method standard referred to in Chapter III.

(b) The risks secured sufficiently with a pledge of fixed income securities and by the subjects referred to in the previous paragraph, and those with direct and unconditional guarantee of the subjects mentioned in that same Except for autonomous communities and local entities.

(c) 50% of the risks to local Spanish entities, and to the autonomous communities, as soon as they have not already been excluded in accordance with the provisions of the preceding subparagraph, as well as 50% of the risks guaranteed by those administrations directly and unconditionally.

(d) The risks secured with cash deposit, or certificates of deposit, in the lending institution itself or in others of its consolidable group.

e) All assets and other items deducted from own resources.

(f) Shares in insurance institutions other than those referred to in Article 13.1.f), up to a maximum of 40% of own resources.

g) Home mortgage collateral loans, provided that they meet the requirements of the mortgage market regulatory legislation, and the risks arising from leasing transactions under of which the entity retains full ownership of the rented property while the lessee has not exercised its purchase option, in both cases, up to 50 percent of the value of the corresponding property.

h) Assets vis-à-vis central governments and central banks of countries not referred to in point (a) which are denominated and financed in the national currency of the borrower, and assets representing claims expressly guaranteed by those central governments and central banks, provided that they are denominated, financed and guaranteed in the common national currency of the guarantor and the borrower.

(i) Total or in part, those other assets, commitments and order accounts at risk of credit that, in consideration of their personal or real guarantees and other exempted or extenuating circumstances, in particular their weight below 100 percent for credit risk purposes, establish the Banco de España.

2. The Bank of Spain may regulate the conditions under which the risk to a customer shall be attributed, or may be attributed by the institution, to third parties which guarantee it directly and unconditionally or to issuers of the securities issued in its warranty.

3. The Bank of Spain may also exempt from the limits on the concentration of risks laid down in Article 63 the disposals of funds by credit institutions for the systematic channelling of resources to the interbank market. through another intermediary credit institution, within the framework of an agreement approved by the Banco de España itself.

Article 65. Calculation of the limits to the greatest risks.

1. Credit institutions and consolidated groups of credit institutions that are not obliged to apply the rules of Article 52 on own resources requirements corresponding to the risks arising from the trading book, calculate their risks against a single person or economic group or against a group of clients that are economically interrelated with each other, or against the economic group itself in the non-consolidated part, through the aggregation of the assets the assets and liabilities and other accounts of the order referred to in Article 20, which are held against the subject to Article 21, without applying the weightings of Article 26 or the reduction coefficients provided for in Article 20, except in the case of order accounts relating to interest rates and exchange rates, to which the cited reducing coefficients.

2. The obligations laid down in Article 63 (2), (3) and (4) shall also apply to branches in Spain of foreign credit institutions which are not exempt from their application in accordance with the provisions of the Article Thirteenth of Law 13/1985.

For the calculation of those limits, the own resources of the foreign entity as a whole shall be taken as a basis. The Banco de España will appreciate, in accordance with the criteria set out in this royal decree, which elements of the same may be included in the calculation.

CHAPTER IX

Governance procedures, organizational structure, and self-assessment of internal capital

Article 66. Organization, risk management, and internal control requirements.

1. Credit institutions should define and implement appropriate policies and procedures to ensure compliance with the rules contained in this royal decree. To this end, they shall:

a) Contar with an organizational structure appropriate to the nature of its activities, with well-defined, transparent and coherent lines of responsibility.

b) Dispose of an internal audit function that ensures the proper functioning of the internal control and information systems.

c) Count on a unit that performs the compliance function. This function must be integral in nature, including, inter alia, the obligations arising from the provision of investment services, as well as those laid down in the rules on the prevention of money laundering.

The functions referred to in (b) and (c) above shall be performed under the principle of independence with respect to the areas, units or functions upon which they are to be verified.

2. The Board of Directors or equivalent body of the institution shall approve and periodically review the strategies and policies of assumption, management, control and reduction of risks to which the credit institution is or may be exposed, including those who present the macroeconomic juncture in which they operate.

3. Credit institutions should have adequate internal control mechanisms, including equally appropriate administrative and accounting procedures. It is the responsibility of the Board of Directors or equivalent body of the credit institution for the approval of the general internal control strategies and procedures, the determination of the criteria necessary for the prevention of conflicts of interest and the distribution of functions within the credit institution.

The Board of Directors or equivalent body of the credit institution shall also be regularly informed of the results of the verification tasks carried out by the internal audit and audit functions. compliance.

4. The systems, procedures and mechanisms referred to in this Chapter shall be complete and proportionate to the nature, scale and complexity of the activities of the credit institution. The Banco de España will supervise such systems, procedures and mechanisms.

5. Credit institutions providing investment services shall comply with the internal organisation requirements referred to in Article 70b (2) of the Law 24/1988 of 28 July 1988 on the Securities Market, with the following: specifications:

(a) The requirements of Article 70 ter.2 (a) of Law 26/1988 of 28 July 1988 on the stock market, relating to administrative and accounting procedures, to internal control mechanisms shall be construed as being met; internal audit and effective risk assessment techniques, as well as the obligation to have measures to ensure the continuity and regularity of the provision of services, as referred to in point (b) of the same paragraph, where Those established by the entity comply with the provisions of this chapter.

(b) The obligations relating to the delegation of tasks when the credit institution provides investment services, including between the requirements of Article 70 (d) ter.2 of Law 24/1988 of 28 July 1988, of the market of securities, shall be met by credit institutions in accordance with the terms of Article 72.

Article 67. Risk management policy.

The strategies and policies referred to in paragraph 2 of the previous Article shall be subject to the following rules for the different types of risk and for the major risks faced by the institution:

a) Credit risk and counterparty risk:

i) The granting of loans shall be based on sound and well-defined criteria. The procedure for the approval, modification, renewal and refinancing of appropriations shall be clearly established.

(ii) Effective methods should be used to continuously manage and monitor the various portfolios and exposures that involve credit risk, including the identification and management of doubtful claims, and the the implementation of the appropriate value adjustments and provision of provisions.

(iii) The diversification of the credit portfolios shall be appropriate in the light of the markets in which the credit institution is acting and the overall credit strategy of the credit institution.

(b) Residual risk: The possibility that recognised credit risk mitigation techniques applied by the credit institution will be less effective than expected will be assessed and monitored through policies and written procedures.

(c) Risk of concentration: The risk of concentration arising from exposures to counterparties, groups of related counterparties and counterparties of the same economic sector, geographical region or the same activity or commodity and the application of credit risk mitigation techniques, including risks linked to large indirect credit risks such as those held against the same collateral provider, shall be assessed and controlled by means of policies and written procedures, in accordance with the criteria laid down by the Bank of Spain.

d) securitisation risks:

(i) Risks arising from securitisation transactions in which the credit institution acts as an originator or sponsor shall be valued and controlled by appropriate policies and procedures to ensure, in particular, that the economic content of the operation is fully reflected in the risk assessment and management decisions.

(ii) Credit institutions originating from renewable securitisation transactions that include early repayment terms shall have liquidity plans in place to deal with the implications arising from both the amortisation to maturity as anticipated.

e) Market Risks: Policies and procedures shall be applied for the measurement and management of all sources and significant market risk effects.

f) Risk of interest rates arising from non-trading activities: Systems shall be applied to assess and manage the risk arising from possible changes in interest rates to the extent that they have an impact on the activities not to negotiate a credit institution, in accordance with the criteria laid down by the Bank of Spain.

g) Operational Risk:

i) Policies and procedures will be applied to assess and manage exposure to operational risk, including exposure to infrequent but severe events. Without prejudice to the definition set out in Article 58.2, credit institutions shall define what constitutes operational risk for the purposes of those policies and procedures.

(ii) Emergency plans and business continuity plans should be established to enable credit institutions to maintain their business and to limit losses in the event of serious business incidents.

h) Risk of liquidity:

i) Policies and procedures should be established to measure and manage the net funding position, as well as potential liquidity needs in current or future terms. Alternative scenarios shall be considered and the assumptions on which decisions relating to the net funding position are based shall be reviewed on a regular basis.

(ii) Emergency plans shall be established to address liquidity crises.

i) Change type risk:

(i) shall have policies for the assumption of exchange rate risks clearly established and approved by the institution's administrative bodies, which shall include internal measurement procedures, operational limits, frequency of review, body or person responsible and other relevant aspects. In particular, they shall, in accordance with their level of activity, have appropriate measurement and risk information systems for their management, monitoring and control.

(ii) at all times, keep at the disposal of the Banco de España the documentation relating to the internal control systems established in relation to the risk of exchange rate, to its compliance and operation, to the limits existing internal models and, where appropriate, the use of internal models for the calculation of the own resources requirements for such risk, their quantitative parameters and the assessments carried out on their degree of certainty.

j) Great risks:

i) Will monitor their risk concentrations with respect to issuers of real and personal guarantees and, where appropriate, take appropriate measures to correct any excesses.

(ii) They shall monitor their risk concentrations in the different branches of economic activity and ensure adequate diversification of the economic activity provided that their social object and market conditions permit.

Article 68. Process of self-assessment of internal capital.

1. In accordance with Article 6 (4) of Law 13/1985, credit institutions shall have in particular robust, effective and comprehensive strategies and procedures in order to assess and maintain on a permanent basis the amounts, the rates and the the distribution of domestic capital and own resources deemed appropriate to cover the nature and level of the risks to which they are or may be exposed. Those strategies and procedures shall be regularly reviewed within the internal review to ensure that they remain comprehensive and proportionate to the nature, scale and complexity of the activities of the credit institution concerned.

2. Institutions shall consider all relevant risks in their internal capital self-assessment process and develop their own methodologies for measurement, in the framework of the criteria established by the Banco de España.

3. The strategies and procedures referred to in paragraph 1 of this Article shall be summarised, together with the policies and procedures provided for in Article 66, in an annual self-assessment report on internal capital, which shall be forwarded to the Bank of Spain together with the own resources statement corresponding to the end of the financial year. For the preparation of this report institutions shall take into account the criteria that the Bank of Spain provides for these purposes.

Article 69. Requirements and conditions for the use of internal models to calculate own resource requirements for position or exchange rate risk.

1. The Bank of Spain may allow institutions to use their own internal risk management models when calculating their capital requirements in the face of position or exchange rate risks rather than those described in the Articles 54 and 49, or in combination with the same, provided that the conditions and requirements necessary for their correct application are met.

2. The Bank of Spain will only authorize the use of internal models for the calculation of own resources requirements if it is convinced that they are conceptually sound and apply rigorously and, in particular, that they are complied with. the following qualitative conditions:

(a) That the risk calculation model is solidly integrated in the institution's day-to-day risk management process and serves as a basis for the reporting of risk exposure to the institution's senior management;

b) That the entity has an independent risk control unit of the business units and accounts directly to the senior management. The unit shall be responsible for the definition and implementation of the institution's risk management system. It shall draw up and analyse daily reports on the results of the risk management model, as well as on the measures to be taken with regard to the trading limits.

(c) The management board and senior management of the institution actively participate in the risk control process and the daily reports submitted by the risk control unit are reviewed by managers with sufficient authority to impose a reduction in both the positions taken by individual operators and the overall risks assumed by the institution;

d) That the entity has sufficient staff to be sufficiently prepared to use complex models in the areas of negotiation, risk control, audit and administration;

e) that the institution has established procedures to monitor and ensure compliance with a set of internal rules and controls relating to the overall functioning of the risk calculation system;

f) That the entity's model has proven to be quite accurate when calculating the risk;

g) That the entity performs a program of extreme case simulations and the results of these tests are reviewed by the senior management and are reflected in the policies that are established and the limits that are set;

h) That within its periodic internal audit procedure, the entity carries out an independent review of the risk calculation system.

3. In each case, the use of the models shall be subject to the express recognition by the Bank of Spain of the other requirements and conditions under which the use of internal risk management models will be permitted.

Article 70. General requirements for the application of the negotiation portfolio treatment.

1. Positions or portfolios held for trading purposes shall meet the following requirements:

(a) there shall be a clearly documented trading strategy for the position, instrument or portfolios, approved by senior management, which shall include the planned holding horizon;

(b) there shall be clearly defined policies and procedures for the active management of the position, the minimum content of which shall be determined by the Bank of Spain and shall include at least the following:

1. positions included in the negotiation table;

2. º limits will be set to positions and will be monitored to check their suitability;

3. the staff in charge of the negotiation will have autonomy to take/manage positions within the agreed limits and respecting the agreed strategy;

4. The senior management of positions held as an integral part of the entity's risk management process shall be reported; and,

5. an active monitoring of positions shall be carried out with reference to the market information sources and to an assessment made of the negotiability or coverage capacity of the position or its components of the market. risk, including the assessment, in particular, of the quality and availability of market data for the valuation process, the market turnover, the amount of the positions traded on the market; and,

(c) there shall be clearly defined policy and procedures for controlling the position with respect to the entity's trading strategy, including the control of both the rotation of positions and the more permanent positions in the entity's trading book.

2. Institutions shall have clearly defined policies and procedures to determine the positions to be included in the trading book for the purpose of calculating capital requirements in a manner consistent with the criteria established in Article 53 and taking into account the institution's risk management capabilities and practices. Compliance with these policies and procedures, which will be subject to periodic internal audits, will be fully documented.

3. Institutions shall have clearly defined policies and procedures for the overall management of the trading book. The Bank of Spain shall determine the minimum content of such policies and procedures that will affect at least:

(a) The activities that the entity considers to be trading and as members of the trading book for purposes related to the requirements of own resources;

(b) The extent to which a position can be measured daily at market prices with reference to an active liquid market for both supply and demand;

c) For positions valued according to a model, the extent to which the entity can:

1. º identify all important position risks;

2. º cover all important positions of the position with instruments for which there is an active liquid market for both supply and demand; and,

3. calculate reliable estimates for the key assumptions and parameters used in the model;

d) The extent to which the entity can generate risk assessments that can be externally validated in a consistent manner;

e) The extent to which legal constraints or other operational requirements could undermine the entity's ability to conduct a settlement or cover the short-term position;

f) The extent to which the entity can and is required to actively manage the position within its trading activity; and,

g) The extent to which the entity can transfer risks or positions between the trading book and out of the trading book and the criteria for these transfers.

4. An institution may treat its positions held in a trading book in accordance with Article 13 (e), (f) and (g) as debt instruments or instruments if the institution demonstrates, to the satisfaction of the Bank of Spain, that it is a creator market asset in these positions.

In this case, the entity will have adequate systems and controls around the negotiation of eligible instruments as equity.

5. Repurchase agreements, related to trading, but which an entity accounts for outside its trading book, may be included in the trading book for the purposes of own resources requirements provided that it is include all the same. To this end, such operations are defined as those that meet the requirements of Article 53 (2) and paragraph 1 of this Article and their two components are either cash or securities that may be included in the portfolio of negotiation. Irrespective of the portfolio in which they are included, all of these transactions shall be subject to an own resources requirement for counterparty risk applicable to non-trading exposures

Article 71. Delegation of the provision of services or the exercise of functions of credit institutions.

1. A credit institution may delegate to a third party the provision of services or the exercise of functions corresponding to its typical and usual activity, provided that the content of the services is not emptied and the delegation does not reduce the capacity of the internal control of the institution itself and the supervision of the Banco de España.

In any event, the activities reserved for credit institutions shall not be subject to delegation, without prejudice to the provisions of the provisions relating to the agents of credit institutions in Article 22 of Royal Decree 1245/1995, the creation of banks, cross-border activity and other issues relating to the legal regime of credit institutions.

2. The delegation of services or functions by credit institutions in third parties shall not diminish their responsibility for the full compliance with the obligations laid down in the legal order for their authorization and operation.

3. The delegation of essential services or functions by credit institutions shall meet the following requirements:

(a) The delegation will not in any case involve the transfer of responsibility by the senior management. In particular, the delegation may not reduce the requirements for internal control mechanisms provided for in Article 66.

(b) The delegation may not alter the relations and obligations of the credit institution with its clientele or with the competent authority for its supervision.

(c) The conditions to be met by the credit institution to receive and retain the authorisation may not be removed or modified by the existence of a delegation agreement.

(d) The delegation agreement between the credit institution and the third party shall be translated into a written contract setting out the rights and obligations of the parties.

4. Credit institutions shall develop and implement an objective and comprehensive policy for the proper management of their delegations of essential services or functions.

5. A function or service shall be understood to be essential for the exercise of the business of a credit institution if a deficiency or failure in its performance may, in a considerable way, affect the credit institution's ability to comply with the permanently the conditions and obligations arising from its authorization and the arrangements laid down in Law 26/1988 of 29 July on the discipline and intervention of credit institutions, or to affect their financial results, solvency or the continuity of its activity.

6. The Bank of Spain shall specify the above requirements and the conditions under which credit institutions may delegate the provision of services or the exercise of functions. In addition, depending on the nature or criticality of certain functions or activities, you may establish limitations on the delegation other than those mentioned in this article.

The Banco de España will be responsible for the supervision of this article and the following and, for these purposes, credit institutions should have available, when requested, all appropriate information.

Article 72. Delegation of the provision of investment services by credit institutions.

Credit institutions providing investment services will comply with the provisions of Article 70 ter.2.d of the Law 24/1988 of 28 July on the Securities Market, in accordance with the specifications laid down in the previous items in this section.

In addition, where the credit institution delegates to third parties located in a third country the portfolio management service to be provided to retail clients, the credit institution shall be subject to the provisions of the regulatory regulation. the legal status of investment firms and other entities providing investment services.

CHAPTER X

Disclosure of information

Article 73. Information with prudential relevance.

1. Credit institutions which, in accordance with Article 10b of Law 13/1985, are required to publish the "Information with prudential relevance" document, must carry out such publication frequently at least annually and as soon as possible. is viable.

Additionally, credit institutions will assess the need to publish some or all of the information more frequently in view of the nature and characteristics of their activities.

The Banco de España may determine the information to which credit institutions must pay particular attention when assessing whether a higher than annual frequency of publication is necessary for such data.

2. Credit institutions may determine the most appropriate means, place and method of verification in order to effectively comply with the disclosure requirements laid down in Article 10b of Law 13/1985 and in this Chapter. As far as possible, all disclosures shall be made in a single medium or place.

3. Credit institutions shall explain, if requested, their credit rating decisions to small and medium-sized enterprises and other credit-seeking undertakings, providing a written explanation when required. The administrative costs of the explanation shall be proportionate to the amount of the claim.

Article 74. Omission of certain information.

1. In accordance with the second paragraph of Article 10 (1) of Law 13/1985, the entities required to make public the document entitled "Information with prudential relevance" may omit:

(a) information that has no relative importance, understanding for these effects that it has relative importance that information whose omission or inaccuracy may modify or influence the assessment or decision of a user who rely on such information to make their economic decisions;

(b) the information reserved to the entity, understood as such information that, if shared with the public or its competitors, would undermine the competitiveness of the entity or reduce the value of its investments; and,

(c) confidential information, where there are obligations with respect to third parties that assume the duty of confidentiality for the credit institution.

When information is omitted for being of a reserved or confidential nature, this omission must be stated in the document "Information with a prudential relevance", as well as the reasons that justify it, and will be published in this document is more general information on the aspect to which the information is concerned, unless this more general information is considered to be reserved or confidential in accordance with points (b) and (c) of the preceding paragraph.

CHAPTER XI

Measures to return to compliance with solvency rules

Article 75. Adoption of measures to return to compliance with the solvency rules.

1. Where a credit institution or group, or sub-group, consolidable of credit institutions presents a deficit of own resources which are available in accordance with Article 6 (1) (b) of Law 13/1985, the institution or the institution which is obliged to Consolidated group or sub-group, as the case may be, shall inform the Bank of Spain immediately and shall submit within one month a programme setting out the plans to return to compliance, unless the situation arises. would have corrected in that period. The programme shall contain at least the aspects relating to the identification of the determining causes of the non-compliance or the excess, to the plan to return to compliance which may include the limitation to the development of activities involving high risks, divestiture of individual assets, or measures for raising the level of own resources and foreseeable deadlines for returning to compliance.

In the event that the defaulting entity belongs to a consolidated group or sub-group of credit institutions, the programme shall be endorsed by the obligor entity.

This program must be approved by the Banco de España, which may include any modifications or additional measures it deems necessary to ensure the return to the minimum levels of own resources required. The programme presented shall be deemed to have been approved if no express resolution has been produced within three months of its submission to the Bank of Spain.

2. The same approach to the one provided for in the previous paragraph will be followed when the limits are exceeded to the greatest risks, even if it is due to a reduction of the own resources.

3. Where the Banco de España, in accordance with the provisions of Article 11 (3) of Law 13/1985, requires a credit institution or a group or sub-group to maintain own resources in addition to those required for a minimum in accordance with Article 6 thereof, and from that requirement, the institution's own resources are insufficient, the entity or the entity obliged to the group or sub-group, as the case may be, shall submit within one month a programme setting out the plans to comply with the additional requirement, unless the situation has been corrected in that period. In the event that the defaulting entity belongs to a consolidated group or sub-group of credit institutions, the programme shall be endorsed by the obligor entity of the credit institution.

This program must be approved by the Banco de España, which may include any modifications or additional measures it deems necessary. The programme shall include the planned date of compliance with the additional requirement, which shall be the reference for the beginning of the calculation of the time limit laid down in Article 4 (c) of Law 26/1988 of 29 July on discipline and intervention credit institutions. The programme presented shall be deemed to have been approved if no express resolution has been produced within three months of its submission to the Bank of Spain.

4. Where the Bank of Spain, in accordance with the provisions of Article 11 (3) of Law 13/1985, requires a credit institution or a group or sub-group to strengthen the procedures, mechanisms and strategies adopted for the compliance with the provisions of this royal decree or other rules of organisation and discipline, may require the submission of a programme setting out the measures necessary to remedy the deficiencies identified and the time-limits for implantation. This programme must be approved by the Bank of Spain, which may include any amendments or additional measures it deems necessary.

5. Where several of the assumptions made in the previous paragraphs are simultaneously given, the programme submitted may be as a whole.

Article 76. Implementation of results in case of non-compliance with the solvency rules.

1. Where a credit institution or group, or sub-group, consolidable of credit institutions presents a deficit of own resources which are more than 20% of the minimum required under the provisions of this royal decree, or its own basic own resources fall below 50% of those minima, the individual entity or each and each of the entities in the consolidated group or sub-group shall allocate to reserves the full net profit or surplus, unless the Bank of Spain authorises otherwise, by approving the programme of return to compliance with the refers to the previous article.

2. Where the own resources deficit is equal to or less than 20% of the individual entity or each and each of the entities in the consolidated group or sub-group, they shall subject their distribution of results to the prior authorisation of the Bank of Spain which shall establish the minimum percentage to be allocated to reserves on the basis of the programme submitted to return to the fulfilment of the solvency rules.

The authorization of the Banco de España shall be deemed to have been granted if one month after the request has not been expressed by express resolution.

3. The Bank of Spain may agree that the limits to the distribution of dividends referred to in paragraphs 1 and 2 of this Article do not reach the subsidiaries in which the entities included in the consolidable group hold at least 50% of the (a) a percentage of voting rights and capital, provided that they individually satisfy the minimum level of own resources required.

4. The use of all or part of the profits obtained, as referred to in paragraphs 1 and 2 of this Article, is without prejudice to the provisions of Article 13 (5) of Law 13/1985.

5. The provisions of this Article and the foregoing shall be without prejudice to the application, where appropriate, of the penalties provided for in Law 26/1988 of 29 July of Discipline and Intervention of Credit Entities.

TITLE II

Provisions regarding investment services companies

CHAPTER I

Scope

Article 77. Investment services companies subject.

For the purposes of the application of this Title, securities companies, securities agencies and portfolio management companies shall be defined as investment services companies. The provisions contained in this royal decree will not apply to financial advisory firms.

Article 78. Level of compliance with own resource requirements.

1. All investment firms must comply, on an individual basis, at all times with the own resources requirements set out in Article 94 of this Title.

2. Subsidiaries of investment firms may choose not to apply paragraph 1, subject to the authorisation of the National Securities Market Commission, provided that both the subsidiary and the parent investment firm are subject to authorisation and supervision by the National Securities Market Commission, the subsidiary is included in the supervision on a consolidated basis of the investment firm that is the parent company and all the conditions are met to ensure that own funds are properly distributed between the parent undertaking and the subsidiaries:

(a) that there is no foreseeable practical or legal impediment to the immediate transfer of own funds or to the repayment of liabilities by the parent undertaking;

(b) the parent undertaking to demonstrate to the National Securities Market Commission that it performs prudent management of the subsidiary and has declared itself to be a guarantor of the commitments entered into by the subsidiary, or that the risks in the subsidiary are not significant;

(c) the assessment, measurement and risk control procedures of the parent undertaking include the subsidiary; and,

d) the parent undertaking holds more than 50% of the voting rights attached to the shares or shares of the subsidiary or has the right to appoint or terminate the majority of the members of the administrative board or equivalent organ of the subsidiary.

3. Investment firms subsidiaries of financial holding companies may choose not to apply paragraph 1, subject to the authorisation of the National Securities Market Commission, provided that the parent and the subsidiary are incorporated in the securities market. Spain and that the parent is subject to supervision on a consolidated basis by the National Securities Market Commission.

4. Parent investment firms subject to authorisation and supervision on a consolidated basis by the National Securities Market Commission may choose not to apply paragraph 1, subject to the authorisation of the National Market Commission. of Securities, provided that the following conditions are met to ensure that own funds are properly distributed between the parent company and the subsidiaries:

(a) that, in the opinion of the National Securities Market Commission, there is currently no foreseeable material, practical or legal impediment to the immediate transfer of own funds or the repayment of the liabilities to the parent company; and,

(b) that the relevant risk assessment, measurement and control procedures for supervision on a consolidated basis cover the parent investment firm.

5. The National Securities Market Commission may authorise parent investment firms to incorporate in their calculation the requirement referred to in paragraph 1, their subsidiaries, provided that:

(a) the assessment, measurement and risk control procedures of the parent undertaking include the subsidiary;

(b) the parent undertaking holds more than 50% of the voting rights attached to the shares or shares of the subsidiary or has the right to appoint or terminate the majority of the members of the board of directors or body equivalent of the subsidiary;

(c) the relevant exposures or liabilities of the subsidiaries are in respect of such matrices, and,

(d) the parent investment firm fully demonstrates to the National Securities Market Commission the circumstances and the provisions, including those of a legal nature, for which there is no provision or no impediment (a) no relevant legal or practical application to the immediate transfer of own funds or the repayment of liabilities where the subsidiary is due to its parent undertaking.

Article 79. Individual requirements for Spanish investment services companies that are dependent on a consolidated group of another Member State.

The Spanish investment firm subsidiaries of a consolidated group of investment services companies authorised and supervised in another Member State of the European Union, as well as all the services companies of Investment not included in the consolidation shall, on an individual basis, comply with Article 68.

Article 80. Individual requirements for independent investment services companies.

Any investment firm that is neither a parent undertaking nor a subsidiary undertaking, as well as any investment firm that is not included in the consolidation, shall individually comply with Chapter VI of this Regulation. title, relating to the disclosure of information.

Article 81. Individual requirements to important subsidiaries.

The companies of Spanish investment services of major subsidiaries of parent investment services of the European Union, or of financial holding companies of the European Union, must provide, individual form:

i) information about the financial services company's own resources; and,

(ii) information on compliance with the requirements of own resources by the financial services company and on its procedure for assessing the adequacy of internal capital.

The National Securities Market Commission will establish the necessary criteria to consider that a subsidiary is important.

Article 82. Requirements on a consolidated basis for parent investment services companies in Spain.

1. The parent investment firm of Spain and the investment firm controlled by a parent financial holding company in Spain, in whose group a credit institution is included, shall comply on a consolidated basis with the Article 16 of Title I.

2. The parent investment services companies of Spain and the investment services companies controlled by a parent financial holding company in Spain shall comply on a consolidated basis:

(a) the own resources requirements set out in Article 78.1; and,

(b) Article 68.

3. The parent investment firms of the European Union and investment firms controlled by a parent financial holding company of the European Union shall, on a consolidated basis, comply with Chapter VI of this Title. concerning the disclosure of information.

Article 83. Branches of investment services companies based in third countries.

In the case of branches of investment services companies based in third countries, the limits to the concentration of risks shall be calculated on the own resources of the consolidated group of the foreign company. The branch shall inform the National Securities Market Commission twice a year of such own resources, calculated in accordance with its national law. If the branch is unable to provide this data, the calculation will be made with the own resources elements located in the branch.

Article 84. Report on the implementation of Article 78.4.

The National Securities Market Commission shall report the application of Article 78.4 to the other competent authorities of all other Member States of the European Union. In particular, it will publish the following:

(a) the criteria it applies to determine that there are no material, practical or legal impediments to the immediate transfer of own funds or the repayment of liabilities;

(b) the number of parent investment firms benefiting from the implementation of 78.4, including the number of investment service undertakings incorporating subsidiaries located in a third country; and,

c) in aggregate:

1. the consolidated total amount of own funds of the parent investment firm that benefit from the application of Article 78.4, which are held by subsidiaries located in a third country;

2. the percentage of the consolidated total of own funds of parent investment firms benefiting from the application of Article 78.4, represented by own funds held by subsidiaries located in a third country; and,

3. the percentage of the minimum consolidated total of own funds required of parent investment firms benefiting from the application of Article 78.4, represented by own funds held by subsidiaries located in a third country.

Article 85. Report on the implementation of Article 78.5.

When the National Securities Market Commission applies Article 78.5, it shall regularly, and at least once a year, report to the competent authorities of all other Member States. If the subsidiary is in a third State, the National Securities Market Commission shall provide the same information to the competent authorities of that third State.

In particular, the National Securities Market Commission will make the following public:

(a) the criteria it applies to determine that there are no material, practical or legal impediments to the immediate transfer of own funds or the repayment of liabilities;

(b) the number of parent investment firms benefiting from the application of Article 78.5, and among them the number of investment service undertakings incorporating subsidiaries located in a third State; and,

c) in aggregate:

1. the total amount of own funds of the parent investment firms benefiting from the application of Article 78.5, held by subsidiaries located in a third State;

2. the percentage of the total own funds of parent investment firms benefiting from the application of Article 78.5, represented by own funds held by subsidiaries located in a third State; and,

3. the percentage of the minimum total of own funds required of parent investment firms benefiting from the application of Article 78.5, represented by own funds held by subsidiaries located in a third State.

Article 86. Enabling the National Securities Market Commission.

The National Securities Market Commission may specify the scope of this Title II, as well as define the required entity of each group to meet the required requirements on a consolidated basis.

Article 87. Calculation of the credit risk requirements and eligible counterparties.

The National Securities Market Commission is enabled to establish the specific conditions for calculating own resources for the calculation of the credit and counterparty risk requirements that are required by the subsidiary investment services, on an individual basis.

CHAPTER II

Defining the own resources of investment services companies and their consolidable groups

Article 88. Own resources computable in the general definition.

1. The own resources of the investment firm's own resources shall be made up of

following elements:

(a) The share capital, excluding the part of the capital referred to in point (e) below.

b) Effective and express reservations.

During the financial year and, at the end of the year, until the implementation of the results is carried out, investment firms may incorporate into this element the share of the results that are expected to be applied to reserves. which:

1. º Exist a formal commitment to the application of results by the entity's management body.

2. The accounts in which such results are reflected have been verified with a favorable report by the entity's external auditors.

3. To be credited, to the satisfaction of the National Securities Market Commission, which the party to incorporate is free of any foreseeable burden, especially for tax and dividend taxes.

(c) The reserves of regularization, updating or revaluation of assets, after verification by the National Securities Market Commission of the correction of its calculation and its submission to accounting standards.

Reserves of this nature associated with merger processes shall not be counted as own resources prior to the registration of the merger in the Mercantile Register, subtracting from the revalued assets for the purposes of the calculation of the own resources requirements.

(d) The funds affected to the institution's risk pool, the allocation of which has been made separately within the profit or loss account, and provided that its amount is shown separately in the public balance sheet of the entity.

e) The share of the share capital corresponding to the non-voting shares regulated in Section 5 of Chapter IV of the Companies Act.

(f) subordinated financing received by the investment firm which meets the requirements laid down in Article 90 (2

.

(g) Finances of indeterminate duration which, in addition to the conditions required for subordinated financing, provide that the debt and interest payable may be applied to absorb the losses of the entity without the need for dissolution.

For inclusion among own resources, the items listed in points (a), (e), (f) and (g) shall be computed on the part that is effectively disbursed.

2. In the own resources of a consolidated group of investment firms, they shall be integrated in addition to the elements set out in the preceding number resulting from the consolidation of the corresponding accounting statements. consolidated balance sheet items:

(a) The shares representing the minority interests of the companies of the consolidated group, in the part that is effectively disbursed.

b) Reserves in consolidated companies. In the case where the consolidated balance sheet assets are lost in consolidated companies, they shall be deducted from the consolidated reserves.

Without prejudice to the power of the National Securities Market Commission referred to in Article 90.3, the representative shares of the minority interests shall be distributed among the items (b), (e) and (f) of the number for the purposes of the limits laid down in Article 91, in accordance with the following criteria:

1. The items referred to in point (b) of the preceding number shall include shares representing ordinary shares and materialised shares in preference shares issued by foreign subsidiaries, provided that are available for risk and loss coverage under the same conditions as ordinary shares, their duration is undetermined and do not grant cumulative rights to the collection of dividends.

2. The items referred to in point (e) of the preceding number shall include the non-voting shares issued by the Spanish subsidiaries and the preferred shares issued by foreign subsidiaries that are available for to absorb losses of the institution without the need for it to be wound up, and which, either have an indeterminate duration, or, having determined it, is not less than that provided for in Article 90.2 for subordinated financing and does not grant cumulative rights to the collection of dividends.

3. The items referred to in point (f) of the previous paragraph shall include preferred shares issued with a fixed term of foreign subsidiaries, when they grant cumulative rights to the collection of dividends. In any event, their duration may not be lower than that provided for in Article 90 (2) for subordinate financing.

Article 89. Deductions from the own resources in the general definition.

1. They shall be deducted from the own resources of investment firms and their consolidable groups:

(a) The negative results of previous financial years and the current financial year, as well as the intangible assets integrated into its assets.

(b) Shares, contributions or other transferable securities as own resources of the entity or group that are held by that entity or group of any entity in the consolidable group, including those held by persons acting on behalf of any of them and those who have been the subject of any operation or undertaking that would prejudice their effectiveness in covering losses of the entity or group.

(c) Financing to third parties the object of which is the acquisition of shares, contributions or other transferable securities as own resources of the investment firm that has granted them or other entities in the group consolidable. This deduction shall not apply to the financing provided to the staff of the institution or other entities of the consolidable group, provided that their unit amount does not exceed the limits established by the National Securities Market Commission.

(d) Shares, contributions or other transferable securities as own resources of the investment firm, or of other consolidable entities, held by non-consolidated entities of the same economic group, up to the a limit that directly or indirectly reaches the holdings, funds or credit guarantees granted to the holding entities by the investment firm, or by any of the entities in the consolidable group.

Additionally, when the holding of shares, contributions or other transferable securities as own resources of the investment firm, or of other consolidable entities is a non-consolidated subsidiary of any other of which, this deduction may not be less than the amount of those shares, contributions or securities held by the investment firm itself, or a consolidated group, on the basis of its share of the institution's share of the institution holding, taking into account that in order to obtain this percentage of participation, in the case of indirect participations, only those held by subsidiary and multi-group companies shall be computed.

(e) Shares in financial institutions, other than insurance institutions, not integrated in the consolidable group, where the participation of the investment firm, or the consolidable group of undertakings investment services, be more than 10 percent of the capital of the investee.

(f) Subordinated financing or other transferable securities as own resources issued by the participating entities referred to in the preceding letter and acquired by the entity or group holding the shares.

(g) participations in financial institutions other than insurers, other than those referred to in point (e) above, and not integrated in the consolidated group, and subordinated financing issued by them and acquired by the entity or group holding the shares, in the party where the sum of all shares exceeds 10% of the own resources of the investment firm, or of the consolidable group of service undertakings investment, calculated after carrying out the deductions referred to in points (a), (b), (c) and (d) of this number.

(h) The excess of the shares in non-financial institutions referred to in Article 16, only in the event that a consolidated group of investment firms is integrated into a credit institution credit.

i) The existing deficits in the specific provisions or funds of mandatory allocation, in the form that is determined in the implementing provisions.

2. The deductions referred to in the preceding number shall be made, where appropriate, by their value in the books of the holding entity.

Article 90. Conditions for the computability of the own resources of the general definition.

1. In order to be considered as own resources, the reserves and funds referred to in Article 88.1 (c) and (d) shall, to the satisfaction of the National Securities Market Commission, comply with the following requirements:

(a) to be freely usable by the institution to cover the risks inherent in the exercise of the typical business of investment firms, even before any losses or losses have been determined; disabled.

b) Reflect on the accounting of the entity, having been verified its amount by the external auditors of the entity and communicated such verification to the National Securities Market Commission.

c) Be duty free or reduce the amount of taxes that are likely to be attributable to them.

The provision of the funds referred to in point (d) of that number shall require prior authorisation from the National Securities Market Commission.

2. In order to be considered as own resources, the subordinated financing referred to in Article 88,1 (f) shall meet the following conditions:

(a) The original time limit for such financing shall not be less than five years, if the date of its expiry has not been fixed, a notice of at least five years shall be required for its withdrawal. In both cases, during the five years prior to their due date, they shall reduce their calculation as own resources by 20% per year, until their permanent maturity is less than one year, at which point they shall cease to be be computed as such.

(b) The interest payment shall be deferred in the event of losses.

(c) They may not contain redemption, redemption or early amortisation clauses, without prejudice to the fact that the National Securities Market Commission may authorise the debtor to repay subordinated financing in advance if the solvency of the entity is not affected.

(d) They may not be provided, or subsequently acquired, by the institution itself, by entities of the consolidable group or by other entities or persons with financial support from the issuing institution or the consolidable group, however, may be convertible into shares, contributions or units of the issuing entity, or of entities of the consolidable group, and be acquired with the sole purpose of conversion.

e) In the contracts and prospectuses, the condition of subordinated financing for the creditors will be evident, the National Securities Market Commission will verify these contracts and brochures in order to qualify their computability as your own resources.

Subordinated financing may be determined both in euro and in foreign currency.

3. The National Securities Market Commission shall be responsible for the rating and inclusion in the own resources of a consolidated group of investment services companies of all kinds of preferred shares, issued in accordance with the rules that is applicable, and of the items listed in points (e), (f) and (g) of Article 88 (1), issued by means of financial instruments or other subsidiaries. The National Securities Market Commission shall take particular care that the law of the country in which the issue is issued, or the own interposition of the FVCs or subsidiaries, does not weaken the effectiveness of the requirements and limitations. set for those instruments, nor their value as group own resources.

Article 91. Limits on the computation of the general definition's own resources.

1. For the purposes of the following number:

The basic own resources of an investment firm shall consist of the sum of the items referred to in Article 88,1 (a), (b) and (d), minus the amount of the concept of Article 89,1 (a) and the items included in concepts (b), (c) and (d) of the latter number relating to those elements.

The basic own resources of a consolidated group of investment firms shall include, with their sign, the elements referred to in the preceding paragraph resulting from the consolidation of the corresponding states. accounting; shares representing minority interests which may be included among the items referred to in Article 88,1 (b); and reserves in consolidated companies referred to in Article 88.2.b)

The second-category own resources of an investment firm shall consist of the elements contained in Article 88,1 (c), (e), (f) and (g)

The second-rate own resources of a consolidated group of investment firms shall be made up of the items listed in the preceding paragraph resulting from the consolidation of the corresponding accounting statements and for the representative shares of the minority interests to be included in the items referred to in Article 88.1.e) and (f).

2. They shall not be eligible as own resources of an investment firm, or a consolidated group of investment services:

(a) The excess of the items included in Article 88.1.f), over 50 percent of the core own resources of the entity or the consolidable group.

(b) The excess of the second-rate own resources on 100% of the core own resources of the entity or the consolidable group, in the part where that excess has not been eliminated in accordance with the set out in point (a) of this number.

The National Securities Market Commission may authorize investment firms and their consolidated groups to compute as their own resources, transitory and exceptionally, excess over the limits. set in this number.

Article 92. Alternative definition of own resources.

1. By way of derogation from the provisions of the preceding Articles, investment firms and groups of investment firms which are required to apply Article 95 of this Title, concerning the coverage of risks linked to the portfolio of securities negotiation, they may use the alternative definition of own resources formed by the elements referred to in points (a) and (b) below, by deducting the elements referred to in points (c) and (d) below and whenever they communicate it prior to the National Securities Market Commission:

(a) The elements referred to in Article 88.1.

(b) Subordinated financing received by investment firms, which meet the requirements set out in Article 90 (2) and, in addition, the following requirements:

1. The original time limit for such financing shall not be less than two years.

2. No redemption, redemption or early amortisation clauses may not be contained, except in the case of liquidation of the entity. Without prejudice to the foregoing, the National Securities Market Commission may authorise the debtor to repay the subordinated financing in advance if the solvency of the entity or the consolidable group is not affected.

3. The payment of interest and repayment of principal shall be deferred in case the level of own resources falls below 100 percent of the overall levels required of the entity or the consolidable group.

Entities shall notify the National Securities Market Commission of any amortization when, as a result of the same, the own resources of the entity or the consolidable group are below 120 percent. of the required global levels, or where the own resources are already below that percentage.

(c) The elements referred to in Article 89.

(d) Illiquid assets, where the authorisation is granted for the subordinated financing referred to in point (b) above to exceed 150% of the basic own resources referred to in Article 91.1.

The communication referred to in paragraph 1 shall include a supporting document detailing the subordinated financing that is intended to be taken and its maturity, the means for obtaining it and the percentage the maximum it will represent in relation to the basic own resources.

3. The alternative definition of own resources of the consolidable groups of investment firms shall consist of the elements referred to in the previous paragraph, except for the elements of point (a), which shall be replaced by the following: own resources of a consolidated group of investment firm undertakings as defined in Article 91, all of which relate to the consolidated balance sheet.

4. The National Securities Market Commission will define the accounting items that make up the illiquid assets, and can differentiate between those that apply to the individual entities and those that are to the consolidable groups.

Article 93. Limits to computability in the alternative definition of own resources.

1. For the purposes of the following number, the own resources of the third category of investment firms shall be composed of the subordinated financing referred to in Article 92.1.b

2. When using the alternative own resource definition mentioned in the previous article, the following computability rules will be followed:

(1) The excess of subordinated financing, as referred to in Article 88 (1) (f), on 50% of the core own resources of the consolidable entity or group may be computable, provided that the sum of the second category own resources allocated to the alternative definition and the third category resources does not exceed 250 per cent of the basic own resources allocated to the alternative definition.

2) The excess of the second category's own resources on 100 percent of the core own resources of the entity or the consolidable group, in the part where the excess is not eliminated with respect to the provided in the preceding rule, may be computable provided that the sum of the own resources of the second category allocated to the alternative definition and the third category does not exceed 250% of the basic own resources allocated to the above mentioned definition.

3) The excess of the own resources of the third category on 150 per cent of the core own resources of the entity or the consolidable group assigned to the alternative definition may be computable, if obtained prior to the authorization of the National Securities Market Commission and provided that the sum of the own resources of the second category assigned to the alternative definition and those of the third category do not exceed 250 percent of the resources basic own funds allocated to the above definition, and the illiquid assets are deducted.

CHAPTER III

Own resource requirements

Article 94. Own resource requirements.

1. In accordance with Article 70.1.a of the Law 24/1988 of 28 July of the Securities Market, investment firms shall at all times maintain own resources equal to or greater than the greater of the following:

a) The sum of the following concepts:

1. The requirements of own resources for risks linked to the trading book, calculated in accordance with Article 95, including the risk of position, the counterparty credit risk, the risk of settlement and the large risks assumed.

2. The requirements of own resources for exchange rate and commodity risks, calculated in accordance with Article 96 and Chapter IV of this Title, respectively.

3. º 8 percent of all credit risk weighted positions, with the exception of trading book activities and illiquid assets when deducted from own resources, for the risk of credit and dilution, calculated in accordance with Article 98.

4. The requirements for own resources in respect of all their operational risk activities, calculated in accordance with Article 98.

b) The fourth part of the structure expenses of the preceding year.

(c) Two-thirds of the minimum capital required for the establishment of the type of investment firm concerned.

d) 5 per thousand of the volume of the managed portfolios.

2. By way of derogation from the above paragraph, investment firms, subject to the authorisation of the National Securities Market Commission, may calculate their own resources requirements for risks linked to the portfolio of investment services. trading using the calculation methods set out in Article 98 on credit risk, where the size of the trading book meets the following requirements:

(a) The trading book does not normally exceed 5 percent of its level of activity, as defined in number 3 of this article.

(b) The total of the positions in the trading book does not normally exceed the amount of EUR 15 million.

(c) The trading book does not exceed at any point of 6% of the level of activity and the total amount of the activity does not exceed in any case the amount of EUR 20 million.

In case an entity exceeds for a sufficiently long period of time, which shall be established by the National Securities Market Commission, one or both of the limits set out in points (a) and (b) of this paragraph; or exceeds one or both of the two limits set out in point (c) of the same, shall be required to comply with the requirement laid down in paragraph 1.a) .1., in respect of its trading book operations, and to notify the National Market Commission thereof. of Values.

3. For the purposes of the preceding paragraph, total activity shall be the sum of the assets and accounts of the risk and commitment of the institution or group. To these same effects the trading book shall be valued at market prices and the instruments derived from the market value of its underlying or corresponding deliverables, with all elements added to the absolute value.

4. By way of derogation from the preceding number 1, the National Securities Market Commission may, upon request, authorise investment firms whose business is in accordance with one of the activities described in (a) or (b) which is detailed below, to maintain own resources equal to or greater than the sum of the requirements referred to in the numbers 1, 2, 2 and 3 (a) of this Article, plus a quarter of the expenditure for the structure of the financial year precedent.

(a) Investment service undertakings acting on their own account for the sole purpose of carrying out or executing the order of a customer or in order to enter into a clearing and settlement system or a recognised market, when acting as an agency or executing the order of a client.

(b) Investment services companies that do not maintain cash or client securities; that are only self-employed; that do not have external clients; and, in which the execution and settlement of their transactions are liable of an entity that is responsible for the compensation and is guaranteed by it.

5. By way of derogation from the preceding number 1, the National Securities Market Commission may, upon request, authorise securities agencies and holding companies to maintain own resources equal to or greater than the largest of the following: the following amounts:

(a) The sum of the requirements referred to in the numbers 1, 2, 2 and 3. of this article.

b) The fourth part of the structure expenses of the preceding year.

c) 5 per thousand of the volume of the managed portfolios.

6. The National Securities Market Commission shall determine the accounting items to be included in the concept of structure expenditure referred to in paragraphs 1, 4 and 5 of this Article.

Article 95. Own resource requirements for risks linked to the trading book.

1. Investment firms shall calculate the own resources requirements for risks linked to the trading book referred to in Article 94.1 (a) .1. in accordance with Articles 53 to 57 of Title I of this Royal decree.

2. The particulars which, in the articles referred to in the preceding paragraph, are made to credit institutions or entities and to the Banco de España shall be construed as references to the effects of this title to investment firms and to the National Securities Market Commission, respectively.

Article 96. Own resource requirements for exchange rate risk.

1. Investment firms shall calculate the own resources requirements for exchange rate risk and for positions in gold referred to in Article 94.1.a) .2. in accordance with Articles 48 to 51

Title I.

2. The particulars which, in the articles referred to in the preceding paragraph, are made to credit institutions or entities and to the Banco de España shall be construed as references to the effects of this title to investment firms and to the National Securities Market Commission, respectively.

Article 97. Own resources requirements for risk of raw materials.

Investment services firms shall calculate the own resources requirements for the risk of positions in raw materials and financial instruments on them as referred to in Article 94.1.a) .2. methods to be determined by the National Securities Market Commission.

Article 98. Own resources requirements for credit risk.

1. Investment firms shall calculate the own resources requirements for credit risk referred to in Article 94.1.a) .3. in accordance with Articles 18 to 45

Title I.

2. The particulars which, in the articles referred to in the preceding paragraph, are made to credit institutions or entities and to the Banco de España shall be construed as references to the effects of this title to investment firms and to the National Securities Market Commission, respectively.

Article 99. Own resources requirements for operational risk.

1. Investment firms shall calculate the own resources requirements for operational risk referred to in Article 94.1.a) .4. in accordance with Articles 58 to 60 and 62 of Title I.

2. The particulars which, in the articles referred to in the preceding paragraph, are made to credit institutions or entities and to the Banco de España shall be construed as references to the effects of this title to investment firms and to the National Securities Market Commission, respectively.

CHAPTER IV

Governance procedures, organizational structure, and self-assessment of the internal capital of investment services companies

Article 100. Organizational requirements.

To understand the requirements of paragraphs (a) and (b) of 70.ter.2 of Law 24/1988 of 28 July 1988 on the Securities Market, relating to the effective risk assessment techniques, as well as the obligation to count on measures to ensure continuity and regularity in the provision of services, the investment firm shall comply with the requirements set out in Articles 101 and 102.

Article 101. Risk management policy.

The management board of investment firms will regularly approve and review the strategies and policies of assumption, management, supervision and reduction of risks to which the investment services firm investment is or may be exposed, including those that present the macroeconomic situation in which it operates. Such strategies and policies shall comply with the following rules for the different types of risk to which the entity is confronted:

a) Credit risk and counterparty risk:

1. The granting of credits should be based on solid and well-defined criteria. The procedure for the approval, modification, renewal and refinancing of appropriations shall be clearly established.

2. The use of effective methods to continuously manage and monitor the various portfolios and exposures at risk of credit, as well as to identify and manage, inter alia, the doubtful claims, and make assessment adjustments and adequate provision of provisions.

b) Residual risk: The possibility that recognised credit risk reduction techniques applied by the investment firm will be less effective than expected will be assessed and controlled through policies and written procedures.

(c) Risk of concentration: The risk of concentration arising from exposures to counterparties, groups of related counterparties and counterparties of the same economic sector, geographical region or the same activity or commodity and the application of credit risk mitigation techniques, including risks linked to large indirect credit exposures such as those held against the same issuer of collateral, shall be valued and controlled by means of policies and written procedures, in accordance with the criteria laid down by the National Securities Market Commission.

d) Market Risks: Policies and procedures for the measurement and management of all sources and material effects of market risk shall apply.

e) Risk of interest rates arising from non-marketable activities: Systems shall be applied to assess and manage the risk arising from possible changes in interest rates to the extent that they have an impact on non-marketable activities (a) marketable assets of an investment firm, in accordance with the criteria laid down by the National Securities Market Commission.

f) Operational Risk:

1. º Policies and procedures will be applied to assess and manage exposure to operational risk, including exposure to infrequent events generating very serious losses. Without prejudice to the definition set out in Article 58.2, investment firms shall define what constitutes an operational risk for the purposes of those policies and procedures.

2. Emergency plans and business continuity plans should be established to enable investment firms to maintain their business and to limit losses in the event of serious business incidents.

g) Risk of liquidity:

1. Policy and procedures should be established to measure and manage the net funding position, as well as possible needs of it in current or future terms. Alternative scenarios shall be considered and the assumptions on which decisions relating to the net funding position are based shall be reviewed on a regular basis.

2. Emergency plans to address liquidity crises will be established.

h) Change type risk:

1. The need for policies to assume exchange rate risks clearly established and approved by the management bodies of the investment firm, which will include internal measurement procedures, operational limits, frequency of review, responsible body or person and other relevant aspects. In particular, they shall, in accordance with their level of activity, have appropriate measurement and risk information systems for their management, monitoring and control.

2. The documentation relating to the internal control systems established in relation to the exchange rate risk, to their compliance and to their compliance with the requirements of the National Securities Market Commission shall be maintained at all times. operation, to the existing internal limits and, where appropriate, to the use of internal models for the calculation of the own resources requirements for that risk, its quantitative parameters and the assessments carried out on its level of certainty.

Article 102. Modulation of the National Securities Market Commission.

The National Securities Market Commission will be able to modulate the requirements mentioned in the previous article according to the nature, scale and complexity of the business activity and the nature and range of services. investment that is authorised to be provided by investment firms.

Article 103. Process of self-assessment of the internal capital of investment firms.

1. According to Article 70.3 of the Law 24/1988, of 28 July, of the Securities Market, the consolidable groups of investment services companies, as well as the companies of non-integrated investment services in one of these consolidable groups, specifically provide for robust, effective and comprehensive strategies and procedures in order to assess and maintain on a permanent basis the amounts, rates and distribution of domestic capital that they consider appropriate to cover nature and the level of the risks to which they are or may be exposed.

2. Those strategies and procedures shall be regularly reviewed within the internal review to ensure that they remain comprehensive and proportionate to the nature, scale and complexity of the investment firm's activities. interested.

3. The strategies and procedures referred to in the first paragraph of this Article shall be summarised, together with the policies and procedures provided for in Article 100, in an annual self-assessment report on internal capital, which shall be forwarded to the National Securities Market Commission together with the own resources statement corresponding to the end of the financial year. For the preparation of this report institutions shall take into account the criteria that the National Securities Market Commission provides in a specific guide to the process and self-assessment report of the capital. internal.

CHAPTER V

Monitoring

Article 104. Interest rate risk.

Within the framework of the review of the systems, procedures or mechanisms applied by investment firms to comply with the solvency rules and the assessment of the risks to which the investment services or their groups are or may be exposed, carried out by the National Securities Market Commission on the basis of Article 87 bis.1 of Law 24/1988 of 28 July of the Securities Market, shall include the exposure of the (a) investment services firms to the risk of interest rate arising from activities outside the portfolio negotiation.

The adoption of these measures will be required in the case of entities whose economic value decreases more than 20 percent of their own funds as a result of a sudden and unexpected variation in interest rates. The scale of such measures will be the one set by the National Securities Market Commission and will not differ between investment services companies

Article 105. Accounting consolidation.

1. The National Securities Market Commission shall determine the method of accounting consolidation to be applied for the fulfilment of the own resources requirements on a consolidated basis.

2. Without prejudice to the above paragraph, the National Securities Market Commission shall decide whether, in the following cases, consolidation should be carried out, and in what form:

(a) where an investment firm exercises, in the opinion of the National Securities Market Commission, a significant influence on one or more investment firm or financial institution, without holding without a participation or other capital links in these entities; and,

(b) where two or more investment service undertakings or financial institutions are under a single management, without the latter having to be established by contract or by statutory clauses.

3. In particular, the National Securities Market Commission may permit or prescribe the use of the method provided for in Section 1 of Chapter II of Royal Decree 1815/1991 of 20 December 1991 laying down the rules for the formulation of of the Consolidated Annual Accounts.

Article 106. Exchange of information.

When the parent company and the investment services companies that are its subsidiaries are located in different Member States of the European Union, one of them being Spain, the National Securities Market Commission communicate and receive from the competent authorities of the other Member States involved all relevant information with a view to making it possible or to facilitate supervision on a consolidated basis.

Article 107. Cooperation with other competent authorities.

1. The National Securities Market Commission shall cooperate closely with the other competent European authorities in the performance of the functions provided for in Article 91 of Law 24/1988 of 28 July of the Securities Market.

2. The National Securities Market Commission shall provide and may receive, upon request, any information which may facilitate the supervision of the solvency of the investment firm and, in particular, the verification of the These comply with the provisions of Law 24/1988, of July 28, of the Stock Market and of this royal decree.

Article 108. Competencies of the National Securities Market Commission in relation to supervision on a consolidated basis.

1. It shall be the responsibility of the National Securities Market Commission, in its capacity as the authority responsible for the exercise of the consolidated supervision of the parent investment firms of the European Union and of the service undertakings of investment controlled by the parent financial holding companies of the European Union, and in relation to the supervisory authorities of the European Union:

a) Coordinate the collection of information and disseminate among the other authorities responsible for the supervision of entities in the group information that it considers important in both normal and urgent situations.

b) Plan and coordinate all supervisory activities in both normal and urgent situations, including in relation to activities that the National Securities Market Commission has to develop in its the status of an authority responsible for the supervision of investment firms and their consolidated groups.

d) In accordance with the provisions of Article 91a of Law 24/1988 of 28 July 1988 on the Securities Market, enter into coordination and cooperation agreements with other competent authorities which are intended to facilitate and establish effective monitoring of the groups entrusted to their supervision and take on the additional tasks resulting from such agreements.

In particular, and as provided for in Article 85.1 (b) of the Law 24/1988, of 28 July, of the Securities Market, the National Securities Market Commission, when it is responsible for the authorization of the subsidiary of a company investment services may delegate their supervisory responsibility to the competent authorities which have authorised and supervise the parent undertaking, in order to ensure that they are responsible for the supervision of the subsidiary in accordance with the provisions of this Directive; decree. The European Commission should be kept informed of the existence and content of such agreements.

(e) to warn the Minister for Economic Affairs and Finance, as soon as possible, and the other supervisory, national or foreign authorities concerned, of the appearance, in an investment firm or within a the consolidated group of investment firms, an emergency situation which could jeopardise the stability of the financial system of any Member State of the European Union in which entities of the group or in the group have been authorised there are branches of the affected entity or group.

In these assumptions, when the National Securities Market Commission needs information that has already been provided to another competent authority, it will contact it whenever possible, to prevent it from being double the reports of the different authorities involved in the monitoring.

2. The National Securities Market Commission shall cooperate closely with other competent authorities in granting authorisation for the use of internal credit ratings or internal methods of measurement of operational risk to be applied in the Spanish groups of investment service undertakings and in the determination of the conditions, to which, where appropriate, it shall be subject.

Applications for authorisation shall be submitted by a parent investment firm of the European Union and its subsidiaries or jointly by the subsidiaries of a parent financial holding company in the European Union. They shall be directed to the National Securities Market Commission in their capacity as the authority responsible for the exercise of the supervision of the consolidable groups of investment services companies.

In these cases, within a period of no more than six months from the date of receipt of the complete application, the National Securities Market Commission will promote the adoption of a joint decision on the request with the other competent authorities of other Member States in charge of the supervision of the various entities integrated in the group. To that end, it shall forward the application without delay to the other competent authorities. The reasoned decision to collect this joint decision shall be notified to the applicant by the National Securities Market Commission.

In the absence of a joint decision between the National Securities Market Commission and the other competent authorities within six months, the National Securities Market Commission will rule on the request. The reasoned decision shall take account of the views and reservations of the other competent authorities expressed over the six-month period. The reasoned decision shall be notified to the applicant and to the other competent authorities of the National Securities Market Commission.

In the case of the equivalent procedure governing the rules of the different Member States transposing Directive 2006 /49/EC of the European Parliament and of the Council of 14 June 2006 on the adequacy of the capital of investment firms and credit institutions, in the case of consolidated groups of investment firms in which a Spanish investment firm is integrated, the National Commission of the European Investment Bank, the European Investment Bank and the In addition to cooperating in the joint decision to be taken, the Securities Market may accept the (a) decisions taken by the competent authorities of other Member States of the European Union when they are responsible for the supervision of such groups. The Spanish entity concerned shall calculate its own resources requirements in accordance with that decision.

This same procedure shall apply to the recognition of internal models of institutions applying the internal ratings based approach, where the application is submitted by an investment firm. the parent company of the European Union and its subsidiaries, or jointly by the subsidiaries of a parent financial holding company in the European Union.

Article 109. Supervision of financial holding companies and mixed financial holding companies.

1. Where an investment firm, a financial holding company or a mixed financial holding company controls one or more subsidiaries which are insurance undertakings or credit institutions, the National Securities Market Commission shall be responsible for the management of the securities. will work closely with the Directorate-General for Insurance and Pension Funds and the Banco de España for its supervision. Without prejudice to their respective powers, such authorities shall communicate any information which may facilitate their work and enable the overall financial situation of the entities subject to their supervision to be monitored.

2. The National Securities Market Commission shall establish a list of the financial holding companies that control investment services companies.

3. Where the National Securities Market Commission wishes to verify, in certain cases, certain information on a financial holding company or a mixed financial holding company located in another Member State, it shall request the competent authorities of that Member State to carry out such verification.

When the National Securities and Exchange Commission receives such a request, it shall be required to do so within the framework of its jurisdiction and in accordance with the provisions of Article 91.4 of the Securities Market Act, either by proceeding with the by itself for verification, either by allowing the competent authorities which have submitted the application to proceed to it, or by allowing an auditor or expert to proceed to it.

Article 110. Relations with third countries.

1. Where an investment firm, the parent undertaking of which is an investment firm or a financial holding company with a registered office in a third country, is not subject to a consolidated supervision under the terms of the In this Chapter, the National Securities Market Commission shall verify whether it is subject by the competent authority of a third country to a consolidated supervision regulated by principles equivalent to those laid down in this Royal decree.

2. The National Securities Market Commission shall take into account the guidance provided by the European Securities Committee, on request of the European Commission, on the equivalence of the supervisory principles applied by third countries.

3. In the absence of such equivalent supervision, it shall apply, by analogy, the provisions of this Royal Decree to the investment firm or other appropriate supervisory techniques which achieve the objectives of the consolidated supervision of the credit institutions. Such monitoring techniques shall be concerted, after consultation with the other competent authorities concerned, by the National Securities Market Commission.

The National Securities Market Commission may require, in particular, the creation of a financial holding company whose registered office is located in the European Union and to apply the supervisory arrangements. consolidated on the basis of the consolidated situation of that financial holding company.

The supervisory techniques shall be designed to meet the objectives of the consolidated supervision defined in this Chapter and to be communicated to the other competent authorities involved and to the Commission. National Stock Market.

CHAPTER VI

Disclosure of information

Article 111. Omission of certain information.

1. In accordance with the provisions of Article 70a of the Law 24/1988 of 28 July 1988 on the Securities Market, the consolidated groups of investment firms as well as investment firms not integrated into those groups, obliged to make public the document entitled "Solvency information" may omit:

(a) information that has no relative importance, meaning the information whose omission cannot be modified or influenced by the assessment or decision of a user who depends on that information to make its decisions economic;

b) the information reserved, understood as that information that is shared with the public, would undermine the competitiveness of the entity, including information about products or systems that, if shared with the competitors, would make the investments of an investment firm less valuable; and,

(c) confidential information: where there are obligations with respect to the acquirers or other counterparty relationships that force an investment firm to confidentiality.

When information is omitted to be reserved or confidential, it must be stated in the "Solvency Information" document that certain data are not disclosed, as well as the reasons for such a proceeding, and will be published in This information document more general information on the aspect to which the omitted information relates, as long as this more general information is not considered to be reserved or confidential in accordance with points (b) and (c) of the previous paragraph.

Article 112. Frequency of disclosure and other information.

1. An investment firm shall publish the "Solvency Information" document at least annually. In addition, investment firms will assess the need to publish some or all of the information at a higher frequency than the annual basis, taking into account the relevant characteristics of their business activities such as: scope of operations, type of activities, presence in different countries, involvement in various financial sectors and participation in financial markets and international payment, settlement and clearing systems.

The National Securities Market Commission shall determine the information to which investment firms must pay particular attention when assessing whether a higher frequency of publication is necessary. that the annual for that data.

2. Credit institutions should further explain, if requested, their credit rating decisions to small and medium-sized enterprises and other credit-seeking companies, providing a written explanation when they are required to do so. requires. The administrative costs of the explanation shall be proportionate to the amount of the claim.

CHAPTER VII

Other solvency rules for investment firms

Article 113. Adoption of measures to return to compliance with the solvency rules.

1. Where a financial services entity or a consolidated group or a sub-group of financial services entities does not reach the minimum levels of own resources set out in Chapter III of this Title, or the additional levels that are required by the National Securities Market Commission pursuant to Article 87.bis.3.a) of Law 24/1988, of 28 July, of the Securities Market, the National Securities and Exchange Commission shall report immediately and present a program in which plans to return to compliance with the standards of solvency. The programme shall contain at least the aspects relating to the identification of the determining causes of the non-compliance or the excess, to the plan to return to compliance which may include the limitation to the development of activities involving high risks, divestiture of individual assets, or measures for raising the level of own resources and foreseeable deadlines for returning to compliance.

2. The National Securities Market Commission shall approve such a programme where it considers it appropriate that it may set additional measures for proposals in order to ensure the return to the minimum levels of own resources required. The submitted programme shall be deemed to have been approved if no express resolution has been produced within three months of its submission to the National Securities Market Commission.

3. The same action shall be followed where the limits laid down in Article 95 are exceeded as regards the limits of major risks or the reduction of the amount of own resources.

Article 114. Implementation of results in case of non-compliance with the solvency rules.

1. Where an investment firm or a consolidated group of investment services firms presents a deficit of own resources which are more than 20 per cent of the minimum required by virtue of the provisions of the present royal decree, the individual entity or each and each of the entities in the consolidable group, must allocate to reserves the totality of the net profits or surpluses.

2. Where the own resources deficit is less than or equal to or less than 20% of the individual entity or each of the entities in the consolidated group, they shall subject their distribution of results to the prior authorisation of the Commission. National Securities Market that will set the minimum percentage to be allocated to reserves on the basis of the program presented to return to compliance with the solvency rules. This minimum percentage shall not be less than 50% of net profits or surpluses.

The authorization of the National Securities Market Commission shall be deemed to be granted if one month after the request has not been expressed by express resolution.

3. The limits to the distribution of dividends referred to in paragraphs 1 and 2 shall not reach the subsidiaries in which the entities included in the consolidable group hold at least 90% of the voting rights and the capital, provided that individually satisfy the minimum required level of own resources.

4. The provisions of this Article and the preceding paragraph shall apply individually to investment firms which, included in a consolidated group of investment firms, do not individually comply with the rules of the the solvency required by virtue of the provisions of Chapter III of this Title.

5. The provisions of this Article and the foregoing shall be without prejudice to the application, where appropriate, of the penalties provided for in Law 24/1988 of 28 July of the Stock Market.

First transient disposition. Transitional arrangements for the application of the use of the method based on internal ratings and the own estimates of loss in the event of default or conversion factors.

The Banco de España may reduce to a minimum of one year the requirement set out in Article 31 (3) for credit institutions that request the use of the internal ratings based approach before 2010.

The Bank of Spain may reduce to two years the requirement set out in Article 31 (4) for credit institutions that request the use of their own estimates of loss in the event of default or conversion.

Second transient disposition. Transitional arrangements for the weighting of exposures that are denominated and financed in the currency of any of the Member States of the European Economic Area.

Until 31 December 2012, the weighting provided for in Article 22.1 shall also apply to exposures to counterparties referred to therein that are denominated and financed in the currency of any of the States. Members of the European Economic Area.

Single repeal provision. Regulatory repeal.

At the date of entry into force of this royal decree, all the provisions of equal or lower rank that are opposed to its content and, in particular, the Royal Decree 1343/1992, of 6 November, for which I know, will be repealed. develops Law 13/1992 of 1 June of own resources and supervision on a consolidated basis of financial institutions.

Final disposition first. Amendment of Royal Decree 2345/1996 of 8 November on rules of administrative authorisation and solvency requirements of mutual guarantee companies.

Article 6 of Royal Decree 2345/1996 of 8 November 1996 concerning the rules of administrative authorisation and the solvency requirements of mutual guarantee companies is worded as follows:

" Article 6. Minimum own resources regime.

1. Mutual guarantee companies shall at all times maintain their own resources not less than the sum of the following requirements:

(a) Because of the credit risk, of their commitments, 8 percent of the credit guarantees they grant, and 4 percent of the remaining commitments or assurances they make.

(b) By operational risk, 15% of its annual net financial income, whether by income from the assets in which it invests its assets, shall be by fees arising from guarantees of any kind that they grant.

(c) Those that may be established by the Banco de España, in accordance with similar provisions as may be applicable to credit institutions, to cover the credit or operational risk arising from commitments or investments. common in their activity and which do not have reaffiability.

However, commitments that benefit from general reendorsement or refunding contracts entered into with reincorporation companies, insurers or public entities, which are directed to reduce the credit risk of the mutual guarantee companies for the guarantees they grant shall enjoy a reduction factor for the purposes of the requirements set out in the first two indents of the preceding paragraph; the Banco de España shall determine such factors, which may not be greater than 0,5. For this purpose the Banco de España will take into account:

(a) The specific clauses of the contracts and the nature of the guarantee received.

(b) The nature of the counterparties that reavalen or reaffiancen, as well as the amount of indirect risk assumed with them;

(c) The characteristics of the operations that benefit from the risk reduction.

(d) to the requirements and incentives which, in the framework of such contracts, have been incorporated in respect of the procedures for the management and risk control of mutual guarantee companies.

The Bank of Spain is also empowered to require mutual guarantee companies to maintain their own resources in addition to those required for a minimum of 25 per 100 of their amount, when they appreciate, and subsist, deficiencies in the internal procedures of the institution or where the particular nature of the operations by the institution or its sectoral concentration or other order may impair the coverage of its risks.

2. The value of the risks that a mutual guarantee company contracts with a single person or group shall not exceed 20% of its own resources. '

Final disposition second. Amendment of Royal Decree 1644/1997 of 31 October concerning the rules of administrative authorisation and solvency requirements of reafirenchment companies.

Article 12 of Royal Decree 1644/1997 of 31 October 1997 on rules for the administrative authorisation and solvency requirements of the reincorporation companies is worded as follows:

" Article 12. Minimum own resources regime and risk diversification.

1. The reincorporation companies shall maintain, at all times, own resources not less than the sum of the following requirements:

(a) For the credit risk of their commitments, 8 percent of the reaffections they take on credit guarantees and 4 percent of the remaining reinsurance or other liabilities they grant.

(b) By operational risk, 15% of its annual net financial income, whether by income from the assets in which it invests its assets, shall be by fees arising from guarantees of any kind that they grant.

(c) Those that may be established by the Banco de España, in accordance with similar provisions as may be applicable to credit institutions, to cover the credit or operational risk arising from commitments or investments. usual in your activity.

However, commitments benefiting from general reinsurance contracts may receive a reduction factor for the purposes of the requirements set out in the first two indents of the preceding paragraph, in terms of that the Banco de España determines and cannot exceed 0,5. For this purpose the Banco de España will take into account:

(a) the specific clauses of the contracts and the nature of the guarantee received;

(b) the nature of the counterparties that they are reinsurer in, as well as the amount of indirect risk assumed with them; and,

c) to the characteristics of the operations that benefit from the risk reduction.

The Bank of Spain is also empowered to require the reincorporation companies to maintain their own resources in addition to those required for a minimum of up to 25% of their amount, when they appreciate, and subsist, deficiencies in the internal procedures of the institution or where the particular nature of the operations by the institution or its sectoral concentration or other order may impair the coverage of its risks.

2. The value of all the risks that a reafirenchment company has in respect of a single person or group shall not exceed 10% of its own resources. '

Final disposition third. Potestades del Banco de España and the Comisión Nacional del Mercado de Valores.

1. In addition to the powers attributed to it by the articles of this royal decree, the Banco de España will be able to exercise the following:

(a) Establish the frequency and form of the declarations of control of the own resources and of the compliance with the limitations required under this royal decree.

(b) In accordance with the provisions of Article 13 (3) of Law 13/1985 of 25 May 1985 on investment ratios, own resources and reporting obligations of financial intermediaries and other system rules (a) to assess the equivalence of the requirements or limitations required of foreign credit institutions in relation to the obligations laid down in this Royal Decree, and to agree, where appropriate, to the exclusion of their branches in Spain to comply with these obligations.

c) Define accounting concepts that have to integrate own resources and their deductions.

(d) To urge credit institutions and their groups to carry out reviews by independent experts on those aspects that they consider relevant for the purposes of the obligations of the entities or groups established in the the present royal decree and, especially as regards the consistency and quality of the data of the internal models foreseen in it.

e) determine the types of financial institutions to be included in the consolidated group of credit institutions referred to in Article 8 (3) of Law 13/1985 of 25 May of investment coefficients; own resources and reporting obligations of financial intermediaries and other rules of the financial system.

f) Establish, in the case of the consolidated groups of credit institutions subject to the requirements set out in Article duothir.1 of Law 13/1985, the general criteria for adding the own resources for such purposes and the requirements for minimum own resources payable, in particular in the case of other entities of the group not individually subject to such requirements.

g) Receive the communications of the other bodies responsible for the individual supervision or on a sub-consolidated basis of the entities belonging to a consolidated group in which different entities are integrated credit institutions when the Banco de España is responsible for the supervision of the group. Such communications shall be carried out whenever necessary and at least twice a year. Their content shall be that relating to the minimum own resources requirements which, in accordance with their specific rules, are to be payable individually or under consolidated to the institutions subject to their supervision, the deficits they present in relation to the with such minimum requirements, and the measures taken for its correction.

In addition, when the Banco de España is responsible for the supervision of a consolidated group, it will inform the other bodies with supervisory powers on individual entities, or on sub-groups thereof, when the considers necessary for the performance of their respective functions, of the deficits in the minimum own resources requirements to be required of the group, and of the measures taken for their correction.

2. In addition to the powers attributed to it by the articles of this royal decree, the National Securities Market Commission may exercise the following:

(a) Establish the frequency and form of the declarations of control of the own resources and of compliance with the limitations required under this royal decree.

(b) Define accounting concepts that have to integrate own resources and their deductions and the different categories of risks, assets and commitments subject to the obligations set out in this Royal Decree and in their development standards.

c) Appreciate the equivalence of the requirements or limitations required of foreign investment services companies in relation to the obligations set forth in this royal decree, and agree, where appropriate, the the exclusion of their branches in Spain from the fulfilment of those obligations.

d) Receive the communications of the other bodies responsible for the individual supervision or on a sub-consolidated basis of the entities belonging to a consolidated group in which different entities of companies are integrated of investment services when the National Securities Market Commission is responsible for the supervision of the said group. Such communications shall be carried out whenever necessary and at least twice a year. Their content shall be that relating to the minimum own resources requirements which, in accordance with their specific rules, are to be payable individually or under consolidated to the institutions subject to their supervision, the deficits they present in relation to the with such minimum requirements, and the measures taken for its correction.

Also, when the National Securities Market Commission is responsible for consolidating group supervision, it will inform the remaining bodies with supervisory powers on individual entities, or on sub-groups. of the same, where it considers it necessary for the performance of their respective functions, of the deficits in the minimum own resources requirements to be required of the group, and of the measures taken for their correction.

Final disposition fourth. Basic character and competency titles.

1. This Royal Decree shall have the character of basic legislation in accordance with the provisions of Article 149.1. 11th and 13th of the Constitution.

2. In addition to the basic character set out in the previous paragraph, the first and second final provisions are also given in accordance with the provisions of Article 149.1.6. of the Constitution.

Final disposition fifth. Powers of development.

1. The Bank of Spain and the National Securities Market Commission are hereby empowered to issue, within the scope of their respective powers, the precise provisions for the proper implementation of this royal decree, in particular in the following areas: classification of the order accounts, the classification and processing of the derivative instruments, the technical specifications and the calculation methods necessary for the measurement of the different risks faced by the entities subject to this royal decree and for the calculation of positions representing great risks, conditions necessary to incorporate the techniques of credit risk reduction, the treatment of securitisation transactions, the treatment of operational risk, the technical criteria for the study and evaluation by the Bank of Spain and the National Securities Market Commission of the entities under its supervision and the technical criteria concerning the publication of information on solvency.

2. Any rule that is dictated in the development of what is foreseen in this royal decree and may directly affect financial institutions subject to the supervision of the Banco de España, the National Securities Market Commission or the General Insurance and Pension Funds will be given prior report of these.

Final disposition sixth. Enabling for the development of the transitional regime.

The Banco de España will dictate the provisions necessary for the application of the scheme provided for in the first transitional provision of Law 36/2007, amending Law 13/1985 of 25 May, of investment, own resources and reporting obligations of financial intermediaries and other rules of the financial system.

Final disposition seventh. Incorporation of European Union law.

This royal decree partially incorporates into Spanish law Directive 2006 /48/EC of the European Parliament and of the Council of 14 June 2006 on the access to the business of credit institutions and their exercise and Directive 2006 /49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions.

Final disposition octave. Entry into force.

1. This royal decree shall enter into force on the day following that of its publication in the Official Gazette of the State, except as provided for in paragraph 2.

2. The provisions of the first final provision and the second final provision of this royal decree shall enter into force on 1 July 2008.

Given in Madrid, on February 15, 2008.

JOHN CARLOS R.

The Second Vice President of the Government and Minister of Economy and Finance,

PEDRO SOLBES MIRA