Published and draft legislation - Spain

Customer Protection

Act 10/2014 - Credit Institution Organization, Supervision and Solvency Act

This act transposes regulatory changes in European law into Spanish statutory law by bringing together in one act regulations applicable to credit institutions in areas such as supervision, capital requirements and penalties.

This legal measure thus establishes a single legal framework on solvency and access to the activity of credit institutions, bringing together legislation previously scattered over various different regulations, some very old and all prior to the global financial crisis. It regulates the general aspects of the system enabling lenders to be certified as credit institutions, as well as the operation of its governance bodies, their supervisors and sanctions that can be applied by the authorities, as well as establishing capital and solvency requirements and appropriate risk management.

The inclusion of Article 5, regulating the protection of credit-institution customers is particularly striking. This article empowers the Ministry of Economy & Competitiveness to issue pre-contractual rules on information to be provided to customers, so that they "explicitly and most clearly" reflect the rights and obligations of the parties and the risks stemming from the service and/or product, so that customers are able to analyze whether or not it fits their needs. The Ministry, within the powers granted, may establish basic conditions for banking services and products that must be duly complied with by entities. It also specifically regulates that fees or expenses can only be charged for services that have been "expressly requested by the customer”.

In reaction to the excesses generated prior to the economic crisis, this law empowers the Ministry to issue rules to ensure that credit institutions perform more robust risk analysis when granting loans. Lenders will be encourage to pay due attention to the customer's income, the adjusted value of their collateral, the impact of potential changes in interest rates on variable-rate loans, etc. Ultimately the idea is to achieve greater rigour in risk assessment.

Additionally, and in order to avoid the application of arbitrary rates against which variable-interest loans are indexed, the Ministry itself or through the Bank of Spain can now regulate these indices in an official capacity.

Finally, all provisions of Article 5 are reinforced by their treatment as organizational and disciplinary regulations of credit entities, which are thus subject to the supervision of the Bank of Spain and the penalty system reflected by these regulations.