Financial Crime World

ECB and Bank of Spain Crack Down on Banks’ Business Practices

In an effort to strengthen the financial sector, the European Central Bank (ECB) and the Bank of Spain have introduced stricter regulations for banks operating in the country. The new rules aim to curb excessive risk-taking, promote transparency, and protect depositors.

Restrictive Measures

The ECB and the Bank of Spain have imposed several restrictive measures on banks, including:

Divestment of High-Risk Activities

  • Banks are required to divest activities that pose excessive risks to their financial stability.

Limiting Variable Remuneration

  • Institutions must limit variable remuneration to ensure that it is aligned with the bank’s risk profile and does not encourage excessive risk-taking.

Increased Capital Requirements

  • Banks must maintain a common equity Tier 1 (CET1) capital ratio of 4.5 per cent
  • A Tier 1 capital ratio of 6 per cent
  • A total capital ratio of 8 per cent

Resolution Planning

To prepare for potential crises, banks are required to conduct regular recovery planning exercises, which must include:

Quantitative and Qualitative Indicators

  • Banks must develop quantitative and qualitative indicators that will be used to initiate relevant measures in the event of a significant deterioration in their financial situation.

Approval and Review

  • The plans must be approved by the bank’s management body
  • Reviewed by the supervisor

Directors’ Liability

In the event of a bank failure, directors may face:

Civil, Criminal, and Administrative Liability

  • For gross negligence or wilful misconduct
  • In cases of false accounting, negligent business management, destruction of required documentation, and fraudulent transactions

Recovery Planning Exercises

Banks must conduct regular recovery planning exercises to identify potential risks and develop measures to mitigate them. The plans must be:

Updated Annually

  • Or after a material change in the bank’s situation

Capital Requirements

Spanish credit institutions are subject to Regulation (EU) 575/2003, which provides the general prudential requirements for all European credit institutions and investment firms. Banks must maintain a minimum common equity Tier 1 capital ratio of:

4.5 per cent

6 per cent

8 per cent

The ECB and the Bank of Spain’s new regulations aim to promote a safer and more stable financial system in Spain. By imposing stricter requirements on banks, the authorities hope to reduce the risk of another financial crisis and protect depositors’ interests.