Opinion of the European Central Bank of 16 November 2021 on the Banco de España’s new and expanded tasks relating to covered bonds and the single euro payments area (CON/2021/34)

OPINION OF THE EUROPEAN CENTRAL BANK of 16 November 2021 on the Banco de España’s new and expanded tasks relating to covered bonds and the single euro payments area (CON/2021/34) Introduction and legal basis

On 14 October 2021 the European Central Bank (ECB) received a request from the Ministry of Economic Affairs and Digital Transformation for an opinion on a draft law on covered bonds (hereinafter the ‘draft law’). The draft law was approved as a Royal Decree-Law on 2 November 2021 and published in the Official Journal a day later. The Royal Decree-Law is currently pending ratification by the Congress. The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the European Union and the third indent of Article 2(1) of Council Decision 98/415/EC , as the draft law relates to the Banco de España and the ECB’s tasks concerning the prudential supervision of credit institutions pursuant to Article 127(6) of the Treaty. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.

1. Purpose of the draft law

1.1 The main purpose of the draft law is to implement Directive (EU) No 2019/2162 of the European Parliament and of the Council in Spanish law. The draft law accordingly designates the Banco de España as the competent authority responsible for the public supervision of covered bonds issued by credit institutions and confers on it supervisory, investigatory and sanctioning powers in relation to the compliance with the requirements of the draft law and its implementing administrative regulations of credit institutions issuing covered bonds, including under covered bond programmes . More particularly, the Banco de España is to authorise the issuance by credit institutions of a covered bonds programme and to approve the appointment of the monitoring body for the cover pool (the ‘cover pool monitor’), whether this is an external service provider or internal to the credit institution issuing the covered bonds . The Banco de España must keep a register of

the cover pool monitors detailing the programme or programmes for which each monitor has been authorised. It may require credit institutions to make changes to the cover pool policies and procedures based on cover pool risk diversification considerations . The Banco de España is also required to make certain disclosures, including the publication on its website of the list of credit institutions permitted to issue covered bonds . In the event of the insolvency of a credit institution issuing covered bonds under that programme the presiding judge must consult the Banco de España on the appointment of a special administrator to administer a covered bond programme. The Banco de España may also adopt non-binding instruments and technical guidelines in relation to the supervision of covered bonds. 1.2 The draft law also designates Banco de España as the competent authority responsible for ensuring compliance with the payment accessibility requirement of Article 9 of Regulation (EU) No 260/2012 of the European Parliament and of the Council in relation to companies, entrepreneurs or professionals acting on the basis of their commercial or professional activities which are not payment service providers and are beneficiaries of a payment order whose originator is another company, entrepreneur or professional acting on the basis of their commercial or professional activity that is not a payment service provider. In this respect the Banco de España may request the necessary information to ascertain whether companies, entrepreneurs or professionals which are the beneficiaries of a payment are not requiring that transfers and direct debits are made only through accounts located in their country of origin. The Banco de España may also impose sanctions in this respect .

2. Specific observations

2.1 Directive (EU) No 2019/2162 must be interpreted in line with Council Regulation (EU) 10 11 No 1024/2013 , to which it refers . Article 4(1)(a) of Regulation (EU) No 1024/2013 gives the ECB the exclusive task of authorising credit institutions and withdrawing authorisations of credit institutions. The draft law’s provisions implementing Directive (EU) No 2019/2162 regarding the right to issue authorisations for the issuance of covered bonds must also be interpreted in line with Regulation (EU) No 1024/2013. In accordance with Article 6(4) of Regulation (EU) No 1024/2013, the ECB exercises this responsibility in respect of both significant and less significant institutions. This task is exercised for all banking activities listed in Annex I of Directive 2013/36/EU of the

European Parliament and of the Council as well as for any additional activity allowed under national law . 2.2 The draft law implements Article 19 of Directive (EU) 2019/2162, which requires permission for a covered bond programme to be obtained before issuing covered bonds under it. Under Article 34(1) of the draft law the issuance of a covered bond programme requires the Banco de España’s prior authorisation. 2.3 The ECB has previously opined on the allocation of competences between the ECB and the national competent authorities (NCAs) in the Single Supervisory Mechanism , noting that Directive (EU) 2019/2162 makes provision for the supervision of covered bonds by the NCAs and that this product supervision is distinct from and without prejudice to the ECB’s prudential supervisory tasks under Regulation (EU) No 1024/2013 and, in particular, does not affect the ECB’s exclusive task of authorising credit institutions and withdrawing authorisations of credit institutions, which may, depending on the national legal framework, include a general authorisation to issue covered bonds. Similarly, the ECB remains competent to ensure that the prudential risks arising from covered bond issuances as well as investments in covered bonds are adequately managed and assessed by credit institutions. The ECB has also previously noted that any possible authorisation for a specific covered bond programme or supervision of covered bonds as a financial product would be considered as a product-specific regulation and, as such, to fall under the supervision of an NCA. 2.4 Accordingly, the competence conferred on the Banco de España by the draft law to authorise the issuance by a credit institution of a covered bonds programme should be without prejudice to the ECB’s competence to issue authorisations for credit institutions.

3. Conferral of new tasks on the Banco de España as to the supervision of covered bonds

3.1 New tasks of the Banco de España 3.1.1 The draft law confers tasks concerning the supervision of covered bonds on the Banco de España. It should be noted that the existing national covered bonds legislation already confers certain specific supervisory tasks in relation to the monitoring and inspection of covered assets on the Banco de España. These tasks vary depending on the type of instrument concerned. In particular, certain specific supervisory tasks have been conferred on the Banco de España in relation to mortgage covered bonds (cédulas y bonos hipotecarias), internationalisation covered bonds (cédulas y bonos de internacionalización) and public sector covered bonds (cédulas territoriales). Despite the conferral of these specific supervisory tasks on the Banco de España, the existing

Spanish covered bonds legislation provides a general competence to the Ministry of Economy to ensure compliance with the requirements established in this legislation, including those requirements applicable to the different types of covered bonds, without prejudice to the specific powers of the Banco de España . The general tasks which are proposed to be conferred on the Banco de España by the draft law may therefore be properly characterised as new tasks of the Banco de España. 3.1.2 The ECB emphasises that a proposed conferral of new tasks on a national central bank (NCB) participating in the European System of Central Banks (ESCB) must be assessed against the prohibition on monetary financing under Article 123 of the Treaty. For the purposes of that prohibition, Article 1(1)(b)(ii) of Council Regulation (EC) No 3603/93 defines ‘other type of credit facility’ as, inter alia, ‘any financing of the public sector’s obligations vis-à-vis third parties’. 3.1.3 Ensuring that Member States implement a sound budgetary policy is one of the key objectives of the prohibition on monetary financing. Therefore, the task of financing measures, which are normally the responsibility of the Member States, and which are financed from their budgetary sources rather than by the NCBs, must not be entrusted to NCBs. To decide what constitutes financing of the public sector’s obligations vis-à-vis third parties, which can be translated as the provision of central bank financing outside the scope of central bank tasks, it is necessary to carry out, on a case-by-case basis, an assessment of whether the task to be undertaken by an NCB is a central bank task or a government task, i.e. a task within the responsibility of the Member States. 3.1.4 As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and Article 35.6 of the Statute of the European System of Central Banks and of the European Central Bank (hereinafter the ‘Statute of the ESCB’), to ensure that NCBs honour the obligations laid down by the Treaty, the Governing Council has endorsed safeguards in the form of criteria for determining what may be considered as falling within the scope of ‘the public sector’s obligations vis-à-vis third parties’ within the meaning of Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, what constitutes a government task, as follows: First, central bank tasks are, in particular, those tasks that are related to the tasks that have been conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks are mainly defined in Article 127(2), (5) and (6), and Article 128(1) of the Treaty, as well as in Article 22 and Article 25.1 of the Statute of the ESCB. Second, as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘functions other than those specified in [the Statute of the ESCB]’, new tasks, i.e. tasks that are not related to tasks that have been conferred upon the ECB and the NCBs, are not precluded per se. However, new tasks that are undertaken by an NCB and which are atypical of NCB tasks or which are clearly discharged

on behalf of, and in the exclusive interest of the government or of other public sector entities, should be considered government tasks. Third, an important criterion for qualifying a new task as atypical of an NCB task, or as being clearly discharged on behalf of and in the exclusive interest of the government or other public sector entities, is the impact of the task on the institutional, financial and personal independence of that NCB. In particular, the following aspects should be taken into account: (a) whether the performance of the new task creates conflicts of interest with existing central bank tasks which are not adequately addressed, and its performance does not necessarily complement those existing central bank tasks. If a conflict of interest arises between existing and new tasks, sufficient safeguards to mitigate that conflict should be in place. The complementarity between a new task and existing central bank tasks should not be interpreted broadly so that it could lead to the creation of an indefinite chain of ancillary tasks. Such complementarity should be examined in relation to the financing of those tasks; (b) whether without new financial resources the performance of the new task is disproportionate to the NCB’s financial or organisational capacity, and may have a negative impact on the capacity to properly perform the existing central bank tasks; (c) whether the performance of the new task fits into the institutional set-up of the NCB in the light of central bank independence and accountability considerations; (d) whether the performance of the new task harbours substantial financial risks; (e) whether the performance of the new task exposes the members of the NCB decision-making bodies to political risks that are disproportionate and may also have an impact on their personal independence and, in particular, on the guarantee of term of office set out in Article 14.2 of the Statute of the ESCB. 3.1.5 The systematic categorisation of tasks assigned to NCBs as central banking or government tasks applies to genuinely new tasks that did not exist in the past or did not form an integral part of the central banking tasks already assigned to the NCB in the past. In recognition of the different Member States’ legal frameworks, central banking traditions and national set-ups, the tasks currently discharged by an NCB as central banking tasks are not reviewed and re-categorised, but may be reassessed if they are subject to legislative amendments of substance . On the basis of the criteria set out in paragraph 3.1.4, the following paragraphs assess whether the draft law is in line with the prohibition on monetary financing. 3.2 Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of

the ESCB

The Banco de España’s proposed task of supervising covered bonds is not related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB.

3.3 Tasks which are atypical of central bank tasks

The task of supervising covered bonds is not atypical of central bank tasks. This task complements

the existing role of several NCBs as supervisors of credit institutions. A central bank acting as a

banking supervisor may be entrusted with the task of supervising covered bonds due to its specific

expertise regarding credit institutions’ balance sheets, which is relevant to ensuring compliance

with the requirements relating to the high quality of covered assets with the purpose of ensuring

the robustness of the covered pool.

In the implementation of Directive (EU) 2019/2162, or under other relevant provisions of national

law, Member States have conferred supervisory tasks in relation to covered bonds on a wide range

of public authorities including central banks, financial supervisory authorities (some of which are

central banks), and securities market supervisors. More concretely, the ECB has identified nine

Member States that had directly conferred these supervisory tasks or a substantial part of these

supervisory tasks on their NCBs . The ECB also understands that in the implementation of

Directive (EU) 2019/2162 several Member States are considering conferring tasks relating to the supervision of covered bonds on their respective NCBs. The Banco de España, as the body responsible for the supervision of credit institutions on the basis of Article 7(6) of Law 13/1994 on the autonomy of the Banco de España and on the basis of Law 10/2014 on the regulation, supervision and solvency of credit institutions , may supervise credit institutions that issue covered bonds in Spain. Given the Banco de España’s existing role in the supervision of credit institutions, a role which numerous other ESCB NCBs fulfil in relation to such institutions in their respective Member States, as well as the existing specific tasks conferred on the Banco de España in relation to the supervision of covered bonds, its new tasks under the draft law are not atypical of central bank tasks. 3.4 Tasks clearly discharged on behalf of and in the exclusive interest of the government For the same reasons, the Banco de España’s supervisory tasks in relation to covered bonds issued by credit institutions conferred by the draft law are not tasks discharged on behalf of and in the exclusive interest of the government. The Banco de España already plays a role in both the supervision of covered bonds and in the prudential supervision of credit institutions. There is no indication that, in carrying out the new tasks conferred by the draft law, the Banco de España would be acting exclusively in the interest of another public authority. 3.5 Extent to which performance of the new tasks creates conflicts of interest with existing central bank

tasks

Since the Banco de España’s new tasks under the draft law complement its existing tasks, no conflicts of interest arise with other aspects of the Banco de España’s mandate. 3.6 Extent to which the performance of the new tasks is disproportionate to the Banco de España’s

financial or organisational capacity

The ECB notes that it is essential to ensure that the Banco de España has available to it sufficient resources, including personnel, for the performance of assessments and the issuance of directions under the draft law, so that its capacity to perform its ESCB-related tasks is not affected. In this regard, the draft law does not specifically address how the additional expenses that arise from the granting the Banco de España these additional powers will be financed. The ECB understands that the additional resources required by the Banco de España to exercise these additional powers will be financed through its existing budgetary framework and so there will be no specific cost recovery mechanism designed to ensure the full recovery of the costs incurred in carrying out the supervision of covered bonds. However, the performance of the new tasks by the Banco de España is not disproportionate to its financial or organisational capacity.

3.7 Extent to which performance of the new tasks fits into the Banco de España’s institutional set-up, in the light of central bank independence and accountability considerations The performance of the new tasks appears to be aligned with the Banco de España’s institutional set-up. As mentioned in paragraphs 1.2 and 3.3, the Banco de España already has specific competences in respect of the supervision of covered bonds and is a prudential supervisor of credit institutions. 3.8 Extent to which the performance of the new tasks harbours substantial financial risks The performance of the new tasks does not harbour substantial financial risks for the Banco de España. The draft law does not directly address the Banco de España’s potential liability in the event of any legal action or other legal proceedings for damages in relation to the exercise of its powers under the draft law. In this respect, under Article 32 of Law 40/2015 on the legal regime of the public sector natural or legal persons have a right to be compensated by public administration bodies in the exercise of their functions for any damage those natural or legal persons suffer to their property and/or rights, except in cases of force majeure. Under Article 1(2) of Law 13/1994 the Banco de España is included as a public administration body for these purposes. Further, the internal rules of the Banco de España state that the Banco de España’s direct liability extends to claims for compensation for damages and losses that individuals make against employees of the Banco de España in the exercise of their functions, except in cases of gross negligence or bad faith. 3.9 Extent to which the performance of the new tasks exposes members of the Banco de España’s decision-making bodies to disproportionate political risks and has an impact on their personal

independence

The performance of the new tasks conferred by the draft law does not expose members of the Banco de España’s decision-making bodies to any disproportionate political risk or have an impact on their personal independence. 3.10 Conclusion The new tasks conferred by the draft law on the Banco de España as to supervision of the issuance of covered bonds by credit institutions can be regarded as central bank tasks, as they would complement the Banco de España’s existing functions in relation to the prudential supervision of credit institutions. The new tasks conferred by the draft law are not atypical of central bank tasks and have been conferred on a number of other ESCB NCBs.

4. Substantial amendment of tasks conferred on the Banco de España in relation to the Single Euro Payments Area

4.1 Substantial amendment of the tasks of the Banco de España 4.1.1 The ECB understands that the objective of the draft law is to ensure compliance with Regulation

(EU) No 260/2012. The ECB welcomes this, in particular with regard to the right to payment accessibility, under which the beneficiary of a payment cannot require transfers and direct debits to be made only through accounts located in its country of residence. 4.1.2 The Banco de España is currently one of the competent authorities in Spain responsible for ensuring compliance with Regulation (EU) No 260/2012. More concretely, under Royal Decree- Law 6/2013 , the Banco de España is the competent authority for ensuring the compliance of payment service providers (PSPs) with Regulation (EU) No 260/2012. The draft law designates the Banco de España as the competent authority responsible for ensuring compliance with Article 9 of Regulation (EU) No 260/2012 with respect to companies, entrepreneurs or professionals that act on the basis of their commercial or professional activities and are not considered to be PSPs . Article 9 of Regulation (EU) No 260/2012 relates to the acceptance of any euro payment account within the Union for making or receiving payments and contains obligations vis-à-vis payment service users (PSUs) . In particular, Article 9 ensures that payers (are able to) make credit transfers to, and payees (are able to) collect funds by accepting credit transfers or by using direct debits from, payment accounts held with PSPs which are located in any Member State, provided that the payment account is reachable in accordance with Article 3 of Regulation (EU) No 260/2012. Accordingly, the draft law, in the context of non-PSP company-to-company relations under Article 9 of Regulation (EU) No 260/2012, designates Banco de España as the competent authority and confers sanctioning powers on the Banco de España for non-compliance with Article 9 in that context . 4.1.3 The addition of PSUs which are non-PSP companies, entrepreneurs or professionals to the group of entities whose compliance the Banco de España is now tasked with monitoring and sanctioning is a substantial expansion of the Banco de España’s existing tasks under Regulation (EU) No 260/2012 . 4.1.4 A proposed conferral of new or substantially amended tasks on an NCB in the ESCB must be assessed against the prohibition on monetary financing laid down in Article 123 of the Treaty based on the considerations set out in paragraphs 3.1.2 to 3.1.5. 4.2 Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of

the ESCB

The tasks of ensuring compliance with Article 9 of Regulation (EU) No 260/2012, and sanctioning companies, entrepreneurs and professionals, whether PSPs or PSUs, for non-compliance with this provision, are not among the basic tasks listed in Article 127(2) and (5) of the Treaty or otherwise conferred upon the NCBs by the Statute of the ESCB. However, insofar as the Single Euro Payments Area (SEPA) project is designed to achieve a fully integrated internal market for

payments and payment services, thereby enhancing public confidence in the euro, the expanded tasks conferred on the Banco de España as a result of the draft law could be regarded as being linked to the basic ESCB task of promoting the smooth operation of payment systems . 4.3 Tasks which are atypical of central banks The ECB notes that Member States have followed different approaches when designating authorities responsible for ensuring PSPs and PSUs’ compliance with Regulation (EU) No 260/2012. The majority of Member States, including in the euro area, have followed a bifurcated approach whereby the competent authority as regards compliance by PSPs is the respective central bank or financial supervision authority, and the competent authority as regards compliance by PSUs is a national consumer protection or competition authority. However, a number of Member States, including in the euro area, have designated their respective NCBs as competent authorities as regards compliance by both PSPs and PSUs . For that reason, the expanded tasks conferred on the Banco de España by the draft law are not atypical of central bank tasks . 4.4 Tasks clearly discharged on behalf of and in the exclusive interest of the government The promotion of the smooth operation of payment systems is one of the core tasks to be carried out by the ESCB. In that respect, the ECB has always been firmly committed to, and has actively promoted, a fully integrated payment area for the euro, recognising that this would help reduce substantially and eventually eliminate the differences in cost and convenience of making domestic and cross-border payments. As previously noted, the ECB considers that the creation of a single payment area for the euro is desirable in order to enhance public confidence in the single currency . The recitals to Regulation (EU) No 260/2012 clarify that the creation of a single payment area for the euro is necessary for the proper functioning of the internal market and aims to provide Union citizens and businesses with secure, competitively priced, user-friendly, and reliable payment services in euro, regardless of location within the Union. The expanded tasks conferred on the Banco de España by the draft law are directly connected with these overarching objectives of the SEPA project and is therefore not considered as tasks that are clearly discharged on behalf of and in the exclusive interest of the government . 4.5 Extent to which performance of the new tasks creates conflicts of interest with existing central bank

tasks

In principle, the new tasks as to ensuring compliance by companies, entrepreneurs and professionals which are not PSPs in respect of their company -to-company relations with Article 9 of Regulation (EU) No 260/2012 conferred upon the Banco de España as a result of the draft law are not expected to create any conflict of interest with existing central bank tasks. The ECB understands that the new tasks will supplement the Banco de España’s existing tasks under

Regulation (EU) No 260/2012 regarding compliance by PSPs. In that regard, the expanded tasks are expected to ensure compliance by an important number of PSUs which are participants in the market for payments and payment services with Regulation (EU) No 260/2012 and thereby enhance confidence in the single currency. The conferral of these new tasks on the Banco de España is therefore aligned with the conferral on it of its existing tasks under Regulation (EU) No 260/2012, as well as with its competence to oversee payment systems and payment instruments . 4.6 Extent to which performance of the expanded tasks is disproportionate to the financial or

organisational capacity of the Banco de España

The ECB notes that PSUs which are non-PSP companies, entrepreneurs or professionals are not entities already supervised by the Banco de España, and that the Banco de España will be required to commit additional resources, both human and financial, to carry out the new task conferred on it by the draft law. In this regard, the ECB would like to reiterate that Member States may not put their NCBs in a position where they have insufficient operational and financial resources to carry out their ESCB or Eurosystem-related tasks, as applicable. Therefore, it is necessary that the performance of this additional task does not affect the Banco de España’s operational or financial capacity to carry out other ESCB-related tasks. The draft law does not specify the resources to be used by the Banco de España for the discharge of the abovementioned tasks, nor does it provide an estimate of the costs likely to be incurred in the performance of these tasks. It cannot, therefore, be excluded that the new task may have an impact on the Banco de España’s regular budget. It is therefore important that adequate resources are available to the Banco de España in order to ensure that it can properly perform its tasks, while maintaining, at all times, sufficient means to carry out its ESCB-related and national tasks and to meet its administrative and operational expenses . 4.7 Extent to which performance of the new tasks fits into the institutional set-up of the Banco de España, in the light of central bank independence and accountability considerations The performance of the Banco de España’s expanded tasks appears to be consistent with its institutional set-up and not to raise any issues in terms of accountability considerations, as the Banco de España has been carrying out other tasks in relation to Regulation (EU) No 260/2012, as one of the competent authorities, since 2013. It should also be noted that, insofar as the draft law extends the Banco de España’s existing competence to non-supervised entities, notably non-supervised PSUs in the context of Article 9 of Regulation (EU) No 260/2012, it deviates from the existing allocation of competences as established in Royal Decree-Law 6/2013. In this regard, the ECB takes note of the fact that, as the explanatory memorandum of the draft law states, the relevant organisms of the Autonomous Communities already do the work of ensuring compliance with Article 9 of Regulation (EU) No 260/2012 when there is a payment relationship in which natural persons or natural persons and companies are involved.

4.8 Extent to which the performance of the task harbours substantial financial risks The performance of the expanded tasks does not harbour substantial financial risks for the Banco de España. The draft law does not directly address the Banco de España’s potential liability in the event of any legal action or other legal proceedings for damages in relation to the exercise of its powers under the draft law. In this respect, Article 32 of Law 40/2015 establishes the right for natural or legal persons to be compensated by public administration bodies in the exercise of their functions for any damage those natural or legal persons suffer to their property and/or rights, except in cases of force majeure. The Banco de España is included as a public administration body for those purposes by virtue of Article 1(2) of Law 13/1994. Further, Article 25 of the internal rules of the Banco de España states that the Banco de España’s direct liability extends to claims for compensation for damages and losses that individuals make against employees of the Banco de España in the exercise of their functions, except in cases of gross negligence or bad faith. 4.9 Extent to which the performance of the new tasks exposes members of the decision-making bodies of the Banco de España to disproportionate political risks and impacts on their personal

independence

The performance of the expanded tasks conferred by the draft law does not expose members of the Banco de España’s decision-making bodies to any disproportionate political risk or have an impact on their personal independence. 4.10 Conclusion Insofar as the SEPA project is designed to achieve a fully integrated internal market for payments and payment services, thereby enhancing public confidence in the single currency, the new tasks conferred on the Banco de España by the draft law are considered to be linked to the basic ESCB task of promoting the smooth operation of payment systems. Moreover, these tasks are not atypical of central bank tasks, as a number of Member States have designated their respective NCBs as competent authorities for ensuring compliance by PSUs with Regulation (EU) No 260/2012.

This opinion will be published on EUR-Lex.

Done at Frankfurt am Main, 16 November 2021.

[signed]

The President of the ECB

Christine LAGARDE