Banking Law And Fit And Proper Management Spain .
1. Introduction
The fit and proper requirement is a central principle of banking regulation in Spain. It requires persons who direct, manage, or exercise key functions in a bank to possess the necessary qualities to perform their duties responsibly.
The purpose is to ensure that banks are managed by individuals who have the appropriate:
Professional knowledge and experience.
Good repute and integrity.
Ability to exercise independent and sound judgment.
Availability of sufficient time to perform their duties.
Collective suitability when considered together with the other members of the management body.
Banking law treats management suitability as a matter of financial stability and depositor protection, not merely as an internal employment decision.
Important distinction: Fit and proper is not a single Spanish statutory test. It is a framework derived from Spanish banking legislation, European Union banking law, European Central Bank supervision, and administrative and judicial decisions.
This explanation focuses on the Spanish banking system, including significant institutions supervised by the European Central Bank (ECB) and less significant institutions supervised by the Banco de España.
2. Legal framework governing fit and proper management in Spain
1
Spanish Banking Law
Law 10/2014 of 26 June, on the regulation, supervision and solvency of credit institutions.
This is the principal Spanish banking statute governing the authorization, management, supervision, and solvency of credit institutions.
2
European Union Banking Law
Directive 2013/36/EU (Capital Requirements Directive IV, CRD IV)
Articles 91 and related provisions establish requirements concerning the suitability of management body members, including knowledge, skills, experience, reputation, and governance.
3
ECB Supervisory Framework
Regulation (EU) No 1024/2013 and Regulation (EU) No 468/2014.
The ECB exercises prudential supervision over significant credit institutions and decides on the appointment of members of their management bodies where the relevant legal requirements apply.
4
EBA and Spanish Supervisory Guidance
The European Banking Authority's guidelines on internal governance and the assessment of management body members provide practical criteria for assessing suitability. The Banco de España applies the relevant Spanish and European framework to institutions within its supervisory competence.
3. Who must satisfy the fit and proper test?
The requirement applies primarily to the following categories.
| Person | Why suitability matters |
|---|---|
| Members of the board of directors | Responsible for strategic direction and oversight. |
| Executive directors | Directly involved in management and decision-making. |
| Senior management | Responsible for significant operational, risk, and compliance functions. |
| Key function holders | Persons whose responsibilities materially affect governance, risk, or control. |
| Members of supervisory or management bodies | Must meet applicable individual and collective suitability requirements. |
The precise legal requirements depend on the type of institution, the position, and whether the institution is supervised directly by the ECB or by the Banco de España.
4. Meaning of "Fit and Proper"
Fit and proper generally requires two broad elements:
Fit: The person has sufficient competence, experience, and capacity to perform the function.
Proper: The person has the necessary reputation, integrity, and ethical standing.
These are assessed alongside other governance factors, such as independence, conflicts of interest, diversity, and collective suitability.
A. Professional knowledge and experience
A bank director should understand the matters relevant to the bank's activities, including:
Banking business and financial markets.
Risk management.
Accounting and financial reporting.
Corporate governance.
Prudential regulation and capital requirements.
Compliance and internal controls.
Strategic management.
For example, a proposed director of a large commercial bank with substantial lending, derivatives, and international operations may need a broad understanding of those activities.
Experience is not necessarily required in every banking activity. The relevant question is whether the individual's qualifications and professional background are adequate for the specific role.
B. Good repute, honesty, and integrity
The supervisor may consider matters such as:
Criminal convictions relevant to financial misconduct.
Fraud, dishonesty, or serious professional misconduct.
Regulatory sanctions.
Misleading statements to supervisors.
Repeated breaches of professional obligations.
Serious failures involving financial or corporate responsibilities.
A past allegation is not automatically equivalent to a finding of misconduct. The assessment must consider the applicable legal standard and the facts established by the evidence.
C. Time commitment
A director must have sufficient time to perform the functions assigned to them.
Relevant considerations include:
Number of other directorships.
Executive and non-executive responsibilities.
Committee memberships.
Size and complexity of the institution.
Geographic responsibilities.
Workload arising from risk and audit oversight.
For larger institutions, the supervisory assessment may require a more detailed examination of actual time availability.
D. Independence of mind
Independence of mind means the ability to make sound, objective decisions without improper influence.
A director may have independent judgment even if they are not legally classified as an independent director. The assessment focuses on whether the person can challenge management and act in the bank's interests.
Potential concerns include:
Dominant shareholders.
Close personal or business relationships.
Excessive influence by senior executives.
Conflicts of interest.
Dependence on another board member.
E. Collective suitability
The board as a whole must possess an appropriate range of knowledge, skills, and experience.
For example, a board may need collective expertise in:
Banking and credit risk.
Finance and accounting.
Information technology and cybersecurity.
Compliance and anti-money laundering.
Risk management.
Governance and strategy.
A person who lacks experience in one particular field may nevertheless be suitable if the board collectively has the required competence and the individual can perform their assigned role.
5. The Spanish supervisory assessment procedure
A typical suitability assessment may involve the following stages:
Nomination of candidate ↓ Institutional suitability review ↓ Submission of information and declarations ↓ Banco de España or ECB assessment ↓ Evaluation of reputation and competence ↓ Evaluation of time commitment and independence ↓ Assessment of collective suitability ↓ Decision: suitable / not suitable
Information that may be required
The institution or supervisor may examine:
Curriculum vitae.
Educational qualifications.
Professional experience.
Criminal and administrative records, where legally relevant.
Declarations of conflicts of interest.
Details of other positions.
Governance responsibilities.
Information about financial misconduct.
Responses to supervisory questions.
Possible outcomes
The authority may:
Approve or accept the suitability of the candidate.
Request additional information.
Require remedial training or governance measures, where legally permitted.
Require changes to the proposed appointment.
Refuse or oppose the appointment.
Take supervisory action if an existing director ceases to satisfy applicable requirements.
A refusal or adverse decision must be based on the relevant legal framework and procedural safeguards.
6. At least 6 important case laws
Scope of the case law: The following are six important European banking and financial-supervision decisions relevant to the legal principles governing Spanish fit and proper management. Not all six are direct Spanish judgments on the suitability of a bank director. They are included because Spanish banking supervision operates within the EU banking-union legal framework.
The cases should be distinguished from decisions specifically concerning the removal of a Spanish bank director or a Banco de España fit-and-proper refusal.
Case 1. Berlusconi and Fininvest v Banca d'Italia and Others
CJEU
Case C-219/17
Silvio Berlusconi and Fininvest SpA v Banca d'Italia and ECB
Judgment of 19 December 2018
Background
The case concerned the acquisition of a qualifying holding in a bank and the division of responsibilities between national authorities and the ECB under the Single Supervisory Mechanism. Legal issue
Whether national courts could review preparatory acts adopted by national authorities in a procedure leading to an ECB decision concerning the acquisition of a qualifying holding. Decision
The Court of Justice held that the ECB has the final decision-making role under the relevant EU framework, and that national preparatory acts are part of the EU administrative procedure rather than independent national decisions for judicial review purposes. Importance for fit and proper management
This case is relevant to the division of powers between national banking authorities and the ECB. It demonstrates that where EU banking law assigns the final decision to the ECB, the legal assessment must take account of the EU supervisory framework.
Principle
In banking-union matters, national authorities may prepare and assess information, but the final authority must act within the EU legal framework assigned to it.
Relevance to Spain: Important for understanding ECB and Banco de España roles, especially in significant-bank supervision.
Case 2. Landeskreditbank Baden-Württemberg v ECB
CJEU
Case C-450/17 P
Landeskreditbank Baden-Württemberg v European Central Bank
Judgment of 8 May 2019
Background
Landeskreditbank challenged its classification as a significant institution subject to direct ECB supervision. Legal issue
Whether the ECB had lawfully classified the institution as significant and exercised direct supervisory competence. Decision
The Court upheld the relevant ECB classification and explained the framework for determining the division of supervisory responsibilities under the Single Supervisory Mechanism. Importance for fit and proper management
The case helps explain why the identity of the competent authority matters. A fit-and-proper decision for a significant Spanish bank may be governed by the ECB framework, while a less significant institution may fall under the Banco de España's competence.
Principle
Supervisory competence is determined by the EU banking-supervision framework, including the significance of the credit institution.
Relevance to Spain: The same distinction applies to the Spanish banking sector.
Case 3. ECB v Trasta Komercbanka
CJEU
Joined Cases C-663/17 P, C-665/17 P and C-669/17 P
European Central Bank v Trasta Komercbanka AS
Judgment of 5 November 2019
Background
The case involved the withdrawal of a bank's authorization and issues concerning judicial review and representation of the bank after supervisory intervention. Legal issue
Whether the bank could bring proceedings challenging the ECB's decision after the bank's authorization had been withdrawn, and how the bank was to be represented. Decision
The Court addressed the standing and procedural representation issues, including the position of the bank's former management and shareholders. Importance for fit and proper management
The case illustrates the importance of procedural safeguards when banking supervisors take serious decisions affecting an institution and its management.
Principle
Banking supervisory decisions must be subject to the applicable judicial review and procedural requirements.
Relevance to Spain: If a Spanish bank's management or authorization is affected by supervisory action, the legal process and the right to challenge the decision matter.
Case 4. ECB v Versobank AS
CJEU
Case C-537/18 P
European Central Bank v Versobank AS
Judgment of 6 May 2021
Background
Versobank challenged the withdrawal of its banking authorization by the ECB. Legal issue
The case concerned the ECB's supervisory decision, the judicial review of that decision, and the applicable legal framework. Decision
The Court considered the legal issues surrounding the ECB's withdrawal of authorization and the conditions under which the supervisory decision could be challenged. Importance for fit and proper management
The case demonstrates that prudential supervision is not limited to the initial authorization of a bank. Supervisory intervention may arise when legal and prudential requirements are no longer met.
Principle
The EU banking framework provides for supervisory intervention where applicable legal conditions for banking authorization cease to be satisfied.
Relevance to Spain: This supports understanding the broader supervisory context in which management suitability is assessed.
Case 5. ABLV Bank AS and Others v ECB
CJEU
Case C-551/19 P
ABLV Bank AS v European Central Bank
Judgment of 6 May 2021
Background
The case concerned the ECB's assessment of the situation of ABLV Bank and the consequences of a determination that the bank was failing or likely to fail. Legal issue
Whether certain ECB assessments and communications concerning the bank's condition could be challenged as legally binding acts. Decision
The Court examined the legal nature of the ECB's assessment and the availability of judicial review. Importance for fit and proper management
The case is relevant to the relationship between supervisory assessments and binding decisions. A supervisory assessment is not necessarily identical to a final administrative decision.
Principle
The legal effects of a supervisory assessment must be distinguished from the effects of a binding administrative decision.
Relevance to Spain: A suitability assessment, a supervisory request for information, and a final refusal or adverse decision may have different legal consequences.
Case 6. European Commission v Council / Banking-union judicial review principles
Case: Council v Commission / ECB institutional competence
The sixth case should be approached with care because many EU banking cases concern institutional competence rather than the personal suitability of directors.
A useful direct banking-law case is:
CJEU
Case C-8/15 P to C-10/15 P
Ledra Advertising Ltd and Others v European Commission and ECB
Judgment of 20 September 2016
Background
The case arose from the financial assistance arrangements relating to Cyprus and the restructuring of its banking sector. Legal issue
Whether the European Commission and ECB could be held responsible for alleged breaches of EU fundamental rights in the context of financial assistance measures. Decision
The Court examined the obligations of EU institutions, including the duty to respect fundamental rights when acting within the financial-stability framework. Importance for fit and proper management
The case is relevant to the wider legal limits of banking supervision and financial-stability action. It is not a direct decision on whether an individual director is fit and proper.
Principle
Financial stability and banking supervision must be exercised consistently with applicable EU law and fundamental rights.
Relevance to Spain: Spanish banking authorities and the ECB must act within the applicable legal framework, including procedural and rights protections.
7. Direct comparison of the six cases
| Case | Main subject | Connection to fit and proper |
|---|---|---|
| Berlusconi and Fininvest, C-219/17 | ECB and national authority competence | Who decides under the banking-union framework. |
| Landeskreditbank, C-450/17 P | Significant institution classification | Determines supervisory competence. |
| Trasta Komercbanka, C-663/17 P et al. | Withdrawal of authorization and standing | Procedural safeguards in supervisory action. |
| Versobank, C-537/18 P | Banking authorization withdrawal | Supervisory intervention and judicial review. |
| ABLV Bank, C-551/19 P | Failing-or-likely-to-fail assessment | Distinction between assessments and binding decisions. |
| Ledra Advertising, C-8/15 P to C-10/15 P | Financial-stability measures and fundamental rights | Legal limits on supervisory and financial-stability action. |
Important academic qualification: These six cases should not be described as six direct Spanish judicial precedents establishing the substantive fit-and-proper test. They are EU banking-law cases that help explain the institutional, supervisory, and procedural environment in which the Spanish framework operates.
8. Detailed application of fit and proper to Spanish bank management
A. Appointment of a bank director
Suppose a Spanish bank wants to appoint a new director.
The institution must assess whether the proposed director has:
Appropriate qualifications.
Sufficient banking or relevant professional experience.
Good repute and integrity.
Adequate time to discharge the duties.
Independence of judgment.
No disqualifying conflicts or circumstances.
The institution should document the assessment and provide the information required by the competent supervisory authority.
Example
A candidate has:
15 years of financial-sector experience.
Experience in risk management.
Relevant academic qualifications.
No known serious misconduct.
Sufficient time for the proposed role.
That candidate may satisfy the basic suitability criteria, subject to the formal assessment and applicable legal requirements.
However, the supervisor may still request further information about:
Other board positions.
Potential conflicts of interest.
Experience in the bank's specific business model.
Collective suitability of the board.
B. Rejection of a candidate
A supervisor may have grounds to oppose an appointment where, for example:
The candidate lacks the required professional experience.
The candidate has relevant serious misconduct findings.
The candidate cannot devote sufficient time.
There are significant unresolved conflicts of interest.
The board as a whole lacks necessary expertise.
The precise legal consequence depends on the applicable Spanish law and supervisory procedure.
C. Existing director who becomes unsuitable
Suitability is not assessed only once at appointment.
A director may cease to meet the requirements because of:
Serious misconduct.
Regulatory enforcement.
Loss of professional competence.
Significant conflicts of interest.
Inability to perform the role.
Changes in other professional commitments.
The institution and supervisor may then need to reassess the person's suitability and take the legally appropriate action.
9. Fit and proper versus corporate governance
Fit and proper management should be distinguished from ordinary corporate governance.
| Fit and proper | Corporate governance |
|---|---|
| Focuses on the suitability of individuals and the board. | Focuses on how the institution is directed and controlled. |
| Includes competence, experience, reputation, and integrity. | Includes board structure, committees, internal controls, and accountability. |
| May result in an appointment being opposed. | May result in governance reforms or supervisory requirements. |
| Is assessed by the institution and relevant supervisor. | Is assessed through governance rules and supervisory review. |
Both areas are closely connected. A bank may have directors who are individually suitable but still have weak governance arrangements.
10. Legal safeguards and judicial review
A fit-and-proper decision by a Spanish banking authority or the ECB must be considered in the context of administrative-law safeguards.
These may include:
Legal authority for the decision.
Procedural fairness.
Adequate reasoning.
Consideration of relevant evidence.
Proportionality where applicable.
Opportunity to challenge the decision through the appropriate legal route.
The exact remedy depends on the identity of the decision-maker and the legal nature of the decision.
ECB decisions
Decisions adopted by the ECB may be subject to EU judicial review mechanisms.
Banco de España decisions
Decisions of the Banco de España may be subject to the relevant Spanish administrative and judicial procedures, depending on the decision and the applicable legislation.
The case law discussed above, particularly Berlusconi and Fininvest, Trasta Komercbanka, Versobank, and ABLV Bank, illustrates why the competent authority and legal nature of the decision are important.
11. Critical legal analysis
The fit-and-proper regime seeks to balance several objectives.
1. Financial stability
Banks are highly leveraged and rely on public confidence. Inadequate management can create risks for depositors and the financial system.
2. Professional competence
A director must understand the responsibilities associated with the role and be able to contribute effectively to the bank's governance.
3. Individual rights
A person should not be treated as unsuitable merely because of an unproven allegation. Supervisory decisions must be grounded in the applicable legal requirements and evidence.
4. Supervisory discretion
Banking supervisors need sufficient discretion to evaluate complex matters involving governance, risk, and management. That discretion must nevertheless remain within legal boundaries.
5. European integration
Spanish banking supervision is part of the European banking-union framework. The ECB's role and the distinction between significant and less significant institutions are therefore important.
12. Conclusion
The Spanish fit-and-proper management regime is based on the principle that bank management must be competent, reputable, and capable of exercising sound judgment.
The key legal elements are:
Professional knowledge and experience.
Good repute, honesty, and integrity.
Sufficient time commitment.
Independence of mind.
Collective suitability.
Compliance with applicable banking governance rules.
The Spanish legal framework must be read together with EU banking law, particularly the Capital Requirements Directive and the Single Supervisory Mechanism regulations.
The six cases discussed demonstrate the importance of supervisory competence, institutional powers, authorization decisions, procedural safeguards, and judicial review. However, they should not be mistaken for six direct Spanish precedents on the personal fit-and-proper test.
For an academic or legal research paper, the strongest approach is to combine these EU banking decisions with the actual Spanish statutory provisions and the specific Banco de España or ECB suitability decisions relevant to the facts being studied.
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