Spain achieves high overall compliance with international standards and codes, with a score of 61.7 out of 100 in our Standards Compliance Index. As a Euro-member country, Spain's compliance in the areas of macroeconomic fundamentals and financial supervision is high, as is Spain's performance in fighting money laundering and terrorism financing, and in regulating its payment systems. Accounting standards are in line with the International Financial Reporting Standards as of January 2005, but there are no independent assessments of its auditing practices. Corporate governance lags behind other European Union markets, both in regulation and in practice. Spain's insolvency framework has been recently updated, but it has not been independently evaluated.

Macroeconomic Policy and Data Transparency

Spain has been a subscriber to the Special Data Dissemination Standard (SDDS) since September 1996, and met the standard's specifications in December 2000. The International Monetary Fund's (IMF) 2007 Article IV notes that Spain's economic data is "adequate for surveillance." The IMF, in 2007, released an Observance Report on Spain's data standards, in which it notes that the country meets the SDDS' specifications for coverage, periodicity, and timeliness for all data categories except for Central Government Operations where Spain avails itself of the flexibility option for timeliness. Per the same 2007 Observance Report, Spain meets the requirements for the dissemination of advance release calendars for all months. With regards to its integrity dimension, the SDDS website indicates that Spain meets the bulk of the requirements with some exceptions. Several data categories, including Central Government Debt, Exchange Rates, and External debt do not have information on significant modifications made to the methodology and for other data categories that provide the information the changes are offered at the time of release and not in advance as required by the SDDS. The requirements for the Quality dimension are largely met except for Central Government Operations and Population where no information is provided on the SDDS website regarding the dissemination of component detail and statistical frameworks. More »

Spain adopted the Euro at its launch in January 1999. With this act, Spanish monetary policy ceased to be governed by the Bank of Spain. Rather, the Governing Council of the European Central Bank (ECB) determines Spanish monetary policy, and the Eurosystem (consisting of the ECB and the central banks of the member states that have adopted the euro) is responsible for policy implementation. According to the IMF, the Eurosystem and the ECB maintain high transparency standards and a commitment to openness. The ECB observes the IMF's codes and standards for monetary policy transparency and pursues an active policy of communication with the public. More »

According to the 2005 IMF Report on the Observance of Standards and Codes (ROSC) – Fiscal Transparency Module, Spain has made considerable progress in both macroeconomic and fiscal adjustment, while also modernizing and strengthening its fiscal institutions and disseminating information about the government's operations. Consequently, Spain now fully meets or exceeds the IMF Code of Good Practices on Fiscal Transparency standards in many areas. Article 134 of the Spanish Constitution defines and formalizes budget and financial management in Spain. Additionally, the General Budget Law, Budgetary Stability Laws, Annual Budget Laws and Annual Budget Formulation Decrees provide the legal framework for fiscal management, and all are publicly available. More specifically, the Spanish Constitution defines the roles and responsibilities of general government and clearly sets Spain's main government sectors apart from the private sector in line with the 1995 European System of Account Accords. According to the ROSC, the General Budget Law and an annual Ministry of Economy and Finance (MEH) order regulate the budget process and delineate the guidelines for the preparation of the budget. However, the ROSC highlights several areas where transparency in fiscal policy could be improved in Spain. For example, Spain does not permit external scrutiny of macroeconomic forecasts and assumptions. As a result, macroeconomic forecasts, and the models on which the forecasts are based, are not made public. Furthermore, while the coverage of government operations in budget documents is relatively comprehensive, the information is dispersed and in need of compilation to make it easily accessible to the general public. Lastly, the ROSC notes that the assignment of supervisory responsibilities for budget execution is confusing. The MEH is responsible for executing the budget; the General Directorate of the Budget is in charge of budget modifications; the Directorate General for the Treasury handles cash and debt management; and the General Controller and Accounting Directorate oversees internal control, audit, accounting, and reporting. The IMF recommends that these duties be streamlined. More »

Institutional and market infrastructure

According to a report prepared for the European Commission in 2003, as of 2002, Spain fully adopted 9 of the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank, almost fully adopted 9 principles, partially adopted 12 principles and did not adopt 11 principles. The insolvency system in Spain overall was found to be not conducive to the revival of companies in financial distress, nor did it offer a reasonable recovery rate for the creditors. In June 2003, the Spanish Parliament approved a new, modern single bankruptcy law that entered into force in September of 2004 and aimed at simplifying insolvency proceedings in Spain and supporting viability of companies in financial distress. There is, however, insufficient information as to the compliance of the new requirements with the World Bank Principles. More »

As a result of European Commission Regulation (EC) No 1606/2002, since January 1, 2005 all European Union (EU) listed companies have been required to prepare consolidated accounts following International Financial Reporting Standards (IFRSs) endorsed by the EC. Member States may decide as well to extend this permission or this requirement to other companies as regards the preparation of their consolidated accounts and/or their annual accounts. Spain opted for the extended use of IFRSs. Starting 2005, unlisted groups are allowed to apply either Spanish Generally Accepted Accounting Principles (GAAP) or IFRSs. Other companies must follow Spanish GAAP. The Deloitte IAS Plus website indicates that as a result of corporate and accounting law reforms in Spain, new Spanish GAAP applicable for individual companies and unlisted consolidated groups was adopted in 2006, effective 2008. Although based on IFRSs, Deloitte notes, the new Spanish GAAP differ from IFRSs. More »

Spain applies a one-tier board system, as reported in a 2002 study by the international law firm Weil, Gotshal & Manges. Furthermore, more than fifty percent of listed companies applied the “one share–one vote” principle at the time of the 2005 report by the Association of British Insurers. As highlighted in a 2005 study by Heidrick & Struggles, the corporate system in Spain is characterized by strong state intervention, concentrated ownership of firms, and low percentage of foreign-capital ownership. In addition, relatively few women and a low number of non-national directors sit on Spanish boards, which has led to a low turnover of board members, according to the subsequent 2007 report by Heidrick & Struggles. The level of independence on Spanish boards and committees is also relatively low. The study, however, shows a positive trend in the Spanish corporate governance framework through the increasing use of hybrid models that adopt practices from British and U.S. codes. Other developments include the substantial decline in state ownership since the mid-1990s, the rise in the proportion of domestic-owned equity, and the increase in the proportion of total equity held by private households. A Special Working Group was established in July 2005 to advise the National Securities Market Commission in updating recommendations of the Olivencia and Aldama Corporate Governance Reports by taking into account international recommendations, including the Organization for Economic Co-operation and Development Principles of Corporate Governance. The Special Working Group approved the proposal for a Unified Code on Good Corporate Governance in May 2006. More »

Being a member of the EU, Spain has to transpose the Directive 2006/43/EC.of the European Parliament and the Council which requires all statutory audits to be carried out on the basis of International Standards on Auditing (ISAs) as adopted by the European Commission. Member States of the EU may impose additional requirements relating to the statuary audits of annual and consolidated accounts for periods expiring on June 29, 2010. The Institute of Accounting and Auditing (ICAC), a government agency within the Ministry of Economy and Finance, sets national auditing and accounting standards. According to the 2007 self-assessment prepared by the Institute of Auditors of Spain, the auditing standards applicable in Spain are the official translations of ISAs, sometimes modified to reflect the local legal environment. More »

The Financial Action Task Force (FATF) conducted a mutual evaluation of Spain's Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime against the FATF's 40+9 recommendations and special recommendations. The FATF published its findings in a 2006 report, in which it concludes that Spain is compliant with 10 FATF recommendations and special recommendations; largely compliant with 22; partially compliant with 12; non compliant with 3; and two recommendations are not applicable to Spain. The report notes that the overall AML/CFT framework in Spain is generally comprehensive, and achieves a high degree of compliance with most of the FATF's recommendations. Nevertheless, there are some areas where Spain's AML/CFT regime could be improved. For example, while concluding that the terrorist financing offences are broadly satisfactory, the FATF report observes that these offenses do not appear to cover acts of an individual terrorist not related to a larger terrorist group and the collection of funds under some circumstances. Further, customer due diligence measures are lacking in the financial sector and in the designated non financial business and professions. Additionally, the FATF report states that, due to Spain's lack of comprehensive statistics on prosecutions and convictions relating to money laundering and terrorist financing, the effectiveness of the AML/CFT offences and measures is difficult to assess more precisely. Money laundering is criminalized pursuant to Article 301 of the Spanish Penal Code on the basis of the Vienna and Palermo Conventions. Terrorist financing is criminalized pursuant to Article 571 of the Spanish Penal Code, and this criminalization is largely in line with international standards, according to the 2006 FATF report. More »

According to the IMF's 2006 Financial System Stability Assessment (FSSA), Spain fully observed all 10 core principles and 4 central bank responsibilities that deal with systemically important payment systems. The legal framework of the Bank of Spain Settlement Service - Servicio de Liquidaci del Banco de España (SLBE) - the only systemically important payment system in Spain - is sound. The Settlement Finality Law is fully enforceable. Irrevocability and finality are clearly defined in the law and in the regulations of the system, and they are also ensured even in the event of insolvency of a participant. The relevant rules and regulations of the SLBE system are contained in a number of documents issued and modified by the Bank of Spain - Banco de España. Furthermore, an assessment by the ECB in 2004 found Spain's SLBE to be fully compliant with the Core Principles for Systemically Important Payment Systems. More »

Financial Regulation and Supervision

Based on the findings of the IMF's 2006 detailed assessment of Spain's compliance with the Basel Core Principles (BCPs) for Effective Banking Supervision, Spain complies with 26 of the 30 BCPs (considering that Principle 1 is divided into 6 subsections) and largely complies with four. According to the IMF report, banking supervision is effectively carried out by the Central Bank of Spain (BdE), which has developed an effective risk-based supervisory prudential framework. At the national level, the BdE and the Ministry of Economy and Finance are responsible for the regulation and supervision of credit institutions. As Spain is divided into 17 regions, also known as autonomous communities (CAs), each CA is provided with licensing and sanctioning authority, and power to oversee the activities of saving banks (cajas). The IMF report states that improvements are needed in terms of the limited regulatory and sanctioning powers of the BdE. There is also a risk for conflict of interests between the BdE and the CAs with regards to the dual legal framework governing cajas. The BdE should further issue guidelines on best banking practices, with a clear emphasis on those that promote effective risk management. In the EU context, the new capital adequacy requirements (Basel II) were transposed into Spanish law in 2006 with the adoption of Directives No. 2006/48/EC and No. 2006/49/EC. As highlighted in the IMF's subsequent 2007 Article IV Consultation, the financial sector in Spain is vibrant, sound, and stable. More »

Spain appears to meet the preconditions for an effective regulatory framework for capital markets and the provision of financial services, as stated in the IMF 2006 Detailed Assessment of Spain's compliance with the International Organization of Securities Commission's (IOSCO) Objectives and Principles of Securities Regulation. Twenty-five of the IOSCO principles were found to be fully implemented, two principles were broadly implemented, and two were considered to be not applicable. Finally, Principle 30 on clearing and settlement systems was assessed as part of the IMF’s 2006 Detailed Assessment of Spain's Observance of the Committee on Payment and Settlement Systems (CPSS)/IOSCO Recommendations for Securities Settlement Systems. The IMF report identifies a few areas that still require action. In particular, the Spanish regulatory framework could be further strengthened by enhancing the oversight and sanctioning powers, as well as the institutional and operational independence of the securities regulator—the National Securities Market Commission. At the EU level, the Prospectus Directive, the Market Abuse Directive, the Takeover Directive, and the Transparency Directive were all transposed into Spanish law. The EU Directive on Markets in Financial Instruments and its implementing Directive No. 2006/73/EC were expected to be enacted in April 2007. As of January 31, 2008, the European Commission, according to its website, decided to refer Spain to the European Court of Justice over non-implementation of the implementing Directive No. 2006/73/EC. The deadline for transposing those measures expired on January 31, 2007. More »

The Spanish insurance market is the tenth largest in the world, and is increasingly competitive, as stated in the IMF's 2006 detailed assessment of Italy’s observance of the Insurance Core Principles (ICPs). Furthermore, nearly one third of the insurance market in Spain is controlled by foreign firms, according to the U.S. Department of Commerce 2008 Country Commercial Guide. The IMF's 2006 report, in which insurance supervisory practices were benchmarked against ICPs and Methodology revised by the International Association of Insurance Supervisors in October 2003, concludes that Spain fully observes 17 of the 28 ICPs, largely observes 6 ICPs, and partly observes 5 ICPs. While insurance supervision and regulation rely on a clear legal framework, the regulatory framework does not provide specific requirements on risk assessment and management. Weaknesses were also identified in terms of independence and governance of the supervisory authority—the Directorate General of Insurance and Pension Funds (DGSFP)—specifically its reliance on the Ministry of Economy and Finance (MEH) to issue legally binding secondary regulation. In addition, Spain lacks requirements on corporate governance for insurers, regular analysis of market conditions, and group-wide supervision of financial conglomerates in the insurance sector. Responding to the IMF assessment, the DGSFP noted that legislative amendments were expected to be adopted to bring Spanish regulations in line with the IMF recommendations, notably in the areas of licensing, suitability of persons, corporate governance, internal control, investments, financial derivatives and Anti-Money Laundering and Combating the Financing of Terrorism. As reported in the IMF's subsequent 2007 Article IV Consultation, recommendations to separate insurance supervision from the MEH have been put on hold. More »

Legend:

Credit Ratings

Moody's Aaa/Stable

Fitch AAA/Stable

Standard & Poor's AAA/Stable

Macroeconomic Data

2007 GDP (Current Prices): 1,439 billion USD (IMF)

2007 GDP (Per Capita): 32,067 USD (IMF)

2008 GDP (Growth Forecast): 1.8% (IMF)

2008 Inflation (CPI): 3.9% (IMF)

2007 Unemployment: 7.6% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 20 billion USD (UNCTAD)

FDI (Outward): 89.7 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): 3814 million USD (OECD)