Banking Law and Informal Economy Finance in Spain

1. Introduction

Banking Law and Informal Economy Finance in Spain concerns the relationship between regulated financial institutions and economic activity occurring partly or wholly outside ordinary systems of taxation, registration, accounting, employment reporting or financial transparency.

The informal economy may include activities such as:

undeclared self-employment;

cash-intensive small businesses;

unreported commercial income;

informal employment;

family businesses operating partly outside formal accounting systems;

individuals without conventional financial records;

informal lending between individuals; and

businesses whose real turnover differs from officially declared turnover.

Not every informal economic activity is inherently criminal. Nevertheless, informality can create substantial difficulties for banking regulation because banks must comply with customer-identification, anti-money-laundering, tax-transparency, credit-risk and payment rules.

Spain therefore faces two connected policy objectives:

Financial inclusion — enabling individuals and legitimate small businesses to use formal banking services.

Financial integrity — preventing banks from being used to conceal criminal proceeds, tax fraud or other unlawful activity.

The principal framework includes Law 10/2010 of 28 April on the prevention of money laundering and terrorist financing, its implementing regulations, banking legislation, payment-services regulation, tax legislation and rules restricting certain cash payments. Law 10/2010 remains Spain's central domestic AML statute and its consolidated text was updated again in March 2026.

2. Formal and Informal Finance

Formal finance operates through regulated institutions such as:

credit institutions;

payment institutions;

electronic-money institutions; and

other authorized financial intermediaries.

Informal finance can involve financial relationships outside these channels.

Examples include:

Family lending → cash lending → community financing → trade credit → rotating informal arrangements → undocumented personal loans.

The legal treatment depends on the actual activity.

An informal loan between family members is not automatically unlawful merely because a bank did not provide it.

However, different legal questions arise if an individual begins providing regulated financial or payment services professionally without the authorization required by Spanish law.

3. Why Banks Are Important to Formalization

Banks act as gateways between informal and formal economic activity.

When an informal business enters the banking system, the institution may require information concerning:

customer identity;

beneficial ownership;

occupation;

business activities;

expected transactions;

source of funds; and

transaction patterns.

This produces financial records that do not ordinarily exist in a purely cash-based economy.

Consequently, financial inclusion can indirectly contribute to economic formalization.

4. Law 10/2010

The central AML legislation is Law 10/2010.

Banks and other covered financial institutions are subject to its requirements.

Article 3 requires regulated entities to identify individuals and legal persons establishing business relationships or carrying out relevant transactions.

The legislation prohibits covered institutions from maintaining anonymous, fictitious or inadequately identified accounts and requires verification of identity before establishing relevant relationships, subject to specific statutory exceptions.

This requirement is particularly significant where customers previously operated mainly in the informal economy.

5. Beneficial Ownership

Formal identification of a company is not always enough.

Article 4 of Law 10/2010 requires obligated entities to identify the beneficial owner and take appropriate measures to verify that person's identity.

Institutions must also take appropriate measures to understand ownership and control structures.

Where the ownership or control structure cannot adequately be determined, the legislation restricts the institution from establishing or maintaining the business relationship in the circumstances prescribed by the law.

This prevents opaque corporate arrangements from defeating customer-identification requirements.

6. Purpose of the Business Relationship

Banks must understand more than a customer's name.

They must develop sufficient understanding of the nature and purpose of the business relationship.

For example, suppose a customer describes themselves as a small local trader but regularly deposits amounts substantially inconsistent with the apparent scale of the declared business.

The bank should not automatically conclude that a crime has occurred.

Instead, the discrepancy can become relevant to the institution's risk-based due-diligence and monitoring responsibilities.

This distinction is essential:

Unusual transaction ≠ automatically criminal transaction.

But:

Unusual transaction → may require further examination.

7. Ongoing Monitoring

Customer due diligence is not limited to opening an account.

Financial institutions must monitor relationships on an ongoing basis according to applicable AML requirements.

This means that a customer who was properly identified when opening an account can still generate compliance concerns later if transaction behaviour changes significantly.

Relevant indicators might include:

transactions inconsistent with known business activity;

unexplained changes in transaction volume;

complex ownership arrangements;

repeated cash-intensive transactions; or

unexplained transfers inconsistent with the customer's profile.

The correct response depends upon the circumstances and applicable legal obligations.

8. Risk-Based Approach

Modern AML regulation is based substantially on risk.

Banks do not necessarily treat every customer identically.

Instead, they assess relevant factors such as:

customer characteristics;

geographic exposure;

business activity;

products;

delivery channels; and

transaction behaviour.

Law 10/2010 expressly permits and requires differentiated due-diligence approaches in relevant circumstances and provides for enhanced measures in areas presenting higher money-laundering or terrorist-financing risks.

This matters for the informal economy because informality itself should not automatically be treated as proof of criminal conduct.

9. Cash and the Informal Economy

Cash is legally valid and remains an important payment mechanism.

Nevertheless, cash transactions can be harder to trace than electronic transactions.

Spain therefore imposes statutory restrictions on certain high-value cash payments.

Since 11 July 2021, where one party acts as an entrepreneur or professional, transactions of €1,000 or more generally cannot be paid in cash.

For qualifying natural persons who can demonstrate that they are not tax residents in Spain and who are not acting professionally, the relevant threshold is €10,000.

The restriction concerns the value of the overall transaction rather than merely the portion paid in cash.

10. Important Exception for Banks

The cash-payment limitation does not mean that a customer cannot deposit qualifying cash into a bank.

The Banco de España explains that the restriction does not apply in the same way to payments and deposits made at:

credit institutions;

payment institutions; or

qualifying currency-exchange establishments.

This distinction is important.

Spain seeks to limit opaque high-value commercial cash payments without simply preventing cash from entering the regulated financial system.

11. Why Banking Can Reduce Informality

A bank account creates records.

Electronic payments can generate:

payer information;

beneficiary information;

dates;

amounts;

transaction references; and

account histories.

These records can improve financial transparency compared with economic activity conducted entirely through undocumented cash.

Banking therefore potentially serves two objectives simultaneously:

Financial access + financial traceability.

12. Informal Workers and Financial Inclusion

Informal workers can face difficulties obtaining conventional banking products because they may lack:

regular payslips;

conventional employment contracts;

documented income histories;

formal accounts; or

predictable taxable income.

This can create a cycle:

Informality → weak documentation → difficulty obtaining formal credit → reliance on informal finance → continued informality.

Banking law therefore needs to distinguish between legitimate credit-risk assessment and unnecessary exclusion.

Financial inclusion does not mean that banks must disregard credit risk. It means that regulatory controls should not unnecessarily prevent legitimate individuals from accessing appropriate formal services.

13. Small Businesses

Small businesses can be especially affected.

A microenterprise seeking a loan may have:

limited financial statements;

irregular income;

short operating history;

mixed personal and business finances; or

substantial cash receipts.

Banks therefore face the difficult task of determining the customer's genuine financial position while complying with AML, prudential and responsible-lending requirements.

Reliable documentation can help a previously informal business gradually establish a formal credit history.

14. Payment Institutions

Banks are not the only institutions relevant to formalization.

Spanish regulation also recognizes payment institutions.

The Banco de España identifies the regulatory framework applicable to payment institutions, including Royal Decree-Law 19/2018, Royal Decree 736/2019, and the application of Law 10/2010's AML requirements.

Payment institutions can help move legitimate economic activity toward traceable digital payment channels.

15. Digital Payments

Digital payments can reduce dependence on cash.

Examples include:

bank transfers;

payment cards;

mobile payments;

electronic payment accounts; and

regulated online payment services.

From an informal-economy perspective, digital payments can improve transaction records.

However, digitization does not automatically eliminate financial crime.

Digital channels can themselves be misused.

Consequently:

Digitalization increases traceability but does not eliminate the need for financial supervision.

16. Remote Banking

Financial inclusion increasingly occurs online.

Article 12 of Law 10/2010 recognizes non-face-to-face business relationships subject to specified identification safeguards and requires policies and procedures addressing risks associated with remote relationships and transactions.

This can assist legitimate customers who may not have convenient access to physical banking facilities while preserving identification requirements.

17. Informal Finance and Unauthorized Banking

An important distinction exists between:

private financial arrangements and professional regulated financial activity.

A person occasionally lending personal money to another individual is not necessarily operating a bank.

However, systematically carrying on activities reserved to authorized financial institutions can raise licensing questions.

Similarly, a business cannot avoid payment-services regulation merely by describing itself as an informal intermediary if its actual activities satisfy the legal definition of a regulated payment service.

The Banco de España emphasizes that whether authorization is necessary depends upon the actual professional activity being performed.

18. Money Laundering Versus Informal Economy

The two concepts must not be confused.

Informal Economy

Economic activity operating partly outside ordinary reporting, tax or regulatory systems.

Money Laundering

The process through which proceeds connected with criminal activity are dealt with in ways intended to conceal or disguise their unlawful origin or otherwise fall within the statutory definition.

Some informal economic activity can create opportunities for money laundering.

But it would be legally incorrect to say:

Informal economy = money laundering.

The proper approach is risk assessment based on evidence and circumstances.

19. Tax Evasion

Tax evasion can overlap with the informal economy.

For example, a business may conceal part of its turnover and therefore understate taxable income.

Banks, however, are not general substitutes for the tax administration.

Their principal responsibilities arise from banking, AML and related regulatory obligations.

Where legally defined suspicious circumstances arise, financial institutions must follow the applicable AML reporting and compliance framework.

20. Movement of Cash

Spanish AML legislation also regulates certain movements of payment instruments and cash.

The Banco de España's financial-regulation materials identify Order ETD/1217/2022 concerning declarations of movements of payment instruments within the AML/CFT framework, together with Law 10/2010 and Royal Decree 304/2014.

These requirements contribute to transparency where substantial physical monetary movements occur.

21. Internal Bank Controls

Banks need internal systems capable of dealing with risks arising from informal economic activity.

Important elements include:

customer identification;

beneficial-owner verification;

customer-risk assessment;

transaction monitoring;

employee training;

internal escalation;

record keeping;

compliance review;

suspicious-transaction procedures; and

independent control functions.

The objective is not to eliminate legitimate cash activity.

It is to identify circumstances requiring greater scrutiny while allowing legitimate customers access to financial services.

22. Avoiding Automatic Exclusion

An overly defensive approach can create another problem.

If institutions automatically reject entire categories of customers merely because they are cash-intensive, self-employed or lack conventional financial histories, legitimate customers may be pushed further toward informal channels.

A sound regulatory approach therefore attempts to achieve proportionality:

Low risk → proportionate controls

Higher risk → enhanced controls

Unacceptable or legally prohibited risk → decline or terminate where required

This risk-sensitive approach is preferable to assuming that every non-standard customer is engaged in wrongdoing.

23. Case Law — Important Qualification

There is no single category of Spanish judicial decisions officially called “informal economy finance cases.”

The legally appropriate approach is to examine cases concerning the mechanisms through which banks interact with informal or opaque financial activity, particularly:

AML duties;

customer identification;

financial transparency;

suspicious transactions;

cash;

tax-related financial information; and

banking supervision.

The following cases provide at least six relevant authorities.

24. Case 1 — Constitutional Court, STC 179/2023 — Banco Santander AML Sanction

This is a particularly important Spanish authority.

Banco Santander challenged sanctions imposed by the Council of Ministers concerning failures associated with reporting suspicious money-laundering transactions.

The Constitutional Court dismissed the bank's constitutional appeal in Judgment 179/2023 of 11 December 2023.

The underlying administrative measures had been confirmed by a 25 November 2021 Supreme Court judgment.

Importance

The case demonstrates that AML obligations imposed on banks are genuine regulatory duties backed by significant administrative enforcement.

A bank cannot treat suspicious-transaction controls as optional internal procedures.

This is highly relevant to informal-economy finance because opaque or unexplained financial flows can generate AML compliance questions even where their ultimate legal characterization requires further investigation.

25. Case 2 — Supreme Court Judgment 1385/2021, 25 November 2021

This Supreme Court judgment formed part of the Banco Santander proceedings subsequently considered by the Constitutional Court.

The dispute concerned sanctions arising from failures relating to the communication of suspicious money-laundering operations. The Constitutional Court's later judgment records that the Supreme Court confirmed the challenged administrative decisions.

Importance

The decision demonstrates the institutional enforcement chain:

Bank → AML obligation → administrative enforcement → Supreme Court review → Constitutional Court review.

It shows how banking compliance operates through multiple layers of public law.

26. Case 3 — Jyske Bank Gibraltar Ltd v Administración del Estado, C-212/11

This CJEU case arose from Spain's AML regime.

Jyske Bank was established in Gibraltar and provided services in Spain without establishing a branch there.

The dispute concerned Spanish requirements for information concerning certain transactions to be supplied directly to Spanish authorities.

Importance

The judgment demonstrates that cross-border banking does not necessarily remove financial activity from Spanish AML controls.

This is especially relevant to informal-economy finance because financial activity can cross borders while the underlying economic activity remains connected with Spain.

The case illustrates the tension between:

EU freedom to provide services and effective national AML supervision.

27. Case 4 — Safe Interenvíos SA v Liberbank SA and Others, C-235/14

This CJEU case originated in Spain and concerned money-remittance/payment institutions whose bank accounts were closed by credit institutions.

The dispute raised important questions concerning AML requirements and the treatment of financial institutions regarded as presenting particular risks.

Importance

The case is extremely relevant to informal-economy finance because remittance businesses can provide financial access to customers who might otherwise depend upon informal channels.

However, such businesses can also present heightened AML risks.

The central institutional problem is therefore:

How can banks manage genuine AML risk without unnecessarily excluding entire categories of legitimate financial activity?

The case supports the importance of a proportionate, risk-sensitive approach rather than automatic assumptions.

28. Case 5 — CaixaBank SA v Verbraucherzentrale Baden-Württemberg eV, C-190/17

Although not directly an informal-economy case, the litigation illustrates the broader regulation of cross-border banking relationships and customer-facing financial services within the EU.

Relevance

Formal financial inclusion depends upon customers being able to access regulated financial services under transparent legal arrangements.

The greater the accessibility and reliability of formal banking channels, the less attractive purely undocumented alternatives may become for legitimate economic activity.

The case therefore illustrates the broader European legal infrastructure within which Spanish formal financial services operate.

29. Case 6 — Banco Español de Crédito SA v Joaquín Calderón Camino, C-618/10

This Spanish reference concerned consumer credit and unfair contractual terms.

The CJEU emphasized effective consumer protection under EU law.

Informal-Economy Relevance

Formalization is sustainable only if formal credit is trusted.

If customers perceive formal banking as inaccessible or unfair, some may prefer informal borrowing arrangements.

Consumer-protection law therefore indirectly supports financial formalization by strengthening confidence in regulated financial institutions.

30. Case 7 — Aziz v Caixa d'Estalvis de Catalunya, Tarragona i Manresa, C-415/11

The Aziz case concerned Spanish mortgage enforcement and unfair contractual terms.

It became one of the major European cases concerning consumer protection in Spanish banking.

Relevance

The case demonstrates that financial inclusion cannot simply mean getting people into the banking system.

The formal financial system must also provide meaningful legal protections.

Accordingly:

Formalization without consumer protection can create vulnerability.

A sustainable response to informal finance therefore combines access with fair treatment.

31. Case 8 — Gutiérrez Naranjo and Others, Joined Cases C-154/15, C-307/15 and C-308/15

These cases concerned Spanish mortgage floor clauses and the consequences of unfair contractual terms.

Relevance

The judgments demonstrate the importance of public confidence in formal banking arrangements.

A banking system seeking to draw economic activity away from informal channels must provide customers with transparent and legally enforceable protections.

Thus consumer law and financial inclusion are indirectly connected.

32. Lessons From the Case Law

The cases collectively demonstrate several principles.

First — Banks Are Financial Gatekeepers

AML obligations make financial institutions important participants in protecting the integrity of the financial system.

Second — Cross-Border Activity Still Matters

The Jyske Bank litigation demonstrates that financial activity can remain subject to relevant Spanish AML requirements even in a cross-border European context.

Third — Risk Must Be Proportionate

Safe Interenvíos demonstrates the difficulties created when banks respond to higher-risk sectors through broad restrictions rather than individualized risk assessment.

Fourth — Enforcement Is Real

STC 179/2023 and the related Supreme Court proceedings demonstrate that failures concerning suspicious-transaction obligations can produce significant regulatory enforcement.

Fifth — Formal Finance Must Be Trustworthy

Consumer cases such as Banco Español de Crédito, Aziz and Gutiérrez Naranjo demonstrate that formal financial participation must be accompanied by effective customer protection.

33. Practical Example — Cash-Based Small Business

Suppose a small restaurant in Spain historically receives a significant proportion of its legitimate revenue in cash.

The owner wants to enter the formal financial system and obtain a business loan.

The bank should not automatically assume:

Cash business = illegal business.

Instead, it can evaluate:

business identity;

beneficial ownership;

declared commercial activity;

financial statements;

tax information where relevant and lawfully available;

transaction history;

expected cash deposits; and

source of funds.

If transactions materially depart from the expected profile, further examination may be appropriate.

This is a risk-based approach rather than automatic exclusion.

34. Practical Example — Informal Worker

Consider a worker who has irregular income and lacks conventional monthly payslips.

The person may have difficulty obtaining conventional credit.

Financial institutions may legitimately consider repayment capacity and credit risk.

However, where reliable alternative information permitted by law demonstrates income and affordability, financial inclusion may allow the person to move gradually into formal financial relationships.

Formal banking can then produce a transaction history that improves future financial visibility.

35. Practical Example — Remittance Business

Consider a regulated money-remittance provider serving migrant communities.

Its customers may include people with limited relationships with traditional banks.

A commercial bank may consider the remittance sector higher risk.

However, simply eliminating access can have unintended consequences:

Bank exclusion → reduced regulated channels → greater reliance on informal transfers.

The Safe Interenvíos litigation demonstrates why proportionality and individual risk assessment are significant when banks deal with payment and remittance institutions.

36. Informal Lending

Informal lending can arise where individuals cannot obtain bank credit.

Not every private loan is unlawful.

However, reliance on informal credit can create disadvantages:

limited documentation;

uncertain contractual terms;

weak dispute-resolution mechanisms;

poor credit-history development; and

possible exposure to unlawful practices in some circumstances.

The policy objective should therefore not be to criminalize ordinary private arrangements but to make legitimate regulated financial services sufficiently accessible and trustworthy.

37. Financial Inclusion and AML Are Complementary

Financial inclusion and AML can appear to conflict.

AML rules require:

More identification + more monitoring + more documentation.

Financial inclusion seeks:

Easier access + lower barriers + broader participation.

But properly designed systems can make these objectives complementary.

Bringing legitimate economic activity into regulated accounts creates greater financial visibility and can reduce reliance on opaque channels.

The goal should therefore be:

Accessible formal finance + proportionate customer verification + effective monitoring.

38. Technology and Formalization

Technology can help banks serve customers with limited conventional banking histories.

Potential tools include:

digital identity;

remote onboarding;

electronic invoicing;

transaction histories;

digital payments;

automated affordability assessment; and

regulated payment applications.

But technology also creates risks.

Automated systems can incorrectly classify legitimate customers as high risk.

Therefore, digital formalization requires:

Technology + governance + human oversight + legal compliance.

39. The Role of Banco de España

The Banco de España occupies an important position in Spain's formal financial system.

Its regulatory resources cover credit institutions, payment institutions, financial regulation and related supervisory requirements.

Its role is particularly important because financial formalization works only where customers have confidence that regulated institutions operate within a credible supervisory system.

40. Policy Challenges

Spain faces several competing policy concerns.

Challenge 1 — Reducing Undeclared Economic Activity

Greater financial transparency can strengthen tax and regulatory compliance.

Challenge 2 — Preventing Money Laundering

Banks must detect and appropriately address suspicious financial behaviour.

Challenge 3 — Maintaining Financial Inclusion

Compliance requirements should not unnecessarily exclude legitimate customers.

Challenge 4 — Protecting Privacy

Greater transaction transparency must remain consistent with applicable privacy and data-protection requirements.

Challenge 5 — Protecting Consumers

Formal credit should not expose vulnerable customers to unfair contractual practices.

Challenge 6 — Preserving Cash Access

Cash itself remains a legitimate means of payment even though certain high-value commercial cash transactions are restricted.

The challenge is therefore not simply to eliminate cash but to reduce opportunities for concealed unlawful financial activity while maintaining legitimate access.

41. Regulatory Model

The Spanish approach can be summarized as:

Economic activity

↓

Entry into regulated financial system

↓

Customer identification

↓

Beneficial-owner verification

↓

Purpose and nature of relationship

↓

Risk assessment

↓

Ongoing monitoring

↓

Further examination where justified

↓

Regulatory reporting where legally required

↓

Greater financial transparency

This framework attempts to convert legitimate informal activity into transparent financial participation without assuming that every informal participant is engaged in criminal conduct.

42. Relationship With Tax Policy

Banking regulation alone cannot eliminate the informal economy.

Formalization also depends upon:

tax administration;

employment regulation;

business-registration systems;

social-security rules;

competition policy;

consumer protection;

digital infrastructure; and

broader economic incentives.

Banks are therefore only one part of the institutional response.

They can improve financial transparency, but they cannot independently determine whether every customer's entire economic activity complies with every area of Spanish law.

43. Importance of Proportionality

Proportionality is one of the most important principles in this area.

A system that imposes almost no controls can facilitate financial crime.

A system that makes banking practically inaccessible to legitimate but non-standard customers can push economic activity toward less transparent alternatives.

The desirable balance is therefore:

Effective controls without unnecessary exclusion.

Safe Interenvíos is particularly useful for understanding this tension in the context of banking relationships with payment/remittance institutions.

44. Current Legal Position

As of September 2026, Law 10/2010 remains a central component of Spain's AML framework; the BOE consolidated version records amendments through 21 March 2026.

The law continues to require formal identification of customers and beneficial owners and establishes the wider preventive framework applicable to covered financial institutions.

Spain's rules limiting certain cash transactions also remain important for understanding the relationship between banking and informal economic activity. The Banco de España explains the €1,000 general threshold where a party acts as an entrepreneur or professional, together with the specified €10,000 treatment for qualifying non-tax-resident natural-person payers.

45. Conclusion

Banking Law and Informal Economy Finance in Spain concerns the difficult boundary between legitimate financial inclusion and the need for financial transparency.

Spain does not treat every cash transaction, private loan or informal economic relationship as automatically criminal.

Instead, the banking system operates through a combination of:

Customer identification + beneficial-owner identification + risk assessment + ongoing monitoring + cash-payment restrictions + AML controls + payment regulation + consumer protection.

Law 10/2010 is central to this structure. It requires financial institutions to identify customers and beneficial owners and establishes preventive measures intended to prevent the regulated financial system from being used for money laundering or terrorist financing.

The cash-payment rules complement this framework by restricting certain high-value commercial cash transactions while preserving the ability to make deposits and payments through regulated credit and payment institutions.

At least six important cases help explain the legal environment:

STC 179/2023 — Banco Santander — AML enforcement and suspicious-transaction reporting.

Spanish Supreme Court Judgment 1385/2021 — judicial review of AML sanctions.

Jyske Bank Gibraltar, C-212/11 — cross-border banking and Spanish AML requirements.

Safe Interenvíos, C-235/14 — remittance/payment institutions, AML risk and proportionality.

Banco Español de Crédito, C-618/10 — consumer protection in formal credit.

Aziz, C-415/11 — effective protection in Spanish mortgage banking.

Gutiérrez Naranjo, Joined Cases C-154/15, C-307/15 and C-308/15 — standardized banking practices and consumer remedies.

The central principle is:

Spain's objective is not simply to suppress informal finance. The broader regulatory challenge is to bring legitimate economic activity into transparent, supervised and trustworthy financial channels while identifying and controlling genuinely unlawful financial activity.