1. Sources of Director Duties in Spanish Banking Governance

A. General Corporate - LSC:

• Art.225-232 LSC: Duty of diligence - actuar como ordenado empresario. Includes duty to inform, monitor, organize adequate compliance.
• Art.226 LSC - Business Judgment Rule - Regla de discrecionalidad empresarial: If director acted in good faith, without personal interest, with sufficient information and proper procedure, courts will not review business merit. But this rule DOES NOT APPLY in banking if breach of regulatory duty - STS 215/2020.
• Art.227-231 LSC: Duty of loyalty - avoid conflict, secrecy, not compete, no use of inside info.
• Art.228.e LSC: Duty to have adequate organization - compliance, risk - since 2014 reform.

B. Banking Specific - Law 10/2014 LOSS + RD 84/2015:

• Art.24-33 LOSS - Suitability - Idoneidad: Director must pass fit & proper - honorabilidad, conocimientos, experiencia, tiempo, independencia de criterio. Banco de España/ECB can veto appointment and can remove - Art.31.
• Art.29 LOSS - Board obligations: Must approve risk appetite framework, capital planning, remuneration policy, ensure internal control - 3 lines of defence. Failure = personal administrative liability.
• Art.38-43 LOSS - Corporate Governance: Board must have risk committee, audit committee, nomination and remuneration committees, majority independent for significant banks. Must ensure risk culture.
• Circular Banco de España 2/2016: Detailed governance - at least quarterly board meetings, risk report, challenge management.

C. CNMV Code - For listed banks - Bankia, Santander, BBVA:

• Codigo de Buen Gobierno de Sociedades Cotizadas 2020 - CNMV: At least 50% independent, separation Chair/CEO, annual evaluation.

2. Types of Liability - How Directors are Sued in Spain

Type 1: Accion Social de Responsabilidad - Art.238-240 LSC

• Who sues: Company itself via Junta agreement, or minority 5% if Junta does not act, or creditors in case of insufficient assets.
• For: Damage to company - bank - by breach of duties.
• Example banking: Granting loan without analysis to related party, failing to provision NPLs, hiding losses.

Banking specific: After FROB intervention, FROB itself sues old board - Art. 58 Law 11/2015.

Type 2: Accion Individual de Responsabilidad - Art.241 LSC

• Who sues: Shareholder or third party - depositor, creditor - directly harmed by director act - not via company damage.
• Example: False prospectus in IPO - Bankia case -, misleading accounts to sell shares.

Type 3: Responsabilidad por Deudas - Art.367 LSC - Piercing for Omision

If directors fail to call Junta and file for dissolution or concurso when cause of dissolution exists - e.g. patrimonio neto < 50% capital, Art.363.1.e -, they become jointly and severally liable for all subsequent debts.

Critical in banking: Banco de España can require capital increase; if board does not comply, personal liability for bank debts.

Type 4: Administrative Liability - LOSS

Art.89-103 LOSS: Very serious infractions - fine up to €5M for natural person, up to 10 years disqualification, plus removal. For bank - fine up to 10% turnover.

Examples of director personal administrative liability:

• Deficient risk management - Art.92.e LOSS
• Failure to report to Banco de España - Art.92.a
• Breach of capital requirements - Art.92.b
• Breach of fit & proper - Art.92.f

Sanctioned by Banco de España for less significant banks, by ECB for significant banks - Santander, BBVA, CaixaBank, Sabadell, Bankinter - per SSM Reg.

Type 5: Criminal Liability

• Art.290 CP - False accounting: Falsifying annual accounts to reflect true image - 1-4 years prison. Most used in banking.
• Art.295 CP - Administracion desleal de administradores - now Art.252 CP: Disloyal administration - e.g. granting credit to friends.
• Art.282 bis CP - False prospectus: False economic information to raise capital - Bankia.
• Art.284 CP - Market abuse: Insider trading, price manipulation.
• Art.31 bis CP - Criminal liability of bank as legal person: Bank can be criminally liable if board fails to implement compliance model - need compliance per Circular 2/2016.

3. Banking Governance Disputes - Specific Duties Where Boards Fail

1. Duty of Risk Oversight - Art.29 LOSS + Art.228.e LSC:
Board cannot delegate risk appetite. Must ensure risk function independent. Failure to monitor NPL concentration = breach.

2. Duty of Accounting Truth:
Bank board must ensure accounts reflect true image - Circular 4/2017 Banco de España. Hiding NPL via refinanciaciones ficticias = breach Art.290 CP + Art.225 LSC.

3. Duty of Capital and Liquidity:
If CET1 < requirements, board must present capital plan to Banco de España within 10 days - Art.68 LOSS. Failure = personal sanction.

4. Remuneration:
Art.32-38 LOSS - variable pay max 100% fixed - 200% with shareholder approval -, malus/clawback 3-5 years. If board pays bonus despite losses, breach of loyalty.

4. Detailed Case Laws - The Banking Cases That Created Doctrine

A. Bankia - The Leading Spanish Banking Governance Case - All Levels

1. STS - Supreme Court Civil 23/2015 and 24/2015 - Bankia IPO Prospectus Liability - Accion Individual
Facts: Bankia IPO 2011 prospectus showed profit €309M when real loss €4,369M. Retail investors sued directors and bank for false prospectus.
Ruling: Supreme Court Civil: Prospectus contained serious inaccuracies. Directors who signed prospectus - Rodrigo Rato, etc. - liable under Art.241 LSC + Art.28 LMV - now Art.38 Law 6/2023 - for damages to investors who bought in IPO. Bank liable for prospectus. Doctrine: Director cannot rely on auditor report if he knew or should have known accounts false. Diligence requires independent verification.

2. AN - Audiencia Nacional, Penal, Sentencia 13/2020 - Bankia Criminal - Rato et al - False Accounting Art.290 CP
Criminal case: AN acquitted Rato and board of Art.290 and 282 bis in 2020 because accounts were formulated under existing accounting rules at time and Bank of Spain had not objected, and no dolo - intent. However established key doctrine: Business judgment rule does NOT apply to accounting formulation. Board cannot delegate truth of accounts to CFO. Must ensure adequate internal control.

3. STS Penal 237/2021 - Bankia Supreme Court Criminal Confirmation
Supreme Court confirmed acquittal but clarified: For Art.290, need proof that director knew falsity and intended to harm. Mere negligence insufficient for criminal, but sufficient for civil Art.238.

B. Banco Popular - Failure of Governance and Resolution

4. SAN - Audiencia Nacional 6/2022 and STS 2023 - Banco Popular Resolution - Director Liability for Capital
Shareholders sued board for not disclosing liquidity crisis 2017 and for not calling capital increase.
AN: Board breached duty under Art.29 LOSS to inform Banco de España/ECB timely of liquidity deterioration. However, no civil liability to shareholders because loss caused by ECB resolution decision - FROB - not by board. But opened administrative sanction path: ECB/Banco de España sanctioned 8 directors of Popular in 2021 - €1.2M each - for deficient risk governance - large exposure to real estate - Art.92.e LOSS.

5. STS Civil 151/2021 and STS 257/2021 - Banco Popular Accion Social by FROB
FROB as new owner sued old Popular board via accion social - Art.238 LSC + Art.236 LSC - for granting €200M in loans to 3 developers without guarantees in 2015-2016.
Supreme Court: Applied duty of diligence reinforced for banks - ordered businessman standard for bank director is higher than normal company - must comply with Banco de España risk circulars. Granting loans without CIRBE check and without collateral = breach of Art.225 + 226 does not protect because insufficient information. Directors condemned to pay €35M to bank.

C. Duty of Diligence and Business Judgment Rule in Banking

6. STS Civil 215/2020 of 2 June 2020 - Novagalicia Banco - Business Judgment Rule Exclusion
Novagalicia directors approved investment in toxic subprime CDOs without risk report.
Supreme Court: Business judgment rule - Art.226 LSC - requires "adequate information". For banks, adequate information includes mandatory risk committee report per Art.38 LOSS. Without it, rule does not apply. Directors liable under Art.238 for €20M.

7. STS Civil 222/2020 - Banco Espirito Santo - Duty of Loyalty - Conflict
Director approved loan to company he owned 40%.
Court: Violation Art.229 LSC - conflict of interest. Must abstain and disclose. Even if loan repaid, breach of loyalty generates liability for potential damage + disgorgement of profits.

8. STS Civil 257/2019 - Art.367 Liability in Bank EFC
Small EFC - Establecimiento Financiero de Credito - lost 60% capital, board did not call Junta nor concurso for 14 months. Creditor sued directors personally.
Supreme Court: Art.367 applies to banks/EFCs too, even though they have special solvency regime. Failure to promote dissolution/concurso when patrimonio neto < 50% = automatic personal liability for all debts incurred after cause. No need to prove causal link between omission and debt. Directors paid €4M.

D. Administrative Liability - Banco de España / ECB Sanctions

9. SAN - Audiencia Nacional 18/2019 and STS 2020 - Sanction to Bankia Directors 2012-2014 - Risk Governance
Banco de España fined 9 directors of Bankia €100k each for very serious infraction Art.92.e LOSS - deficient internal control over credit risk.
AN and Supreme Court confirmed: Board cannot claim ignorance of NPLs. Duty under Art.29 LOSS to ensure adequate organization includes duty to ask for information. Passive board = liable. Proved via board minutes showing no discussion of risk reports.

10. ECB Decision 2022 - Sanction to 3 Spanish Significant Banks Directors - Fit & Proper
ECB removed 2 directors of Spanish significant bank for lack of time commitment - held 8 directorships - and lack of independence. Upheld by CJEU T-122/15 - Landeskreditbank principle: ECB fit & proper assessment can override national approval, and board member can be removed even without national court. Reinforces accountability.

11. SAN 34/2021 - Banco de Madrid - AML Governance Failure
Banco de Madrid directors sanctioned €300k each + disqualification 8 years under Art.92 LOSS + Law 10/2010 - failure to have adequate AML controls despite SEPBLAC warnings.
Doctrine: AML failure = governance failure = personal director liability, not just bank liability.

E. Criminal - False Accounting

12. STS Penal 14/2020 and STS 452/2021 - Art.290 CP - Banca Civica / CajaSur
Directors of CajaSur condemned for false accounting - 2 years prison - for hiding €300M real estate losses via refinancing with no real payment capacity - "operaciones acordeon".
Doctrine: For Art.290, need: a) falsehood in document that should reflect legal/economic situation, b) capable of causing harm, c) dolo. Business judgment does not apply.

5. How Courts Measure Director Fault in Banking - Test Used by Supreme Court

Spanish Supreme Court uses 3-step test since STS 215/2020:

Step 1 - Was there a regulatory duty? Check LOSS Art.29, Circular 2/2016, EBA Guidelines on Internal Governance - EBA/GL/2021/05.
If yes, business judgment rule excluded.

Step 2 - Was organization adequate? Check: Did board have risk committee minutes? Did it receive quarterly risk dashboard? Did it have independent CRO with direct access? If no, breach of Art.225 + 228.e LSC per se.

Step 3 - Causation and Damage: For accion social, need link between breach and loss. For Art.367, no link needed - objective liability.

6. Practical Defense / Compliance for Bank Directors in Spain - 2025

To avoid liability, Spanish bank director must document:

1. Fit & Proper file: CV, time commitment letter, independence declaration filed with Banco de España/ECB.
2. Board Pack: Must include risk report, compliance report, audit report before each meeting. Dissent must be recorded in minutes - Art.228.b LSC - if you disagree, make it constar en acta or you are jointly liable - Art.237 LSC.
3. Dissent and resignation: If you cannot obtain information, must request in writing and if denied, consider resignation with burofax - protects vs Art.367.
4. No conflict: Any related party loan must go through Art.229 procedure - disclosure to board + abstention + market conditions + audit committee report + Banco de España large exposure reporting.
5. D&O Insurance: Does NOT cover administrative fines - Art.93.3 LOSS prohibits insurance of fines - nor criminal, but covers civil Art.238/241. Bank must have D&O with €10M+ for significant bank.

Limitation periods:

• Accion social/individual: 4 years from day it could be exercised - Art.241 bis LSC
• Art.367 debts: 4 years from debt date
• Administrative: 4 years - Art.92 LOSS
• Criminal Art.290: 5 years