Accordingly, the mandatory documentation to be given to the borrower before signing is regulated, and the customer’s right to advice from the notary public is indicated. It is also sought to avoid certain perverse incentives. Limits have been set on the remuneration policy for staff who evaluate solvency and market the loans, with a further requirement that such staff should have certified minimum knowledge in this field. In protecting customers by ensuring that qualified staff inform them of all details sufficiently in advance, that the contractual clauses applied are clear and comprehensible, that the product is actually suited to their needs and that there are no hidden costs, the law is in fact conducive to legal certainty and significantly reduces the risks of litigiousness. I have previously stated that customer protection, far from disadvantaging banks’ functioning and profitability, is a core element of any viable and sustainable bank business model in the long term. In economic terms, the cost of litigiousness and its terrible effect on the entire sector’s reputation clearly far outweigh any hypothetical benefit that individual banks could have obtained through controversial practices. That leads me to the second feature I referred to previously, namely the oversight of conduct, and the consideration of conduct risk within the prudential regulatory framework and the business model with customers. Non-financial risk The regulation of bank conduct follows a mixed approach in Spain.
A good example of this was Law 2/2011 on Sustainable Economy, which marked a milestone on the road towards advanced regulation of conduct. For example, this legislation includes for the first time so-called “responsible lending” and modernises claims services. Several European Directives addressing this field have also been approved. Banco de España Circular 5/2012, which replaced Circular 8/1990, includes all these features. I honestly believe that the current rules accurately regulate transparency obligations regarding bank products and services both in the pre-contractual stage and over the life of the operation. Evidently, in parallel with these regulatory developments, there have been most significant changes in society, public opinion and jurisprudence, especially in the past decade. Our supervisory framework has also evolved. Now, in addition to focusing on formal compliance with conduct obligations, it also envisages the management and mitigation of these risks by banks and their incorporation into the business model. I shall briefly refer to these aspects today. But I will also broach the need to enhance customers’ financial knowledge. In my view, this is a key element of which little mention is usually made. The cost of litigiousness Clearly, the changes in customer safeguard regulations and in jurisprudence mean that what was appropriate in the past has ceased to be so today. Undoubtedly, banks have acted questionably; but to be completely fair, we should acknowledge that the legal playing field on which banks operate has changed significantly.