Fernando Vives Ruiz of Garrigues looks at legal reforms rally in Spain
The second half of 2014 and the first half of this year have seen a particularly intense flurry of new legislation in the financial industry’s legal framework:
The starting flag was waved on June 27, 2014 the date of the publication of Law 10/2014, of June 26, on the regulation, supervision and solvency of credit institutions. This new law, long awaited by players in the Spanish banking industry, is basically a response to the need to adapt credit institution legislation to the new EU legal framework and to the necessary harmonization for establishing banking union, based on common financial legislation to set up single mechanisms for supervision and resolution of credit institutions in the eurozone.
The new law recasts in a single instrument the main pieces of legislation on regulation and discipline of credit institutions, and deals with continued surveillance of institutions’ solvency and risk management, a responsibility conferred on the Bank of Spain with broad supreme powers. But absolutely no limits are placed on that surveillance, which stretches to some very material and curious components of credit institution legislation such as reserved activities, monitoring the entry and suitability of key executives and shareholders, the specific strengthening of the corporate governance requirements or, lastly, the extremely unique treatment of distressed institutions, which includes the ability to supervise and replace their directors or the imposition of losses on their respective creditors.
And on February 2015, the implementing regulations for that law were approved, not just to round off its implementation, but also to recast in a single instrument the various pieces of secondary legislation then existing on the regulation and discipline of credit institutions.
Private equity schemes
Another of the radical changes we have seen took place to the legal framework for private equity schemes. This happened in November 2014 with the appearance of Law 22/2014, of November 12, 2014 on private equity schemes, other closed-ended type collective investment schemes and the management companies of closed-ended type collective investment schemes, and amending Law 35/2003, of November 4, 2003 on collective investment schemes.
Among a myriad of other new legislation, the new law has done away with the distinction between “ordinary regime” and “simplified regime” private equity schemes, defined a new type of scheme, an SME private equity scheme, significantly cut the amount of red tape required (the prior authorization procedure for private entity schemes has disappeared, and only been retained for management companies and self-managed private equity companies) and relaxed restrictions on the obligatory investment ratio.
It also introduced a new vehicle called a closed-ended type collective investment scheme, defined as collective investment schemes, not having a commercial or industrial purpose, which raise capital from a number of investors, through marketing activities for the scheme, to be invested in all types of financial or other assets, under a predefined investment policy.
Falling within this new definition are any companies that may have been operating in Spain by investing in unlisted securities but failed to fulfill the investments and private equity diversification requirements.
Investment services firms
Investment services firms have not escaped this ambitious legal reform program either, following the publication in May this year of Royal Decree 358/2015, of May 8, 2015 amending Royal Decree 217/2008, of February 15, 2008 on the legal regime for investment services firms and other institutions providing investment services.
This decree revised the definition of suitability of directors, general managers and other individuals holding key positions at investment firms, implemented the legal framework for publication of information on compensation policies and amended the rules on capital and solvency. The change in this last area involved reducing capital requirements and defining the elements that must be considered in the process of self-assessing capital and of designing their risk management mechanisms.
Law to encourage enterprise finance
On April 28, 2015, the Official State Gazette published Law 5/2015, of April 27, 2015, to encourage enterprise finance, a cross-disciplinary law that has made significant changes in various areas.
The law has a two-fold aim. One intention is to relax and ease access to bank lending for small- to medium-sized enterprises, in the belief there is a need to strengthen the recovery of bank credit, and the other is to move forward with the development of alternative methods of raising finance, by laying down the necessary regulatory foundations to strengthen the sources of corporate or non-bank finance in Spain.
Notable among the new legislation it contains are the reform of the legal rules on securitization, the abundant improvements made to capital market access and functioning (bond issuance) and the rules on crowdfunding platforms laid out for the first time in Spanish law.
As you can see, the number of legislative changes in the financial industry is huge. Altogether, the reform process undertaken has completely changed the legal framework, mirroring the new EU directives approved over recent years.
Although some “stages” have been less fortunate than others, on balance the amendments deserve, for the time being, to be seen in a good light. They have not only modernized the Spanish regulatory framework –now comparable to the most developed jurisdictions– but have also notably simplified the applicable legal regime by restating and combining several disperse pieces of legislation. As we know from experience though, the hardest test has yet to come: putting all this into practice.
Fernando Vives Ruiz