Fernando Vives Ruiz of Garrigues in Madrid looks at the country’s key recent reforms
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 harmonisation 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.
In 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 authorisation 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 securitisation, 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 modernised 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.
Executive chairman and managing partner
About the author
Executive Chairman and Managing Partner of Garrigues since September 2014.
Managing Partner of Garrigues in September 2009.
Fernando Vives has more than twenty-five years’ experience at Garrigues and has been a partner since 1998.
Between 2001 and 2009 he headed Garrigues’ Corporate/Commercial Law practice, encompassing the securities market, financial services, real estate, energy and telecommunications, EU and competition and M&A areas.
He practices in the areas of securities market law, corporate law, M&A, private equity, banking & finance law and insurance law, with particular emphasis on capital markets and financial services.
He specializes in major transactions involving mergers, reorganizations, tender offers, corporate LBOs, securities issues and public offerings, and regulatory matters concerning listed companies. He regularly advises on major M&A deals and is actively involved in private equity transactions, working on related tasks and on raising outside financing. He also has a wealth of experience in the insurance industry, where he advises numerous insurance groups operating in Spain.
He also acts as adviser to the shareholders’ meetings and boards of directors of some of the largest listed companies in Spain on corporate governance-related matters: Telefónica, S.A., Banco Bilbao Vizcaya Argentaria, S.A., Iberdrola, S.A., to name but a few.
• As board secretary to listed companies and associations:
• Board secretary of International Consolidated Airlines Group (IAG), which is listed on the Spanish continuous market and the London Stock Exchange. It is the only Spanish company listed on both the Ibex-35 and the FTSE 100, from June 2010 to November 2013.
• Director and Board secretary of Asociación para el Progreso de la Dirección (APD) since May 2013.
• Board secretary of Prosegur Compañía de Seguridad from July 2005 to 2012.
Collaborations with public institutions:
• Member of the Corporate Governance Committee of Experts set up under a resolution of the Cabinet of Ministers on May 10, 2013 within the framework of the 2013 National Plan of Reforms to advise the Spanish government on the broadening of the current Good Corporate Governance framework in Spain.
• Member of the Advisory Committee of the Spanish National Securities Market Commission, chosen by its Board as a renowned professional, since 2012.
• Fernando was a member of the working group appointed by a decision of the Spanish Accounting and Audit Institute (ICAC) on April 4, 2008 to prepare draft standards for the preparation of consolidated financial statements, which contributed to the final wording of Royal Decree 1159/2010, of September 17, 2010, approving Standards for the Preparation of Consolidated Financial Statements and amending the Spanish National Chart of Accounts approved by Royal Decree 1514/2007, of November 16, 2007, and the National Chart of Accounts for Small and Medium-sized Enterprises approved by Royal Decree 1515/2007, of November 16, 2007.
• Member of the working group created pursuant to the Decision of September 22, 2005, of the Spanish Accounting and Audit Institute (ICAC), to create subgroups tasked with studying different matters, within the working group appointed to prepare a base document for the reform of the Spanish National Chart of Accounts. He formed part of subgroup 9 on business combinations, joint ventures and consolidation as a commercial law expert.