Rights and obligations is reflected in the regulation

Where a decision to reject an application for credit is based on the consultation of a relevant
database, the creditor must, immediately and at no cost, inform the consumer of the
results of the consultation and of the details of the database. Database managers must
provide creditors from other Member States with access to their databases for assessing
the creditworthiness of consumers. The conditions for access shall be non-discriminatory
for Spanish creditors.
The increased interest of consumers in knowing their rights and obligations is reflected in
the regulation of the content of credit agreements, which takes into account the specific
features of the various kinds of credit agreement.
In the contract termination phase, the Law regulates the right of the contracting parties to
terminate an open-end credit agreement, the consumer’s right to repay the credit early and
the borrower’s position in the event of assignment of the creditor’s rights under a credit
agreement, which had been established in Law 7/1995 and now has its precedent in the
transposed Directive. It also introduces the consumer’s right of withdrawal from a credit
agreement, the regulation of which follows the criteria governing the exercise of this right
in the distance marketing of financial services.
The mathematical formula for calculating the annual percentage rate is intended to define
clearly and comprehensively the total cost of a credit to the consumer,36 and to ensure that
its definition is comparable in all Member States of the European Union. The formula is set
out in the annexes to the Law, as are the assumptions for its calculation. However, in accordance
with Directive 2008/48/EC the Ministry of Economic Affairs and Finance is empowered
to establish additional assumptions or change existing ones if the assumptions
included in the Law do not suffice to calculate said rate in a uniform manner or are not
adapted any more to the commercial situation at the market.
Certain provisions of Law 7/1995 enhancing protection in the area of consumer credit are
retained although they are not required by Union legislation, such as those relating to binding
offers, the effectiveness of contracts linked to the obtainment of credit, improper
charging and penalties for non-compliance with formalities and for omission of compulsory
clauses in contracts.
As regards the penalty regime, non-compliance by credit institutions with the requirements
of this Law are penalised under the law on discipline and supervisory intervention of credit
institutions.37 Non-compliance by other natural and legal persons is an infringement of
consumer and user protection requirements.
The regime governing appeals provides for an out-of-court complaint and redress mechanism
to resolve disputes between consumers and creditors or credit intermediaries, and
incorporates the regulation of injunctions against unlawful conduct.
The Law came into force on 25 September 2011.

New legislation on consumer credit agreements

Law 16/2011 of 24 June 2011 (BOE of 25 June 2011) on credit agreements for consumers
wrote into Spanish law Directive 2008/48/EC of the European Parliament and of the Council
of 23 April 2008 on credit agreements for consumers and repealed Law 7/1995 of 23
March 1995 on consumer credit.
Like the previous law, this Law applies to those contracts whereby a creditor grants or
promises to grant to a consumer credit in the form of a deferred payment, loan, credit line
or other similar financial accommodation. The term “consumer” means a natural person
who is acting for purposes which are outside his trade, business or profession.
The following contracts, inter alia, are excluded from the scope of this Law: a) credit agreements
which are secured by a real estate mortgage; b) credit agreements the purpose of
which is to acquire or retain property rights in land or in an existing or projected building; c)
credit agreements involving a total amount of credit less than €200 (previously €150); d)
hiring or leasing agreements where an obligation to purchase the object of the agreement
is not laid down either by the agreement itself or by any separate agreement; e) credit
agreements in the form of an overdraft facility and where the credit has to be repaid within
one month; f) credit agreements where the credit is granted free of interest and without any
other charges and credit agreements under the terms of which the credit has to be repaid
within three months and only insignificant charges are payable (1% of the total credit
amount); and g) credit agreements where the credit is granted by an employer to his employees
as a secondary activity free of interest or at annual percentage rates of charge
lower than those prevailing on the market.34 However, the partial application of the Law to
credit agreements of total amount exceeding €75,000 (previously €18,030) remains in place.
In order to improve consumer information, the Law addresses what takes place before the
consumer concludes a credit agreement. Specifically, it regulates in detail the basic information
to be included in advertising, in business communications and in the announcements
of offers displayed in commercial premises proposing either a credit or the services
of an intermediary to conclude a credit agreement.
Also set forth is a list of the credit features about which the creditor and, if applicable, the
credit intermediary must inform the consumer before he is bound by any credit agreement
or offer. Such information shall be provided by means of the Standard European Consumer
Credit Information form set out in the annexes to this Law.
Creditors and, if applicable, intermediaries must help the consumer to decide which credit
agreement, within the range of products proposed, is the most appropriate for his needs
and financial situation. This assistance specifically entails an obligation to explain to the
consumer in a personalised manner the characteristics of the products proposed and the
related pre-contractual information and to warn him of the risks attaching to default on
payment and to over-indebtedness. so that he can understand the effects which they may
have on his economic situation.
If the obtainment of credit on the terms and conditions offered is linked by the creditor to
the conclusion of a contract for ancillary services, in particular insurance, the creditor must
inform the consumer of this circumstance and of its cost, and also of the terms and conditions
which would otherwise be applied to the credit agreement should the contract for
ancillary services, in particular insurance, not be concluded.
The creditor must assess the consumer’s creditworthiness prior to the conclusion of the
credit agreement, for which purpose it may use information obtained from its own sources
and that furnished by the consumer, including the consultation of certain databases.35
Although this assessment is compulsory, its scope is left to the discretion of the creditor
depending on the commercial relationship between it and its customer. The assessment
of consumer creditworthiness by credit institutions shall also take account of specific
risk management and internal control rules applicable to them under the related specific
legislation.

Amendment of legal provisions

Categories of collective investment institutions based on investment policy: amendment of legal provisions

CNMV Circular 3/2011 of 9 June 2011 (BOE of 27 June 2011) amended CNMV Circular
1/2009 of 4 February 200933 on CII categories based on investment policy.
The CII types established for the purpose of defining CII categories are changed as regards
listed funds, being reclassified as listed CIIs so as to include the listed index SICAV
(open-end investment company) created by Royal Decree 749/2010 of 7 June 2010
amending the implementing regulations of Law 35/2003 of 4 November 2003 on CIIs approved
by Royal Decree 1309/2005 of 4 November 2005.
The calculation of the investment percentages which define the various investment policies
is changed. Previously the net assets of the CII were taken as the base for the calculation,
whereas now the total exposure of the CII is used.
For this purpose, the total exposure is defined as the sum of the exposure obtained by the
CII through its investments in spot and derivative financial instruments. To calculate the exposure through derivatives, use shall be made of the commitment methodology set out
in CNMV Circular 6/2010 on transactions in derivatives of CIIs. Furthermore, investments
in equity securities issued by non-euro area entities and currency risk shall also be considered
in terms of total exposure.
Lastly, solely for the purpose of determining investment policy, no additional exposure for
the CII is considered to arise if its investments in spot or derivative financial instruments
do not expose it to additional risk, including but not limited to, interest rate risk and credit
risk. Hence they must be in, for example, public debt issued by a State of high credit quality
or repos on these assets, the maturities of which are below three months.
The Circular came into force on 27 August 2011.

APPLICATION OF UNION LEGISLATION

Law 15/2011 of 16 June 2011 (BOE of 17 June 2011) amending certain financial legislation
applies to the Spanish legal system Regulation 1060/2009 of the European Parliament
and of the Council of 16 September 2009 on credit rating agencies.
The main purpose of the Law is to establish the obligation for certain financial institutions29
to use the ratings issued by credit rating agencies. Also, the legislation on credit rating
agencies is adjusted as necessary for the respective national supervisors to cooperate
with the ESMA.
The main amendments made by the Law are as follows:
From the standpoint of solvency, the use by credit institutions or investment firms of
external credit ratings shall require that these have been issued or endorsed by an
ESMA established in the European Union and registered according to Regulation
1060/2009. Ratings of institutions established or financial instruments issued outside
the European Union must have been issued by a credit rating entity established in a
non-Member State that has received an equivalent certification in accordance with
Regulation 1060/2009.
The credit rating agency must have been recognised by the Banco de España or, where
applicable, by the CNMV, in accordance with the criteria established for this purpose and,
in turn, considering the objectivity, independence, transparency and ongoing review of the
methodology applied, as well as the market credibility and acceptance of the credit ratings
issued by that credit rating agency.
The CNMV supervision, inspection and sanctioning regime established in Securities Market
Law 24/1988 of 28 July 1988 shall apply to: 1) the credit rating agencies established in
Spain and registered in accordance with Regulation 1060/2009, persons involved in credit
rating activities, rated entities and related third parties, third parties to whom the credit
rating agencies have outsourced certain functions or activities, and other persons otherwise
related or connected to credit rating agencies or credit rating activities, and 2) the
credit rating agencies registered by a competent authority of the European Union, and the
credit rating agencies registered by a competent authority of a third country that have received
certification based on equivalence under said Regulation, and which in both cases
operate in Spain.
The CNMV shall exercise its authority and apply the infringement and sanctioning regime
pursuant to Law 24/1988 in accordance with European Union legislation on credit
rating agencies. It shall have the necessary supervision and inspection powers to
perform the functions assigned by delegation or under cooperation arrangements with
other competent authorities, in accordance with the provisions of Regulation
1060/2009.
The CNMV shall cooperate with and assist other competent authorities of the European
Union to carry out the functions set out in Regulation 1060/2009. In particular it may request
the cooperation of other competent authorities of the European Union in a supervisory
activity, for an on-the-sport verification or an investigation of, inter alia, matters relating
to credit rating agencies.
Lastly, the CNMV shall maintain, in addition to the official registers set out in Law 24/1988,
which shall be freely available to the public, a register of credit rating agencies established
in Spain.
The Law came into force on 18 June 2011.

AMENDMENT OF UNION LEGISLATION

The main change introduced by the Regulation is that it entrusts to the new European
Securities and Markets Authority (ESMA)27 most of the functions relating to the registration,
deregistration and ongoing supervision of credit rating agencies, jointly with those of
the competent authority of the credit rating agency’s home Member State. Previously
these powers were shared by the Committee of European Securities Regulators and,
where appropriate, the competent authority of that Member State. In general, a noteworthy
change from the previous legislation is the reduction of the time period for the ESMA
to examine the application for registration submitted by a credit rating agency.
The ESMA is empowered to require credit rating agencies, persons involved in credit rating
activities, rated entities and related third parties, third parties to whom the credit rating agencies
have outsourced operational functions or activities and persons otherwise closely and substantially
related or connected to credit rating agencies or credit rating activities to provide
all information that is necessary in order to carry out its duties.
The ESMA may delegate specific supervisory tasks to the competent authority of a Member
State, for instance where a supervisory task requires knowledge and experience with
respect to local conditions, which are more easily available at national level. The kind of
tasks that it has to delegate include the carrying out of specific investigatory tasks and
on-site inspections.
The ESMA may impose fines on credit rating agencies, where it finds that there are serious
indications of the possible existence of facts liable to constitute one or more of the infringements
listed in the Regulation. Fines are imposed according to the level of seriousness
of the infringements. For this purpose, the Regulation establishes coefficients linked
to aggravating and mitigating circumstances in order to give the ESMA the necessary tools
to decide on a fine which is proportionate to the seriousness of an infringement. The ESMA
is empowered to take a range of measures, including, but not limited to, requiring the
credit rating agency to bring the infringement to an end, suspending the use of credit ratings
for regulatory purposes, temporarily prohibiting the credit rating agency from issuing
credit ratings and, as a last resort, withdrawing the registration when the credit rating
agency has seriously or repeatedly infringed the Regulation.
The ESMA, along with the competent authorities and the sectoral competent authorities,
shall cooperate with each other and exchange the information required for the purposes of
carrying out their duties. Also, powers are granted to the ESMA (previously to the competent
authorities of the Member States) to transmit to the national central banks, the European
System of Central Banks and the European Central Bank, in their capacity as monetary
authorities, to the European Systemic Risk Board and, where appropriate, to other
public authorities responsible for overseeing payment and settlement systems, confidential
information intended for the performance of their tasks.
Lastly, exclusive powers are granted to the ESMA (previously to the competent authorities
of the Member States) to conclude cooperation agreements on information exchange with
the supervisory authorities of third countries, provided that the information disclosed is
subject to guarantees of professional secrecy.
The Regulation came into force on 1 June 2011.

Amendment of legislation on the procurement of euro banknotes

Guideline ECB/2011/3 of 18 March 2011 (OJ L of 1 April 2011), amending Guideline
ECB/2004/18 of 16 September 2004,25 on the procurement of euro banknotes was issued
in compliance with the requirement to review Guideline ECB/2004/18 at the beginning of
2008 and every 2 years thereafter.
The ECB Governing Council decided on 10 July 2003 that a single Eurosystem tender
procedure should apply to the procurement of euro banknotes at the latest from 1 January
2012 onwards. Thus national central banks (NCBs) that have an inhouse printing works, or
those using a public printing works may elect not to participate in the single Eurosystem
tender procedure. In such cases, these printing works will remain responsible for the production
of the euro banknotes that have been allocated to their NCBs in accordance with
the capital key but will be excluded from participating in the single Eurosystem tender
procedure.
The expected start date of the procedure described above may be changed by a Governing
Council decision where more than half of the national central banks (NCBs) representing
more than half of the Eurosystem’s total banknote printing requirement choose not to
participate.
Given that this situation has occurred, Guideline ECB/2011/3 changes the start date of the
single Eurosystem tender procedure from 1 January 2012 to 1 January 2014, unless the
Governing Council decides on a different start date.
The Guideline came into force on 20 March 2011.

Mergers of public limited liability companies: Union legislation

Directive 2011/35/EU of the European Parliament and of the Council of 5 April 2011 (OJ L
of 29 April 2011) concerning mergers of public limited liability companies coordinates the
safeguards required in mergers for the protection of the interests of members and others.
The Directive incorporates most of the provisions of Council Directive 2001/23/EC of 12
March 2001 on the approximation of the laws of the Member States relating to the safeguarding
of employees’ rights in the event of transfers of undertakings, businesses or
parts of undertakings or businesses, as well as the provisions on reporting and documentation
set out in Directive 2009/109/EC of the European Parliament and of the Council of
16 September 200922 amending Council Directives 77/91/EEC, 78/855/EEC and 82/891/
EEC, and Directive 2005/56/EC as regards reporting and documentation requirements in
the case of mergers and divisions. It thus regulates these transactions with a view to ensuring
that third parties are sufficiently informed.
The Member States shall, in accordance with this Directive, make provision for rules governing
merger by the acquisition of one or more companies by another company23 and
merger by the formation of a new company.
In the case of merger by acquisition, the administrative or management bodies of the
merging companies shall draw up draft terms of merger in writing, the content of which is
set out in detail in the Directive. Draft terms of merger must be published for each of the
merging companies, at least one month before their approval, or made available on its
website free of charge for the public or via the central electronic platform referred to in
Directive 2009/101/EC.
One or more experts, acting on behalf of each of the merging companies but independent
of them, appointed or approved by a judicial or administrative authority, shall examine the
draft terms of merger and draw up a written report to the shareholders. However, the laws
of a Member State may provide for the appointment of one or more independent experts
for all the merging companies, if such appointment is made by a judicial or administrative
authority at the joint request of those companies.
In addition to the draft terms of merger, shareholders shall be entitled to receive certain
documentation, specified in the Directive, at least one month before the date fixed for the
general meeting approving the merger. This documentation includes the annual accounts
and annual reports of the merging companies for the preceding three financial years. A
company shall be exempt from this requirement if it make such documentation available
to the public on its website during that period of time.
A merger shall require at least the approval of the general meeting with a majority of not
less than two thirds of the votes attached to the shares, equity units or subscribed capital
represented. The laws of a Member State may, however, provide that a simple majority of
the votes shall be sufficient when at least half of the subscribed capital is represented.
Protection of the rights of the employees of each of the merging companies shall be regulated
in accordance with Directive 2001/23/EC.
The laws of the Member States must provide for an adequate system of protection of the
interests of creditors of the merging companies whose claims antedate the publication of
the draft terms of merger and have not fallen due at the time of such publication. To that
end, such creditors shall be entitled to obtain adequate safeguards where the financial
situation of the merging companies makes such protection necessary.
In any event, Member States shall ensure that the creditors are authorised to apply to the
appropriate administrative or judicial authority for adequate safeguards provided that they
can credibly demonstrate that due to the merger the satisfaction of their claims is at stake
and that no adequate safeguards have been obtained from the company.
The Directive sets out the legal consequences of a merger and the civil liability of the administrative
or management bodies of the acquiring or acquired company, and limits the
cases of nullity of a merger in order to preserve legal certainty in dealings between interested
companies, between interested companies and third parties and between shareholders.
Also set forth is the regime governing merger by formation of a new company, which includes
most of the provisions laid down for the other type of merger.

Finally, where a merger by acquisition is carried out by a company which holds 90% or
more, but not all, of the shares and other securities conferring the right to vote at general
BANCO DE ESPAÑA 16 ECONOMIC BULLETIN, JULY 2011 FINANCIAL REGULATION: 2011 Q2 meetings of the company or companies being acquired, Member States shall not require
approval of the merger by the general meeting of the acquiring company if certain conditions
are fulfilled.
The Directive came into force on 1 July 2011.

Update of TARGET2 legislation

Guideline ECB/2011/2 of 17 March 2011 (OJ L of 1 April 2011) amended Guideline
ECB/2007/2 of 26 April 200721 on a Trans-European Automated Real-time Gross settlement
Express Transfer system (TARGET2) so that the ECB Governing Council may, as a
precautionary measure, make available overnight credit in TARGET2 to certain central
counterparties that are not licensed as credit institutions.
For this purpose, they must meet the following conditions: 1) provide clearing and settlement
services and, in addition, be authorised as central counterparties in accordance with
the applicable Union or national legislation; 2) be established in the euro area; 3) be subject
to supervision and/or oversight by competent authorities; 4) comply with the oversight
requirements for the location of infrastructures offering services in euro, as amended from
time to time and published on the ECB’s website; 5) have accounts in the Payments Module
of TARGET2; and 6) have access to intraday credit.

It is clarified that the guarantee funds that a central counterparty has to maintain under the
applicable legislation, including those required on oversight grounds, shall be remunerated
at the main refinancing operations rate minus 15 basis points, while other guarantee funds
shall be remunerated at the deposit rate.
The Guideline came into force on 3 April 2011 and shall apply from 11 April 2011.

Amendment of rules (foreign collective investment institutions)

Amendment of rules on reporting by foreign collective investment institutions registered with the CNMV

CNMV Circular 2/2011 of 9 July 2011 (BOE of 26 July 2011) on reporting by foreign collective
investment institutions registered with the CNMV repeals and replaces CNMV Circular
2/2006 of 27 June 2006.30 The Circular writes into the Spanish legal system the latest
precepts of Union legislation31 which came into force on 1 July 2011.
Under the new notification procedure, collective investment institutions (CIIs) have to submit
the relevant documentation to the competent authority of the home Member State.
That documentation shall include the notification letter, which contains the identity of the
entity empowered to represent the CII before the CNMV and the information on the provisions
for marketing the CII in the host Member State. In this respect, the Circular spells out
the specific information which the foreign CII must include in the notification letter, for
which purpose it sets out a standard format of the marketing report.32
Certain information on the foreign CII must be kept up to date electronically.
The requirements regarding the CII documentation to be sent to the CNMV are changed, the
information required to be disclosed to investors is adjusted somewhat, the requirement to register
compartments in the CNMV register is eliminated, and the content of the communication to
be made to the CNMV pursuant to Article 52 of the Personal Income Tax Regulations is broadened
to include information on compartments and/or classes to be reported for tax purposes.
Lastly, non-harmonised CIIs are no longer required to send information electronically.
The Circular came into force on 1 July 2011.

AMENDMENT OF LEGISLATION (CREDIT INSTITUTION DEPOSIT GUARANTEE FUNDS)

AMENDMENT OF LEGISLATION ON CREDIT INSTITUTION DEPOSIT GUARANTEE FUNDS.

Royal Decree 771/2011 amends Royal Decree 2606/1996 by introducing a new regime for
additional contributions to these funds based on the remuneration of the deposits in
them.12 Specifically, the amounts of the deposits whose agreed remuneration exceeds the limits specified below shall be weighted at 500% (i.e. 400% more than the weight they
would have if they were included in that base) for the purpose of calculating the contributions
of the credit institutions belonging to the related deposit guarantee funds.

The limits above which the new weights will be applied are as follows: 1) sight deposits
whose annual interest paid in the periodic settlement of the account is more than 100 basis
points higher than average 1-month EURIBOR; 2) time deposits (or similar instruments)
up to three months whose agreed annual interest is more than 150 basis points higher than
average 3-month EURIBOR; 3) time deposits (or similar instruments) between three
months and one year whose agreed annual interest is more than 150 basis points higher
than average 6-month EURIBOR; and 4) time deposits (or similar instruments) with a term
of one year or more whose agreed remuneration is more than 100 basis points higher than
average 12-month EURIBOR.
Banco de España Circular CBE 3/2011 of 30 June 2011 (BOE of 2 July 2011) on additional
contributions to deposit guarantee funds sets out technical provisions implementing
the new precepts introduced by Royal Decree 771/2011.
The Circular contains two types of rules: those for identifying what is understood as deposit
remuneration in different practical cases, and those regulating ad hoc tools for calculating
the additional contribution.
Deposit remuneration shall comprise any explicit or implicit compensation or payment,
in cash or in kind, for maintaining a deposit. Thus the value of remuneration in kind shall
be that applicable under tax legislation, including any tax prepayments to be made for
the remuneration when they are borne by the institution. In variable-rate time deposits,
the remuneration shall be that which results from applying the reference index at the
deposit placement date over the whole of the agreed time period, disregarding possible
future modifications. In time deposits in which the interest rates change before maturity,
the interest rate taken shall be the average of the rates, weighting each by the time it is
to be applied. In hybrid financial instruments in which the embedded derivative does
not share similar characteristics and risks with the host contract, the interest rate used
to determine their remuneration shall be the maximum annual percent remuneration
receivable by the depositor on the amount deposited, if it is higher than the effective
annual interest rate corresponding to the host contract after the embedded derivative
has been stripped out; in the absence of the former, only the latter shall be taken. In any
event, any additional remuneration envisaged in the contract, be it in cash or in kind,
has to be included.
For the purpose of calculating the additional contributions to a deposit guarantee fund
stipulated in Royal Decree 771/2011, in sight deposits the specified limits shall be compared
with the remuneration of their average balances. These average balances shall be
the result of dividing the sum of the daily balances of each sight deposit by the number of
calendar days included in each settlement. In time deposits, comparison shall be with the
various limits set depending on the duration of the initially agreed deposit, disregarding
any potential partial repayments agreed in the contract. Subsequent renewals, whether
envisaged or not in the original contract, shall be considered as new deposits.
Law 6/2011 came into force on 13 April 2011, Royal Decree 771/2011 came into force on
5 June 2011 (except as provided in the case of the transitional regimes envisaged therein)
and Circular 3/2011 came into force on 4 July 2011.

COMPETENCE OF AND COOPERATION BETWEEN SUPERVISORS

STRENGTHENING OF THE COMPETENCE OF AND COOPERATION BETWEEN SUPERVISORS

The Law introduces various measures in this respect, such as the obligation of the Banco de España and the CNMV to take into account the effect of their decisions on the stability of the financial stability of other Member States, the regulation of colleges of supervisors and of common decisions within the framework of supervision of cross-border groups, and the possibility of designating a branch of a credit institution as being significant.
Along these lines, to the competences entrusted to the Banco de España and the CNMV as the authorities responsible supervising credit institutions and investment firms, respectively, and their respective consolidatable groups, are added the following new ones:
1 Require institutions and their groups to have in place remuneration policies and practices that are consistent with and promote sound and effective risk management and to limit variable remuneration when it is inconsistent with the maintenance of a sound capital base.
2 Use the information received in accordance with the disclosure criteria established in this Law to compare remuneration trends and practices.
3 Collect information on the number of individuals per credit institution in pay brackets of at least €1 million including the business area involved and the main elements of salary, bonus, long-term award and pension contribution.
That information shall be forwarded to the European Banking Authority and the European Securities and Markets Authority by the Banco de España and the CNMV, respectively.
Regarding European Union supervisory authorities, the new obligations set for the Banco de España and the CNMV include the following:
1 Planning and coordination of supervisory activities in cooperation with the competent authorities involved, in preparation for and during emergency situations, including adverse developments in credit institutions or in financial markets, using, where possible, existing defined channels of communication for facilitating crisis management.
2 The formulation of applications to the competent supervisory authorities of a credit institution or investment firm authorised in the European Union with branches in Spain for such branches to be deemed to be significant, and, in the absence of a joint decision in this respect, the issuance of a decision on whether the branch is significant.
Regarding this latter case, in accordance with the legally stipulated procedure, the Banco de España or, as applicable, the CNMV shall work towards the adoption of a joint decision on the application with the other competent authorities of other Member States entrusted with supervising the various institutions forming part of the group. Also, they shall be responsible for ruling, through a joint decision, on the equivalent applications made by the competent authorities of countries in which branches of  Spanish credit institutions are located, and, in the absence of a joint decision in that respect, for recognising the decision by such competent authority on the branch’s significant nature. In these procedures, a branch shall be considered to be significant on the basis of such reasons as market share in terms of deposits, the likely impact of a suspension or closure of the operations on market liquidity or on the payment and clearing and settlement systems, and the size and
the importance of the branch in terms of number of clients.
Also, the Law strengthens the close cooperation with other competent authorities responsible for the supervision of foreign credit institutions or investment firms, parents, subsidiaries or investees in the same group. Within this cooperation framework, the Banco de España and, where applicable, the CNMV shall do everything in their power to reach a joint decision to determine the adequacy of the consolidated level of own funds held by the group with respect to its financial situation and risk profile and the required level of own funds for each entity within the banking group and on a consolidated basis. The joint decision shall also duly consider the risk assessment of subsidiaries performed by relevant competent authorities.
The joint decision shall be adopted according to the legally stipulated procedure.
In order to facilitate the exercise of their tasks with other EU competent authorities, the Banco de España and the CNMV shall establish colleges of supervisors and ensure appropriate coordination and cooperation with third-country competent authorities.
Colleges of supervisors shall provide a framework for the following tasks, among others:
1) exchanging information; 2) agreeing on voluntary entrustment of tasks and voluntary
delegation of responsibilities where appropriate; 3) determining supervisory examination
programmes based on a risk assessment of the group; 4) increasing the efficiency of supervision
by removing unnecessary duplication of supervisory requirements; and 5) consistently
applying the prudential requirements for the taking up and pursuit of the business
of credit institutions across all entities within a banking group without prejudice to the
options and discretions available in EU legislation;
When the Banco de España or the CNMV supervise an institution with significant branches, they shall also establish and preside a college of supervisors to facilitate the exchange of information. Legal provisions may be promulgated specifying the characteristics to be met by these colleges, the composition of which shall be determined by the Banco de España or the CNMV, as appropriate.

Lastly, the Law reforms the exchange of information by the Banco de España with central banks and other bodies with a similar function in their capacity as monetary authorities.
Under this reform, which addresses the exchange of information and cooperation between supervisory authorities, it is expressly provided that such exchange may refer to the information relevant for the exercise of their respective statutory tasks.

CHANGES IN LIQUIDITY RISK MANAGEMENT POLICY

A substantial change was made to the risk management policy of credit institutions, specifically
that regarding liquidity risk. The Banco de España will periodically assess the
overall management of this risk and encourage the development of sound internal methodologies.
Its assessments shall take into account the role played by credit institutions in
financial markets. However, the Banco de España shall detail the method and procedure
to be used in these assessments.
Credit institutions shall establish robust strategies, policies, processes and systems for
the identification, measurement, management and monitoring of liquidity risk over an appropriate
set of time horizons, including intra-day, so as to ensure that credit institutions maintain adequate levels of liquidity buffers. Those strategies, policies, processes and systems shall be tailored to business lines, currencies and entities and shall include adequate allocation mechanisms of liquidity costs, benefits and risks.
Credit institutions shall consider different liquidity risk mitigation tools, including a system of limits and liquidity buffers in order to be able to withstand a range of different stress events and an adequately diversified funding structure and access to funding sources.
Those arrangements shall be reviewed regularly.
As under the previous legislation, alternative scenarios shall be considered and the assumptions
underlying decisions concerning the funding position shall be reviewed regularly.
Credit institutions shall adjust their strategies, internal policies and limits on liquidity risk
and develop effective contingency plans, taking into account the outcome of the alternative
scenarios considered.

CHANGE IN LIMITS ON LARGE EXPOSURES

The new legislation generally maintains the limit such that the value of all the exposures of
a credit institution to a customer (entity or economic group) may not exceed 25% of its
own funds.
Where that customer is a credit institution or investment firm, or where the economic
group includes one or more credit institutions or investment firms, the value of all exposures
may not exceed 25% of the credit institution’s own funds or €150 million, whichever
the higher, provided that the sum of exposure values to all customers in the economic
group that are not credit institutions or investment firms does not exceed 25% of the
credit institution’s own funds.
Where the amount of €150 million is higher than 25% of the credit institution’s own funds,
in accordance with the policies and procedures to manage and control concentration risk,
the value of the exposure shall not exceed a reasonable limit in terms of the credit institution’s
own funds. That limit shall not be higher than 100% of the credit institution’s own
funds.
The previous limit that total large exposures could not exceed 800% of the credit institution’s
own funds is eliminated.
The following exceptions to limits on large exposures are also eliminated: 1) holdings in
certain insurance companies up to a maximum of 40% of own funds, and 2) claims on
certain central governments and central banks of countries that are denominated and financed
in the borrower’s national currency.

Amendment of legislation (payment and securities settlement systems)

The new Law also extends to interoperable systems the legal regime under Law 41/1999 for
insolvency of a system participant, the procedures established and the effects on transfer orders
and on collateral. It should be noted that the opening of an insolvency proceeding against
a participant or operator of an interoperable system does not prevent the funds or securities
available in that participant’s liquidation account from being used to meet its obligations in that
system during the business day in which the insolvency proceeding was opened.
As regards Royal Decree-Law 5/2005, credit claims18 are included as part of the collateral
that can be used in financial transactions. However, credit claims in which the debtor is a
consumer, a micro enterprise or a small enterprise may not be used as financial collateral,
save where the collateral taker or the collateral provider of such credit claims is one of the
institutions listed in Royal Decree-Law 5/2005.19
It continues to be legally required that financial collateral agreements be in writing, or in a
legally equivalent form, with no further requirement for their creation, validity, perfection,
priority, enforceability or admissibility as evidence. The creation of the security interest shall
require, in addition to registration of the collateral agreement, the provision of the asset
designated as collateral, and registration of such provision in writing or in a legally equivalent
form. However, in the case of credit claims, the inclusion in a list of claims submitted in
writing, or in a legally equivalent manner, to the collateral taker is sufficient to identify the
credit claim and to evidence the provision of the claim provided as financial collateral between
the parties and against the debtor or third parties. A debtor that pays before being
notified of the provision of a security interest shall be released from the related obligation.
Debtors of credit claims may validly waive, in writing or in a legally equivalent manner: 1)
their rights of set-off vis-à-vis the creditors of the credit claim and vis-à-vis persons to
whom the creditor assigned, pledged or otherwise mobilised the credit claim as collateral;
and 2) their rights arising from banking secrecy rules.
Regarding the rights of substitution and disposal of collateral provided for in Royal Decree-
Law 5/2005, the right of disposal shall not apply when the collateral is a credit claim and the
right of substitution shall not apply when the collateral is a non-fungible credit claim.20
In the event of enforcement of collateral arrangements by the collateral taker due to non-compliance
with the obligations or any enforcement event agreed by the parties, when the collateral
is in the form of credit claims, these shall be realised by sale or appropriation and by setting
off their value against, or applying their value in discharge of, the relevant financial obligations.
Finally, the rest of the text of Royal Decree-Law 5/2005 is revised so as to correct and
clarify other matters not relating to the transposition of the directive, and to resolve some
problems of legal uncertainty.
In addition, Law 22/2007 of 11 July 2007 on the distance marketing of consumer financial
services was amended. Specifically, the consumer’s prior consent is required for a supplier
to use automated calling systems without human intervention or fax messages as a
means of distance communication.
The Law came into force on 1 July 2011, except for the amendment to Law 22/2007, which
came into force on 13 April 2011.

REQUIREMENTS FOR PREFERENCE SHARES

CHANGE IN THE REQUIREMENTS FOR PREFERENCE SHARES TO BE ELIGIBLE AS OWN FUNDS

In order to adapt the legal regime governing credit institution preference shares to international
requirements and thus ensure they are an effective instrument for meeting solvency
requirements, Spanish legislation has been changed in certain respects.
Specifically, the issuance conditions may not include early redemption incentives and
must set the remuneration to which the securityholders are entitled, provided always that
it shall be conditional on the existence of distributable profit or reserves. The Board of
Directors or equivalent body of the issuing or parent credit institution has the power to
cancel, at its discretion, when necessary, the payment of interest or dividends for an unlimited
period of time, on a non-cumulative basis. Payment may also be cancelled if the
issuing or parent credit institution or its consolidatable group or sub-group does not meet
the minimum capital requirements. In any event, the Banco de España may require the
cancellation of remuneration payments based on the financial and solvency situation of
the issuing or parent credit institution or on that of its consolidatable group or sub-group.
Also, a mechanism should be established to ensure that preference shareholders participate
in the absorption of present or future losses of the issuer or controlling institution.
That mechanism should be defined clearly and not hinder possible recapitalisation processes,
whether they be through the conversion of preference shares into ordinary shares,
non-voting equity units or capital contributions to credit cooperatives, or through the reduction
of the nominal value.
The mechanism must be applied in either of the following circumstances: a) where the issuing
or parent institution, or its consolidatable group or sub-group, has an original own
funds ratio, calculated in the same way as the solvency ratio, below 4% (the Banco de
España may set any other solvency ratio provided it is more demanding), or b) where the
issuing or parent institution, or its consolidatable group or sub-group, has an original own
funds ratio below 6% and material accounting losses.
When the mechanism is that of conversion into ordinary shares, non-voting equity units or
capital contributions to credit cooperatives of the issuing or parent credit institution, the
issuer has to allow immediate conversion and specify an exchange ratio which sets a floor
on the number and nominal amount of shares to be delivered. When the mechanism consists
in reducing the nominal amount of the preference shares, the losses incurred by the
issuer shall be apportioned between total capital and reserves, on the one hand, and total
preference shares outstanding, on the other.
The Banco de España may specify the preference share conversion conditions in accordance
with the aforementioned criteria and the manner of determining the losses and the
other indicators stated, particularly in the case of issues guaranteed by various institutions,
on the basis that the stipulated loss absorption mechanisms do not hinder possible
recapitalisation processes.
The limit on the outstanding nominal amount of preference shares remains at 30% of the
original own funds of the consolidatable group or sub-group of the controlling entity of the
issuing subsidiary, including the amount of the issue itself, without prejudice to any additional
limitations that may be imposed for solvency purposes. However, from now on, the
Banco de España may change this percentage, although it may never exceed 35%.
Preference shares continue to be perpetual and the issuer continues to have the option
of agreeing to early redemption from the fifth year after they were paid in, following
prior authorisation from the Banco de España. From now on, this authorisation is subject
to the financial situation or solvency of the credit institution or its consolidatable
group or sub-group being unaffected. It may also be made subject to the institution
replacing the redeemed preference shares with eligible capital items of the same or
higher quality.
In this respect the Banco de España may authorise at any time the early redemption of
dated or undated instruments in the event of any change in the fiscal regime or in the eligibility
of such instruments as own funds that was not envisaged at the issue date.
The payment of remuneration may be replaced, if so stipulated in the terms of issue, by the
delivery of ordinary shares of commercial banks or non-voting equity units of savings
banks or capital contributions to credit cooperatives, provided that this enables the institution
to preserve its financial resources.
This delivery of capital instruments will only be permissible if it produces the same economic
result as redemption, i.e. if it does not entail the reduction of capital of the institution,
10 and the issuer has full discretion to opt not to pay the remuneration in cash and,
furthermore, may cancel delivery of the capital instruments when necessary.
Lastly, the transitional regime envisaged in Law 6/2011 is implemented, such that the preference
shares issued before the entry into force of this Law (13 April 2011) and not meeting
the requirements under it may continue to be eligible as the own funds of credit institutions
and of their groups, subject to certain limits detailed in Royal Decree 771/2011.

The most noteworthy developments from the standpoint of financial regulation

The most noteworthy developments from the standpoint of financial regulation are as follows:
SECURITISATION.- Law 6/2011 makes it compulsory for credit institutions and investment firms to meet certain requirements to allow them to assume exposures to securitisation positions and to
initiate such securitisation.
Under these requirements, which are set out in Royal Decree 771/2011, a credit institution,
other than when acting as an originator, a sponsor or original lender, shall be exposed to
the credit risk of a securitisation position in its trading book or non-trading book only if the
originator, sponsor or original lender has explicitly disclosed to the credit institution that it
will retain, on an ongoing basis, a material net economic interest.
For these purposes, “retention of net economic interest” means: a) retention of no less
than 5% of the nominal value of each of the tranches sold or transferred to the investors;
b) in the case of securitisations of revolving exposures, retention of the originator’s interest
of no less than 5% of the nominal value of the securitised exposures;7 c) retention of
randomly selected exposures, equivalent to no less than 5% of the nominal amount of
the securitised exposures, provided that the number of potentially securitised exposures
is no less than 100 at origination; or d) retention of the first loss tranche and, if necessary,
other tranches having the same or a more severe risk profile than those transferred
or sold to investors and not maturing any earlier than those transferred or sold to investors,
so that the retention equals in total no less than 5% of the nominal value of the
securitised exposures.
The Banco de España may specify the conditions of application of this Law and how those
institutions will communicate the retention requirement to investors. This communication
must allow them ready access to all pertinent data on exposures. Also, the Banco de España
may opt to suspend temporarily the aforementioned requirements during periods of
general market liquidity crisis.

Amendment of the law on credit institutions

Amendment of the law on credit institutions’ own funds and on credit institution deposit guarantee funds.

Law 6/2011 of 11 April 2011 (BOE of 12 April 2011) amended Law 13/1985 of 25 May 19851 on investment ratios, own funds and reporting requirements for financial intermediaries, Law 24/1988 of 28 July 19882 on the securities market and Legislative Royal Decree 1298/1986 of 28 June 19863 on the adaptation of current credit institution law to EU legislation.
The purpose of the Law is to commence transposition of Directive 2009/111/EC of the European Parliament and of the Council of 16 September 2009 amending Directives 2006/48/ EC, 2006/49/EC and 2007/64/EC as regards banks affiliated to central institutions, certain own funds items, large exposures, supervisory arrangements, and crisis management.

More recently, Royal Decree 771/2011 of 3 June 2011 (BOE of 4 June 2011) amended Royal Decree 216/2008 of 15 February 20084 on financial institutions’ own funds and Royal Decree 2606/1996 of 20 December 19965 on credit institution deposit guarantee funds. This Royal Decree implements Law 2/2011 of 4 March 2011 on sustainable economy and Law 6/2011 of 11 April 2011. It also makes headway in the transposition of Directive 2009/111/EC and of Dire ctive 2010 /76/E U o f the European Parliament and of the Council of 24 November 20106 amending Directives 2006/48/EC and 2006/49/EC as regards capital
requirements for the trading book and for resecuritisations and the supervisory review of remuneration policies.
It also takes the opportunity to introduce a new legal regime governing additional contributions to credit institution deposit guarantee funds based on the remuneration of the deposits, in line with the provisions being adopted in this connection in the EU.
More information:  Management

CREDIT INSTITUTION REMUNERATION POLICIES

In accordance with the transposition of Directive 2010/76/EU of the European Parliament and of the Council of  24 November 2010, credit institutions have to apply certain requirements for those categories of staff whose professional activities have a material impact on their risk profile at group, parent and subsidiary levels.
Most notable among other requirements are the following:
a) a list indicating the categories of the aforementioned staff must be submitted to the Banco de España ;
b) the remuneration policy is consistent with sound and effective risk management, does not encourage risk-taking that exceeds the level of tolerated risk of the credit institution and incorporates measures to avoid conflicts of interest;
c) the management body adopts and periodically reviews the general principles of the remuneration policy at least annually, and the implementation of the remuneration policy is subject to central and independent internal review for compliance with the remuneration policies and procedures in place;
d) staff engaged in control functions are independent from the business units they oversee, and are remunerated in accordance with the achievement of the objectives linked to their functions; and
e) the remuneration of the senior officers in the risk management and compliance functions is directly overseen by a remuneration committee or, if such a committee has not been established, by the relevant management body.
The new legislation regulates the design of remuneration schemes, in which the fixed and variable components should be appropriately and efficiently balanced. The variable remuneration components should be sufficiently flexible such that their adjustment includes the possibility to pay no variable remuneration component.
For these purposes, the Banco de España may establish specific criteria for determining the appropriate proportion between fixed and variable components. The variable remuneration components should create incentives aligned with the long-term interests of the institution and meet certain requirements set out in Royal Decree 771/2011.
The remuneration schemes of credit institutions which receive government financial support
for restructuring purposes have to meet, in addition to the foregoing requirements, the following ones:
a) where variable remuneration is incompatible with a sound capital base and with an appropriate waiver of government support, it shall be strictly limited to a percentage of net income and
b) the directors and managers who effectively direct the activity of the institution may not receive variable remuneration unless it is duly justified in the opinion of the Banco de España, which may, moreover, set limits on their total remuneration.

Most of the remuneration policy is extended to investment firms, such that the references
to the Banco de España and to credit institutions shall be deemed to be to the CNMV and
to investment firms, respectively.

Financial Regulation 2011

In 2011 Q2 a relatively small number of new financial provisions was promulgated in comparison with previous periods.
In the field of financial institutions, Spanish solvency law was amended to adapt it partially to recent Union legislation. The opportunity was taken to introduce a new legal regime governing additional contributions to credit institution deposit guarantee fund based on the remuneration of these instruments.
Also, amendments were made to adapt Spanish law on payment and securities settlement systems to Union legislation, particularly to recognise so-called “interoperable systems” and to extend to them the legal provisions on settlement finality in credit transfer orders.
In the European Union area, there were four notable new provisions: the amendment of TARGET legislation to enable the ECB to provide overnight credit to certain counterparty institutions not licensed as credit institutions; the regulation of mergers of public limited companies in order to unify the protection of shareholders’ and third parties’ interests in these processes in Member States; the updating of legislation on purchases of euro banknotes; and the amendment of the EU regulation on credit rating agencies to include the functions acquired by the new European Securities and Markets Authority.
Within the securities market, there were three new pieces of legislation: the adaptation of Spanish law to EU legislation on credit rating agencies; certain changes to the information required of foreign collective investment institutions registered in the CNMV registers; and the updating of collective investment institution categories based on investment policy.
Finally, a new law on consumer credit agreements writes into Spanish law the recent European legislation in this connection.

Forex Financial Regulation in Cyprus

Forex Financial Regulation in Cyprus

1.- What would be needed to operate in other EU jurisdictions, whether the Cyprus financial permission is automatic or some sort of formalities would have to be undertaken to extend the licence.

>> Through MiFID, the permission to operate in other EU jurisdictions after your Cyprus License has been activated, takes 1 month,  time needed for the Cyprus Authorities to inform the other EU Authorities. 

This needs no further authorisation or formalities or extension of License. If however, a branch shall need to be also set up, then some more forms and a business plan shall need to be submitted to the Cyprus Authorities for approval. However, again the other EU jurisdiction authorities have no jurisdiction over this. This is a Cyprus regulated firm.

2.- What is meant by “brokerage only” in Cyprus and what services exactly the client who wants to be registered would be able to provide.
 “Brokerage Only” means to receive orders from his clients and automatically/immediately to transmit them to a liquidity provider for execution. That is, he is not a Market-Maker/Liquidity Provider himself. Instead he is a typical STP Broker or an Introducing Broker/White Label, for example.

3.-Minimum requirements for a company to obtain a licence in Cyprus, and whether every point of the quote bellow is absolutely indispensable.

>> To just obtain the license in Cyprus with Braxton  you do not need any of these.

However, to activate the license (i.e. begin accepting clients), yes all of these are absolutely indispensable.

Financial Advisers Regulation in New Zealand

1.                  There is a 2 layered approach to the regulation of financial service providers and financial advisers in New Zealand.  There is a system of registration and a system for authorisation.

2.                  The law requires all financial service providers, including financial advisers, who operate in New Zealand to be on a public Financial Service Providers Register (FSPR). It also requires advisers to belong to an approved dispute resolution scheme or to the reserve scheme (a scheme appointed on recommendation of the Minister to perform the functions of a default scheme). This gives consumers access to an independent dispute resolution process.

Registration

3.                  Entities and individuals who:

(a)                Live or have a place of business in New Zealand; and

(b)               Are in the business of providing financial services (in New Zealand or overseas),

must register to provide that particular financial service on the FSPR.

4.                  The meaning of ‘financial service’ is defined in section 5 of the  Financial Service Providers (Registration and Dispute Resolution) Act 2008.  An early stage of the process will be to identify exactly what services your client wishes to provide.  We will then be able to advise on the application of the relevant legislation.

5.                  In terms of whether individual and entity level registration is required, Regulation 6 in the new Financial Service Providers (Exemptions) Regulations 2010 deals with ‘sole adviser practices’.  The NZ’s company will not have to be registered on the FSPR in its own right as a financial service provider if:

(a)                The advisor provides the financial adviser services (or a relevant connected service) on behalf of the company and they are the only director, or one of only two directors, and senior manager of the company;

(b)               The advisor is personally registered (in their individual capacity) on the FSPR.

6.                  Applicants must also ensure they are not disqualified from registration.  Individual applicants must not be undischarged bankrupts or banned directors.  They must have a record clear of fraud and other criminal offences (a criminal history check will be conducted as part of the registration process). 

7.                  All providers must pay the appropriate fees.  The initial registration is approximately NZ$420 (including GST) with an ongoing annual fee of approximately $62.  Registration is online and relatively simple and your client will presumably be able to register without assistance from us. 

Financial Advisers

8.                  The Financial Advisers Act 2008 introduced minimum standards of professionalism for financial advisers and gives the Securities Commission power to regulate them.

9.                  The Financial Advisers Act aims to build public confidence in the professionalism and integrity of financial advisers by:

(a)                Requiring competence so advisers have the experience and expertise to match a person to a financial product that meets their needs and risk profile.

(b)               Requiring disclosure by advisers so that consumers can make informed decisions about whether to use an adviser and follow their advice.

(c)                Making advisers accountable for the advice they give.

10.              The Financial Advisers Act covers individuals and entities who provide financial adviser services to clients. Financial adviser services included in the Act are:

(a)                Giving financial advice.

(b)               Providing an investment planning service.

(c)                Providing a discretionary investment management service.

11.              Whether client need to be authorised depends on the following factors:

(a)                Whether the client’s client is retail or wholesale;

(b)               Whether the service to be provided is personalised or non-personalised (a class service); and

(c)                Which category of product your client will advise on.

12.              The Financial Advisers Act focuses the requirement to be authorised on advisers who provide personalised investment advice to retail clients.

13.              The category of product, i.e. category 1 or 2, is relevant for personalised services, which are services that take into account the client's individual needs and financial situation or where a client would reasonably expect an adviser to take their particular financial situation or goals into account.

14.              The clients will need to become an Authorised Financial Adviser (AFA) if you provide any of the following Financial Adviser Services to retail clients:

(a)                Give personalised financial advice on category 1 products including: securities, land investment products, futures contracts and investment-linked insurance contracts. Financial advice covers any recommendation or opinion about buying, selling (or refraining from buying or selling) a financial product.

(b)               Provide a discretionary investment management service in relation to category 1 products, i.e., your client decides which financial products to buy and/or sell on behalf of a client, e.g., your client is authorised to manage a client's investment portfolio.

(c)                Provide an investment planning service, that is, if your client designs or offers to design a plan for an individual that:

(i)                 Is based on an analysis of an individual's current and future overall financial situation

(ii)               Identifies their investment goals, and

(iii)             Includes recommendations or opinions on how to realise those goals.

15.              The requirements for authorisation and the process are fairly stringent.  They require:

(a)                Registration with ETITO (the organisation tasked with ensuring compliance with the educational requirements) and a competence assessment and examinations, as required.

(b)               Evidence from the relevant educational institution or industry body of accepted alternative qualifications and designations for proof of competence.

(c)                The provision of testimonials.

(d)               Evidence of good character.

(e)                The preparation of an Adviser Business Statement (ABS).

(f)                Online application for authorisation to the FSPR.

16.              The application fees are approximately NZ$1,200, with an annual fee of approximately NZ$600.