Spanish steps towards MiFID2

The Spanish Ministry of Economy, Industry and Competitiveness has published a preliminary draft law and draft Royal Decree implementing MiFID2 in Spain.

Following its March 2017 consultation paper, on 04 August 2017, the Spanish Directorate General of the Treasury and Financial Policy published two drafts which will implement Directive 2014/65/EU on markets in financial instruments (MiFID2 or the Directive) and the supplemental Commission Delegated Directive of 07 April 2016 into Spanish law:

  • a preliminary draft law implementing MiFID2 (the Preliminary Draft Law) which will repeal and replace the current Spanish Securities Markets Act (the SMA), and
  • a draft of Royal Decree which will implement regulation of the SMA (the Draft Regulation) and amends the current implementing regulations (the Regulation).

Both texts will be open for public consultation until next 18 September 2017.

The aim of the Preliminary Draft Law and the Draft Regulation (which are both only currently available in Spanish) is not only to transpose MiFID2 into Spanish law but also to incorporate a number of amendments impacting the financial sector, with special emphasis on changes to be introduced in other legal areas, such as those related to collective investment schemes.

Among the main aspects contained in the preliminary drafts, the following should be noted:

  • Inducements: while the text of MiFID2 includes an open list of scenarios in which inducements could be allowed, Article 264 of the Preliminary Draft Law and Article 58 of the Draft Regulation seek to restrict this list to the three scenarios expressly included in MiFID2. In this regard, it will be understood that fees, commissions and non-monetary benefits are designed to enhance the quality of the relevant service to the client when the all of the following conditions are met:
    • the inducement is justified by the provision of any of the following additional services or higher level service to the relevant client, proportional to the level of inducement received (in this regard, the Draft Regulation does not follow the Directive in including the expression such as):
      • the provision of non-independent advice on, and access to, a wide range of suitable financial instruments including an appropriate number of instruments from third party product providers having no close links with the firm
      • the provision of non-independent advice combined with either (a) an offer to provide ongoing advice to the client (at least annually) or (b) another ongoing service that is likely to be of value to the client (eg advice about asset allocation), or
      • the provision of access, at a competitive price, to a wide range of financial instruments that are likely to meet the needs of the target market, including an appropriate number of instruments from third party product providers having no close links with the firm, together with the provision of either (a) added-value tools (eg objective information tools helping the relevant client to take investment decisions or enabling the client to monitor, model and adjust the range of financial instruments in which they have invested); or (b) periodic reports of the performance and costs and charges associated with the financial instruments
    • the inducement does not directly benefit the recipient firm, its shareholders or employees without tangible benefit to the relevant client, and
    • the inducement is justified by the provision of an ongoing benefit to the relevant client.
  • Financial analysis: the Draft Regulation includes the option for collective investment schemes to bear the costs related to financial advice on investments, but subject to certain conditions (including that such costs must be mentioned in the prospectus, and qualitative and quantitative information regarding them must be included in the annual report).
  • Complex instruments: non-UCITS will be automatically considered to be "complex instruments", so an appropriateness test will be needed and it will not be possible to market them on an execution only basis. (This is in line with section 10 of the recently published ESMA Q&As of 10 July 2017).
  • Investment firms: there are changes as well for investment firms, such as an increase in the length of the authorisation process from three to six months or the proposed new regime on corporate governance, which requires investment firms to adopt current internal governance. In addition, investment firms which only provide investment advice (investment advisors or EAFI) must change their title to EAF (to avoid the final I being understood as independent) and may not appoint agents (as other type of investment firms may).
  • Target market: apart from incorporating relevant provisions on product governance, it is expressly provided that, in respect of financial instruments launched before 03 January 2017, with a target market still to be determined, distributors of such instruments must be subject to new product governance rules three months after the new SMA enters into force.
  • Omnibus accounts: it would appear that the new text allows the possibility of using global accounts for pre-existing positions of investors but final wording is expected to clarify the position since the current wording raises some doubts about its practical applicability.
  • Management companies: management companies which provide investment services will be subject to relevant parts of the new SMA and Regulation, so should comply with MiFID2.
  • Penalty system: certain sanctions applicable to infringements related to collective investment schemes will be subject to change and higher penalties will be imposed for serious and very serious infringements.

Next steps

The public consultation period for the Preliminary Draft Law closes on 18 September 2017. Once the relevant ministerial approval procedure ends, the resulting Draft Law will be approved by the Spanish Council of Ministers. Once the Draft is finally approved, the parliamentary approval process shall start (including subsequent approval by Congress and Senate, with the latter having the option to incorporate further amendments). Taking into account the complexity of the legislative process in Spain, at this stage it is not possible to clearly determine an expected date for final enactment of the new SMA and Regulation, and therefore a date for implementation of MiFID2 in Spain. However, although an urgency procedure could be invoked, it is highly unlikely that the final texts will be published by January 2018, as required under MiFID2.

Once the final texts are enacted and published in the Spanish Official Gazette, the Boletín Oficial del Estado (or BOE), they will enter into force the day following publication.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.