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2. Financial institutions

2.5 Investment Firms

2.5.1 Features

Investment Firms are companies whose main activity is to provide professional investment services to third parties on financial instruments subject to securities market legislation.

Under Spanish law, investment firms provide the following investment and ancillary services:

Investment and ancillary services:

Basic regulationa) Reception and transmission of client orders relating to one or more financial instruments.
b) Execution of those orders on behalf of clients.
c) Dealing on own account.
d) Discretionary and individualized investment portfolio management in accordance with client mandates.
e) Placement of financial instruments, whether on or not on a firm commitment basis.
f) Underwriting of an issue or a placement of financial instruments.
g) Provision of investment advice.
h) Management of multilateral trading systems.
Corporate purposea) Safekeeping and administration of financial instruments for the account of clients.
b) Granting credits or loans to investors to allow them to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction.
c) Advising companies on capital structure, industrial strategy and related matters, and providing advice and services relating to mergers and acquisitions.
d) Services related to operations for the underwriting of issues or placing of financial instruments.
e) Preparation of investment and financial analysis reports or other forms of general recommendations relating to transactions in financial instruments.
f) Foreign exchange services where these are related to the provision of investment services.
g) Investment services and ancillary services related to the non-financial underlying of certain financial derivatives when these are related to the provision of investment services or to ancillary services.

No person or entity may professionally provide the investment services or ancillary services listed in letters a), b), d) f), and g) above in relation to financial instruments unless they have been granted the mandatory authorization and are registered on the appropriate administrative registers. In addition, only the institutions authorized for that purpose may market investment services or solicit clients professionally, either directly or through regulated agents.

The legal regime for Investment Firms is contained in the Securities Market Law and in Royal Decree 217/2008. These pieces of legislation transpose into Spanish law the EU MiFID legislation14.

There are four types of Investment Firms:

  • Broker-dealers (Sociedades de Valores): These are investment firms that can operate both for their own and for the account of others, and that provide the full range of investment and ancillary services. Their capital stock must be at least €730,000.

    As of December 31, 2019, there were 33 broker-dealers registered on the CNMV’s Administrative Register15.

  • Brokers (Agencias de Valores): Investment firms that can only operate professionally for the account of others, with or without representation, and that provide the full range of investment services except for those described in letters c) and f) above, and the full range of ancillary services except for those mentioned in letter b).

    Their capital stock will depend on the activities they pursue. As a general rule, their share capital cannot be less than €125,000.However, brokers which are not authorized to take deposits of funds or transferable securities from their clients are able to have a share capital of €50,000.

    As of December 31, 2019, there were 55 brokers registered on the CNMV’s Administrative Register.

  • Portfolio management companies (Sociedades Gestoras de Carteras): These investment firms can only provide the investment services described in letters d) and g) and the ancillary services described in letters c) and e). They are required to have (i) an initial capital of €50,000; or (ii); a professional indemnity insurance, surety or some other comparable guarantee against liability arising from professional negligence, covering the whole territory of the European Union and providing coverage of at least €1,000,000 applying to each claim and in aggregate €1,500,000 per year for all claims; or (iii) a combination of initial capital and professional indemnity insurance in a form resulting in a level of coverage equivalent to that referred to in points (i) and (ii) above.

    As of December 31, 2019, there were 1 portfolio management companies registered on the CNMV’s Administrative Register.

  • Financial advisory firms (Empresas de Asesoramiento Financiero): These are individuals or legal entities that can only provide the investment services listed in letter g) and the ancillary services indicated in letters c) and e). In the case of legal entities, they must have (i) initial capital of €50,000, or (ii) a civil liability insurance policy that covers the entire territory of the European Union, a guarantee or other comparable guarantee, with a minimum coverage of €1,000,000 for claims for damages, and a total of €1,500,000 per year for all claims, or (iii) a combination of initial capital and a professional civil liability insurance policy that gives rise to coverage equivalent to that described in points (i) and (ii) above.

    As of December 31, 2019, there were 39 financial advisory firms registered on the CNMV’s Administrative Register.

In addition, credit institutions may provide on a regular basis the full range of investment and ancillary services where their legal regime, their bylaws and their specific authorization enables them to do so. Likewise, collective investment scheme management companies (SGIICs) may provide certain investment and ancillary services provided that they are authorized to do so.

The conditions for taking up business can be summarized as follows:

  • Internal organization: The Securities Market Law and Royal Decree 217/2008 are very exhaustive on the internal organization requirements that investment firms must meet.
  • Authorization and registration: It falls to the CNMV to authorize investment firms.

In order to secure authorization as an investment firm, the following broad requirements must be met:

  • Its sole corporate purpose must be to engage in the specific activities of investment firms.
  • It must take the form of a corporation, incorporated for an indefinite term, and the shares comprising its capital stock must be registered shares.
  • The minimum capital stock must be fully paid in in cash.
  • It must have a board of directors made up of no fewer than three members.
  • The chairmen, deputy chairmen, directors or administrators, general managers and persons holding equivalent positions are required to be of good repute and to have the knowledge and experience necessary for the performance of their functions, and be committed to the good governance of the investment firm. In the case of the parent companies of investment firms, the honorability requirement also applies to the chairmen, deputy chairmen, directors or administrators, general managers and persons holding equivalent positions and a majority of the members of the board of directors are required to have the knowledge and experience required for the performance of their functions.

    The requirements with respect to good repute, knowledge and experience also apply to the persons in charge of the internal control functions and to those holding other positions which play a key part in the day-to-day pursuit of the activities of an investment firm and its parent company.

  • It must have an internal code of conduct.
  • It must join the Investment Guarantee Fund where so required.
  • It must have presented a business plan reasonably evidencing that the investment firm’s project is viable in the future.
  • It must have submitted appropriate documentation on the conditions and the services, functions or activities to be subcontracted or outsourced, to permit verification that this fact does not invalidate the requested authorization.

2.5.2 The regime governing significant holdings and changes of control at investment firms

Pursuant to the regime governing significant holdings for investment firms, they must notify the CNMV, for its preliminary assessment, of any acquisitions amounting to more than 10% of capital or of voting rights, and of any significant holding that is increased so that the percentage of capital or voting rights becomes equal to or greater than 20%, 30% or 50%, or control of the firm is acquired. In addition, any individual or legal entity that has decided to dispose, directly or indirectly, of a significant holding in an investment firm, must first notify the CNMV of such circumstance.

Also, any individual or legal entity that, alone or acting in concert with others, has acquired, directly or indirectly, a holding in a Spanish investment firm, so that the percentage of voting rights or of capital that they hold is equal to or greater than 5%, must give immediate written notice to the CNMV and to the investment firm in question, indicating the amount of the resulting holding.

2.5.3 Cross-border activities of investment firms

  1. Spanish investment firms may provide, in other EU Member States, the investment services and ancillary services for which they are authorized, either through a branch or under the freedom to provide services, subject to the fulfillment of the established legal formalities.
  2. Investment firms authorized in another EU Member State may provide investment and ancillary services in Spain, either by opening a branch or under the freedom to provide services, subject to the statutory notification procedure.
  3. Non-EU investment firms intending to open a branch in Spain or to operate under the freedom to provide services are subject to the authorization procedure.

14It should be noted that in 2014, Directive 2014/65/EU of the European Parliament and of the Council, of 15 May 2014, on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II), which repeals Directive 2004/39/EC of the European Parliament and of the Council, of 21 April 2004, on markets in financial instruments (MiFID I) and a new Implementing Regulation (MiFIR), which replaces the former legislation 648/2012, were approved. However, to date, MiFID II has not yet been transposed into Spanish legislation.

15https://www.cnmv.es/Portal/Consultas/ListadoEntidad.aspx?id=1&tipoent=0