Circular 2/2020 of the National Securities Market Commission on Advertising of Investment Products and Services

I. GENERAL PROVISIONS COMISIÓN NACIONAL DEL MERCADO DE VALORES 14107 Circular 2/2020, of October 28, of the National Securities Market Commission, on advertising of investment products and services.

I Advertising, used by credit institutions, investment firms, management companies of collective investment undertakings, and other entities subject to the supervision of the National Securities Market Commission (CNMV) to promote and encourage the contracting of investment products and services, can be very relevant for investors, as is the rest of the information provided to them prior to contracting. Therefore, it is necessary to establish adequate regulatory and supervisory measures to ensure that advertising is clear, sufficient, impartial, and not misleading.

Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products, determined, in accordance with Article 240 of the Securities Market Law (Consolidated Text approved by Royal Legislative Decree 4/2015, hereinafter, LMV), a system of advertising control based on a dual approach: preventive, through rules, principles, and criteria that advertising messages must meet as well as internal organizational requirements to ensure that the entity complies with current regulations in this area and detects possible breaches; and corrective, allowing the CNMV to require the cessation or rectification of advertising on investment products and services that does not comply with the applicable rules and obligations and its eventual sanction.

In the aforementioned Order EHA/1717/2010, the scope of activities subject to control was established, defining the concept of advertising activity, and the general rules, principles, and criteria governing the advertising of products and services of the securities market were set out. Additionally, the basic regulation allowing the CNMV to require the cessation or rectification of advertising activity was configured. The final first provision empowered the CNMV to issue the necessary rules for the development and execution of this order.

It is opportune to make use of the empowerment conferred in the aforementioned Order at this moment for various reasons. Especially taking into account the increase that has occurred in recent times in advertising activity related to complex financial products and the convenience of disseminating, through an appropriate regulatory instrument, certain criteria that the CNMV has been applying in its supervisory actions regarding the content of advertising messages and other aspects.

This Circular develops both the scope of application as well as the content and format that advertising messages must respect. Likewise, it establishes rules on the procedures and internal controls to be implemented by entities and the registration obligations of advertising, and the regime applicable in case entities decide to voluntarily adhere to self-regulation systems of advertising activity to ensure that the principles and criteria collected in this Circular on the content and format of the advertising message are met, a possibility that was contemplated in Order EHA/1717/2010.

All these criteria and requirements apply to the subjects and activities included in the scope of this Circular without prejudice to the mandatory compliance with the different specific provisions currently applicable to each type of entity or service.

OFFICIAL STATE GAZETTE No. 299 Friday, November 13, 2020 Sec. I. Page 99272 cve: BOE-A-2020-14107 Verifiable at https://www.boe.es

The structure and approach of the Circular have taken into account the provisions applicable in matters of advertising of banking services (in particular, Circular 4/2020 of the Bank of Spain, on advertising of banking products and services), given the convenience that advertising referred to investment products and services, also carried out by credit institutions, and that referred to banking products and services are subject to similar criteria and requirements.

II This Circular consists of nine rules, a first final provision, and an annex.

After the first and second rules, referring to object and definitions, the third rule establishes the objective scope of application of this Circular and delimits the activities considered advertising. On the one hand, it includes advertising activity on any financial products, services, or activities subject to the supervision of the CNMV, including that carried out by crowdfunding platforms regulated by Law 5/2015, of April 27, on the promotion of business financing, or that related to structured deposits according to the definition established in Article 4.1.43 of Directive 2014/65/EU. On the other hand, it is determined that certain specific or usual informative content for the contracting of products or services subject to this Circular (pre-contractual and contractual information including warnings on the characteristics and risks of the products or services) provided to investors prior to the contracting of products or services or for the execution of an operation on said products, as well as documentation or information on Alternative Investment Funds (AIFs) provided to analysts or institutional investors to check interest in an AIF during the period prior to the start of its marketing, provided it is carried out under the terms established in Article 30 bis of Directive 2011/61/EU, will not be considered advertising activity and therefore are excluded from the scope of the Circular. This is without prejudice to the fact that information provided to investors that does not have the status of advertising must comply with the general principles provided in Article 44 of Delegated Regulation EU 2017/565, of April 25, 2016, on organizational requirements and operating conditions of investment firms. Additionally, the prohibition of carrying out advertising activity directed at retail investors or the general public referring to any product or service whose sale or provision is prohibited for retail clients is established.

In the fourth rule, the subjective scope of application is established. In addition to including crowdfunding platforms, it clarifies that investment firms, credit institutions, management companies of collective investment undertakings, and management companies of closed-ended investment undertakings authorized in another Member State of the European Union or in a third State operating in Spain under the free provision of services, must comply with the fifth rule on the content and format of the advertising message, the eighth rule on adherence to self-regulation systems of advertising activity, the ninth rule, on the supervisory function of the CNMV and the procedure to require the cessation and rectification of advertising activity, and the annex of this Circular. Likewise, other entities that carry out on their own initiative or commission third parties advertising activity on products and services collected in rule 3 directed at potential investors resident in Spain are subject to rules 5, 8, and 9 and the annex of the Circular.

The fifth rule collects general principles on the content and format of the advertising message which are developed in the annex, which consists of two sections: a first section referring to general principles and criteria and a second section with other criteria on the content of the advertising message. In the first section, two criteria are particularly relevant. First, that generally the information contained in commercial communications must be coherent with the informative contents, including warnings, required in regulatory provisions or by requirement of the CNMV. Second, the criterion that information or communication collected in a medium will be considered advertising when it refers to products and services of a specific entity and this entity pays or provides any type of remuneration for its dissemination.

The internal organizational requirements are specified in the sixth rule, in which the aspects that the commercial communication policy of entities must expressly collect are detailed, whose approval will be the responsibility of the governing body with the favorable report of the corresponding control function. In said commercial communication policy, the functional areas responsible for controlling the adequacy and effectiveness of the established procedures and control mechanisms will be designated. Among the control mechanisms are procedures that prevent contracting with service providers in the field of advertising activity if it implies the carrying out, without authorization, of an activity of marketing of investment products or services or client acquisition.

The seventh rule establishes the requirements for internal registration of advertising activity by entities. The conditions that such registration must respect are established, such as the minimum information to be registered by entities.

The eighth rule refers to the possibility that entities voluntarily adhere to self-regulation systems, which is considered a way to accredit that they have the internal procedures and controls provided for in section 2.c).i of the sixth rule, provided they make sufficient use of their prior advisory tools for which they must obtain at least one positive prior consultation report for each advertising piece, without this relieving the entity of the obligation to carry out an internal review of the advertising pieces.

The ninth rule regulates the procedure by which the CNMV, in accordance with Article 6.1 of Order EHA/1717/2010, may require the cessation or rectification of advertising that does not comply with what is provided for in this Circular, without prejudice to the application, when appropriate, of the sanctioning regime provided for in the applicable regulations.

In virtue thereof, the Council of the CNMV, in exercise of the conferred powers, making use of the empowerment collected in the Final First Provision of Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products, and prior report of the CNMV Advisory Committee and the Bank of Spain, has approved this Circular, which contains the following rules:

CHAPTER I General Provisions

Rule 1. Object. The object of this Circular is to develop the rules, principles, and criteria to which the advertising activity of investment services and products must be subject, in accordance with what is provided in Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products.

Rule 2. Definitions. For the purposes of this Circular, the following shall be understood: a) "Advertising activity": any form of advertising, as defined in Article 2 of Law 34/1988, of November 11, General Advertising Law, carried out by entities within the scope of their activity, regardless of the communication media, supports, and advertising formats used, such as television, cinema, radio, press, advertising through the internet (in any of its forms) or mobile devices, all types of outdoor advertising, direct advertising, point-of-sale advertising, brochures, catalogs, promotional gifts, loyalty campaigns, sponsorship events, home visits, or any other form of commercial communication. b) "Advertising campaign": the set of actions aimed at advertising a product or service through a single piece or a series of different advertising pieces, but grouped in time and related to each other, which are disseminated through various media during a specific period. c) "Commercial communication": any form of transmission of information, verbal or visual, intended to promote, directly or indirectly, through texts, images and/or sounds, products and services collected in rule 3. d) "Entities": those provided for in rule 4 when carrying out advertising activity on the products and services collected in rule 3. e) "Advertising piece": the specific format (jingle, television advertisement, banner, signage, etc.) through which an advertising message is transmitted depending on the communication medium or advertising support used. f) "Advertising message": information included in a commercial communication that is directed to attract the attention of the recipient with the objective that they acquire or use a product or service collected in rule 3. g) "Group of entities": a group of companies within the meaning of Article 42 of the Commercial Code or that present close links, in accordance with what is provided in Article 4.1.35 of Directive 2014/65/EU. h) "Advertising piece with differential content": specific format, designed within the framework of an advertising campaign to be disseminated through a specific communication medium or advertising support, in which the texts included in the advertising message that may affect the adequate understanding of the characteristics of the offered product or service subject to this Circular, in particular the informative data regarding its nature, its cost or profitability, and legal warnings, or their visibility conditions, differ essentially from those of other advertising pieces designed in that same format and for that same campaign (for example, introducing new conditions or requirements to access the product or service subject to this Circular or significantly varying the way of presenting the information). For these purposes, it will be understood that advertising pieces that are variations of another piece, in which only the offered economic conditions are updated or part of the information is omitted to adapt it to different sizes or duration spaces, do not have the status of advertising piece with differential content, without prejudice to the obligation of the entity to ensure that these comply with what is provided in the Circular. i) "Service provider": a third party that carries out a process, service, or activity for the entity, or parts of them, within the scope of advertising activity according to an advertising contract, as regulated in Law 34/1988, of November 11, General Advertising Law, a service provision contract, or an outsourcing agreement.

Rule 3. Objective Scope.

1. The advertising activity directed at investors or potential investors resident in Spain in which the following products or services are offered or attention is drawn to them is subject to what is provided in this Circular: a) Financial instruments included in the annex of the Consolidated Text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23. b) Investment services and activities and ancillary investment services included in Articles 140 and 141 of the Consolidated Text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23. c) The activity of management of collective investment undertakings, venture capital entities, and securitization funds. d) Structured deposits, according to the definition established in Article 4.1.(43) of Directive 2014/65/EU, of May 15, 2014, on markets in financial instruments (MiFID II). e) The services of Crowdfunding Platforms (PFP), regulated by Title V of Law 5/2015, of April 27, on the promotion of business financing, and the projects to which said services refer. f) Any other financial products, services, or activities subject to the supervision of the CNMV not included in the previous sections.
2. For the purposes of this Circular, the following shall not have the status of advertising activity on the products and services collected in rule 3 and therefore are excluded from its scope: a) Corporate advertising campaigns, understood as those that contain exclusively generic information about an entity or its corporate object, intended to make it known to the public, provided they are not related to a public offer of securities or financial instruments nor imply an appeal to their acquisition in secondary markets. b) Documentation or information provided in presentations to analysts or institutional investors, carried out by representatives of entities, issuers, or insurers during the placement period with the purpose of knowing the interest of institutional investors in an offer. c) Periodic publications issued by analysts and experts defined in Commission Delegated Regulation (EU) 2016/958, on financial instruments or services including, among others, analysis reports and investment recommendations. d) Informative content necessary for the contracting of products or services subject to this Circular, or for the execution of an operation on said products, such as pre-contractual and contractual information or information or warnings on the characteristics and risks of the offered products or services provided to investors in compliance with information obligations, through any support, including the entity's website. Likewise, and without prejudice to compliance with what is established in Article 44 of Delegated Regulation EU 2017/565 of April 25, 2016, information sent to clients or published on the web regarding objective data of a financial instrument (for example: product information sheets, evolution of the net asset value, or composition of the portfolio of a collective investment undertaking) that does not include subjective elements or value judgments about it, as well as documents or informative publications sent to clients explaining the situation of the markets and what have been the management decisions of the entity in said market context for a specific period, will not have the status of advertising activity. e) Documentation or information provided in the framework of the supply of information or the direct or indirect communication on investment strategies or investment ideas by a Management Company of Collective Investment Undertakings, a Management Company of Closed-ended Investment Undertakings, or a European Manager authorized by Directive 2011/61/EU of the European Parliament and of the Council, of June 8, 2011, on undertakings for collective investment in transferable securities, or carried out on their behalf, to potential professional investors domiciled or registered in the EU, in order to check their interest in an Alternative Investment Fund (AIF) or a compartment thereof, provided it is carried out under the terms established by Article 30 bis of Directive 2011/61/EU.
3. Communications on products or services subject to this Circular or for the execution of an operation on said products that entities are obliged to provide to investors, as well as those containing only information related to technical or operational functionalities on them, will be governed by what is provided in their specific regulations. In any case, information provided to investors that does not have the status of advertising must comply with the general principles provided in Article 44 of Delegated Regulation EU 2017/565, of April 25, 2016, on organizational requirements and operating conditions of investment firms.
4. In no case shall advertising activity be carried out directed at retail investors or the general public referring to any product or service whose sale or provision is prohibited for retail clients.

Rule 4. Subjective Scope of Application.

1. This Circular shall apply to the following entities when carrying out advertising activities on the products and services collected in Rule 3 directed at investors or potential investors resident in Spain: a) Investment firms. b) Credit institutions. In the case of credit institutions subject to Circular 4/2020 of the Bank of Spain on advertising of banking products and services, it will be understood that they comply with what is established in rules sixth and seventh of this Circular provided they apply the procedures, internal controls, and rules on registration of advertising activity of said Circular 4/2020 also with reference to advertising activities related to the products and services mentioned in rule 3. In any case, they must include procedures to comply with what is provided in rule 6.2.c) vi of this Circular. Likewise, adherence to self-regulation systems of advertising activity provided for in the eighth rule may be carried out by such entities under the terms and with the scope established in said Circular of the Bank of Spain. c) Management companies of collective investment undertakings and management companies of closed-ended investment undertakings. d) Crowdfunding platforms. e) Branches in Spain of the entities indicated in letters a), b), and c) above that are authorized in a Member State of the European Union or in a third State. f) The entities indicated in letters a), b), and c) above that are authorized in a Member State of the European Union, when operating in Spain through an agent established in national territory. g) The entities indicated in letters a), b), and c) above authorized in a Member State of the European Union, when operating in Spain under the free provision of services, as well as entities authorized in a third State, when operating in Spain without a branch, which must adjust to what is provided in rules 5, 8, and 9 and in the annex of this Circular. h) [Text cuts off here]