Circular 3/2017 of the National Securities Market Commission on Corporate Governance and Remuneration Policy Disclosure Obligations for Investment Firms

BOLETÍN OFICIAL DEL ESTADO No. 306 Monday, December 18, 2017 Sec. I. Page 124387 I. GENERAL PROVISIONS COMISIÓN NACIONAL DEL MERCADO DE VALORES 14915 Circular 3/2017, of November 29, of the Comisión Nacional del Mercado de Valores, on publicity obligations through the website of Investment Service Companies regarding corporate governance and remuneration policy, and by which Circular 7/2008, of November 26, of the Comisión Nacional del Mercado de Valores, on accounting standards, annual accounts, and reserved information statements of Investment Service Companies, Collective Investment Institution Management Companies, and Venture Capital Entity Management Companies, is amended.

STATEMENT OF MOTIVES I Article 31 ter of Royal Decree 217/2008, of February 15, on the legal regime of investment service companies and other entities providing investment services, and which partially amends the Regulation of Law 35/2003, of November 4, on Collective Investment Institutions, approved by Royal Decree 1309/2005, of November 4, introduced by Royal Decree 358/2015, of May 8, regulates publicity obligations on the website of investment service companies regarding corporate governance and remuneration policy.

Paragraph 6 of said provision indicates that the Comisión Nacional del Mercado de Valores (CNMV) will specify the terms in which the website must be configured and the information regarding corporate governance and remuneration policy that investment service companies, depending on their nature, scale, and complexity, must include therein.

In accordance with paragraph 5 of Article 31 ter, such publicity obligations do not apply to investment service companies that do not provide the auxiliary custody service, and provide only one or several of the services of reception and transmission of orders, execution, discretionary portfolio management, and investment advice, and that are not authorized to hold client money or securities in deposit and for this reason can never be in a debtor situation with respect to said clients.

In this regard, this Circular establishes that investment service companies subject to such obligations publish on their website, in a section titled "Corporate Governance and Remuneration Policy," various information, among which is notable the reference to their articles of association and other internal organization rules, their organizational structure and internal control procedures, and the composition of the various governing bodies they are endowed with. Regarding information on remuneration policy, the information provided on this matter in this Circular may be included in the section titled "Corporate Governance and Remuneration Policy" or a direct link to the document titled "Solvency Information" referred to in Article 191 of the consolidated text of the Securities Market Law may be included therein.

The third final provision of Royal Decree 358/2015 grants the Comisión Nacional del Mercado de Valores the power to issue, in accordance with its area of competence, the provisions necessary for the proper execution of said Royal Decree. As established in the fourth final provision of Royal Decree 358/2015, the entry into force of these information obligations will occur three months after the publication of this Circular.

In exercise of these authorizations, this Circular develops the information on corporate governance and remuneration policy that investment service companies must publish on their website, as well as some aspects of its configuration.

II On the other hand, the additional provision of this Circular modifies Circular 7/2008, of November 26, of the Comisión Nacional del Mercado de Valores, on accounting standards, annual accounts, and reserved information statements of Investment Service Companies, Collective Investment Institution Management Companies, and Venture Capital Entity Management Companies, to incorporate the new accounting treatment of intangible assets, with the aim, among others, of establishing harmonized regulation. Specifically, this modification aligns the accounting treatment of intangible assets, particularly goodwill, with the new wording of Article 39.4 of the Commercial Code, introduced by Law 22/2015, of July 20, on Account Auditing, and its regulatory development through Article 1 of Royal Decree 602/2016, of December 2, which modifies the General Accounting Plan approved by Royal Decree 1514/2007, of November 16. Intangible assets are now considered assets with a defined useful life, and therefore must be subject to amortization.

The authorization to regulate this matter is found, in the case of investment service companies, in Article 1 of Order ECC/2515/2013, of December 26, which develops Article 86.2 of Law 24/1988, of July 28, on the Securities Market, which authorizes the CNMV to establish, modify, and regulate the models and accounting standards relating to annual or interim financial statements as well as those regarding the fulfillment of the coefficients established for investment service companies. This authorization must be understood to refer to Article 241.2 of the consolidated text of the Securities Market Law.

In the case of Collective Investment Institution Management Companies (SGIIC), the authorization is collected in the Second Additional Provision of the Ministerial Order of July 31, 1991, on the lending of securities by Collective Investment Institutions and the regime of own funds, information, and accounting of Collective Investment Institution Management Companies.

Finally, in the case of Venture Capital Entity Management Companies (SGIEC), the authorization is collected in the Seventh Final Provision of Law 22/2014, of November 12, which regulates venture capital entities, other closed-type collective investment entities, and the management companies of closed-type collective investment entities, and which amends Law 35/2003, of November 4, on Collective Investment Institutions, and in the Second Provision of the Order of June 17, 1999, which partially develops Law 1/1999, of January 5, regulating venture capital entities and their management companies, authorizing the Comisión Nacional del Mercado de Valores to issue provisions on the procedure for authorization of new entities, accounting standards, and information obligations of venture capital entities and their management companies.

cve: BOE-A-2017-14915 Verifiable at http://www.boe.es

BOLETÍN OFICIAL DEL ESTADO No. 306 Monday, December 18, 2017 Sec. I. Page 124388

III The Circular consists of two provisions, an additional provision, a transitional provision, and a final provision.

By virtue of the received authorization, the Council of the CNMV, after reports from its Consultative Committee and the Institute of Accounting and Auditing, in its meeting on November 29, 2017, has approved the following Circular:

First Provision. Configuration of information on corporate governance and remuneration policy on the website of investment service companies.

1. The information referred to in the second provision will be collected on the website of the investment service company in a complete, clear, understandable, and updated manner, and will be accessible from the homepage of the website, in a section under the title "Corporate Governance and Remuneration Policy." All content of that section must be no more than three navigation steps (clicks) from the homepage and will not require prior identification by the viewer.
2. The information required in the second provision that is already published in other sections of the website, or is offered free of charge in the telematic databases of the public registers of the CNMV or other bodies, may be offered via direct links to said sections or registers.
3. The contents must be presented structured and hierarchized, so as to allow quick and direct access to each of them. The titles will be clear, concise, and meaningful, and the language appropriate, avoiding the use of jargon and abbreviations as much as possible.
4. The technical structure of the website and content files will allow navigation and access with common computer products used in the Internet environment and with a response time that does not impede the operability of the query.
5. If the website offers versions for different platforms (computer, tablet, mobile phone, etc.), its contents and presentation must be reasonably homogeneous.
6. Investment service companies will guarantee the security of their website, the authenticity and accuracy of the information and documents published on it, free access, and the possibility of downloading and printing them.
7. The information obligations collected in the First and Second Provisions of this Circular will not apply to investment service companies that meet the following requirements: a) Not being authorized to provide the auxiliary service referred to in Article 141.a) of the consolidated text of the Securities Market Law. b) Providing only one or several of the investment services or activities listed in Article 140.a), b), d), and g) of the consolidated text of the Securities Market Law. c) Not being authorized to hold client money or securities in deposit and that, for this reason, can never be in a debtor situation with respect to said clients. Nor will it apply to those investment service companies authorized exclusively to provide the service referred to in Article 140.h).

Second Provision. Information on corporate governance and remuneration policy on the website of investment service companies. The website referred to in Article 185.4 of the consolidated text of the Securities Market Law and Article 31 ter of Royal Decree 217/2008 will include, at least, the following information: a) The articles of association. cve: BOE-A-2017-14915 Verifiable at http://www.boe.es

BOLETÍN OFICIAL DEL ESTADO No. 306 Monday, December 18, 2017 Sec. I. Page 124390 b) The regulations and other organization rules of their governing bodies and, where applicable, of the board committees. c) The organizational structure of the investment service company, the lines of responsibility in decision-making, the distribution of functions in the organization, and the criteria for the prevention of conflicts of interest. d) A brief description of the procedures established for the identification, measurement, management, control, and internal communication of the risks to which the investment service company is or may be exposed. e) A brief description of the internal control mechanisms of the investment service company, including administrative and accounting procedures. f) The composition of the board of directors and the identification of executive, non-executive, and independent directors, where applicable. g) The identification of persons holding the positions of chairman of the board of directors and chief executive officer. In the case where the same person holds both positions, this circumstance must be indicated. h) Where they exist, the composition of the nominations committee and the remuneration committee or, where applicable, the joint nominations and remuneration committee, and the functions attributed to each of these bodies. i) Where they exist, the composition of the risk committee and the audit committee or, where applicable, the joint risk and audit commission, including a description of the functions attributed to each. j) Indication of whether the appointments of members of the board of directors and general managers or equivalent have been adopted, or not, with a favorable report from the nominations committee or, where applicable, the nominations and remuneration committee. k) Information on the total remuneration accrued in each financial year by the members of the board of directors, reflecting the total amount of accrued remuneration and an itemized breakdown by remuneration concepts with reference to the amount of fixed components and allowances, as well as variable remuneration concepts. This information will contain any remuneration concept accrued, regardless of its nature or the entity of the group paying it, including remuneration accrued by board members for their membership on boards of other companies in the group or participations in which they act on behalf of the group. Alternatively, a direct link to the document titled "Solvency Information" referred to in Article 191 of the consolidated text of the Securities Market Law may be included. l) Information on the procedures established to ensure the suitability of members of the board of directors, general managers, and equivalent, as well as on the mechanisms arranged to comply with rules on incompatibilities.

Additional Provision. Modification of Circular 7/2008, of November 26, of the Comisión Nacional del Mercado de Valores, on accounting standards, annual accounts, and reserved information statements of Investment Service Companies, Collective Investment Institution Management Companies, and Venture Capital Entity Management Companies. Circular 7/2008 of November 26, of the Comisión Nacional del Mercado de Valores, on accounting standards, annual accounts, and reserved information statements of Investment Service Companies, Collective Investment Institution Management Companies, and Venture Capital Entity Management Companies, is modified as follows:

1. Paragraph 8 of Provision 29th is drafted in the following terms: "8. Goodwill is an asset that represents future economic benefits, which are not identifiable or recognizable separately or individually, arising from other elements acquired for consideration as a result of a business combination. When it is appropriate to recognize goodwill, it will be recognized and measured in accordance with what is provided in Provision 41st of this Circular. Goodwill must be amortized during its useful life. The useful life will be determined separately for each cash-generating unit to which goodwill has been assigned. It will be presumed, unless proven otherwise, that its useful life is ten years and that its recovery is linear."
2. Paragraph 10 of Provision 29th is drafted in the following terms: "10. Intangible assets are assets with a defined useful life and will be amortized taking into account the following clarifications: a) The amortizable amount will be determined considering that the residual value of the intangible asset is null, unless there is a firm commitment to sell to a third party before the end of its economic life. b) The useful life of an intangible asset cannot exceed the period during which the entity has the right to use it. When the useful life of these assets cannot be estimated reliably, they will be amortized over a period of ten years, without prejudice to the periods established in specific rules on intangible fixed assets. c) The amortization method will reflect the expected pattern of consumption by the entity of the future economic benefits derived from the intangible asset. If that pattern cannot be determined reliably, a linear amortization method will be adopted. d) The amortization of an intangible asset may only be suspended when its book value is null, causes derecognition from the balance sheet, or has been reclassified as a non-current asset held for sale, in accordance with what is provided in Provision 31st of this Circular. e) The entity will review, at least at the close of each financial year, the period and method of amortization of intangible assets. When it considers that they are not appropriate, the effects of variations in the period or method of amortization will be recognized as a change in an accounting estimate, in accordance with Provision 18th of this Circular."
3. Paragraph 3 of Provision 30th is drafted in the following terms: "3. In any case, at least annually, the entity will analyze whether there are indications of impairment of the value of the cash-generating units to which goodwill has been assigned, and, in case there are, it will check their eventual impairment and estimate the recoverable amount of the intangible assets and of the assets that are not yet in conditions of use."
4. Letter l) of paragraph 2 of Provision 50th is drafted in the following terms: "l) Amortization: Includes the annual provision for amortization of elements of tangible and intangible assets."
5. In the individual and consolidated notes included in Annex III, the mentions made to "intangible assets with indefinite useful life" will be understood as made to "intangible assets." Likewise, information must be provided on the estimates made to determine the useful life of goodwill and the amortization method used.

Transitional Provision. First application.

1. In accordance with the eighteenth provision of Circular 7/2008, entities will apply what is established in the additional provision of this Circular prospectively as a change in accounting estimates, being subject to information in the notes to the individual and consolidated annual accounts. cve: BOE-A-2017-14915 Verifiable at http://www.boe.es

BOLETÍN OFICIAL DEL ESTADO No. 306 Monday, December 18, 2017 Sec. I. Page 124392 2. Notwithstanding what is indicated in the preceding paragraph, entities may opt to amortize the book value of existing goodwill at the close of the previous period and of intangible assets that had been classified as having an indefinite useful life, charged to reserves, following a linear recovery criterion and considering a useful life of ten years from the date of acquisition. The amortization charge resulting from applying this criterion to the initial value of the asset must be reduced by the impairment loss that the entity had recognized from the date on which the ten-year period begins. The remaining book value will be amortized prospectively. To this effect, it will be presumed, unless proven otherwise, that the useful life of goodwill will be the period remaining to complete the ten-year term referred to in the first paragraph of this paragraph. Annual accounts corresponding to the 2017 financial year will be presented including comparative information adjusted for intangible assets if the entity opts to follow the criterion collected in this paragraph 2.

Final Provision. Entry into force.

1. This Circular will enter into force the day following its publication in the "Boletín Oficial del Estado".
2. Notwithstanding what is established in the preceding paragraph, investment service companies will have a period of three months from the publication of this Circular to develop the obligations provided for in provisions 1 and 2.
3. As for what is established in the Additional Provision, it will enter into force in any case in financial years starting from January 1, 2017. Madrid, November 29, 2017.–The President of the Comisión Nacional del Mercado de Valores, Sebastián Albella Amigo. cve: BOE-A-2017-14915 Verifiable at http://www.boe.es http://www.boe.es BOLETÍN OFICIAL DEL ESTADO D. L.: M-1/1958 - ISSN: 0212-033X