Circular 1/2021 of the National Securities Market Commission on Accounting Standards, Annual Accounts and Financial Statements of Investment Service Companies and their Consolidatable Groups, Collective Investment Scheme Management Companies and Closed-Ended Entity Management Companies

I. GENERAL PROVISIONS COMISIÓN NACIONAL DEL MERCADO DE VALORES 6049 Circular 1/2021, of March 25, of the National Securities Market Commission, on accounting standards, annual accounts and financial statements of Investment Service Companies and their consolidatable groups, Collective Investment Institution Management Companies and Closed-Ended Entity Management Companies.

STATEMENT OF REASONS The basic purpose of this circular is to modify the accounting regime of certain entities subject to the supervision of the National Securities Market Commission (hereinafter, CNMV) so that, as a general rule, the general accounting framework established through the regulatory authorization contained in the first additional provision of Law 16/2007, of July 4, on the reform and adaptation of commercial legislation in accounting matters for its international harmonization based on European Union regulations, applies to them by reference. This framework is concretized in the General Accounting Plan approved by Royal Decree 1514/2007, of November 16, the General Accounting Plan for Small and Medium-sized Enterprises approved by Royal Decree 1515/2007, of November 16, and the Standards for the Formulation of Consolidated Annual Accounts approved by Royal Decree 1159/2010, of September 17.

The entities to which this circular applies are investment service companies, collective investment institution management companies, and closed-ended entity management companies, as well as the consolidatable groups of investment service companies (hereinafter, ISCs, CII MCs, CE EMs, and CIG ISCs).

This global reference to the cited standards is made without prejudice to the convenience of establishing, in the future, if appropriate, accounting standards on specific aspects that prove to be of interest given the specific activity of these entities, as well as fixing the models of financial statements that the entities must prepare.

This circular repeals and replaces Circular 7/2008, of the CNMV, on accounting standards, annual accounts and reserved information statements of Investment Service Companies, Collective Investment Institution Management Companies and Venture Capital Management Companies.

With Law 16/2007, a strategy of convergence of Spanish accounting law with international accounting standards adopted by the European Union was initiated.

This 2007 reform in accounting matters maintained the possibility, already included in previous regulations, of maintaining specific rules for entities in the financial sector. Thus, Article 241 of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23, collects the ministerial faculty and, with its express authorization, that of the CNMV, to establish and modify the accounting standards and the models of statements to which certain entities must adhere, among which are included ISCs and CIG ISCs.

In the case of CII MCs, this possibility is collected in the Second Additional Provision of the 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. For its part, in the case of CE EMs, this possibility is collected in the Final Provision 7th of Law 22/2014, of November 12, which regulates venture capital entities, other closed-ended collective investment entities.

In exercise of the authorizations received, the CNMV approved the aforementioned Circular 7/2008, a norm that this new circular repeals. Since its approval, Circular 7/2008 has had several modifications (up to 8 in these 12 years of validity) due to the introduction or modification of reporting models, as well as others derived from the modification of the regulatory body to which said circular must adjust.

Circular 7/2008 initially showed content very similar to the General Accounting Plan (hereinafter, GAP), published in the preceding months, although it included greater detail in certain aspects, such as recognition and valuation criteria, the recording of financial instruments or certain issues regarding personnel expenses.

After several years of application of the CNMV's Circular 7/2008, and having occurred various modifications of the general accounting regulations that have required the corresponding adaptation, it has been considered necessary to evaluate whether the legal and operational singularity of the subject entities makes it convenient to maintain a specific accounting regime.

Regarding this, given the size of most of the subject entities, and above all the reduced complexity of the activities that they generally develop, it has been deemed convenient to make a generic reference to the GAP, as far as accounting standards are concerned, and to establish specific criteria for the preparation and presentation of annual accounts, maintaining and simplifying if appropriate the models of reserved financial statements that had been periodically submitted to the CNMV. Financial advisory companies that meet the conditions established in Article 2 of Royal Decree 1515/2007, of November 16, considering the limited nature of their activity, may opt to apply the General Accounting Plan for Small and Medium-sized Enterprises (hereinafter, GAP SME) which is approved in said regulation.

However, for the case of those entities that due to the specifics of their business model require the application of accounting standards and criteria not specifically included in these standards, the possible reference to what is established in Circular 4/2017, of November 27, of the Bank of Spain, to credit institutions, on public and reserved financial information standards, and models of financial statements, has been foreseen, in line with what was provided in Circular 7/2008.

As was already established in Circular 7/2008, ISCs whose main object is to operate a multilateral trading facility are excluded from the scope of application when most of their business and the most significant part of their income and expenses come from the operation of that system. In this circular, the exclusion is extended in the same terms to ISCs whose activity is the management of an organized trading system, an activity that was not foreseen when Circular 7/2008 was published.

As for CIG ISCs, as also foreseen by Circular 7/2008, it is pointed out that the obligation to prepare consolidated accounts is that derived from the duty to comply with minimum levels of own funds as established in Article 258 of the Consolidated Text of the Securities Market Law, in Regulation (EU) No 575/2013, of June 26, 2013, and in Regulation (EU) No 2033/2019, of November 27, so the thresholds for preparing consolidated accounts established in the Commercial Code are therefore not applicable. Otherwise, analogously to individual accounts, the consolidation standards contained in the Standards for the Formulation of Consolidated Annual Accounts approved by Royal Decree 1159/2010, of September 17, are incorporated as consolidation regulation.

It is of interest to note two provisions regarding the preparation of consolidated accounts.

On the one hand, it is pointed out, as Circular 7/2008 did, that groups in which CII MCs and CE EMs are integrated that are not CIG ISCs remain excluded from the scope of application of this circular, so they will adhere to what is provided in the Commercial Code, the Consolidated Text of the Capital Companies Law and GAP or the specific regulation applicable to them.

On the other hand, it is established that those CIG ISCs that meet the requirements for Regulation 1606/2002 of the European Parliament and of the Council, of July 19, 2002 European Regulation on the introduction of international financial reporting standards (IFRS) to apply to them, must prepare their annual accounts according to European regulation, without prejudice to the obligation to comply with the remaining standards collected in this circular.

As for the reserved statements to be submitted to the CNMV by ISCs and CIG ISCs, the following modifications are introduced:

The semi-annual models P01 and P02 are suppressed.

The models that collect the Statement of Changes in Equity and the Statement of Cash Flows (models A21, A22 and A3, on an individual basis, and CA21, CA22 and CA3 on a consolidated basis) are suppressed, without prejudice to maintaining the duty to include this information, if applicable, in the annual accounts.

The LI1 state (liquidity ratio) and section L of state M4 (calculation of general fixed expenses) are suppressed. However, this information must continue to be reported, temporarily, until Regulation (EU) No 2033/2019 becomes applicable.

Modifications are made in states M1 and T2 of ISCs and CS1 and CS3 of CIG ISCs to adapt them to the new classification of financial instruments introduced by Royal Decree 1/2021, of January 12, which modifies the General Accounting Plan approved by Royal Decree 1514/2007, of November 16; the General Accounting Plan for Small and Medium-sized Enterprises approved by Royal Decree 1515/2007, of November 16; the Standards for the Formulation of Consolidated Annual Accounts approved by Royal Decree 1159/2010, of September 17; and the adaptation standards of the General Accounting Plan to non-profit entities approved by Royal Decree 1491/2011, of October 24, which, among other things, partially adapts to the content of IFRS 9, on financial instruments.

In the case of CIG ISCs, the submission of reserved statements is established on a quarterly basis, so that it is coordinated with the submission of prudential nature statements.

As for state SEAF1, changes are included in the report by client type and quantitative information on total assets and items of partner contributions and participatory loans is included, apart from minor drafting changes.

As for the reserved states of CII MCs and CE EMs, the following modifications are introduced:

The annual models P01 and P02 are suppressed.

Modifications are made in states G01 and R01 to adapt them to the new classification of financial instruments introduced by Royal Decree 1/2021.

New models G05B, G06B, R05B and R06B are introduced with the object of collecting information on client typology both in the vehicles marketed and managed by the entity and in portfolio management. On the other hand, a breakdown of agent information is added in G07 and of marketers and agents in R07.

Some additional breakdowns of information are added in several states, which have been considered convenient in practice.

Additionally, various adjustments are introduced that affect the reserved states referred to information to be submitted to the manager of FOGAIN and others that in some cases involve the modification of other CNMV circulars in aspects referred to the sending of annual reports and annual accounts, with the object that, at the time of their publication by the CNMV, the signatures and data of the directors of the companies are not accessible.

Next, the structure is summarized and some clarifications of the circular are detailed.

The circular consists of three chapters with eleven standards, plus five additional provisions, two transitional provisions, one repealing provision and one final provision.

The introductory chapter collects the scope of application of the circular, and establishes the accounting standards applicable to ISCs, CIG ISCs, CII MCs and CE EMs. It also establishes the obligation to prepare annual accounts, as well as the obligation to periodically submit reserved statements to the CNMV.

Chapter One refers to annual accounts. It develops the obligation to formulate individual annual accounts, as well as consolidated ones in the case of CIG ISCs. In particular, the criteria for preparation, deadlines and publicity of the annual accounts are established, and indications are collected on their content and their method of submission to the CNMV.

Although, as has been pointed out, the circular makes a reference to the accounting standards applicable as a general rule, the balance sheet and profit and loss account models established are not those collected in said regulation, in line with what was already established in Circular 7/2008.

In the case of ISCs, CIG ISCs, CII MCs and CE EMs, the balance sheet and profit and loss account that must be included in the annual accounts are those established in the reserved statement models that these entities must periodically submit to the CNMV. With this, it is intended to simplify the registration obligations and facilitate the verification work that auditors must perform, as well as to expand their scope and efficacy.

To the extent that financial advisory companies (hereinafter, FACs) are not obliged to submit the reserved states M1 and M2, of balance sheet and profit and loss account, this provision is not applicable to them.

As for the notes to the annual accounts, it has been considered appropriate to follow the model proposed by the GAP, without prejudice to the possibility of incorporating certain contents in the future that prove to be of interest considering the specific activity of the entities subject to this circular.

Chapter Two refers to the reserved statements that must be submitted to the CNMV. It addresses the obligation to present individual and consolidated reserved information, and establishes their frequency and submission deadlines, distinguishing by types of entities, as well as the method of submission to the CNMV. In the case of FACs, the treatment of Circular 7/2008 is maintained and they must only submit the specific state of situation and activity that they have been submitting until now.

As with other provisions, five additional provisions, two transitional provisions, one repealing provision and one final provision are included.

The first additional provision refers to the submission of the supplementary report to the audit report of accounts provided for in the fifth additional provision of Royal Decree 2/2021.

The second to fourth additional provisions refer to the submission of various information to the CNMV through the CIFRADOC service. In particular, the third and fourth additional provisions modify CNMV Circulars 4/2008 and 11/2008 with the object of avoiding the disclosure of personal data in the publication of the annual reports of investment vehicles.

The fifth additional provision modifies CNMV Circular 9/2008 to include within its scope of application the ISCs that manage an organized trading system, in a manner analogous to what this circular already provides for in the case of ISCs that manage a multilateral trading facility.

The first transitional provision establishes the duty to continue reporting the states of Circular 7/2008 until those referred to November 2021, the month prior to the submission of the first states according to this circular, except for state LI1 and section L of state M4 which will only be submitted until the effective application of Regulation (EU) No 2033/2019.

The second transitional provision collects the accounting treatment that must be given in the first application of the circular in those aspects that involve a modification of treatment with respect to the previous regulation, changes that are estimated to be limited, since the previous circular already adjusted among others to the GAP, as established in Order ECC 2515/2013 enabling. It has been considered appropriate to make a reference to the transitional standards included in the general regulation that becomes applicable with this circular (GAP, GAP SME and Standards for the Formulation of Consolidated Annual Accounts), which implies, basically, that the differences that might arise in assets or liabilities must be recorded with a counterpart in a reserves account. It is also established that the most relevant effects derived from the application of this circular must be reported in the notes to the first annual accounts presented under this circular.

The repealing provision repeals Circular 7/2008, of November 26, of the CNMV, on accounting standards, annual accounts and reserved information statements of investment service companies, collective investment institution management companies and venture capital entity management companies, as well as the first additional provision of Circular 1/2012, which collected some of the provisions referred to the submission of documentation to the CNMV through the CIFRADOC service, which are now collected in this circular.

Finally, the final provision establishes as the date of entry into force the day following its publication, and indicates that it will be applicable for the exercises that begin from January 1, 2021, so that the first annual accounts that must consider this circular are those corresponding to 2021, to be presented in 2022.

As for the reserved statements, the first ones that must be reported following the content of this circular are those corresponding to December 31, 2021.

INTRODUCTORY CHAPTER Scope of Application and Applicable Regulation

Standard 1st Scope of Application.

1. This circular will be applicable to the following types of entities: a) Investment service companies (hereinafter, ISCs) defined in Article 143 of the consolidated text of the Securities Market Law, approved by Royal Legislative Decree 4/2015, of October 23. Notwithstanding the foregoing, the Chapter I, on Annual Accounts, will not apply to ISCs that are natural persons. b) Collective investment institution management companies (hereinafter, CII MCs) as defined in Article 40 of Law 35/2003, of November 4, on Collective Investment Institutions. c) Closed-ended entity management companies (hereinafter, CE EMs) as defined in Law 22/2014, of November 12, which regulates venture capital entities, other closed-ended collective investment entities and management companies of investment entities. d) Consolidatable groups of investment service companies (hereinafter, CIG ISCs) supervised by the CNMV and contemplated in Article 258 of the consolidated text of the Securities Market Law, which consolidate the accounting statements of investment service companies and financial entities with the aim of complying with the minimum levels of own funds and limitations required pursuant to Regulation (EU) No 575/2013, of June 26, 2013, and Regulation (EU) No 2033/2019, of November 27.

For the purposes of presenting consolidated annual accounts in the case of the entities referred to in points b) and c) above that form part of a consolidatable group other than investment service company groups, the provisions of the Commercial Code, the Capital Companies Law and the General Accounting Plan or the specific regulation applicable to them shall apply.

2. This circular will not be applicable to ISCs that include in their activity program the investment services of managing multilateral trading facilities or managing organized trading systems, when their main object, most of their business and the most significant part of their income and expenses come from this operation.

The entities referred to in the previous paragraph will be subject to Circular 9/2008, of December 10, of the CNMV, on accounting standards, reserved and public information statements, annual accounts of the governing societies of the official secondary markets, with the exclusion of the Bank of Spain, the governing entities of multilateral trading facilities, the systems society, the central counterparty entities, the stock exchange society, the societies that have the ownership of all the shares of governing bodies of official secondary markets and multilateral trading facilities and other compensation and settlement systems of the markets that are created under what is provided in the Securities Market Law.

Standard 2nd Applicable Accounting Standards.

1. The accounting regulation established in the Commercial Code, the consolidated text of the Capital Companies Law approved by Royal Legislative Decree 1/2010, of July 2, the General Accounting Plan approved by Royal Decree 1514/2007, of November 16, the General Accounting Plan for SMEs approved by Royal Decree 1515/2007, of November 16, and the Standards for the Formulation of Consolidated Annual Accounts approved by Royal Decree 1159/2010, of September 17, will be applicable to the entities subject to the scope of application.

In the case of information at the individual level, as a general rule, the General Accounting Plan will be applicable. However, financial advisory companies (hereinafter, FACs) that meet the conditions established in Article 2 of Royal Decree 1515/2007, of November 16, may opt to apply the General Accounting Plan for Small and Medium-sized Enterprises in accordance with what is established in said regulation.

2. For matters not specifically regulated in the accounting standards indicated in the previous point nor in this circular, Circular 4/2017, of November 27, of the Bank of Spain, to credit institutions, on public and reserved financial information standards, and models of financial statements, may be applied.

3. The annual accounts and reserved financial statements, individual or consolidated, that entities must submit to the CNMV, will be prepared applying the regulation cited in the previous paragraph 1 and with the indications and specific criteria collected in Chapter One of this circular for the formulation of annual accounts and in Chapter Two for the preparation and submission of reserved financial statements.

4. Those consolidatable groups of ISCs to which international financial reporting standards apply pursuant to Regulation 1606/2002 of the European Parliament and of the Council, of July 19, 2002, shall prepare their annual accounts according to European regulation, without prejudice to the obligation to comply with the remaining standards collected in this circular.