Royal Decree 813/2023 on the Legal Regime of Investment Service Companies and Other Entities Providing Investment Services

I. GENERAL PROVISIONS MINISTRY OF ECONOMIC AFFAIRS AND DIGITAL TRANSFORMATION 22763 Royal Decree 813/2023, of November 8, on the legal regime of investment service companies and other entities providing investment services.

INDEX Preamble. Title I. General Provisions. Chapter I. General Regime. Section 1. Object and Scope. Article 1. Object. Article 2. Subjective scope of application. Article 3. Concept of investment service company and legal regime. Article 4. Cases of non-application of the requirements and obligations established in Law 6/2023, of March 17, regarding the provision of investment services and other exceptions relating to the provision of investment services and activities. Article 5. Regime of national financial advisory companies. Article 6. Proprietary trading of securities agencies. Section 2. Reservation of activity and denomination. Article 7. Reservation of denomination. Article 8. Habituality and professionalism. Article 9. Breach of the reservation of activity and denomination. Article 10. Investment services. Article 11. Ancillary activities. Article 12. Statutory modifications. Article 13. Modifications of the list of activities. Chapter II. Agents of investment service companies and national financial advisory companies. Article 14. Hiring of agents. Article 15. Registration in the register of agents. Article 16. Requirements for agents. Article 17. Regime of representation. Article 18. Communication and publicity of representation relationships. Chapter III. Authorization, registration, suspension, and revocation. Section 1. Authorization and registration. Article 19. Authorization. Article 20. Authorization requirements for investment service companies. Article 21. Authorization requirements for national financial advisory companies. Article 22. Provisions applicable to credit institutions providing investment services or activities. Article 23. Provisions applicable to management companies of collective investment undertakings and management companies of closed-ended collective investment undertakings. Article 24. Provisions applicable to credit institutions and investment service companies when selling or advising on structured deposits. Article 25. Provisions applicable to members or participants in regulated markets and multilateral trading facilities. Article 26. Refusal of authorization. Article 27. Requirements of the application. Article 28. Authorization of investment service companies controlled by other companies. Article 29. Structural modifications. Section 2. Suspension and revocation. Article 30. Suspension of authorization. Article 31. Revocation of authorization. Article 32. Procedure for revocation of authorization. Title II. Branches and provision of services without a branch. Chapter I. European Union. Article 33. General provisions. Article 34. Branches and tied agents of Spanish investment service companies in European Union Member States. Article 35. Provision of services without a branch by Spanish investment service companies in European Union Member States. Article 36. Branches in Spain of investment service companies from European Union Member States. Article 37. Supervision of branches in Spain of investment service companies from European Union Member States. Article 38. Preventive measures. Chapter II. Third Countries. Article 39. General provisions. Article 40. Cross-border activity of Spanish investment service companies in non-EU states. Article 41. Cross-border activity in Spain of third-country companies. Article 42. Obligation to provide information. Article 43. Granting of authorization. Article 44. Information obligations of the CNMV to the ESMA regarding branches of companies not authorized in EU countries operating in Spain. Title III. Significant Holdings. Article 45. Duty to notify. Article 46. Calculation of holdings in investment service companies or national financial advisory companies. Article 47. Exclusions in the calculation of a holding. Article 48. Significant influence. Article 49. Evaluation criteria and opposition by the CNMV to the proposed acquisition. Article 50. Procedure for evaluation by the National Securities Market Commission of the proposed acquisition. Article 51. Collaboration between supervisory authorities. Title IV. Corporate governance, suitability of directors and administrators, and information requirements. Article 52. Principles applicable to the corporate governance system. Article 53. Responsibility of senior management. Article 54. Corporate governance requirements. Article 55. Requirements of honorability, honesty, and integrity. Article 56. Requirements of knowledge, skills, and experience. Article 57. Ability to exercise good governance and independence of thought. Article 58. Significant investment service companies. Article 59. Assessment of suitability. Article 60. Evaluation of suitability requirements by the National Securities Market Commission. Article 61. Suitability policy for the selection, control, and evaluation of suitability requirements by entities. Article 62. Nomination committee. Article 63. Time limits to oppose the appointment of new management and executive positions. Title V. Systems, procedures, and management mechanisms. Chapter I. Financial requirements. Article 64. Power to subject certain investment service companies to the requirements of Regulation (EU) No 575/2013. Article 65. Possibility of requesting the application of the prudential regime for credit institutions. Section 1. Own funds and liquidity. Article 66. Initial capital requirements for investment service companies. Article 67. Application of the internal capital adequacy assessment process and liquid assets. Article 68. Own funds requirements. Article 69. Specific liquidity requirements. Section 2. Financial transactions with third parties and proprietary trading. Article 70. Financial transactions with financial entities. Article 71. Financial transactions with related persons or entities. Article 72. Financial transactions with the public. Article 73. Proprietary trading by certain securities agencies. Article 74. Specialties of portfolio management companies. Article 75. Proprietary activity of advisory companies. Section 3. Safeguarding of client assets and funds. Article 76. Internal organization measures regarding the protection of client assets. Article 77. Protection of client assets. Article 78. Custody of client financial instruments. Article 79. Deposit of client funds. Article 80. Use of client financial instruments. Article 81. Inappropriate use of title transfer collateral arrangements. Article 82. Monitoring and control mechanisms regarding the safeguarding of client assets. Chapter II. Internal organization and functioning requirements. Section 1. Internal organization measures. Article 83. Internal organization requirements. Article 84. Internal organization measures regarding conflicts of interest. Article 85. Internal organization measures regarding risk management. Article 86. Internal organization measures regarding title transfer collateral arrangements, pledge creation, and credit netting agreements. Article 87. Other internal organization measures. Article 88. Discretionary pension benefits. Article 89. Risk management unit. Article 90. Registers. Section 2. Transparency requirements. Article 91. Publication requirements regarding risk management and own funds. Article 92. Publicity obligations regarding corporate governance and remuneration policy. Article 93. Auditors' reports. Article 94. Obligations of persons responsible for the control of annual and consolidated accounts. Article 95. Information relating to financial instruments and client funds. Article 96. Conditions applicable to the provision of information. Chapter III. Internal organization and functioning requirements for investment service companies performing algorithmic trading. Article 97. Algorithmic trading. Article 98. Algorithmic trading as a market-making strategy. Chapter IV. Internal organization and functioning requirements for investment service companies performing direct electronic access. Article 99. Direct electronic access. Article 100. Electronic contracting. Chapter V. Internal governance, risk treatment, remuneration, and transparency of large and interconnected investment service companies. Article 101. Scope of application of this chapter. Section 1. Internal governance and risk treatment. Article 102. Internal organization requirements. Article 103. Risk management and risk committee. Article 104. Risk treatment. Section 2. Remuneration policy. Article 105. Remuneration policies. Article 106. Powers of the CNMV regarding remuneration policies of investment service companies. Article 107. Investment service companies benefiting from extraordinary public financial aid. Article 108. Variable remuneration. Article 109. Remuneration committee. Article 110. Monitoring of remuneration policies. Section 3. Transparency. Article 111. Annual report of investment service companies. Title VI. Conduct rules applicable to those providing investment services. Chapter I. Obligated subjects and client classification. Article 112. Professional clients. Article 113. Criteria for determining treatment as a professional client. Article 114. Information regarding client classification. Section 1. Conflicts of interest. Article 115. Conflicts of interest. Section 2. Assessment of suitability and appropriateness. Article 116. Suitability test. Article 117. Appropriateness test. Section 3. Contractual documents. Article 118. Content of the contract. Article 119. Standard contracts. Chapter II. Incentives. Article 120. Incentives. Article 121. Incentives regarding independent investment advice or portfolio management services. Article 122. Incentives related to analysis. Chapter III. Product surveillance and control. Section 1. Obligations regarding product surveillance and control for investment service companies that produce financial instruments. Article 123. Obligations regarding product surveillance and control for investment service companies that produce financial instruments. Article 124. Management of conflicts of interest in product surveillance and control. Article 125. Assessment of possible threats. Article 126. Internal organization of producers. Article 127. Written agreement with third-party producers. Article 128. Target market or recipient of financial instruments. Article 129. Definition of the product distribution strategy. Article 130. Cost structure of financial instruments. Article 131. Information to distributors regarding financial instruments. Article 132. Review of financial instruments. Section 2. Obligations regarding product surveillance and control for distributors. Article 133. Obligations regarding product surveillance and control for distributors. Article 134. Information to be obtained by distributors regarding financial instruments. Article 135. Choice of the range of financial instruments. Article 136. Target market and product distribution strategy. Article 137. Review of surveillance and control mechanisms and products. Article 138. Internal organization of distributors. Article 139. Liability of distributors. Section 3. Equivalent market, order management, and execution. Article 140. Equivalence of a third-country market with a regulated market. Article 141. Obligations relating to order management and execution. Chapter IV. Engagement policy. Article 142. Engagement policy of investment service companies. Chapter V. General duty of information. Article 143. General duty of information. Article 144. Information in electronic format. Article 145. Obligations regarding associated costs and expenses. Title VII. Data supply service providers. Chapter I. Authorization of data supply service providers. Article 146. Authorization requirement. Article 147. Authorization procedure. Article 148. Register of data supply service providers. Article 149. Requirements to obtain authorization and exercise activity. Article 150. Revocation of authorizations. Chapter II. Requirements relating to the dissemination, communication, and processing of information by data supply service providers. Article 151. Dissemination and processing information requirements applicable to APA (Approved Publication Arrangements). Article 152. Dissemination and processing information requirements applicable to PIC (Permitted Information Circulators). Article 153. Communication and processing information requirements applicable to SIA (Systematic Internalisers). Chapter III. Operating and internal organization requirements for data supply service providers. Article 154. Requirements relating to the administrative body of data supply service providers. Article 155. Organization requirements for the management of conflicts of interest. Article 156. Organization requirements to ensure system capacity, business continuity, and information quality. Article 157. Organization requirements for the management of outsourcing of functions. First Transitional Provision. Transitional regime regarding the authorization of credit institutions referred to in Article 4(1)(b) of Regulation (EU) No 575/2013. Second Transitional Provision. Adaptation period for own funds requirements. Sole Repealing Provision. Repealing clause. First Final Provision. Modification of the Development Regulation of Law 35/2003, of November 4, on Collective Investment Undertakings, approved by Royal Decree 1082/2012, of July 13. Second Final Provision. Competence titles. Third Final Provision. Regulatory authorizations. Fourth Final Provision. Incorporation of European Union Law. Fifth Final Provision. Entry into force.

I The recent Law 6/2023, of March 17, on Securities Markets and Investment Services, partially incorporates into Spanish law Directive 2019/2034/EU of the European Parliament and of the Council, of November 27, 2019, on the prudential supervision of investment firms, and amending Directives 2002/87/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU, and 2014/65/EU.

Directive 2019/2034/EU of the European Parliament and of the Council, of November 27, 2019, together with Regulation (EU) 2019/2033 of the European Parliament and of the Council, of November 27, 2019, establish a new prudential supervision framework for investment service companies (hereinafter, ISCs) that are not of systemic importance due to their size and degree of interconnection with other financial and economic agents. Systemic ISCs, which are those meeting the requirements of Article 4(1)(b) of Regulation (EU) No 575/2013, must obtain authorization as a credit institution. Generally, these are entities whose total value of consolidated assets or the group to which they belong is equal to or greater than 30,000 million euros. They are credit institutions for all purposes, supervised by the European Central Bank, and the prudential supervision established in Regulation (EU) No 575/2013, Law 10/2014, and its regulatory development shall apply to them. Currently, the prudential regimes provided for in Regulation (EU) No 575/2013 and Directive 2013/36/EU, with their respective reforms, are designed to regulate large banking groups and reflect the recommendations established for them by the Basel Committee on Banking Supervision. Therefore, they seek to address the common risks faced by credit institutions, thereby preserving the lending capacity of these credit institutions against economic fluctuations, while also protecting depositors and taxpayers against their possible insolvency. With the new framework now transposed into national law, more appropriate requirements are established for the economic nature and specific risks that smaller investment service companies may entail. At the same time, a more equitable competitive framework is achieved at the European Union level with effective prudential supervision and costs adjusted to risk.

The law has incorporated the main aspects of Directive 2019/2034/EU of the European Parliament and of the Council, of November 27, 2019, on the prudential supervision of investment firms, and amending Directives 2002/87/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU, and 2014/65/EU, but it is necessary to complete its transposition. Therefore, the main objective of this Royal Decree is to finalize said transposition and complete the regulatory development of the regime applicable to entities providing investment services following the changes introduced in Law 6/2023, of March 17, on Securities Markets and Investment Services, deepening the principles that already inspired the modification of said law.

One of the novelties of the new prudential regime is the modification of initial capital requirements. Thus, Directive 2019/2034/EU establishes harmonized requirements among investment service companies in order to avoid fragmentation at the European Union level and regulatory arbitrage between jurisdictions.

With the new prudential regime, financial advisory companies (FACs) will have an initial capital of 75,000 euros. Until now, the initial capital requirement was 50,000 euros or having civil liability insurance that allows them to face the activity of providing financial advice. However, Directive 2019/2034/EU does not allow investment service companies to subscribe to insurance as an alternative to the payment of initial capital.

In Spain, FACs form a highly atomized subsector, where a small number of companies concentrate most of the activity. The modification in the initial capital requirement with the entry into force of Directive 2019/2034/EU could have a significant impact on this subsector, as many small-sized FACs will not be able to face this increase in initial capital. FACs, like ISCs in general in Spain, are small companies with a very low nature and risk profile, with difficulties competing in the current context after the implementation of Directive 2014/65/EU of the European Parliament and of the Council, of May 15, 2014, on markets in financial instruments and amending Directives 2002/92/EC and 2011/61/EU (hereinafter, MiFID II Directive or MiFID II), as they are subject to excessively demanding requirements for their size and whose impact on financial stability is practically nil.

Since Directive 2019/2034/EU does not offer room to grant flexibility to these companies, a national regime without a European passport and without the application of the third-country regime has been established, allowing FACs to continue operating with insurance. This possibility is contemplated in Article 3 of the MiFID II Directive. The particularities of this national regime for advisory companies are set out in Article 5 of this Royal Decree.

Financial advisory companies and national financial advisory companies will not have to comply with their obligation to join the Investors' Guarantee Fund until the contribution regime applicable to them is established in accordance with Article 188 of Law 6/2023, of March 17.

II The Royal Decree consists of one hundred and fifty-seven articles divided into seven titles, three transitional provisions, one repealing provision, and six final provisions.

Title I collects the general provisions applicable to investment service companies. First, it clarifies the scope of application of the rule, highlighting that larger companies will be subject to the prudential regime of credit institutions. It also includes the national regime for financial advisory companies without a European passport and for which the third-country regime is not applicable. At the same time, the reservation of activity is established and the activities and services that can be carried out are developed based on what is established in Law 6/2023, of March 17, on Securities Markets and Investment Services. Investment service companies can carry out their activities through agents, which will be subject to a series of requirements established in this Title I. Finally, the requirements for authorization and registration are collected, as well as cases of suspension and revocation of this authorization. The main novelty is the modification of the initial capital requirements.