Agreement of 20 February 2019 of the Board of the National Securities Market Commission approving the code of conduct regarding investments by non-profit entities

III. OTHER PROVISIONS
NATIONAL SECURITIES MARKET COMMISSION
3174 Agreement of 20 February 2019 of the Board of the National Securities Market Commission, approving the code of conduct regarding the investments of non-profit entities.

The Securities Market Law, consolidated text approved by Legislative Royal Decree 4/2015 of 23 October, in its additional provision fifth, "restrictions regarding temporary financial investments of non-profit entities," which stems from Law 44/2002 of 22 November on Measures to Reform the Financial System, stipulates that "the National Securities Market Commission, the Bank of Spain, and the Ministry of Economy, each within the scope of their supervision, shall approve codes of conduct containing the specific rules to which the temporary financial investments made by foundations, establishments, institutions, and non-profit associations, professional colleges, employment promotion funds, insurance mutuals, social providence mutuals, mutuals collaborating with Social Security, and, where applicable, other entities subject to reduced rates in the Corporate Tax, which do not have a specific investment diversification regime in order to optimize the profitability of the cash they have available and which may be destined to obtain returns in accordance with their operating rules, must adhere." Likewise, said additional provision stipulates that "the governing, administrative, or management bodies of the entities referred to in the preceding paragraph must present an annual report regarding the degree of compliance with the aforementioned codes so that the protectorate or its participants, members, or mutualists may know of it."

Based on this provision, the National Securities Market Commission (CNMV), by agreement of its Board of 20 November 2003, approved a Code of Conduct for non-profit entities for the making of temporary financial investments. For its part, the Bank of Spain, by agreement of the Governing Board of 19 December 2003, provided that the Code of Conduct approved by the CNMV would be applicable in the same terms to the temporary financial investments of non-profit entities in the form of deposits, loans, temporary transfer of financial assets, or other analogous ones that carried the obligation of their restitution and that were not subject to the rules of regulation and discipline of the securities market. And, likewise, the Ministry of Economy, by Order ECO/3721/2003 of 23 December, approved a code of conduct for insurance mutuals and social providence mutuals, without prejudice to the fact that these entities would also be subject, where applicable, to those approved by the CNMV and the Bank of Spain.

More than fifteen years having passed since the approval of the code of conduct approved by the CNMV, a period in which there have been very relevant normative changes and in the functioning of markets in various aspects, including those that have affected accounting regulations, it has been considered reasonable to proceed with its update, to which effect the CNMV Board, in its meeting on 20 February 2018, has approved the following new code of conduct regarding the investments of non-profit entities that replaces the one approved by the CNMV Board itself in 2003:

OFFICIAL STATE GAZETTE
No. 55 Tuesday, 5 March 2019 Sec. III. Page 21228 cve: BOE-A-2019-3174 Verifiable at http://www.boe.es

CODE OF CONDUCT REGARDING THE MAKING OF TEMPORARY FINANCIAL INVESTMENTS IN THE SECURITIES MARKET BY NON-PROFIT ENTITIES

First. Scope of application.
1.1 This Code of Conduct shall apply to the non-profit entities listed below that make temporary financial investments in financial instruments subject to the supervision scope of the CNMV.
1.2 Non-profit entities. For the purposes of this Code of Conduct, the following are considered non-profit entities:
(a) Foundations.
(b) Associations.
(c) Professional colleges.
(d) Insurance mutuals and social providence mutuals, without prejudice to what may be established by the code of conduct approved by the Ministry of Economy and Enterprise for them under the provisions of the additional provision fifteenth of the Securities Market Law. (e) Mutuals collaborating with Social Security. (f) Any other type of entity with legal personality and without profit motive that is subject to reduced tax rates in the Corporate Tax, when it does not have a specific investment diversification regime. This Code of Conduct shall not apply to banking foundations referred to in Law 26/2013 of 27 December on Savings Banks and Banking Foundations.
1.3 Temporary financial investments. For the purposes of this Code of Conduct, any investments in financial instruments shall be considered temporary financial investments, with the exception of the following:
i. Investments that are subject to restrictions on free disposition by virtue of the founding deed, the entity's statutes, or the applicable regulations.
ii. The part of the entity's assets that originates from contributions made by the founder, by donors, or by members subject to non-disposition requirements or with a view to permanence.
In the case of the non-profit entities mentioned in paragraph (d) above, the rules of this Code of Conduct shall only apply to financial investments that are not affected by the coverage of technical provisions.
1.4 Financial instruments. For the purposes of this code, financial instruments are those included in the Annex of Financial Instruments of the Securities Market Law, to which its article 2 refers.

Second. Principles and recommendations.
Means and organization
2.1 The entities to which this Code of Conduct applies shall have human and material means and systems for the selection and management of their investments in financial instruments that are adequate and proportionate to the volume and nature of the investments they make or intend to make.
2.2 In particular, they shall ensure that the persons in the entity who decide on investments have sufficient technical knowledge and experience or use appropriate professional advice.

OFFICIAL STATE GAZETTE
No. 55 Tuesday, 5 March 2019 Sec. III. Page 21229 cve: BOE-A-2019-3174 Verifiable at http://www.boe.es

2.3 When it is decided to have external advice, which is generally considered advisable, care must be taken that it offers sufficient guarantees of professional competence and independence, and that it is not affected by conflicts of interest.
2.4 In the case where the volume of the financial instruments portfolio is to be significant, it is recommended the establishment of an Investment Committee that must be composed of three or more members, two of whom at least should have sufficient technical knowledge and experience, which must meet regularly, at least four times a year. For these purposes, investment portfolios with a value exceeding 10 million euros should be considered significant at least.
2.5 Likewise, non-profit entities whose investment portfolio is of significant volume should have an internal control function to verify compliance with their investment policy and ensure that they always have an adequate system for recording and documenting operations and for the custody of investments. This function should have sufficient authority and independence and be carried out by personnel with adequate knowledge or delegated to specialized entities.
Policy and selection of investments
2.6 It is considered good practice for the governing bodies of non-profit entities to define an investment policy adjusted to their founding objectives that specifies the objectives and risks of their investments, indicating the type of assets, risk concentration, investment term, geographic diversification, or any other variable (environmental, social, etc.) considered relevant.
2.7 For the selection of investments in financial instruments, the security, liquidity, and profitability offered by the different investment possibilities will be valued, monitoring that there is the necessary balance between these three objectives and attending to market conditions at the time of contracting.
2.8 Non-profit entities must consider the following principles inspiring investments in financial instruments:
2.8.1 Principle of coherence. The investment strategy must be coherent with the profile and duration of liabilities and treasury forecasts.
2.8.2 Principle of liquidity. As a general rule, investments should be made in sufficiently liquid financial instruments.
Investment in securities traded on regulated markets or multilateral trading systems and investment in collective investment institutions with daily redemption harmonized at the European level (UCITS) or equivalents are considered especially appropriate in this regard. The depth of the market of the corresponding securities or financial instruments should be taken into account when investing, considering their usual trading.
2.8.3 Principle of diversification. Non-profit entities will diversify the risks corresponding to their investments, selecting a portfolio composed of a plurality of uncorrelated assets, from different issuers, and with various characteristics from the point of view of their risk.
An investment policy in a variety of harmonized or similar collective investment institutions is also considered especially appropriate from this perspective, given the principle of diversification to which they are subject.
2.8.4 Principle of capital preservation. The investment policy must in all cases give special importance to the preservation of capital.
It is generally considered inappropriate for non-profit entities to carry out leveraged operations or operations directed exclusively to obtaining short-term gains. Therefore, in the case that they are carried out, the following operations, listed below for illustrative and non-limiting purposes, must be specially explained:
Intraday operations.
Operations in derivatives markets that do not respond to a risk hedging purpose.
Short sales that do not respond to a risk hedging purpose.
Financial contracts for differences.

Third. Monitoring of the Code.
3.1 The governing bodies of non-profit entities must present a detailed and clear annual report regarding the degree of compliance with the principles and recommendations contained in the Second and Third sections of this Code of Conduct, which they will deliver, where applicable, to the Protectorate, and make available to their participants, members, or mutualists and to the general public.
3.2 In the case that the entity has a website, the report will appear on it.
3.3 The report must specify which operations carried out have deviated, where applicable, from the recommendations contained in this Code of Conduct and explain the reasons why they were not followed.

Fourth. Application of this Code of Conduct.
4.1 Non-profit entities must apply the principles of this Code of Conduct from its publication in the Official State Gazette. However, the annual report corresponding to 2018 may still take as reference the Code of Conduct for non-profit entities for the making of temporary investments approved by the CNMV Board on 20 November 2003.
4.2 In the first annual report that must be drawn up after the approval of this Code of Conduct, the agreements reached by the entity's governing bodies to take note of its publication and, where applicable, adopt the measures conducive to following its principles and recommendations shall be transcribed literally.

Madrid, 20 February 2019.–The President of the National Securities Market Commission, Sebastián Albella Amigo.

OFFICIAL STATE GAZETTE
No. 55 Tuesday, 5 March 2019 Sec. III. Page 21231 cve: BOE-A-2019-3174 Verifiable at http://www.boe.es http://www.boe.es OFFICIAL STATE GAZETTE D. L.: M-1/1958 - ISSN: 0212-033X