Circular 3/2014 of the National Securities Market Commission modifying Circular 1/2010 on reserved information and Circular 7/2008 on accounting standards

OFFICIAL STATE GAZETTE No. 270 Friday, November 7, 2014 Sec. I. Page 91915 I. GENERAL PROVISIONS NATIONAL SECURITIES MARKET COMMISSION 11497 Circular 3/2014, of October 22, of the National Securities Market Commission, amending Circular 1/2010, of July 28, on reserved information of entities providing investment services, and Circular 7/2008, of November 26, on accounting standards, annual accounts, and reserved information statements of Investment Service Companies, Management Companies of Collective Investment Institutions, and Management Companies of Venture Capital Entities.

In recent years, a growing sophistication of financial instruments offered to retail clients has been observed. In response to the demand for higher returns, access to complex instruments, traditionally acquired only by professional investors, is being facilitated. This has increased the difficulty of properly applying conduct rules contained in current regulations and, consequently, the concern of the National Securities Market Commission (CNMV) regarding ensuring correct investor protection. Additionally, the exercise of early supervision requires the availability of information with the greatest possible immediacy.

For this reason, it is necessary for this Commission to have the necessary means to monitor more efficiently the types of instruments marketed to retail clients. To this end, it is essential to increase the frequency with which entities submit certain reserved statements, adding relevant descriptive information regarding certain characteristics of these instruments, information not previously available.

Taking the above into account, the purpose of this Circular is to update the information collected through the reserved statements established by Circular 1/2010, on reserved information of entities providing investment services, in light of the experience accumulated since its entry into force.

Thus, the frequency with which certain entities, basically those with a high volume of retail clients or those most active in marketing complex instruments, must submit certain reserved statements (those related to the placement, receipt, transmission, and execution of orders, i.e., statements T9 and T10), is increased from annual to quarterly, in addition to the annual submission. This aims to achieve greater efficiency in the development of early and preventive supervisory actions.

Similarly, some models of reserved statements are modified to request more precise information regarding certain characteristics of financial instruments, especially those allowing the identification of their degree of complexity, and other information previously collected is homogenized to improve comparability and facilitate processing.

Specifically, statement T2, relating to the number and type of clients, is modified to obtain information regarding the provision of certain services to eligible counterparties.

In statement T5, referring to incentives, the detail of the amount received, which in turn has been rebated to clients, is requested, where applicable.

Statements T6 and T7, relating to the provision of discretionary portfolio management services, are modified to obtain better information regarding the assets whose management has been delegated or is managed by delegation from a third party, and to limit the breakdown by instrument to the managed assets of retail clients.

Statement T8, relating to the provision of investment advice services, is split into two tables. One table, in which the advised assets must be detailed, when this service is provided through a modality that determines said assets, and another, which has been in use, in which the recommendations issued during the period must be detailed. Regarding the latter, the detail of recommendations issued by instrument is also restricted to retail clients, while recommendations made to professional clients are reported in an aggregated manner. Information regarding the final execution of issued recommendations is also added, and the types of recommendations presented are clarified.

In statements T9 and T10, relating to the placement, receipt, transmission, and execution of orders from retail clients, greater detail is requested regarding certain characteristics of financial instruments, such as their maturity, percentage of guarantee, or return objective. Volume units are homogenized, and information on the result of the evaluation performed is added. Additionally, the amount of operations carried out by managed portfolios is incorporated and broken down.

In statement T13, relating to complaints presented by clients to the entities' own customer service departments, greater detail is requested regarding the financial instruments and the reasons why retail clients presented them, and information regarding the age of said complaints is collected.

In statement T15, referring to the provision of investment services in other European Union States from branches in Spain, the concept of advice is modified, and a new member state is incorporated.

In view of the lack of homogeneity in the reported information and the impossibility of obtaining comparable statistical data, statement T16 is suppressed.

Additionally, with the aim of homogenizing the information provided by investment service companies, the obligation to submit statements T1 on corporate data and contact persons, T6 and T7 on discretely managed portfolios, and T13 on complaints is extended to securities companies and agencies and portfolio management companies. For securities companies and agencies only, statement T12 on instruments custodied for clients is also required.

The first provision of this Circular introduces the necessary changes to collect this information, thereby modifying the third provision of Circular 1/2010.

On the other hand, the second provision of this Circular modifies paragraphs 1 and 2 of provision 58th and Annex IV of Circular 7/2008 on accounting standards, annual accounts, and reserved information statements of Investment Service Companies, to avoid duplication with the reserved statements indicated above, which securities companies and agencies and portfolio management companies are now required to submit. Specifically, statements M6 on client deposits, S1 and S11 on portfolio management, and paragraphs G1 and H of statement M4 on complementary information, relating to the market value of advised assets and complaints, respectively, are eliminated. Consequently, the activity statement that financial advice companies (EAFI) must present, SEAFI1, is also modified, eliminating the paragraph relating to the market value of advised assets and modifying its frequency, which changes from semi-annual to annual.

Finally, the second provision also includes a new reserved statement, G12, in Annex V of the aforementioned Circular 7/2008 for Management Companies of Collective Investment Institutions (SGIIC), with the aim of monitoring more efficiently the activities performed by these entities, beyond mere management of Collective Investment Institutions (IIC).

In exercise of the regulatory powers attributed to the National Securities Market Commission by Law 24/1988, of July 28, and in accordance with the authorization contained in the first final provision of Royal Decree 1820/2009, of November 27, which modifies Royal Decree 361/2007, of March 16, developing Law 24/1988, of July 28, on the Securities Market, regarding participation in the capital of companies managing secondary securities markets and companies administering systems for the registration, clearing, and settlement of securities, and Royal Decree 217/2008, of February 15, on the legal regime of investment service companies and other entities providing investment services, and partially modifying the Regulation of Law 35/2003, of November 4, on Collective Investment Institutions, approved by Royal Decree 1309/2005, of November 4, and in exercise of the authorization contained in the First and Second Additional Provisions 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 management companies of collective investment institutions, the Council of the National Securities Market Commission, in its session of October 22, 2014, has ordered the following:

First Provision. Modification of Circular 1/2010, of July 28, of the National Securities Market Commission, on reserved information of entities providing investment services.

Circular 1/2010, of July 28, of the National Securities Market Commission, on reserved information of entities providing investment services, is modified as follows:

One. Paragraphs 1 and 2 of Provision 3rd (content and deadlines for reserved information) are drafted as follows:

"1. Entities shall submit to the CNMV the statements listed in the following table, with the frequency provided therein and within the maximum deadlines indicated, according to the models collected in the annex of this Circular:

Statement-Name | Frequency/Period referred to | Maximum submission deadline T1. Corporate data and contact persons. | Annual (calendar year) | Within the first two months of each calendar year. T2. Number and type of clients. | Annual (calendar year) | Within the first two months of each calendar year. T3. Number of retail clients by risk profile type. | Annual (calendar year) | Within the first two months of each calendar year. T4. Total gross income received for the provision of investment services. | Annual (calendar year) | Within the first two months of each calendar year. T5. Incentives (art. 59 b RD 217/2008). | Annual (calendar year) | Within the first two months of each calendar year. T6. Discretely managed portfolios (retail and professional). | Annual (calendar year) | Within the first two months of each calendar year. T7. Detail of discretely managed portfolios (only retail clients). | Annual (calendar year) | Within the first two months of each calendar year. T8. Investment advice. | Annual (calendar year) | Within the first two months of each calendar year. T9. Placement of financial instruments. Detail of financial instruments (only retail clients): Additionally, and only entities meeting the requirements of number 2 of this provision 3rd. | Annual (calendar year) Quarterly (quarters 1st, 2nd, and 3rd) | Within the first two months of each calendar year. Day 20 of the month following the end of the quarter. T10. Receipt, transmission, and execution of orders from retail clients. Detail of financial instruments. | Annual (calendar year) Additionally, and only entities meeting the requirements of number 2 of this provision 3rd. | Quarterly (quarters 1st, 2nd, and 3rd) | Within the first two months of each calendar year. Day 20 of the month following the end of the quarter. T11. Intermediated operations. Aggregation by distribution channels. | Annual (calendar year) | Within the first two months of each calendar year. T12. Instruments custodied for clients. | Annual (calendar year) | Within the first two months of each calendar year. T13. Complaints. | Annual (calendar year) | Within the first two months of each calendar year. T14. Suspicious operations (art. 83 quater LMV). | Annual (calendar year) | Within the first two months of each calendar year. T15. Provision of investment services in other EU States from branches in Spain. | Annual (calendar year) | Within the first two months of each calendar year.

2. Those entities that have reported a figure equal to or greater than 50,000 retail clients in key 02019 of statement T2 referred to the previous year, in addition to presenting the statements referring to the activity of the full year, must present statements T9 and T10, referring to the activity developed in each of the first three natural quarters of the year.

Additionally, those entities that, without having reported a figure equal to or greater than 50,000 retail clients in key 02019 of statement T2 referred to the previous year, during any of the first three quarters of the following year have intermediated purchases on behalf of retail clients on complex financial instruments excluding derivative instruments, for an amount equal to or greater than 20 million euros, or on derivative instruments for an amount equal to or greater than 100 million euros, must present statements T9 and T10 referring to the quarter in which they exceed said thresholds, within the maximum deadline indicated in the previous paragraph 1.

For the purpose of determining the obligation to submit quarterly statements, the amount placed with retail clients (T9) and the amount intermediated for purchases by retail clients (T10) of the quarter shall be aggregated."

Two. Paragraph 4 of Provision 3rd is drafted as follows:

"4. Financial Advice Companies (EAFI) will only have to submit statements T3 and T8. Portfolio Management Companies will not have to submit statements T9, T10, T11, and T12."

Three. In the annex: Models of Reserved Information Statements, statement T16 is suppressed. Additionally, the following statement models collected in said annex are replaced by those collected in the annex of this Circular: T2, T5, T6, T7, T8, T9, T10, T13, T15.

Second Provision. Modification of Circular 7/2008, of November 26, of the National Securities Market Commission, on accounting standards, annual accounts, and reserved information statements of Investment Service Companies, Management Companies of Collective Investment Institutions, and Management Companies of Venture Capital Entities.

Circular 7/2008 of November 26, of the National Securities Market Commission, on accounting standards, annual accounts, and reserved information statements of Investment Service Companies, Management Companies of Collective Investment Institutions, and Management Companies of Venture Capital Entities, is modified as follows:

One. In the first box of paragraph 1 of Provision 58th, references to statement M6 on client deposits –detail by counterpart deposit–, statement S1 on portfolio management –managed assets–, and statement S11 –detail of the managed portfolio inventory– are suppressed. Likewise, the frequency of statement SEAFI1 is modified to become annual. This box is drafted as follows:

Individual Reserved Statements of ISC. Classes and submission deadlines Statement-Name | Obligated Entity | Frequency | Submission Deadline M1. Reserved Balance. | ISC. | Monthly. | Day 20 of the following month. M2. Reserved Income Statement. | ISC. | Monthly. | Day 20 of the following month. M3. Detail of investments and financing. Position of Securities. | ISC. | Monthly. | Day 20 of the following month. M4. Complementary Information. | ISC. | Monthly. | Day 20 of the following month. M5. Portfolio Inventory. | ISC. | Monthly. | Day 20 of the following month. M51. Detail of Portfolio Inventory. | ISC. | Monthly. | Day 20 of the following month. M7. Derivative Instruments Portfolio. | ISC. | Monthly. | Day 20 of the following month. T2. Portfolio Classification. | ISC. | Quarterly. | Day 20 of the following month. T3. Credits and Accounts Receivable. | ISC. | Quarterly. | Day 20 of the following month. A1. Application of the Year's Result. | ISC. | Annual. | Day 20 of the following January. LI1. Liquidity Ratio. | ISC. | Monthly. | Day 20 of the following month. SEAFI1. Information of FAIs. | FAI. | Annual. | Day 20 of the following month.

Two. In the second box of paragraph 1 of Provision 58th (individual reserved statements. Classes and submission deadlines), a statement G12 is included, whose model is collected in the annex of this Circular, on "Gross Income and Number of Clients." Said box, relating to MCII, is drafted as follows:

Individual Reserved Statements of MCII. Classes and submission deadlines Statement-Name | Obligated Entity | Frequency | Submission Deadline G01. Reserved Balance. | MCII. | Semi-annual. | Day 30 of the following month. G02. Reserved Profit and Loss Statement. | MCII. | Semi-annual. | Day 30 of the following month. G03. Financial Investment Portfolio and Cash. | MCII. | Semi-annual. | Day 30 of the following month. G04. Portfolio of Operations with Derivative Instruments. | MCII. | Semi-annual. | Day 30 of the following month. G05. IIC, VCE, and Pension Funds Managed. | MCII. | Semi-annual. | Day 30 of the following month. G06. Other Discrete Management of Investment Portfolios. Assets and Commissions. | MCII. | Semi-annual. | Day 30 of the following month. G07. Auxiliary Information. | MCII. | Semi-annual. | Day 30 of the following month. G10. Calculation of Own Funds. | MCII. | Semi-annual. | Day 30 of the following month. G11. Investment Guarantee Fund. | MCII. | Annual. | Day 30 of the following month. G12. Gross Income and Number of Clients. | MCII. | Annual. | Day 30 of the following month. GA1. Application of the Year's Result. | MCII. | Annual. | Day 30 of the following month.

Three. Letter b) of paragraph 2 of Provision 58th is drafted as follows:

"Statement M7 shall be submitted only by entities carrying out operations declarable in said statement."

Four. In Annex IV: Models of Individual Reserved Statements –ISC, statement M6 on client deposits –detail by counterpart deposit, statement S1 on portfolio management –managed assets, and statement S11 –detail of the managed portfolio inventory– are suppressed. Additionally, sub-paragraph G.1 on Advised Assets (market value) and paragraph H on complaints presented to the customer service department of statement M4 on complementary information are eliminated. Statement M4 collected in the aforementioned Annex IV is replaced by that collected in the annex of this Circular.

Five. The model of the activity statement of financial advice companies included in Annex VIII is modified, replacing it with model SEAFI1 collected in the annex of this Circular.

Sole Final Provision. Entry into force.

This Circular shall enter into force the day following its publication in the "Official State Gazette" (Boletín Oficial del Estado).

Sole Transitional Provision. Transitional Regime.

Notwithstanding, the entry into force of the modifications collected in the first provision of this Circular shall be January 1, 2015, such that the first information to be submitted adjusted to what is established therein shall correspond to the activity period between January 1 and March 31, 2015. Exceptionally, said first submission of information may be made until May 31, 2015.

Likewise, the entry into force of the modifications collected in paragraphs one, three, four, and five of the second provision of this Circular shall be January 1, 2015, such that the first information to be submitted adjusted to what is established in said paragraphs shall correspond to the activity period between January 1 and January 31, 2015, to be submitted before February 20, 2015.

Exceptionally, Management Companies of Collective Investment Institutions may submit statement G12 corresponding to the activity period between January 1 and December 31, 2014, until March 30, 2015.

Madrid, October 22, 2014.–The President of the National Securities Market Commission, María Elvira Rodríguez Herrer.

ANNEX

Statement T2: Number and Type of Clients by Service and by Commercial Segment

Date: Month Year MM AAAA Entity Type: Social Name: Official Registry No.: Agent ID No.: Agent Name: Investment/Auxiliary Services (art. 63 LMV)

Key | No. Clients | Key | No. Clients | Key | No. Clients | Key | No. Clients Receipt/Transmission/Execution of Orders (Art 63.1.a and b LMV) | 02001 | 02005 | 02009 | 02011 Discrete Portfolio Management (Art 63.1.d LMV) | 02002 | 02006 | 02040 | 02012 Investment Advice (Art 63.1.g LMV) | 02003 | 02007 | 02041 | 02013 Administration and Custody (Art 63.2.a LMV) | 02004 | 02008 | 02010 | 02014

Entity Commercial Segments Key | Comments | Key | No. Clients | Key | No. Clients | Key | No. Clients | Key | No. Clients Private Banking | 02036 | 02015 | 02020 | 02025 | 02030 Personal Banking | 02037 | 02016 | 02021 | 02026 | 02031 Retail Banking | 02038 | 02017 | 02022 | 02027 | 02032 Others | 02039 | 02018 | 02023 | 02028 | 02033 TOTAL | - | 02019 | 02024 | 02029 | 02034 | 02035

Total No. of retail clients with change to professional category since the entry into force of the classification obligation.

Table 2A: No. of Clients by Type of Investment/Auxiliary Service

Retail | Total Clients | Professional | Eligible Counterparties | Total Clients

Table 2B: No. of Clients by Commercial Segment. Category Changes

Retail | Professional | Eligible Counterparties

Statement T5: Incentives

Date: Month Year MM AAAA Entity Type: Social Name: Official Registry No.: Agent ID No.: Agent Name: You: Thousands of Euros Incentives associated with the provision of investment/auxiliary services under letter b) of art 59 RD 217/2008

Key | Received from a Third Party | Key | Paid to a Third Party | Key | Part of received incentives, rebated in turn to clients Receipt, transmission, and execution of orders (Art 63.1.a.b LMV) | 05001 | 05011 | 05021

• Marketing of Collective Investment Institutions (IIC) | 05002 | 05012 | 05022
• Marketing of financial instruments other than IIC | 05003 | 05013 | 05023
• Rest | 05004 | 05014 | 05024
• Discrete Portfolio Management (Art 63.1.d LMV) | 05005 | 05015 | 05025
• Investment Advice (Art 63.1.g LMV) | 05006 | 05016 | 05026
• Placement (Art 63.1.e LMV) | 05007 | 05017 | 05027