Law 15/2011, of June 16, amending certain financial rules to apply Regulation (EC) No 1060/2009 on Credit Rating Agencies

OFFICIAL STATE GAZETTE No. 144 Friday, June 17, 2011 Sec. I. Page 62042 I. GENERAL PROVISIONS HEAD OF STATE 10531 Law 15/2011, of June 16, amending certain financial rules to apply Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies. JUAN CARLOS I KING OF SPAIN To all who see and understand this, Know ye: That the General Courts have approved and I have come to sanction the following law.

PREAMBLE Credit rating agencies perform an essential function as actors responsible for assessing the solvency of an entity or a financial instrument, a fundamental parameter for maintaining the stability of the entire financial system. The recent financial crisis highlighted the need to improve certain aspects related to these agencies. As a common response to such findings, Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies, was approved within the European Union, in which the organizational and operational conditions that agencies must meet, as well as their registration and supervision regime, are determined.

With regard to the latter aspect, supervision, although the provision of the common regime foreseen in Regulation (EC) No 1060/2009 was fundamental, the establishment of a true European supervisory framework is essential, insofar as the activities of credit rating agencies transcend the national scope of Member States. It is therefore that the regulation provided for in Regulation (EC) No 1060/2009 will have to be completed in the coming months with the creation of the European Securities and Markets Authority and the attribution to it of supervisory powers over credit rating agencies, a process that will have to culminate with the Authority operating with full powers throughout 2011, once Regulation (EU) No 1095/2010 of the European Parliament and of the Council of November 24, 2010, establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC, has been published.

As a consequence of both processes, the approval of Regulation (EC) No 1060/2009 and the imminent creation of the European Securities and Markets Authority, it is necessary to carry out certain adjustments in our legal order that on the one hand guarantee maximum legal certainty in the application of Regulation (EC) No 1060/2009 and on the other grant the same legal certainty in whatever actions the Spanish supervisor of the securities market, the National Securities Market Commission (CNMV), carries out in the future, in compliance with Community legislation and, especially in collaboration with the new European Authority.

Thus, first of all, certain necessary adjustments are made in the law by virtue of Regulation (EC) No 1060/2009. The obligation of certain financial entities to use ratings issued by agencies registered or certified under the Regulation is specified. Consequently, the obligations of credit institutions referred to in Article 1.2 of Royal Legislative Decree 1298/1986, of June 28, on the adaptation of existing law in the matter of Credit Institutions to that of the European Communities, of investment service firms referred to in Article 62 of Law 24/1988, of July 28, on the Securities Market, of mortgage securitization funds referred to in Article 5 of Law 19/1992, of July 7, on the Regime of Real Estate Investment Companies and Funds and on Mortgage Securitization Funds, and of depositaries of collective investment institutions, regulated in Title V of Law 35/2003, of November 4, on Collective Investment Institutions, are included.

Secondly, the creation of this authority and the attribution to it of supervisory functions over credit rating agencies establishing a common supervisory regime in the European Union would be incomplete if the necessary adjustments were not carried out in the internal legal orders so that the respective national supervisors can collaborate with the functions of the new European authority, in order to achieve maximum effectiveness and integration of the European supervisory activity on credit rating agencies.

In short, this law aims to provide maximum legal certainty to the provisions of Regulation (EC) No 1060/2009, while making the essential legal adjustments to facilitate the effectiveness of the future European supervisory system on credit rating agencies once the new European Authority begins to perform its tasks.

Article one. Modification of Law 13/1985, of May 25, on investment coefficients, own resources and information obligations of financial intermediaries. The second paragraph of Article 6.2 of Law 13/1985, of May 25, on investment coefficients, own resources and information obligations of financial intermediaries, is drafted as follows:

"The use for these purposes of external credit ratings will require that these have been issued or endorsed by a credit rating agency established in the European Union and registered in accordance with the provisions of Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies or, in the case of ratings of entities established or financial instruments issued outside the European Union, that they have been issued by a rating agency established in a State not a member of the European Union, which has obtained a certification based on equivalence according to the aforementioned Regulation. In both cases, it will also be required that the rating agency be recognized for this purpose by the Bank of Spain, according to the criteria it establishes for this purpose and evaluating, in any case, the objectivity, independence, transparency and continuous review of the methodology applied, as well as the credibility and acceptance in the market of the credit ratings carried out by said company. The authorization of the Bank of Spain will be required, under the conditions determined by it, to use for these same purposes internal credit ratings or internal methods of measuring operational risk and market risk developed by the entities themselves."

Article two. Modification of Law 19/1992, of July 7, on the Regime of Real Estate Investment Companies and Funds and on Mortgage Securitization Funds. The first paragraph of Article 5.8 of Law 19/1992, of July 7, on the Regime of Real Estate Investment Companies and Funds and on Mortgage Securitization Funds, is drafted as follows:

"8. The financial risk of the securities issued by each Fund shall be subject to evaluation by a credit rating agency established in the European Union and registered in accordance with the provisions of Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies. The rating granted to the securities must appear in their prospectus."

Article three. Modification of Law 24/1988, of July 28, on the Securities Market. Law 24/1988, of July 28, on the Securities Market, is modified as follows:

One. Paragraph 2 of Article 70 is drafted as follows:

"2. By regulation, the calculation methods for the requirements provided for in letter a) of the previous paragraph, the weightings of the different risks, the admissible techniques for reducing credit risk and the possible surcharges of any of these requirements based on the risk profile of the entity or group will be determined. The use for these purposes of external credit ratings will require that such rating has been issued or endorsed by a credit rating agency established in the European Union and registered in accordance with the provisions of Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies or, in the case of ratings of entities established or financial instruments issued outside the European Union, that they have been issued by a rating agency established in a State not a member of the European Community, which has obtained the certification based on equivalence according to the aforementioned Regulation. In both cases, it will also be required that the rating agency has been recognized for this purpose by the National Securities Market Commission according to the criteria it establishes for this purpose, evaluating, in any case, the objectivity, independence, transparency and continuous review of the methodology applied, as well as the credibility and acceptance in the market of the credit ratings carried out by said company. The authorization of the National Securities Market Commission will be required, under the conditions determined by it, to use internal credit ratings or internal methods of measuring operational risk and market risk developed by the entities themselves."

Two. Article 84 is drafted as follows:

"Article 84. Scope of supervision, inspection and sanction. The following are subject to the supervision, inspection and sanction regime established in this law, under the National Securities Market Commission:

1. The following persons and entities regulated by this Law: a) The governing bodies of official secondary markets, the governing entities of multilateral trading systems and the companies that administer registration, clearing and settlement systems for securities that are created under the provisions of this law. The Bank of Spain is excluded. b) The Systems Society, central counterparty entities, the Stock Exchange Society and companies that hold all the shares or a participation that grants direct or indirect control of the entities provided for in the previous letter. c) Spanish investment service firms, extending this competence to any office or center within or outside national territory. d) Non-Community investment service firms operating in Spain. e) Agents of entities that provide investment services. f) Management companies of investment guarantee funds. g) Those who, not being included in the preceding letters, hold the status of member of any official secondary market or of the clearing and settlement systems for their operations.

1 bis. Credit rating agencies, established in Spain and registered under Chapter I of Title III of Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies, persons participating in rating activities, rated entities or related third parties, third parties to whom credit rating agencies have subcontracted some of their functions or activities, and persons related or connected in any other way with the agencies or with credit rating activities. The National Securities Market Commission will exercise its powers in accordance with what is established in European Union legislation on credit rating agencies.

2. The following persons and entities, regarding their activities related to the Securities Market: a) Issuers of securities. b) Credit institutions and their agents, extending that competence to any branch opened outside national territory, as well as non-Community credit institutions operating in Spain. c) Investment service firms authorized in another Member State of the European Union operating in Spain, under the terms established in this Law and its development provisions including their affiliated agents and branches in national territory, as well as, under the same terms, the branches in Spain of credit institutions authorized in another Member State of the European Union. c bis) Management Companies of Collective Investment Institutions insofar as they provide investment services. d) The remaining natural or legal persons, insofar as they may be affected by the provisions of this Law and its development provisions. e) Credit rating agencies registered by another competent authority of the European Union under Chapter I of Title III of Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies and credit rating agencies that have received equivalence certification under Article 5 of Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies. The CNMV will exercise its powers in accordance with what is established in European Union legislation on credit rating agencies.

3. Persons resident or domiciled in Spain who control, directly or indirectly, investment service firms in other Member States of the European Union, within the framework of collaboration with the authorities responsible for the supervision of said firms, as well as holders of significant holdings for the purposes of compliance with what is provided in Article 69 of this Law.

4. Entities that are part of the consolidatable groups of investment service firms contemplated in Article 86 of this Law, solely for the purposes of compliance at consolidated level with own resource requirements and limitations that may be established on investments, operations or positions that imply high risks.

5. Entities that are part of the consolidatable groups of which the entities referred to in letters a) and b) of paragraph 1 above are dominant, solely for the purposes of compliance with the obligation to consolidate their annual accounts and limitations that may be established regarding their activity and financial balance.

6. The natural persons and non-financial entities mentioned in paragraph 9 of Article 86, solely for the purposes provided for in that paragraph.

7. Any person or entity, for the purposes of verifying whether they infringe the denomination and activity reservations provided for in Articles 64, 65 and 65 bis. In the case of legal persons, the competences corresponding to the National Securities Market Commission according to the previous paragraphs may be exercised over those holding administrative, management or similar positions in them.

The provisions of this article shall be understood without prejudice to the supervision, inspection and sanction competences corresponding to the Autonomous Communities that have them attributed over the governing bodies of secondary markets of an autonomous scope and, regarding operations on securities admitted to trading only in the same, over the other persons or entities mentioned in the first two previous paragraphs. For the purposes of the exercise of said competences, the corresponding provisions of this Title shall be basic, except for the references contained in them to state bodies or entities. The National Securities Market Commission may conclude agreements with Autonomous Communities with competences in the matter of securities markets in order to coordinate their respective actions.

8. Regarding what is established in Articles 81, 82 and 83 ter, and without prejudice to the competences of the Autonomous Communities, the National Securities Market Commission shall be competent not only for acts carried out in Spanish territory or outside it that refer to negotiable securities and other financial instruments admitted to trading in an official secondary market or for which an application for admission to trading has been submitted in one of said markets, but also regarding acts carried out in Spanish territory relating to negotiable securities and other financial instruments admitted to trading in a regulated market of another Member State of the European Union or for which an application for admission to trading has been submitted in one of such markets."

Three. A new paragraph 7 is added to Article 85, with the following literal text:

"7. The National Securities Market Commission shall have the supervision and inspection powers contained in this article that are necessary to fulfill the functions assigned to it under delegation or cooperation with other competent authorities, over credit rating agencies registered under Chapter I of Title III of Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies, persons participating in rating activities, rated entities or related third parties, third parties to whom credit rating agencies have subcontracted some of their functions or activities, and persons related or connected in any other way with the agencies or with credit rating activities, that are domiciled in Spain, in accordance with European Union legislation on credit rating agencies."

Four. Article 91 is given a new text, with the following literal text:

"Article 91. Cooperation of the National Securities Market Commission with the competent authorities of the Member States of the European Union.

1. The National Securities Market Commission will cooperate with other competent authorities of the European Union whenever necessary to carry out the functions established in this law, making use for this purpose of all the powers attributed to it by the same and those established in Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies. The National Securities Market Commission will provide assistance to other competent authorities of the European Union. In particular, it will exchange information and collaborate in investigation or supervision activities. The National Securities Market Commission may exercise its powers for cooperation purposes, even in cases where the investigated behavior does not constitute an infringement of the legislation in force in the Spanish State.

2. When official secondary markets establish mechanisms in other Member States to allow remote access and operations of that market, given the situation of the securities markets in the host Member State, have acquired substantial importance for the functioning of the markets and the protection of investors in that State, the National Securities Market Commission and the competent authority of the host Member State will establish proportionate cooperation mechanisms. Likewise, when a regulated market of another Member State has established in Spanish territory mechanisms to guarantee remote access, and the operations carried out in Spain, given the situation of the Spanish securities markets, have acquired substantial importance for the functioning of the markets and the protection of investors in Spain, the National Securities Market Commission and the competent authority of the Member State of origin of the regulated market will establish proportionate cooperation mechanisms. For the purposes of the provisions of this paragraph, it shall be understood that operations have substantial importance when the provisions of Article 16 of Commission Regulation 1287/2006, of August 10, 2006, implementing Directive 2004/39/EC of the European Parliament and of the Council, as regards the obligations of investment firms to keep a record, information on operations, market transparency, admission to trading of financial instruments, and terms defined for the purposes of said Directive, are met.

3. When the National Securities Market Commission has well-founded reasons to suspect that entities not subject to its supervision are carrying out or have carried out in the territory of another Member State activities contrary to the national provisions transposing Directive 2004/39/EC of the European Parliament and of the Council, of April 21, 2004, on markets in financial instruments, it shall notify it as specifically as possible to the competent authority of said Member State. This communication shall be understood without prejudice to the competences that the National Securities Market Commission may exercise. Likewise, when the National Securities Market Commission receives a notification from the competent authority of another Member State that has well-founded reasons to suspect that entities not subject to its supervision are carrying out or have carried out in Spanish territory activities contrary to this Law, and its development provisions, it shall adopt the appropriate measures to correct this situation. Furthermore, it shall communicate to the notifying competent authority the result of its intervention and, as far as possible, significant intermediate progress.

4. The National Securities Market Commission may request the cooperation of other competent authorities of the European Union in a supervision activity, for an "in situ" verification or an investigation related to the matters regulated in national norms transposing Directive 2004/39/EC of the European Parliament and of the Council, of April 21, 2004, on markets in financial instruments, as well as with matters related to Regulation (EC) No 1060/2009 of the European Parliament and of the Council, of September 16, 2009, on credit rating agencies. When it concerns investment service firms, authorized in another Member State, that are...