Royal Decree 358/2015 of 8 May amending Royal Decree 217/2008 on the legal regime of investment firms and partially amending the Regulation of the Collective Investment Institutions Law

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Núm. 111 Sábado 9 de mayo de 2015 Sec. I. Pág. 40722
I. GENERAL PROVISIONS
MINISTRY OF ECONOMY AND COMPETITIVENESS
5164 Royal Decree 358/2015, of 8 May, amending Royal Decree 217/2008, of 15 February, on the legal regime of investment firms and other entities providing investment services, and partially amending the Regulation of Law 35/2003, of 4 November, on Collective Investment Institutions, approved by Royal Decree 1309/2005, of 4 November.
I
The financial system performs a set of functions that are vital for the proper functioning of the economy. First, it facilitates contact between economic units with savings surpluses and deficits, thereby financing business projects. Furthermore, the financial system provides liquidity to investments that could initially be illiquid, either through maturity transformation by financial intermediaries or through the creation of secondary markets where investors can dispose of their securities before their maturity date. Finally, its role in risk management should be highlighted. Thus, a developed financial system allows each investor to find the combination of return and risk that best suits their characteristics or preferences. Although the most important financial crisis episodes have been related to credit institutions, losses by other types of financial entities have also had significant consequences throughout history. Likewise, as credit institutions and investment firms are often subject to similar risks, common regulation in prudential matters is justified. For this reason, all European solvency legislation, namely Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No 648/2012, and Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, based on the "Global regulatory framework to strengthen banks and banking systems" (Basel III), extends its effects to investment firms. These rules provide for capital and liquidity requirements as well as internal organization requirements that undoubtedly contribute to reducing the probability of insolvency episodes and increase the resilience of investment firms during periods of financial stress. However, it is no less true that, on some occasions, these requirements may entail disproportionate regulatory burdens depending on the size and nature of Spanish investment firms. Therefore, taking into account that most investment firms carry out activities that differ significantly in terms of scale, nature, and complexity from those carried out by credit institutions, Directive 2013/36/EU of 26 June 2013 and Regulation (EU) No 575/2013 of 26 June 2013 provide for exemptions for less complex investment firms. cve: BOE-A-2015-5164

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Núm. 111 Sábado 9 de mayo de 2015 Sec. I. Pág. 40723 II Directive 2013/36/EU of 26 June 2013 was transposed into the national legal order in two stages. In a first phase, Royal Decree-Law 14/2013, of 29 November, on urgent measures for the adaptation of Spanish law to European Union legislation on the supervision and solvency of financial entities, transposed the most urgent aspects of Directive 2013/36/EU of 26 June 2013, whose non-transposition could have hindered the exercise by the Bank of Spain and the National Securities Market Commission (CNMV) of the new powers attributed by this Directive, as well as its own operability with Regulation (EU) No 575/2013 of 26 June 2013. Later, Law 10/2014, of 26 June, on the organization, supervision, and solvency of credit institutions, would carry out the full incorporation into Spanish law of the provisions of Directive 2013/36/EU of 26 June 2013, whose transposition required legal rank. In particular, the provisions regarding investment firms were incorporated into Law 24/1988, of 28 July, on the Securities Market, through the first final provision. This Royal Decree aims, on the one hand, to complete the transposition of Directive 2013/36/EU of 26 June 2013, and, on the other, to convert Royal Decree 217/2008, of 15 February, on the legal regime of investment firms and other entities providing investment services, and partially amending the Regulation of Law 35/2003, of 4 November, on Collective Investment Institutions, approved by Royal Decree 1309/2005, of 4 November, into the main regulatory legislation with regulatory rank in matters of organization, supervision, and solvency of investment firms. III This Royal Decree consists of a single article that introduces a series of modifications to Royal Decree 217/2008, of 15 February. Thus, paragraphs two and three develop the suitability requirements that members of the board of directors, general managers, and other key positions in investment firms must meet. These requirements are grouped into three categories: commercial and professional honorability, knowledge and experience, and capacity to exercise good governance, which must be evaluated continuously by both the National Securities Market Commission (CNMV) and the investment firms themselves. For its part, paragraph ten introduces a series of articles that develop the functions of the three committees that investment firms must have as provided for in Law 24/1988, of 28 July, on the Securities Market: the nominations committee, the remuneration committee, and the risk committee. Among the functions of the first of these committees, it is worth highlighting the setting of a representation target for the less represented sex on the board of directors and the elaboration of guidelines on how to achieve said target. Likewise, this paragraph develops the publicity obligations regarding corporate governance and remuneration policy. The bulk of the modifications is found in paragraph twelve, which
adds two new titles to Royal Decree 217/2008, of 15 February. The first of them contains provisions on the solvency of investment firms additional to those in Regulation (EU) No 575/2013, of 26 June 2013. Within this title, Chapter I collects the obligations of investment firms to have strategies and procedures that allow them to evaluate the adequacy of the capital held to the nature, scale, and complexity of their activity. Likewise, a series of guidelines are established that investment firms must follow to manage the various risks they face (credit and counterparty risk, liquidity risk, interest rate risk, securitization risk, operational risk, etc.). cve: BOE-A-2015-5164

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Núm. 111 Sábado 9 de mayo de 2015 Sec. I. Pág. 40724 For its part, Chapter II contains the regime of additional ordinary level 1 capital buffers to those established generally in Regulation (EU) No 575/2013, of 26 June 2013. Following the structure of Law 24/1988, of 28 July, on the Securities Market, this chapter refers to the equivalent chapter of Royal Decree 84/2014, of 13 February, which develops Law 10/2014, of 26 June.
The second title added by paragraph twelve collects the provisions regulating the supervisory function of the National Securities Market Commission (CNMV) and is divided into four chapters. Chapter I collects the content of the supervisory review and evaluation by the CNMV. This supervision must pay special attention to the use of internal methods for calculating solvency requirements.
The second chapter contains the subjective scope of the supervisory function. In particular, a series of rules are established to determine which competent authority will be responsible for supervision on a consolidated basis when the entity to be supervised is a consolidatable group of investment firms operating in several States. Additionally, Chapter III collects the framework for collaboration between the CNMV and other competent authorities. Articles regarding the functioning of supervisory colleges, the adoption of joint decisions in prudential supervision matters, or the procedure for declaring significant branches stand out in this chapter. Finally, Chapter IV collects a series of publicity obligations of the CNMV and investment firms. The CNMV must publish, among other things, the criteria and methodology it uses to review the procedures applied by investment firms to comply with solvency regulations. For its part, investment firms must publish a report called "Solvency Information" containing information on those aspects of their activity that allow other agents to evaluate the risk of their exposures. This Royal Decree has been subject to a report by the Ministry of Finance and Public Administrations and the Advisory Committee of the National Securities Market Commission (CNMV). Therefore, on the proposal of the Minister of Economy and Competitiveness, in agreement with the Council of State and after deliberation by the Council of Ministers in its meeting on 8 May 2015, I HEREBY ORDER:
Single Article. Modification of Royal Decree 217/2008, of 15 February, on the legal regime of investment firms and other entities providing investment services, and partially amending the Regulation of Law 35/2003, of 4 November, on Collective Investment Institutions, approved by Royal Decree 1309/2005, of 4 November.
Royal Decree 217/2008, of 15 February, on the legal regime of investment firms and other entities providing investment services, and partially amending the Regulation of Law 35/2003, of 4 November, on Collective Investment Institutions, approved by Royal Decree 1309/2005, of 4 November, is modified as follows:
One. Letters e) and f) of paragraph 1 of Article 5 are modified as follows:
"e) The placement of financial instruments without a firm commitment basis. f) The underwriting of financial instruments or placement of financial instruments on the basis of a firm commitment." cve: BOE-A-2015-5164

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Núm. 111 Sábado 9 de mayo de 2015 Sec. I. Pág. 40725 Two. Letter e) of paragraph 1 is modified, paragraph 2 is eliminated, and paragraph 3 of Article 14 becomes paragraph 2 with the following wording:
"e) To have a board of directors formed by at least three members. Members of the board of directors, as well as general managers or equivalent persons and heads of internal control functions and other key positions for the daily development of the activity of an investment firm, must meet the requirements of honorability, experience, and good governance established in Article 67.4 of Law 24/1988, of 28 July, on the Securities Market. These requirements will also be demanded of the natural persons representing legal persons on the boards of directors. Likewise, these requirements must be met by members of the board of directors, as well as general managers or equivalent persons and heads of internal control functions and other key positions in the daily development of the activity of the parent company of an investment firm, as well as by administrators of dominant entities of financial advisory firms, when the latter have not established a board of directors. When assessing these requirements, the nature, scale, and complexity of the functions performed by these persons with respect to the investment firm will be taken into account.
2. Investment firms must comply at all times with the requirements provided for in paragraph 1 of this article. However:
a) Authorization may only be revoked for lack of suitability of a partner in an exceptional manner, in accordance with Article 69.11 of Law 24/1988, of 28 July, on the Securities Market. b) For lack of commercial or professional honorability by directors or managers, revocation will only proceed if the affected parties do not cease their positions within one month from the request sent for this purpose by the National Securities Market Commission (CNMV). A lack of subsequent honorability will not be considered merely due to the circumstance that, while holding office, a director or manager is accused or prosecuted for any of the crimes mentioned in Article 67.2.f), third paragraph, of Law 24/1988, of 28 July, on the Securities Market." Three. Articles 14 bis to 14 sexies are added with the following wording:
"Article 14 bis. Requirements of commercial and professional honorability.

1. Commercial and professional honorability required in Article 67.4.a) of Law 24/1988, of 28 July, on the Securities Market, and in Article 14.1.e) of this Royal Decree will be present in those who have shown personal, commercial, and professional conduct that does not cast doubt on their capacity to perform a sound and prudent management of the investment firm.
2. To assess the presence of commercial and professional honorability, all available information must be considered, including:
   a) The track record of the position in question in relation to regulatory and supervisory authorities; the reasons for dismissal or cessation in previous positions or roles; their personal solvency history and compliance with their obligations; their professional performance, if they had held positions of responsibility in investment firms that were subject to an early intervention or resolution process; or if they had been disqualified under Law 22/2003, of 9 July, on Insolvency, while the disqualification period set in the qualification judgment has not concluded, and bankrupts and insolvent persons not rehabilitated in insolvency proceedings prior to the entry into force of the aforementioned law. cve: BOE-A-2015-5164

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Núm. 111 Sábado 9 de mayo de 2015 Sec. I. Pág. 40726 b) Conviction for the commission of crimes or offenses and sanction for the commission of administrative infractions, taking into account:
1.º The intentional or negligent nature of the crime, offense, or administrative infraction.
2.º Whether the conviction or sanction is final or not.
3.º The gravity of the imposed conviction or sanction.
4.º The classification of the facts that motivated the conviction or sanction, especially if they were corporate crimes, crimes against property and the socio-economic order, crimes against the Public Treasury and Social Security, money laundering or fencing crimes, or if they constituted an infringement of the regulations governing the exercise of banking, insurance, or securities market activities, or consumer protection.
5.º Whether the facts that motivated the conviction or sanction were carried out for personal gain or to the detriment of the interests of third parties whose administration or business management had been entrusted to them, and, if applicable, the relevance of the facts for which the conviction or sanction occurred in relation to the functions assigned or to be assigned to the position in question in the investment firm.
6.º The statute of limitations for illegal acts of a criminal or administrative nature or the possible extinction of criminal liability.
7.º The existence of mitigating circumstances and subsequent conduct since the commission of the crime or infraction.
8.º The repetition of convictions or sanctions for crimes, offenses, or infractions.
For the purpose of assessing what is provided for in this letter, the investment firm will send to the National Securities Market Commission (CNMV) a criminal record certificate of the person being assessed. Likewise, the CNMV will consult the databases of the European Banking Authority, the European Securities and Markets Authority, and the European Insurance and Occupational Pensions Authority regarding administrative sanctions and may establish a committee of independent experts to advise on assessment files where there is a conviction for crimes or offenses. c) The existence of relevant investigations based on rational indications, both in the criminal and administrative fields, regarding any of the facts mentioned in letter b).4.º A lack of subsequent honorability will not be considered merely due to the circumstance that, while holding office, a director, general manager or equivalent, or another employee responsible for internal control or occupying a key position in the general development of the entity's activity, is subject to such investigations.
3. If during the exercise of their activity any of the circumstances provided for in the previous paragraph were present in the person being assessed and this were relevant for the evaluation of their honorability, the investment firm will communicate this to the National Securities Market Commission (CNMV) within a maximum period of fifteen business days from its knowledge.
4. Members of the board of directors, general managers or equivalent, and other employees responsible for internal control functions or occupying key positions for the daily development of the activity of the investment firm who have knowledge that any of the circumstances described in paragraph 2 are present in their person, must inform their entity of this.
Article 14 ter. Requirements of knowledge and experience.

1. Those who have training at the appropriate level and profile, particularly in the areas of investment services, banking, and other financial services, and practical experience derived from their previous occupations for sufficient periods of time, will possess the knowledge and experience required in accordance with Article 67.4.b) of Law 24/1988, of 28 July, on the Securities Market, and Article 14.1.e) of this Royal Decree. For this purpose, both knowledge acquired in an academic environment and experience in the professional development of functions similar to those to be developed in other entities or firms will be taken into account.
2. In the assessment of practical and professional experience, special attention must be paid to the nature and complexity of the positions held, the competencies and decision-making powers and responsibilities assumed, as well as the number of people under their command, the technical knowledge achieved regarding the financial sector and the risks they must manage.
   In any case, the criteria for knowledge and experience will be applied by assessing the nature, scale, and complexity of the activity of each investment firm and the specific functions and responsibilities of the position assigned to the person being assessed.
3. Likewise, the board of directors must include members who, considered collectively, have sufficient professional experience in the governance of investment firms to ensure the effective capacity of the board of directors to make decisions independently and autonomously for the benefit of the entity.
   Article 14 quáter. Capacity to exercise good governance of the investment firm.
   To assess the capacity of board members to exercise good governance of the investment firm, in accordance with what is required by Article 67.4.c) of Law 24/1988, of 28 July, on the Securities Market, and Article 14.1.e) of this Royal Decree, the following will be taken into account:
   a) The presence of potential conflicts of interest that generate undue influence from third parties derived from:
   1.º Positions held in the past or present in the same investment firm or in other private or public organizations.
   2.º A personal, professional, or economic relationship with other members of the board of directors of the investment firm, its parent company, or its subsidiaries.
   3.º A personal, professional, or economic relationship with shareholders holding control of the investment firm, its parent company, or its subsidiaries. b) The capacity to dedicate sufficient time to carry out the corresponding functions.
   If during the exercise of their activity any circumstance arises in any director that could alter their capacity to exercise good governance of the investment firm, the firm will communicate this to the National Securities Market Commission (CNMV) within a maximum period of fifteen business days from its knowledge.
   Article 14 quinquies. Assessment of suitability.
4. The assessment of the requirements of honorability, experience, and good governance established in Article 67.4 of Law 24/1988, of 28 July, and Article 14.1.e) of this Royal Decree will be carried out:
   a) By the investment firm itself or, where appropriate, by its promoters, upon application to the National Securities Market Commission (CNMV) for authorization to carry out the activity of an investment firm, when new appointments are made, and whenever circumstances arise that warrant re-evaluating suitability in application of the procedures provided for in Article 14 sexies. b) By the acquirer of a significant participation, when the acquisition of said participation results in new appointments, without prejudice to the subsequent assessment carried out by the entity. If the assessment of the s