Royal Decree 816/2023 modifying the Regulation developing the Law on Collective Investment Institutions

I. GENERAL PROVISIONS
MINISTRY OF ECONOMIC AFFAIRS
AND DIGITAL TRANSFORMATION
22766 Royal Decree 816/2023, of November 8, modifying the Regulation developing the Law 35/2003, of November 4, on Collective Investment Institutions, approved by Royal Decree 1082/2012, of July 13.

PREAMBLE
I

This modifying royal decree is a consequence of the modifications introduced through Law 18/2022, of September 28, on the creation and growth of companies, and through Law 6/2023, of March 17, on Securities Markets and Investment Services, into Law 35/2003, of November 4, on Collective Investment Institutions, and into Law 22/2014, of November 12, regulating venture capital entities, other closed-type collective investment entities, and management companies of closed-type collective investment entities, and modifying Law 35/2003, of November 4, on Collective Investment Institutions. These modifications aim to introduce improvements in the legal regime of Spanish collective investment to boost its competitiveness and improve its functioning, and to make adjustments to adapt Spanish legislation to European Union law. Since the modifications affected laws with the rank of law, it is necessary to subsequently carry out the corresponding regulatory adaptations at the regulatory level in the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions, approved by Royal Decree 1082/2012, of July 13.

Furthermore, this royal decree transposes the normative changes established in Commission Delegated Directive (EU) 2021/1270 of April 21, 2021, amending Directive 2010/43/EU regarding sustainability risks and sustainability factors to be taken into account in relation to UCITS. The recitals of that directive reflect well the background and objectives thereof. In March 2018, the Commission published its Action Plan "Financing Sustainable Growth," which establishes an ambitious and global strategy regarding sustainable finance. One of the objectives set in the Action Plan is to redirect capital flows towards sustainable investments, in order to achieve sustainable and inclusive growth. To this end, it is necessary to clarify that management companies must take into account, within their obligations towards investors, sustainability factors. Consequently, management companies must evaluate not only all relevant financial risks on an ongoing basis, but also all relevant sustainability risks referred to in Regulation (EU) 2019/2088 of the European Parliament and of the Council, which, if materialized, could have a real or possible material negative effect on the value of an investment. To ensure that internal procedures and organizational provisions are correctly applied and observed, it is necessary to clarify that the internal processes, systems, and controls of management companies must reflect sustainability risks, and that capacity and technical expertise are required to analyze such risks.

OFFICIAL STATE GAZETTE
No. 268 Thursday, November 9, 2023 Sec. I. Page 149116 cve: BOE-A-2023-22766 Verifiable at https://www.boe.es

II

Firstly, Law 18/2022, of September 28, on the creation and growth of companies, introduced modifications into Law 35/2003 on Collective Investment Institutions to improve the competitiveness of the sector by eliminating the mandatory quarterly report, equating the Spanish legal regime to that of its surrounding jurisdictions. Thus, Article 1 of this royal decree develops the elimination of the requirement to prepare a quarterly report addressed to participants, modifying Articles 5.3, 14.1 a), 22, 23.1.d, 27, 28, 29, 30.1, 74.1, 79.6, 81.1, 89.2, 92.3, and 93.2 of the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions. Three references to quarterly reports remain in this royal decree in Articles 23.1, 27, and 29, which in all cases emphasize their optional nature and, in order to ensure that, in the event that the CII publishes this report, it continues to follow a structure homogeneous and comparable to that of semi-annual reports.

The Law on the Creation and Growth of Companies also modifies Law 35/2003 to establish telematic means as the default form of communication with participants and shareholders, promoting digitalization and streamlining processes and minimizing the use of paper as a communication method to improve the environmental sustainability of the sector's activity. To this end, this Royal Decree makes the corresponding adjustments in Articles 4.3 and 14.4 of the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions. Nevertheless, management companies that so wish may continue to prepare and publish quarterly information. In these cases, they must comply with the provisions of this royal decree, Articles 27 to 29, and the development rules issued by the CNMV regarding this matter.

Secondly, Law 6/2023, of March 17, on Securities Markets and Investment Services, has introduced modifications into Law 35/2003, of November 4, on Collective Investment Institutions that require corresponding regulatory adaptations. These changes are due to adaptations to European Union law and also introduce regulatory adjustments to streamline the functioning of the sector and to reinforce legal certainty when the replacement of the manager or depositary occurs in cases of insolvency, revocation, or suspension.

Thus, the modification of Articles 13.n, 23.2, 25, and 79.6 is introduced to develop the legal reception of Regulation (EU) 1286/2014 of the European Parliament and of the Council of November 26, 2014, on key information documents for packaged retail and insurance-based investment products (PRIIPs), whose entry into force occurred on January 1, 2022, and which establishes the obligation to prepare a key information document for the investor for packaged retail investment products that are undertakings for collective investment in transferable securities (UCITS), as well as for those collective investment institutions to which, although not being UCITS, the rules on the format and content of the key information document established in Directive (EU) 2009/65 of the European Parliament and of the Council of July 13, 2009, apply. In this regard, the second transitional provision is also eliminated.

With the elimination of letter f) of Article 108, the obligation to submit the internal code of conduct in the authorization procedure is suppressed. This modification is complemented by the modification of Article 142, to include in this provision part of the text suppressed from Article 108 regarding the need for the internal code of conduct to cover the regime of personal transactions of directors, employees, and authorized agents or agents of the company, and other aspects provided for in Title VI of Law 35/2003, of November 4, which will be applicable to whatever data, reports, or background information are deemed appropriate to verify compliance with the conditions and requirements established in this code.

Additionally, in line with the modifications introduced in the final fourth provision of Law 6/2023, of March 17, on Securities Markets and Investment Services, to improve the procedure for replacing the manager or depositary in cases of insolvency, revocation, or suspension, this Royal Decree adds three paragraphs to Article 118 and another three paragraphs to Article 137 to develop a procedure regulating expressions of interest to designate, respectively, a new manager and/or depositary to replace the manager and/or depositary that find themselves in a situation of insolvency, revocation, or suspension.

Finally, the adjustments of Commission Delegated Directive (EU) 2021/1270 of April 21, 2021, amending Directive 2010/43/EU regarding sustainability risks and sustainability factors to be taken into account in relation to UCITS, aim to align the provisions applicable to organizational requirements, conflicts of interest, and corporate conduct, as well as the terminology used regarding sustainability risks and sustainability factors, with the rules that were introduced in the financial services sector by Directive 2004/39/EC of the European Parliament and of the Council of April 21, 2004, on markets in financial instruments, amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC.

To carry out these adaptations, it is necessary to make a series of adjustments in the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions, in the following terms.

Firstly, a modification is introduced in paragraph 3 of Article 106 bis of this Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions, to incorporate that the risk management policy of the CII must be suitable and documented and take into account sustainability risks as defined in Regulation (EU) 2019/2088 of the European Parliament and of the Council, having the necessary resources and experience for this purpose.

Secondly, Article 106.7 of Royal Decree 1082/2012, of July 13, is modified to ensure that the board of directors is responsible for the integration of sustainability risks in the functions it performs.

Thirdly, Article 115.1 n) of this Royal Decree 1082/2012, of July 13, which regulates the risk management processes of management companies (SGIIC), is modified to add a reference to the necessary integration of sustainability risks in the management of the CII, taking into account the nature, scale, and complexity of its activities.

Fourthly, a new paragraph is added to Article 144, which regulates conflicts of interest, to add a reference to the identification of conflicts of interest that may arise as a consequence of the integration of sustainability risks in their internal processes, systems, and controls.

Finally, a new paragraph is added to Article 148, which regulates due diligence in the selection and permanent monitoring of investments. In this case, it is established that SGIICs or CIIs must evaluate the exposure of each CII to sustainability risks and take into account the main adverse impacts of investment decisions on sustainability factors.

III

This royal decree responds to the principles of necessity, effectiveness, proportionality, legal certainty, transparency, and efficiency.

Regarding the principle of necessity, the royal decree contributes to keeping the regulations applicable to the management of funds and investment companies up to date, which is an activity in permanent development and evolution. As for the principle of effectiveness, this royal decree is the appropriate instrument to carry out the transposition of Commission Delegated Directive (EU) 2021/1270, with which sustainability risks are integrated into the processes, systems, and internal controls of collective investment institutions and, where applicable, their management companies. It is also the appropriate instrument to adapt at the regulatory level the modifications introduced by Law 18/2022, of September 28, on the creation and growth of companies, and Law 6/2023, of March 17, on Securities Markets and Investment Services, as well as to introduce the modifications described above in the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions. Indeed, the changes through this royal decree are the appropriate instrument to meet the pursued objectives of increasing the attractiveness of the Spanish legal regime for collective investment institutions and reinforcing investor protection in collective investment institutions.

As for the principle of proportionality, the measures to promote the attractiveness of the collective investment regime in Spain are introduced guaranteeing at all times that the adequate protection of the investor is not undermined. On the other hand, the modifications resulting from the transposition of Delegated Directive (EU) 2021/1270 impose additional obligations on management companies but are necessary to adequately integrate risks and sustainability factors into their functions.

The principle of legal certainty is safeguarded, insofar as the changes in this royal decree guarantee coherence with higher-ranking laws. Indeed, the changes introduced through the Law on the Creation and Growth of Companies and in the Law on Securities Markets and Investment Services into Law 35/2003 and into Law 22/2014 require the corresponding regulatory adaptation to guarantee normative coherence. On the other hand, the modifications regarding the integration of sustainability risks adhere to the necessary transposition of Delegated Directive (EU) 2021/1270.

In application of the principle of transparency, during the public hearing phase held between July 1 and 16, 2020, interested parties had access to the draft of this regulation on the website of the Ministry of Economic Affairs and Digital Transformation.

During the processing of the royal decree, reports were requested from the General Technical Secretariats of the Ministry of Justice, the Ministry for Ecological Transition and the Demographic Challenge, the Council of Consumers and Users, as well as from the Ministry of Economic Affairs and Digital Transformation, while reports were also received from the CNMV and the Bank of Spain. Subsequently, between September 19 and 28, 2023, a second hearing was held in which interested parties had access to the draft of this regulation on the website of the Ministry of Economic Affairs and Digital Transformation. New reports were also requested from the Bank of Spain and the CNMV, and reports from the Ministry of Economic Affairs and Digital Transformation were received.

Finally, regarding the principle of efficiency, this law imposes no additional administrative burden that is not strictly necessary to comply with the obligations derived from Delegated Directive (EU) 2021/1270.

By virtue thereof, upon proposal of the Minister of Economic Affairs and Digital Transformation, with the prior authorization of the Ministry of Finance and Public Function, in accordance with the Council of State, and after deliberation by the Council of Ministers in its meeting on November 7, 2023,

I HEREBY ORDER:

Sole Article. Modification of the Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions, approved by Royal Decree 1082/2012, of July 13.

The Regulation developing Law 35/2003, of November 4, on Collective Investment Institutions, approved by Royal Decree 1082/2012, of July 13, is modified in the following terms:

One. Article 4, paragraph 3, is modified with the following wording:

"3. Whatever the form of representation of the participations:
a) The SGIIC, or the marketer of the participations, in the case that in the register of the management company the participations do not appear in the name of the participants, must send to each participant, at the end of the fiscal year, a statement of their position in the fund. Said statement must be sent by telematic means except when those investors who are not considered professional clients as defined in Articles 195 and 195 of Law 6/2023, of March 17, on Securities Markets and Investment Services, do not provide the necessary data for this purpose or when they manifest in writing their preference to receive them physically, in which case paper versions will be sent to them, always free of charge and without any cost. The management company may inform its current clients that an automatic change to electronic communication will occur if they do not request the continuation of the sending of information in paper within a period of eight weeks counting from the day on which the management company sent the communication to the client. The position statement must contain, at least, information relating to the date of the transaction and the identity of the institution, as well as of its management company and its depositary and of the participant or shareholder, and any additional information determined by the CNMV. b) The SGIIC of an investment fund may, without prejudice to the right of participants to obtain the certificates referred to in letter a) of the previous paragraph, use, as a management document, receipts by means of which participants are informed of the position they hold in the fund after each of their transactions."

Two. Article 5, paragraph 3, is modified with the following wording:

"3. In investment funds of a financial nature, the management fee shall be established based on their assets, their returns, or both variables. Generally, management fees that, in annual terms, exceed the following limits shall not be received:
a) When the fee is calculated solely based on the assets of the fund, 2.25% thereof. b) When calculated solely based on results, 18% thereof. c) When both variables are used, 1.35% of the assets and 9% of the results.
When all or part of the management fee is calculated based on results, all net returns obtained, both realized and unrealized, shall be considered, and the established limit shall be applied once the fee itself is deducted.
The management company must articulate a system for allocating fees on results that prevents a participant from bearing fees when the net asset value of their participations is lower than a previously reached value by the fund and for which they have borne fees on results. To this effect, they may opt for one of the following alternatives, specifying the chosen system in the prospectus:
1st. Allocate the management fee on results to the fund only in those fiscal years in which the net asset value is higher than any other previously reached in fiscal years in which there was a fee on results. The maximum net asset value reached by the fund will bind the SGIIC for periods of at least three years.
2nd. Articulate a system of individual charge to each participant of the fee on results, so that they bear the cost based on the result of their investment in the fund, respecting the maximum limits established in paragraphs b) and c). The SGIIC may make interim settlements of the fee on results payable while the investor maintains their participation in the fund.
The prospectus and the semi-annual report, as well as any publication relating to the fund, must prominently warn that the net asset value of the fund and, therefore, its profitability, does not reflect the effect derived from the individual charge to the participant of the management fee on results. Likewise, the prospectus and the semi-annual report will include information on interim payments that, where applicable, the investor makes. The participant's position statement will contain detailed information on such aspects in the terms determined by the CNMV.
The Head of the Ministry of Economic Affairs and Digital Transformation and, with their express authorization, the CNMV may modify the duration of the period referred to in the first alternative. Likewise, they may establish the circumstances and requirements under which the established duration may exceptionally not be respected. Likewise, they may set maximum periods for the application of the individual charge system, as well as the requirements for its modification. In the same way, they will establish the information obligations to participants that SGIICs must comply with, such as the possibility of exercising the right of withdrawal or the information included in the investment fund prospectus. The Head of the Ministry of Economic Affairs and Digital Transformation is authorized to vary the percentages established in letters a), b), and c) of paragraph 3 up to a maximum of 25% of the respective limits."

Three. Article 13 is modified with the following wording:

"Article 13. CNMV Registers in matters of CII.
The following registers related to CIIs, SGIICs, and depositaries shall be kept at the CNMV, with the sections and subsections that are necessary:
a) Register of harmonized financial investment companies or SICAV. b) Register of harmonized financial investment funds or FI. c) Register of non-harmonized financial investment companies or SICAV. d) Register of non-harmonized financial investment funds or FI. e) Register of real estate investment companies or SII. f) Register of real estate investment funds or FII. g) Register of free investment CIIs or IICIL. h) Register of free investment CII of CIIs or IICIICIL. i) Register of CII management companies or SGIIC. j) Register of CII depositaries. k) Register of delegated management entities or sub-managers. l) Register of other CIIs. m) Register of prospectuses, periodic reports, and audits. n) Register of key information for the investor. ñ) Register of foreign CIIs marketed in Spain. o) Register of foreign management companies operating in Spain. p) Register of material events. q) Register of agents and authorized representatives of SGIIC. r) Register of external experts performing the func