The final texts of the four Royal Decrees that complete the reform of the regulation left out many proposals that were included in the drafts published in September and which the experts feel are missing.
On 19 November, four Royal Decrees were published in the Spanish Official State Gazette (BOE) that develop and complete the reform of the Spanish Securities Market Act and other ordinary laws such as the Law for the Creation and Growth of Companies, approved in 2022. The final texts left out many proposals that were in fact part of the drafts published in September. These improvements have not been included due to the observations made by the Council of State on the limitations affecting the rule-making powers of an acting government. Two of these four royal decrees leave out proposals that the sector considers vital. The participants of the 29th FundsPeople Legal Debate focused on these issues.
Elisa Ricón, CEO of Inverco, admitted that the new Spanish Royal Decree 816/2023 amending the Regulations of the Law on Collective Investment Institutions "has come as an unexpected shock to the sector", as "it has only included what was a legal adjustment or transposition of directives, but there were many ongoing projects that have been left out, such as making the marketing system of the Free Investment Collective Investment Institutions (IICIL) more flexible, when many institutions had already prepared their projects accordingly", she said.
The draft of this Royal Decree adjusted the minimum lock-up periods, eliminating the current maximum quantitative limit of one year and replacing it with periods of duration that could be adapted to the specific nature and liquidity of the invested assets.
In addition, the draft also gave greater flexibility to the marketing system of IICIL for non-professional investors in order to assimilate it to the system that the law creates and develops for venture capital institutions. In this regard, Francesc Cholvi, a lawyer at Garrigues, pointed out that ultimately the restriction on the marketing of IICILs, which invest in debt instruments for non-professional investors, has not been eliminated.
"This liberalisation was something that the sector was demanding. Many entities were eagerly awaiting this like a breath of fresh air", explained Cholvi. "The measures are insufficient to meet the needs of firms", added Leovigildo Domene, Director of Deloitte Legal.
Lack of competitiveness
All these issues, and many others, have been demanded by the sector for years. The fact that they have not been included does a disservice to the Spanish market. "We are creating an industry for domestic investment only, with no foreign component. It saddens me because there are tremendous competitive differences with respect to other countries", assured Salvador Ruiz, partner at Allen&Overy.
A view shared by Domene of Deloitte Legal: "It is necessary to implement measures that already work in our neighbouring countries, such as Luxembourg, where these products can be freely defined and structured. Products are created in an orderly, efficient and relatively agile manner", declared the lawyer.
There is another aspect that has also been omitted with regard to the fees and commissions system. "The charging of custody fees to marketers remains limited where the marketer belongs to the same group as the fund manager. This represents a lost opportunity to address the current comparative disadvantage by discriminating against a type of institution that is one of the main drivers of the collective investment industry in Spain, with the benefits that this entails for savers by facilitating their access to professionalised management", stressed José Carlos Sánchez-Vizcaíno, Director of Depositary Supervision at Cecabank.
With regard to the costs, Ruiz, from Allen&Overy, declared that "regulators are too obsessed with retrocessions, when the sector's efficiency levels are good". If the price is driven lower and lower, there is a risk of "more automation or worse service", he warned.
A view shared by Ricón, from Inverco: "Institutions are engaged in an ongoing process of adaptation to numerous regulations that entail higher costs, such as the sustainability regulation, the implementation of DORA, the settlement of T+1, which requires automation, etc. The commitment towards improvement is embedded in all the rules, but the reality is that the downward pressure on prices with rising costs is driving the concentration of the sector across Europe, with the risk that only the large institutions will be able to hold on", he warned.
Unresolved issues
The Royal Decree amending the Regulations of the Law on Collective Investment Institutions has also ruled out eliminating the requirement of a 1% liquidity ratio for CIIs. "The opportunity to harmonise the Spanish industry with other jurisdictions has been wasted, especially considering that since 2022 we have had the CNMV's Technical Guide 1/2022 focused on providing the sector with mechanisms to manage liquidity", added Sánchez-Vizcaíno.
The Royal Decree on the Legal System applicable to Investment Services Firms is also deficient. "Fund managers are increasingly looking to consultancy as a new avenue of business. To do so, by definition, they have to be adhered to the Fogain. Fixed adhesion fees are a new barrier to entry for fund managers. There was a provision in the draft that reduced this fixed annual amount, but this proposal has been left out. It is a missed golden opportunity", regretted Cholvi, from Garrigues.
Now, if they want to include amendments to this Securities Market Act, they would need to initiate the process, although experts expect this law to be passed as a matter of urgency. Along these lines, Cecabank's Sánchez-Vizcaíno suggested that this could be used as an opportunity to resume securities lending so that Spanish CIIs can access the benefits of such operations. This is something that is allowed in other EU countries. In fact, the CNMV has taken a favourable position on this issue in order to move towards European harmonisation and overcome Spain's competitive disadvantage", he claimed. Ricón, from Inverco, recalled that "one option is to amend article 30 of the CII Law and directly allow the CNMV to regulate securities lending, in line with other authorisations that already exist in the law".
