October 2011

financial LAW

The law 31/2011 of october 4, of reform of law 35/2003, on collective investment SCHEMES

Following the adoption of Directive 2009/65/EC of the European Parliament and the Council (the “Directive”), on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities, Spain has amended Law 35/2003, on Collective Investment Schemes. This circular will analyse the most relevant novelties introduced by Law 31/2011 (the “Law”), which has been published in the Spanish Official Gazette (BOE) on October 5, 2011 and will enter into force on the following day.

1.Rules for cross-border marketing of shares of Collective Investment Schemes

1.1 Collective Investment Schemes harmonised according to the Directive

Generally speaking, the regime of cross-border marketing of shares and Collective Investment Schemes (“CIS”) harmonized according to the Directive (“UCITS”) has been simplified.

In this regard, the marketing in Spain of UCITS will be permitted from the time a notification from the national supervisor has been filed with the National Securities Market Commission (the “CNMV”). The filing must comprise the following documentation (i) notification letter with information on the provisions and planned types of marketing of the shares or units in Spain and, as the case may be, of the share classes, (ii) the UCITS rules or its articles of incorporation, (iii) the prospectus, (iv) the last annual report and, where appropriate, its latest annual report and any subsequent half-yearly report, (v) the key investor information document (the “KIID”) and (vi) the attestation that the UCITS fulfils the conditions imposed by the Directive.

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1.2 Non-UCITS

On the other hand, the marketing of the shares and units of non-UCITS in Spain requires providing evidence in advance to the CNMV of the following:

a) That the Spanish legislation regulates the same category of CIS as that of the foreign scheme and that the CIS is subject in its home Member State to a specific legislation which protects the interests of share and unitholders similar to that of the applicable Spanish legislation.

b) Positive report of the competent authority of the home Member State which is entrusted with the control and supervision of the CIS with respect to the performance of its activities.

Once the above has been evidenced, the CIS must fulfill the requirements below:

a) Filing and registration with the CNMV of the documents which evidence that the CIS and the shares, units or securities which represent its capital or estate are subject to the relevant legal regime (legislation of place of origin).

b) Filing and registration with the CNMV of the financial statements of the CIS and its corresponding audit report, drafted in accordance with the legislation applicable to the CIS.

c) Filing and registration with the CNMV of a prospectus and a KIID, as well as its publication.

All of the above documents must be provided together with a sworn translation into Spanish.

In order for the CIS to market its shares or units in Spain it must be previously authorized for such purpose by the CNMV and registered in the corresponding registries of the CNMV.

The authorization may be rejected on the grounds of prudence, because (i) the Spanish CIS are not granted an equivalent treatment in the home Member State, (ii) the compliance with the rules on the discipline and order of the securities market cannot be guaranteed, (iii) the protection of the investors resident in Spain cannot be sufficiently guaranteed or (iv) there may be distortions in competition between those CIS and CIS authorised in Spain.

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2.1.Documentation required to foreign CIS

CIS shall provide the investors domiciled in Spain with all the information and documentation that, according to the law of its home member State, should be provided to investors domiciled in such State. This information shall be provided in the manner set forth in the Law and its development regulations.

The prospectus and the annual and semi-annual reports, as well as their modifications, shall be filed in Spanish, or in a language customary in the sphere of international finance, or in any other language accepted by the CNMV.

The translation of the information referred to in the above paragraphs shall be made under the responsibility of the CIS and shall accurately reflect the content of the original information.

The CIS shall inform the CNMV in writing and in advance in the event of a modification of the information notified regarding the planned types of marketing of shares or units, or in relation to their classes to be marketed.

CIS shall also communicate to CNMV any modification of the documents enclosed with the notification letter and shall as well inform of the website where these may be obtained in electronic format.

In connection with the advertising, the Law establishes that “every advertisement promoting the buying of shares or units of a CIS must indicate the existence of the prospectus and the KIID, and the places and ways in which the public may obtain or have access to them”.

2.2.Key Investor Information Document

As provided in the Directive, the Law proposes the replacement of the simplified prospectus with the the KIID as one of the required information documents.

The following data should be provided in a fair, clear and accurate manner:

a) identification of the Collective Investment Sheme;

b) brief description of objectives and investment policy;

c) presentation of historical returns or, if necessary, investment return scenarios;

d) associated costs and expenses; and

e) pay or risk profile of the investment, with appropriate guidelines and warnings regarding the risks associated with the investments of the CIS.

The document shall contain a statement of where additional information can be obtained on the proposed investment, particularly the prospectus and financial reports, and the language in which this information is available to investors.

Law specifies that no liability will be incurred as a result only of the data of the KIID, or any translation thereof, unless they are misleading, inaccurate or inconsistent in relation to the corresponding parts of the prospectus." The CNMV must be notified of any modification.

The KIID and its amendments shall be drafted in Spanish or another language accepted by the CNMV.

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3.New developments regarding the managing companies of CIS (“MCCIS”)

3.1.MCCIS domiciled in other Member States

MCCIS domiciled in other Member States are allowed to operate, provided they are authorized in their home Member State in accordance with the Directive. The only requirement of the CNMV in these cases will be (i) to submit a written agreement with the depositary of the CIS to regulate the flow of information that it needs to fulfill its obligations and (ii) to provide information on delegation arrangements regarding management and administration of the CIS.

The Law also provides the possibility of collaboration with the supervisory agencies of other Member States for activities such as collecting information on MCCIS domiciled in its territory, or notify revocations of authorisations.

Each new authorisation granted by the CNMV must be notified to the newly created European Securities and Markets Authority. Furthermore, the CNMV may suspend, restrict or reject, as appropriate, any authorisation for a MCCIS to be controlled by entities resident outside the EU when the country where such entity is resident does not offer the same competition conditions for EU companies. The authorisation will expire if registration with the CNMV is not requested within one year of its granting.

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3.1.1.New cause for refusal of the authorisation

The existence of severe conflicts of interest between the positions of the members of the board of the MCCIS and any other positions that they may hold simultaneously.


According to article 13 of the Directive, Spain allows the outsourcing of services and functions of the MCCIS. In such cases, the MCCIS will have to submit the appropriate documentation to report on the functions that are to be subcontracted or outsourced, so it is clear that the authorisation is not distorted by these practices.

3.1.3.Share certificates

Regarding the rules of conduct that Article 14 of the Directive leaves to the discretion of the Member States, there is a new obligation of the MCCIS to issue certificates of shares in investment funds that are represented through such instrument. In the case of shares represented by account entries they may also require the issuance of the certificates referred to in article 12 of the Securities Market Law by the agencies responsible for accounting, for and on behalf of the shareholders. This shall not apply in the event that the shares are listed in the register of shareholders of the MCCIS on behalf of the shareholder, identified through its fiscal number and by the trading entity, in which case the trading entity itself will be in charge of issuing the certificate of each shareholder. In such case, the MCCIS shall issue, for each trading entity, a certificate of the shares traded by the trading entity.

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3.1.4.Procedure for revocation

A new obligation for the CNMV is included, which is to consult the competent authorities of the home Member State of the CIS before revoking the authorisation. It also sets a six-month deadline of for the resolution of the administrative proceedings.

Three new cases of revocation of authorisation are also established:

a) The serious and systematic breach of obligations in relation to the registries.

b) Failure during a three month period to comply with the obligations related to the Deposit Guarantee Scheme.

c) Existence of an audit with a negative opinion.

The withdrawal of the authorisation of an MCCIS in another Member State will result in the CNMV taking immediate steps to prevent the initiation of new activities in Spain and to safeguard the interests of the investors.

In the event that the revocation falls on a MCCIS residing in a non-Member State, the branch will also have its authorisation revoked.

3.1.5.Suspension of the authorisation

Three new grounds for suspension are added, which are not mentioned in the Directive:

a) The breach of obligations in relation to the registries.

b) The failure to comply with obligations with the Deposit Guarantee Scheme.

c) The insolvency of the MCCIS.

3.1.6.Prior authorisation for certain corporate operations

The transformation, merger, split-up and spin-off of a business unit, and other corporate structural transactions performed by a MCCIS or leading to the creation of a MCCIS, shall require prior authorisation, with any adaptations that may be set out in the regulations.

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3.2.Cross-border activity of a MCCIS

3.2.1.MCCISs authorized in Spain

The marketing in other Member States of shares or units of CISs authorised in Spain by a MCCIS authorised in Spain will only require submitting the same information as set out in the first paragraph. The CNMV will forward the information to the competent supervisory body of the Member States affected, also including a certificate that the MCCIS is authorised under the Directive. Some new provisions for the latter companies are included:

a) The MCCIS must establish procedures for making relevant information available to the public and the authorities of the home Member State of the CIS.

b) Compliance with the obligations imposed by the regulations of the host Member State.

c) The CNMV must inform the competent regulators of the Member States regarding the CIS which are  to be managed by MCCIS authorised in Spainwithin ten days, if so requested.

d) The CNMV may request prospectus and financial reports of the CIS managed by MCCIS authorised in Spain.

e) If any problems in the MCCIS are detected, the CNMV will notify the authorities of the Member States of origin of the CIS.

3.2.2.MCCIS acting in Spain authorised in another Member State

If the management entity does not operate in Spain through a branch and merely aims to market shares or units of a CIS authorised in a Member State other than Spain, the requirements to be fulfilled will be only those established in Article 15 of the Law (referred to marketing of shares or units of CIS)

Nevertheless, when the management entity operates through a branch established in Spain or on a freedom to provide basis then it must follow, in any case, the Spanish regulations concerning:

a) establishment and authorisation of CIS;

b) the issue and redemption of shares;

c) policies and limits on investment, including the calculation of overall risk and leverage;

d) restrictions on leverage; share loans and overdraft sales;

e) valuation, accounting and calculation of the liquidation value, as well as the errors in calculation and the subsequent amendment;

f) distribution or reinvestment of profits;

g) requirements regarding disclosure of information, in particular in the prospectus, the KIID and periodic reports;

h) marketing;

i) relationship with shareholders;

j) merger, restructuring, reorganisation and winding-up of the CIS;

k) contents of the register of shareholders;

l) payment of fees for the authorisation and supervision of the CIS and the exercise of voting rights by the shareholder and any other rights derived from the aforementioned areas.

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4.Depositary’s liability

In accordance with Article 34 of the Directive, the responsibility of the depositary in relation to the      CIS and its shareholders remains subject to regulation by the Member States. In this regard, Spain has imposed a new obligation on depositaries to notify the CNMV, after a prior request, of any information acquired in the course of their duties that the CNMV may request in order to monitor regulatory compliance by the CIS.

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5.New developments in structural changes

Although the Directive only addresses mergers, the Law has included some new rules regarding other structural changes:

a) The Law further develops provisions related to merger transactions, in which two deadlines are modified. Firstly, the communication to the shareholders of the CIS regarding the authorisation for a merger of investment companies will be carried out “after the deposit of the merger agreement” (formerly it was 10 days from the date of the filing of the merger agreement with the Commercial Registry). Secondly, a merger of Investment Funds may now be executed within 40 days instead of “within one month” from the date of publication of the significant event notice in the Spanish Official Gazette (BOE) and in two national newspapers. Furthermore, the merger agreement must be issued by the management companies themselves and therefore the consent of the depositary is not required. The merger projects undertaken by investment funds must also be published on the website of its management company.

b) Investment companies are not required to seek prior approval from the CNMV to become companies that do not have the status of CIS.

c) In the case of companies, notification of such a conversion may be made by publication in the web page of the management company or in two newspapers of the province with significant circulation; or by an individual communication to all shareholders.

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6.New developments in marketing of Investment Funds.

Article 40.3 states that, with regard to trading in shares of investment funds, the last mentioned shares must appear, in the shareholders’ registry of the management company as in the name of the owner. The owner must be identified by its tax identification number and indicate the  distributor through which the shareholder has acquired the shares. The distributor will maintain a registry of all shareholders who have subscribed for shares through it.

In relation to the above, some additional requirements are set out: they refer to the duty of the distributor to communicate the subscription and redemption of shares to the management company; identifying all the shareholders and submitting any required information about them. In addition, the Law provides that future regulations may be issued on the possibility of entrusting one single trading entity with the centralised registry of shareholders of a CIS in the event its shares were traded through more than one trading entity. The “entrusted entity” will carry out the following:

a) Apply the appropriate deduction and pay the amount to the Treasury as a consequence of the transfer or redemption of shares which make up the overall share capital of the CIS as provided by the Law on Income Tax for nationals, foreigners and corporations.

b) Advise the Tax Authorities regarding transactions involving shares in the CIS in compliance with the provisions of the Law on Income Tax for nationals, foreigners and corporations.

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7.Supervision and inspection of CIS authorised in other Member States

The powers of the CNMV in this area are widened, in accordance with the Directive, to meet the new rules on authorised CIS in other Member States but marketed in Spain.

The collaboration mechanisms allowed in Article 101 et seq. of the Directive are established for the transfer of information between supervisory regulators of different Member States. This includes the possibility of carrying out verifications or investigations within the territory of another Member State or to request the competent authority to carry them out by itself. The CNMV may only reject such a request for cooperation in cases in which it may be detrimental to public policy or sovereignty, or if there are legal proceedings or final judicial decision on the same facts and the same persons in Spain.

In any event, the CNMV may take appropriate measures to protect investors in Spain, including the prohibition against continued marketing, if it considers that the actions of the authorities of the home Member State are inadequate, without prejudice to the possibility of issuing a complaint before the European Securities and Markets Authority if the authorities do not collaborate sufficiently.

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8.Areas not amended

Numerous provisions of the Directive which grant discretion for transposition by Member States have not been addressed by the Law, since they are to be implemented in future regulations, or have already been regulated. Some of the most important are:

a) The possibility to dispense with the depositary in some cases (not regulated).

b) Merger procedure (provided for under the Law on Structural Changes).

c) Establishment of techniques and limits to the investment policy of CIS (already regulated in Royal Decree 1309/2005).

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9.New CNMV Circular on the information to be provided by foreign CISs

The CNMV published Circular 2/2011, which entered into force last July to replace Circular 2/2006. Its wording is similar, although certain new features are introduced:

a) The information to be submitted to the home Member State pursuant to paragraph B of the notification letter in Annex I to Regulation (EU) 584/2010 will be:

1. Identification of the entity responsible for representing the CIS before the CNMV.

2. If the CIS is set up as a corporation, the identification of the distributor established in Spain.

3. Identification of the entity domiciled in Spain subsidiary responsible for payment of fees to the CNMV.

4. Prospective volume of sale

b) The Circular specifies the changes to be notified to the CNMV on a mandatory basis:

1. Changes in the entities referred to in the section above.

2. Registration and de-registration of distributors in Spain.

3. Changes in the details of the CIS.

4. Changes in the prospective volume of sales.

5. Deregistration of the CIS.

c) References to the simplified prospectus are reworded in order to refer to the new KIID, which will replace the simplified prospectus.

d) No mention is made of any obligation to provide sworn translations, except in the case of non-UCITS.

e) The communication of the number of shareholders in each sub-fund is no longer mandatory when this number is below 500.

f) It is no longer necessary for the representative entity to keep all documentation of concerning the CIS on files for 6 years, only the successive financial reports.

g) The marketing memorandum has changed according to a new template which the CNMV has published on its website.

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10.Changes to deadlines

The Law modifies some deadlines for certain procedures with the CNMV, including:

a) The resolution regarding the authorisation for CIS that have appointed a management company of MCCIS. The deadline has been amended from three to two months, remaining unchanged for investment institutions that have not appointed a MCCIS.

b) In the event of marketing a Spanish CIS in other Member States, the CNMV will have a period of just ten working days following receipt of documentation to submit it to the competent authorities along with a certification stating that the CIS meets the conditions laid down in the Directive. The previous deadline was two months.

c) In contrast, the time to issue a resolution regarding an authorisation to initiate a MCCIS activity is raised from three to six months.

d) Two terms referred to during a merger process for investment institutions and investment funds are modified (as explained in paragraph 5).

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The information contained in this Newsletter is of a general nature and does not constitute legal advice