1 What is the scope of Article 19 of the RDL and what types of entities does it affect?
Article 19 of the RDL refers to contracts for the provision of banking services, securities or investment services, insurance or other financial services, in which an entity provides services in Spain while domiciled in the United Kingdom and authorised or registered by the competent authority of the United Kingdom.
Consequently, in view of the competences that the CNMV has in the area of authorisation of new entities, the following must be understood to fall within the scope of Article 19 of the RDL: Investment Firms, the collective investment scheme management companies (SGIIC) and closed-ended collective investment scheme management companies (SGEIC) of the United Kingdom (hereinafter, the Entities) that provide investment services in Spain either under the freedom to provide services or by means of establishment (understood as such, branches and tied agents domiciled in Spain).
2 What is meant by authorisation or registration initially granted by the competent British authority?
Article 19(3) of the RDL determines that the authorisation or registration initially granted by the competent British authority to Entities will remain provisionally valid for a period of nine months following the withdrawal of the United Kingdom from the European Union.
Article 19 of the RDL must be understood as referring to the entities stated in question 1 authorised by the competent United Kingdom authority that are using the so-called "European passport" to provide the services in Spain, i.e. for which said authority has, prior to the actual departure of the United Kingdom, sent to the CNMV the notification laid down in Article 341 (freedom to provide investment services and activities) or Article 352 (establishment of a branch or use of a tied agent) of Directive 2014/65/EU; in Articles 17 (establishment of a branch) or 18 (freedom to provide services) of Directive 2009/65/EU3; or in Article 33 (management under the freedom to provide services or through the establishment of a branch) of Directive 2011/61/EU4.
3 Once the RDL enters into force, what are the limitations to the provision of investment services and ancillary activities of the entities in Spain?
After the withdrawal of the United Kingdom from the European Union, Article 19 of the RDL determines that the Entities will be subject to the regime established in the regulation for third-country companies.
To ensure that this does not interfere with the management of contracts entered into with clients prior to the effective withdrawal of the United Kingdom from the European Union, in the event that authorisation is required, it is accepted that the effects that, in accordance with the European passporting system, the authorisation granted by the United Kingdom had at the time, continue to be partially valid while the application for a new authorisation is being processed, for a maximum of nine months after the withdrawal of the United Kingdom from the European Union.
The same temporary regime is applicable in the event of not applying for a new authorisation, but only to the extent that the management is aimed at encouraging the orderly relocation or termination of contracts.
In any event, this partial temporary extension of the effects of prior authorisations will only allow the management of contracts signed prior to the United Kingdom’s departure date but will not cover new activities.
Nor will it provide coverage for renewing contracts or introducing amendments that involve the provision of new services in Spain or that affect essential obligations or for entering into new contracts.
4a What type of authorisation can be requested in order to apply this transitional regime that enables continuing to provide investment services in Spain on a limited basis after this period has elapsed?
Article 19(3)(b) of the RDL provides for the possibility for Entities requesting authorisation in Spain under any of the regimes established in current legislation, including authorisation for the creation of a subsidiary.
4b What regimes would allow entities to continue operating in Spain indefinitely?
Once the United Kingdom leaves the European Union, Entities may continue to operate in Spain, subject to prior authorisation, either indirectly, by setting up an affiliated investment firm, in accordance with the provisions of Chapter II of Title V of the Recast Text of the Spanish Securities Market Act (hereinafter, LMV) relating to investment firms, or under the regime of third States, regulated in Section 2 of Chapter III of Title V of the LMV (Articles 171 and 173) and in Section 2 of Chapter V of Title I of Spanish Royal Decree 217/2008 of 15 February (Articles 28 ter and 29 bis, ter and quater). In the case of third countries, they must request the corresponding authorisation depending on whether the provision of investment services in Spain is carried out through the opening of a branch or under the free provision of services system. Another option is to be authorised in any of the ways provided for in European legislation by the authorities of another Member State of the European Union and to notify this circumstance to the Spanish authorities in accordance with the European passporting system.
It is worth recalling that the third-country regime requires, in any event, the opening of a branch where a company from a third country intends to provide investment and ancillary services in Spain to retail and professional clients under Article 206 of the LMV, and that the CNMV may also require, on the basis of the volume of activity, the complexity of the products or services or for reasons of general interest, that a third-country firm establishes a branch even if it intends to trade only with eligible counterparties and professional clients per se (as provided in Article 205 of the LMV). The CNMV considers that the normal scenario will be the requirement to establish a branch.
5 Once RDL 5/2019 comes into force, what will be the limitations on the collective portfolio management activity (CIS and venture capital firms) of Entities in Spain?
Once the RDL comes into force, Entities that are carrying out collective portfolio management activities or providing any other investment service permitted by current regulations will be subject to the regime established for third-state entities.
However, in order to facilitate their adaptation to the new regulatory framework, they will also be subject to the nine-month transitional regime following the withdrawal of the United Kingdom from the European Union, provided that authorisation is required for the management of contracts signed prior to that date, with the aim of either terminating or orderly transferring them to a duly authorised entity or requesting authorisation in Spain to continue their activity, either directly or through a subsidiary.
Nevertheless, this transitional period will not cover the signing of new contracts, the renewal of contracts previously entered into, or the modification of the activities carried out by the Entities, nor the modification of the essential obligations of the parties to said contracts.
6 What systems are in place in Spain for collective portfolio management companies?
In the event that it is decided to request authorisation to carry out the activity of the management companies in Spain, the Entities may do so in three ways:
By setting up a management company. In the event that the management company carries on the activities of a collective investment scheme management company, this shall be done in accordance with the provisions of Title IV, Chapter II of Law 35/2003, of 4 November, on Collective Investment Schemes. However, in the case of activities reserved for closed-ended collective investment scheme management companies, this will be in accordance with Title II, Chapter I of Law 22/2014, of 12 November, regulating venture capital firms, other closed-ended collective investment schemes and management companies of closed-ended collective investment schemes, and amending Law 35/2003, of 4 November, on Collective Investment Schemes.
Providing free provision of services with or without a branch. To do so, they must apply for the authorisation provided for in Article 56(1) of Law 35/2003, of 4 November, on Collective Investment Schemes and developed by Article 125 of Royal Decree 1082/2012, of 13 July, approving the Regulation implementing Law 35/2003, of 4 November, on Collective Investment Schemes. To date, the CNMV has not granted any authorisations of this type.
Another option is to be authorised in any of the ways provided for in European legislation by the authorities of another Member State of the European Union and to notify this circumstance to the Spanish authorities in accordance with the European passporting system.
7 Services provided in performance of or under contracts with lengthy terms or of an ongoing nature between the entity and the client
Article 19 of the RDL refers exclusively to the services provided by the Entities to their clients under registered contracts with lengthy terms or of an ongoing nature, thus excluding from the scope all those services that may be provided occasionally or on a one-off basis, outside the scope of a contract that corresponds to a lasting relationship between the entity and the client.
For example, portfolio management, investment advice or custody services may continue to be provided for the period and for the purpose indicated in Q3 under the terms set forth in the contract entered into, as the authorisation or registration initially granted by the competent British authority remains provisionally in force for the nine-month period after the withdrawal of the United Kingdom. This should also be highlighted in relation to services such as the reception and transmission of orders provided under a contract concluded prior to the withdrawal of the United Kingdom that establishes the system applicable to the regular relationship between the entity and the client with regard thereto, providing that immediately prior to such withdrawal the relevant services were being provided effectively and regularly.
In the absence of such a prior contract, however, services such as the receipt and transmission of orders, financial derivative transactions or investment advice under the established provisional nine-month regime (even if they have been provided in the past) may not be provided on a one-off basis.
8 Must the Entities send a notification to the CNMV informing beforehand which of the options envisaged in Articles 19(3)(a) and 19(3)(b) they are going to opt for?
The system of continuity of contracts laid down in Article 19 of the RDL does not provide for any type of prior notification by the Entities to the CNMV.
As indicated in Article 19(3)(b), Entities that choose to apply for authorisation in Spain under any of the regimes provided for in current legislation must simply submit the relevant authorisation application to the CNMV.
9 Is the authorisation procedure established in the CNMV Welcome Programme applicable only to companies wishing to relocate in Spain or also to the provision of services without a physical establishment?
The CNMV will apply the authorisation system provided for in the Welcome Programme to both subsidiaries and branches, but not to those entities that simply intend to operate under the free provision of services regime and, therefore, do not have a physical presence.
10 Regarding the period for requesting authorisation in Spain under any of the regimes provided for in the legislation in force, from what date must the period of provisional validity of the original authorisation be counted, from the date on which the no-deal Brexit happens or from the date on which the authorisation is requested?
Entities may request authorisation in Spain at any time.
The provisional validity will end when the requested authorisation is rejected and, in any case, nine months after the no-deal Brexit takes place. The same applies if the application for authorisation is submitted after the no-deal Brexit takes place.
The only special condition in this case would be that, during the time between the no-deal Brexit and the date of application for the new authorisation, the entity may only have acted for the purpose of carrying out, in accordance with the contractual clauses, the orderly termination or assignment of the contracts to a duly authorised entity.
11 What Guarantee Fund covers operations carried out during the nine-month transitional period established in the RDL?
In order to benefit from the provisions contained in the RDL regarding the transitional period, it is an unavoidable requirement that clients be covered by an investment guarantee fund. If this coverage is not provided by British institutions, the entity providing the services must adhere to the Spanish FOGAIN (investment guarantee fund). Otherwise, the CNMV will require the immediate closure of positions and termination.
12 What happens after the transitional period?
12 a) Access to UK and EU trading venues
The Spanish legal framework does not establish any requirement that Spanish entities must meet in order to be members of third-country markets.
With regard to the reverse situation (access to Spanish trading venues by remote third-country members), Spanish legislation does not provide for requirements other than those established for members domiciled in the EU. The CNMV supervises compliance with the membership requirements established in Article 69 of the LMV and in the relevant market regulations.
UK firms shall not be required to request a newauthorisation to execute client orders or to deal on their own account tocontinue being participants of the Spanish securities market, as thiscircumstance was already included in the authorisation initially submitted.
12 b) Direct Electronic Access (DEA)
After the transitional period, the question arises as to whether British investors will be able to avail of DEA access provided by members of Spanish markets.
In this case, the CNMV considers that it will not be necessary for UK-domiciled DEA users to be an IF authorised by a member country in accordance with MiFID II in order to continue to use the services of the Spanish markets via DEA access.
With regard to the DEA access provider, under MiFID II it must have the status of IF.
12 c) OTC Trading
The entities may continue to trade OTC with securities that do not have to comply with the trading obligation, during the transitional period with Spanish entities.
With regard to OTC trading of derivatives, entities may continue executing OTC derivative transactions with counterparties with whom they had outstanding transactions or pre-existing agreements during the transitional period, in the event that the new transactions are the direct result of, they do not entail essential amendments to, or are not expressly provided for in the pre-existing agreements, as they are not considered to be new agreements.
In any event, during the transitional period and after the end thereof, any transactions carried out at the sole initiative of the European (Spanish) party shall not require the counterparty located in the United Kingdom to have a licence in the EU, hence, of course, it includes the case of two regulated firms wishing to engage in interbroker-dealers activities if the Spanish firm is the one that requests the closing of a transaction with the UK broker-dealer.
12 d) How does Brexit affect the marketing in Spain of UCITS domiciled in the UK or Gibraltar and AIFs domiciled in or with management companies in the UK or Gibraltar upon the effective withdrawal of the UK from the European Union?
In accordance with Article 19(1) of the RDL, both UCITS and AIFs will continue in the register of cross-border CISs marketed in Spain, in accordance with Directives 2009/65/EC and 2011/61/EU during the nine-month transitional period after the no-deal Brexit date. As of this date, the CNMV shall not process any requests for passporting received from the UK, and any such requests shall be subject to the third-country regime.
After the end of the nine-month period, any UCITS or AIFs which have not regularised their situation (by requesting authorisation for the marketing thereof in accordance with the provisions for third countries, by merging with EU firms or requesting de-registration from the relevant register) shall be subject to ex officio de-registration by the CNMV. In any event, during this transitional period, and until the firm’s situation is not regularised, the firm may not engage in marketing activities.