## 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation ## Source details **Canonical URL:** [1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06220.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06220.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06220.pdf.json) --- ### General findings and recommendations - Spain has modernized the legal structure for financial services through amendments to Law 24/1988 of July 28 on the Securities Market (Ley del Mercado de Valores or LMV), including: - Law 37/1998 of November 16, 1998 on LMV Reform - Law 44/2002 of November 22, 2002 on Measures of Reform of the Financial System (Ley 44/2002 de Medidas de Reforma del Sistema Financiero) - Law 26/2003 of July 17, 2003 modifying the LMV - Legislative Royal Decree 1564/1989 of December 22 on corporations (Texto Refundido de la Ley de Sociedades Anónimas) - Law 5/2005 of March 11, 2005 introducing changes for conforming with the EU directive - As amended, the LMV simplifies and consolidates the laws affecting financial markets, institutions, products, and professionals. - Spanish regulatory framework: “one peak” model — prudential and conduct of business rules for investment firms and asset managers both overseen by the CNMV; Bank of Spain retains exclusive prudential oversight of credit institutions (CIs) involved in securities dealing; Ministry of Economy (ME) retains licensing roles. - Framework generally sound but could be strengthened by: - Integrating additional oversight and sanctioning capabilities into the CNMV. - Reinforcing institutional and operational independence of the CNMV. - Specific governance recommendations: - CNMV board appointments (president, vice president, non-executive members) should be for a longer term than four years and non-renewable. - Consider appointing some non-executive members from varied constituencies (e.g., academia or private sector). - Vest CNMV with power to design and adopt secondary legislation (to be promulgated by executive authorities); to grant and withdraw licenses of regulated entities; and to impose administrative sanctions for infractions of securities laws and regulations. ### Information and methodology used for the assessment - Assessment tools: - IOSCO Objectives and Principles of Securities Regulation (the Principles) - Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation (Assessment Methodology) - IMF Guidance Notes and Templates - Various IOSCO reports referenced in the Assessment Methodology and the Principles - Sources and meetings: - Meetings with ME staff; senior CNMV staff; Bank of Spain staff; BME Spanish Exchanges S.A.; selected asset management and investment firms; related professional associations - Reviewed material: annual reports; laws, regulations, and guidelines; statistics; published information on issuers; official registries; CNMV responses to IOSCO questionnaires; material submitted during on-site portion - Assessment reflects views of the mission team and the assessor. ### Institutional and macroprudential setting; market structure - BME (Bolsas y Mercados Españoles) is the holding company operating the securities markets; group components include four stock exchanges (Madrid, Barcelona, Bilbao, and Valencia), MF Mercados Financieros, Iberclear, and BME Consulting. - Key market statistics and rankings: - Market capitalization of €672 billion at end-2004, equivalent to 80 percent of Spain’s GDP. - BME became Europe’s fourth largest stock market by market capitalization at end-2004. - By total value traded, BME ranked seventh in the world in 2004. - The Spanish stock market has yielded a return of 241 percent over the last ten years. - Latibex has total market value close to €150 billion and is the third largest stock exchange in Latin American shares, after Brazil and Mexico. - Top 7 Exchanges by Total Value of Share Trading, 2004 (In billions of US dollars): - NYSE 11,618 - Nasdaq Stock Market 8,767 - London Stock Exchange 5,169 - Tokyo Stock Exchange 3,218 - Euronext 2,472 - Deutsche Boerse 1,541 - BME Spanish Exchanges 1,203 ### Description of regulatory structure and practices - CNMV governance and organization: - Autonomous public authority governed by a seven-member board (Consejo) chaired by a full-time president. - Permanent Executive Committee comprising the president, vice president and the three full-time members prepares board agenda and exercises delegated powers. - Board composition: president and vice president appointed by government in consultation with ME and experts; three other members appointed by ME; two ex-officio members include the general director of the treasury and the deputy governor of the Bank of Spain. Except for ex-officio members, board members are full-time and may not engage in other professional activities. - Consultative committee (Article 22 LMV; Royal Decree 504/2003): 17 members representing secondary markets, issuers, investors, and three Autonomous Communities; must be consulted on drafts of CNMV circulars and on imposition of sanctions for very serious infractions (but not on light and serious infractions). - CNMV scope of competence includes: - Prudential supervision of investment service providers (ESIs) - Regulation of public offerings and takeover bids - Oversight of financial information related to securities - Supervision of marketing and distribution of financial instruments - Responsibility for custodians of securities and assets of collective investment schemes, clearing and settlement systems and related custodians (without prejudice to Bank of Spain functions with respect to payment systems) - Sanctioning powers: - CNMV can sanction light or serious breaches (infracciones leves o graves). - For very serious infractions (infracciones muy graves), CNMV prepares a report and proposes a sanction for the ME to impose. - CNMV must inform Bank of Spain of any sanction it intends to apply to a credit institution (Article 97 LMV). - Licensing: - Licensing and withdrawal of licenses of investment service providers is responsibility of the ME, upon recommendation of the CNMV (Article 66 LMV). ### Coordination, cross-membership, market operators and applicable law - Day-to-day coordination with Bank of Spain organized through inter-staff contacts, information sharing, shared databases, and regular monthly meetings; CNMV maintains a registry of credit institutions involved in providing investment services updated daily by Bank of Spain. - Cross-membership: vice president of CNMV is ex-officio member of Bank of Spain board; deputy governor of Bank of Spain is member of CNMV Board. - Market operators and clearing/settlement systems monitored through protocols regarded as founded in contract law; CNMV and ME have power to impose penalties or suspend participation. - Applicable law: LMV as amended and supplemented by Royal Decree transposing Market Abuse and Prospectus directives; related company, bankruptcy, commercial, property, penal and administrative law; recognition of EEA-established firms by right of establishment or cross-border services. ### General preconditions for effective securities regulation - Spain meets preconditions including: - Legal framework supporting integrity of contract and property rights - Legal recognition of instruments traded and rules facilitating trading - Commercial and insolvency regimes facilitating collateral, clearing services, and enforcement of guarantees - Sound company law protecting direct investors - Laws supporting ability to identify and protect client assets - Reliable and consistent accounting standards - Confidence that rules will be consistently and equitably enforced notwithstanding bankruptcy of participants - Judicial, administrative, and regulatory authorities that reliably honor and equitably apply the rule of law ### Market openness and cross-border arrangements - Market regulators historically open to cross-border arrangements within the European Union, including the Lamfalussy process. - Lamfalussy process aims at better harmonizing national approaches to regulation within the single European market and broadening use of regulatory development and consultation mechanisms with the Committee of European Securities Regulators (CESR). ### Regulator responsibilities, mandate and organization (Principle 1) - Responsibilities, powers and authority of CNMV set out in LMV Articles 13 to 24; CNMV is an "ente de derecho público" (Art. 14). - Core functions: supervision, inspection, licensing to a considerable (but not complete) extent, sanctioning (limited for very serious infractions), market transparency, correct formation of prices, investor protection, consultative role vis-à-vis government, ME and Autonomous Communities (LMV, Article 13). - Rulemaking: CNMV may issue Circulares whenever expressly allowed to implement Royal Decretos or Ministry executive orders (LMV, Art. 15 § 1); CNMV rules become effective after publication in the Boletín Oficial del Estado (LMV, Art. 15). - Inter-agency coordination: Law 44/2002 permits MOUs; public MOUs include Convenio de colaboración con el Banco de España (9 de junio 2004) and Convenio de cooperación con la Dirección General de Seguros (9 de septiembre 2004). - Assessment: Fully Implemented. - Key recommendations: - Clarify overlaps (e.g., CNMV and Bank of Spain both propose to the ME licensing of credit institutions intending to provide investment services). - Recommend meetings among heads of supervisory agencies and improved continuous information exchange. ### Independence, governance and accountability (Principle 2) - Board composition (Art. 17): seven members; president, vice president, three appointed members, two ex-officio; terms for appointed members are 4-year terms renewable once. - Personnel rules: Law 12/1995 on incompatibilities, Internal Regulations (RRI), General Code of Conduct; executive order APU/516/2005 (Code of Good Governance). - Financing: self-financed through taxes on supervised organizations; LMV (Art. 24) resources from return on assets and taxes; Ministry of Finance transfers only if insufficient. - Accountability: CNMV president appears before parliament at least once a year; periodic audits by Intervención General de la Administración del Estado and Accounting Tribunal oversight. - Assessment: Broadly implemented. - Key recommendations: - Appointments should be for longer than four years and non-renewable. - Consider appointing non-executive members from varied constituencies. - Enhance operational independence by expanding secondary legislation powers, licensing authority, and sanctioning powers. ### Powers, resources and capacity (Principle 3) - Powers: supervision, inspection, sanction powers on regulated markets and related persons; ability to issue regulations implementing Royal Decrees/Ministerial Orders when empowered. - Financial resources (2004): revenues €47.7 million; expenses €28.4 million; surplus €19.3 million. - Human resources: recruitment under public law via concurso; managing directors not subject to public exams. - Assessment: Fully Implemented. - Key recommendations: - Address limitations in authorization of investment firms and credit institutions, limited secondary legislation adoption, and sanctioning of very serious infractions. - Provide greater flexibility to hire specialized professionals. ### Regulatory process, transparency and procedural fairness (Principle 4) - Legal framework: LMV, Law 30/1992 (LRJAP-PAC), Law 6/1997. - Consultative committee (Art. 23 LMV) must be consulted on CNMV circulars and certain sanctioning/licensing matters. - Publication: CNMV rules binding once published; decisions and interpretations published in Annual Report and on website. - Administrative silence: license decisions must be communicated within three months after application receipt or documentation assembly, and in any case not more than six months—otherwise application may be assumed denied (Art. 44 LRJAP-PAC); exception for CIs and their management companies where silence is positive. - Assessment: Fully implemented. ### Professional standards, confidentiality and staff conduct (Principle 5) - Incompatibilities: Law 53/1984 and RRI require full-time duties, prohibition on other employment, two-year cooling-off for decision-makers moving to supervised entities (RRI Art. 51). - Securities transactions by staff: must be communicated to Secretary General within the next eleven months. - Use of privileged information: LMV Art. 81; misuse may constitute crime under Penal Code Art. 442 with fines between 100 percent and 300 percent of the benefit and disqualification for 2 to 4 years. - Confidentiality: LMV Art. 90 establishes professional secrecy; RRI Art. 52 binds employees after leaving. - Assessment: Fully implemented. ### Self-Regulation and market operators (Principles 6–7) - Market operators (official secondary markets), Iberclear and other trading systems do not function as SROs in the typical sense; they are subject to CNMV supervision and their rules are contractual in nature. - Market operators and Iberclear cannot impose fines or suspend participants; sanction powers belong to CNMV or ME. - Assessment: Not applicable (for Principles 6 and 7). ### Inspection, surveillance and recordkeeping (Principle 8) - CNMV inspection powers: LMV Arts. 84–85 grant wide powers to obtain books, registries or documents in any format. - Inspections are conducted without prior notice in practice; law does not explicitly mention unannounced inspections. - Market surveillance: CNMV has real-time access to continuous market screens; monitoring staff: seven analysts for equities, seven for fixed income and derivatives, and three deputy directors; multiple data tests generate seven information sets. - Recordkeeping: minimum of six years; Circular 3/1993 details records for investment services providers. - Anti-money laundering: supervised entities must include AML measures; MOU with SEPBLAC. - Assessment: Broadly Implemented. - Recommendation: explicitly establish in law that inspections may be unannounced. ### Enforcement powers and procedures (Principles 9–10) - CNMV enforcement powers include requiring information modification, refusing to register public offers, requiring warnings on prospectuses, suspending trading/delist (Arts. 33–34 LMV), precautionary measures, imposing fines, suspending authorizations (Art. 76 LMV), and publishing information when entities fail to do so (Art. 85.6 LMV). - Sanction allocation: CNMV imposes sanctions for minor and serious infractions; very serious infractions sanctioned by Minister of Economy upon CNMV proposal (Art. 97 LMV). Revocation of authorizations imposed by Council of Ministers. - Criminal prosecution: CNMV must transmit criminal-suspect cases to Public Prosecutor; administrative proceedings may be suspended pending criminal decision (Art. 96 LMV). - Detection and 2004 operational data: - Directorate for secondary markets analyzed 62,000 supervisory signals: 43 percent equity market, 34 percent settlement transactions, 23 percent fixed income and derivatives. - 210 detailed reports drafted; 47 sent for further action. - Supervisory actions on equities: 74 temporary suspensions of trading affecting 57 issuers. - Market Monitoring Unit (MMU) initiated 446 investigations (158 individuals, 288 legal entities); investigations led to 4 disciplinary proceedings and 9 warnings. - CNMV supervisory actions resulted in 1,290 subpoenas in 2004: 871 for additional information, 225 for late filings, 194 for corrective measures; nearly three-quarters issued from off-site supervision. - Assessment: Principle 9 — Fully implemented; Principle 10 — Fully implemented. - Comment: Main limitation remains that very serious sanctions are decided by ME. ### International cooperation, information sharing and MOUs (Principles 11–13) - LMV Art. 90 authorizes CNMV to cooperate and enter into MOUs with foreign counterparts; no further government approval required in general. - Conditions to refuse information include threats to sovereignty, security, public order; ongoing court proceedings in Spain; final rulings on same facts and persons. - No double incrimination requirement. - CNMV is signatory to IOSCO MMOU and CESR; multiple bilateral MOUs with counterparts including SEC, CFTC, and various European and non-European regulators. - Assessment: Fully implemented. ### Issuers, disclosure, market abuse and accounting/auditing (Principles 14–16) - Disclosure regime (Principle 14): - Prospectus, brochure, and supporting documents required for public offers (Arts. 25–30 LMV; Royal Decree 1310/2005). - Listed issuers must publish interim income statements every three months and supplementary financial statements every six months (Art. 35 LMV). - Significant information must be disclosed immediately to CNMV and market; CNMV can order issuers to release information or publish it itself (Art. 82 LMV; Art. 85 LMV). - Assessment: Fully Implemented. - Shareholder treatment and corporate governance (Principle 15): Fully implemented; significant shareholding reporting threshold fixed at 5 percent. - Accounting and auditing standards (Principle 16): - Listed companies as of 1 January 2005 must publish consolidated financial statements in accordance with Regulation 1606/2002 (IAS/IFRS). - Applicable standards: General Accounting Plan (PGC), Royal Decree 1815/1991, Royal Decree 1643/1990 implementing EU Fourth and Seventh Directives. - Audit Act (LAC) applies; auditor rotation 3–9 years; Audit Committee requirement for listed companies (Additional Provision 18 LMV). - ICAC sets and interprets accounting/auditing standards; CNMV checks audit reports and can require corrections or suspend quotation. - Assessment: Fully implemented. - Recommendation: CNMV should be more involved in interpretation and enforcement of accounting standards for listed companies. ### Collective Investment Schemes (CIS) regulation (Principles 17–20) - Legal framework: Law 35/2003 (LIIC) and Royal Decree 1309/2005 implementing LIIC. - Authorization and initial requirements for CIS management companies: - Prior authorization of the Ministry of Economy (Art. 41 LIIC) granted upon proposal by CNMV. - Registration in Mercantile Register and CNMV register required before commencing business. - Documents required: by-laws, annual report, internal regulations/code of conduct. - Specific authorization requirements include minimum capital proportionate to assets administered; reporting of identities and ownership; integrity standards for managers; organizational, human, technical, internal control requirements. - Custodians must have registered office in Spain or establish branch (Art. 41.1 LIIC). - Authorization of CIS management companies that are subsidiaries or part of groups with other authorized entities in another EU member state requires prior consultation with corresponding competent authority. - Ongoing compliance, reporting, and oversight: - Management companies must advise CNMV of relevant changes; CNMV maintains off-site and on-site inspection programs. - Off-site: regular monthly analyses focusing on prudential ratios; on-site: annual inspection program with selection criteria including date of last visit and financial condition. - CNMV powers in exceptional cases: order investigations and temporarily replace directors or officers; required to report to ME (LIIC Chapter III). - Responsibility, sanctions, and prohibited activities: - Directors or officers breaching provisions bear administrative responsibility and potential criminal liability. - Unauthorised engagement in regulated activities is a very serious offense. - Conflicts of interest and conduct rules: - Management companies must establish internal control procedures for related party transactions and report implementation; specific procedures required when custodian belongs to same group. - Delegation of management: - Delegation allowed (Article 40.5 LIIC); delegation agreement must be disclosed in prospectus; delegator retains responsibility and liability. - Assessment: Fully Implemented. - 2004 CNMV supervisory metrics for CISs: - CNMV issued 1,695 subpoenas: - 800 requesting additional information for supervisory purposes, - 346 for late filings by management companies, - 549 to provide corrective measures or make recommendations. - Prudential supervision focused on investment and liquidity coefficients, asset suitability, derivatives limits, and solvency requirements. - CNMV oversight of depositaries focused on custody conditions, adequate resources, organization, and timely incident notification. - Legal certainty strengthened with Royal Decree of November 4, 2005. - Recommendation: consider delegating direct power to CNMV to grant licenses for marketing or operating a CIS. - Principle 18 — Legal form, structure, segregation, and protection of client assets: - Investment fund: group of separated assets without legal personality, managed and represented by an asset management company, assisted by a depositary (LIIC Art. 3). - Investment company: form of a stock corporation (LIIC Art. 9). - Custody and segregation rules: each CIS has one custodian; manager and custodian cannot be same entity for same CIS; restrictions and internal procedures when custodian belongs to same group (LIIC Art. 57, Art. 68). - Assessment: Fully implemented. - Principle 19 — Disclosure requirements for CISs: - Registration and prospectus requirements: CIS cannot commence business until registered in CNMV register and prospectus registered (Article 10.6 LIIC). - Ongoing disclosure: annual, semi-annual, and quarterly reports required (LIIC Art. 17); relevant facts must be disclosed (LICC Art. 19). - Investor access: simplified prospectus and most recent half-yearly report must be provided free of charge before subscription (LIIC Art. 18.1). - Assessment: Fully Implemented. - Principle 20 — Asset valuation, pricing, and redemption: - Accounting rules and valuation criteria in Circular 7/1990 and other circulars. - NAV definitions and frequency: settlement value definitions set forth; frequency depends on investment policy; Article 42 of former LIIC allowed daily NAV; Article 48 of new RIIC allows calculation every 15 days under conditions. - Valuation when market prices not available: Circular 4/1997 and Circular 7/1990 provide criteria; 5 percent threshold for suspended quotations (Article 42.9). - Subscription/redemption rules and CNMV powers to suspend when price cannot be determined (Article 7 LIIC). - Assessment: Fully implemented. ### Principles for Market Intermediaries (Principles 21–24) - Principle 21 — Minimum entry standards: - Investment services provided only by ESIs under LMV (Article 62); Article 63 identifies investment services; Article 64 provides three ESI categories: securities firms (SVs), securities agencies (AVs), and portfolio management companies (SGCs). - Authorization responsibility: Minister of Economy acting upon CNMV proposal (Article 66 LMV); ESIs authorized in another EU member state may operate by branch or freedom to provide services; non-EU entities require CNMV authorization (Article 71 LMV). - Minimum capitalization requirements (Article 15 RESI and related): - Securities firms: €2 million. - Securities agencies (members of secondary markets or joining clearing/settlement systems or custody transitory): €500,000. - Other securities agencies: €300,000. - Portfolio management companies: €100,000. - Capitalization of ESIs that are legal entities may not be less than €25,000. - Oversight: CNMV responsible for oversight, inspection, and sanctions (Article 73 LMV). - Assessment: Fully implemented. - Principle 22 — Initial and ongoing capital and prudential requirements: - Ongoing solvency requirements: - Capital of securities firms and securities agencies may not fall below the highest of: - Two-thirds of the minimum capital. - The aggregate risk undertaken (sum of risks from traded securities portfolio, credit risk, and exchange risk). - Basic requirements depending on level of activity (25 percent of overhead costs) to determine financial needs to remain operational for three months with no income. - 0.5 percent of the portfolios being managed. - Solvency, liquidity, and capital monitoring: - Entities required to file financial statements with CNMV every month showing relevant capital and solvency-ratio information; for corporate groups with consolidated information this check is performed every three months. - Management reports and accounts must be audited and approved by general meeting within four months after year-end. - CNMV reviews levels of capital and takes measures if deficiencies identified. - If capital falls below minimum, regulated entity must inform CNMV and provide remediation program addressing reasons, plan to return to compliance, and timetable; CNMV must approve program and may add measures. - CNMV interventions have included demanding action plans, selling real estate, arranging leasing, restructuring groups, requiring reduction of positions or obtaining guarantees. - Principle 23 — Internal organization, conduct, and internal controls: - Requirements: proper administrative and accounting organization; adequate human and technical resources; internal rules of conduct; information systems and internal control procedures. - Client protections: client identification, clear information, complaint handling, contractual documentation, impartial treatment. - Internal audit: internal audit unit required; annual reports to board and CNMV. - Assessment: Fully Implemented. - Principle 24 — Procedures for failure of market intermediaries and investor protection: - Three-stage framework: preventive mechanisms (off-site monitoring), investigation/suspension/revocation, and Investment Guarantee Fund (FOGAIN). - Off-site inspection phases I–VI described for monitoring solvency and liquidity. - CNMV powers to open investigations and temporarily replace directors; suspension and revocation procedures set out. - FOGAIN details: - Separate capital fund without legal personality; assets from member contributions. - Purpose: cover restitution of funds or securities/instruments when member ESI cannot restitute; does not cover investment value loss or credit risk. - Coverage excludes assets of professionally qualified financial institutions. - Maximum compensation amount fixed at €20,000 in accordance with EU governing legal provisions. - Net assets of FOGAIN on December 31, 2004 amounted to €14.8 million and were anticipated to amount to €18.8 million at the end of 2005. - Under hypothesis of annual increase in assets of €4.8 million (average increase anticipated for 2003-05), projected capacity to handle certain historic bankruptcies by specified dates. - Assessment: Fully Implemented. ### Secondary markets, trading systems, supervision, and transparency (Principles 25–27) - Principle 25 — Authorization and oversight of trading systems: - Distinguishes official secondary markets and organized trading systems (SONs); authorization of markets/SONs by government subject to CNMV report (LMV Art. 31.4). - Characteristics of official secondary markets and SONs described. - Assessment: Fully Implemented. - Comment: MIFID implementation in April 2007 will change authorization procedure of Multilateral Trading Facility (MTF) and allow investment firms to run them; observance should be kept under review. - Principle 26 — Ongoing regulatory supervision of exchanges and trading systems: - Governing bodies required to set up oversight and surveillance units and report immediately to CNMV; CNMV uses warning systems and daily reporting mechanisms. - Information flows to CNMV include daily information on executed transactions (Circular 4/1999). - Assessment: Fully implemented. - Principle 27 — Transparency of trading: - Market transparency central to LMV and EU regulation (MIFID). - CNMV, BE, and governing boards determine public market operation information; CNMV Circular 3/1999 specifies daily listing information and time limits. - SIBE provides real-time information; MEFF, AIAF, MTS, SENAF have specified disclosure timing (SIBE 20-minute delay free on website; MEFF real time or delay not more than 15 minutes; AIAF maximum delay two hours). - Assessment: Fully implemented. ### Market surveillance, market abuse and enforcement (Principles 28–29) - Principle 28 — Regulation to detect and deter manipulation and unfair trading practices: - Criminal provisions: Penal Code Articles 284 and 285 prohibit price manipulation and unfair practices. - LMV obligations for market participants include diligence, transparency, conflict avoidance, and restrictions on dealing when analysis is underway (Article 79 LMV). - Specific prohibitions in Article 80 LMV; restrictions on privileged information in Article 81.2 LMV. - EU-level market abuse framework noted (Directive 2003/6/EC and related directives/regulations). - Assessment: Fully Implemented. - Principle 29 — Management of large exposures, default risk and market disruption: - Systems covered: Iberclear, MEFF clearinghouses, MFAO. - Quantitative and qualitative trigger levels established; operational procedures for additional bonds and daily recalculation described (Iberclear). - MEFF clearinghouses monitor positions and guarantees in real time; CNMV has access to operators' risk control systems for daily checks. - Insolvency procedures protect posted guarantees and client assets (Articles 44 bis, 44 ter, and 59 LMV). - Assessment: Fully implemented. ### Clearing and settlement systems oversight (Principle 30) - Assessment: Not rated — Principle 30 assessed by specialist according to CPSS-IOSCO recommendations for securities settlement systems and central counterparties. ### Summary implementation of IOSCO Objectives and Principles (Table 2) - Assessment Grade counts: - Fully Implemented: 25 — Principles 1, 3, 4, 5, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29 - Broadly Implemented: 2 — Principles 2, 8 - Partly Implemented: 0 - Not Implemented: 0 - Not applicable: 2 — Principles 6, 7 - Not rated: 1 — Principle 30 ### Overall assessment and recommended actions (Chapter VIII) - Overall: assessment shows a high degree of observance of the Principles. - Recommended Plan of Actions (selected): - Principle 1: Supervise securities market activities of banking groups by CNMV from inception; enhance CNMV–Bank of Spain cooperation and include CNMV assessment of credit institutions’ programs when they intend to provide investment services. - Principle 2: Appointments to CNMV board should be for longer than four years and non-renewable; appoint some non-executive members from varied constituencies; vest CNMV with powers to design/adopt secondary legislation, grant/withdraw licenses, and impose administrative sanctions. - Principle 3: More flexibility to hire specialized professionals. - Principle 8: Establish in law CNMV’s power to carry out unannounced inspections. - Principle 16: CNMV should be more involved in interpretation and enforcement of accounting standards for listed companies. - Principle 17: Consider delegating direct power to CNMV to grant licenses for operating a CIS. - Principle 21: Pay attention to coordinated or joint supervision activities between Bank of Spain and CNMV. - Enforcement and procedural notes: - Principle 9: CNMV should ensure timely prosecution on criminal grounds for major market abuses; expert suggestion to consider simultaneous administrative and criminal proceedings was noted but current suspension practice maintained. - Principle 8: despite practice of unannounced inspections, law should explicitly permit them. ### Authorities’ response to the assessment (paragraphs 29–35) - General position: Spanish authorities broadly agree and welcome high degree of compliance; they provided comments: - On Principle 1: Measures will be taken to enhance CNMV role when credit institutions intend to provide investment services. - On Principle 2: Authorities note legislation allows candidates from private sector or academia; they will lengthen the current period of four years for appointment of Board Members and make terms non-renewable; they do not share recommendation regarding appointment constituencies. - On secondary legislation and licensing: Authorities argue CNMV decides on technical aspects while Parliament and Government take political decisions; licensing and sanctioning powers rest with public administration by design and do not impair CNMV independence. - On Principle 8: Authorities disagree with “broadly implemented” rating; they cite Article 85 LMV as giving sweeping inspection powers without restriction on minimum notice and assert CNMV is authorized to carry out inspections without prior notice; they consider Principle 8 should be “fully implemented”. *Source: _cr06220 - 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles* ### 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles ### 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles of Securities Regulation ### General findings and recommendations - Spain has modernized the legal structure for financial services through amendments to Law 24/1988 of July 28 on the Securities Market (Ley del Mercado de Valores or LMV), including: - Law 37/1998 of November 16, 1998 on LMV Reform - Law 44/2002 of November 22, 2002 on Measures of Reform of the Financial System (Ley 44/2002 de Medidas de Reforma del Sistema Financiero) - Law 26/2003 of July 17, 2003 modifying the LMV - Legislative Royal Decree 1564/1989 of December 22 on corporations (Texto Refundido de la Ley de Sociedades Anónimas) - Law 5/2005 of March 11, 2005 introducing changes for conforming with the EU directive - As amended, the LMV simplifies and consolidates the laws affecting financial markets, institutions, products, and professionals. - The Spanish regulatory framework is a “one peak” model: prudential and conduct of business rules for investment firms and asset managers are both overseen by the CNMV (National Securities Market Commission). - The CNMV is the main regulator for securities market firms and individuals, with the Bank of Spain (BE) retaining exclusive prudential oversight of credit institutions (CIs) involved in securities dealing and the Ministry of Economy (ME) retaining licensing roles. - Although legal provisions require the BE to inform the CNMV about CIs’ activity in securities dealing, in practice this occurs through computerized data flows; the BE consults the CNMV only when a CI intends to dedicate a significant part of its business to investment services. - The framework generally reflects sound financial market regulation but could be strengthened by: - Integrating additional oversight and sanctioning capabilities into the CNMV. - Reinforcing both institutional and operational independence of the CNMV. - Specific governance recommendations: - CNMV board appointments (president, vice president, non-executive members) are currently for four-year terms, renewable once; to increase independence, appointments should be for a longer term than four years and should be non-renewable. - Consider appointing some non-executive members from varied constituencies (e.g., academia or private sector) to reduce potential political influence. - Vest CNMV with the power to design and adopt secondary legislation (to be promulgated by executive authorities); to grant and withdraw licenses of regulated entities; and to impose administrative sanctions for infractions of securities laws and regulations. ### Information and methodology used for the assessment - Assessment tools used: - IOSCO Objectives and Principles of Securities Regulation (the Principles) - Methodology for Assessing Implementation of the IOSCO Objectives and Principles of Securities Regulation (Assessment Methodology) - IMF Guidance Notes and Templates - Various IOSCO reports referenced in the Assessment Methodology and the Principles - Sources and meetings informing the assessment: - Meetings with ME staff; senior CNMV staff responsible for functional areas; Bank of Spain staff (for their securities roles); BME Spanish Exchanges S.A.; selected asset management and investment firms; related professional associations - Reviewed material: institutions’ annual reports; laws, regulations, and published guidelines; statistics on operations; published information on issuers; official registries of licensed institutions; published information on regulatory actions; CNMV responses to the IOSCO questionnaires; other material submitted by the CNMV during the on-site portion - The assessment reflects views of the mission team and the assessor (author identified in source notes). ### Institutional and macroprudential setting; market structure - BME (Bolsas y Mercados Españoles) is the holding company operating the securities markets; competencies include variable- and fixed-income securities, derivatives, and clearing and settlement systems. - BME group components include the four stock exchanges (Madrid, Barcelona, Bilbao, and Valencia), MF Mercados Financieros, Iberclear, and BME Consulting. - Key market statistics and rankings: - Market capitalization of €672 billion at end-2004, equivalent to 80 percent of Spain’s GDP. - BME became Europe’s fourth largest stock market by market capitalization at end-2004. - By total value traded, BME ranked seventh in the world in 2004. - The Spanish stock market has yielded a return of 241 percent over the last ten years. - Latibex (BME-owned exchange for Latin American shares traded in euros) has total market value close to €150 billion and is the third largest stock exchange in Latin American shares, after Brazil and Mexico. - Top 7 Exchanges by Total Value of Share Trading, 2004 (In billions of US dollars): - NYSE 11,618 - Nasdaq Stock Market 8,767 - London Stock Exchange 5,169 - Tokyo Stock Exchange 3,218 - Euronext 2,472 - Deutsche Boerse 1,541 - BME Spanish Exchanges 1,203 ### Description of regulatory structure and practices - CNMV governance and organization: - CNMV is an autonomous public authority governed by a seven-member board (Consejo) chaired by a full-time president. - A permanent Executive Committee (Comité Ejecutivo) comprising the president, vice president and the three full-time members prepares the board agenda and exercises delegated powers. - The CNMV Board comprises seven members: the president and vice president are appointed by the government in consultation with the ME and experts; three other members are appointed by the ME; two ex-officio members include the general director of the treasury and the deputy governor of the Bank of Spain. Except for the two ex-officio members, members are full-time and may not engage in other professional activities. - Consultative committee: - Article 22 of the LMV provides for a consultative committee chaired by the vice-president of the CNMV as a nonvoting member. - Royal Decree 504/2003 organizes the committee with 17 members representing secondary markets, issuers, investors, and three relevant Autonomous Communities. - Under Article 23 of the LMV, the committee must be consulted on drafts of CNMV circulars; on imposition of sanctions for very serious infractions (but not on light and serious infractions); on licensing, delicensing, mergers, and takeovers of investment firms; and on authorization and revocation of authorization of branches of investment companies of non-EU member states. - CNMV scope of competence: - Prudential supervision of investment service providers (Empresas de Servicio de Inversion, ESIs) - Regulation of public offerings and takeover bids - Oversight of financial information related to securities - Supervision of marketing and distribution of financial instruments - Responsibility for custodians of securities and assets of collective investment schemes, and for clearing and settlement systems and related custodians, without prejudice to Bank of Spain functions with respect to payment systems - Sanctioning powers: - CNMV has restricted sanctioning powers and must exercise them after nonbinding advice of its Consultative Committee (Article 23 of LMV). - CNMV can sanction light or serious breaches (infracciones leves o graves). - For very serious infractions (infracciones muy graves), CNMV prepares a report and proposes a sanction for the ME to impose. - Potentially criminal acts must be referred to the public prosecutor (Consejo Fiscal del Estado). - CNMV board must inform the Bank of Spain of any sanction it intends to apply to a credit institution (Article 97 of the LMV). - Licensing: - Licensing and withdrawal of licenses of investment service providers is the responsibility of the ME, upon recommendation of the CNMV (Article 66 of the LMV). - The ME similarly handles licensing and delicensing of insurance companies (on recommendation of DGSFP) and credit institutions (on recommendation of the Bank of Spain). - Coordination with the Bank of Spain: - Day-to-day coordination is organized through inter-staff contacts, information sharing, shared databases, and regular monthly meetings. - CNMV maintains a registry of credit institutions involved in providing investment services that is publicly available; information on credit institutions is updated daily by the Bank of Spain. - Registry includes tariffs and typical contractual documents as filed with the CNMV. - Cross-membership arrangements: - Vice president of the CNMV is an ex-officio member of the board of the Bank of Spain; reciprocally, the deputy governor of the Bank of Spain is a member of the CNMV Board. - Cross-membership does not apply to the insurance supervisor. - Regular meetings of heads of the three financial sector supervisors could facilitate institutional links and information-sharing. - Market operators and clearing and settlement systems: - Monitored through protocols subject to review by the competent authority; these protocols and powers/actions regarding infractions are regarded as founded in contract law rather than public law. - Power to impose penalties or fines, and to suspend or prohibit participation, is the responsibility of the CNMV and ME. - Persons within BME regulations are also liable under applicable employment or professional regimes. - Protocols exist among national regulators and markets within the BME, SA Holding group, and related clearing/settlement institutions governing operation and supervision. - Applicable law: - Securities law largely contained in the LMV as amended and supplemented by a Royal Decree transposing the Market Abuse and Prospectus directives. - Related applicable law includes company law, bankruptcy law, commercial law, property law, penal law, and administrative codes. - As a member of the European Community, Spain recognizes credit institutions and investment firms entering from other EEA jurisdictions by right of establishment or cross-border services. ### General preconditions for effective securities regulation - Spain appears to meet preconditions for an effective regulatory framework for capital markets and financial services, which assume: - A legal framework supporting integrity of contract and property rights - Legal recognition of instruments traded and rules facilitating trading - Commercial and insolvency regimes that facilitate taking of collateral, use of clearing services, and enforcement of guarantees - Sound company law protecting direct investors - Laws supporting ability to identify and protect client assets - Reliable and consistent accounting standards - Confidence that rules will be consistently and equitably enforced and applied notwithstanding bankruptcy of particular market participants - Judicial, administrative, and regulatory authorities that reliably honor and equitably apply the rule of law - Certainty as to application of law and confidence in its equity are identified as fundamental to reliable market functioning and market confidence. *Source: _cr06220 - 1. Detailed Assessment of Observance of the IOSCO Objectives and Principles* ### 26. As regards market openness, market regulators in Spain have historically been open ### _cr06220 - 26. As regards market openness, market regulators in Spain have historically been open ### Market openness and cross-border arrangements - As regards market openness, market regulators in Spain have historically been open to cross-border arrangements within the European Union, including the Lamfalussy process. - The Lamfalussy process aims at better harmonizing national approaches to the regulation of financial services within the single European market. ### Regulatory mechanisms and consultation - The Lamfalussy process specifically aims at broadening use of the mechanisms for regulatory development and consultation with the Committee of European Securities Regulators (CESR). *Source: _cr06220 - 26. As regards market openness, market regulators in Spain have historically been open* ### 27. Also, the design of the regulatory framework should be kept under review to ### _cr06220 - 27. Also, the design of the regulatory framework should be kept under review to ### Regulator responsibilities, mandate and organization (Principle 1) - Responsibilities, powers and authority of the Comisión Nacional del Mercado de Valores (CNMV) are defined under Chapter II of the Securities Market Law 24/1988 (Ley del Mercado de Valores, LMV) as modified by Law 37/1998, Law 44/2002 and Law 26/2003; LMV Articles 13 to 24 set out creation, functions, organization and operation of the CNMV. - Legal form: CNMV is an "ente de derecho público" with its own legal personality and full legal capacity (Art. 14). - Core functions: supervision, inspection, licensing to a considerable (but not complete) extent, sanctioning, market transparency, correct formation of prices, investor protection, consultative role vis-à-vis government, Ministry of Economy and Finance (ME), and Autonomous Communities (LMV, Article 13). - Rulemaking: CNMV may issue Circulares whenever expressly allowed to implement Royal Decretos or Ministry executive orders (LMV, Art. 15 § 1); CNMV rules become effective after publication in the Boletín Oficial del Estado (LMV, Art. 15). - Sanctions: CNMV defines and applies sanctions for minor and serious infractions (infracciones leves y graves); for very serious infractions (infracciones muy graves) CNMV prepares a report proposing sanction and forwards to the ME (ME usually follows proposal). - Inter-agency coordination: Law 44/2002 permits MOUs among CNMV and other supervisors; two main MOUs public: Convenio de colaboración con el Banco de España (9 de junio 2004) and Convenio de cooperación con la Dirección General de Seguros (9 de septiembre 2004). - Assessment: Fully Implemented. - Key comments/recommendations: - Division of responsibilities is clear in law and bilateral MOUs, but some overlaps remain (e.g., CNMV and Bank of Spain both propose to the ME licensing of credit institutions intending to provide investment services; Bank of Spain and DGSFP with regard to supervision of pension funds). - Recommend meetings among heads of supervisory agencies and improved continuous information exchange arrangements. ### Independence, governance and accountability (Principle 2) - Board composition (Art. 17): seven members: - President and vice president appointed by government upon Minister of Economy proposal (persons of recognized competence). - Director General of the Treasury and Financial Policy and deputy governor of the Bank of Spain are ex-officio members. - Three board members appointed by the Minister of Economy among persons of recognized competence. - One Commission staff member designated as Secretary without vote. - Terms: president, vice president and three board members appointed for 4-year terms renewable once. - Removal grounds stated in law: expiration of term, voluntary resignation accepted by government, separation by government for serious breach, permanent incapacity, incompatibility, conviction for intentional crime (delito doloso). - Personnel rules: Law 12/1995 on incompatibilities, Internal Regulations (RRI), General Code of Conduct; executive order APU/516/2005 (Code of Good Governance) complements these. - Financing: self-financed through taxes on supervised organizations; LMV (Art. 24) resources from return on assets and taxes; Ministry of Finance transfers only if insufficient (transfers not needed for years). - Accountability: CNMV president appears before parliament at least once a year; periodic audits by Intervención General de la Administración del Estado and Accounting Tribunal oversight. - Legal protection: CNMV personnel enjoy legal protection if actions consistent with law and internal rules; CNMV guarantees free legal assistance and funds for required guarantees (RRI, Art. 55§ 2). - Assessment: Broadly implemented. - Key comments/recommendations: - Institutional independence could be enhanced: appointments should be for longer than four years and non-renewable; consider appointing non-executive members from varied constituencies. - Operational independence limits: limited secondary legislation powers (Article 15) may delay regulatory measures; licensing of credit institutions is led by Bank of Spain without routine CNMV consultation; independent sanctioning power is limited for very serious infractions decided by ME and consultative committee composition may raise conflicts of interest. ### Powers, resources and capacity (Principle 3) - Powers: supervision, inspection, sanction powers on regulated markets and all natural and legal persons related to markets; ability to issue regulations implementing Royal Decrees/Ministerial Orders when empowered. - Financial resources: taxes calculated to cover costs under Law 8/1989; Art. 24 LMV prescribes use of profits and reserve creation. - 2004 financials: revenues €47.7 million; expenses €28.4 million; surplus €19.3 million. - Human resources: recruitment under public law via concurso (selective exam) based on equality, merit and capacity; managing directors not subject to public exams; recruitment procedures may delay hiring of specialized professionals. - Assessment: Fully Implemented. - Key comments/recommendations: - Limitations in powers noted under Principle 2: restricted authority on authorization of investment firms and credit institutions, limited secondary legislation adoption, and sanctioning limited to infracciones leves y graves (excluding infracciones muy graves). - Need for greater flexibility to hire specialized professionals; enhance role of interviews and competitiveness of CNMV recruitment. ### Regulatory process, transparency and procedural fairness (Principle 4) - Legal framework: LMV, Law 30/1992 (LRJAP-PAC), and Law 6/1997 provide clarity and consistency of regulatory actions. - Consultative committee (Art. 23 LMV): mandatory reporting for CNMV circulars, penalties for very serious infractions, granting/withdrawal of licenses and authorization of corporate transactions; committee meets at least once a month. - Publication requirements: CNMV rules binding once published in official publication; norms subject to vacatio legis; CNMV publishes decisions and interpretations in Annual Report and on website. - Administrative silence: in general administrative decisions limiting rights must state facts and legal grounds; for license applications, decision must be communicated within three months after application receipt or documentation assembly, and in any case not more than six months—otherwise application may be assumed denied (Art. 44 LRJAP-PAC). Exception: licensing of CIs and their management companies where silence is positive. - Assessment: Fully implemented. - Key comments: - Procedural fairness concerns around administrative silence (implicit rejection) exist historically but very few cases; modernization provides stronger protections; no substantive evidence of problem. ### Professional standards, confidentiality and staff conduct (Principle 5) - Incompatibilities and conflicts of interest: Law 53/1984 and RRI require full-time duties, prohibition on other public or private employment, two-year cooling-off for decision-makers moving to supervised entities (RRI Art. 51). - Securities transactions by staff: must be communicated to Secretary General within the next eleven months; abrogation may be requested. - Use of privileged information: LMV Art. 81 and CNMV Code of Conduct rules 11 and 12 limit use; misuse may constitute crime under Penal Code Art. 442 with fines between 100 percent and 300 percent of the benefit and disqualification for 2 to 4 years. - Confidentiality: LMV Art. 90 establishes professional secrecy for confidential data; employees bound to maintain confidentiality even after leaving without express permission (RRI Art. 52). - Enforcement and legal protection: secretary general enforces Code of Conduct; internal control unit monitors procedures; criminal and disciplinary sanctions apply to personnel; CNMV provides legal assistance and funds for guarantees (RRI Art. 55). - Assessment: Fully implemented. - Comment: Observance of highest professional standards and confidentiality is provided by complementary legislation and regulations and complies with best international practice. ### Self-Regulation and market operators (Principles 6–7) - Market operators (official secondary markets), Iberclear and other trading systems do not function as SROs in the typical sense; they are subject to CNMV supervision and their rules are contractual in nature. - Governing boards of management companies run markets and trading systems; may set access terms and operating procedures; CNMV oversight required and may suspend or nullify decisions inconsistent with law. - Market operators and Iberclear cannot impose fines or suspend participants; sanction powers belong to CNMV or ME. - Authorization of market undertakings is demanding (technical, human resources, risk monitoring). - Decision communication: operator decisions altering contractual rules must be published and communicated to CNMV within 24 hours. - Assessment: Not applicable (for Principles 6 and 7) — Spanish exchanges and clearing/settlement systems operate under contractual rules subject to CNMV review rather than public-law SRO powers. - Comments: Iberclear board composition includes four Bank of Spain representatives and one nonvoting CNMV representative; proportionality requirement not observed for Iberclear for historical reasons. ### Inspection, surveillance and recordkeeping (Principle 8) - LMV grants wide inspection powers; CNMV can obtain books, registries or documents in any format including computer software and magnetic/optical storage (Arts. 84–85 LMV). - Inspections: law does not explicitly mention unannounced inspections, but CNMV conducts inspections without prior notice in practice; access to private premises requires judge approval. - Market surveillance: CNMV has real-time access to continuous market screens; monitoring staff: seven analysts for equities, seven for fixed income and derivatives, and three deputy directors; multiple data tests generate seven information sets (activity, concentration, relevant transactions, tendencies of the market, increases in price or volume, volatility and detection of possible irregularities). - Recordkeeping: records maintained for minimum of six years (general commercial law); Circular 3/1993 details records for investment services providers (orders placed, orders executed, detailed breakdowns); Iberclear accounting records kept six years. - Client identification: Art. 14 CNMV Circular 1/1996 requires identification at start of business relationship; copies kept six years. - Anti-money laundering: supervised entities must include AML measures in program of activities; MOU with SEPBLAC in place. - Assessment: Broadly Implemented. - Recommendation: explicitly establish in law that inspections may be unannounced. ### Enforcement powers and procedures (Principles 9–10) - CNMV enforcement powers: require information inclusion/modification in public records, refuse to register public offers if investor interests threatened, require warnings on prospectuses, suspend trading/delist (Arts. 33–34 LMV), take precautionary measures (including liquidation), impose fines, suspend authorizations (Art. 76 LMV), and publish information if entities fail to do so (Art. 85.6 LMV). - Sanction allocation: CNMV imposes sanctions for minor and serious infractions; very serious infractions sanctioned by Minister of Economy upon CNMV proposal (Art. 97 LMV). Revocation of authorizations imposed by Council of Ministers. - Criminal prosecution: CNMV must transmit criminal-suspect cases to Public Prosecutor; administrative proceedings may be suspended pending criminal decision (Art. 96 LMV). - Cooperation with other agencies: Art. 88 LMV requires coordination with Bank of Spain; Art. 90 LMV provides professional secrecy exceptions for cooperation. - Detection mechanisms and operational data (2004): - Directorate for secondary markets analyzed 62,000 supervisory signals: 43 percent equity market, 34 percent settlement transactions, 23 percent fixed income and derivatives. - 210 detailed reports drafted; 47 sent for further action. - Supervisory actions on equities: 74 temporary suspensions of trading affecting 57 issuers (mainly to ensure disclosure). - Market Monitoring Unit (MMU) initiated 446 investigations (158 individuals, 288 legal entities); investigations led to 4 disciplinary proceedings and 9 warnings. - CNMV supervisory actions resulted in 1,290 subpoenas in 2004: 871 for additional information, 225 for late filings, 194 for corrective measures; nearly three-quarters issued from off-site supervision. - Assessment (Principles 9 and 10): Fully implemented (Principle 9); Fully implemented (Principle 10). - Comments: - CNMV enforcement tools are broad; main limitation remains that very serious sanctions are decided by ME. - Suggestion from expert to consider simultaneous proceedings under administrative and criminal frameworks to avoid delays, but current suspension practice is maintained. ### International cooperation, information sharing and MOUs (Principles 11–13) - Legal authority: LMV Art. 90 authorizes CNMV to cooperate and enter into MOUs with foreign counterparts; no further government approval required to exchange information in general. - Conditions to refuse information (Art. 90 § 2 al. 4): if prejudicial to sovereignty, security, public order; if court proceedings initiated in Spain on same facts; if final ruling made on same facts and persons. - No double incrimination requirement: actions need not be offenses under Spanish law for CNMV to share information. - CNMV may proactively send information without request (e.g., when aware of market abuse in another EU member state). - CNMV is signatory to IOSCO MMOU and CESR; has multiple bilateral MOUs: - Examples listed in source include SEC (US), CFTC (US), Autorité des Marchés Financiers (France), Comissão do Mercado de Valores Mobiliários (Portugal), Commissione Nazionale per le Societá e la Borsa (Italy), BaFin (Germany), Securities and Futures Commission (Hong Kong), Comissão de Valores Mobiliários (Brazil), Australian Securities and Investments Commission, among others. - Assessment: Fully implemented. - Comments: CNMV has state-of-the-art international cooperation powers and longstanding experience exchanging information; safeguards for confidentiality and exceptions are consistent with IOSCO practice. ### Issuers, disclosure, market abuse and accounting/auditing (Principles 14–16) - Disclosure regime (Principle 14): - Issuers required to prepare prospectus, brochure, and supporting documents for public offers (Arts. 25–30 LMV; Royal Decree 1310/2005). - Issuers listed must publish interim income statements every three months and supplementary financial statements every six months (Art. 35 LMV). - Significant information (relevant information) must be disclosed immediately to CNMV and market; CNMV can order issuers to release information or publish it itself (Art. 82 LMV; Art. 85 LMV). - Advertising for public offers must mention prospectus availability and not be misleading (prospectus directive transposition). - Assessment: Fully Implemented. - Shareholder treatment and corporate governance (Principle 15): - Shareholder meeting notices, proxy voting, registration, dividend distribution, takeover bids (OPAs) governed by equality of treatment; significant shareholding reporting threshold fixed at 5 percent; directors must report holdings and trades. - Assessment: Fully implemented. - Accounting and auditing standards (Principle 16): - Annual financial statements: balance sheet, profit and loss, notes, annual report; listed companies as of 1 January 2005 must publish consolidated FS in accordance with Regulation 1606/2002 (IAS/IFRS). - Applicable standards: General Accounting Plan (PGC), Royal Decree 1815/1991, Royal Decree 1643/1990 implementing EU Fourth and Seventh Directives. - Auditing: Audit Act (LAC) applies; auditors must be independent; auditor engagement fixed 3–9 years with rotation; Audit Committee requirement for listed companies (Additional Provision 18 LMV). - ICAC (Institute of Accounting and Auditing) sets and interprets accounting/auditing standards; CNMV checks audit reports for compliance and can require corrections or suspend quotation. - Assessment: Fully implemented. - Comment: CNMV should be more involved in interpretation and enforcement of accounting standards for listed companies. ### Collective Investment Schemes (CIS) regulation (Principle 17) - Primary legal framework: Law 35/2003 (LIIC) and Royal Decree 1309/2005 implementing LIIC. - Marketing and operation: - CIS marketing must be performed by authorized financial intermediaries (Art. 2 LIIC) and SGIICs (asset management companies) must be authorized by CNMV. - Two kinds of authorized financial intermediaries: investment services firms (ESIs) and credit institutions (banks, credit cooperatives, cajas de ahorro), each with own authorization/registration regime. - Administration, representation and management of CISs can only be undertaken by authorized SGIICs (Art. 40.6 LIIC). - Cross-border marketing: governing legal provisions for cross-border marketing described (source continues beyond provided excerpt). - Assessment: (Principle 17 description present; further implementation details follow in source beyond current excerpt.) *Source: IMF staff detailed assessment excerpt from the IOSCO Objectives and Principles of Securities Regulation assessment (text as provided).* ### chapter II) establish the requirement for communications between the jurisdictions involved, or ### _cr06220 - chapter II) establish the requirement for communications between the jurisdictions involved, or ### Authorization and initial requirements for CIS management companies - Establishment of a CIS management company requires the prior authorization of the Ministry of Economy (Art. 41 of the CIS Act), granted upon proposal by the CNMV. - Once established, the management company must be registered in the Mercantile Register and in the corresponding register of the CNMV before commencing business. - Documents required for authorization include by-laws, annual report, and internal regulations with respect to code of conduct. - Specific requirements to be met at authorization: - Minimum capital requirement as a proportion of the value of the assets administered. - Reporting of identities of all direct or indirect shareholders, including natural and legal persons with a significant participation, and the amounts of such participation. - Individuals holding management positions (directors or officers) must meet integrity standards. - Compliance with proper organizational requirements from an administrative and accounting point of view. - Adequate human and technical resources. - Adequate internal control mechanisms and procedures. - Custodians must have their registered office in Spain or establish a branch office in the national territory (Art. 41.1 of the CIS Act). - Authorization of a CIS management company that is a subsidiary, or belongs to the same group as, or is under the control of the same persons as another authorized entity in another EU member state must be the subject of prior consultation with the corresponding competent authority. ### Ongoing compliance, reporting, and oversight - Management companies must advise the CNMV of any changes relevant to authorization criteria; all amendments of corporate bylaws must be declared and registered with the CNMV (Art. 44 of the CIS Act). - CNMV oversight methods: - Off-site inspection: - Regular monthly analyses based on confidential economic and financial information focusing on CISs’ prudential ratios, investment assets, and levels of return. - Specific analyses targeting one, several, or all registered entities. - On-site inspection: - CNMV establishes an annual inspection program. - Factors considered for selecting entities to inspect include: - the date of the last visit; - whether an entity has undergone relevant changes in organization or control; - whether an entity is in a “border-line” situation regarding net worth or profit-and-loss position, and whether there is reasonable doubt about future solvency; - whether off-site inspection identified relevant items concerning an entity. - CNMV powers in exceptional cases: - If a CIS or management company is in an exceptionally serious situation imperiling its economic situation, affecting financial stability, or if the real position cannot be determined from accounts, CNMV may order an investigation and temporarily replace directors or officers. - In such situations, the CNMV is required to report to the ME (LIIC Chapter III). ### Responsibility, sanctions, and prohibited activities - Directors or company officers who breach governing legal provisions bear administrative responsibility, without prejudice to potential criminal liability. - Engaging in regulated activities restricted to CISs or asset management companies without prior authorization is considered a very serious offense. ### Conflicts of interest and conduct rules - Entities subject to rules of conduct in the LMV: asset management companies, custodians, investment firms engaged in asset management, and individual directors or employees. - Specific rules under Title VI of LIIC: - Management companies must establish an internal control procedure for related party transactions and report on its implementation in information documents. - Where the custodian belongs to the same group as the CIS management company or investment firm, the management company or investment firm must have a specific internal procedure to prevent conflicts of interest. - Other conduct rules address investment execution (transactions under conditions more favorable to the CIS, carrying out client orders strictly or in clients' best interest, not inducing trades solely to generate revenue). ### Delegation of management - Management companies may delegate all or part of the management of CIS assets to other entities (Article 40.5 of the CIS Act). - Delegation must be formalized by a delegation agreement and disclosed in the CIS prospectus. - The delegator retains responsibility, liability, and accountability for the management company’s functions. ### Assessment, licensing, and supervisory activity (selected findings and metrics) - Assessment: Fully Implemented. - Comments on licensing and supervision: - Under Art. 41 of the CIS Act, establishment requires ME authorization upon CNMV proposal; entry in Mercantile Register and CNMV register required before business commencement. - In 2004, CNMV supervision of CISs focused on six areas: (a) prudential regulation, (b) information supplied to investors, (c) prevention of conflict of interests, (d) management companies internal resources, (e) procedures and controls, and (f) depositaries. - CNMV operated supervisory actions before full legislative implementation; transition regime allowed prior lower-level regulations to remain in force where not contradictory to the new law. - In 2004, the CNMV issued 1,695 subpoenas: - 800 requesting additional information for supervisory purposes, - 346 for late filings by management companies, - 549 to provide corrective measures or make recommendations. - Prudential supervision focused on investment and liquidity coefficients, suitability of assets, compliance with derivatives operating limits, and solvency requirements. - For investor information, CNMV issued special recommendations to enhance transparency of management decisions. - CNMV oversight of depositaries focused on custody conditions, adequate resources, organization, and timely incident notification. - Legal certainty was strengthened with adoption of a Royal Decree on November 4, 2005. - Suggested consideration: enhance efficiency by delegating direct power to the CNMV to grant licenses for marketing or operating a CIS. ### Principle 18 — Legal form, structure, segregation, and protection of client assets - Legal forms: - Investment fund: group of separated assets without legal personality, managed and represented by an asset management company, assisted by a depositary (LIIC Art. 3). - Investment company: form of a stock corporation (LIIC Art. 9). - CIS categories: - Financial CISs: investment funds or open-ended investment companies investing in financial assets and instruments. - Nonfinancial CISs: real estate CISs (FII and SII) and other nonfinancial CISs; establishment of nonfinancial CISs other than real estate CISs subject to special conditions approved by the Minister of Economy or delegated to the CNMV (LIIC Art. 39). - Establishment and amendments: - Authorization request must include draft rules of management or internal by-laws. - CNMV authorizes CISs; amendments to by-laws/regulations generally require prior CNMV authorization (Art. 12 of the CIS Act) with some exceptions. - Notification to unit holders required immediately after authorization; unit holders must be informed prior to changes affecting investment policy, profit distribution, replacement of management company or custodian by an entity of a different group, delegation of portfolio management, change in control, merger, restructuring, winding up, establishment/increase of commissions, or other eventualities in regulations. - If changes would impose a redemption fee, unit holders have right to withdraw without fees. - Custodian–depositary rules: - Custody of securities, cash, and assets entrusted to a custodian (LIIC Art. 57); each CIS has only one custodian; no entity may be simultaneously manager and custodian for the same CIS. - No entity may be depositary for CISs managed by a company in the same business group unless a specific internal procedure to address conflicts of interest is in place (LIIC Art. 68); particulars must be provided to the CNMV. - Record keeping and transaction execution: - Management companies responsible for establishing and maintaining records concerning shares or units (Art. 40.11 of the CIS Act). - Custodian responsible for executing buy/sell transactions and collecting interest or dividends for the CIS (Art. 60 of the CIS Act). - Auditing and public availability: - CISs must be audited (LIIC Art. 21). - CNMV maintains a public record of CIS prospectuses, periodic reports, annual reports, and audit reports. - Dissolution and liquidation governed by the CIS Act (LIIC art 24); for CISs set up as companies, dissolution and liquidation follow general joint-stock company provisions without prejudice to CIS-specific provisions. - Assessment: Fully implemented. - Comments: CNMV has strong programs, information technology, and appropriate human resources to oversee the legal system governing CISs. ### Principle 19 — Disclosure requirements for CISs - Initial disclosure: - CIS cannot commence business until registered in CNMV's administrative register and its information prospectus is registered (Article 10.6 of the CIS Act). - CNMV verifies and registers full and simplified prospectuses; prospectuses must be kept up to date. - Ongoing disclosure: - CISs must prepare annual, semi-annual, and quarterly reports (LIIC Art. 17). - Any relevant facts concerning CISs must be disclosed (LICC Art. 19). - Management company must publish full prospectus, simplified prospectus, annual report, semi-annual report, and quarterly report for each fund. - CNMV maintains public records of prospectuses, periodic reports, annual reports, and audit reports on the CNMV web site; extract of last two quarterly and half-yearly reports available; full prospectus available online for funds. - Article 18.2 of the LIIC requires asset management companies to allow consultation of these documents through their web site. - Investor access before subscription: - Before subscription, potential investors must be given, free of charge, copies of the simplified prospectus and the most recent half-yearly report; full prospectus and most recent annual and quarterly reports must be provided upon request (LIIC Art. 18.1). - Periodic report distribution: - Periodic reports sent free of charge to unit holders/shareholders unless they request not to receive them; may be transmitted electronically upon request; reports must be publicly available at locations indicated in prospectuses. - Full prospectus contents (selected items to be verified by CNMV): - The date on which the prospectus was prepared. - The date of CIS establishment and the date of prospectus entry in CNMV's register. - Rights of unit holders or shareholders. - Information concerning management firms and persons responsible for prospectus content. - Rules for determining net asset value (Circular 7/1990). - Subscription and redemption procedures and settlement value procedures; SICAV prospectuses indicate stock exchanges and situations for buy/sell of own shares. - No legal obligation to include audit report conclusions in full prospectus (LIIC Art. 17); audit conclusions must be in the annual report. - Names of custodian and business group, and any sub-custodians. - CIS investment policy and risks. - Name of delegated management company and business group (if applicable); SICAVs must provide board members' names. - Commissions and fees. - CIS advertising: - Any advertising inviting purchase of units or shares must indicate existence of full and simplified prospectuses and how to obtain them (Article 18.3 of the CIS Act). - INVERCO code of conduct provides advertising guidelines; CNMV verifies compliance. - CIS advertising subject to the General Advertising Act. - Compliance checks: - On-site inspections include enquiries to unit holders to verify disclosure obligations and investigate complaints. - Accounting standards: - Accounting rules and valuation criteria set forth in Circular 7/1990; establishment or amendment requires prior review by ICAC (Ministerial Order of December 20, 1990). - Accounting rules updated on several occasions; most recent related Circular referenced is Circular 3/1998 (CNMV) concerning CIS operations and derivatives. - Assessment: Fully Implemented. - Comments: CNMV has comprehensive disclosure requirements and an investor education program and office dedicated to investors. ### Principle 20 — Asset valuation, pricing, and redemption - Accounting rules and valuation criteria: - Contained in Circular 7/1990, Circular 8/1990, and related provisions; amendments require prior review by ICAC. - Settlement value (NAV) definitions: - For funds: settlement value of a unit = value of portion of fund net assets for that class divided by number of units of that class in circulation (Article 7 of the CIS Act). - For SICAVs: theoretical value = company net assets divided by number of shares in circulation that day. - Frequency of NAV calculation: - Investment funds: frequency as stipulated depending on investment policy, unit holder nature, and liquidity; required to value net worth as often as unit holders are permitted to enter/withdraw. - Article 42 of former LIIC allowed daily NAV calculation; Article 48 of new RIIC introduces possibility of calculation every 15 days under certain conditions. - Funds of funds: can calculate settlement value on stipulated dates (at least twice a month). - Management companies must provide data to market operation boards or securities market governing bodies for publication; Royal Decree 1309/2005 (November 4) allows publication on management company web site. - SICAVs traded on stock exchange must provide daily theoretical value to stock exchange governing body; SICAVs required to calculate theoretical NAV every day when listed. - Valuation when market prices not available: - CNMV Circular 4/1997 (November 26, 1997) covers valuation criteria for non-quoted securities. - Circular 7/1990 requires alternative valuation mechanisms for fixed-income securities when quotations do not reflect market. - Ministerial Order of June 10, 1997, and other provisions require valuation systems for OTC derivatives or illiquid derivatives. - CIS Regulations permit securities with suspended quotations representing up to 5 percent of fund net worth to be valued at last known change; if >5 percent, they cannot be valued and subscriptions/redemptions use settlement value reflecting only the part of portfolio subject to valuation (Article 42.9). - Subscription and redemption procedures: - Units issued or redeemed by management company at unit holder request (Article 7 of the CIS Act). - Price for subscriptions/redemptions may be the settlement value for same day or following day (management company option). - For funds of funds with non-daily frequency, settlement value applying is the first value calculated after request (Article 52 bis of CIS Regulations). - Management companies may charge subscription and redemption fees set as a percentage of unit settlement value (Article 8 of the CIS Act). - For SICAVs traded on exchange, market mechanism sets price; SICAV must buy/sell its own shares as counterparty when market price differs from theoretical value (Article 33 of CIS Regulations). - Valuation errors and CNMV actions: - Valuations are the responsibility of the management company (Article 40 of the CIS Act); custodian must oversee criteria, formulas, and procedures used (Article 60 of the CIS Act). - CNMV systematically analyzes daily rates of return to detect atypical returns often caused by settlement value calculation errors. - For serious or repeated errors, CNMV analyzes adequacy and validity of valuation mechanisms and internal control systems and urges management companies to set up control mechanisms before subscription/redemption operations. - Governing legal provisions do not specify thresholds for compensation to unit holders for incorrect settlement value application; thresholds are defined by the management company itself. In practice, management companies routinely provide compensation except when impact is negligible. - CNMV can suspend subscription or redemption temporarily when units' price cannot be determined or in force majeure, or when valuation errors are not corrected immediately (Article 7 of the CIS Act). CNMV notes it has never suspended at its own initiative but has imposed suspensions at management company request. - Assessment: Fully implemented. - Comments: CNMV has excellent rules and effective monitoring for asset valuation and conditions governing redemption; prevention of late trading and market timing has been kept under scrutiny. ### Principles for Market Intermediaries (Principles 21 and 22) - Principle 21 — Minimum entry standards for market intermediaries: - Investment services can only be provided by investment service providers (ESIs) under the LMV (Article 62). - Art. 63 of LMV identifies investment services including reception/transmission of orders, execution of orders on behalf of third parties, trading for own account, discretionary portfolio management, acting as broker for issuer placing issues/public sales, and insuring subscription of issues/public sales. - Additional activities may include custody and administration of securities, renting safe-deposit boxes, granting credits or loans to investors, advising businesses, insurance-related services, and investment advice. - Article 64 of LMV provides three ESI categories: securities firms (SVs), securities agencies (AVs), and portfolio management companies (SGCs). - Authorization and registration: - Responsibility for authorizing ESIs rests with the Minister of the ME, acting upon CNMV proposal (Article 66 of LMV). - ESIs authorized in another EU member state may operate by branch or freedom to provide services; non-EU entities require CNMV authorization (Article 71 of LMV). - Credit institutions may engage in listed activities under their legal regime (Article 65 of LMV). - Tied agents: representatives for promoting and marketing investment services. - Application must indicate ESI class and specific services/additional activities. - CNMV operating procedures for granting authorization are PAEs (Procedimiento de autorización de las empresas). - Once authorized and entered in Mercantile Register, entity is entered in CNMV Register; CNMV makes public record of significant shareholders in ESIs. - Minimum capitalization requirements (Article 15 of the RESI and related): - Securities firms: €2 million. - Securities agencies, when seeking authorization to become members of secondary markets, or to join securities clearing and settlement systems, or to include custody of securities and maintain creditor accounts that are documentary and transitory in nature: €500,000. - Other securities agencies: €300,000. - Portfolio management companies: €100,000. - Capitalization of ESIs that are legal entities may not be less than €25,000. - Other entry requirements: - Integrity and professionalism of board members, officers, and senior management (Article 67). - Sound organization from administrative and accounting standpoint and adequate human and technical resources (Article 67). - Internal rules of conduct, information-systems monitoring and security, internal control procedures, including rules on personal transactions (Article 67). - CNMV may deny authorization if requirements not met or significant partners considered unfit (Article 66). - Subsequent amendments to bylaws or changes in authorized activities require the same authorization procedure as new entities (RESI and LMV articles cited). - Any prospective acquisition of a significant holding in an ESI must be notified to CNMV in advance. - Oversight: - CNMV responsible for oversight, inspection, and sanctions; may require any information it considers necessary (Article 73 of LMV). - ESIs must make available all books, records, and documents regardless of form. - Routine inspections include off-site review of reported information and on-site verification of assets, internal controls, and compliance. - Assessment: Fully implemented. - Comments: Minimum entry standards in place; attention recommended to coordinated or joint supervision activities between BE and CNMV. - Principle 22 — Initial and ongoing capital and prudential requirements: - Initial minimum capitalization described under Principle 21. - Ongoing solvency requirements: - Capital of securities firms and securities agencies may not fall below the highest of: - Two-thirds of the minimum capital. - The aggregate risk undertaken (sum of risks from traded securities portfolio, credit risk, and exchange risk). - Basic requirements depending on level of activity (25 percent of overhead costs) to determine financial needs to remain operational for three months with no income. - 0.5 percent of the portfolios being managed. - For portfolio management companies, their capital may not at any time fall below (text ends in source). *Source: _cr06220 - chapter II) establish the requirement for communications between the jurisdictions involved, or* ### 0.5 percent of the portfolios managed. ### _cr06220 - 0.5 percent of the portfolios managed. ### Solvency, liquidity, and capital monitoring - Solvency ratio (and liquidity ratio) must be met at all times. - Entities are required to file financial statements with the CNMV every month showing relevant capital and solvency-ratio information; for corporate groups with consolidated information this check is performed every three months. - An entity may be called upon at any time to demonstrate compliance with solvency and liquidity requirements. - Management reports and accounts for each financial year must be audited and then approved by a general meeting of shareholders within four months after the end of the financial year. - CNMV regularly reviews levels of capital of ESIs and their affiliated corporate groups and takes measures if material deficiencies are identified. - If capital falls below the minimum required, the regulated entity must inform the CNMV and provide a program that, at a minimum, addresses: - The reasons why the capital level fell below the minimum required. - The plan for returning to compliance, which must include both a limitation of activities that entail a high level of risk and steps to increase the level of capital. - A timetable for returning to compliance. - The CNMV must approve the remediation program within a specified period and may add other measures. - CNMV interventions have included: - Demanding action plans for additional capital or equity loans to restore the solvency ratio. - Selling real estate, arranging leasing, or restructuring corporate groups to comply with fixed-asset investment limits. - Requiring reduction of positions in certain securities or obtaining adequate guarantees from debtors where major risks exceeded limits. ### Internal organization, conduct, and internal controls (Principle 23) - Objective: protect clients, ensure proper risk management, and assign primary responsibility to intermediary management. - Core organizational and conduct requirements: - Proper administrative and accounting organization; adequate human and technical resources. - Internal rules of conduct; adequate information systems, monitoring, security mechanisms, and internal control procedures. - Rules of conduct and client-facing obligations: - Entities must deal with and resolve client complaints or enquiries; credit institutions, ESIs, and insurance institutions must have a customer services department or unit. ESIs must advise the CNMV of the identity and postal and e-mail addresses of the person heading the client services unit (information publicly accessible on CNMV website). - Securities custody: measures to protect clients’ property rights and prevent improper use of securities or documentary/transitory funds; individual client accounts required unless omnibus accounts permitted for certain foreign markets. - Client identification: entities must obtain and maintain information on client identity, financial circumstances, investment experience, and investment objectives; identification documents retained for six years. - Information to clients: information must be clear, accurate, precise, sufficient, and up to date; for contracts longer than one year or indeterminate, intermediaries must provide clients every three months with detailed portfolio status information. - Contractual documentation: mandatory provision of relevant contractual documentation for specified transaction types and when requested by the client. - Impartial treatment: entities must act with diligence and transparency, avoid conflicts of interest, and ensure equality of treatment among clients. - Internal audit and reporting: - ESIs must have an internal audit unit composed of one or more individuals not involved in contracting, risk management, client relations, administration, settlement, or collection/payment functions. - At year-end the internal audit unit must submit to the board—or audit committee—a report on compliance with internal control requirements and major occurrences; this report is forwarded to the CNMV together with the audited annual accounts. - CNMV Distance Supervision Unit reviews such reports. - CNMV on-site inspection focus areas: - Existence and functioning of internal audit unit. - Safeguards and controls for proprietary and client account balances to prevent unauthorized use. - Proper maintenance of accounting and transaction records and supporting documents. - Proper segregation of duties and functions to prevent information-flow conflicts of interest. - Internal rules of conduct addressing conflicts of interest and confidentiality of market and client information. - Assessment: Fully Implemented ### Procedures for failure of market intermediaries and investor protection (Principle 24) - Three-stage framework to prevent or manage intermediary failure: - Preventive mechanisms (off-site monitoring and checks). - Investigation, suspension, or revocation of authorization. - Investment Guarantee Fund (FOGAIN). - Off-site inspection phases: - Phase I. Receipt of information — monthly checks for entities; every three months for consolidated groups. - Phase II. Quality check — verify calculations for liquidity ratio and risk concentration factor. - Phase III. Check of the liquidity ratio — verify sufficient liquid assets to cover current liabilities due within less than one year. - Phase IV. Check of risk concentration — verify compliance with limits on exposure to a single individual, legal entity, or business group. - Phase V. Check of capital soundness — verify maintenance of capital sufficient to cover capital requirements applicable to joint-stock companies. - Phase VI. Issuing of instructions — require explanation and remediation if noncompliance detected. - Investigation, suspension, or revocation: - CNMV may open investigations and temporarily replace directors or officers where necessary; such measures require reporting to the minister of economy. - Investigation or temporary replacement may occur if: - The entity is in an exceptionally serious situation jeopardizing equity, stability, liquidity, or solvency. - There are well-founded indications the situation is exceptionally serious and true position cannot be determined from accounts. - At the request of the entity with proper justification. - Suspension of an ESI's authorization may be imposed (in whole or in part) where necessary to assure solvency or protect investors. - Revocation: CNMV revokes authorization directly if ESI expressly gives it up and withdraws from the General Investment Guarantee Fund; otherwise revocation is decided by the minister of economy upon CNMV proposal; revocation takes immediate effect after notification and may lead to mandatory dissolution. - CNMV can request an insolvent ESI to declare bankruptcy if accounts or inspections show insolvency. - Investment Guarantee Fund (FOGAIN): - FOGAIN is a separate capital fund without legal personality, represented and administered by its own management company; assets derived from contributions from member entities (all ESIs except those that manage organized trading systems). - Purpose: cover investors when they cannot obtain restitution of funds or securities/instruments from a member ESI in connection with provision of investment services; does not cover loss of value of the investment or credit risk. - Coverage applies to client funds/securities entrusted to ESIs in connection with investment services; funds/securities of those deemed professionally qualified (including all financial institutions) are excluded. - Coverage trigger: FOGAIN coverage applies when an ESI is declared noncompliant (either by the courts or by administrative means). - Maximum compensation amount fixed at €20,000 in accordance with EU governing legal provisions. - Branches of foreign ESIs must evidence belonging to similar home-country fund, but may join FOGAIN to supplement home-country coverage. - Cooperation with other agencies: - A system of cooperation among oversight agencies is in place for groups overseen by several agencies nationally or across EU borders; otherwise cooperation follows EU provisions and agreements. - Assessment: Fully Implemented - Comments and FOGAIN historical/financial data: - FOGAIN retroactive effect back to July 1, 1993. - Since that date, five companies have been declared noncompliant with prudential requirements. The listed items in the source are: - Year Entity - 1994 Broker Balear AV - 1994 Bolsa 8 AVB - 1995 XM Patrimonios AV - 1998 AVA Asesores de Valores AV - 2001 Gescartera Dinero AV - Because FOGAIN has only been fully in operation since 2002, indemnification following these situations has been handled in association with the fondos de garantia de depósitos and FOGAIN (proportionally to their net assets on December 31, 2001). - Net assets of FOGAIN on December 31, 2004 amounted to €14.8 million and were anticipated to amount to €18.8 million at the end of 2005. - Under the hypothesis of an annual increase in assets of €4.8 million (average increase anticipated on the actual basis of calculation retained for the period 2003-05), FOGAIN could deal now with bankruptcies comparable to Balear AV, Bolsa AVB y XM Patrimonios AV, and would be able to face a major case such as GESCARTERA AV by the end of 2006 and a case such as AVA AV by the end of 2009. - Member entities provided FOGAIN with data on maximum indemnification if they were to go bankrupt; with anticipated assets at end-2005, the fund could cover the vast majority of the losses incurred. - In case of a major crisis, FOGAIN could ask for additional contributions from member entities and have recourse to external financing. ### Secondary markets, trading systems, supervision, and transparency (Principles 25–27) - Principle 25 — Authorization and oversight of trading systems: - Spanish law distinguishes official secondary markets and organized trading systems (SONs). - Official secondary markets operate on a regular basis pursuant to the LMV and implementing regulations; classified examples include securities exchanges, the market for public debt represented by book entries, markets for options and futures, and other authorized government markets. - Characteristics of official secondary markets: - Organized markets with a governing body incorporated as a company responsible for rules on market access, quotations, contracts, and information disclosure. - Closed markets: only authorized members have access. - Members' minimum obligations towards clients are regulated; government may prohibit or limit operations that threaten transparency, orderly functioning, or investors’ interests. - Private securities must be requested for listing by issuer and approved by the governing body, subject to prior CNMV verification. - Issuers of listed securities must be audited every year and publish specific financial and accounting statements every three months (exceptions: government, Autonomous Communities, certain international organizations, entities established by government under public law). - Organized trading systems (SONs): - Multilateral trading systems matching multiple parties’ interests in one system under nondiscretionary rules producing a contract. - SONs do not perform public functions of regulated markets (e.g., listing, suspension). - Recognized SONs are more self-regulating; examples include two fixed-income electronic trading platforms (SENAF and MTS Spain) and Latibex. - Authorization rule: establishment of any market or organized trading system without official market status must be authorized by the government subject to prior CNMV report, or by the corresponding Autonomous Community where applicable (LMV Art. 31.4). - Authorization and oversight specifics: - Market activities authorized set forth in bylaws, operating regulations, circulars, and instructions checked by CNMV. - Authorization of derivatives markets requires reports from governing boards of markets where underlying assets trade and simultaneous authorization of clearing and settlement infrastructure. - Governing bodies must be incorporated as companies with responsibilities for contract-making, recording transactions, and organizing clearing/settlement. - Membership: Article 37 of the LMV sets minimum requirements; members include securities firms, securities agencies, Spanish credit institutions, and authorized investment services firms and credit institutions from other jurisdictions (subject to conditions). - Rules of conduct: LMV, General Code of Conduct, and markets' internal rules set binding rules of conduct for members. - Assessment: Fully Implemented - Comment: MIFID directive implementation in April 2007 will change authorization procedure of Multilateral Trading Facility (MTF) and allow investment firms to run them; observance of Principle 25 should be kept under review. - Principle 26 — Ongoing regulatory supervision of exchanges and trading systems: - Governing bodies supervise markets; CNMV performs higher-level oversight. - Governing boards required to set up oversight and surveillance units with at least one person supervising each trading session; must report immediately to CNMV any events/activities that may breach binding rules. - CNMV (Directorate General of Markets and Investors) uses warning systems and daily reporting mechanisms to detect significant variations in prices/volumes or concentration of trading. - Information flows to CNMV: - Governing boards must forward daily information on transactions executed during and outside sessions, with volume, price, and time for each transaction (Circular 4/1999). - CNMV also receives information on guarantee deposits from derivatives participants and on settlement systems for fixed- and variable-income markets. - CNMV actions for irregular practices include requesting reports, imposing fines, replacing directors, or revoking authorization; such measures decided by the Minister of Economy upon CNMV report. - Markets’ operating rules and amendments must be reviewed by CNMV; CNMV may suspend application of any rule it believes breaches securities market legislation. - Assessment: Fully implemented - Principle 27 — Transparency of trading: - Market transparency is a fundamental principle of the LMV and central to EU regulation (MIFID). - Article 43 of the LMV: CNMV, BE, and governing boards determine what market operation information is to be public; governing boards must publish daily listings of traded securities with items determined by CNMV. - CNMV Circular 3/1999 specifies required daily listing information and time limits for publication; markets must develop technical systems to meet publication timing. - Key disclosure practices: - SIBE (Spanish Securities Exchange Interconnection System): real-time information on orders and transactions per security; bids for best five buying and selling positions made public; executed transactions during the session made public with price, transaction, buyer and seller, and time. - Pit trading (fixed- and variable-income): high, low, opening, and closing prices made public at close; trading volume made public prior to next day's pit trading opening. - Electronic fixed-income market: trading volume and price of last transaction made public in real time for each issue. - Special measures (e.g., broadening static range, volatility auctions, interrupting/suspending trading) are announced in advance on SIBE screens. - Official Listings of Traded Securities prepared by four stock-exchange governing boards publish trading session information; real-time information also provided to operators and commercial market data services (latest cross price, buyer and seller in recent transaction, opening price, volume traded, and five best bids). - Exceptions to real-time publication: - Block market transactions and certain special transactions are published the following day subject to specified conditions. - AIAF (Financial Assets Intermediaries Association) disclosure: - Required to publish most recent contracted volume, price, and yield in real time for each issue (except short-term assets where only most recent contracted volume and yield are published). - AIAF required to publish information every half hour via commercial services and in real time on the AIAF website; daily and weekly summaries also published. - Conditions for access to information: information must be published as quickly as possible and all investors must be treated equally to contribute to market efficiency. *Source: _cr06220 - 0.5 percent of the portfolios managed.* ### Chapter VIII. ### Chapter VIII. ### Market transparency and data dissemination - BME Group (Spanish Stock Exchanges and Markets Group) provides public data access and a standard information contract for SIBE data, with various tiers of data content depending on contract and subscription rate. - The SIBE publishes information with a 20-minute delay free of charge on its website. - MEFF, AIAF, MTS, and SENAF offer information contracts similar to SIBE. - MEFF makes information available on transactions executed either in real time or with a delay of not more than 15 minutes (depending on the type of product). - AIAF makes trading information public on its website with a maximum delay of two hours. - MEFF transparency requirements for options and futures markets: - Disclosure of orders made, transactions executed, and open positions in real time for each contract. - Market information must be made public: - (a) in real time, by terminals connected to each market's central computer and through commercial market data services; and - (b) on a regular schedule, in the Daily Market Bulletin, the press, and other communications media. - MTS and SENAF transparency specifics: - MTS: contract-making is a blind process; existing bids ranked by order of price are published on the market screen accessible to all members; once an order is executed, the counterparty becomes known; members may view the total amount traded during the session at any time. - SENAF: completely blind market; counterparty not known in contract-making or settlement; bids ranked by order of price are published on market screens including an indication of type of member; total traded can be seen in real time whenever the screen is refreshed. - Assessment: Fully implemented. - Comment: Implementation of the MIFID directive regarding transparency requirements on the securities markets will require a high level of monitoring. ### Regulation to detect and deter manipulation and unfair trading practices (Principle 28) - Criminal provisions: - Penal Code Articles 284 and 285 expressly prohibit price manipulation and other unfair practices in connection with the trading of items (particularly securities), including spreading false news for the purpose of manipulating price formation; breach may be punishable by incarceration. - Securities market conduct (LMV, Title VII) obligations for investment services firms, credit institutions, and market participants include: - act with diligence and transparency in the interests of their clients and in the defense of the integrity of the market; - organize to minimize conflicts of interest; - behave in an orderly and prudent manner; - have adequate resources and appropriate internal controls; - obtain necessary information about clients and keep clients properly informed; - ensure equality of treatment among clients; - refrain from taking positions on their own account in securities or financial instruments for which a specific analysis is under way from the time conclusions become known until the report is public; - inform clients of any possible conflict of interest with respect to advice or investment services provided. (Article 79 of the LMV) - Specific prohibitions (Article 80 of the LMV): - An entity may not, for its own benefit or for the benefit of outside parties, act so as to cause an artificial shaping of quotations; - buy securities for its own account if it has clients seeking to buy the same securities on the same or better terms; - attempt to sell securities it owns before selling those of its clients if such clients have ordered the sale of the same class of security on the same or better terms. - Restrictions on activities of those possessing privileged information (Article 81.2 of the LMV). - EU-level market abuse framework noted: Directive 2003/6/EC and implementing Commission Directives and Regulation. - Additional legal provisions cited: Annex to Royal Decree 629/1993; Commission Directive 2003/124/EC; Commission Directive 2003/125/EC; Commission Directive 2004/72/EC; Commission Regulation 2273/2003. - Assessment: Fully Implemented. - Comment: See also discussions under Principles relating to enforcement and cooperation. ### Oversight mechanisms and procedural enforcement - CNMV responsibilities: - Monitor and examine trading to detect practices contrary to good market practice; gather and analyze trading and market intermediary information in real time for electronic markets and after close of session for other markets. - Receive trading information directly from markets and via commercial market data services (Reuters and Bloomberg). - Use a system of parameter-based signals for each security to identify abnormal behavior in volume or price (large-volume traders, concentration of trades, large price swings, etc.). - Keep close contact with oversight units of market governing boards; request specific information; perform oversight of market participants and analyze reported information; request specific information and make periodic inspection visits. - Power to suspend trading in any security prior to announcement of significant news to ensure equal opportunities for investors. - Cooperates with: Bank of Spain; Directorate General of Insurance and Pension Funds; Executive Administration of the Commission for the Prevention of Money Laundering and Monetary Offenses; authorities of the Autonomous Communities with financial oversight responsibilities; judicial authorities where necessary. - International cooperation: memoranda of understanding with foreign oversight boards; membership in CESR-POL (operational group of the Committee of European Securities Regulators). - Market Surveillance Unit (UVM) procedures: - Directorate General of Markets and Investors refers suspected market abuse to the UVM for investigation. - UVM takes statements, makes inquiries, determines possible administrative sanctions; may issue warnings or initiate sanction proceedings handled by CNMV's Directorate of Legal Affairs and Directorate of the Disputes Service and Sanctions Regime. - If sanction proceedings are initiated: - Very serious infractions: matter forwarded to the Minister of Economy. - Serious or moderate infractions: matter forwarded to the CNMV's Board for confirmation of results. - If criminal evidence is found during proceedings, matter is reported to the Public prosecutor. - Assessment: Fully Implemented. ### Management of large exposures, default risk and market disruption (Principle 29) - Systems covered: - Iberclear (stock-exchange settlement risk management system). - Derivatives markets clearinghouses: MEFF (variable-income and fixed-income derivatives markets), Olive Oil Futures Market (MFAO). - Central counterparty for fixed-income transactions run by the MEFF. - Legal and regulatory basis: - LMV provides guiding principles; authorization for each system requires internal regulations; system operators may establish technical rules subject to CNMV approval. - Monitoring of large exposures: - Quantitative and qualitative trigger levels established; risk management system operator initially sets quantitative trigger levels subject to CNMV approval or non-opposition; CNMV may set levels or intervene where risks cannot be assessed a priori quantitatively. - Iberclear variable income settlement platform: - Quantitative trigger levels based on collective bonds posted by entities as a joint and several guarantee. - Each member must post a bond recalculated monthly; every day each entity's bond is compared against its open unsettled position; if open unsettled position exceeds bond amount, Iberclear requests additional bonds until full exposure is covered. (See Arts 63 and 64 of Royal Decree 116/1992 and Title III, Chapter IV, of the Iberclear-SCLV Regulations.) - CNMV must be kept informed of bonds posted and daily changes; CNMV analyzes settlement accounts and open unsettled positions to estimate potential one-off settlement risks. - Iberclear may take corrective measures for breaches, with priority to prevent delays in delivery or noncompliance in settlements; CNMV must be advised in advance if such measures are taken. (Title IV of the Iberclear-SCLV Regulations.) - MEFF clearinghouses and MEFF central counterparty: - Limits and parameters monitor participant risk; guarantees must be posted and maintained; positions monitored and exposure calculated in real time; guarantees posted at least daily. - Limitations consider participant equity/solvency and relative size. (Chapter IV of Royal Decree 1814/1991; Chapter VI of MEFF Variable Income Regulations; Chapter VI of MEFF Fixed Income Regulations; Chapter VIII of MFAO Regulations; Chapter V of MEFFCLEAR Regulations.) - Operators required to advise CNMV if certain position sizes may significantly impact contract-making or settlement; CNMV has access to operators' risk control systems for daily checks of distribution of participants with large exposures and level of risk per position. - Information on beneficial ownership of risk positions: - Iberclear, MEFF, and CNMV have access to beneficial ownership information and special records of guarantees posted by participants or client coverage. - CNMV may gather necessary information concerning supervised individuals or legal entities; failure to provide requested information may be deemed an offense and grounds for loss of participant status. - CNMV permitted to cooperate with national and foreign authorities with similar responsibilities. (Articles 17, 87, 88, and 90 of the LMV.) - Procedures for managing non-compliance: - System-specific regulations or higher-level legal provisions define: circumstances and identification of steps to be taken; treatment of private positions/funds/assets and clients; settlement conditions where applicable; mechanisms for intervening in case of member breaches and how member obligations are to be settled. - Insolvency and management of posted guarantees: - If insolvency proceedings are initiated against a participant, system operator and other participants have an absolute right of separation with respect to guarantees posted by the participant or by an outside party in the participant's name. - Guarantees posted by a client are protected in the event of member or custodian failure and are transferred to another entity engaged by the client. (Articles 44 bis, 44 ter, and 59 of the LMV.) - Assessment: Fully implemented. ### Clearing and settlement systems oversight (Principle 30) - Cross reference to CPSS-IOSCO template. - Assessment: Not rated — Principle 30 has been assessed by a specialist according to the recommendations for securities settlement systems and central counterparties, adopted jointly by the Committee on Payment and the Settlement Systems of the BIS and IOSCO. - Comments: (no additional comments provided in the source excerpt) ### Summary implementation of IOSCO Objectives and Principles of Securities Regulation (Table 2) - Assessment Grade counts and listing: - Fully Implemented: 25 — Principles 1, 3, 4, 5, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29 - Broadly Implemented: 2 — Principles 2, 8 - Partly Implemented: 0 - Not Implemented: 0 - Not applicable: 2 — Principles 6, 7 - Not rated: 1 — Principle 30 (see CPSS-IOSCO report) _Chapter VIII. _cr06220 - Chapter VIII. ### 28. The assessment has shown a high degree of observance of the Principles. ### _cr06220 - 28. The assessment has shown a high degree of observance of the Principles. ### Overall assessment - The assessment has shown a high degree of observance of the Principles. - Recommended actions to strengthen the system further are summarized in a Recommended Plan of Actions to Improve Implementation of the IOSCO Objectives and Principles of Securities Regulation. ### Principles Relating to the Regulator (P 1–5) - Principle 1 (clarity of responsibilities of the regulator) - Recommendation: Securities market activities of banking groups should be supervised by the CNMV from inception (including in the licensing phase). - Recommendation: Enhance cooperation between the Bank of Spain and the CNMV by including CNMV’s assessment of the program of activity of credit institutions that intend to provide investment services. - Note: Assessors recognize IOSCO does not prescribe division of responsibilities but insists the division be clearly set out and cooperation organized and reliable. - Principle 2 (independence and accountability of the regulator) - Recommendation: Appointments to CNMV’s board should be for a longer term than the present four years, and should be non-renewable. - Recommendation: At least some non-executive members of the Board should be appointed drawing from varied constituencies (for example, academia or the private sector). - Operational independence recommendation: Vest CNMV with the power to design and adopt secondary legislation (to be promulgated by executive authorities), the capacity to grant and withdraw licenses to regulated entities and products, and the power to impose sanctions on administrative grounds for any infractions of the securities law and regulations. - Principle 3 (adequate powers and resources of the regulator) - Findings: CNMV’s powers have shortcomings in authorization of investment firms and credit institutions involved in securities dealings; in adoption of secondary legislation; and in limitation of sanctioning powers to infracciones leves y graves, thus excluding infracciones muy graves. - Recommendation: More flexibility is needed to hire specialized professionals in high demand by the private sector. - Principle 4 (clear and consistent regulatory processes) - Issue: Procedural fairness questioned because administrative silence constitutes implicit rejection of complaints. - Observation: Spanish administrative framework has been modernized to include stronger protection of individual rights; implicit rejection opens possibility for appeal. - Empirical note: In recent years no such implicit rejection decisions have been made and only one such decision can be recalled in the history of the commission. ### Principles of Self-Regulation (P 6–7) - Finding: The Spanish regulatory system does not make use of SROs. - Oversight of exchanges and clearing and settlement systems addressed under Principles 25–29 and Principle 30 (not detailed here). ### Principles for the Enforcement of Securities Regulation (P 8–10) - Principle 8 (inspection, investigation and surveillance powers) - Finding: The right of the CNMV to inspect regulated entities on an unannounced basis is not explicitly mentioned in the law. - Recommendation: Establish explicitly in law that the CNMV may carry out inspections without prior notice. - Practice: Inspections are being carried out without prior notice. - Principle 9 (enforcement powers of the regulator) - Issue: When CNMV identifies facts that could lead to criminal sanctions, it must send the case to the public prosecutor and suspend its administrative proceeding until a final criminal ruling. - Observation: Very few cases under Spanish law give rise to both criminal and administrative sanctions; CNMV has taken necessary precautionary measures when such cases have arisen. - Recommendation: CNMV should continue to ensure that prosecution on criminal grounds of major market abuses remains timely. - Suggestion by expert: Consider simultaneous proceedings under administrative and criminal frameworks to avoid long delays. ### Principles for Issuers (P 14–16) - Findings: - Spain has comprehensive regulations covering completeness, accuracy, and timeliness of financial results disclosure. - Spain has a fairly complete system for protection of minority shareholders and is compliant with EU prospectus and market abuse directives as recently transposed in Spanish law. - Principle 16 (accounting standards) - Recommendation: CNMV should be more involved in interpretation and enforcement of accounting standards for listed companies. ### Principles for Collective Investment Schemes (P 17–20) - Principle 17 (oversight of CIS) - Finding: Oversight of the CIS sector appears sufficiently proactive to check compliance. - Note: Legal certainty was only recently added through adoption of a Royal Decree on November 4, 2005. - Recommendation: Consider delegating direct power to the CNMV to grant licenses for those who wish to operate a CIS. ### Principles for Market Intermediaries (P 21–24) - Principle 21 (minimum entry standards) - Finding: Minimum entry standards for market intermediaries are in place and monitored by the Bank of Spain and the CNMV. - Recommendation: Pay close attention to development of coordinated or joint supervision activities between the Bank of Spain and the CNMV. ### Authorities’ response to the assessment (paragraphs 29–35) - General position - The Spanish authorities broadly agree with the assessment and welcome the finding of a very high degree of compliance with IOSCO objectives and principles, while making the following comments. - Regarding Principle 1 (paragraph 30) - Measures will be taken in the near future to enhance the role of the CNMV when credit institutions intend to provide investment services. - Regarding Principle 2 (paragraph 31) - Authorities note current legislation does not impede candidates being drawn from the private sector or academia; Law on Securities Markets requires members to be experts in the field of securities markets. - Authorities do not share the recommended plan regarding appointment constituencies. - Authorities will lengthen the current period of four years for appointment of Members of the Board and make them non-renewable. - Regarding secondary legislation and licensing (paragraph 32–34) - Claim: CNMV decides on technical aspects of financial regulation, while Parliament and Government take political decisions. - Argument: Ministry proposes financial regulation and has overview of banking, insurance and investment services; Ministry negotiates EU normative and balances supervision of credit institutions with economic needs to avoid overregulation. - Sanctioning powers: Under Spanish legal system sanctioning power relies on the government; the decision on the most serious infringements stays with the Ministry of Finance though the CNMV proposes sanctions. - Licensing: Power to grant licenses is of public nature and must be carried out by public administration; CNMV proposes licenses to the Ministry. - Conclusion: Present allocation of powers does not pose risk to CNMV independence nor to functioning of the system. - Regarding Principle 8 (paragraph 35) - Authorities disagree with characterization of Principle 8 as only “broadly implemented”. - Legal basis cited: Article 85 of Spanish Securities Markets Law gives CNMV sweeping inspection powers and does not impose any restriction on minimum notice period to regulated entities. - Claim: CNMV is authorized to carry out inspections without prior notice and has done so on several occasions. - Authorities’ view: Response to the first Key Question under Principle 8 should be “yes” and Principle 8 should be declared “fully implemented”. *Source: _cr06220 - 28.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06220.pdf_