Brexit: Spain publishes measures to amend the UK to a third country

On 30 December 2020, Spanish Royal Decree-Law 38/2020 of 29 December 2020 (RDL 38/2020 - available in Spanish here) was published in the Spanish Official Gazette - Boletín Oficial del Estado (BOE), providing certain measures to change the United Kingdom to a third country after the end of the transitional period, as agreed in the EU-UK withdrawal agreement.

The RDL 38/2020, which enters into force on 1 January 2021, establishes the necessary measures to adapt the Spanish legal regime once the transitional period ends. It includes a specific section dedicated to financial services, which is summarised as follows:

Continuity of contracts
The continuity of financial services contracts (banking, securities, insurance or other financial services) concluded by UK financial entities (mainly including investment firms, credit institutions and insurance companies) before 1 January 2021 will remain valid. The obligations of the parties under such contracts will remain applicable and enforceable.

Licensing requirements
From 1 January 2021, UK authorised entities will be subject to the relevant Spanish legislation and applicable regimes in respect of third country firms. UK entities will have to obtain a new authorisation to operate in Spain in the following cases:

• to renew existing contracts entered into before 1 January 2021;
• to amend existing contracts where changes imply provision of new services in Spain or that have an impact on the essential obligations of the parties;
• when the activities linked to the management of the contracts trigger licensing requirements; and
• to sign new contracts.

The RDL 38/2020 expressly states that the activities derived of the management of the contracts entered into before 1 January 2021 that are not under the first three cases mentioned above shall not trigger new authorisation. In this regard, UK entities would need to verify carefully whether their business in Spain involves any of those cases in order to take appropriate measures to obtain the corresponding license to operate in this country.

Temporary permission
Authorisation or registration initially granted by the relevant UK competent authority to UK entities shall temporarily maintain its validity until 30 June 2021 with the purpose of carrying out the activities needed to complete the termination or assignment of contracts entered into before 1 January 2021 to an entity duly licensed or passported to provide financial services in Spain and in accordance with the contractual provisions. In the case of insurance entities, this temporary permission could be extended till 31 December 2022.

Additional requirements of the CNMV, Bank of Spain and DGSPF
In Spain there are three supervisory authorities:

• the Banco de España (Bank of Spain) authorises and supervises entities providing banking services);
• the Comisión Nacional del Mercado de Valores (Spanish Securities Market Commission or CNMV) authorises and supervises entities providing investment services); and
• the Dirección General de Seguros y Fondos de Pensiones (Directorate-General of Insurance and Pension Funds or DGSFP) authorises and supervises entities providing insurance services).

The Bank of Spain, CNMV and DGSFP will have supervisory powers and may request UK entities to provide documentation and/or information or request certain steps to be taken, if needed.

Penalties
If an entity fails to comply with the requirements imposed by the relevant supervisory authority, the temporary permission could cease to apply. In that event, the Bank of Spain, CNMV or DGSFP, as appropriate, will inform the UK entity that an activity which triggers a licensing requirement in Spain is being carried and, accordingly, Spanish penalties or sanctions may apply (which can lead to the imposition of very serious sanctions).

What happens next?
The Bank of Spain, CNMV and DGSFP will adopt measures, as necessary, to ensure the legal certainty and safeguard the interests of financial services clients who could be affected by the withdrawal of the UK from the EU.

It is likely that further provisions will be published, providing more sector-specific detail on the application and scope of the RDL 38/2020.

UK entities must ensure that: (i) relevant actions are taken before the end of the temporary permission (30 June 2021), (ii) all provisions applicable in Spain are duly complied with and that indications imposed by the Bank of Spain, CNMV or DGSFP are properly followed and that (iii) provision of financial services is only carried out by entities duly authorised or passported in Spain, which must be included in the relevant registries of the Bank of Spain, CNMV or DGSFP.