CNMV criteria for third-country firms operating cross border in Spain

On 23 July 2021, the Spanish Securities Market Commission – Comisión Nacional del Mercado de Valores (CNMV) published a statement, which includes the criteria for the authorisation of third-country firms (expressly including investment firms and credit institutions) to provide investment services to professional clients in Spain without the need to set up a branch. This follows one of the objectives set out in the CNMV’s 2021 action plan, within the supervision block of financial intermediaries.

Current Spanish regulations already contain a specific third-country regime and the possibility of providing investment services in Spain to professional clients by third-country firms without a branch.

So, where an investment firm which is not authorised in an EU Member State intends to provide investment services without (a) having established a branch in Spain and (b) being on ESMA’s third-country companies register (under Article 48 of MiFIR), the firm must request (and where applicable, obtain) prior authorisation from the CNMV, indicating the activities that are to be carried out.

The CNMV may request further information and may make the performance of such activities conditional upon the fulfilment of certain requirements to guarantee compliance with the rules of the market where it intends to operate or those of public interest.

Services that can be provided without a branch in Spain are those for professional clients and eligible counterparties referred to, respectively, in Articles 205 and 207 of the restated text of the Spanish Securities Market Act (SMA) - the provision of services to retail or professional clients referred to in Article 206 of the SMA must be performed through a branch.

In addition, the SMA and its implementing regulations authorises the CNMV to require the establishment of a branch in certain cases. In this way, and making use of this power, the CNMV’s position had until now, had been that the normal requirement for UK-domiciled entities would be to establish a branch.

With the publication of the Statement, the Spanish regulatory approach changes and it is now possible that, in practice, UK firms may finally benefit from the third-country regime mentioned above.

The CNMV has now set out certain requirements which must be complied with by those third-country firms wishing to make use of the regime described above. In this regard, the CNMV establishes a first filter, which restricts the applicability of this regime to entities domiciled in countries with which there is reciprocity - that is, in which Spanish entities (investment firms or credit institutions) can provide investment services without a branch, under terms and conditions similar to those laid down in the Spanish regulations. However, it will be necessary to know what criteria are taken into account when determining reciprocity and whether these are, in fact, fulfilled in the case of UK.

However, the regulator establishes a second filter which depends on the type of client domiciled in Spain which the third-country firm (whether this is a credit institution or an investment services company) is targeting.

The services must be limited to eligible counterparties clients (as defined in the Article 207 of the SMA) or per se professionals (as defined in the Article 205(2) of the SMA), and in this case the threshold of 20 professional clients or the income threshold of two million euros must not be exceeded. If a third-country firms had obtained authorisation to operate in Spain without a branch and subsequently exceeds these thresholds with regards to per se professionals, it must bring this to the attention of the supervisor and a branch should be established.

The Statement also includes a third assumption under which the CNMV, exceptionally, may authorise the use of this regime based on particular circumstances that justify it. Where appropriate, the CNMV will be transparent regarding the decision adopted and the justification that supports it.

It is expected that these criteria will be welcomed by UK firms and that the CNMV will be receptive to the granting of authorisations in applicable cases.