SECTION 1: Market outlook
1.1 Please clarify which products or markets your
jurisdiction hosts that are affected by Mifid II.
As preliminary comment and at the time of writing (early
September 2017), Mifid II was still in process of
implementation in Spain. Only drafts of the law and its
regulations were published on August 4 2017, subject to public
hearing until September 18, along with a Q&A on certain
topics posed by the Spanish Fund Association (Inverco). It is
therefore expected that the approval of the Mifid II package
will not take place before the year end at the earliest,
implying a breach of the obligation to implement the Directive
by July 3 2017. Consequently, any analysis of the implications
of Mifid II in the Spanish market are subject to any further
amendments to the mentioned drafts.
In general, Mifid II will have an impact in the investment
services market and therefore on investment firms and,
particularly, banks (due to the strong banking market in
Spain). However, the fund management sector (mainly in relation
to open-ended funds) will be also affected by Mifid II, as the
restrictions to the payment of inducements will seemingly alter
the current business model of management companies and
distributors (based on fee rebates); considering that the scope
of Mifid is somehow extended to fund managers.
New requirements for third-country firms will also affect
the business strategies of non-EU firms which were willing to
operate in Spain without permanent establishment. Under Mifid
II, the establishment of branches will be required in order to
provide services to retail investors (or elective professional
Other firms affected will be those dealing on own account in
commodity derivatives, emission allowances or derivatives
thereof, which will have to analyse whether they will be
covered by any of the exemptions provided.
SECTION 2 (a) – EU member states:
2.1 Outline the possible key differences in (a)
gold-plating; and (b) exercise of national discretion, where
provided for in Mifid II in your jurisdiction.
Considering the drafts of the law and regulations for the
implementation of Mifid II, it does not seem that the Directive
has been gold-plated by the Spanish Government; but this is
subject to further changes the Government may make to the final
The exercise of national discretion in the mentioned drafts
would not have significant impact either, apart from the
requirement that third-country firms intending to provide
services to retail or elective professional clients must
establish a branch.
2.2 What is the biggest concern in respect of these
variations and possible types of divergences?
Considering the drafts of the law and regulations, the most
relevant concern is the lack of variation with respect to the
Directive in relation to the scenarios in which the payment of
inducements is allowed.
The drafts only provide the scenarios as set out in the
Directive, despite the proposal by certain sectors of the
Spanish financial industry to include an additional scenario
(the so-called fourth scenario). This additional scenario can
be described as "advised selling", and refers to cases in which
no investment advice is carried out but there is a guided
selling (with a sort of added value) of investment products
(mainly funds). The inclusion of this scenario would allow
Spanish firms to keep receiving rebates as remuneration for
fund distribution, as they currently do.
Although the draft law has followed a restrictive approach
by not providing this additional scenario, it might be inserted
during the approval procedure. Until this issue is finally
clarified, most of Spanish firms are following a wait-and-see
approach until more light is shed on how the final landscape
will look like. In any case, the provision of independent
advice will not be seemingly the major trend in the Spanish
market, as clients are not used to paying fees for advice and
the paying-back of rebates to clients has adverse tax
2.3 What are the most important extraterritorial issues
regarding Mifid II in your jurisdiction?
Apart from the direct impact of extraterritorial issues (for
example, trading obligations for certain OTC derivatives),
other aspects will have a significant indirect impact. For
instance, product governance requirements will foreseeably lead
Spanish distributors to require some information from non-EU
manufacturers about the products they distribute. Unbundling
obligations on research may also have an indirect impact with
respect to non-EU firms providing both execution and research
services to Spanish firms.
SECTION 2 (b) – Non-EU countries
2.1 How prepared is your market for Mifid II?
Changes on how non-EU firms may operate imply a challenge
for those firms that were assessing the possibility of
launching activities in Spain. In particular, certain firms
were recently analysing the possibility of providing services
without permanent establishment. However, new requirements to
establish a branch when providing investment services to retail
or elective professional clients will lead these third-country
firms to postpone launching projects in Spain and to assess the
feasibility of establishing a branch.
2.2 In which areas are market participants most in need of
guidance/certainty over the rules?
In line with the preceding question, firms which were
assessing the possibility of operating in Spain need guidance
on which conditions they will have to meet in order to operate
in Spain under the Mifid II landscape, particularly if they
intend to provide services to retail or elective professional
SECTION 3: Research
3.1 Please summarise the challenges Mifid II will pose in
your jurisdiction with regards to research.
Regarding research, Mifid II will not pose particular
challenges other than those existing in other EU markets.
Spanish firms are aware that the new Mifid II landscape will
require participants to pay separate fees for research
analysis, instead of one single fee covering both order
execution and research.
Particular reference should be made to the application of
the unbundling obligation to fund management. Unlike other
countries (such as the UK), it seems that Spain will not extend
this requirement to fund management. However, Spanish
management companies will keep complying with the current
regulation under which unbundling is not required if, among
other conditions, the fund prospectus details the possibility
of paying fees covering both execution and research, and if
research reflects original analysis (not merely of public
domain) and improves the decision-making process on
investments. This is slightly amended in the draft law, which
will acknowledge that the cost of research may not be linked to
the volume of executed transactions.
3.2 Is pricing research compatible with market practices
and existing legal frameworks?
Market practice in Spain is not to pay separate fees for
research. Therefore, Mifid II will have a relevant impact in
this regard, ultimately meaning a change of mind in firms on
how they really assess research and the price they would pay
3.3 Is there clarity on how to resolve challenges in
unbundling research and complying with Mifid II in this
As with other EU countries, there is no clarity on this. The
Spanish sector has not taken a definite decision on how to
handle the new unbundling requirement.
Therefore, it is not currently clear whether the common
practice in the Spanish market will be to ultimately pass on
the cost to the clients, or to directly assume such costs (if
this is finally the case, it is expected that the payment of
research will be only limited in practice to the research that
really adds value).
SECTION 4: Trading/market structure
4.1 Which areas of trading / type of instruments will be
most impacted by Mifid II in your jurisdiction and how might
they be impacted?
From a general perspective, the derivatives market will be
the most impacted by Mifid II. In particular, the obligation to
trade in regulated markets, multilateral trading facilities
(MTFs) or organised trading facilities (OTFs) will presumably
lead to a reduction in OTC derivatives trading. Only those
outside the clearing obligation under the European Market
Infrastructure Regulation on derivatives, central
counterparties and trade repositories (Emir) will be exempt
from the trading obligation, which would seemingly increase the
customisation of derivatives to the extent possible to fall
outside the scope of the obligation.
4.2 What will be the key challenges with regards to
transaction reporting and pre-trade transparency?
At this moment, no major concerns are referred to
transaction reporting other than the burdensome nature of this
obligation and the interconnectivity issues which may appear
from an operational perspective. Spanish firms will have to
handle with this obligation by implementing the most efficient
internal procedures and systems as possible. The Spanish
regulator (the CNMV) already published a Guide on June 27
helping firms on the operational issues.
Regarding pre-trade transparency, this will have a positive
impact for markets in general, despite the relevant increase in
the volume of information that all the participants in the
market will have to handle. An aspect which will have to be
closely analysed is the impact (with regards to trading, best
execution, etc.) that the disclosure of such a volume of
information may have on those Spanish markets that are less
4.3 What are the main considerations that trading venues
and exchanges will have to make?
There are no particular considerations for the Spanish
trading venues and exchanges, apart from completing all the
operational implementation required by Mifid II and Mifir.
The requirement of having a legal entity identifier (LEI)
does not seem to be a relevant concern. Many firms are already
communicating with their clients about this obligation. LEIs
may be easily obtained by way of telematic means through the
Spanish Commercial Registry in a matter of days.
SECTION 5: Investor protection
5.1 Explain the impact of heightened investor protection
obligations in your jurisdiction.
In Spain, investor protection is a sensitive matter,
particularly since the numerous cases of mis-selling of complex
products to retail investors (preferred shares, interest rate
swaps, floor clauses in mortgage loans, etc.). The current
regulation already provides significant investor protection,
which has been reinforced by the pro-consumer approach followed
by case-law in recent years.
Indeed, some of the new requirements in Mifid II already
exist in Spanish regulation. For example, the new obligation to
provide retail clients with a report describing how the
recommendation is suitable for them has been applicable in
Spain since 2013 under the CNMV Circular 3/2013.
There are, however, new obligations, such as carrying out a
cost/benefit analysis when providing investment advice or
portfolio management involving switching investments, which
will certainly help to bolster current investor protection.
5.2 Which area of focus within investor protection is of
most concern/importance to your jurisdiction?
There are two main topics in relation to investor protection
First, appropriateness/suitability issues or, in other
words, the requirement that a particular investment product
must not be commercialised to (retail) investors who do not
understand its characteristics and risks. This has been
particularly relevant in recent years due to certain
malpractice in the distribution of complex instruments (such as
preferred shares, interest rate swaps, etc.) to retail
investors. As reflected in the resolutions of the Spanish
courts in those cases, the mere fact of distributing those
instruments to retail investors without (or with low)
experience and knowledge in financial markets is a breach of
the investor protection regulations; the volume of
pre-contractual information provided to the investors in most
of the cases is irrelevant. In this regard, new Mifid II
provisions on product governance may have an important
preventive effect to reduce those malpractice cases in the
Second, new provisions on inducements are another major
concern, considering that remuneration for fund distribution is
mainly channelled through rebates from management companies.
The CNMV has been particularly concerned on this topic and has
required that: distributors only offer fund share classes that,
being accessible to the relevant client, are the most
beneficial to them from an economic standpoint (i.e., cheapest,
or clean, classes); and when providing discretionary portfolio
management or investment advice services, firms must choose
those cheapest/clean available classes if they are suitable for
the client. Considering these regulatory criteria and the draft
law implementing Mifid II, it seems that the payment of rebates
might be limited in practice.
SECTION 6: Outlook 2017
6.1 What are the overall risks or opportunities that Mifid
II might bring to your market? Will Mifid II impact the
competitiveness of your market?
New restrictions and conditions on the payment of
inducements (particularly, rebates for the fund distribution)
imply a big challenge in the business plan of Spanish firms. If
rebates, as the traditional form of remuneration of fund
distribution, are prohibited, or subject to restrictive
conditions, then distributors might be somehow remunerated by
its clients. This would have a significant impact in the
Spanish market, where it is not common that clients pay for
advice services. As with other EU countries which prohibited
the payment of rebates in the past, these new restrictions may
result in low-net-worth clients being unable to access to
investment advice services.
This would lead them to look for cheaper alternatives, or at
least those less dependent on rebates, such as fintech firms
providing robo-advisory or automated portfolio management.
These new players may develop a relevant role in the future by
providing services to clients that may not have access to
traditional firms, i.e. with a higher cost structure.
6.2 What are the next steps – what should market
participants be doing now to best prepare themselves?
The adoption to Mifid II may not be carried out overnight.
However, there are some sensitive topics (for example the
payment of rebates) in which it is not possible to take
definitive decisions due the lack of clarity on what the final
landscape will look like.
Due to the delay in approving the implementing regulation,
Spanish firms may only adapt its internal procedures and
systems to those aspects which are clear and not subject to
national discretion, and to pay attention to further changes to
the drafts of the law and regulations until their final
approval in order to anticipate the final challenges of Mifid
T: +34 91 524 71 00
F: +34 524 71 24
Jorge Canta (partner) is specialist in financial
regulation with a broad experience as legal counsel to
financial entities. He is also a specialist in
investment vehicles and financial products, in
particular in the alternative assets field (hedge
funds, real estate and private equity). Canta actively
participates in creating management companies for open
and closed-end collective investment institutions and
investment services institutions; and advises them
He is bachelor of laws (Universidad de Deusto, 1996)
and holds a master's in tax (Instituto de Empresa,
Madrid 1998). Canta is recommended by several
directories including Chambers Global, Chambers Europe,
Legal 500, Best Lawyers, Who´s Who Legal and
Expert Guides in banking and finance, financial
institutions and investment funds.
Miguel Sánchez Monjo
Senior associate, Cuatrecasas
T: +34 91 524 71 00
F: +34 524 71 24
Miguel Sánchez (senior associate) specialises
in financial regulation with broad experience as legal
counsel to national and international financial
institutions, including banks, credit institutions,
investment firms, fintech companies, fund management
companies, private equity firms and payment
His expertise includes fund formation of national
and international open and closed-ended investment
vehicles: Undertakings for collective investment in
transferable securities (Ucits), hedge funds, private
equity, venture capital, real estate, and master-feeder
structures. He also advises on corporate transactions
of a sectorial nature in which financial regulation
plays an important role.
He is bachelor of laws and business administration
(Universidad Carlos III de Madrid, 2007).