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Spain's new Law 44/2002 on Reform Measures of the Financial System - in which many surprises can be found - has finally been issued. It was published on November 23 in the Spanish Official Gazette (BOE no 281). Except for matters specified in Final Disposition number 3 (Disposición Final 3ª), the bulk of the Law is enforceable from the day after publication.

As part of the same process of reforming the financial system, Final Disposition number 4 (Disposición Final 4ª) authorizes the government to issue in one year new rewritten texts in the form of royal decrees (textos refundidos) of relevant existing laws, among them Law 24/1988, of July 28, on Financial Markets.

Referring to this specific law 24/1988, the new legislation proposes changes in the domain of corporate governance. These changes are to be implemented against a backdrop of Spain's long-awaited Corporation Code (Código de Sociedades) which has been under discussion for more than eight years and the work of the Aldama Commission on Corporate Governance.

Meanwhile, the new law has initiated reforms to protect investors (mainly small investors).

First, the new law creates three new protective institutions:

  • the commissioner for the defence of the client of financial services;
  • the commissioner for the defence of the investor; and
  • the commissioner for the defence of the insured and of the participant in pension funds.

Their mission is to protect users of financial services when those services fall within the respective orbit of competence of the CNMV (the stock market regulator), the Bank of Spain and the General Directorate of Insurance and Pension Funds.

Other changes include the following:

Related transactions between companies and their related parties (article 37 of the new law, which adds a new paragraph to article 35 of Law24/1988): transactions must be reflected in the half-year financial information that any company issuing negotiable securities in secondary markets must produce for the CNMV.

Privileged information: the new law includes improved drafting, with a more systematic legal approach (article 38, which modifies in its paragraphs 1, 2 and 3, articles 79, 80 and 81 of Law 24/1988).

Relevant information: covered in paragraph 4 of article 38 of the new law, which changes article 82 of Law 24/1988 and provides for a specific definition of the concept. It says the concept applies to any information that might reasonably affect an investor buying or trading securities or other financial instruments, and hence information that might have an appreciable influence on prices in the secondary market. The new drafting requires that any relevant information be previously notified to CNMV, as soon as the relevant fact is known, or when the relevant decision is taken, or when the agreement or the contract is signed. Such communication must be true, clear, complete, and when applicable, duly quantified.

Chinese walls: these are treated in a much more detailed way than in previous legislation. The work of individuals involved in the issuance of securities during the study and negotiation phases of such issuance is regulated for the first time (paragraphs 5 and 6 of article 35, which add new drafting to article 83 and add a new article 83 bis to Law 24/1989).

Manipulation of the price of securities: this is also addressed by the new law, which in article 39 sets up a new article 83ter for Law 24/1988, defining in three different paragraphs conduct considered to be manipulative.

Audit committees: these must be set up by all companies with publicly-traded shares or securities, with broad powers established in article 47 of the new legislation, which provides for a new Additional Disposition number 18 to be included in Law 24/1988.

A stricter regime for auditors: this reflects some of the measures taken by the US SEC, for example article 51 says auditors must be independent professionals.

The new regulation is patchy and hasty, but it is also a well intended treatment of problems that have stricken western financial markets.

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