New rules on securitisation funds and securitisation funds management companies

Spanish Act 5/2015 of 27 April 2015 on Promotion of Business Financing (Ley de Fomento de la Financiación Empresarial) ("Act 5/2015") came into force (with the exception of certain provisions) on 29 April 2015.

Articles 15 to 42 of Act 5/2015 set forth a new legal framework for Spanish securitisation funds (FTs) (regardless of whether they are mortgage backed or asset backed) and also for FTs management companies (SGFTs).

One of the aims of the new provisions is to consolidate the legal framework governing securitisation into a single law, as securitisation was previously regulated under a number of different laws and regulations.

Act 5/2015 also harmonises the regulation of securitisation with that established in other EU countries and reduces the dependency on rating agencies.

Additionally, it enhances the protection of the asset/security holder and transparency, in line with international best practices. Act 5/2015 also includes a specific list of infringements of the SGFTs, ceding entities, managers of the assets transferred to the securitisation funds and other individuals and entities involved in the securitisation process.

The main aspects of the rules contained in Act 5/2015 on FTs and SGFTs may be summarised as follows:

• Regarding FTs
  • The distinction between asset backed funds ("fondos de titulización de activos") ("FTAs") and mortgaged backed funds ("fondos de titulización hipotecaria") ("FTHs") dissapears, as Act 5/2015 unifies both types of funds under the category of "fondos de titulización" (FTs)¹.
  • The requirement to hold "homogenous" assets in a single FT also disappears².
  • The mandatory requirement to rate the securities issued by the FTs is removed in line with the European Union mandate to limit the reliance on the opinion of credit rating agencies.
  • The bonds issued by FTs may be traded both in official secondary markets and multi-lateral trading platforms.
  • The mechanisms available for the acquisition of assets by the FT become more flexible, as Act 5/2015 no longer requires that the assets are acquired by the FT by means of a true sale. As a result, subscription of the assets in primary markets or any other method permitted by law will be permitted alternatives for the transfer of the assets from the originator to a FT.
  • The originator is not required to retain the custody and servicing of the securitised assets (in line with other jurisdictions)^{3,/sup>, but in the case of mortgage backed securitisation it (the issuer of the PHs -"participaciones hipotecarias"- or CTHs -"certificados de transmisión de hipoteca"-) will need to retain its role as administrator and custodian of the mortgage loans or credits as this is indirectly imposed by Article 26 RD 716/2009 when the assets to be transferred to the FT are PHs or CTHs. There is no obstacle, however, for the originator to subcontract part of such custody and servicing activities (as long as it does not subcontract certain undertakings and retains liability).}
  • Act 5/2015 also allows FTs to be structured in separate compartments each issuing a different type of bond. This was already permitted in practice by the regulator and it was also expressly permitted for banking asset funds ("fondos de activos bancarios")⁴, but there was not an express general rule for allowing this practice.
  • Act 5/2015 eliminates the requirement that at least 50% of the liabilities of the FTs should be fixed rate securities, enabling inter alia loan debt financing.
  • One of the main changes introduced by Act 5/2015 (welcome by the whole sector) is the possibility for FTs to guarantee third-party liabilities. This raises the possibility of introducing Structured Covered Bonds issued in other jurisdictions.
  • Act 5/2015 also regulates synthetic securitisation, allowing FTs to securitise loans and credit rights by means of entering into derivative instruments or other structures such as financial guarantees or other types of securities. The counterparty relating to these instruments is not required to be a credit institution or an insurance undertaking⁵.
  • Act 5/2015 now allows originators to grant guarantees to the FTs in line with other jurisdictions.
  • Article 37 of Act 5/2015 allows the incorporation deed of the FT to include a syndicate of creditors composed of the creditors of the FT (this provision does not only refer to the holders of the bonds issued by the FT, but also to any creditors of the FT).
  • In the case of closed ended FTs (fondos cerrados) in which their incorporation deeds do not foresee the addition of new assets or liabilities after the FT has been incorporated, new assets and liabilities (up to a maximum volume) can now be added within a four month period following the date of incorporation of the FT.
• Regarding SGFTs
  • Authorisation for the incorporation of SGFTs is now granted by the Spanish Stock Market Commission (Comisión Nacional del Mercado de Valores, CNMV)⁶.
  • SGFTs must implement internal control procedures regarding the risks linked to their activity. In line with previous rules governing management of banking asset funds (reserved to SGFTs), it is now necessary for all SGFTs (not only for those SGFTs managing banking asset funds) to have separate internal units in charge of compliance, risk control and internal audit as the SGFTs will be subject to the laws and regulations relating to money laundering and terrorism financing.
  • SGFTs may now carry out the "active management of the FTs", provided that certain requirements are met (for example, (i) the FT must be incorporated as an open ended fund (fondo abierto), (ii) the incorporation deed of the FT and its prospectus must regulate this possibility in detail, (iii) the SGFT must create an internal committee for the supervision of the management and (iv) the remuneration of the SGFT must not permit incentives to management which may be contrary to the aims set out in the investment and risk policy of the FT).
  • Equity (fondos propios) requirements of SGFTs have been increased in respect of those currently in force. New requirements set out a minimum share capital and total equity amounting to Euro 1,000,000. This minimum will be increased by an additional amount equal to 0.02 per cent of the total accounting value of the assets under management of the SGFT, provided that those assets under management exceed Eur 250 million. This notwithstanding the total sum required (equity plus this additional amount), will not have to exceed Euro 5,000,000, irrespective of the assets under the management of the SGFP (article 29.1.d) Act 5/2015). The SGFTs have until 29 October 2016 (18 months after the entry into force of Act 5/2015) to comply with the new equity requirements.
  • The minimum number of members on the Board of Directors is reduced from five to three. As contained in the previous rules, all of them must have acknowledged professional worthiness and the majority of them must have knowledge and experience appropriate for their roles by reference to the requirements set out in Act 35/2003 on undertakings for collective investments.
  • Act 5/2015 introduces new transparency requirements relating to the FTs. On its website the SGFT must publish its deed(s) of incorporation, prospectus, any amendments to such documents and annual and quarterly reports relating to all of the FTs managed by them. There is also an obligation for the SGFT to publish a disclosure (hecho relevante) of any facts which may appreciably influence the bonds issued by the FT or the assets under its management.
  • Finally, Act 5/2015 introduces specific disciplinary rules in respect of SGFTs, its directors and managers, originators and servicers involved in the securitisation process (prior to the introduction of these new rules, the applicable disciplinary rules were those set out in the Act on undertakings for collective investment and some additional provisions contained in Act 19/1992 on the regime of real estate investment companies and funds and mortgage securitisation funds).

_Notes

_{^1. FTAs and FTHs incorporated before Act 5/2015 will continue to be governed by previous provisions until they are liquidated, except for (i) the rules on transparency contained in articles 34 and 36 and (ii) the obligation to submit annual and quarterly reports in the manner set out in article 35 of Act 5/2015}

_{^2. Royal Decree 926/1998 (abolished by Act 5/2015) required securitised receivables grouped in a FTA to be of "homogeneous nature", thus introducing uncertainty about what "homogeneous nature" actually meant.}

_{^3. Article 2.2 b) of Royal Decree 926/1998 (abolished by Act 5/2015) set out that the originator or ceding entity would retain the administration and management of the credits transferred to a FTA, unless the parties had agreed otherwise.}

_{^4. Banking asset funds ("fondos de activos bancarios") are separate asset pools including assets or assets and liabilities transferred by SAREB, with no legal personality and whose management and representation will necessarily be entrusted, on a reserved basis, to SGFTs pursuant to the Tenth Additional Provision of Law 9/2012 and articles 29 to 47 Royal Decree 1559/2012.}

_{^5. Synthetic securitisation was already regulated by Act 62/2003 of 30 December 2003}

_{^6. Until now authorisation was granted by the Ministry of Economy and Competitiveness (article 13.1 Royal Decree 926/1998).}