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RD 309/2020 was drawn up to implement the legislation on specialized credit institutions (EFCs), adapting it to the needs of that business model, as well as laying down additional rules for hybrid institutions providing payment or electronic money services.

Law 5/2015, to encourage enterprise finance, simply defined EFCs as institutions authorized to provide certain financial services, and primarily, to provide loans, staying within the scope of supervision and regulation under Law 10/2014. This law also first introduced into Spanish law the concept of hybrid institutions such as those EFCs which, in addition to engaging in one or more of the activities authorized by Law 5/2015, carried on a payment or electronic money service. In other words, Law 5/2015 set out a new legal regime specifically for EFCs, remaining to be implemented by subsequent legislation, which has now taken place with the approval of the recent Royal Decree 309/2020, of February 11, 2020, on the legal regime for specialized credit institutions.

This royal decree includes the following key new items of legislation relating to EFCs: (i) implementation of the authorization and registration procedure, for both EFCs and hybrid institutions, (ii) on their cross-border activity regime, (iii) on the principles of corporate governance and compensation policy, and (iv) the establishment of certain obligations relating to solvency. We will now look at these in further detail.

1. Authorization regime

The  authorization procedure originally defined in article 9 of Law 5/2015, specifying the requirements for obtaining and keeping that authorization, provided by the minister for economic affairs and digital transformation, following a report by the Bank of Spain and SEPBLAC (the Spanish Enforcement Service of the Anti-Money Laundering and Monetary Infringements Commission), is implemented by imposing new requirements in RD 309/2020.

The main requirements for obtaining and keeping the authorization to operate as an EFC notably include: (i) the need to have the legal form of a Spanish corporation (sociedad anónima) under the simultaneous formation procedure and to be in existence for an indefinite term, (ii) to have a minimum fully-paid capital stock of €5 million, (iii) for the shareholders or at least the twenty largest shareholders to be regarded as suitable, (iv) to have a board of directors with at least three members, and (v) to be compliant with the prohibition on reserving advantages or special items of compensation for the founders.

They moreover will have to satisfy certain suitability requirements in relation to the members of their boards of directors, and their managers and individuals in charge of internal control functions or occupying key positions, together with the requirements for applying for the authorization, notably the need to have placed at the General Depository Agency a deposit in cash or in government debt securities equal to 20 percent of their minimum capital stock, in other words, the placing of a one million euro deposit as a prior requirement for commencement of the authorization procedure.

Hybrid institutions

Moreover, as a result of the forfeiture of credit institution status for EFCs, following their specific legislation in Law 5/2015, those institutions that acquired the obligation to carry on the specific activities of payment services or electronic money services (activities reserved for credit institutions) lacked specific regulations.

RD 309/2020 now specifies, however, a new authorization regime for hybrid institutions, and includes as a new feature a single authorization for the creation of a hybrid EFC, for either payment or electronic money services, together with the procedure to be carried out by any payment or electronic money institutions that have already been authorized and apply to conduct any of the activities specific to EFCs and vice versa.

2. Cross-border activity

RD 309/2020 sets out the rules for cases where it is sought to create an EFC under the control of foreign persons. A distinction is made, within the control process, between whether control of the EFC is carried out from another EU member state or from a third state. In the first case, a request must first be made to the supervisory authorities of the institutions controlling the EFC. If control is from a country that is not an EU member state, the provision of a guarantee is required, covering all the activities to be carried out by the EFC.

Furthermore, RD 309/2020 contains specific provisions on the opening of branches and the freedom to provide services without a permanent establishment by an EFC, together with activities conducted through other EFCs in other states, in which case prior authorization must be requested from the Bank of Spain, in addition to the relevant authorizations under the applicable legislation in that other state.

3. Corporate governance principles and compensation policy

Another new piece of legislation in RD 309/2020 refers to the application of a proportionality parameter to corporate government principles, namely to the obligation to create a nominations and/or remuneration committee, from which it exempts EFCs with assets below one thousand million euros. Additionally, EFCs not exceeding that figure are exempt from the obligation to have a minimum number of independent directors, as envisaged in Law 10/2014, of June 26, 2014, on regulation, supervision and solvency of credit institutions for credit institutions.

4. Obligations relating to solvency

RD 309/2020 generally mirrors the legislation in Law 10/2014 for credit institutions regarding the solvency and conduct requirements laid down for EFCs, with the inclusion of certain specifications.

One the one hand, it lays down a requirement to have a liquidity cushion made up of high credit quality assets to fund their outgoing cash flows in periods of serious financial instability, similar to the liquidity ratios laid down for credit institutions.

On the other, it requires them to have in place an adequate funding sources and maturity structure for assets, liabilities and commitments, based in turn on the net stable funding ratio for credit institutions, for the purpose of avoiding possible liquidity mismatches or stress able to harm or threaten the financial stability of EFCs.

Additionally, various alternative solvency requirements are allowed depending on whether the EFCs are set up in turn as hybrid institutions, and within these, whether they are hybrid institutions providing payment services or electronic money services.

Lastly, it implements the reporting obligations in relation to solvency which also take their cue from the obligations imposed on credit institutions, although EFCs do not have to send information as often.